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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the fiscal year ended December 31, 1998
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: (925)460-9912
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, without par value New York Stock Exchange, Inc.
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(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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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Indicate by check if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 1, 1999, there were outstanding 11,579,957 shares of the
registrant's common stock, without par value, which is the only class of
common or voting stock of the registrant. As of that date, the aggregate
market value of the shares of common stock held by nonaffiliates of the
registrant (based on the closing price for the common stock on the New York
Stock Exchange on March 1, 1999) was approximately $258,542,305.
Documents Incorporated by Reference
The information called for by Part III is incorporated by reference to
the definitive Proxy Statement for the Annual Meeting of Stockholders of
the Company to be held May 20, 1999, which will be filed with the
Securities and Exchange Commission not later than 120 days after December
31, 1998.
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Certain matters discussed below are forward-looking statements that involve
risks and uncertainties, certain of which are discussed in this 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.
PART I
ITEM 1. BUSINESS.
Background
Simpson Manufacturing Co., Inc. (the "Company"), through its subsidiary,
Simpson Strong-Tie Company Inc. ("Simpson Strong-Tie" or "SST"), designs,
engineers and is a leading manufacturer of wood-to-wood, wood-to-concrete
and wood-to-masonry connectors, and through its subsidiary, Simpson Dura-
Vent Company, Inc. ("Simpson Dura-Vent" or "SDV"), designs, engineers and
manufactures venting systems for gas and wood burning appliances. The
Company markets its products to the residential construction, light
industrial and commercial construction, remodeling and do-it-yourself
("DIY") markets. The Company believes that SST benefits from strong brand
name recognition among architects and engineers who frequently specify in
building plans the use of SST products, and that SDV benefits from strong
brand name recognition among contractors, dealers, distributors and
original equipment manufacturers ("OEMs") to which SDV markets its
products. The Company has continuously manufactured structural connectors
since 1956. See Note 14 to the Company's consolidated financial statements
for information regarding the net sales, income from operations,
depreciation and amortization, capital expenditures and acquisitions and
total assets of the Company's two primary segments.
Connectors produced by Simpson Strong-Tie typically are steel devices that
are used to strengthen, support and connect joints in residential and
commercial construction and DIY projects. These products enhance the safety
and durability of the structures in which they are installed and can save
time and labor costs for the contractor. SST's connector products increase
structural integrity and improve structural resistance to seismic, wind and
other forces. Applications range from building framing to deck construction
to DIY projects. SST produces and markets over five thousand standard and
custom products.
Simpson Dura-Vent's venting systems are used to vent gas furnaces and water
heaters, gas fireplaces and stoves, wood burning stoves and pellet stoves.
SDV's metal vents, chimneys and chimney liner systems exhaust the products
of combustion to the exterior of the building, and some products introduce
outside air into the appliance. SDV designs its products for ease of
assembly and safe operation and to achieve a high level of performance. SDV
produces and markets approximately two thousand different venting products
and systems.
The Company emphasizes continuous new product development and often obtains
patent protection for its new products. The Company's products are marketed
in all 50 states of the United States and in England, France, Germany,
Canada, Mexico, Chile, Japan and Australia. Both Simpson Strong-Tie and
Simpson Dura-Vent products are distributed through a contractor and dealer
distributor network, home centers and OEMs.
The Company has developed and uses automated manufacturing processes. Its
innovative manufacturing systems and techniques have allowed it to control
manufacturing costs, even while developing both new products and products
that meet customized requirements and specifications. The Company's
development of specialized manufacturing processes has also permitted
increased operating flexibility and enhanced product design innovation. The
Company has developed a quality management system that employs numerous
quality-control procedures. Since 1996, SST's quality management system has
been registered under ISO 9001. The Company has 11 manufacturing locations
in the United States, Canada, France and the United Kingdom.
The Company is a California corporation and was reorganized in 1994 as a
holding company for Simpson Strong-Tie and Simpson Dura-Vent.
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Industry and Market Trends
Based on trade periodicals, participation in trade and professional
associations and communications with governmental and quasi-governmental
organizations and customers and suppliers, the Company believes that a
variety of events and trends have resulted in significant developments in
the markets that the Company serves. Some of these events and trends are
discussed below.
Natural disasters throughout the world have focused attention on safety
concerns relating to the structural integrity of homes and other buildings.
The 1995 earthquake in Kobe, Japan, the 1994 earthquake in Northridge,
California, the 1989 Loma Prieta earthquake in Northern California,
Hurricanes Hugo in 1989 and Andrew in 1992 in the Southeast, and other less
cataclysmic natural disasters damaged and destroyed innumerable homes and
other buildings, resulting in heightened consciousness of the fragility of
some of those structures.
In recent years, architects, engineers, model code agencies, contractors,
building inspectors and legislators have continued efforts to improve
structural integrity and safety of homes and other buildings in the face of
disasters of various types, including seismic events, storms and fires.
Based on ongoing participation in trade and professional associations and
communications with governmental and quasi-governmental regulatory
agencies, the Company believes that building codes are being strengthened
and that their enforcement is becoming more rigorous. The Company's
products are designed to respond to increasing demand resulting from these
trends.
The requirements of the Endangered Species Act, the Federal Lands Policy
Management Act and the National Forest Management Act have resulted in
increasingly limited amounts of timber available for harvest from public
lands. This has contributed to an increase in lumber prices and a
concomitant increase in the use of engineered wood products. Engineered
wood products, which substitute for strong, clear-grained lumber
historically obtained from logging older, large-diameter trees, have been
developed to conserve lumber. Engineered wood products frequently require
specialized connectors. Sales of Simpson Strong-Tie's engineered wood
connector products increased significantly in 1997 and 1998.
Concerns about energy conservation and air quality have led to increasing
recognition of the advantages of natural gas as a heating fuel, including
its abundance and clean burning characteristics. Use of natural gas for
home heating has been increasing in the United States. According to the
Census Bureau, the share of new single-family houses in 1997 heated with
natural gas was 69%, a slight increase from 67% in 1995. Sales of gas
fireplaces have increased in recent years relative to those of traditional
wood burning fireplaces. Traditional wood burning fireplaces negatively
affect both indoor and outdoor air quality. In contrast, direct vent gas
fireplaces draw air for combustion from outdoors (through the double wall
venting system) and feature sealed glass doors that reduce indoor air
contamination. In the past, Simpson Dura-Vent products have not been sold
into the traditional masonry and manufactured fireplace market. The recent
trend from wood to gas fireplaces is viewed as a significant opportunity
for SDV's gas venting products.
The Company has developed its distribution through home centers throughout
the United States. The Company's sales to home centers increased
significantly in 1998 and 1997. See "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Business Strategy
The Company designs, manufactures and sells products that are of high
quality and performance, easy to use and cost-effective for customers. The
Company provides rapid delivery of its products and prompt engineering and
sales support. Based on its communications with customers, engineers,
architects, contractors and other industry participants, the Company
believes that its products have strong brand name recognition, and the
Company seeks to continue to develop the value of its brand names through a
variety of customer-driven strategies. Information provided by customers
has led to the development of many of the Company's products, and the
Company expects that customer needs will continue to shape the Company's
product development, marketing and services.
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Specification in architects' and engineers' plans and drawings influences
which products will be used for particular purposes and therefore is key to
the use of the Company's products in construction projects. The Company
encourages architects and engineers to specify the installation of the
Company's products in projects they design and supervise, and encourages
acceptance of the Company's products by construction contractors. The
Company maintains frequent contacts with architects, engineers and
contractors, as well as private organizations that provide information to
building code officials, both to inform them regarding the quality, proper
installation, capabilities and value of the Company's products and to
update them about product modifications and new products that may be useful
or needed. The Company sponsors seminars to inform architects, engineers
and building officials on appropriate use and proper installation of the
Company's products.
The Company seeks to expand its product and distribution coverage through
several channels:
Distributors. The Company regularly evaluates its distribution coverage and
service levels provided by its distributors and from time to time modifies
its distribution strategy and implements changes to address weaknesses and
opportunities. The Company has various programs to evaluate distributor
product mix and conducts promotions to encourage distributors to add
Company products that complement their mix of product offerings in their
markets.
Through its efforts to increase specifications by architects and engineers,
and through increasing the number of products sold to particular
contractors, the Company seeks to increase sales to distributors that serve
building contractors. The Company continuously seeks to expand the number
of contractors served by each distributor through such sales efforts as
demonstrations of product cost-effectiveness and information programs.
Home Centers. The Company intends to continue to increase penetration of
the DIY markets by solicitation of home centers. The Company's Sales
Representatives and Retail Specialists maintain on-going contact with home
centers to provide timely product availability and product knowledge
training. To satisfy specialized requirements of the home center market,
the Company has developed extensive bar coding and merchandising aids and
has concentrated a portion of its research efforts into the development of
DIY products.
OEM Relationships. The Company works closely with manufacturers of
engineered wood products and OEMs in developing and expanding the
application and sales of Simpson Strong-Tie's engineered wood connector
products and Simpson Dura-Vent's gas, wood and pellet stove venting
products. SST has relationships with several of the largest manufacturers
of engineered wood products, and SDV has OEM relationships with several
major gas fireplace and gas stove manufacturers.
The Company is expanding its established facilities outside California to
increase its presence and sales in markets east of the Rocky Mountains.
During the last five years, the Company has expanded or has planned to
expand nearly all of its manufacturing and warehouse facilities. Sales in
the 37 states east of the Rocky Mountains represented approximately 48% of
the Company's 1998 domestic sales. In the last five years, the Company
commenced manufacturing in England, opened warehouse and distribution
facilities in Western Canada and the Northeastern United States, purchased
anchoring products manufacturers in Illinois and Eastern Canada and a
connector product manufacturer in France, established a distribution
operation in Chile, made an equity investment in a product design and
distribution company in Germany and entered into distribution arrangements
in Japan and Australia. The European investments are intended to establish
a presence in the European Community through companies with existing
customer bases and through servicing U.S.-based customers operating there.
The Company intends to continue to pursue and expand operations outside the
United States.
The Company's goal is to manufacture and warehouse its products in
geographic proximity to its markets to provide availability and rapid
delivery of products to customers and prompt response to customer requests
for specially designed products and services. With respect to the DIY and
dealer markets, the Company's strategy is to keep the customer's retail
stores continuously stocked with adequate supplies of the full line of the
Company's products that those stores carry. The Company manages its
inventory to assure continuous product availability. Most customer orders
are filled within a few days. High levels of manufacturing automation and
flexibility allow the Company to maintain its quality standards while
continuing to provide prompt delivery.
The Company's product research and development is based largely on needs
that customers communicate to the Company. The Company typically has
developed 10 to 15 new products annually (some of which may be produced in
a range of sizes). The Company's strategy is to develop new products on a
proprietary basis where possible. Of more than 80 patents that the Company
owns, more than 70 cover products that the Company currently manufactures
and markets. The Company has filed 55 patent applications that are pending.
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The Company's long-term strategy is to develop, acquire or invest in
product lines or businesses that (a) complement the Company's existing
product lines, (b) can be marketed through its existing distribution
channels, (c) might benefit from use of the Simpson Strong-Tie and Simpson
Dura-Vent brand names, and (d) are responsive to needs of the Company's
customers.
Simpson Strong-Tie
Overview
Connectors produced by Simpson Strong-Tie typically are steel devices that
are used to strengthen, support and connect joints in residential and
commercial construction and DIY projects. These products enhance the safety
and durability of the structures in which they are installed and can save
time and labor costs for the contractor. SST's connector products increase
structural integrity and improve structural resistance to seismic, wind and
other forces. Applications range from building framing to deck construction
to DIY projects. SST produces and markets over five thousand standard and
custom products.
In the United States, connector usage developed faster in the West than
elsewhere due to the low cost and abundance of timber and to local
construction practices. Increasingly, the market has been influenced both
by a growing awareness that the devastation caused by seismic, wind and
other disasters can be reduced through improved building codes and
construction practices and by environmental concerns that contribute to the
increasing cost and reduced availability of wood. Most Simpson Strong-Tie
products are listed by recognized building standards agencies as complying
with model building codes and are specified by architects and engineers for
use in projects they are designing or supervising. The engineered wood
products industry is developing in response to concerns about the
availability of wood, and the Company believes that SST is the leading
supplier of connectors for use with engineered wood products.
Products
Simpson Strong-Tie is a recognized brand name in the markets it serves. SST
manufactures and markets three primary categories of connector products:
wood-to-wood, wood-to-concrete and wood-to-masonry. SST also markets
specialty screws and nails for proper installation of certain of its
connector products. For tying wood members to the foundation, SST has
designed and currently markets a line of anchor bolts and the associated
parts for aligning the anchor bolts, as well as threaded rod, epoxy and
mechanical anchors, which have seismic, retrofit and remodeling
applications for both new construction and DIY markets.
Almost all of Simpson Strong-Tie's products are listed by recognized model
building code agencies. To achieve such listings, SST conducts extensive
product testing, which is witnessed and certified by independent testing
engineers. The tests also provide the basis for publication of load ratings
for SST structural connectors, and this information is used by architects,
engineers, contractors and homeowners. The information is useful across the
range of applications of SST's products, from the deck constructed by a
homeowner to a multi-story structure designed by an architect or engineer
in an earthquake zone.
Simpson Strong-Tie also manufactures connector products specifically
designed for use with engineered wood products, such as wood I-joists. With
increased timber costs and reduced availability of trees suitable for
making traditional solid sawn lumber, construction with engineered wood
products has increased substantially in the last three years. Over the same
period, SST's net sales of engineered wood connectors through dealer and
contractor distributors and engineered wood product manufacturers have also
increased significantly.
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New Product Development
Simpson Strong-Tie commits substantial resources to engineering and new
product development. The majority of SST's products have been developed
through SST's internal research and development program. Of the 67 U.S. and
15 foreign patents that SST owns, more than 65 cover products that SST
currently manufactures and markets. Over a quarter of SST's 1998 revenues
were derived from products that are protected by patents. SST typically has
developed 10 to 15 new products each year. SST's research and development
expense for the three years ended December 31, 1998, 1997 and 1996, was
$1,087,000, $957,000 and $1,025,000, respectively. As part of the new
product development process, SST engineers, in cooperation with sales and
marketing staff, meet regularly with architects, engineers, building
inspectors, code officials and customers. Several new products derived from
existing product lines are developed annually. SST recently developed and
introduced a pre-fabricated shear-wall product for the new construction
market and has expanded its line of chemical and mechanical anchoring
products. The Company believes that existing distribution channels are
receptive to product line extensions, thereby enhancing SST's ability to
enter new markets.
Sales and Marketing
Simpson Strong-Tie's sales and marketing programs are implemented through
SST's branch system. SST currently maintains branches in Northern and
Southern California, Texas, Ohio, England and France. Each branch is served
by its own sales force as well as manufacturing, warehouse and office
facilities. Each branch is responsible for a broad geographic area. Branch
managers have significant autonomy, which includes setting sales and
marketing strategies. Each domestic branch is an independent profit center
with a cash profit sharing bonus program based on its own performance. At
the same time, the domestic branches closely integrate their manufacturing
activities to enhance product availability. Branch sales forces in the U.S.
are supported by marketing managers in the home office in Pleasanton,
California. The sales force maintains close working relationships with
customers, develops new business, calls on architects, engineers and
building officials and participates in a range of educational seminars.
Simpson Strong-Tie sells its products through an extensive distribution
system comprising dealer distributors supplying thousands of retail
locations nationwide, contractor distributors, home centers, manufacturers
of engineered wood products, and specialized contractors such as roof
framers. SST's DIY and dealer products are used to build projects such as
decks, patio covers and shelf and bench systems. SST received C-Mark
equivalency clearance from the Japanese building code authorities, which is
expected to facilitate acceptance of its products into the Japanese market,
and has increased the distribution of its products in Australia and Chile.
The Company believes that SST's increasing diversification into new and
growing markets has reduced its vulnerability to construction industry
cycles.
Simpson Strong-Tie dedicates substantial resources to customer service.
Every year, SST produces numerous publications and point-of-sale marketing
aids to serve specifiers, distributors, retailers and users. These
publications include SST's general catalog, as well as various specific
catalogs, such as those for its epoxy products and the engineered wood and
plated truss industries. The catalogs and publications describe the
products and provide load and installation information. SST publishes a
newsletter, Connector Update, providing technical, installation and other
information, as well as publications addressing seismic and hurricane
conditions and the DIY market. To serve users in the U.S. and elsewhere who
do not speak English, SST employs bilingual sales people and prints some of
its publications in other languages.
Simpson Strong-Tie's engineers not only design and test products, but also
provide engineering support for customers. This support might range from
the discussion of a load value in a catalog to testing a unique application
for an existing product. SST's sales force communicates with customers in
each of its marketing channels, through its publications, seminars and
frequent calls.
Based on its communications with customers, Simpson Strong-Tie believes
that its products are essential to its customers' businesses, and it is
SST's policy to ship products ordered within a few days of receiving the
order. Many of SST's customers are contractors that require rapid delivery
of needed products. Home centers and dealers also require superior service,
because of fluctuating demand. To satisfy these requirements, SST maintains
high inventory levels, has redundant manufacturing capability and some
multiple dies to produce the same parts, and maintains computer sales and
inventory control and forecasting capability throughout its nationwide
network of factories and warehouses. The Company also has special programs
for contractors intended to ensure the prompt and reliable manufacture and
delivery of custom products.
Simpson Strong-Tie believes that dealer and home center sales of SST
products are significantly greater when the bins and racks at large dealer
and home center locations are adequately stocked with appropriate products.
Various retailers carry varying numbers of different SST products and SST's
Retail Specialists are engaged in ongoing efforts to inform retailers about
other SST products that can be used in their specific markets and to
encourage them to add these products to better meet their customers' needs.
Achieving these objectives requires teamwork and significant inventory
commitments between SST and the distributors and retailers. Retail
Specialists are playing a significant role in keeping the racks full and
extending the product lines at the large dealer and home center level. They
help retailers order product, set up merchandising systems, stock shelves,
hold product seminars and provide SST with daily information that is used
to improve service and product mix.
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Simpson Dura-Vent
Overview
Simpson Dura-Vent's venting systems are used to vent gas furnaces and water
heaters, gas fireplaces and stoves, wood burning stoves and pellet stoves.
SDV's metal vents, chimneys and chimney liner systems exhaust the products
of combustion to the exterior of the building and have been designed for
ease of assembly and safe operation and to achieve a high level of
performance. SDV produces and markets several hundred different venting
products and systems.
In recent years, the abundant supply and clean burning characteristics of
natural gas have gained public recognition, resulting in increased market
share for gas appliances in the new construction and the appliance
replacement markets. In addition, concern over energy conservation and
environmental air quality has resulted in increased use of gas stoves and
fireplaces rather than the traditional wood burning stoves and fireplaces.
As a result, new venting systems, such as Direct-Vent, have been developed
to address changes in appliance technology.
Simpson Dura-Vent's objective is to expand market share in all of its
distribution channels, by entering expanding markets that address energy
and environmental concerns. SDV's strategy is to capitalize on its
strengths in new product development and its established distribution
network and to continue its commitment to high quality and service. SDV
operates manufacturing and warehouse facilities in California and
Mississippi.
Products
Simpson Dura-Vent is a leading supplier of double-wall Type B Gas Vent
systems, used for venting gas furnaces, water heaters, boilers and
decorative gas fireplaces. SDV believes that there is significant potential
in the gas fireplace market, because of the large number of fireplaces sold
in the new construction market, the relative ease of installing side-wall
vented gas fireplaces for the remodeling market and the trend from wood to
gas as a result of environmental concerns and ease of operation.
Simpson Dura-Vent's Type B Gas Vent product line features heavy-duty
quality construction and a twist-lock design that provides for fast and
easy job-site assembly compared to conventional snap together designs. The
twist-lock design has broader applications and has been incorporated into
SDV's gas, pellet and direct vent product lines. Simpson Dura-Vent also
markets a patented flexible vent connector, Dura/Connect, for use between
the gas appliance flue outlet and the connection to the Type B Gas Vent
installed in the ceiling. Dura/Connect eliminates the difficult and time
consuming process of cutting, crimping and fitting galvanized steel vent
connectors. Marketed to home centers and hardware stores, Dura/Connect
offers a simple twist, bend and connect installation for water heaters and
gas furnaces.
The wood stove industry has responded to air quality concerns with
substantial reductions in wood stove particulate emissions. Simpson Dura-
Vent's Dura-Plus safety valve design, a patented chimney system for use
with wood burning stoves, provides enhanced fire safety in the event of a
creosote chimney fire.
The growing gas fireplace market has evolved into two basic types of
fireplace: top-vent fireplaces that are vented with the standard Type B Gas
Vent and direct-vent fireplaces that use a special double-wall venting
system. SDV's direct-vent system is designed not only to exhaust the flue
products, but also to draw in outside air for combustion, an important
feature in modern energy-efficient home construction. The direct-vent gas
fireplace systems provide ease of installation, permitting horizontal
through-the-wall venting or standard vertical through-the-roof venting.
Simpson Dura-Vent has entered into OEM and distribution relationships with
several large manufacturers of gas stoves to supply direct-vent venting
products. Sales of Direct-Vent have been robust. In 1996, SDV expanded its
direct-vent product line to include both co-axial and co-linear direct vent
systems for venting gas stoves and gas inserts into existing masonry
chimneys or existing factory-built metal chimneys. The recent trend from
wood to gas stoves, while increasing competition for wood and pellet
appliance venting products, is viewed as a significant opportunity for
SDV's gas venting products.
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New Product Development
Simpson Dura-Vent has gained industry recognition by offering innovative
new products that meet changing needs of customers. SDV representatives
serve on industry committees concerned with issues such as new appliance
standards and government regulations. SDV's research and development
expense for the three years ended December 31, 1998, 1997 and 1996, was
$431,000, $323,000 and $287,000, respectively. SDV also maintains working
relationships with research and development departments of major appliance
manufacturers, providing prototypes for field testing and conducting tests
in SDV's testing laboratory. SDV believes that such relationships provide
competitive advantages. For example, SDV introduced the first direct vent
system for the increasingly popular direct vent gas appliances. In 1998,
SDV introduced a new line of vent caps for gas vent and gas relining
products to improve the aesthetics of the visible portion of a venting
system. SDV plans to extend the use of these vent caps to other product
lines. In addition, SDV is currently developing a new double-wall insulated
chimney system for use on wood and oil burning appliances.
Sales and Marketing
Simpson Dura-Vent's sales organization consists of a director of sales and
marketing, a marketing communications manager, regional sales managers, and
independent representative agencies. SDV markets venting systems for both
gas and wood burning appliances through wholesale distributors in the
United States, Canada and Australia to the HVAC (heating, ventilating and
air conditioning) and PHC (plumbing, heating and cooling) contractor
markets, and to fireplace specialty shop distributors. These customers sell
to contractor and DIY markets. SDV also markets venting products to home
center and hardware store chains. SDV has entered into OEM relationships
with several major gas fireplace and gas stove manufacturers, which SDV
believes are leaders in the direct-vent gas appliance market.
Simpson Dura-Vent responds to technological changes occurring in the
industry through new product development and has developed a reputation for
quality and service to its customers. To reinforce the image of quality,
SDV produces extensive sales support literature and advertising materials.
Recognizing the difficulty that customers and users may have in
understanding new, complex venting requirements, SDV publishes a venting
handbook to assist contractors, building officials and retail outlets with
the science of proper venting. Advertising and promotional literature has
been designed to be used by distributors and their customers, as well as
home centers and hardware chains.
Manufacturing Process
The Company has concentrated on making its manufacturing processes as
efficient as possible without compromising quality or flexibility
necessary to serve the needs of its customers. The Company has developed
and uses automated manufacturing processes. The Company's innovative
manufacturing systems and techniques have allowed it to control
manufacturing costs, even while developing both new products and products
that meet customized requirements and specifications. The Company's
development of specialized manufacturing processes also has permitted
increased operating flexibility and enhanced product design innovation.
The Company is committed to helping people build safer structures
economically through the design, engineering and manufacturing of
structural connector and related products. To this end, the Company has
developed a quality management system that employs numerous quality-control
procedures, such as computer-generated work orders, constant review of
parts as they are produced and frequent quality testing. Since 1996,
Simpson Strong-Tie's quality management system has been registered under
ISO 9001, an internationally recognized set of quality-assurance standards.
The Company believes that ISO registration is a significant asset in doing
business with European companies and is becoming increasingly important to
U.S. companies.
<PAGE>
Simpson Strong-Tie operates manufacturing and warehouse facilities in
California, Texas, Ohio, Florida, Connecticut, Illinois, Washington,
British Columbia, Ontario, England, France and Chile. Most of SST's
products are produced with a high level of automation, using progressive
dies run in automatic presses making parts from coiled sheet steel often in
excess of 100 strokes per minute. SST produces over 500 million product
pieces per year. Over half of SST's products are individually bar coded,
particularly the products that are sold to home centers. SST has
significant press capacity and has some multiple dies for its high volume
products because of the need to produce the product close to the customer
and to provide backup capacity. The balance of production is accomplished
through a combination of manual, blanking and numerically controlled (NC)
processes which include robotic welders, lasers and turret punches. SST
believes it is the only manufacturer in the connector industry using NC
turret punches to manufacture a large variety of standard and special
products. This capability allows SST to produce products with little
redesign or set-up time, facilitating rapid turnaround for customers. New
tooling is also highly automated. Dies are designed and produced using
computer aided design (CAD) and computer aided machinery (CAM) systems.
CAD/CAM capability enables SST to create multiple dies rapidly and design
them to high standards. The Company is constantly reviewing its product
line to reduce manufacturing costs and increase automation.
Simpson Dura-Vent operates manufacturing and warehouse facilities in
California and Mississippi where it produces component parts for venting
systems using NC-controlled punch presses equipped with high-speed
progressive and compound tooling. SDV's vent pipe and elbow assembly lines
are automated, to produce finished products efficiently from large coils of
steel and aluminum. UPC bar coding and computer tracking systems provide
SDV's industrial engineers and production supervisors with real-time
productivity tools to measure and evaluate current production rates,
methods and equipment.
Most of the Company's current and planned manufacturing facilities is
located in a geographic region that has experienced major natural
disasters, such as earthquakes, floods and hurricanes. For example, the
1989 Loma Prieta earthquake in Northern California destroyed a freeway and
caused other major damage within a few miles of the Company's facilities in
San Leandro, California, and the earthquakes in Northridge, California, in
January 1994, destroyed several freeways and numerous buildings in the
region in which the Company's facilities in Brea are located. The Company
does not carry earthquake insurance. Other insurance that it carries is
limited and not likely to be adequate to cover all of the Company's
resulting costs, business interruption and lost profits in the event of a
major natural disaster in the future. If a natural disaster were to render
one or more of the Company's manufacturing facilities totally or partially
unusable, whether or not covered by insurance, the Company's business and
financial condition could be materially and adversely affected.
Regulation
The design, capacity and quality of most of the Company's products and
manufacturing processes are subject to numerous and extensive regulations
and standards promulgated by governmental, quasi-governmental and industry
organizations. Such regulations and standards are highly technical and
complex and are subject to frequent revision. The failure of the Company's
products or manufacturing processes to comply with any of such regulations
and standards could impair the Company's ability to manufacture and market
its products profitably and materially and adversely affect the Company's
business and financial condition.
Simpson Strong-Tie's product lines are subject to Federal, state, county,
municipal and other governmental and quasi-governmental regulations that
affect product design, development, testing, applications, marketing,
sales, installation and use. Most SST products are recognized by building
code and standards agencies. Agencies that recognize Company products
include the International Conference of Building Officials ("ICBO"),
Building Officials and Code Administrators International ("BOCA"), Southern
Building Code Congress International ("SBCCI"), The National Evaluation
Service, the City of Los Angeles, Dade County, Florida, and the California
Division of Architecture. These and other code agencies adopt various
testing and design standards and incorporate them into their related
building codes. For example, ICBO requirements are codified in the Uniform
Building Code. The Uniform Building Code generally applies to construction
in the Western United States. To be recognized by ICBO, SST products must
conform to Uniform Building Code requirements. SST considers this
recognition to be a significant marketing tool and devotes considerable
effort to obtaining appropriate approvals for its products. SST believes
that architects, engineers, contractors and other customers are less likely
to purchase structural products that lack the appropriate code approval or
acceptance, at least if code-accepted competitive products are available.
SST's management actively participates in industry related professional
associations to keep abreast of regulatory changes and to provide
information to regulatory agencies.
<PAGE>
Simpson Dura-Vent operates under a complex regulatory environment that
includes appliance and venting performance standards related to safety,
energy efficiency and air quality. Gas venting regulations are contained in
the National Fuel Gas Code ("NFGC"), while safety and performance
regulations for wood burning appliances and chimney systems are contained
in a National Fire Protection Association standard ("NFPA 211"). Standards
for testing gas vents and chimneys are developed by testing laboratories
such as Underwriter's Laboratories ("UL") in compliance with the American
National Standards Institute. Clean air standards for both gas and wood
burning appliances are regulated by the EPA. Energy efficiency standards
are regulated by the Department of Energy ("DOE") under the authority of
the National Appliance Energy Conservation Act. Under this act, the DOE
periodically reviews the necessity for increased efficiency standards with
respect to gas furnaces. A substantial percentage of Simpson Dura-Vent's
Type B Gas Vent sales are for gas furnace applications. Minimum appliance
efficiency standards might be adopted that could negatively affect sales of
Type B Gas Vents, which could materially and adversely affect the Company's
operating results and financial condition. The standards and regulations
contained in the NFGC and NFPA 211 are ultimately adopted by national
building code organizations such as ICBO, BOCA and SBCCI. In turn, the
various building codes are adopted by local municipalities, resulting in
enforcement through the building permit process. Safety, air quality and
energy efficiency requirements are enforced by local air quality districts
and municipalities by requiring proper UL, EPA and DOE labels on appliances
and venting systems.
Competition
The Company faces a variety of competition in all of the markets in which
it participates. This competition ranges from subsidiaries of large
national or international corporations to small regional manufacturers.
While price is an important factor, the Company competes primarily on the
basis of quality, breadth of product line, technical support, service,
field support and product innovation. Simpson Strong-Tie competes with
numerous companies and its competitors tend to be more regional than SST,
but one distributes its products nationally.
The venting industry is highly competitive. Many of Simpson Dura-Vent's
competitors have greater financial and other resources than SDV. SDV's
principal competitors include the Selkirk Metalbestos Division of Eljer
Industries Inc. (a subsidiary of U.S. Industries, Inc.), American Metal
Products Co. (a subsidiary of Masco Corp.), Metal-Fab, Inc., Hart & Cooley,
Inc. and the Air Jet Division of General Products Co. The Company believes
that Metal-Fab, Inc., Hart & Cooley, Inc. and Air Jet tend to be more
regional than SDV, and that they have smaller shares of the national market
than SDV.
Raw Materials
The principal raw material used by the Company is steel, including
stainless steel, and is generally ordered to specific American Society of
Testing and Materials ("ASTM") standards. Other raw materials include
aluminum, aluminum alloys and ceramic and other insulation materials, which
are used by Simpson Dura-Vent, and cartons, which are used by both SST and
SDV. The Company purchases raw materials from a variety of commercial
sources. The Company's practice is to seek cost savings and enhanced
quality by purchasing from a limited number of suppliers.
The steel industry is highly cyclical and prices for the Company's raw
materials are influenced by numerous factors beyond the Company's control,
including general economic conditions, competition, labor costs, import
duties and other trade restrictions. The Company historically has not
attempted to hedge against changes in prices of steel or other raw
materials. The Company might not be able to increase its product prices in
amounts that correspond to increases in raw materials prices without
materially and adversely affecting its sales and profits. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Patents and Proprietary Rights
The Company's subsidiaries own more than 80 U.S. and foreign patents, of
which more than 70 cover products that they currently manufacture and
market. Its subsidiaries have filed 12 U.S. and 43 foreign patent
applications that are currently pending. These patents and patent
applications cover various design aspects of the subsidiaries' products as
well as processes used in their manufacture. The Company's subsidiaries are
continuing to develop new potentially patentable products, product
enhancements and product designs. Although the Company's subsidiaries do
not intend to apply for additional foreign patents covering existing
products, the Company is developing an international patent program to
protect new products that its subsidiaries may develop.
The Company's subsidiaries hold 116 trademark registrations in the U.S. and
foreign countries covering 56 trademarks, have 35 trademark registration
applications pending in the U.S. and foreign countries covering 13
trademarks, and use several other trademarks that they have not yet
attempted to register.
<PAGE>
The Company's ability to compete effectively with other companies depends
in part on its ability to maintain the proprietary nature of its
technology. There can be no assurance, however, as to the degree of
protection afforded by these patents or the likelihood that patents will
issue pursuant to pending patent applications. Furthermore, there can be no
assurance that others will not independently develop the same or similar
technology, develop around the patented aspects of any of the Company's
products or proposed products, or otherwise obtain access to the Company's
proprietary technology.
In addition to seeking patent protection, the Company also relies on
unpatented proprietary technology to maintain its competitive position.
Nevertheless, there can be no assurance that the Company will be able to
protect its know-how or other proprietary information.
In attempting to protect its proprietary information, the Company expects
that it may sometimes be necessary to prosecute lawsuits against
competitors and others that the Company believes have infringed or are
infringing the Company's rights. In such an event, the defendant may assert
counterclaims to complicate or delay the litigation or for other reasons.
If the Company were to be unable to maintain the proprietary nature of its
significant products, the Company's business and financial condition could
be materially and adversely affected.
Acquisitions and Expansion into New Markets
The Company's future growth, if any, may depend to some extent on its
ability to penetrate new markets, both domestically and internationally.
See "Industry and Market Trends" and "Business Strategy." Therefore, the
Company may in the future pursue acquisitions of product lines or
businesses. Acquisitions involve numerous risks, including difficulties in
the assimilation of the operations and products of the acquired companies,
the diversion of management's attention from other business concerns, risks
of entering markets in which the Company has little or no direct prior
experience, and the potential loss of key employees of the acquired
company. In addition, future acquisitions by the Company may result in
potentially dilutive issuances of equity securities, the incurring of
additional debt, and amortization expenses related to goodwill and
intangible assets, all of which could adversely affect the Company's
profitability. If an acquisition occurs, no assurance can be given as to
its effect on the Company's business or operating results. See "Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In addition, construction customs, standards, techniques and methods in
international markets differ from those in the United States. Laws and
regulations applicable in new markets for the Company are likely to be
unfamiliar to the Company and compliance may be substantially more costly
than the Company anticipates. As a result, it may become necessary for the
Company to redesign products or to invent or design new products in order
to compete effectively and profitably outside the United States or in
markets that are new to the Company in the United States. The Company
expects that significant time will be required for it to generate
substantial sales or profits in new markets.
Other significant challenges to conducting business in foreign countries
include, among other factors, local acceptance of the Company's products,
political instability, currency controls, changes in import and export
regulations, changes in tariff and freight rates, and fluctuations in
foreign exchange rates. There can be no assurance that the Company will be
able to penetrate these markets or that any such market penetration can be
achieved on a timely basis or profitably. If the Company is not successful
in penetrating these markets within a reasonable time, it will be unable to
recoup part or all of the significant investments it will have made in
attempting to do so. See "Business Strategy" and "Industry and Market
Trends."
In 1996, the Company purchased for approximately $1.0 million the assets of
the Builders Products Division of MiTek Industries Ltd. ("MiTek") and
entered into an agreement to supply MiTek with connector products in the
UK. In addition, during the first quarter of 1997, the Company purchased
three Canadian companies and a related U.S. company, the Isometric Group,
which manufacture and distribute a line of mechanical anchors and related
products, for approximately $7.7 million plus an earnout based on future
sales increases through December 2000. Also during the first quarter of
1997, the Company purchased, for approximately $1.7 million, the remaining
66% equity in Patrick Bellion, S.A., a French manufacturer of connector
products. See "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Sources of Capital."
<PAGE>
Seasonality and Cyclicality
The Company's sales are seasonal, with operating results varying from
quarter to quarter. With some exceptions, the Company's sales and income
have historically been lower in the first and fourth quarters and higher in
the second and third quarters of the year, as retailers and contractors
purchase construction materials in the late spring and summer months for
the construction season. In addition, demand for the Company's products and
the Company's results of operations are significantly affected by weather
conditions, such as unseasonably warm, cold or wet weather, which affect,
and sometimes delay or accelerate, installation of certain of the Company's
products. Political and economic events can also affect the Company's
revenues. The Company has little control over the timing of customer
purchases, and sales anticipated in one quarter may occur in another
quarter, thereby affecting both quarters' results. In addition, the Company
incurs significant expenses as it develops, produces and markets its
products in anticipation of future orders. Products typically are shipped
as orders are received, and accordingly the Company operates with little
backlog. As a result, net sales in any quarter generally depend on orders
booked and shipped in that quarter. A significant portion of the Company's
operating expenses are fixed, and planned expenditures are based primarily
on sales forecasts. If sales fall below the Company's expectations,
operating results would be adversely affected for the relevant quarters, as
expenses based on those expectations will already have been incurred. See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company's principal markets are in the building construction industry.
That industry is subject to significant volatility as a result of
fluctuations in interest rates, the availability of credit to builders and
developers, inflation rates and other economic factors and trends, none of
which is within the Company's control. Declines in commercial and
residential construction may be expected to reduce the demand for the
Company's products. The Company cannot provide any assurance that its
business will not be adversely affected by future negative economic or
construction industry performance or that future declines in construction
activity or the demand for the Company's products will not have material
adverse effects on the Company and its business and financial condition.
See "Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Product Liability
The Company designs and manufactures most of its standard products and
expects that it will continue to do so. The Company employs engineers and
designers to design and test its products under development. In addition,
the Company maintains a quality control system. The Company has on occasion
found manufacturing flaws in its products. In addition, the Company
purchases from third party suppliers raw materials, principally steel, and
finished goods that are produced and processed by other manufacturers. The
Company also has on occasion found flaws in raw materials and finished
goods produced by others, some of which flaws have not been apparent until
after the products were installed by customers. Many of the Company's
products are integral to the structural soundness or fire safety of the
buildings in which they are used. As a result, if any flaws exist in the
Company's products (as a result of design, raw material or manufacturing
flaws) and such flaws are not discovered and corrected before the Company's
products are incorporated into structures, the structures could suffer
severe damage (such as collapse or fire) and personal injury could result.
To the extent that such damage or injury is not covered by the Company's
product liability insurance, and if the Company were to be found to have
been negligent or otherwise culpable, the Company and its business and
financial condition could be materially and adversely affected by the
necessity to correct such damage and to compensate persons who might have
suffered injury.
Furthermore, in the event that a flaw is discovered after installation but
before any damage or injury occurs, it may be necessary for the Company to
recall products, and the Company may be liable for any costs necessary to
retrofit the affected structures. Any such recall or retrofit could entail
substantial costs and adversely affect the Company's reputation, sales and
financial condition. The Company does not carry insurance against recall
costs, and its product liability insurance may not cover retrofit costs.
No assurance can be given that claims will not be made against the Company
with regard to damage or destruction of structures incorporating Company
products resulting from a natural disaster. Any such claims, if asserted,
could materially and adversely affect the Company.
<PAGE>
Environmental, Health and Safety Matters
The Company is subject to environmental laws and regulations governing
emissions into the air, discharges into water, and generation, handling,
storage, transportation, treatment and disposal of waste materials. The
Company is also subject to other Federal and state laws and regulations
regarding health and safety matters. The Company's manufacturing operations
involve the use of solvents, chemicals, oils and other materials that are
regarded as hazardous or toxic and the use of complex and heavy machinery
and equipment that can pose severe safety hazards (especially if not
properly and carefully used). Some of the Company's products also
incorporate materials that are hazardous or toxic in some forms (such as
zinc and lead, which are used in some steel galvanizing processes). The
Company believes that it has obtained all material licenses and permits
required by environmental, health and safety laws and regulations in
connection with the Company's operations and that its policies and
procedures comply in all material respects with existing environmental,
health and safety laws and regulations. It is possible that additional
licenses or permits may be required, that the Company's policies and
procedures might not comply in all respects with all such laws and
regulations or, even if they do, that employees might fail or neglect to
follow them in all respects, and that the Company's generation, handling,
use, storage, transportation, treatment or disposal of hazardous or toxic
materials, machinery and equipment might cause injury to persons or to the
environment. In addition, properties occupied by the Company may be
contaminated by hazardous or toxic substances and remedial action may be
required at some time in the future. It is also possible that materials in
certain of the Company's products could cause injury or sickness. Relevant
laws and regulations could also be changed or new ones could be adopted
that require the Company to obtain additional licenses and permits and
cause the Company to incur substantial expense. Any such event or
contamination could have a material adverse effect on the Company and its
liquidity, results of operations and financial condition. See "Regulation."
Employees and Labor Relations
As of March 1, 1999, the Company had 1,429 full-time employees, of whom
1,007 were hourly employees and 422 were salaried employees. The Company
believes that its overall compensation and benefits for the most part
exceed industry averages and that its relations with its employees are
good.
The Company is dependent on certain key management and technical personnel,
including Thomas J Fitzmyers, Stephen B. Lamson, Barclay Simpson and Donald
M. Townsend. The loss of one or more key employees could have a material
adverse effect on the Company. The Company's success will also depend on
its ability to attract and retain additional highly qualified technical,
marketing and management personnel necessary for the maintenance and
expansion of the Company's activities. The Company faces strong competition
for such personnel and there can be no assurance that the Company will be
able to attract or retain such personnel.
A significant number of the Company's employees at two of the Company's
major manufacturing facilities are represented by labor unions and are
covered by collective bargaining agreements. Two of the Company's
collective bargaining agreements at two of its California facilities were
renegotiated in 1998. These agreements cover the Company's sheetmetal
workers and its tool and die craftsmen in Brea. These two contracts were
extended into 2001 and 2002, respectively. Two other contracts, covering
tool and die craftsmen and sheetmetal workers in San Leandro, expire in
June 1999 and July 2000, respectively. A work stoppage or interruption by a
significant number of the Company's employees could have a material and
adverse effect on the Company and its business and financial condition.
<PAGE>
ITEM 2. PROPERTIES.
Properties
The Company maintains its home office in Pleasanton, California, and other
offices, manufacturing and warehouse facilities elsewhere in California and
in Texas, Ohio, Florida, Mississippi, Illinois, Connecticut, Washington,
British Columbia, Ontario, England and France. As of March 15, 1999, the
Company's facilities were as follows:
<TABLE>
<CAPTION>
Approximate
Square Owned or Lease
Location Footage Leased Lessee Expires Function
- --------------------------- ----------- ---------- -------- ------- --------------------------
<S> <C> <C> <C> <C> <C>
Pleasanton, California 19,400 Leased Company 2000 Office
San Leandro, California 47,100 Leased(1) SST 2001 Office, Manufacturing and
Warehouse
San Leandro, California 71,000 Owned Office, Manufacturing and
Warehouse
San Leandro, California 57,000 Leased(2) SST 2001 Manufacturing and
Warehouse
San Leandro, California 48,000 Owned Office and Warehouse
San Leandro, California 27,000 Owned Manufacturing and
Warehouse
San Leandro, California 61,800 Leased SST 2002 Warehouse
Brea, California 50,700 Owned Office, Manufacturing and
Warehouse
Brea, California 78,000 Owned Office and Warehouse
Brea, California 30,500 Owned Office, Manufacturing and
Warehouse
Brea, California 42,900 Owned Warehouse
McKinney, Texas 84,300 Owned Office, Manufacturing and
Warehouse
McKinney, Texas 117,100 Owned Office and Warehouse
Columbus, Ohio 153,500 Leased(3) SST 2005 Office, Manufacturing and
Warehouse
Jacksonville, Florida 74,600 Leased SST 2001 Office and Warehouse
Addison, Illinois 52,400 Leased SST 2003 Office, Manufacturing and
Warehouse
Enfield, Connecticut 55,100 Leased SST 2003 Office and Warehouse
Kent, Washington 24,000 Leased SST 2004 Office, Manufacturing and
Warehouse
Tamworth, England 78,100 Leased SST(4) 2012 Office, Manufacturing and
Warehouse
Cannock, Staffordshire, 26,900 Leased SST(4) 2000 (5)
England
Vacaville, California 125,000 Leased(6) SDV 2007 Office, Manufacturing and
Warehouse
Vacaville, California 120,300 Owned Office, Manufacturing and
Warehouse
Fontana, California 17,900 Leased SDV 2001 Warehouse
Vicksburg, Mississippi 172,000 Leased(7) SDV 2003 (5)
Vicksburg, Mississippi 302,000 Owned Office, Manufacturing and
Warehouse
Vancouver, British Columbia 7,000 Leased SST 2004 Warehouse
Toronto, Ontario 104,000 Leased SST(8) 2009 Office, Manufacturing and
Warehouse
<PAGE>
St. Hermine, France 11,300 Leased SST(9) 2002 Office, Manufacturing and
Warehouse
St. Hermine, France 20,900 Leased SST(9) 2001 Office, Manufacturing and
Warehouse
St. Hermine, France 15,900 Owned Office, Manufacturing and
Warehouse
- --------------------
</TABLE>
(1) Lessor is Simpson Investment Company, a related party. See Note 9 to
the Consolidated Financial Statements contained elsewhere herein.
(2) Lessor is Doolittle Investors, a related party. See Note 9 to the
Consolidated Financial Statements contained elsewhere herein.
(3) Lessor is Columbus Westbelt Investment Company, a related party. See
Note 9 to the Consolidated Financial Statements contained elsewhere
herein.
(4) Lessee is Simpson Strong-Tie International, Inc., a wholly-owned
subsidiary of SST.
(5) The Company no longer occupies this property and it is currently being
subleased to an unrelated tenant.
(6) Lessor is Vacaville Investors, a related party. See Note 9 to the
Consolidated Financial Statements contained elsewhere herein.
(7) Lessor is Vicksburg Investors, a related party. See Note 9 to the
Consolidated Financial Statements contained elsewhere herein.
(8) Lessee is Simpson Strong-Tie Canada, Ltd., a wholly-owned
subsidiary of SST.
(9) Lessee is Patrick Bellion, S.A., a wholly-owned subsidiary of SST.
The Company's manufacturing facilities are equipped with specialized
equipment and use extensive automation. The Company considers its existing
and planned facilities to be suitable and adequate for its operations as
currently conducted and as planned through 1999. The manufacturing
facilities currently are being operated with one full shift and at most
plants with at least a partial second or third shift. The Company
anticipates that it may require additional facilities to accommodate
possible future growth.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is involved in litigation that it considers
to be in the normal course of its business. No such litigation within the
last five years resulted in any material loss. The Company is not engaged
in any legal proceedings as of the date hereof, which the Company expects
individually or in the aggregate to have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELEATED STOCKHOLDER
MATTERS.
The Company's Common Stock has been listed on the New York Stock Exchange
("NYSE") under the symbol "SSD" since October 13, 1997. Prior to that time,
the Common Stock was traded on the Nasdaq National Market tier of The
Nasdaq Stock Market under the trading symbol "SMCO." The following table
shows the range of high and low closing sale prices per share of the Common
Stock as reported by The Nasdaq Stock Market or the NYSE, as applicable,
for the calendar quarters indicated:
<TABLE>
<CAPTION>
Market Price
Quarter High Low
--------- ---------
<S> <C> <C>
1998
Fourth............................. $38 11/16 $25 15/16
Third.............................. 40 5/16 29 1/8
Second............................. 42 1/16 37 7/16
First.............................. 42 1/2 32 3/4
1997
Fourth............................. $40 1/4 $32 1/4
Third.............................. 41 7/8 26 3/16
Second............................. 27 1/2 21 3/4
First.............................. 29 1/2 22
</TABLE>
The Company estimates that as of March 1, 1999, approximately 2,950 persons
owned shares of the Company's Common Stock either directly or through
nominees.
The Company currently intends to retain its future earnings, if any, to
finance operations and fund internal growth and does not anticipate paying
cash dividends on the Company's Common Stock for the foreseeable future.
Future dividends, if any, will be determined by the Company's Board of
Directors, based on the Company's earnings, cash flow, financial condition
and other factors deemed relevant by the Board of Directors. In addition,
existing loan agreements require the Company to maintain Tangible Net Worth
of $100.0 million plus 50% of net profit after taxes for each fiscal year
ending after December 31, 1997. This requirement may limit the amount that
the Company may pay out as dividends on the common stock. As of December
31, 1998, the Company had a Tangible Net Worth of $158.2 million.
<PAGE>
Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial information
with respect to the Company for each of the five years ended December 31,
1998, 1997, 1996, 1995 and 1994, derived from the audited Consolidated
Financial Statements of the Company, the most recent three years of which
appear elsewhere herein. The data presented below should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto and "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands, except --------------------------------------------------------
per share data) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales $279,081 $246,074 $202,409 $167,958 $151,290
Cost of sales 170,045 149,279 124,394 109,368 96,984
-------- -------- -------- -------- --------
Gross profit 109,036 96,795 78,015 58,590 54,306
Selling expense 24,706 23,113 20,104 17,110 14,714
General and administrative expense 32,897 30,053 25,036 18,512 18,608
Compensation related to stock plans 203 305 180 61 6,909
-------- -------- -------- -------- --------
Income from operations 51,230 43,324 32,695 22,907 14,075
Interest income (expense), net 940 429 595 142 (559)
-------- -------- -------- -------- --------
Income before income taxes
and minority interest 52,170 43,753 33,290 23,049 13,516
Provision for income taxes 21,028 17,767 13,569 8,927 8,098
Minority interest - - - - (33)
-------- -------- -------- -------- --------
Net income $ 31,142 $ 25,986 $ 19,721 $ 14,122 $ 5,451
======== ======== ======== ======== ========
Diluted net income per share
of common stock $ 2.58 $ 2.17 $ 1.68 $ 1.23 $ 0.51
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital $105,643 $ 83,297 $ 70,676 $ 51,984 $ 44,127
Property, plant and equipment, net 54,965 42,925 28,688 26,420 20,843
Total assets 191,600 150,765 122,521 96,642 80,311
Total debt 2,896 30 - 20 -
Total liabilities 30,317 21,814 20,224 15,089 13,789
Total shareholders' equity 161,282 128,951 102,297 81,553 66,522
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
1998 1997
-------------------------------------------- --------------------------------------------
(Dollars in thousands, Fourth Third Second First Fourth Third Second First
except per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 71,832 $ 77,208 $ 70,786 $ 59,254 $ 59,767 $ 68,825 $ 65,555 $ 51,927
Cost of sales 43,930 47,025 41,708 37,381 37,079 40,364 39,228 32,609
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 27,902 30,183 29,078 21,873 22,688 28,461 26,327 19,318
Selling expense 6,401 6,551 6,130 5,625 5,645 5,893 6,367 5,208
General and
administrative expense 8,532 8,585 8,916 6,864 7,084 8,665 8,078 6,226
Compensation related to
stock plans 83 18 45 57 15 290 - -
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations 12,886 15,029 13,987 9,327 9,944 13,613 11,882 7,884
Interest income (expense), net 386 233 114 207 181 106 (18) 160
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 13,272 15,262 14,101 9,534 10,125 13,719 11,864 8,044
Provision for income taxes 5,400 6,027 5,728 3,873 4,106 5,531 4,843 3,287
-------- -------- -------- -------- -------- -------- -------- --------
Net income $ 7,872 $ 9,235 $ 8,373 $ 5,661 $ 6,019 $ 8,188 $ 7,021 $ 4,757
======== ======== ======== ======== ======== ======== ======== ========
Diluted net income per share
of common stock $ 0.65 $ 0.77 $ 0.69 $ 0.47 $ 0.50 $ 0.68 $ 0.59 $ 0.40
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The Company's results of operations fluctuate from quarter to quarter. The
fluctuations are caused by various factors, primarily the increase in
construction activity during warmer months of the year.
ITEM 1. 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 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 years ended
December 31, 1998, 1997 and 1996, and of certain factors that may affect the
Company's prospective financial condition and results of operations. The
following should be read in conjunction with the Consolidated Financial
Statements and related Notes appearing elsewhere herein.
Overview
Annual net sales of the Company increased 37.9% to $279.1 million in 1998
from $202.4 million in 1996. The increase in net sales resulted primarily
from increased geographic distribution and a broadening of the Company's
customer base and product lines, both internally and through acquisitions.
Net sales increased from 1996 to 1998 in all regions of the United States,
with above average rates of growth in the California market. Expansion into
overseas markets also contributed to the net sales growth over the last
three years. During the year ended December 31, 1998, gross profit margin
increased to 39.1%, from 38.5% in 1996. The increase since 1996 was due
primarily to lower material costs as a percentage of net sales, LIFO gains
recorded in 1997 and 1998 and lower overhead costs as a percentage of net
sales. Income from operations as a percentage of net sales, increased to
18.4% in 1998 from 16.1% in 1996.
<PAGE>
Results of Operations
The following table sets forth, for the years indicated, the percentage of
net sales of certain items in the Company's consolidated statements of
operations.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 60.9% 60.7% 61.5%
-------- -------- --------
Gross profit 39.1% 39.3% 38.5%
Selling expense 8.9% 9.4% 9.9%
General and administrative expense 11.8% 12.2% 12.4%
Compensation related to stock plans 0.1% 0.1% 0.1%
-------- -------- --------
Income from operations 18.4% 17.6% 16.1%
Interest income, net 0.3% 0.2% 0.3%
-------- -------- --------
Income before income taxes 18.7% 17.8% 16.4%
Provision for income taxes 7.5% 7.2% 6.7%
-------- -------- --------
Net income 11.2% 10.6% 9.7%
======== ======== ========
</TABLE>
Comparison of the Years Ended December 31, 1998 and 1997
Net Sales
Net sales increased 13.4% to $279.1 million in 1998 from $246.1 million in
1997. Net sales of Simpson Strong-Tie's products increased 15.6% to $220.3
million in 1998 from $190.6 million in 1997, while net sales of Simpson
Dura-Vent's products increased by 5.8% to $58.8 million in 1998 from $55.5
million in 1997. SDV accounted for approximately 21.1% of the Company's
total net sales in 1998, a decrease from 22.6% in 1997. The increases in net
sales at both SST and SDV resulted from increases in sales volume, with an
overall decrease in average prices. The increase in net sales reflected
sales growth throughout the United States, particularly in the Southeastern
region of the country and in California. International sales also increased
at an above average rate, a portion of which was related to the businesses
purchased in March 1997. See "Item 1. Business. Acquisitions and Expansion
into New Markets." Home centers and contractor distributors were the fastest
growing connector sales channels. The growth rate of Simpson Strong-Tie's
seismic and high wind and engineered wood product sales was strong.
Anchoring Systems products also contributed significantly to the increase in
net sales. Direct-Vent products led Simpson Dura-Vent's net sales with a
strong growth rate as compared to the prior year, while sales of chimney and
pellet stove products declined.
Gross Profit
Gross profit increased 12.6% to $109.0 million in 1998 from $96.8 million in
1997. As a percentage of net sales, gross profit decreased to 39.1% in 1998
from 39.3% in 1997. The small decrease was primarily due to increased labor
costs, depreciation on factory equipment and other production costs, offset
somewhat by a slightly larger LIFO gain recorded in 1998 as compared to
1997.
Selling Expense
Selling expense increased 6.9% to $24.7 million in 1998 from $23.1 million
in 1997, but decreased as a percentage of net sales to 8.9% in 1998 from
9.4% in 1997. The increase in selling expense was primarily due to higher
promotional expenses as well as higher costs related to the increase in the
number of sales and marketing personnel, due in part to expenses associated
with the expansion of the Anchoring Systems product line and introduction of
the Strong-Wall product line.
<PAGE>
General and Administrative Expense
General and administrative expenses increased 9.5% to $32.9 million in 1998
from $30.1 million in 1997, but decreased as a percentage of net sales to
11.8% in 1998 from 12.2% in 1997. The increase in these expenses was
primarily due to increased cash profit sharing, which resulted from higher
operating profit.
Acquired European Operations
The Company recorded an after-tax net loss in its combined European
operations of $2.3 million in 1998, including $1.2 million in intercompany
interest charges, compared to after-tax net losses of $2.4 million in 1997.
These losses are primarily associated with the Company's UK operations.
Depreciation on purchased capital equipment and administrative and other
overhead costs incurred related to the growing operations contributed
significantly to the losses. The Company expects the losses in the UK to
continue through at least 1999.
Other Information
In 1999, in order to concentrate on more profitable product lines, the
Company sold its metal shapes business, acquired in 1994, to an unrelated
buyer. The Company will record a small loss on the sale of this product
line.
Comparison of the Years Ended December 31, 1997 and 1996
Net Sales
Net sales increased 21.6% to $246.1 million in 1997 from $202.4 million in
1996. Net sales of Simpson Strong-Tie's products increased 25.3% to $190.6
million in 1997 from $152.1 million in 1996, while net sales of Simpson
Dura-Vent's products increased by 10.3% to $55.5 million in 1997 from $50.3
million in 1996. SDV accounted for approximately 22.6% of the Company's
total net sales in 1997, a decrease from 24.9% in 1996. The increases in net
sales at both SST and SDV were primarily due to volume increases, with
relatively small increases in average prices. The increase in net sales
reflected sales growth throughout the United States, particularly in
California and the Northeastern region of the country. International sales
increased at a substantial rate, with a significant portion of this increase
resulting from the businesses acquired earlier in the year. See "Item 1.
Business. Acquisitions and Expansion into New Markets." Contractor
distributors and home centers were the fastest growing connector sales
channels. The growth rate of Simpson Strong-Tie's epoxy, seismic and
engineered wood product sales remained strong, and SST's acquisition of the
Isometric Group's line of mechanical anchor products also contributed
significantly to the increase in net sales. Simpson Dura-Vent's sales of
chimney products and Direct-Vent products experienced above-average growth.
Gross Profit
Gross profit increased 24.1% to $96.8 million in 1997 from $78.0 million in
1996. As a percentage of net sales, gross profit increased to 39.3% in 1997
from 38.5% in 1996. The increase was primarily due to a reduction as a
percentage of net sales in the non-material components of cost of sales,
including depreciation on factory equipment, research and development costs,
labor, factory overhead costs and shipping and freight. These costs
decreased as a percentage of net sales primarily due to the improved
absorption of fixed components of these costs because of the increased sales
volume. Material costs as a percentage of net sales also decreased slightly
relative to 1996. These improvements were offset somewhat by a smaller LIFO
gain recorded in 1997 as compared to 1996.
Selling Expense
Selling expense increased 15.0% to $23.1 million in 1997 from $20.1 million
in 1996, but decreased as a percentage of net sales to 9.4% in 1997 from
9.9% in 1996. The increase selling expense was primarily due to higher
personnel costs, including agent commissions, related to the increase in the
size of the sales force, which was expanded in 1997 to include
manufacturers' representatives who distribute the Company's mechanical
anchor product line. This increase was offset slightly by reduced spending
on advertising and promotional materials.
<PAGE>
General and Administrative Expense
General and administrative expenses increased 20.0% to $30.1 million in 1997
from $25.0 million in 1996, but decreased as a percentage of net sales to
12.2% in 1997 from 12.4% in 1996. The increase in these expenses was
primarily due to increased cash profit sharing, which resulted from higher
operating profit, as well as higher personnel costs, including those
associated with the two acquisitions in March 1997. Partially offsetting the
increase was a decrease in expenses because of the 1996 write-off of
intangible assets related to Simpson Strong-Tie's operations in the UK.
Acquired European Operations
The Company recorded an after-tax net loss in its combined European
operations of $2.4 million in 1997, including $1.0 million in intercompany
interest charges, compared to after-tax net losses of $2.8 million in 1996.
These losses are primarily associated with the Company's UK operations.
Depreciation on purchased capital equipment and administrative and other
overhead costs incurred related to the growing operations contributed
significantly to the losses.
Liquidity and Sources of Capital
The Company's liquidity needs arise principally from working capital
requirements, capital expenditures and asset acquisitions. During the three
years ended December 31, 1998, the Company has relied primarily on
internally generated funds to finance these needs. The Company's working
capital requirements are seasonal with the highest working capital needs
typically occurring in the second and third quarters of the year. Cash and
cash equivalents were $37.4 million and $19.4 million at December 31, 1998
and 1997, respectively. Working capital was $105.6 million and $83.3 million
at December 31, 1998 and 1997, respectively. As of December 31, 1998, the
Company had approximately $2.9 million in debt outstanding and had available
to it unused credit facilities of approximately $22.1 million.
The Company had cash flows from operating activities of $34.5 million, $21.1
million and $24.6 million for 1998, 1997 and 1996, respectively. In 1998,
cash was provided by net income of $31.1 million, noncash expenses, such as
depreciation and amortization, of $8.3 million and increases in trade
accounts payable, income taxes payable and accrued profit sharing and
commissions, totaling approximately $5.9 million. The Company's primary
operating cash flow requirements resulted from increased levels of inventory
and accounts receivable that were required as the Company's sales increased.
In 1998, 1997 and 1996, the Company used cash of $11.0 million, $9.1 million
and $7.7 million, respectively, to fund inventory and accounts receivable
requirements. The balance of the cash used in 1998 resulted from changes in
the other current asset and liability accounts.
Cash used in investing activities was $20.0 million, $21.8 million and $12.3
million for 1998, 1997 and 1996, respectively. Capital expenditures, related
primarily to expanding capacity, increased in 1998 to $20.1 million from
$16.5 million in 1997. In 1998, $8.6 million of such capital expenditures
was used for real estate and related purchases.
Financing activities provided net cash of $3.4 million, $0.3 million and
$0.5 million in 1998, 1997 and 1996, respectively. In 1998, cash was
provided primarily by the issuance of debt used to build Simpson Dura-Vent's
new facility in Vicksburg, Mississippi, as well as through the exercise of
stock options by current and former employees of the Company.
The Company believes that cash generated by operations, borrowings available
under its existing credit agreements, the majority of which have been
renewed through June 2000, and other available financing will be sufficient
for the Company's working capital needs and planned capital expenditures
through at least 1999.
<PAGE>
Year 2000 Problem
The year 2000 problem is primarily the result of computer programs and
computer controlled equipment using two digits rather than four to define
the applicable year. Such software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could potentially result in system
failures or miscalculations leading to disruptions in the Company's
activities or those of its significant customers, suppliers and banks.
The Company does not produce or sell any computer components, software or
electronic parts in its normal business environment and, therefore, does not
believe that it has any material risk of product liability or obsolescence
resulting from the year 2000 problem.
In 1998, the Company established a Year 2000 Committee (the "Committee") to
evaluate the extent, if any, of its year 2000 and associated problems, to
make any required changes and to establish contingency plans. The Company's
computer systems are PC based with few interfaces to other internal systems.
These systems use a date handling routine that the Company believes to be
year 2000 compliant. The Company has completed tests of its internal
software which demonstrated no significant risk from the year 2000 problem.
The Company is also focusing on major customers, suppliers and equipment
used in its operations to assess compliance. The Committee will continue to
evaluate these areas of exposure and, where possible, will develop
contingency plans and alternative sources to avoid interruptions in the
Company's business. Nevertheless, the Company cannot give any assurance that
there will not be a material adverse effect on the Company if third parties
with whom the Company conducts business do not adequately address the year
2000 problem and, therefore, are unable to conduct operations without
interruption.
Costs related to the year 2000 problem are funded through operating cash
flows. The Committee estimates that the costs of addressing the year 2000
problem are expected to be less than $100,000, of which approximately 75%
has been spent. The Company presently expects that the total cost of
achieving year 2000 compliant systems will not be material to its financial
condition, liquidity or results of operations.
Time and cost estimates are based on currently available information.
Developments that could affect estimates include, but are not limited to,
the availability and cost of trained personnel, the ability to locate and
correct all relevant computer code and systems, and the degree of
remediation success of the Company's customers, suppliers and banks in
finding and resolving their year 2000 problems.
Inflation
The Company believes that the effect of inflation on the Company has not
been material in recent years, as inflation rates have remained low.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
SIMPSON MANUFACTURING CO., INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements
Report of Independent Accountants................................... 24
Consolidated Balance Sheets at December 31, 1998 and 1997........... 25
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997 and 1996............................ 26
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1997 and 1998...................... 27
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996............................ 28
Notes to the Consolidated Financial Statements...................... 29
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts..................... 41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Simpson Manufacturing Co.,
Inc.:
In our opinion, the accompanying financial statements and the financial
statement schedule listed in the index on page 23 of this Form 10-K present
fairly, in all material respects, the consolidated financial position of
Simpson Manufacturing Co., Inc. and subsidiaries as of December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period then ended, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
These consolidated financial statements and the financial statement schedule
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Francisco, California
January 28, 1999
<PAGE>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 37,402,450 $ 19,418,689
Trade accounts receivable, net 34,089,122 24,625,568
Inventories 56,340,053 54,982,945
Deferred income taxes 3,749,599 3,536,750
Other current assets 1,282,814 1,723,586
------------ ------------
Total current assets 132,864,038 104,287,538
Property, plant and equipment, net 54,964,704 42,925,088
Investments 524,964 559,200
Other noncurrent assets 3,246,045 2,993,114
------------ ------------
Total assets $191,599,751 $150,764,940
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current portion
of long-term debt $ 330,704 $ 29,605
Trade accounts payable 11,761,237 8,813,196
Accrued liabilities 5,591,292 5,506,903
Accrued profit sharing trust contributions 3,173,362 2,886,875
Accrued cash profit sharing and commissions 4,019,806 3,094,834
Accrued workers' compensation 879,272 659,272
Income taxes payable 1,465,384 -
------------ ------------
Total current liabilities 27,221,057 20,990,685
Long-term debt 2,565,182 -
Long-term liabilities 531,149 823,732
------------ ------------
Total liabilities 30,317,388 21,814,417
Commitments and contingencies (Note 9)
Shareholders' equity
Preferred Stock, without par value;
authorized shares, 5,000,000; issued
and outstanding shares, none - -
Common Stock, without par value;
authorized shares, 20,000,000; issued
and outstanding shares, 11,579,360,
and 11,517,113 at December 31, 1998
and 1997 33,723,845 32,377,563
Retained earnings 127,990,208 96,848,685
Accumulated other comprehensive income (431,690) (275,725)
------------ ------------
Total shareholders' equity 161,282,363 128,950,523
------------ ------------
Total liabilities and shareholders'
equity $191,599,751 $150,764,940
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $279,081,489 $246,074,446 $202,408,917
Cost of sales 170,044,933 149,279,718 124,394,086
------------ ------------ ------------
Gross profit 109,036,556 96,794,728 78,014,831
------------ ------------ ------------
Operating expenses
Selling 24,706,371 23,113,344 20,104,344
General and administrative 32,896,954 30,052,669 25,035,874
Compensation related to
stock plans (Note 13) 203,500 305,038 180,155
------------ ------------ ------------
57,806,825 53,471,051 45,320,373
------------ ------------ ------------
Income from operations 51,229,731 43,323,677 32,694,458
Interest income, net 939,792 429,102 595,180
------------ ------------ ------------
Income before income taxes 52,169,523 43,752,779 33,289,638
Provision for income taxes 21,028,000 17,767,000 13,569,000
------------ ------------ ------------
Net income $ 31,141,523 $ 25,985,779 $ 19,720,638
============ ============ ============
Net income per common share
Basic $ 2.69 $ 2.26 $ 1.73
Diluted $ 2.58 $ 2.17 $ 1.68
Number of shares outstanding
Basic 11,560,454 11,474,592 11,424,945
Diluted 12,048,197 11,965,950 11,755,184
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Comp-
---------------------------- Retained rehensive
Shares Amount Earnings Income Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 11,358,227 $ 30,415,716 $ 51,142,268 $ (5,294) $ 81,552,690
Comprehensive income:
Net income - - 19,720,638 - 19,720,638
Other comprehensive income:
Translation adjustment - - - 205,748 205,748
------------
Comprehensive income 19,926,386
Options exercised 90,191 526,415 - - 526,415
Tax benefit of options exercised - 256,417 - - 256,417
Common stock issued at
$13.50 per share 2,600 35,100 - - 35,100
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 11,451,018 31,233,648 70,862,906 200,454 102,297,008
Comprehensive income:
Net income - - 25,985,779 - 25,985,779
Other comprehensive income:
Translation adjustment - - - (476,179) (476,179)
------------
Comprehensive income 25,509,600
Options exercised 61,595 451,282 - - 451,282
Tax benefit of options exercised - 589,133 - - 589,133
Common stock issued at
$23.00 per share 4,500 103,500 - - 103,500
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 11,517,113 32,377,563 96,848,685 (275,725) 128,950,523
Comprehensive income:
Net income - - 31,141,523 - 31,141,523
Other comprehensive income:
Translation adjustment - - - (155,965) (155,965)
------------
Comprehensive income 30,985,558
Options exercised 57,147 576,343 - - 576,343
Tax benefit of options exercised - 600,045 - - 600,045
Common stock issued at
$33.3125 per share 5,100 169,894 - - 169,894
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 11,579,360 $ 33,723,845 $127,990,208 $ (431,690) $161,282,363
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 31,141,523 $ 25,985,779 $ 19,720,638
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss (gain) on sale of capital equipment 24,226 (11,194) (16,262)
Depreciation and amortization 8,257,937 6,712,157 7,197,718
Deferred income taxes and other
long-term liabilities (505,434) (946,542) (212,450)
Equity in income of affiliates (9,000) (142,500) (107,000)
Noncash compensation related to stock plans 169,894 103,500 35,100
Changes in operating assets and liabilities,
net of effects of acquisitions:
Trade accounts receivable, net (9,619,171) (2,277,797) (190,608)
Inventories (1,379,424) (6,867,089) (7,500,960)
Other current assets 440,773 (700,537) 278,047
Other noncurrent assets (509,138) (14,450) (800,840)
Trade accounts payable 2,948,041 (2,429,650) 2,688,814
Accrued liabilities 84,388 379,910 751,120
Accrued profit sharing trust contributions 286,487 440,874 446,262
Accrued cash profit sharing and commissions 924,972 802,777 1,002,913
Accrued workers' compensation 220,000 (150,000) (32,853)
Income taxes payable 2,065,429 247,507 1,349,876
------------ ------------ ------------
Total adjustments 3,399,980 (4,853,034) 4,888,877
------------ ------------ ------------
Net cash provided by operating
activities 34,541,503 21,132,745 24,609,515
------------ ------------ ------------
Cash flows from investing activities
Capital expenditures (20,057,435) (16,548,350) (7,364,326)
Proceeds from sale of equipment 57,069 65,327 57,787
Asset acquisitions, net of cash acquired and
equity interest already owned - (9,336,142) (1,041,780)
Purchase of short-term investment - - (3,896,428)
Proceeds from sale of short-term investments - 3,995,333 -
Equity investments - - (11,637)
------------ ------------ ------------
Net cash used in investing activities (20,000,366) (21,823,832) (12,256,384)
------------ ------------ ------------
Cash flows from financing activities
Issuance of debt 3,019,247 - -
Repayment of debt (152,966) (260,304) (20,037)
Issuance of Company's common stock 576,343 554,783 526,415
------------ ------------ ------------
Net cash provided by financing
activities 3,442,624 294,479 506,378
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 17,983,761 (396,608) 12,859,509
Cash and cash equivalents at beginning of period 19,418,689 19,815,297 6,955,788
------------ ------------ ------------
Cash and cash equivalents at end of period $ 37,402,450 $ 19,418,689 $ 19,815,297
============ ============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for
Interest $ 180,607 $ 80,071 $ 31,311
============ ============ ============
Income taxes $ 18,660,244 $ 19,564,663 $ 13,036,713
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Summary of Significant Accounting Policies
Nature of Operations
Simpson Manufacturing Co., Inc., through its subsidiaries Simpson Strong-Tie
Company Inc. and Simpson Dura-Vent Company, Inc. and its other subsidiaries
(collectively, the "Company"), designs, engineers and manufactures wood-to-
wood, wood-to-concrete and wood-to-masonry connectors and venting systems
for gas and wood burning appliances and markets its products to the
residential construction, light industrial and commercial construction,
remodeling and do-it-yourself markets.
The Company operates exclusively in the building products industry segment.
The Company's products are sold primarily throughout the United States of
America. Revenues have some geographic market concentration on the west
coast. A portion of the Company's business is therefore dependent upon
economic activity within this region and market.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Simpson
Manufacturing Co., Inc. and its subsidiaries. Investments in less than 50%
owned affiliates are accounted for using the equity method. All significant
intercompany transactions have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Short-term Investments
The Company considers investments with an original maturity of more than
three months but less than one year to be short-term investments, which are
categorized as "held-to-maturity" and carried at amortized cost, which
approximates market value.
Inventory Valuation
Inventories are valued at the lower of cost or market, with cost determined
under the last-in, first-out (LIFO) method, except in Europe and Canada,
where inventories of approximately $5,553,000 and $4,782,000 at December 31,
1998 and 1997, respectively, are valued using the first-in, first-out (FIFO)
method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Major renewals and
betterments are capitalized; maintenance and repairs are expensed on a
current basis. When assets are sold or retired, their costs and accumulated
depreciation are removed from the accounts; the resulting gains or losses
are reflected in the consolidated statements of operations.
<PAGE>
Depreciation and Amortization
Depreciation of property, plant and equipment is provided for using
accelerated methods over the following estimated useful lives:
Factory machinery and equipment 5 to 10 years
Automobiles, trucks and other equipment 3 to 10 years
Office equipment 3 to 8 years
Buildings and site improvements 20 to 45 years
Leasehold improvements are amortized using the straight-line method over the
remaining term of the lease.
Product Research and Development Costs
Product research and development costs, which are included in cost of sales,
were charged against income as incurred and approximated $1,518,000,
$1,280,000 and $1,312,000 in 1998, 1997 and 1996, respectively.
Tooling Costs
Tool and die costs are included in product costs in the year incurred.
Income Taxes
Income taxes are calculated using an asset and liability approach. The
provision for income taxes includes federal and state taxes currently
payable and deferred taxes, due to temporary differences between the
financial statement and tax bases of assets and liabilities. In addition,
the future tax benefits are recognized to the extent that realization of
such benefits is more likely than not.
Foreign Currency Translation
The local currency is the functional currency of the Company's operating
branches in Europe and Canada. Assets and liabilities denominated in foreign
currencies are translated using the exchange rate on the balance sheet date.
Revenues and expenses are translated using average exchange rates prevailing
during the year. The translation adjustment resulting from this process is
shown separately as a component of shareholders' equity. Foreign currency
transaction gains or losses are included in the determination of net income.
Common Stock
Subject to the rights of holders of any Preferred Stock that may be issued
in the future, holders of Common Stock are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors (the "Board") out of funds legally available therefor and in the
event of liquidation, dissolution or winding-up of the Company, to share
ratably in all assets available for distribution. The holders of Common
Stock have no preemptive or conversion rights. Subject to the rights of any
Preferred Stock that may be issued in the future, the holders of Common
Stock are entitled to one vote per share on any matter submitted to a vote
of the shareholders, except that, on giving notice as required by law and
subject to compliance with other statutory conditions, shareholders may
cumulate their votes in an election of directors, and each shareholder may
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of shares held by such shareholder or may
distribute such shareholder's votes on the same principle among as many
candidates as such shareholder thinks fit. There are no redemption or
sinking fund provisions applicable to the Common Stock.
Preferred Stock
The Board has the authority to issue the authorized and unissued Preferred
Stock in one or more series with such designations, rights and preferences
as may be determined from time to time by the Board. Accordingly, the Board
is empowered, without shareholder approval, to issue Preferred Stock with
dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock.
<PAGE>
Net Income per Common Share
Basic 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 diluted per-share
calculations for all periods when the effect of their inclusion is dilutive.
The following is a reconciliation of basic earnings per share ("EPS") to
diluted EPS:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------- ----------------------------------- -----------------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
------------ ------------ ------- ------------ ------------ ------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available
to common
shareholders $ 31,141,523 11,560,454 $ 2.69 $ 25,985,779 11,474,592 $ 2.26 $ 19,720,638 11,424,945 $ 1.73
======= ======= =======
Effect of Dilutive
Securities
Stock options - 487,743 (0.11) - 491,358 (0.09) - 330,239 (0.05)
------------ ------------ ------- ------------ ------------ ------- ------------ ------------ -------
Diluted EPS
Income available
to common
shareholders $ 31,141,523 12,048,197 $ 2.58 $ 25,985,779 11,965,950 $ 2.17 $ 19,720,638 11,755,184 $ 1.68
============ ============ ======= ============ ============ ======= ============ ============ =======
</TABLE>
Comprehensive Income
Comprehensive income, which is included in the consolidated statement of
shareholders' equity, is defined as net income and other comprehensive
income. Other comprehensive income includes changes in foreign currency
translation adjustments recorded directly into shareholders' equity.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash in banks, short-term
investments in U.S. Treasury instruments and trade accounts receivable. The
Company maintains its cash in demand deposit and money market accounts held
primarily by two banks.
Adoption of Statements of Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards
affecting the accounting for derivative instruments and hedging activities.
This standard is not expected to have a significant effect on the Company's
operating results, financial condition or disclosures. SFAS No. 133 is
effective for financial statements issued for periods beginning after June
15, 1999, and accordingly, management has not determined the effect, if any,
on the Company's financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1998
presentation with no effect on net income as previously reported.
2. Acquisitions
In March 1997, the Company and its subsidiaries completed two acquisitions.
The first was a purchase of three Canadian companies and a related U.S.
company, the Isometric Group, which manufacture and distribute a line of
mechanical anchors and related products. The acquisition price was
approximately $7.7 million plus an earnout based on future sales increases
through December 2000. The second was the purchase, for approximately $1.7
million, of the remaining 66% equity in Patrick Bellion, S.A., a French
manufacturer of connector products.
<PAGE>
In December 1996, Simpson Strong-Tie International, Inc. ("SSTI"), a
subsidiary of the Company, purchased the assets, including $675,000 in
equipment, of the Builders Products Division of MiTek Industries Ltd.
("MiTek") for approximately $1,040,000. The remaining $365,000 of the
purchase price represents the excess of the purchase price over the fair
value of the assets acquired. In conjunction with the purchase of the
assets, SSTI also agreed to supply MiTek and its customers with connector
products. As a result of this acquisition, the Company determined that
additional manufacturing space was needed and consolidated all of its UK
facilities into a single location. In connection with this consolidation,
the intangible assets associated with the MiTek acquisition, the Truline
Group Ltd. acquisition in 1995, and the Stokes of Cannock Ltd. acquisition
in 1994, were written off during 1996.
3. Trade Accounts Receivable
Trade accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Trade accounts receivable $ 35,550,836 $ 26,398,046
Allowance for doubtful accounts (1,173,656) (1,539,691)
Allowance for sales discounts (288,058) (232,787)
------------ ------------
$ 34,089,122 $ 24,625,568
============ ============
</TABLE>
The Company sells product on credit and generally does not require
collateral.
4. Inventories
The components of inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 18,904,545 $ 17,882,930
In-process products 5,255,755 5,384,709
Finished products 32,179,753 31,715,306
------------ ------------
$ 56,340,053 $ 54,982,945
============ ============
</TABLE>
At December 31, 1998 and 1997, the replacement value of LIFO inventories
exceeded LIFO cost by approximately $359,000 and $852,000, respectively.
<PAGE>
5. Property, Plant and Equipment, net
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land $ 3,891,519 $ 3,366,519
Buildings and site improvements 25,743,968 17,165,509
Leasehold improvements 3,463,063 3,474,278
------------ ------------
Machinery and equipment 67,052,907 55,400,034
------------ ------------
100,151,457 79,406,340
Less accumulated depreciation and amortization (49,498,717) (41,986,005)
------------ ------------
50,652,740 37,420,335
Capital projects in progress 4,311,964 5,504,753
------------ ------------
$ 54,964,704 $ 42,925,088
============ ============
</TABLE>
Included in property, plant and equipment at December 31, 1998 and 1997, are
fully depreciated assets with an original cost of approximately $22,166,000
and $20,104,000, respectively. These fully depreciated assets are still in
use in the Company's operations.
6. Investments
The Company's 49% investment in Bulldog-Simpson GmbH is accounted for using
the equity method. The Company's equity in the earnings or losses of its
equity investments was not material in any of the three years in the period
ended December 31, 1998.
7. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Sales incentive and advertising allowances $ 2,124,242 $ 2,686,390
Vacation liability 1,409,518 1,091,718
Other 2,057,532 1,728,795
------------ ------------
$ 5,591,292 $ 5,506,903
============ ============
</TABLE>
<PAGE>
8. Debt
The outstanding debt at December 31, 1998 and 1997, and the available credit
at December 31, 1998, consisted of the following:
<TABLE>
<CAPTION>
Available
on Credit Debt Outstanding
Facility at at December 31,
December 31, ----------------------------
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revolving line of credit, interest at
bank's reference rate (at December 31,
1998, the bank's reference rate was
7.75%), matures June 2000, commitment
fees are paid at the annual rate of
0.125% on the unused portion of the
facility $ 12,686,601 $ - $ -
Revolving term commitment, interest at
bank's prime rate (at December 31,
1998, the bank's prime rate was 7.75%),
matures June 2000, commitment fees are
paid at the annual rate of 0.125% on
the unused portion of the facility 8,866,004 - -
Revolving line of credit, interest rate
at the bank's base rate of interest plus
2% (at December 31, 1998, this rate was
8.25%), matures June 1999, has an annual
commission charge of 0.45% 414,575 - -
Revolving line of credit, interest rate
at the weighted average French interbank
rate of interest plus 1% (at December 31,
1998, this rate was 4.375%), matures
February 2000, has an annual commission
charge of 0.25% 172,968 - -
Term loan, interest at LIBOR plus 1.375%
(at January 1, 1999, the LIBOR plus
1.375% was 6.6577%), expires May 2008 - 2,850,000 -
Standby letter of credit facilities 1,447,396 - -
Other notes payable - 45,886 29,605
------------ ------------ ------------
23,587,544 2,895,886 29,605
Less current portion (330,704) (29,605)
------------ ------------
$ 2,565,182 $ -
============ ============
Less standby letters of credit issued
and outstanding (1,447,396)
------------
Net credit available $ 22,140,148
============
</TABLE>
The revolving lines of credit are guaranteed by the Company and its
subsidiaries. At December 31, 1998, the Company had three outstanding
standby letters of credit. Two of these letters of credit, in the aggregate
amount of $667,995, were used to support the Company's self-insured workers'
compensation insurance requirements. The third, in the amount of $779,401,
was used to guarantee performance on the Company's leased facility in the
UK. These letters of credit mature between June 1999 and June 2000. Other
notes payable represent debt associated with foreign businesses acquired in
March 1997.
<PAGE>
9. Commitments and Contingencies
Leases
Certain properties occupied by the Company are leased. The leases expire at
various dates through 2012 and generally require the Company to assume the
obligations for insurance, property taxes, and maintenance of the
facilities.
Some of the properties were leased from partnerships formed by certain
current and former Company shareholders, directors, officers and employees.
Rental expenses under these related party leases were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Simpson Investment Company $ 185,100 $ 185,100 $ 185,100
Doolittle Investors 239,400 239,400 231,096
Vacaville Investors 437,640 437,640 437,640
Vicksburg Investors 353,411 334,279 329,017
Columbus Westbelt Investment Co. 581,064 581,064 581,064
------------ ------------ ------------
$ 1,796,615 $ 1,777,483 $ 1,763,917
============ ============ ============
</TABLE>
Rental expense for 1998, 1997 and 1996 with respect to all other leased
property was approximately $2,285,000, $2,128,000 and $1,170,000,
respectively.
At December 31, 1998, minimum rental commitments under all noncancelable
leases are as follows:
1999 $ 4,924,667
2000 4,975,303
2001 4,456,966
2002 3,453,485
2003 2,766,547
Thereafter 10,302,468
------------
$ 30,879,436
============
Some of these minimum rental commitments involve the related parties
described above, contain renewal options, and provide for periodic rental
adjustments based on changes in the consumer price index or current market
rental rates.
The nominal term of Simpson Strong-Tie International, Inc.'s ("SSTI") lease
in the United Kingdom is 25 years but includes an option to terminate
without penalty in either the fifteenth or twentieth year upon one year
written notice by SSTI. As such, future minimum rental payments associated
with the first 15 years of this lease are included in minimum rental
commitments in the table above.
<PAGE>
Environmental
At two of the Company's operating facilities, evidence of contamination
resulting from activities of prior occupants was discovered. The Company
took certain remedial actions at one facility in 1990 and is monitoring the
condition of this property to determine whether additional action, if any,
may be required. The Company has been informed by the lessor of the other
facility, Vicksburg Investors, that appropriate remedial action has been
taken. The Company does not believe that either of these matters will have a
material adverse effect on its financial position or results of operations.
Litigation
From time to time, the Company is involved in various legal proceedings and
other matters arising in the normal course of business.
10. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current
Federal $ 18,075,000 $ 15,546,000 $ 11,989,000
State 3,345,000 3,115,000 2,353,000
Foreign 82,000 145,000 -
Deferred (474,000) (1,039,000) (773,000)
------------ ------------ ------------
$ 21,028,000 $ 17,767,000 $ 13,569,000
============ ============ ============
</TABLE>
Reconciliations between the statutory federal income tax rates and the
Company's effective income tax rates as a percentage of income before
income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 4.5% 4.2% 4.7%
Other 0.8% 1.4% 1.1%
-------- -------- --------
Effective income tax rate 40.3% 40.6% 40.8%
======== ======== ========
</TABLE>
<PAGE>
The tax effects of the significant temporary differences that constitute the
deferred tax assets and liabilities at December 31, 1998, 1997 and 1996,
were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current deferred tax assets
State tax $ 1,170,805 $ 1,037,753 $ 795,671
Compensation related to
stock plans 128,657 140,579 165,967
Workers' compensation 115,436 155,416 89,657
Health claims 435,294 272,393 213,476
Vacation 399,472 416,268 422,392
Accounts receivable allowance 573,265 602,802 464,681
Inventory allowance 619,447 477,304 359,646
Sales incentive and
advertising allowances 163,008 206,210 237,050
Other 144,215 228,025 170,915
------------ ------------ ------------
$ 3,749,599 $ 3,536,750 $ 2,919,455
============ ============ ============
Long-term deferred tax assets (liabilities)
Depreciation $ 911,723 $ 639,063 $ 255,683
Goodwill amortization 602,182 574,269 545,068
Other (421,710) (402,545) (174,255)
------------ ------------ ------------
$ 1,092,195 $ 810,787 $ 626,496
============ ============ ============
</TABLE>
No valuation allowance has been recorded for deferred tax assets for the
years ended December 31, 1998, 1997 and 1996, due to the Company's taxable
income in 1998 and prior years.
11. Profit Sharing and Pension Plans
The Company has four profit sharing plans covering substantially all
salaried employees and nonunion hourly employees. Two of the plans, covering
U.S. employees, provide for annual contributions in amounts the Board of
Directors may authorize, subject to certain limitations, but in no event
more than the amount permitted under the Internal Revenue Code as deductible
expense. The other two plans, covering the Company's European employees,
require the Company to make contributions ranging from three to ten percent
of the employee's compensation. The total cost for these four profit sharing
plans for the years ended December 31, 1998, 1997 and 1996, was
approximately $3,078,000, $2,775,000 and $2,469,000, respectively.
The Company also contributes to various industry-wide, union-sponsored
defined benefit pension funds for union, hourly employees. Payments to these
funds aggregated approximately $809,000, $708,000 and $667,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
12. Related Party Transactions
The Chairman and the President and Chief Executive Officer of the Company,
who are directors and principal shareholders of the Company, served as
directors and officers of the Simpson PSB Fund (a charitable organization)
until October 1997. The Company contributed $75,496, $207,156 and $50,000 to
this organization in 1998, 1997 and 1996, respectively. The Chairman and the
President and Chief Executive Officer of the Company were again appointed as
directors and officers of the Simpson PSB Fund in January 1999.
Refer to Note 9 regarding related party transactions involving Company
leases.
<PAGE>
13. Stock Bonus and Stock Options Plans
The Company applies Accounting Principles Board Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized
for its non-qualified stock option plan as stock options granted under this
plan have an exercise price equal to 100% of the market price on the date of
grant. If the compensation cost for this plan had been determined based on
the fair value at the grant dates for awards consistent with the method of
SFAS No. 123, the pro forma effect on the Company's net income and earnings
per share in 1998, 1997 and 1996 would have been:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net income, as reported $ 31,141,523 $ 25,985,779 $ 19,720,638
Pro forma 30,423,968 25,464,303 19,430,964
Diluted earnings per share,
as reported 2.58 2.17 1.68
Pro forma 2.54 2.13 1.65
The fair value of each option granted was estimated on the date of grant
using the Black-Sholes option-pricing model with the following assumptions
for 1998, 1997 and 1996, respectively: risk-free interest rate of 4.63 for
1998 and 5.50% for 1997 and 1996; no dividend yield for all years; expected
lives of 6.3, 6.3 and 6.1 years; and volatility of 30.7% for all years. The
weighted average fair value per share of options granted during 1998, 1997
and 1996 was $15.09, $14.12 and $9.63, respectively.
The Company currently has two stock option plans. The first is principally
for the Company's employees and the second is for the Company's independent
directors. During the last three years, the Company met most of the
operating goals established for its two stock option plans and accordingly,
has committed to grant options to purchase 118,750 shares for 1998 and has
granted options to purchase 122,750 and 119,750 shares for 1997 and 1996,
respectively. These options have an exercise price range of $36.63 to $41.18
per share, $33.31 to $37.31 per share and $23.00 to $29.25 per share for
1998, 1997 and 1996, respectively.
The following table summarizes the Company's stock option activity for the
years ended December 31, 1998, 1997 and 1996:
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Non-Qualified Stock Options Shares Price Shares Price Shares Price
- -------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 978,917 $ 14.29 922,734 $ 11.29 904,114 $ 9.22
Granted 118,750 37.44 122,250 33.39 110,750 23.12
Additional grants - - 500 33.31 9,000 23.00
Exercised (57,147) 10.09 (61,595) 7.33 (90,191) 5.84
Forfeited (7,501) 31.37 (4,972) 18.66 (10,939) 13.30
---------- ---------- ----------
Outstanding at end of year 1,033,019 17.05 978,917 14.29 922,734 11.29
========== ========== ==========
</TABLE>
The number of stock options exercisable at the end of 1998, 1997 and 1996
was 740,638, 700,497 and 694,779, respectively.
<PAGE>
The following table summarizes information about the Company's stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ----------------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding Remaining Average Outstanding Average
at December Contractual Exercise at December Exercise
Range of Exercise Prices 31, 1998 Life Price 31, 1998 Price
- ---------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$3.64 151,454 2.3 years $ 3.64 151,454 $ 3.64
$11.50 383,921 2.4 years 11.50 383,921 11.50
$10.00 to $11.28 83,342 3.1 years 10.24 78,251 10.24
$13.50 69,446 4.0 years 13.50 50,638 13.50
$23.00 to $29.25 110,274 5.0 years 23.10 49,465 23.20
$33.31 to $37.31 115,832 6.0 years 33.38 25,409 33.55
$36.63 to $41.18 118,750 7.0 years 37.44 1,500 36.63
------------ ------------
$3.64 to $41.18 1,033,019 3.8 years 17.05 740,638 11.48
============ ============
</TABLE>
The Company also maintains a Stock Bonus Plan whereby for each ten years of
continuous employment with the Company each employee who does not
participate in one of the Company's stock option plans receives 100 shares
of common stock. In 1998, 1997 and 1996, the Company committed to issue
3,200, 5,100 and 4,500 shares, respectively, which resulted in compensation
charges of $203,500, $305,038 and $180,155, respectively. The shares are
issued in the year following the year in which they are earned.
14. Segment Information
The Company is organized into two primary segments. The segments are defined
by types of products manufactured, marketed and distributed to the Company's
customers. The two product segments are construction connector products and
venting products. These segments are differentiated in several ways,
including the types of materials used, the production process, the
distribution channels used and the applications in which the products are
used. Transactions between the two segments were immaterial for each of the
years presented.
The following table illustrates certain measurements used by management to
assess the performance of the segments described above as of December 31 or
for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Connector Venting
1998 Products Products All Other Total
- ------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $220,319,000 $ 58,762,000 $ - $279,081,000
Income from operations 42,674,000 8,709,000 (153,000) 51,230,000
Depreciation and amortization 6,738,000 1,417,000 103,000 8,258,000
Capital expenditures and
acquisitions 11,509,000 8,548,000 - 20,057,000
Total assets 115,507,000 35,095,000 40,998,000 191,600,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Connector Venting
1997 Products Products All Other Total
- ------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $190,553,000 $ 55,521,000 $ - $246,074,000
Income from operations 34,344,000 9,187,000 (207,000) 43,324,000
Depreciation and amortization 5,472,000 1,094,000 146,000 6,712,000
Capital expenditures and
acquisitions 22,778,000 3,102,000 4,000 25,884,000
Total assets 98,069,000 30,032,000 22,664,000 150,765,000
</TABLE>
<TABLE>
<CAPTION>
Connector Venting
1996 Products Products All Other Total
- ------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $152,095,000 $ 50,314,000 $ - $202,409,000
Income from operations 24,765,000 8,109,000 (180,000) 32,694,000
Depreciation and amortization 5,949,000 1,046,000 203,000 7,198,000
Capital expenditures and
acquisitions 7,534,000 872,000 - 8,406,000
Total assets 72,082,000 24,575,000 25,864,000 122,521,000
</TABLE>
Cash collected by the Company's subsidiaries is routinely transferred into
the Company's cash management accounts, and therefore, has been included in
the total assets of the segment entitled "All Other." Cash and short-term
investment balances in this segment were approximately $36,433,000,
$18,096,000 and $23,200,000 as of December 31, 1998, 1997 and 1996,
respectively.
The following table illustrates how the Company's net sales and long-lived
assets are distributed geographically as of December 31, 1998, 1997 and
1996, or for the years then ended.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Net Long-Lived Net Long-Lived Net Long-Lived
Sales Assets Sales Assets Sales Assets
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
United States $265,201,000 $ 50,753,000 $233,596,000 $ 38,027,000 $197,377,000 $ 28,150,000
Other countries 13,880,000 6,891,000 12,478,000 7,639,000 5,032,000 3,473,000
------------ ------------ ------------ ------------ ------------ ------------
$279,081,000 $ 57,644,000 $246,074,000 $ 45,666,000 $202,409,000 $ 31,623,000
============ ============ ============ ============ ============ ============
</TABLE>
Net sales and long-lived assets are attributable to the country where the
operations are located.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1998, 1997 and 1996
Column A Column B Column C Column D Column E
Additions
----------------------------
Charged Charged
Balance at to Costs to Other Balance
Beginning and Accounts - at End
Classification of Year Expenses Write-offs Deductions of Year
- ------------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
Allowance for doubtful accounts $ 1,539,691 $ 767,339 $ - $ 1,133,374 $ 1,173,656
Allowance for obsolete inventory 742,578 212,334 - 10,581 944,331
Year Ended December 31, 1997
Allowance for doubtful accounts 1,108,950 1,010,012 - 579,271 1,539,691
Allowance for obsolete inventory 648,881 220,000 - 126,303 742,578
Year Ended December 31, 1996
Allowance for doubtful accounts 931,321 607,354 - 429,725 1,108,950
Allowance for obsolete inventory 389,611 60,000 270,994 71,724 648,881
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this Item will be contained in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May 20,
1999, to be filed not later than 120 days following the end of the
Registrant's fiscal year ended December 31, 1998, which will set forth
certain information with respect to the directors and executive officers of
the Registrant and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this Item will be contained in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May 20,
1999, to be filed not later than 120 days following the end of the
Registrant's fiscal year ended December 31, 1998, which will set forth
certain information with respect to executive compensation of the Registrant
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAIL OWNERS AND MANAGEMENT.
Information required by this Item will be contained in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May 20,
1999, to be filed not later than 120 days following the end of the
Registrant's fiscal year ended December 31, 1998, which will set forth
certain information with respect to security ownership of certain beneficial
owners and management of the Registrant and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item will be contained in the Registrant's
proxy statement for the annual meeting of shareholders to be held on May 20,
1999, to be filed not later than 120 days following the end of the
Registrant's fiscal year ended December 31, 1998, which will set forth
certain information with respect to certain relationships and related
transactions of the Registrant and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a. Exhibits
3(i) Certificate of Incorporation of Simpson Manufacturing Co.,
Inc., a Delaware Corporation.
3(ii).1 Bylaws of Simpson Manufacturing Co., Inc., a California
Corporation.
3(ii).2 Bylaws of Simpson Manufacturing Co., Inc., a Delaware
Corporation.
11. Statement re computation of earnings per share.
21. List of Subsidiaries of the Registrant.
23. Consent of Independent Certified Public Accountants.
b. No reports on Form 8-K were filed during the last quarter of the
period for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) 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.
Dated: March 29, 1999 Simpson Manufacturing Co., Inc.
-------------- -----------------------------------
(Registrant)
By /s/Stephen B. Lamson
-----------------------------------
Stephen B. Lamson
Chief Financial Officer
and Duly Authorized Officer
of the Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated below.
Signature Title Date
- ------------------------- --------------------------- --------------
CHIEF EXECUTIVE OFFICER:
/s/Thomas J Fitzmyers President, Chief Executive March 29, 1999
- ------------------------- Officer and Director
(Thomas J Fitzmyers)
CHIEF FINANCIAL OFFICER:
/s/Stephen B. Lamson Chief Financial Officer, March 29, 1999
- ------------------------- Secretary and Director
(Stephen B. Lamson)
DIRECTORS:
/s/Barclay Simpson Chairman of the Board March 29, 1999
- -------------------------
(Barclay Simpson)
/s/Earl F. Cheit Director March 29, 1999
- -------------------------
(Earl F. Cheit)
/s/Sunne Wright McPeak Director March 29, 1999
- -------------------------
(Sunne Wright McPeak)
/s/Barry Lawson Williams Director March 29, 1999
- -------------------------
(Barry Lawson Williams)
EXHIBIT 3.(i)
-------------
CERTIFICATE OF INCORPORATION
OF
SIMPSON MANUFACTURING CO., INC.
ARTICLE I
The name of the corporation (the "Corporation") is:
SIMPSON MANUFACTURING CO., INC.
ARTICLE II
The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
1. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-five million
(25,000,000), of which five million (5,000,000) shares shall be Preferred
Stock of the par value of one cent per share ($0.01), and twenty million
(20,000,000) shares shall be Common Stock of the par value of one cent per
share ($0.01).
2. The Board of Directors is authorized, subject to limitations
prescribed by law and the provisions of this Article IV, to provide for the
issuance of shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from
time to time the number of shares to be included in each such series, and to
fix the designation, powers, preferences, and rights of the shares of each
such series and the qualifications, limitations and restrictions thereof.
The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
(c) whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights;
(d) whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
<PAGE>
(e) whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the
date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and
(h) any other relative rights, preferences and limitations of
that series.
3. In furtherance of the foregoing authority and not in limitation
of it, the Board of Directors is expressly authorized, in the resolution or
resolutions providing for the issue of a series of Preferred Stock,
(a) to subject the shares of such series, without the consent of
the holders of such shares, to being converted into or exchanged for
shares of another class or classes of stock of the Corporation, or to
being redeemed for cash, property or rights, including securities, all
on such conditions and on such terms as may be stated in such
resolution or resolutions, and
(b) to make any of the voting powers, designations, preferences,
rights and qualifications, limitations or restrictions of the shares of
the series dependent upon facts ascertainable outside this Certificate
of Incorporation.
4. Whenever the Board of Directors shall have adopted a resolution or
resolutions to provide for
(a) the issue of a series of Preferred Stock,
(b) a change in the number of authorized shares of a series of
Preferred Stock, or
(c) the elimination from this Certificate of Incorporation of all
references to a previously authorized series of Preferred Stock by
stating that none of the authorized shares of a series of Preferred
Stock are outstanding and that none will be issued, the officers of
the Corporation shall cause a certificate, setting forth a copy of
such resolution or resolutions and, if applicable, the number of
shares of stock of such series, to be executed, acknowledged, filed and
recorded, in order that the certificate may become effective in
accordance with the provisions of the General Corporation Law of the
State of Delaware, as from time to time amended. When any such
certificate becomes effective, it shall have the effect of amending
this Certificate of Incorporation, and wherever such term is used in
this Certificate of Incorporation, it shall be deemed to include the
effect of the provisions of any such certificate.
5. Any holder of shares of Common Stock, or of shares of any series
of Preferred Stock which is entitled to vote with the holders of Common
Stock in the election of directors of the Corporation, shall be entitled at
all elections of directors to as many votes as shall equal the number of
votes which (except for this provision as to cumulative voting) he would be
entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected, and such holder
may cast all of such votes for a single candidate or may distribute them
among the number to be voted for, or for any two or more of them as he may
see fit. However, no stockholder shall be entitled to cumulate votes (i.e.,
cast for any candidate a number of votes greater than the number of votes
which such stockholder normally is entitled to cast) unless such candidate
or candidates' names have been placed in nomination prior to the meeting in
accordance with the Bylaws of the Corporation, and the stockholder has given
notice of the stockholder's intention to cumulate his votes in accordance
with the Bylaws of the Corporation. If any one stockholder has given such
notice, all stockholders may cumulate their votes for any candidate duly
nominated in accordance with the procedure as set forth in the Bylaws.
<PAGE>
ARTICLE V
1. The authorized number of directors of the Corporation shall be
fixed from time to time by resolution of the Board of Directors.
2. The Board of Directors (other than those directors elected by the
holders of any series of Preferred Stock voting separately from the holders
of Common Stock in any election of directors, as may be provided for or
fixed pursuant to the provisions of Article IV of this Certificate of
Incorporation) shall be divided into three classes, designated Class I,
Class II, and Class III, as nearly equal in number as possible, and the term
of office of directors of one class shall expire at each annual meeting of
stockholders, and in all cases as to each director until his successor shall
be elected and shall qualify or until his earlier resignation, removal from
office, death or incapacity. Additional directorships resulting from an
increase in number of directors shall be apportioned among the classes as
equally as possible. One class of directors shall be initially elected for
a term expiring at the annual meeting of stockholders to be held in the year
2000, another class shall be initially elected for a term expiring at the
annual meeting of stockholders to be held in the year 2001, and another
class shall be initially elected for a term expiring at the annual meeting
of stockholders to be held in the year 2002. At each succeeding annual
meeting of stockholders, a number of directors equal to the number of
directors of the class whose term expires at the time of such meeting shall
be elected to hold office until the third succeeding annual meeting of
stockholders after their election.
3. Except as otherwise provided for or fixed pursuant to the
provisions of Article IV of this Certificate of Incorporation relating to
the rights of the holders of any series of Preferred Stock to elect
additional directors, and subject to the provisions hereof, newly-created
directorships resulting from any increase in the authorized number of
directors, and any vacancies on the Board resulting from death, resignation,
disqualification, removal, or other cause, may be filled only by the
affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board. Any director elected in
accordance with the preceding sentence shall hold office for the remainder
of the full term of the class of directors in which the new directorship was
created or in which the vacancy occurred, and until such director's
successor shall have been duly elected and qualified, subject to his earlier
death, resignation or removal. Subject to the provisions of this
Certificate of Incorporation, no decrease in the number of directors
constituting the Board shall shorten the term of any incumbent director.
ARTICLE VI
The Board of Directors is expressly authorized to make and alter the
Bylaws of the Corporation, without any action on the part of the
stockholders.
ARTICLE VII
Any action which may be taken by stockholders of the Corporation at an
annual or special meeting and which requires the approval of at least a
majority of
(a) the voting power of the securities of the Corporation present
at such meeting and entitled to vote on such action, or
(b) the shares of the Common Stock of the Corporation present at
such meeting,
may not be effected except at such an annual or special meeting by the vote
required for the taking of such action. The power of stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied.
<PAGE>
ARTICLE VIII
A director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect
any right or protection of a director of the Corporation hereunder in
respect of any act or omission occurring prior to the time of such
amendment, modification or repeal.
ARTICLE IX
The Corporation is authorized to indemnify the directors and officers
of the Corporation to the fullest extent permissible under Delaware Law.
Any amendment, modification or repeal of the foregoing sentence shall not
adversely affect any right or protection of a director or officer of the
Corporation hereunder in respect of any act of omission occurring prior to
the time of such amendment, modification or repeal.
ARTICLE X
The name and mailing address of the incorporator is:
Stephen B. Lamson
Simpson Manufacturing Co., Inc.
4637 Chabot Drive, Suite 200
Pleasanton, CA 94588
IN WITNESS WHEREOF the incorporator has signed this certificate as of
this 23rd day of February, 1999.
By /s/Stephen B. Lamson
----------------------------
Name: Stephen B. Lamson
----------------------------
EXHIBIT 3.(ii).1
----------------
BYLAWS
OF
SIMPSON MANUFACTURING CO., INC.
(formerly SIMPSON HOLDINGS, INC.)
ARTICLE I
Principal Office
The principal executive office of the Corporation or the
principal business office of the Corporation in California may be fixed and
located at such place or places as the Board of Directors may specify. The
Board of Directors may change any such office from time to time from one
location to another.
ARTICLE II
Shareholders
Section 1. Place of Meetings.
All meetings of the shareholders shall be held at any place
within or without the State of California which may be designated either by
the Board of Directors or by the written consent of all shareholders
entitled to vote thereat and not present at the meeting given before or
after the meeting and filed with the Secretary of the Corporation. In the
absence of any such designation, shareholders' meetings shall be held at
the principal executive office of the Corporation, if any, or, if none, at
the principal business office of the Corporation in California.
Section 2. Annual Meeting.
The annual meeting of the shareholders shall be held at a place
and time designated by the Board of Directors. At the annual meeting,
directors shall be elected, reports of the affairs of the Corporation shall
be considered and any other proper business may be transacted which is
within the power of the shareholders.
Section 3. Special Meetings.
Special meetings of the shareholders for the purpose of taking
any action permitted to be taken by the shareholders under the California
Corporations Code and the Articles of Incorporation of the Corporation may
be called at any time by the Chairman of the Board, President or Board of
Directors or by the holders of shares entitled to cast not less than ten
percent of the votes at the meeting.
<PAGE>
On request in writing to the Chairman of the Board, the
President, any Vice President or the Secretary of the Corporation by any
person or persons (other than the Board of Directors) entitled to call a
special meeting of shareholders, the officer to whom such request is made
shall forthwith cause notice to be given to the shareholders entitled to
vote that a meeting of the shareholders will be held at the time requested
by the person or persons calling the meeting, which time shall be not less
than thirty-five nor more than sixty days after the receipt of such
request.
Section 4. Notice of Meetings; Advance Notice of Shareholder Business;
Notice of Shareholder Nominees.
Whenever shareholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the
place, date and hour of the meeting. In the case of a special meeting,
such notice shall specify the general nature of the business to be
transacted and no other business may be transacted at such meeting. In the
case of the annual meeting, the notice shall specify those matters which
the Board of Directors, at the time of the mailing of the notice, intends
to present for action by the shareholders. The notice of any meeting at
which directors are to be elected shall include the names of the nominees
intended at the time of the notice to be presented by the Board for
election. Any such notice shall also state any other matters required by
statute.
At an annual meeting of the shareholders, only such business
shall be conducted as shall have been properly brought before the meeting.
Commencing with the annual meeting in the year 2000, to be properly
brought before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation,
not less than 75 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 85 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than
the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at
the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (c) the
class and number of shares of the Corporation which are beneficially owned
by the shareholder, and (d) any material interest of the shareholder in
such business. Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with
the procedures set forth in this Section 4. The Chairman of the annual
meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting and in accordance
with the provisions of this Section 4, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
<PAGE>
Commencing with the annual meeting in the year 2000, only
persons who are nominated in accordance with the procedures set forth in
this Section 4 shall be eligible for election as Directors. Nominations of
persons for election to the Board of Directors of the Corporation may be
made at a meeting of shareholders by or at the direction of the Board of
Directors or by any shareholder of the Corporation entitled to vote for the
election of Directors at the meeting who complies with the notice
procedures set forth in this Section 4. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a shareholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less
than 75 days nor more than 90 days prior to the meeting provided, however,
that in the event that less than 85 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. Such
shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or reelection as a Director,
(i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii)
the class and number of shares of the Corporation which are beneficially
owned by such person, and (iv) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including without limitation such persons' written consent to being named
in the proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the shareholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such shareholder and
(ii) the class and number of shares of the Corporation which are
beneficially owned by such shareholder. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the
procedures set forth in this Section 4. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
<PAGE>
Section 5. Consent to Shareholders' Meetings and Actions without Meetings.
The transactions of any meeting of shareholders, however called
and noticed and wherever held, are as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present either in person
or by proxy and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy, signs a written waiver
of notice or a consent to the holding of the meeting or an approval of the
minutes thereof. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of
and presence at such meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened and except that attendance at a
meeting is not a waiver of any right to object to the consideration of
matters required by law to be included in the notice but not so included,
if such objection is expressly made at the meeting. Neither the business
to be transacted at nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver of notice, consent to
the holding of the meeting or approval of the minutes thereof, except that
any shareholder approval at a meeting, other than unanimous approval by
those entitled to vote, pursuant to section 310 (transactions between the
Corporation and one or more of the Directors), section 902 (amendment to
Articles of Incorporation), section 1201 (reorganization), section 1900
(voluntary dissolution) or section 2007 (plan of distribution on
dissolution) of the California Corporations Code shall be valid only if the
general nature of the proposal so approved is stated in the notice of
meeting or in any written waiver of notice.
Any action which may be taken at any annual or special meeting
of shareholders may be taken without a meeting and without prior notice, if
a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares having not less than the minimum number
of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and
voted. All such consents shall be filed with the secretary of the
Corporation and shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxyholder, or
a transferee of the shares or a personal representative of the shareholder
or the transferee's or personal representative's respective proxyholder,
may revoke the consent by a writing received by the Secretary of the
Corporation before written consents with respect to the number of shares
required to authorize the proposed action have been filed with the
Secretary, but may not do so thereafter. Such revocation is effective on
its receipt by the Secretary of the Corporation. Unless the consents of all
shareholders entitled to vote have been solicited in writing, (a) notice of
any shareholder approval pursuant to section 310 (transactions between the
Corporation and one or more of the Directors), section 317 (indemnification
of an officer, director or employee), section 1201 (reorganization) or
section 2007 (plan of distribution on dissolution) of the California
<PAGE>
Corporations Code without a meeting by less than unanimous written consent
shall be given at least ten days before the consummation of the action
authorized by such approval to those shareholders entitled to vote who have
not consented in writing and (b) prompt notice shall be given of the taking
of any other corporate action approved by shareholders without a meeting by
less than unanimous written consent to those shareholders entitled to vote
who have not consented in writing. In the case of election of directors,
such a consent shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of such directors (in
accordance with section 3 of Article III of these Bylaws); provided that a
director may be elected at any time to fill a vacancy on the Board of
Directors, except a vacancy created by removal, by the written consent of
the holders of shares entitled to cast a majority of the votes entitled to
be cast by the holders of all outstanding shares entitled to vote for the
election of such director (in accordance with section 3 of Article III of
these Bylaws).
Section 6. Quorum.
A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum for the transaction of
business at a meeting of shareholders. If a quorum is present, the
affirmative vote of the majority of the shares represented and voting at a
duly held meeting and (which shares voting affirmatively also constitute at
least a majority of the required quorum) shall be the act of the
shareholders.
The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a
quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares
represented either in person or by proxy, but no other business may be
transacted, except as provided in the preceding paragraph.
Section 7. Voting Rights.
Except as otherwise provided by law or the Articles of
Incorporation, each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote of shareholders.
Any holder of shares entitled to vote on any matter may vote part of the
shares in favor of the proposal and refrain from voting the remaining
shares or vote them against the proposal, other than elections to office,
but, if any shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that
such shareholder's approving vote is with respect to all shares such
shareholder is entitled to vote.
<PAGE>
Every person entitled to vote shares may authorize another
person or persons to act by proxy with respect to such shares. No proxy
shall be valid after the expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Subject to the foregoing and to
the express terms and conditions of any proxy, every proxy shall continue
in full force and effect until revoked by the person executing it prior to
the vote pursuant thereto. Such revocation may be effected by a writing
delivered to the Corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and
presented to the meeting or, as to any meeting, by attendance at such
meeting and voting in person by the person executing the proxy. A proxy is
not revoked by the death or incapacity of the maker unless, before the vote
is counted, written notice of such death or incapacity is received by the
Corporation.
In any election of directors, any form of proxy in which the
Directors to be voted on are named therein as candidates and which is
marked by a shareholder "withhold" or otherwise marked in a manner
indicating that the authority to vote for the election of directors is
withheld shall not be voted for the election of a director.
Every shareholder entitled to vote at any election of directors
may cumulate such shareholder's votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the
number of votes to which such shareholder's shares are normally entitled,
or distribute such shareholder's votes on the same principle among as many
candidates as such shareholder thinks fit; provided, that no shareholder
shall be entitled so to cumulate votes or cast for any candidate a number
of votes greater than the number of votes which such shareholder normally
is entitled to cast unless such candidate's or candidates' name(s) have
been placed in nomination prior to the voting and a shareholder has given
notice at the meeting prior to the voting of intention to vote
cumulatively. In any election of directors, the candidates receiving the
highest number of affirmative votes of the shares entitled to be voted for
them up to the number of directors to be elected by such shares are
elected; votes against the directors and votes withheld shall have no legal
effect. Elections for directors need not be by ballot unless a shareholder
demands election by ballot at the meeting and before the voting begins.
Section 8. Determination of Shareholders of Record.
So that the Corporation may determine the shareholders entitled
to notice of any meeting or to vote or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than
sixty nor less than ten days prior to the date of such meeting nor more
than sixty days prior to any other action.
<PAGE>
If no record date is fixed, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the business day next preceding the
day on which notice is given or, if notice is waived, at the close of
business on the business day next preceding the day on which the meeting is
held. The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting when no prior
action by the Board of Directors has been taken shall be the day on which
the first written consent is given. The record date for determining
shareholders for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto,
or the sixtieth day prior to the date of such other action, whichever is
later.
A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of
the meeting unless the Board of Directors fixes a new record date for the
adjourned meeting, but the Board of Directors shall fix a new record date
if the meeting is adjourned for more than forty-five days from the date set
for the original meeting.
Shareholders at the close of business on the record date are
entitled to notice and to vote or to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation
after the record date, except as otherwise provided in the Articles of
Incorporation or by agreement.
ARTICLE III
Board of Directors
Section 1. Powers and Duties.
Subject to the California Corporations Code and any limitations
in the Articles of Incorporation and these Bylaws as to action to be
authorized or approved by the shareholders, the business affairs of the
Corporation shall be managed and all corporate powers shall be exercised by
or under the direction of the Board of Directors. Without prejudice to
such general powers, but subject to the same limitations, the Board of
Directors shall have the following powers:
First: To conduct, manage and control the affairs and
business of the Corporation and to make such rules and regulations
therefor, not inconsistent with law or with the Articles of Incorporation
or with the Bylaws, as they may deem best;
<PAGE>
Second: To elect and remove at pleasure the officers,
agents and employees of the Corporation, prescribe their duties and fix
their compensation;
Third: To authorize the issuance of shares of stock of
the Corporation from time to time upon such terms as may be lawful;
Fourth: To borrow money and incur indebtedness for the
purposes of the Corporation and to cause to be executed and delivered
therefor, in the corporate name, promissory notes, bonds, debentures, deeds
of trust, mortgages, pledges, hypothecations or other evidences of debt and
securities therefor; and
Fifth: To alter, repeal or amend, from time to time and
at any time, these Bylaws and any and all amendments of the same, and, from
time to time and at any time, to make and adopt such new and additional
Bylaws as may be necessary and proper, subject to the power of the
shareholders to adopt, amend or repeal such Bylaws, or to revoke the
delegation of authority of the Directors, as provided by law or by Article
IX of these Bylaws.
A director shall perform the duties of a director, including
duties as a member of any committee of the Board of Directors on which a
director may serve, in good faith, in a manner such director believes to be
in the best interests of the Corporation and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position
would use under similar circumstances.
Section 2. Number.
The authorized number of directors shall not be less than four
nor more than seven. The exact authorized number of directors shall be
fixed from time to time, within the limits specified in this section or in
the Articles of Incorporation, by approval of the Board of Directors or the
shareholders in the manner provided in these Bylaws. Subject to the
foregoing provisions for changing the authorized number of directors, the
authorized number of directors of this Corporation is initially fixed at
four.
Section 3. Election and Term.
Directors shall be elected at each annual meeting of the
shareholders to hold office until the next annual meeting, but if any such
annual meeting is not held or the Directors are not elected thereat, the
Directors may be elected at any special meeting of the shareholders held
for that purpose. Each director, including a director elected to fill a
vacancy, shall hold office until the expiration of the term for which
elected and until a successor has been elected and qualifies, except as
otherwise provided by the California Corporations Code or the Articles of
Incorporation. Directors, including directors elected to fill vacancies,
shall be elected by the holders of shares empowered to vote therefor
pursuant to the provisions of the California Corporations Code and the
Articles of Incorporation.
<PAGE>
Section 4. Vacancies.
A vacancy or vacancies in the Board of Directors shall be
deemed to exist in the event of the death, resignation or removal of any
director in accordance with section 303 or 304 of the California
Corporations Code, or in the event of an increase in the authorized number
of directors by the Board of Directors or by the shareholders, or
declaration of a vacancy by the Board of Directors for one of the reasons
specified in section 302 of the California Corporations Code.
Unless otherwise provided in the Articles of Incorporation or
these Bylaws and except for a vacancy created by the removal of a director,
vacancies on the Board of Directors may be filled by a majority of the
Directors then in office, whether or not less than a quorum or by a sole
remaining director. Unless the Articles of Incorporation or a Bylaw
adopted by the shareholders provides that the Board of Directors may fill
vacancies occurring in the Board of Directors by reason of the removal of
directors, such vacancies may be filled only by approval of the
shareholders.
Subject to the Articles of Incorporation, the shareholders
entitled to vote for the election of directors may elect a director at any
time to fill any vacancy not filled by the Directors. Any such election by
written consent shall be conducted in accordance with section 5 of Article
II of these Bylaws.
If, after the filling of any vacancy by the Directors, the
Directors then in office who have been elected by the shareholders shall
constitute less than a majority of the Directors then in office, any holder
or holders of an aggregate of five percent or more of the total number of
shares at the time outstanding having the right to vote for directors may
call a special meeting of shareholders to be held to elect the entire Board
of Directors. The term of office of any director shall terminate on such
election of a successor.
Section 5. Removal of Directors.
Subject to the Articles of Incorporation, the entire Board of
Directors or any individual Director may be removed from office as provided
by Sections 302, 303, and 304 of the California Corporations Code. In such
case, subject to the Articles of Incorporation, the remaining Directors may
elect a successor Director to fill such vacancy for the remaining unexpired
term of the Director so removed.
<PAGE>
Section 6. Meetings.
Immediately following each annual meeting of the shareholders,
a regular meeting of the Board of Directors of the Corporation shall be
held at the place of said annual meeting or such other place as shall have
been designated by the Board of Directors for the purpose of organization,
election of officers and the transaction of other business. Other regular
meetings of the Board of Directors shall be held without call on such date
and time as may be fixed by the Board of Directors; provided, however, that
should any such day fall on a legal holiday, then said meeting shall be
held at the same time on the next day thereafter ensuing which is not a
legal holiday. No notice of regular meetings of the Board of Directors
need be given; provided, that notice of any change in the time or place of
any such regular meeting shall be given to all of the Directors in the same
manner as notice for special meetings of the Board of Directors.
Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the Chairman of the Board or
President or, if both the Chairman of the Board and the President are
absent or are unable or refuse to act, by any Vice President or by any two
directors. Notice of the time and place of special meetings shall be
delivered personally or by telephone to each Director or sent by first-
class mail or telegram or facsimile transmission, charges prepaid,
addressed to such Director's address as it appears on the records of the
Corporation or, if it is not so shown on the records and is not readily
ascertainable, at the place at which the meetings of the Directors are
regularly held. In case such notice is mailed, it shall be deposited in
the United States mail at least four days prior to the time of the holding
of the meeting. In case such notice is telegraphed or sent by facsimile
transmission, it shall be delivered to a common carrier for transmission to
the Director or actually transmitted by the person giving the notice by
electronic means to the Director at least forty-eight hours prior to the
time of the holding of the meeting. In case such notice is delivered
personally or by telephone as above provided, it shall be so delivered at
least twenty-four hours prior to the time of the holding of the meeting.
Any notice given personally or by telephone may be communicated either to
the Director or to a person at the office of the Director whom the person
giving the notice has reason to believe will promptly communicate it to the
Director. Such deposit in the mail, delivery to a common carrier,
transmission by electronic means or delivery, personally or by telephone,
as above provided, shall be due, legal and personal notice to such
Director. The notice need not specify the place of the meeting if the
meeting is to be held at the principal executive office of the Corporation,
if any, or, if none, at the principal business office of the Corporation in
California, and need not specify the purpose of the meeting.
Notice of a meeting need not be given to any director who signs
a waiver of notice or a consent to holding the meeting or an approval of
the minutes thereof, whether before or after the meeting, or who attends
the meeting without protesting, prior thereto or at its commencement, the
lack of notice to such director. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
<PAGE>
A majority of the Directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting
is adjourned for more than twenty-four hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned
meeting to the Directors who were not present at the time of the
adjournment.
Meetings of the Board of Directors may be held at any place
within or without the state which has been designated in the notice of the
meeting or, if not stated in the notice or there is no notice, designated
in the Bylaws or by resolution of the Board of Directors.
Members of the Board of Directors may participate in a meeting
through use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another.
Participation in a meeting pursuant to this section constitutes presence in
person at such meeting.
Section 7. Quorum.
A majority of the authorized number of directors constitutes a
quorum of the Board of Directors for the transaction of business.
Every act or decision done or made by a majority of the
Directors present at a meeting duly held at which a quorum is present is
the act of the Board of Directors, unless otherwise provided by law or
unless a greater number be required by the Articles of Incorporation or
these Bylaws. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required
quorum for such meeting.
Section 8. Action Without a Meeting.
Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the
same force and effect as a unanimous vote of the Board of Directors.
Section 9. Fees and Compensation.
Directors and members of committees may receive such
compensation, if any, for their services, and such reimbursement for
expenses, as may be fixed or determined by resolution of the Board of
Directors.
<PAGE>
Section 10. Committees.
The provisions of this Article III shall also apply, with
necessary changes in points of detail, to committees of the Board of
Directors, if any, and to actions by such committees (except for the first
sentence of section 5 of this Article III, which shall not apply, and
except that special meetings of a committee may also be called at any time
by any two members of the committee), unless otherwise provided by these
Bylaws or by the resolution of the Board of Directors designating such
committees. For such purpose, references to "the Board of Directors" shall
be deemed to refer to each such committee and references to "directors" and
"members of the Board" shall be deemed to refer to members of the
committee. Committees of the Board of Directors may be designated and
shall be subject to limitations on their authority as provided in section
311 of the California Corporations Code.
ARTICLE IV
Officers
Section 1. Designation of Officers.
The Board of Directors shall appoint the officers of the
Corporation, including the Chairman of the Board or the President or both,
the Secretary, and the Chief Financial Officer. The Corporation may also
have such other officers as may be appointed by the Board of Directors with
such titles and duties as may be determined by the Board of Directors and
as may be necessary to enable it to sign instruments and share
certificates. If the Board shall name one or more persons as Vice
Presidents, the order of their seniority shall be in the order of their
appointment, unless otherwise specified by the Board of Directors. Any
number of offices may be held by the same person. All officers of the
Corporation shall hold office from the date appointed to the date of the
next succeeding regular meeting of the Board of Directors following the
meeting of shareholders at which the Board of Directors is elected and
until their successors are elected; provided, that any officers may be
removed at any time with or without cause by the Board of Directors. On
the removal, resignation, death or incapacity of any officer, the Board of
Directors may declare such office vacant and fill such vacancy. Any
officer may resign at any time on written notice to the Corporation without
prejudice to the rights, if any, of the Corporation under any contract to
which the officer is a party. The salary and other compensation of the
officers shall be fixed from time to time by resolution of the Board of
Directors.
<PAGE>
Section 2. Chairman of the Board.
The Chairman of the Board shall, when present, preside at all
meetings of the Board of Directors, shall have authority to execute in the
name of the Corporation bonds, contracts, deeds, leases and other written
instruments to be executed by the Corporation (except where by law the
signature of another officer is required) and shall perform such other
duties as the Board of Directors may prescribe from time to time.
Section 3. President.
Subject to the control of the Board of Directors and to such
supervisory powers, if any, as may be given by the Board of Directors to
the Chairman of the Board, the President shall be the general manager and
chief executive officer of the Corporation, shall have general supervision,
direction and control of the business and officers of the Corporation and
shall perform all the duties customarily incident to that office. The
President shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board or if there be no Chairman of the
Board, shall preside at all meetings of the Board of Directors and shall
perform the duties of and may exercise all other authority otherwise given
to the Chairman of the Board, and shall perform such other duties as the
Board of Directors may prescribe from time to time.
Section 4. Vice Presidents.
If the Board of Directors shall appoint one or more Vice
Presidents, the Vice Presidents, in the order of their seniority, may
assume and perform the duties of the President in the absence or disability
of the President or whenever the office of President is vacant. The Vice
Presidents shall have such titles, perform such other duties, and have such
other powers as the Board of Directors may prescribe from time to time.
Section 5. Secretary.
The Secretary shall attend all meetings of the shareholders,
the Board of Directors and any committee appointed pursuant to section 9 of
Article III of these Bylaws and shall keep or cause to be kept at the
principal executive office or such other place as the Board of Directors
may order, a minute book of all such meetings, containing all acts and
proceedings thereof, the time and place of holding thereof, whether regular
or special, and, if special, how authorized, the notice thereof given, the
names of those present at directors' or committee meetings and the number
of shares present or represented at shareholders' meetings. The Secretary
shall give notice, in conformity with these Bylaws, of all meetings of the
shareholders, the Board of Directors or any such committee requiring
notice. The Secretary shall keep or cause to be kept at the principal
executive office, if any, or, if none, the principal business office in
<PAGE>
California, or at the office of the Corporation's transfer agent a share
register or a duplicate share register showing the names of the
shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall perform such other duties and have such other powers
as the Board of Directors may prescribe from time to time. The President
may direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary and each Assistant
Secretary shall perform such other duties and have such other powers as the
Board of Directors may prescribe from time to time.
Section 6. Chief Financial Officer.
The Chief Financial Officer shall keep or cause to be kept the
books of account of the Corporation in a thorough and proper manner, and
shall render statements of the financial affairs of the Corporation in such
form and as often as required by the Board of Directors. The Chief
Financial Officer, subject to the direction of the Board of Directors,
shall have the custody of all funds and securities of the Corporation. The
Chief Financial Officer shall perform all other duties customarily incident
to that office and shall perform such other duties and have such other
powers as the Board of Directors may prescribe from time to time. The
President may direct any Deputy Financial Officer to assume and perform the
duties of the Chief Financial Officer in the absence or disability of the
Chief Financial Officer and each Deputy Financial Officer shall perform
such other duties and have such other powers as the Board of Directors may
prescribe from time to time.
ARTICLE V
Execution of Corporate Instruments and Exercise of
Rights Under Securities Owned by the Corporation
Section 1. Execution of Corporate Instruments.
The Board of Directors may, in its discretion, determine the
method and designate the signatory officer or officers or other person or
persons to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law,
and such execution or signature shall bind the Corporation.
Unless otherwise required by law, any note, mortgage, evidence
of indebtedness, contract, share certificate, conveyance or other
instrument in writing, and any assignment or endorsement thereof, executed
or entered into between the Corporation and any other person, when signed
by the Chairman of the Board, the President or any Vice President and the
Secretary, any Assistant Secretary, the Chief Financial Officer or any
Deputy Financial Officer of the Corporation, is not invalidated as to the
Corporation by any lack of authority of the signing officers in the absence
of actual knowledge on the part of the other person that the signing
officers had no authority to execute the same.
<PAGE>
All checks and drafts drawn on banks or other depositories of
funds to the credit of the Corporation, or in special accounts of the
Corporation, shall be signed by such person or persons as the Board of
Directors shall authorize so to do.
Section 2. Securities Owned by Corporation.
All securities of other corporations or other entities owned or
held by the Corporation for itself, or for other parties in any capacity,
shall be voted, all proxies and other powers with respect thereto shall be
executed, and all rights appurtenant or pursuant thereto shall be exercised
on behalf of the Corporation by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board, the President or any Vice
President.
ARTICLE VI
Shares of Stock
Section 1. Form of Certificates.
Every holder of shares in the Corporation shall be entitled to
have a certificate signed in the name of the Corporation by the Chairman of
the Board, the President or a Vice President, and by the Chief Financial
Officer, a Deputy Financial Officer, the Secretary or any Assistant
Secretary, certifying the number and class or series of shares owned by
such shareholder. Any or all of the signatures on any such certificate may
be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed on a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the issuance of such certificate by the Corporation
shall have the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
If the shares of the Corporation are classified or if any class
of shares is divided into two or more series, any certificate representing
such shares shall bear conspicuously on its face, or on the reverse thereof
with conspicuous reference thereto on its face, one of the following: (a)
a statement of the rights, preferences, privileges and restrictions granted
to or imposed on the class or series of shares represented by such
certificate and on the holders thereof; (b) a summary of such rights,
preferences, privileges and restrictions with reference to the provisions
of the Articles of Incorporation and any Certificates of Determination
establishing the same; or (c) a statement setting forth the office or
agency of the Corporation from which shareholders may obtain, on request
and without charge, a copy of the statement prescribed by clause (a) of
this paragraph.
<PAGE>
Each such certificate shall also bear, conspicuously on its
face or on the reverse thereof with conspicuous reference thereto on its
face, any of the following to the extent applicable: (a) that the shares
are subject to restrictions on transfer; (b) that the shares are assessable
or are not fully paid, including, in the case of partly paid shares, the
total amount of the consideration to be paid therefor and the amount paid
thereon; (c) that the shares are subject to a close corporation voting
agreement or an irrevocable proxy or restrictions on voting rights
contractually imposed by the Corporation; (d) that the shares are
redeemable; and (e) that the shares are convertible and the period for
conversion.
When the Articles of Incorporation are amended in any way
affecting the statements contained in certificates representing outstanding
shares, or it becomes desirable for any reason, in the discretion of the
Board of Directors, to cancel any outstanding certificate representing
shares and issue a new certificate therefor conforming to the rights of the
holder, the Board of Directors may order any holders of outstanding
certificates representing shares to surrender and exchange them for new
certificates within a reasonable time to be fixed by the Board of
Directors.
Section 2. Transfer of Shares.
Shares of stock of the Corporation may be transferred in any
manner permitted or provided by law. Before any transfer of stock is
entered on the books of the Corporation, or any new certificate issued
therefor, the outstanding certificate properly endorsed shall be
surrendered and cancelled, unless such outstanding certificate has been
lost, stolen or destroyed.
Section 3. Lost Certificates.
The Corporation shall issue a new certificate representing
shares in the place of any certificate theretofore issued by it, alleged to
have been lost, stolen or destroyed; provided, that, prior and as a
condition to the issuance of such new certificate, the Board of Directors
may require the owner of the lost, stolen or destroyed certificate or the
owner's legal representative to give the Corporation a bond (or other
adequate security) sufficient to indemnify it against any claim that may be
made against it (including any expense or liability) on account of the
alleged loss, theft or destruction of any such certificate or the issuance
of such new certificate and may require such owner to furnish to the
Corporation such other affidavits, certificates or other documents as the
Board of Directors may deem necessary or advisable.
<PAGE>
Section 4. Electronic Securities Recordation.
Notwithstanding the provisions of sections 1, 2 and 3 of this
Article VI, the Corporation may adopt a system of issuance, recordation and
transfer of its shares by electronic or other means not involving any
issuance of certificates, provided the use of such system by the
Corporation is permitted by and in accordance with applicable law.
ARTICLE VII
Annual Report
An annual report, meeting the requirements specified in section
1501 of the California Corporations Code, shall be sent to the shareholders
not later than the 120th day after the close of the fiscal year of the
Corporation or the fifteenth day preceding the annual meeting of
shareholders for the next succeeding fiscal year, whichever shall first
occur; provided, however, that such requirements are waived and no such
report need be sent so long as the number of shareholders of record
(determined as provided in section 605 of the California Corporations Code)
is less than one hundred.
ARTICLE VIII
Corporate Seal
The corporate seal shall consist of a circular die bearing the
name of the Corporation and the state and date of its incorporation and
shall be kept and used by the Secretary or any Assistant Secretary as the
Secretary may direct. If and when authorized by the Board of Directors, a
duplicate of the corporate seal may be kept and used by such officer or
person as the Board of Directors may designate. Failure to affix the
corporate seal does not affect the validity of any instrument of the
Corporation.
<PAGE>
ARTICLE IX
Amendments
New Bylaws may be adopted or these Bylaws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by law,
the Articles of Incorporation or these Bylaws. Subject to such right of
the shareholders to adopt, amend or repeal Bylaws, and except as otherwise
provided by law or the Articles of Incorporation, Bylaws may be adopted,
amended or repealed by the Board of Directors; provided that subject to the
Articles of Incorporation, a bylaw or amendment thereof changing a fixed
number of directors or the maximum or minimum number or changing from a
fixed to a variable board or vice versa may only be adopted by the
affirmative vote or written consent of a majority of the outstanding shares
entitled to vote; and provided that a bylaw or amendment of the articles
reducing the fixed number or the minimum number of directors to a number
less than five cannot be adopted if the votes cast against its adoption at
a meeting or the shares not consenting in the case of action by written
consent are equal to more than 16-2/3 percent of the outstanding shares
entitled to vote.
ARTICLE X
Indemnification of Agents
The Corporation shall indemnify each agent (as that term is
defined in Section 317 of the California Corporations Code) to the maximum
extent that the Corporation is permitted or empowered to do so under
Section 317 of the California Corporations Code. In addition, the
Corporation shall indemnify any person who is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation
as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director or
officer of a foreign or a domestic corporation which was a predecessor
corporation of the Corporation or of another enterprise at the request of
such predecessor corporation, and the Corporation shall hold such director
or officer harmless, from and against any and all claims, liabilities,
damages and expenses suffered or incurred by such director or officer as a
result of or in connection with any act or omission or transaction of such
director or officer in his or her capacity as such director or officer;
provided that such director or officer shall not be indemnified by the
Corporation for any acts or omissions or transactions from which a director
may not be relieved of liability as set forth in the exception to
paragraph (10) of Section 204(a) of the California Corporations Code, or as
to circumstances in which indemnity is expressly prohibited by Section 317
of the California Corporations Code.
EXHIBIT 3.(ii).2
----------------
BYLAWS
OF
SIMPSON MANUFACTURING CO., INC.
ARTICLE I
Registered Office
The initial registered office of the Corporation in Delaware shall
be The Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801.
Additional Offices
The Corporation may also have offices at such other places, either
within or without the State of Delaware, as the Board of Directors (the
"Board") may from time to time designate or the business of the Corporation
may require.
ARTICLE II
Stockholders
Section 1. Place of Meetings.
Meetings of the stockholders may be held at any place within or
without the State of Delaware which may be designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings
shall be held at the principal executive office of the Corporation in
California.
Section 2. Annual Meeting.
The annual meeting of the stockholders shall be held at a place
and time designated by the Board of Directors. At each such annual meeting,
the stockholders shall elect the successors to the class of directors whose
term expires at such meeting, and any other business properly brought before
the meeting, in accordance with the provisions of the Certificate of
Incorporation and these Bylaws, may be transacted.
Section 3. Special Meetings.
Special meetings of the stockholders for any purpose or purposes
may be called at any time by the Board of Directors.
<PAGE>
Section 4. Notice of Meetings.
Whenever stockholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat. Such notice shall state the place,
date and hour of the meeting. In the case of a special meeting, such notice
shall specify the general nature of the business to be transacted and no
other business may be transacted at such meeting. In the case of the annual
meeting, the notice shall specify those matters which the Board of
Directors, at the time of the mailing of the notice, intends to present for
action by the stockholders. The notice of any meeting at which directors
are to be elected shall include the names of the nominees intended at the
time of the notice to be presented by the Board for election. Any such
notice shall also state any other matters required by statute.
Notice of a stockholders' meeting or any report shall be given
either personally or by mail or other means of written communication (which
includes, without limitation and wherever used in these Bylaws, telegraphic
and facsimile communication), postage or fees prepaid, addressed to each
stockholder at the address of such stockholder appearing on the books of the
Corporation or given by such stockholder to the Corporation for the purpose
of notice, or, if no such address appears or is given, at the place where
the principal executive office of the Corporation is located, if any, or, if
none, at the place where the principal business office of the Corporation is
located, or by publication at least once in a newspaper of general
circulation in the county in which such office is located. The notice or
report shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by other means of written
communication. If any notice or report addressed to a stockholder at the
address of such stockholder appearing on the books of the Corporation is
returned to the Corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver the
notice or report to such stockholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing,
until such stockholder shall have notified the Corporation in writing of
such stockholder's address for the purpose of notice, if the same shall be
available for such stockholder on written demand at such office for a period
of one year from the date of the giving of the notice or report to all other
stockholders.
When a stockholders' meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is
taken. If the adjournment is for more than forty-five days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting the Corporation
may transact any business which might have been transacted at the original
meeting.
<PAGE>
Section 5. Advance Notice of Stockholder Business and Stockholder Nominees.
At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting.
Commencing with the annual meeting in the year 2000, to be properly brought
before an annual meeting, business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation, not less
than 75 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 85 days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date
of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (b) the
name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of
the Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding
anything in the Bylaws to the contrary, no business shall be conducted at
any annual meeting except in accordance with the procedures set forth in
this Section 5. The Chairman of the annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this
Section 5, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
Commencing with the annual meeting in the year 2000, only
persons who are nominated in accordance with the procedures set forth in
this Section 5 shall be eligible for election as Directors. Nominations of
persons for election to the Board of Directors of the Corporation may be
made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of Directors at the meeting who complies with the notice procedures
set forth in this Section 5. Such nominations, other than those made by or
at the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 75 days nor
more than 90 days prior to the meeting provided, however, that in the event
<PAGE>
that less than 85 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposed to nominate
for election or re-election a Director, (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation such persons'
written consent to being named in the proxy statement as a nominee and to
serving as a Director if elected); and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the Corporation's books,
of such stockholder and (ii) the class and number of shares of the
Corporation which are beneficially owned by such stockholder. At the
request of the Board of Directors any person nominated by the Board of
Directors for election as a Director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible for election as a Director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 5. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the
meeting that a nomination was not made in accordance with the procedures
prescribed by the Bylaws, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
Section 6. Quorum.
The presence of holders of the shares of stock having a majority
of the votes which could be cast by the holders of all outstanding shares of
stock entitled to vote at any meeting, represented in person or by proxy,
shall be necessary and sufficient to constitute a quorum. If a quorum is
present, the affirmative vote of the majority of the votes entitled to be
cast at such meeting, or such greater number of votes as may be required by
these Bylaws or the Certificate of Incorporation (which shares voting
affirmatively also constitute at least a majority of the required quorum),
shall be the act of the stockholders.
The stockholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to leave
less than a quorum, if any action taken (other than adjournment) is approved
by at least a majority of the shares required to constitute a quorum.
In the absence of a quorum, any meeting of stockholders may be
adjourned from time to time by a majority of the votes entitled to be cast
at such meeting represented either in person or by proxy.
<PAGE>
Section 7. Voting Rights.
Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote of
stockholders. Any holder of shares entitled to vote on any matter, other
than elections to office, may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or vote them against
the proposal, but, if any stockholder fails to specify the number of shares
such stockholder is voting affirmatively, it will be conclusively presumed
that such stockholder's approving vote is with respect to all shares such
stockholder is entitled to vote.
Every person entitled to vote shares may authorize another
person or persons to act by proxy with respect to such shares. No proxy
shall be valid after the expiration of one year from the date thereof unless
otherwise provided in the proxy. A proxy shall be irrevocable if it states
that it is irrevocable and if and only so long as, it is coupled with an
interest sufficient in law to support an irrevocable proxy. Subject to the
foregoing and to the express terms and conditions of any proxy, every proxy
shall continue in full force and effect until revoked by the person
executing it, which revocation must be prior to the vote. Such revocation
may be effected by a writing delivered to the Corporation stating that the
proxy is revoked or by a subsequent proxy executed by the person executing
the prior proxy and presented to the meeting or, as to any meeting, by
attendance at such meeting and voting in person by the person executing the
proxy. A proxy is not revoked by the death or incapacity of the maker
unless, before the vote is counted, written notice of such death or
incapacity is received by the Corporation.
In any election of Directors, any form of proxy in which the
Directors to be voted on are named therein as candidates and which is marked
by a stockholder "withhold," or otherwise marked in a manner indicating that
the authority to vote for the election of Directors is withheld, shall not
be voted for the election of a Director.
Every stockholder entitled to vote at any election of directors
may cumulate such stockholder's votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the
number of votes to which such stockholder's shares are normally entitled, or
distribute such stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit; provided, that no stockholder
shall be entitled so to cumulate votes or cast for any candidate a number of
votes greater than the number of votes which such stockholder normally is
entitled to cast unless such candidate's or candidates' name(s) have been
placed in nomination in accordance with these Bylaws and such stockholder
has given notice in writing to the Secretary of the Corporation of his
intention to cumulate his votes not less than 65 days prior to the meeting.
<PAGE>
If proper notice of an intent to cumulate votes has been received by the
Secretary and not withdrawn by the stockholder by the sixtieth (60th) day
preceding the meeting date, the Corporation shall so indicate in the
notice of meeting sent to all stockholders pursuant to Section 4 of this
Article II. If any one stockholder has given such notice, all stockholders
may cumulate their votes for any candidate duly nominated in accordance with
these Bylaws. In any election of directors, the candidates receiving the
highest number of affirmative votes of the shares entitled to be voted for
them up to the number of directors to be elected by such shares are elected;
votes against the directors and votes withheld shall have no legal effect.
Section 8. Determination of Stockholders of Record.
So that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not precede the
date upon which the resolution fixing the record date is adopted by the
Board of Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not be more
than sixty nor less than ten days before the date of such meeting; and (2)
in the case of any other action, shall not be more than sixty days prior to
such other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the business day next preceding the day
on which notice is given or, if notice is waived, at the close of business
on the business day next preceding the day on which the meeting is held.
The record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto, or the sixtieth day prior to the date of
such other action, whichever is later.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting unless the Board of Directors fixes a new record date for the
adjourned meeting, but the Board of Directors shall fix a new record date if
the meeting is adjourned for more than forty-five days from the date set for
the original meeting.
Stockholders at the close of business on the record date are
entitled to notice and to vote or to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation
after the record date, except as otherwise provided in the Certificate of
Incorporation or by agreement.
<PAGE>
ARTICLE III
Board of Directors
Section 1. Powers and Duties.
Subject to the Delaware General Corporations Law and any
limitations in the Certificate of Incorporation and these Bylaws as to
action to be authorized or approved by the stockholders, the business
affairs of the Corporation shall be managed and all corporate powers shall
be exercised by or under the direction of the Board of Directors.
A director shall perform the duties of a director, including
duties as a member of any committee of the Board of Directors on which a
director may serve, in good faith, in a manner such director believes to be
in the best interests of the Corporation and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would
use under similar circumstances.
Section 2. Number.
The authorized number of directors shall be fixed from time to
time by resolution of the Board of Directors, approved by at least a
majority of the Directors then in office.
Section 3. Election and Term.
The Board of Directors (other than those directors elected by
the holders of any series of Preferred Stock voting separately from the
holders of Common Stock in any election of Directors, as may be provided for
or fixed pursuant to the Certificate of Incorporation) shall be divided into
three classes, designated Class I, Class II, and Class III, as nearly equal
in number as possible, and the term of office of directors of one class
shall expire at each annual meeting of stockholders, and in all cases as to
each director until his successor shall be elected or until his earlier
resignation, removal from office, death or incapacity. Additional
directorships resulting from an increase in number of directors shall be
apportioned among the classes as equally as possible. One class of
directors shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 2000, another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held
in 2001, and another class shall be initially elected for a term expiring at
the annual meeting of stockholders to be held in 2002. At each succeeding
annual meeting of stockholders, a number of directors equal to the number of
directors of the class whose term expires at the time of such meeting shall
be elected to hold office until the third succeeding annual meeting of
stockholders after their election. Directors, including directors elected
to fill vacancies, shall be elected by the holders of shares empowered to
vote therefor pursuant to the provisions of the Delaware General
Corporations Code and the Certificate of Incorporation.
<PAGE>
Section 4. Vacancies.
A vacancy or vacancies in the Board of Directors shall be deemed
to exist in the event of the death, resignation or removal of any director
or in the event of an increase in the authorized number of directors.
Unless otherwise provided in the Certificate of Incorporation or
these Bylaws and except for a vacancy created by the removal of a director,
vacancies on the Board of Directors may be filled by a majority of the
Directors then in office, whether or not less than a quorum, or by a sole
remaining director.
Section 5. Removal of Directors.
Directors may not be removed, except for cause.
Section 6. Meetings.
Immediately following each annual meeting of the stockholders, a
regular meeting of the Board of Directors of the Corporation shall be held
at the place of said annual meeting or such other place as shall have been
designated by the Board of Directors for the purpose of organization,
appointment of officers and the transaction of other business. Other
regular meetings of the Board of Directors shall be held without call on
such date and time and in such place, within or without the State of
Delaware as may be fixed by the Board of Directors; provided, however, that
should any such day fall on a legal holiday, then said meeting shall be held
at the same time on the next day thereafter ensuing which is not a legal
holiday. No notice of regular meetings of the Board of Directors need be
given; provided, that notice of any change in the time or place of any such
regular meeting shall be given to all of the Directors in the same manner as
notice for special meetings of the Board of Directors.
Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the Chairman of the Board or President
or, if both the Chairman of the Board and the President are absent or are
unable or refuse to act, by any Vice President or by any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Director or sent by first-class mail or
telegram or facsimile transmission, charges prepaid, addressed to such
Director's address as it appears on the records of the Corporation or, if it
is not so shown on the records and is not readily ascertainable, at the
place at which the meetings of the Directors are regularly held. In case
such notice is mailed, it shall be deposited in the United States mail at
least four days prior to the time of the holding of the meeting. In case
such notice is telegraphed or sent by facsimile transmission, it shall be
delivered to a common carrier for transmission to the Director or actually
transmitted by the person giving the notice by electronic means to the
Director at least forty-eight hours prior to the time of the holding of the
meeting. In case such notice is delivered personally or by telephone as
<PAGE>
above provided, it shall be so delivered at least twenty-four hours prior to
the time of the holding of the meeting. Any notice given personally or by
telephone may be communicated either to the Director or to a person at the
office of the Director whom the person giving the notice has reason to
believe will promptly communicate it to the Director. Such deposit in the
mail, delivery to a common carrier, transmission by electronic means or
delivery, personally or by telephone, as above provided, shall be due, legal
and personal notice to such Director. The notice need not specify the place
of the meeting if the meeting is to be held at the principal executive
office of the Corporation, if any, or, if none, at the principal business
office of the Corporation in California, and need not specify the purpose of
the meeting.
Notice of a meeting need not be given to any director who signs
a waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack
of notice to such director. All such waivers, consents and approvals shall
be filed with the corporate records or made a part of the minutes of the
meeting.
A majority of the Directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting
is adjourned for more than twenty-four hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned
meeting to the Directors who were not present at the time of the
adjournment.
Meetings of the Board of Directors may be held at any place
within or without the state which has been designated in the notice of the
meeting or, if not stated in the notice or there is no notice, designated in
the Bylaws or by resolution of the Board of Directors.
Members of the Board of Directors may participate in a meeting
through use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another.
Participation in a meeting pursuant to this section constitutes presence in
person at such meeting.
Section 7. Quorum.
A majority of the authorized number of directors constitutes a
quorum of the Board of Directors for the transaction of business.
Every act or decision done or made by a majority of the
Directors present at a meeting duly held at which a quorum is present is the
act of the Board of Directors, unless otherwise provided by law or unless a
greater number be required by the Certificate of Incorporation or these
Bylaws. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
<PAGE>
Section 8. Action Without a Meeting.
Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting, if all members of the Board shall
individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the
same force and effect as a unanimous vote of the Board of Directors.
Section 9. Fees and Compensation.
Directors and members of committees may receive such
compensation, if any, for their services, and such reimbursement for
expenses, as may be fixed or determined by resolution of the Board of
Directors.
Section 10. Committees.
The provisions of this Article III shall also apply, with
necessary changes in points of detail, to committees of the Board of
Directors, if any, and to actions by such committees (except that special
meetings of a committee may be called at any time by any two members of the
committee), unless otherwise provided by these Bylaws or by the resolution
of the Board of Directors designating such committees. For such purpose,
references to "the Board of Directors" shall be deemed to refer to each such
committee and references to "Directors" and "members of the Board" shall be
deemed to refer to members of the committee. Committees of the Board of
Directors may be designated and shall be subject to limitations on their
authority as provided in section 141 of the Delaware General Corporations
Law.
ARTICLE IV
Officers
Section 1. Designation of Officers.
The Board of Directors shall appoint the officers of the
Corporation, including the Chairman of the Board or the President or both,
the Secretary, and the Chief Financial Officer. The Corporation may also
have such other officers as may be appointed by the Board of Directors with
such titles and duties as may be determined by the Board of Directors and as
may be necessary to enable it to sign instruments and share certificates.
If the Board shall name one or more persons as Vice Presidents, the order of
their seniority shall be in the order of their appointment, unless otherwise
specified by the Board of Directors. Any number of offices may be held by
the same person. All officers of the Corporation shall hold office from the
date appointed to the date of the next succeeding regular meeting of the
Board of Directors following the meeting of stockholders at which the Board
<PAGE>
of Directors is elected and until their successors are appointed; provided,
that any officers may be removed at any time with or without cause by the
Board of Directors. On the removal, resignation, death or incapacity of any
officer, the Board of Directors may declare such office vacant and fill such
vacancy. Any officer may resign at any time on written notice to the
Corporation without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party. The salary and other
compensation of the officers shall be fixed from time to time by resolution
of the Board of Directors.
Section 2. Chairman of the Board.
The Chairman of the Board shall, when present, preside at all
meetings of the Board of Directors, shall preside at all meetings of the
stockholders, shall have authority to execute in the name of the Corporation
bonds, contracts, deeds, leases and other written instruments to be executed
by the Corporation (except where by law the signature of another officer is
required) and shall perform such other duties as the Board of Directors may
prescribe from time to time.
Section 3. President.
Subject to the control of the Board of Directors and to such
supervisory powers, if any, as may be given by the Board of Directors to the
Chairman of the Board, the President shall be the general manager and chief
executive officer of the Corporation, shall have general supervision,
direction and control of the business and officers of the Corporation and
shall perform all the duties customarily incident to that office. In the
absence of the Chairman of the Board or if there be no Chairman of the
Board, the President shall preside at all meetings of the Board of Directors
and of the stockholders and shall perform the duties of and may exercise all
other authority otherwise given to the Chairman of the Board, and shall
perform such other duties as the Board of Directors may prescribe from time
to time.
Section 4. Vice Presidents.
If the Board of Directors shall appoint one or more Vice
Presidents, the Vice Presidents, in the order of their seniority, may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice
Presidents shall have such titles, perform such other duties, and have such
other powers as the Board of Directors may prescribe from time to time.
<PAGE>
Section 5. Secretary.
The Secretary shall attend all meetings of the stockholders, the
Board of Directors and any committee appointed pursuant to section 9 of
Article III of these Bylaws and shall keep or cause to be kept at the
principal executive office or such other place as the Board of Directors may
order, a minute book of all such meetings, containing all acts and
proceedings thereof, the time and place of holding thereof, whether regular
or special, and, if special, how authorized, the notice thereof given, the
names of those present at directors' or committee meetings and the number of
shares present or represented at stockholders, meetings. The Secretary
shall give notice, in conformity with these Bylaws, of all meetings of the
stockholders, the Board of Directors or any such committee requiring notice.
The Secretary shall keep or cause to be kept at the principal executive
office, if any, or, if none, the principal business office in California, or
at the office of the Corporation's transfer agent a share register or a
duplicate share register showing the names of the stockholders and their
addresses, the number and classes of shares held by each, the number and
date of certificates issued for same, and the number and date of
cancellation of every certificate surrendered for cancellation. The
Secretary shall perform such other duties and have such other powers as the
Board of Directors may prescribe from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary and each Assistant
Secretary shall perform such other duties and have such other powers as the
Board of Directors may prescribe from time to time.
Section 6. Chief Financial Officer.
The Chief Financial Officer shall keep or cause to be kept the
books of account of the Corporation in a thorough and proper manner, and
shall render statements of the financial affairs of the Corporation in such
form and as often as required by the Board of Directors. The Chief
Financial Officer, subject to the direction of the Board of Directors, shall
have the custody of all funds and securities of the Corporation. The Chief
Financial officer shall perform all other duties customarily incident to
that office and shall perform such other duties and have such other powers
as the Board of Directors may prescribe from time to time. The President
may direct any Deputy Financial Officer to assume and perform the duties of
the Chief Financial Officer in the absence or disability of the Chief
Financial Officer and each Deputy Financial Officer shall perform such other
duties and have such other powers as the Board of Directors may prescribe
from time to time.
<PAGE>
ARTICLE V
Execution of Corporate Instruments and Exercise of
Rights Under Securities Owned by the Corporation
Section 1. Execution of Corporate Instruments.
The Board of Directors may, in its discretion, determine the
method and designate the signatory officer or officers or other person or
persons to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law,
and such execution or signature shall bind the Corporation.
Unless otherwise required by law, any note, mortgage, evidence
of indebtedness, contract, share certificate, conveyance or other instrument
in writing, and any assignment or endorsement thereof, executed or entered
into between the Corporation and any other person, when signed by the
Chairman of the Board, the President or any Vice President and the
Secretary, any Assistant Secretary, the Chief Financial Officer or any
Deputy Financial Officer of the Corporation, is not invalidated as to the
Corporation by any lack of authority of the signing officers in the absence
of actual knowledge on the part of the other person that the signing
officers had no authority to execute the same.
All checks and drafts drawn on banks or other depositories of
funds to the credit of the Corporation, or in special accounts of the
Corporation, shall be signed by such person or persons as the Board of
Directors shall authorize so to do.
Section 2. Securities Owned by Corporation.
All securities of other corporations or other entities owned or
held by the Corporation for itself, or for other parties in any capacity,
shall be voted, all proxies and other powers with respect thereto shall be
executed, and all rights appurtenant or pursuant thereto shall be exercised
on behalf of the Corporation by the person authorized so to do by resolution
of the Board of Directors, or, in the absence of such authorization, by the
Chairman of the Board, the President or any Vice President.
ARTICLE VI
Shares of Stock
<PAGE>
Section 1. Form of Certificates.
Every holder of shares in the Corporation shall be entitled to
have a certificate signed in the name of the Corporation by the Chairman of
the Board, the President or a Vice President, and by the Chief Financial
Officer, a Deputy Financial officer, the Secretary or any Assistant
Secretary, certifying the number and class or series of shares owned by such
stockholder. Any or all of the signatures on any such certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed on a certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is issued, the issuance of such certificate by the Corporation
shall have the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
If the shares of the Corporation are classified or if any class
of shares is divided into two or more series, any certificate representing
such shares shall bear conspicuously on its face, or on the reverse thereof
with conspicuous reference thereto on its face, one of the following: (a) a
statement of the rights, preferences, privileges and restrictions granted to
or imposed on the class or series of shares represented by such certificate
and on the holders thereof; (b) a summary of such rights, preferences,
privileges and restrictions with reference to the provisions of the
Certificate of Incorporation and any Certificate of Determination
establishing the same; or (c) a statement setting forth the office or agency
of the Corporation from which stockholders may obtain, on request and
without charge, a copy of the statement prescribed by clause (a) of this
paragraph.
Each such certificate shall also bear, conspicuously on its face
or on the reverse thereof with conspicuous reference thereto on its face,
any of the following, to the extent applicable: (a) that the shares are
subject to restrictions on transfer; (b) that the shares are assessable or
are not fully paid, including, in the case of partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon;
(c) that the shares are subject to a close corporation voting agreement or
an irrevocable proxy or restrictions on voting rights contractually imposed
by the Corporation; (d) that the shares are redeemable; and (e) that the
shares are convertible and the period for conversion.
When the Certificate of Incorporation is amended in any way
affecting the statements contained in certificates representing outstanding
shares, or it becomes desirable for any reason, in the discretion of the
Board of Directors, to cancel any outstanding certificate representing
shares and issue a new certificate therefor conforming to the rights of the
holder, the Board of Directors may order any holders of outstanding
certificates representing shares to surrender and exchange them for new
certificates within a reasonable time to be fixed by the Board of Directors.
<PAGE>
Section 2. Transfer of Shares.
Shares of stock of the Corporation may be transferred in any
manner permitted or provided by law. Before any transfer of stock is
entered on the books of the Corporation, or any new certificate issued
therefor, the outstanding certificate properly endorsed shall be surrendered
and canceled, unless such outstanding certificate has been lost, stolen or
destroyed.
Section 3. Lost Certificates.
The Corporation shall issue a new certificate representing
shares in the place of any certificate theretofore issued by it, alleged to
have been lost, stolen or destroyed; provided, that, prior and as a
condition to the issuance of such new certificate, the Board of Directors
may require the owner of the lost, stolen or destroyed certificate or the
owner's legal representative to give the Corporation a bond (or other
adequate security) sufficient to indemnify it against any claim that may be
made against it (including any expense or liability) on account of the
alleged loss, theft or destruction of any such certificate or the issuance
of such new certificate and may require such owner to furnish to the
Corporation such other affidavits, certificates or other documents as the
Board of Directors may deem necessary or advisable.
Section 4. Electronic Securities Recordation.
Notwithstanding the provisions of sections 1, 2 and 3 of this
Article VI, the Corporation may adopt a system of issuance, recordation and
transfer of its shares by electronic or other means not involving any
issuance of certificates, provided the use of such system by the Corporation
is permitted by and in accordance with applicable law.
ARTICLE VII
Corporate Seal
The corporate seal shall consist of a circular die bearing the
name of the Corporation and the state and date of its incorporation and
shall be kept and used by the Secretary or any Assistant Secretary as the
Secretary may direct. If and when authorized by the Board of Directors, a
duplicate of the corporate seal may be kept and used by such officer or
person as the Board of Directors may designate. Failure to affix the
corporate seal does not affect the validity of any instrument of the
Corporation.
<PAGE>
ARTICLE VIII
Amendments
New Bylaws may be adopted or these Bylaws may be amended or
repealed by the affirmative vote or written consent of a majority of the
outstanding shares entitled to vote, except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws. Subject to such right of
the stockholders to adopt, amend or repeal Bylaws, and except as otherwise
provided by law or the Certificate of Incorporation, Bylaws may be adopted,
amended or repealed by the Board of Directors.
ARTICLE IX
Indemnification of Agents
The Corporation shall indemnify each Corporate Servant (as
hereinafter defined) to the maximum extent that the Corporation is permitted
or empowered to do so under section 145 of the Delaware General Corporations
Law. In addition, the Corporation shall indemnify any person who is or was
a director or officer of the Corporation or is or was serving at the request
of the Corporation as a director or officer of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or was a
director or officer of a foreign or a domestic corporation which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation, and the Corporation shall hold such
director or officer harmless, from and against any and all claims,
liabilities, damages and expenses suffered or incurred by such director or
officer as a result of or in connection with any act or omission or
transaction of such director or officer in his or her capacity as such
director or officer; provided that no such director or officer shall be
indemnified by the Corporation for any acts or omissions or transactions
from which a director may not be relieved of liability pursuant to the
Delaware General Corporations Law, or for any acts, omissions or
transactions for which indemnity is expressly prohibited thereby.
As used in this Article IX, "Corporate Servant" shall mean any
natural person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, manager, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
organization or enterprise, nonprofit or otherwise, including an employee
benefit plan.
<TABLE>
<CAPTION>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
For the Three Years Ended December 31, 1998, 1997 and 1996
Exhibit 11
Basic Earnings per Share
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average number of
common shares outstanding 11,556,629 11,471,217 11,422,995
Shares issuable pursuant to
stock bonus plan 3,825 3,375 1,950
------------ ------------ ------------
Number of shares for computation
of basic net income per share 11,560,454 11,474,592 11,424,945
============ ============ ============
Net income for computation of
basic net income per share $ 31,141,523 $ 25,985,779 $ 19,720,638
============ ============ ============
Basic net income per share $ 2.69 $ 2.26 $ 1.73
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
For the Three Years Ended December 31, 1998, 1997 and 1996
Exhibit 11 (continued)
Diluted Earnings per Share
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average number of
common shares outstanding 11,556,629 11,471,217 11,422,995
Shares issuable pursuant to
employee stock option plans,
less shares assumed repurchased
at the average fair value
during the period 483,361 486,337 326,604
Shares issuable pursuant to the
independent director stock
option plan, less shares assumed
repurchased at the average fair
value during the period 4,382 5,021 3,635
Shares issuable pursuant to
stock bonus plan 3,825 3,375 1,950
------------ ------------ ------------
Number of shares for computation
of diluted net income per share 12,048,197 11,965,950 11,755,184
============ ============ ============
Net income for computation of
diluted net income per share $ 31,141,523 $ 25,985,779 $ 19,720,638
============ ============ ============
Diluted net income per share $ 2.58 $ 2.17 $ 1.68
============ ============ ============
</TABLE>
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
List of Subsidiaries of Simpson Manufacturing Co., Inc.
At March 15, 1999
Exhibit 21
1. Simpson Strong-Tie Company Inc., a California corporation
2. Simpson Dura-Vent Company, Inc., a California corporation
3. Simpson Strong-Tie International, Inc., a California corporation
4. Simpson Manufacturing International Corporation, a Barbados
corporation
5. Simpson Strong-Tie Canada, Limited., a Canadian corporation
6. Simpson Strong-Tie France, Limited., a French corporation
7. Patrick Bellion, S.A., a French corporation
8. Simpson Strong-Tie Japan, Inc., a California corporation
9. Simpson Strong-Tie Australia, Inc., a California corporation
10. Simpson Strong-Tie Company Inc. Chile Y Compania Limitada, a
Chilean corporation
11. Simpson Manufacturing Co., Inc., a Delaware corporation
Each subsidiary of Registrant does business using its respective name
listed above. Simpson Strong-Tie Canada, Limited also uses as a fictitious
business name, "Isometric Limited."
Simpson Manufacturing Co., Inc. and Subsidiaries
Consent of Independent Certified Public Accountants
Exhibit 23
We consent to the incorporation by reference in the registration statements
of Simpson Manufacturing Co., Inc. on Forms S-8 (File No. 33-85662 and File
No. 33-90964) of our report dated January 28, 1999, on our audits of the
consolidated financial statements and the financial statement schedule of
Simpson Manufacturing Co., Inc. and subsidiaries as of December 31, 1998 and
1997 and for the years ended December 31, 1998, 1997 and 1996, which report
is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1998, and the Consolidated
Statement of Operations for the twelve months ended December 31, 1998,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 37,402,450
<SECURITIES> 0
<RECEIVABLES> 35,550,836
<ALLOWANCES> 1,461,714
<INVENTORY> 56,340,053
<CURRENT-ASSETS> 132,864,038
<PP&E> 104,463,421
<DEPRECIATION> 49,498,717
<TOTAL-ASSETS> 191,599,751
<CURRENT-LIABILITIES> 27,221,057
<BONDS> 0
0
0
<COMMON> 33,723,845
<OTHER-SE> 127,558,518
<TOTAL-LIABILITY-AND-EQUITY> 191,599,751
<SALES> 279,081,489
<TOTAL-REVENUES> 279,081,489
<CGS> 170,044,933
<TOTAL-COSTS> 170,044,933
<OTHER-EXPENSES> 57,806,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0<F1>
<INCOME-PRETAX> 52,169,523
<INCOME-TAX> 21,028,000
<INCOME-CONTINUING> 31,141,523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,141,523
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.58
<FN>
<F1>Interest income for the twelve months ended December 31, 1998,
was $939,792.
</FN>
</TABLE>
