Simpson Manufacturing Co., Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Simpson designs, manufactures and sells wood- and concrete-construction products, primarily serving residential and commercial construction, remodeling and DIY markets. It operates in North America, Europe and Asia/Pacific.
Financial results
| Metric | FY 2015 | FY 2014 | Change |
|---|---|---|---|
| Net sales | $794.1 million | $752.1 million | +5.6% |
| Gross profit / margin | $358.9 million / 45.2% | $342.0 million / 45.5% | Profit +4.9%; margin -0.3 points |
| Operating income / margin | $109.0 million / 13.7% | $99.3 million / 13.2% | +9.8% |
| Net income | $67.9 million | $63.5 million | +6.9% |
| Diluted EPS | $1.38 | $1.29 | +7.0% |
| Operating cash flow | $114.2 million | $67.2 million | +$47.0 million |
Fourth quarter: Sales were $184.8 million versus $166.6 million in Q4 2014; net income was $14.7 million versus $10.4 million; diluted EPS was $0.30 versus $0.21. Gross margin was approximately 44.8%, compared with 43.7% a year earlier.
Cash, debt and liquidity: Cash and cash equivalents were $258.8 million at year-end, versus $260.3 million; working capital was $494.3 million, versus $509.8 million. The company had no borrowings outstanding and reported $304.4 million of unused capacity under credit facilities. Total assets were $961.3 million and total liabilities $111.5 million.
Cash deployment: Capital expenditures were $34.2 million; investing activities used $37.8 million. Financing activities used $67.9 million, including $47.1 million of share repurchases and $29.4 million of dividends paid. The annual dividend declared was $0.62 per share.
Material changes and business drivers
- North America sales grew 10.2% to $676.6 million, mainly from higher unit volumes in the United States. Europe sales declined 12.3% to $108.1 million, primarily reflecting currency translation; sales increased slightly in local currencies. Asia/Pacific sales fell 38.0% to $9.4 million, principally following office closures and reduced selling activity.
- Wood products generated $674.3 million of sales; concrete products generated $119.5 million. Both product groups grew year over year, but concrete products generally carry lower gross margins.
- Gross margin declined from 2014, partly because of higher material costs, product mix and a nonrecurring $2.5 million workers’ compensation correction that benefited 2014. Higher sales and operating leverage contributed to increased operating income.
- Research and engineering expense rose to $46.2 million, including $5.9 million of software-development project write-offs cited in management’s discussion. The cash-flow statement separately reports a $3.1 million software project write-off adjustment.
- The company acquired EBTY’s hidden-deck-clip business for $3.4 million cash. It also bought a West Chicago manufacturing facility for $12.6 million to consolidate chemical operations.
Outlook, risks and unusual items
- Management estimated 2016 gross margin of 44.5%–46.0%, an effective tax rate of 37%–39%, and capital expenditures of approximately $33 million. The filing provides no specific 2016 revenue or EPS guidance.
- Strategy focuses on broadening product lines and geographic reach to reduce dependence on North American housing starts. Management estimates 55%–65% of product sales depend on housing starts.
- Key exposures include construction-cycle and seasonal volatility, steel-price uncertainty, customer concentration and bargaining power, product defects or liability claims, software and engineering errors, foreign-exchange movements, acquisition execution, and regulatory and environmental compliance. The company does not hedge foreign-exchange or raw-material price exposure.
- The 2015 effective tax rate was 37.5%, up from 36.0%, partly because certain 2014 tax benefits did not recur. A pension withdrawal liability was settled for $2.0 million against a $3.0 million carrying balance, reducing 2015 cost of sales by $1.0 million. Asia/Pacific office closures generated $2.9 million of recorded charges and left $0.7 million of related liabilities at year-end.
- The 2015 annual goodwill test recorded no impairment, but Denmark goodwill of $6.4 million was relatively sensitive: estimated fair value exceeded carrying value by 9%. Management reported no legal proceedings expected to have a material adverse effect. The financial-statement and internal-control audits received unqualified opinions.
Investor verification priorities
- Reconcile the software-development write-off figures: $5.9 million in management’s discussion versus $3.1 million in the cash-flow reconciliation.
- Track steel and other input costs, pricing actions, and the effect of lower-margin concrete product mix on gross margin.
- Assess whether North America growth can offset continuing weakness and currency pressure in Europe and Asia/Pacific.
- Monitor execution and costs of the West Chicago facility consolidation, planned 2016 capital spending, and future acquisitions.
- Review cash deployment and the new authorization to repurchase up to $50 million of shares through 2016, alongside dividend requirements and liquidity needs.