UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended: September 30, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-23804
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Simpson Manufacturing Co., Inc.
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(Exact name of registrant as specified in its charter)
California 94-3196943
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4637 Chabot Drive, Suite 200, Pleasanton, CA 94588
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(Address of principal executive offices)
(Registrant's telephone number, including area code): (510)460-9912
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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The number of shares of the Registrant's Common Stock outstanding as
of September 30, 1997: 11,501,006
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
[CAPTION]
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
-----------------------------
(Unaudited)
1997 1996 1996
------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 15,336,889 $ 22,112,721 $ 19,815,297
Short-term investments - - 3,896,428
Trade accounts receivable, net 36,272,399 28,051,008 20,930,490
Inventories 54,342,293 35,957,784 42,247,777
Deferred income taxes 3,462,455 2,934,672 2,919,455
Other current assets 1,055,616 903,598 956,565
------------ ------------ ------------
Total current assets 110,469,652 89,959,783 90,766,012
Net property, plant and equipment 37,358,613 26,623,211 28,687,635
Investments 537,509 1,331,957 1,382,578
Other noncurrent assets 3,270,224 1,730,205 1,684,548
------------ ------------ ------------
Total assets $151,635,998 $119,645,156 $122,520,773
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes Payable $ 29,943 $ - $ -
Trade accounts payable 12,650,774 10,214,563 10,063,828
Accrued liabilities 5,845,211 3,893,620 4,137,648
Income taxes payable 1,582,591 1,750,949 341,626
Accrued profit sharing trust
contributions 2,251,234 1,913,458 2,446,001
Accrued cash profit sharing and
commissions 4,770,529 3,963,668 2,292,057
Accrued workers' compensation 809,272 809,272 809,272
------------ ------------ ------------
Total current liabilities 27,939,554 22,545,530 20,090,432
Deferred income taxes and
long-term liabilities 905,183 133,333 133,333
------------ ------------ ------------
Total liabilities 28,844,737 22,678,863 20,223,765
------------ ------------ ------------
Commitments and contingencies (Notes 5 and 6)
Shareholders' equity
Common stock 32,044,605 31,038,763 31,233,648
Retained earnings 90,829,387 65,965,391 70,862,906
Cumulative translation adjustment (82,731) (37,861) 200,454
------------ ------------ ------------
Total shareholders' equity 122,791,261 96,966,293 102,297,008
------------ ------------ ------------
Total liabilities and
shareholders' equity $151,635,998 $119,645,156 $122,520,773
============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net sales $ 68,824,611 $ 57,128,574 $186,306,707 $152,345,631
Cost of sales 40,363,583 34,440,638 112,200,433 94,305,621
------------ ------------ ------------ ------------
Gross profit 28,461,028 22,687,936 74,106,274 58,040,010
------------ ------------ ------------ ------------
Operating expenses:
Selling 5,892,494 4,929,448 17,467,520 14,902,126
General and administrative 8,665,462 7,033,766 22,969,505 18,387,692
Compensation related to stock plans 290,000 - 290,000 -
------------ ------------ ------------ ------------
14,847,956 11,963,214 40,727,025 33,289,818
------------ ------------ ------------ ------------
Income from operations 13,613,072 10,724,722 33,379,249 24,750,192
Interest income, net 106,144 175,048 248,233 325,931
------------ ------------ ------------ ------------
Income before income taxes 13,719,216 10,899,770 33,627,482 25,076,123
Provision for income taxes 5,531,001 4,507,000 13,661,001 10,253,000
------------ ------------ ------------ ------------
Net income $ 8,188,215 $ 6,392,770 $ 19,966,481 $ 14,823,123
============ ============ ============ ============
Net income per common share $ 0.68 $ 0.54 $ 1.67 $ 1.26
============ ============ ============ ============
Weighted average shares outstanding 12,012,522 11,796,062 11,946,675 11,727,496
============ ============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
----------------------------
1997 1996
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Cash flows from operating activities
Net income $ 19,966,481 $ 14,823,123
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of capital equipment (15,368) (18,054)
Depreciation and amortization 5,459,743 4,413,034
Deferred income taxes and long-term liabilities (790,798) (227,667)
Equity in income of affiliates (110,000) (33,000)
Noncash compensation related to stock plans 160,000 -
Changes in operating assets and liabilities, net of
effects of acquisitions:
Trade accounts receivable (14,187,289) (7,325,900)
Inventories (6,000,885) (1,494,307)
Other current assets (32,566) 331,014
Other noncurrent assets (46,878) (60,083)
Trade accounts payable 1,342,138 2,839,549
Accrued liabilities 664,000 542,193
Accrued profit sharing trust contributions (194,767) (86,281)
Accrued cash profit sharing and commissions 2,478,472 2,674,524
Income taxes payable 1,695,718 2,697,696
Accrued workers' compensation - (32,853)
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Total adjustments (9,578,480) 4,219,865
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Net cash provided by operating activities 10,388,001 19,042,988
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Cash flows from investing activities
Capital expenditures (9,679,324) (4,291,456)
Proceeds from sale of equipment 56,021 44,041
Proceeds from sale of short-term investments 3,995,333 -
Acquisitions, net of cash and equity interest
already owned (9,334,340) -
Equity investments - (11,637)
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Net cash used in investing activities (14,962,310) (4,259,052)
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Cash flows from financing activities
Repayment of debt (260,304) (20,037)
Issuance of Company's common stock 356,205 393,034
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Net cash provided by financing activities 95,901 372,997
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Net increase (decrease) in cash and cash equivalents (4,478,408) 15,156,933
Cash and cash equivalents at beginning of period 19,815,297 6,955,788
------------ ------------
Cash and cash equivalents at end of period $ 15,336,889 $ 22,112,721
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Interim Period Reporting
The accompanying unaudited interim condensed consolidated financial
statements have been prepared pursuant to the rules and regulations for
reporting on Form 10-Q. Accordingly, certain information and footnotes
required by generally accepted accounting principles have been condensed
or omitted. These interim statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in
Simpson Manufacturing Co., Inc.'s (the "Company's") 1996 Annual Report on
Form 10-K (the "1996 Annual Report").
The unaudited quarterly condensed consolidated financial statements have
been prepared on the same basis as the audited annual consolidated
financial statements, and in the opinion of management, contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance
with generally accepted accounting principles. The year-end condensed
consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. The Company's quarterly results may be
subject to fluctuations. As a result, the Company believes the results of
operations for the interim periods are not necessarily indicative of the
results to be expected for any future period.
Net Income Per Common Share
Net income per common share is computed based upon the weighted average
number of common shares outstanding. Common equivalent shares, using the
treasury stock method, are included in the per-share calculations for all
periods since the effect of their inclusion is dilutive.
The number of shares used in computing primary and fully diluted net
income per common share did not differ materially for the three and nine
months ended September 30, 1997 and 1996.
Newly Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" and No. 129, "Disclosure of Information about Capital
Structure." SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of
primary EPS with a presentation of basic EPS. SFAS No. 129 consolidates
the existing disclosure requirements regarding an entity's capital
structure. SFAS Nos. 128 and 129 are effective for financial statements
issued for periods ending after December 15, 1997, and accordingly,
management has not determined the effect, if any, on the Company's
financial statements for the three and nine months ended September 30,
1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", and SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 130 established standards for reporting
and display of comprehensive income and its components. SFAS No. 131
specifies revised guidelines for determining an entity's operating
segments and the type and level of financial information to be disclosed.
SFAS Nos. 130 and 131 are effective for financial statements issued for
periods beginning after December 15, 1997, and accordingly, management has
not determined the effect, if any, on the Company's financial statements
for the three and nine months ended September 30, 1997.
2. Trade Accounts Receivable
Trade accounts receivable consist of the following:
At September 30, At December 31,
1997 1996 1996
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Trade accounts receivable $ 38,189,407 $ 29,434,569 $ 22,242,827
Allowance for doubtful accounts (1,622,209) (1,127,853) (1,108,950)
Allowance for sales discounts (294,799) (255,708) (203,387)
------------ ------------ ------------
$ 36,272,399 $ 28,051,008 $ 20,930,490
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3. Inventories
The components of inventories consist of the following:
At September 30, At December 31,
1997 1996 1996
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Raw materials $ 17,980,381 $ 12,438,103 $ 15,107,660
In-process products 6,092,749 3,478,087 3,763,634
Finished products 30,269,163 20,041,594 23,376,483
------------ ------------ ------------
$ 54,342,293 $ 35,957,784 $ 42,247,777
============ ============ ============
Approximately 91% of the Company's inventories are valued using the LIFO
(last-in, first-out) method. Because inventory determination under the
LIFO method is only made at the end of each year based on the inventory
levels and costs at that time, interim LIFO determinations must
necessarily be based on management's estimates of expected year-end
inventory levels and costs. Since future estimates of inventory levels and
costs are subject to change, interim financial results reflect the
Company's most recent estimate of the effect of inflation and are subject
to final year-end LIFO inventory amounts. At September 30, 1997 and 1996,
and December 31, 1996, the replacement value of LIFO inventories exceeded
LIFO cost by approximately $386,000, $2,602,000 and $1,186,000,
respectively.
4. Net Property, Plant and Equipment
Net property, plant and equipment consists of the following:
At September 30, At December 31,
1997 1996 1996
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Land $ 2,785,668 $ 2,065,682 $ 2,065,682
Buildings and site improvements 13,027,998 10,379,901 10,379,901
Leasehold improvements 3,050,405 2,826,392 2,869,612
Machinery and equipment 54,486,765 42,897,745 46,311,624
------------ ------------ ------------
73,350,836 58,169,720 61,626,819
Less accumulated depreciation
and amortization (40,937,929) (34,260,537) (35,916,354)
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32,412,907 23,909,183 25,710,465
Capital projects in progress 4,945,706 2,714,028 2,977,170
------------ ------------ ------------
$ 37,358,613 $ 26,623,211 $ 28,687,635
============ ============ ============
5. Debt
The outstanding debt at September 30, 1997 and 1996, and the available
credit at September 30, 1997, consisted of the following:
Available Debt Outstanding
Credit at at September 30,
September 30. -----------------------------
1997 1997 1996
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Revolving line of credit,
interest at bank's reference
rate (at September 30, 1997,
the bank's reference rate was
8.50%), expires June 1998 $ 13,537,128 $ - $ -
Revolving line of credit,
interest at bank's prime rate
(at September 30, 1997, the
bank's prime rate was 8.50%),
expires June 1998 4,937,129 - -
Revolving term commitment,
interest at bank's prime rate
(at September 30, 1997, the
bank's prime rate was 8.50%),
expires June 1998 4,000,000 - -
Revolving line of credit,
interest rate at the bank's
base rate of interest plus 2%,
expires June 1998 403,400 - -
Standby letter of credit facilities 525,744 - -
Other notes payable - 29,943 -
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Total credit facilities $ 23,403,401 $ 29,943 $ -
============ ============
Standby letters of credit
issued and outstanding (525,744)
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Total credit available $ 22,877,657
============
The Company has two outstanding standby letters of credit. These letters
of credit, in the aggregate amount of $525,744, are used to support the
Company's self-insured workers' compensation insurance requirements. Other
notes payable represent debt associated with foreign businesses acquired
in March 1997.
6. Commitments and Contingencies
Note 10 to the consolidated financial statements in the Company's 1996
Annual Report provides information concerning commitments and
contingencies. From time to time, the Company is involved in various legal
proceedings and other matters arising in the normal course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain matters discussed below are forward-looking statements that
involve risks and uncertainties, certain of which are discussed in this
report and in other reports filed by the Company with the Securities and
Exchange Commission. Actual results might differ materially from results
suggested by any forward-looking statements in this report.
The following is a discussion and analysis of the consolidated financial
condition and results of operations for the Company for the three and nine
months ended September 30, 1997 and 1996. The following should be read in
conjunction with the interim Condensed Consolidated Financial Statements
and related Notes appearing elsewhere herein.
Results of Operations for the Three Months Ended September 30, 1997,
Compared with the Three Months Ended September 30, 1996
Sales increased 20.5% in the third quarter of 1997 as compared to the
third quarter of 1996. The increase reflected growth throughout the United
States, particularly in California and the Southeastern portion of the
country. Sales outside of the United States increased substantially,
resulting primarily from the acquisitions of Patrick Bellion, S.A.,
("Bellion") and the Isometric Group ("Isometric"), earlier in the year.
Simpson Strong-Tie's third quarter sales increased 22.2% over the same
quarter last year while Simpson Dura-Vent's sales increased 14.2%.
Homecenters and contractor distributors were the fastest growing connector
sales channels, while dealer distributor sales increased but at a slower
rate than overall sales during the quarter. The growth rate of Simpson
Strong-Tie's seismic and epoxy product sales remained strong and the
Company's line of mechanical anchor products also contributed
significantly to the increase in sales. Simpson Dura-Vent sales of chimney
products experienced above average growth while the rate of growth of the
Direct-Vent products slowed somewhat.
Income from operations increased 26.9% from $10,724,722 in the third
quarter of 1996 to $13,613,072 in the third quarter of 1997. This increase
was primarily due to higher gross margins that resulted from lower
overhead costs as a percentage of sales. The increase in gross margins was
offset somewhat by the lower margins at the recently acquired businesses.
Selling expenses increased 19.5% from $4,929,448 in the third quarter of
1996 to $5,892,494 in the third quarter of 1997, but remained relatively
flat as a percentage of sales. The increase was primarily due to higher
personnel costs related to the increase in the number of salespeople and
retail specialists. General and administrative expenses increased 23.2%
from $7,033,766 in the third quarter of 1996 to $8,665,462 in the third
quarter of 1997. This increase was primarily due to increased cash profit
sharing, as a result of higher operating profit, as well as higher
personnel costs, including those associated with the two acquisitions
earlier in the year. In addition, costs related to the Company's stock
bonus plan, which rewards employees for each ten years of continuous
service, were higher.
Results of Operations for the Nine Months Ended September 30, 1997,
Compared with the Nine Months Ended September 30, 1996
Sales increased 22.3% in the first nine months of 1997 as compared to the
first nine months of 1996. The increase reflected growth throughout the
United States. The largest percentage increase was in the Northeastern
region of the country; California showed the next largest percentage
increase and the largest dollar increase in sales. Sales outside of the
United States doubled, with a significant portion of this increase
resulting from the businesses acquired earlier in the year. Simpson
Strong-Tie's sales for the first nine months of 1997 increased 24.5% over
the same period last year while Simpson Dura-Vent's sales increased 14.4%.
As was the case in the third quarter, homecenters and contractor
distributors were the fastest growing connector sales channels. The growth
rate of Simpson Strong-Tie's seismic, epoxy and engineered wood product
sales remained strong, while Simpson Dura-Vent sales of Direct-Vent and
chimney products experienced above average growth.
Income from operations increased 34.9% from $24,750,192 in the first nine
months of 1996 to $33,379,249 in the first nine months of 1997. This
increase was primarily due to higher gross margins that resulted from
lower overhead costs as a percentage of sales, despite an increase in
depreciation charges which resulted principally from equipment purchased
during 1996. Selling expenses increased 17.2% from $14,902,126 in the
first nine months of 1996 to $17,467,520 in the first nine months of 1997,
but decreased slightly as a percentage of sales. The increase was
primarily due to higher personnel costs related to the increase in the
number of salespeople and retail specialists. General and administrative
expenses increased 24.9% from $18,387,692 in the first nine months of 1996
to $22,969,505 in the first nine months of 1997. This increase was
primarily due to increased cash profit sharing, as a result of higher
operating profit, as well as higher personnel costs, including those
associated with the two acquisitions earlier in the year.
Liquidity and Sources of Capital
As of September 30, 1997, working capital was $82.5 million as compared to
$67.4 million at September 30, 1996, and $70.7 million at December 31,
1996. The principal components of the increase in working capital from
December 31, 1996, were increases in the Company's trade accounts
receivable and inventory balances totaling approximately $27.4 million,
primarily as a result of higher sales levels. In addition, the increases
in these balances were also affected by the purchases of Bellion and
Isometric in March of 1997. The increase in working capital was offset
somewhat by decreases in cash and cash equivalents and short-term
investments which, in the aggregate, decreased a total of nearly $8.4
million, a large portion of which was used in the two acquisitions and to
purchase capital equipment. In the third quarter, however, cash and cash
equivalents increased approximately $10.6 million, principally due to the
collection of accounts receivable, the terms of which had been extended
under the Company's seasonal buying programs. Further offsetting the
increase in trade accounts receivable and inventory were increases in
trade accounts payable, accrued cash profit sharing and commissions,
accrued liabilities and income taxes payable of approximately $2.6
million, $2.5 million, $1.7 million and $1.2 million, respectively. The
balance of the change in working capital was due to the fluctuation of
various other asset and liability accounts. Without giving effect to the
two acquisitions, which are included in cash flows from investing
activities, the working capital change combined with higher net income and
noncash expenses, such as depreciation and amortization, totaling
approximately $25.4 million, resulted in net cash of approximately $10.4
million provided by operating activities. As of September 30, 1997, the
Company had unused credit facilities available of approximately $22.9
million.
The Company used nearly $15.0 million in its investing activities,
primarily to complete the two acquisitions and to purchase capital
equipment. The Company has made approximately $9.7 million in capital
equipment purchases in the first nine months of 1997 to expand its
capacity. The Company plans to continue this expansion throughout the
remainder of the year and in 1998. Partially offsetting these
expenditures, the Company sold its short-term investments, which matured
in March, for approximately $4.0 million.
The Company believes that cash generated by operations and borrowings
available under its existing credit agreements will be sufficient for the
Company's working capital needs and planned capital expenditures through
the remainder of 1997. Depending on the Company's future growth, it may
become necessary to secure additional sources of financing.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is involved in various legal proceedings
and other matters arising in the normal course of business.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
EXHIBIT
NO DESCRIPTION
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10.1 Agreement for Lease, dated June 5, 1997, between
Kingspark Developments Limited, Simpson Strong-Tie
International, Inc. and The Royal London Mutual
Insurance Society Limited.
11 Statements re computation of earnings per share
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
b. Reports on Form 8-K
Report on Form 8-K dated September 24, 1997, reporting under
Item 5 that the Company had submitted an application for listing
on the New York Stock Exchange.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Simpson Manufacturing Co., Inc.
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(Registrant)
DATE: November 10, 1997 By: /s/Stephen B. Lamson
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Stephen B. Lamson
Chief Financial Officer