-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fz/2wvR+jrMJU8+09W0BC2LylXnjAmu7BrgXzkICaxr67bn33Duymps4blRAJd8V CHP8VZ9EDLCgfvaIydYVPA== 0000920371-99-000002.txt : 19990330 0000920371-99-000002.hdr.sgml : 19990330 ACCESSION NUMBER: 0000920371-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMPSON MANUFACTURING CO INC /CA/ CENTRAL INDEX KEY: 0000920371 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 943196943 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13429 FILM NUMBER: 99576351 BUSINESS ADDRESS: STREET 1: 4637 CHABOT DR STREET 2: STE 200 CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 5106099912 MAIL ADDRESS: STREET 1: 4637 CHABOT DR STREET 2: STE 200 CITY: PLEASANTON STATE: CA ZIP: 94588 10-K 1 1998 ANNUAL REPORT ON FORM 10K =========================================================================== 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 . ---------- ---------- Commission file number: 0-23804 - --------------------------------------------------------------------------- Simpson Manufacturing Co., Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) California 94-3196943 ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4637 Chabot Drive, Suite 200, Pleasanton, CA 94588 -------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (925)460-9912 - --------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock, without par value New York Stock Exchange, Inc. ------------------------------- ----------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None ---------------- (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 ----- ----- 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. =========================================================================== 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. 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. 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. 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. 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. 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. 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. 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. 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. 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." 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. 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. 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:
Approximate Square Owned or Lease Location Footage Leased Lessee Expires Function - --------------------------- ----------- ---------- -------- ------- -------------------------- 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 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 - --------------------
(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. 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:
Market Price Quarter High Low --------- --------- 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
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. 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.
Year Ended December 31, (Dollars in thousands, except -------------------------------------------------------- per share data) 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: 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 ======== ======== ======== ======== ========
As of December 31, -------------------------------------------------------- (Dollars in thousands) 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- BALANCE SHEET DATA: 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
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 -------- -------- -------- -------- -------- -------- -------- -------- 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 ======== ======== ======== ======== ======== ======== ======== ========
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. 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.
Years Ended December 31, -------------------------------- 1998 1997 1996 -------- -------- -------- 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% ======== ======== ========
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. 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. 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. 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. 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 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 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ---------------------------- 1998 1997 ------------ ------------ 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 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ 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
The accompanying notes are an integral part of these consolidated financial statements. SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Accumulated Common Stock Other Comp- ---------------------------- Retained rehensive Shares Amount Earnings Income Total ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ 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 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 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. 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. 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:
1998 1997 1996 ----------------------------------- ----------------------------------- ----------------------------------- Per Per Per Income Shares Share Income Shares Share Income Shares Share ------------ ------------ ------- ------------ ------------ ------- ------------ ------------ ------- 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 ============ ============ ======= ============ ============ ======= ============ ============ =======
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. 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:
December 31, ---------------------------- 1998 1997 ------------ ------------ 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 ============ ============
The Company sells product on credit and generally does not require collateral. 4. Inventories The components of inventories consist of the following:
December 31, ---------------------------- 1998 1997 ------------ ------------ 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 ============ ============
At December 31, 1998 and 1997, the replacement value of LIFO inventories exceeded LIFO cost by approximately $359,000 and $852,000, respectively. 5. Property, Plant and Equipment, net Property, plant and equipment consists of the following:
December 31, ---------------------------- 1998 1997 ------------ ------------ 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 ============ ============
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:
December 31, ---------------------------- 1998 1997 ------------ ------------ 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 ============ ============
8. Debt The outstanding debt at December 31, 1998 and 1997, and the available credit at December 31, 1998, consisted of the following:
Available on Credit Debt Outstanding Facility at at December 31, December 31, ---------------------------- 1998 1998 1997 ------------ ------------ ------------ 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 ============
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. 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:
Years Ended December 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ 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 ============ ============ ============
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. 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:
Years Ended December 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ 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 ============ ============ ============
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:
Years Ended December 31, -------------------------------- 1998 1997 1996 -------- -------- -------- 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% ======== ======== ========
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:
Years Ended December 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ 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 ============ ============ ============
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. 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:
Years Ended December 31, -------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ 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:
1998 1997 1996 ---------------------- ---------------------- ---------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Non-Qualified Stock Options Shares Price Shares Price Shares Price - -------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- 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 ========== ========== ==========
The number of stock options exercisable at the end of 1998, 1997 and 1996 was 740,638, 700,497 and 694,779, respectively. The following table summarizes information about the Company's stock options outstanding at December 31, 1998:
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 - ---------------------------- ------------ ------------ ------------ ------------ ------------ $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 ============ ============
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:
Connector Venting 1998 Products Products All Other Total - ------------------------------ ------------ ------------ ------------ ------------ 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
Connector Venting 1997 Products Products All Other Total - ------------------------------ ------------ ------------ ------------ ------------ 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
Connector Venting 1996 Products Products All Other Total - ------------------------------ ------------ ------------ ------------ ------------ 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
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.
1998 1997 1996 ---------------------------- ---------------------------- ---------------------------- Net Long-Lived Net Long-Lived Net Long-Lived Sales Assets Sales Assets Sales Assets ------------ ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ ============
Net sales and long-lived assets are attributable to the country where the operations are located.
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 - ------------------------------------ ------------ ------------ ------------ ------------ ------------ 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
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. 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) EX-3.(I) 2 CERTIFICATE OF INCORPORATION 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; (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. 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. 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 ---------------------------- EX-3.(II) 3 BYLAWS - CALIFORNIA CORP. 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. 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. 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. 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 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. 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. 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; 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. 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. 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. 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. 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. 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 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. 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. 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. 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. 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. EX-3.(II) 4 BYLAWS - DELAWARE CORP. 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. 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. 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 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. 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. 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. 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. 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 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. 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 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. 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. 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 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. 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. 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. EX-11 5 COMPUTATION RE EARNINGS PER SHARE
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 ------------ ------------ ------------ 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 ============ ============ ============
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 ------------ ------------ ------------ 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 ============ ============ ============
EX-21 6 LIST OF SUBSIDIARIES 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." EX-23 7 CONSENT OF INDEPENDENT ACCOUNTANTS 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 EX-27 8 FINANCIAL DATA SCHEDULE
5 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. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 37,402,450 0 35,550,836 1,461,714 56,340,053 132,864,038 104,463,421 49,498,717 191,599,751 27,221,057 0 0 0 33,723,845 127,558,518 191,599,751 279,081,489 279,081,489 170,044,933 170,044,933 57,806,825 0 0 52,169,523 21,028,000 31,141,523 0 0 0 31,141,523 2.69 2.58 Interest income for the twelve months ended December 31, 1998, was $939,792.
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