UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
x
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2008
OR
o
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: 1-13429
Simpson Manufacturing Co., Inc.
(Exact name of registrant as
specified in its charter)
Delaware
|
|
94-3196943
|
(State or other jurisdiction of incorporation
|
|
(I.R.S. Employer
|
or organization)
|
|
Identification No.)
|
5956 W. Las Positas Blvd.,
Pleasanton, CA 94588
(Address of principal
executive offices)
(Registrants telephone
number, including area code):
(925) 560-9000
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
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
x
|
|
Accelerated filer
|
o
|
|
|
|
|
|
Non-accelerated filer
|
o
(Do not check
if a smaller reporting company)
|
|
Smaller reporting company
|
o
|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
The number of shares of the Registrants common stock outstanding as of
June 30, 2008: 48,599,104
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Balance
Sheets
(In thousands, unaudited)
|
|
June 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
162,098
|
|
$
|
177,166
|
|
$
|
186,142
|
|
Trade accounts receivable, net
|
|
139,162
|
|
145,388
|
|
88,340
|
|
Inventories
|
|
232,575
|
|
210,253
|
|
218,342
|
|
Deferred income taxes
|
|
11,262
|
|
12,092
|
|
11,623
|
|
Assets held for sale
|
|
7,887
|
|
9,671
|
|
9,677
|
|
Other current assets
|
|
6,335
|
|
6,730
|
|
8,753
|
|
Total current assets
|
|
559,319
|
|
561,300
|
|
522,877
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
199,055
|
|
199,249
|
|
198,117
|
|
Goodwill
|
|
69,500
|
|
45,917
|
|
57,418
|
|
Intangible assets
|
|
23,392
|
|
8,576
|
|
23,239
|
|
Equity method investment
|
|
|
|
59
|
|
|
|
Other noncurrent assets
|
|
18,817
|
|
13,757
|
|
16,028
|
|
Total assets
|
|
$
|
870,083
|
|
$
|
828,858
|
|
$
|
817,679
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Line of credit and current portion of long-term debt
|
|
$
|
3,177
|
|
$
|
5,942
|
|
$
|
1,029
|
|
Trade accounts payable
|
|
46,362
|
|
47,791
|
|
27,226
|
|
Accrued liabilities
|
|
39,549
|
|
38,558
|
|
39,188
|
|
Income taxes payable
|
|
1,637
|
|
8,542
|
|
|
|
Accrued profit sharing trust contributions
|
|
5,228
|
|
4,724
|
|
8,651
|
|
Accrued cash profit sharing and commissions
|
|
10,581
|
|
14,014
|
|
4,129
|
|
Accrued workers compensation
|
|
4,116
|
|
3,448
|
|
4,116
|
|
Total current liabilities
|
|
110,650
|
|
123,019
|
|
84,339
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
12,076
|
|
9,483
|
|
9,940
|
|
Total liabilities
|
|
122,726
|
|
132,502
|
|
94,279
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
Common stock, at par value
|
|
486
|
|
485
|
|
485
|
|
Additional paid-in capital
|
|
128,541
|
|
121,025
|
|
126,119
|
|
Retained earnings
|
|
590,510
|
|
558,075
|
|
571,499
|
|
Accumulated other comprehensive income
|
|
27,820
|
|
16,771
|
|
25,297
|
|
Total stockholders equity
|
|
747,357
|
|
696,356
|
|
723,400
|
|
Total liabilities and stockholders equity
|
|
$
|
870,083
|
|
$
|
828,858
|
|
$
|
817,679
|
|
The accompanying notes are
an integral part of these condensed consolidated financial statements.
2
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Statements
of Operations
(In thousands except per-share
amounts, unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net sales
|
|
$
|
219,263
|
|
$
|
231,288
|
|
$
|
386,919
|
|
$
|
424,442
|
|
Cost of sales
|
|
135,398
|
|
137,925
|
|
246,796
|
|
259,457
|
|
Gross profit
|
|
83,865
|
|
93,363
|
|
140,123
|
|
164,985
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
Research and development and other engineering
|
|
5,610
|
|
5,463
|
|
10,713
|
|
10,723
|
|
Selling
|
|
22,134
|
|
20,053
|
|
41,942
|
|
38,207
|
|
General and administrative
|
|
23,786
|
|
24,332
|
|
41,658
|
|
45,975
|
|
Gain on sale of assets
|
|
(19
|
)
|
(86
|
)
|
(17
|
)
|
(92
|
)
|
|
|
51,511
|
|
49,762
|
|
94,296
|
|
94,813
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
32,354
|
|
43,601
|
|
45,827
|
|
70,172
|
|
|
|
|
|
|
|
|
|
|
|
Income in equity method investment, before tax
|
|
|
|
59
|
|
|
|
26
|
|
Interest income, net
|
|
505
|
|
1,424
|
|
1,634
|
|
2,797
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
32,859
|
|
45,084
|
|
47,461
|
|
72,995
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
12,478
|
|
16,767
|
|
18,728
|
|
27,387
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,381
|
|
$
|
28,317
|
|
$
|
28,733
|
|
$
|
45,608
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.42
|
|
$
|
0.58
|
|
$
|
0.59
|
|
$
|
0.94
|
|
Diluted
|
|
$
|
0.42
|
|
$
|
0.58
|
|
$
|
0.59
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.20
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
48,593
|
|
48,432
|
|
48,584
|
|
48,424
|
|
Diluted
|
|
48,936
|
|
48,902
|
|
48,933
|
|
48,894
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed
Consolidated Statements of
Stockholders Equity
for the six months ended June 30, 2007 and 2008 and December 31,
2007
(In thousands except per-share
amounts, unaudited)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
|
|
|
|
Shares
|
|
Par Value
|
|
Capital
|
|
Earnings
|
|
Income
|
|
Stock
|
|
Total
|
|
Balance, January 1, 2007
|
|
48,412
|
|
$
|
484
|
|
$
|
114,535
|
|
$
|
526,346
|
|
$
|
11,494
|
|
$
|
|
|
$
|
652,859
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
45,608
|
|
|
|
|
|
45,608
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net of tax of $83
|
|
|
|
|
|
|
|
|
|
5,277
|
|
|
|
5,277
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,885
|
|
Stock options exercised
|
|
157
|
|
2
|
|
2,926
|
|
|
|
|
|
|
|
2,928
|
|
Stock compensation
|
|
|
|
|
|
2,873
|
|
|
|
|
|
|
|
2,873
|
|
Tax benefit of options exercised
|
|
|
|
|
|
384
|
|
|
|
|
|
|
|
384
|
|
Cash dividends declared on common stock ($0.20 per share)
|
|
|
|
|
|
|
|
(9,689
|
)
|
|
|
|
|
(9,689
|
)
|
Common stock issued at $31.65 per share for stock bonus
|
|
10
|
|
|
|
307
|
|
|
|
|
|
|
|
307
|
|
Repurchase of common stock
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
(4,191
|
)
|
(4,191
|
)
|
Retirement of common stock
|
|
|
|
(1
|
)
|
|
|
(4,190
|
)
|
|
|
4,191
|
|
|
|
Balance, June 30, 2007
|
|
48,457
|
|
485
|
|
121,025
|
|
558,075
|
|
16,771
|
|
|
|
696,356
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
23,134
|
|
|
|
|
|
23,134
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net of tax of ($22)
|
|
|
|
|
|
|
|
|
|
8,526
|
|
|
|
8,526
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,660
|
|
Stock options exercised
|
|
95
|
|
|
|
1,904
|
|
|
|
|
|
|
|
1,904
|
|
Stock compensation
|
|
|
|
|
|
3,020
|
|
|
|
|
|
|
|
3,020
|
|
Tax benefit of options exercised
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
170
|
|
Cash dividends declared on common stock ($0.20 per share)
|
|
|
|
|
|
|
|
(9,710
|
)
|
|
|
|
|
(9,710
|
)
|
Balance, December 31, 2007
|
|
48,552
|
|
485
|
|
126,119
|
|
571,499
|
|
25,297
|
|
|
|
723,400
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
28,733
|
|
|
|
|
|
28,733
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net of tax of $5
|
|
|
|
|
|
|
|
|
|
2,523
|
|
|
|
2,523
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,256
|
|
Stock options exercised
|
|
38
|
|
1
|
|
741
|
|
|
|
|
|
|
|
742
|
|
Stock compensation
|
|
|
|
|
|
1,541
|
|
|
|
|
|
|
|
1,541
|
|
Tax benefit of options exercised
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
(107
|
)
|
Cash dividends declared on common stock ($0.20 per share)
|
|
|
|
|
|
|
|
(9,722
|
)
|
|
|
|
|
(9,722
|
)
|
Common stock issued at $26.59 per share for stock bonus
|
|
9
|
|
|
|
247
|
|
|
|
|
|
|
|
247
|
|
Balance, June 30, 2008
|
|
48,599
|
|
$
|
486
|
|
$
|
128,541
|
|
$
|
590,510
|
|
$
|
27,820
|
|
$
|
|
|
$
|
747,357
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Simpson
Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
Cash flows from operating activities
|
|
|
|
|
|
Net income
|
|
$
|
28,733
|
|
$
|
45,608
|
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
Gain on sale of assets
|
|
(17
|
)
|
(92
|
)
|
Depreciation and amortization
|
|
15,007
|
|
14,883
|
|
Deferred income taxes
|
|
177
|
|
(2,550
|
)
|
Noncash compensation related to stock plans
|
|
1,856
|
|
3,164
|
|
Income in equity method investment
|
|
|
|
(26
|
)
|
Excess tax benefit of options exercised
|
|
(45
|
)
|
(500
|
)
|
Provision for (recovery of) doubtful accounts
|
|
(559
|
)
|
369
|
|
Provision for obsolete inventory
|
|
|
|
1,022
|
|
Changes in operating assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
Trade accounts receivable
|
|
(48,164
|
)
|
(48,761
|
)
|
Inventories
|
|
(7,193
|
)
|
7,899
|
|
Trade accounts payable
|
|
17,469
|
|
24,543
|
|
Income taxes payable
|
|
3,027
|
|
11,044
|
|
Accrued profit sharing trust contributions
|
|
(3,414
|
)
|
(3,939
|
)
|
Accrued cash profit sharing and commissions
|
|
6,436
|
|
6,174
|
|
Other current assets
|
|
(121
|
)
|
(2,413
|
)
|
Accrued liabilities
|
|
303
|
|
518
|
|
Other long-term liabilities
|
|
1,802
|
|
(946
|
)
|
Accrued workers compensation
|
|
|
|
(264
|
)
|
Other noncurrent assets
|
|
(2,010
|
)
|
1,429
|
|
Net cash provided by operating activities
|
|
13,287
|
|
57,162
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Capital expenditures
|
|
(6,745
|
)
|
(25,178
|
)
|
Proceeds from sale of capital assets
|
|
2,668
|
|
544
|
|
Asset acquisitions, net of cash acquired
|
|
(26,087
|
)
|
(331
|
)
|
Net cash used in investing activities
|
|
(30,164
|
)
|
(24,965
|
)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Line of credit borrowings
|
|
3,242
|
|
5,859
|
|
Repayment of debt and line of credit borrowings
|
|
(1,237
|
)
|
(668
|
)
|
Repurchase of common stock
|
|
|
|
(4,191
|
)
|
Issuance of common stock
|
|
742
|
|
2,928
|
|
Excess tax benefit of options exercised
|
|
45
|
|
500
|
|
Dividends paid
|
|
(9,716
|
)
|
(8,716
|
)
|
Net cash used in financing activities
|
|
(6,924
|
)
|
(4,288
|
)
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
(243
|
)
|
958
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
(24,044
|
)
|
28,867
|
|
Cash and cash equivalents at beginning of period
|
|
186,142
|
|
148,299
|
|
Cash and cash equivalents at end of period
|
|
$
|
162,098
|
|
$
|
177,166
|
|
|
|
|
|
|
|
Noncash activity during the period
|
|
|
|
|
|
Noncash capital expenditures
|
|
$
|
95
|
|
$
|
108
|
|
Dividends declared but not paid
|
|
$
|
4,860
|
|
$
|
4,840
|
|
Issuance of Companys common stock for compensation
|
|
$
|
247
|
|
$
|
307
|
|
Noncash asset acquisition
|
|
$
|
1,568
|
|
$
|
608
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
Simpson
Manufacturing Co., Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Principles
of Consolidation
The consolidated
financial statements include the accounts of Simpson Manufacturing Co., Inc.
and its subsidiaries (the Company). Investments in 50% or less owned
affiliates are accounted for using either cost or the equity method. All
significant intercompany transactions have been eliminated.
Interim
Period Reporting
The accompanying
unaudited interim condensed consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by accounting
principles generally accepted in the United States of America have been
condensed or omitted. These interim statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in
the Companys 2007 Annual Report on Form 10-K (the 2007 Annual Report).
The unaudited quarterly
condensed consolidated financial statements have been prepared on the same
basis as the audited annual consolidated financial statements and, in the
opinion of management, contain all adjustments (consisting of only normal
recurring adjustments) necessary to state fairly the financial information set
forth therein, in accordance with accounting principles generally accepted in
the United States of America. The year-end condensed consolidated balance sheet
data were derived from audited financial statements, but do not include all
disclosures required by accounting principles generally accepted in the United States
of America. The Companys quarterly results fluctuate. As a result, the Company
believes the results of operations for the interim periods are not necessarily
indicative of the results to be expected for any future period.
Revenue
Recognition
The Company
recognizes revenue when the earnings process is complete, net of applicable
provision for discounts, returns and incentives, whether actual or estimated
based on the Companys experience. This generally occurs when products are
shipped to the customer in accordance with the sales agreement or purchase
order, ownership and risk of loss pass to the customer, collectibility is
reasonably assured and pricing is fixed or determinable. The Companys general
shipping terms are F.O.B. shipping point, where title is transferred and
revenue is recognized when the products are shipped to customers. When the
Company sells F.O.B. destination point, title is transferred and the Company
recognizes revenue on delivery or customer acceptance, depending on terms of the
sales agreement. Service sales, representing aftermarket repair and maintenance
and engineering activities, though significantly less than 1% of net sales and
not material to the consolidated financial statements, are recognized as the
services are completed. If the actual costs of sales returns, incentives, and
discounts were to significantly exceed the recorded estimated allowance, the
Companys sales would be adversely affected.
Allowance
for Doubtful Accounts
The Company
assesses the collectibility of specific customer accounts that would be
considered doubtful based upon the customers financial condition, payment
history, credit rating and other factors that the Company considers relevant,
or accounts that the Company assigns for collection. The Company reserves for
the portion of those outstanding balances that the Company believes it is not
likely to collect based on historical collection experience. The Company also
reserves 100% of the amount that it deems potentially uncollectible due to a
customers bankruptcy or deteriorating financial condition. If the financial
condition of the Companys customers were to deteriorate, resulting in
inability to make payments, additional allowances may be required.
6
Net
Income Per Common Share
Basic net income
per common share is computed based on the weighted average number of common
shares outstanding. Potentially dilutive securities, 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 net income (earnings) per share (EPS), to diluted
EPS:
|
|
Three Months Ended,
|
|
Three Months Ended,
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
(in thousands, except
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
per-share amounts)
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
20,381
|
|
48,593
|
|
$
|
0.42
|
|
$
|
28,317
|
|
48,432
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
343
|
|
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
20,381
|
|
48,936
|
|
$
|
0.42
|
|
$
|
28,317
|
|
48,902
|
|
$
|
0.58
|
|
|
|
Six Months Ended,
|
|
Six Months Ended,
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
28,733
|
|
48,584
|
|
$
|
0.59
|
|
$
|
45,608
|
|
48,424
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
349
|
|
|
|
|
|
470
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
28,733
|
|
48,933
|
|
$
|
0.59
|
|
$
|
45,608
|
|
48,894
|
|
$
|
0.93
|
|
Anti-dilutive
shares attributable to outstanding stock options were excluded from the
calculation of diluted net income per share. For the three months ended June 30,
2008 and 2007, 1.0 million and 1.1 million shares subject to stock options were
anti-dilutive, respectively. For the six-month periods ended June 30, 2008
and 2007, 1.1 million shares subject to stock options were anti-dilutive.
Accounting
for Stock-Based Compensation
The Company maintains two
stock option plans under which it may grant incentive stock options and
non-qualified stock options, although the Company has granted only
non-qualified stock options under these plans. The Simpson Manufacturing Co., Inc.
1994 Stock Option Plan (the 1994 Plan) is principally for the Companys
employees, and the Simpson Manufacturing Co., Inc. 1995 Independent Director
Stock Option Plan (the 1995 Plan) is for its independent directors. The
exercise price per share under each option granted in April and February 2008
and February 2007 under the 1994 Plan equaled the closing market price per
share of the Companys Common Stock as reported by the New York Stock Exchange
for the day preceding the date that the Companys Board of Directors approved
the grant. The exercise price per share under each option granted under the
1995 Plan is at the fair market value on the date specified in the 1995 Plan.
Options vest and expire according to terms established at the grant date.
7
Under the 1994 Plan, no
more than 16 million shares of the Companys common stock may be sold (including
shares already sold) pursuant to all options granted under the 1994 Plan. Under
the 1995 Plan, no more than 320 thousand shares of common stock may be sold
(including shares already sold) pursuant to all options granted under the 1995
Plan. Options granted under the 1994 Plan typically vest evenly over the
requisite service period of four years and have a term of seven years. The
vesting of options granted under the 1994 Plan will be accelerated if the
grantee ceases to be employed by the Company after reaching age 60 or if there
is a change in control of the Company. Options granted under the 1995 Plan are
fully vested on the date of grant.
The following table
represents the Companys stock option activity for the three and six months
ended June 30, 2008 and 2007:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stock option expense recognized in operating expenses
|
|
$
|
801
|
|
$
|
1,418
|
|
$
|
1,702
|
|
$
|
2,963
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of stock option expense in provision for income taxes
|
|
316
|
|
528
|
|
672
|
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense, net of tax
|
|
$
|
485
|
|
$
|
890
|
|
$
|
1,030
|
|
$
|
1,852
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares vested
|
|
$
|
776
|
|
$
|
1,405
|
|
$
|
1,541
|
|
$
|
2,873
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds to the Company from the exercise of stock options
|
|
$
|
234
|
|
$
|
1,010
|
|
$
|
742
|
|
$
|
2,928
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from exercise of stock options, including windfall
(shortfall) tax benefits
|
|
$
|
42
|
|
$
|
192
|
|
$
|
113
|
|
$
|
810
|
|
|
|
|
|
At June 30,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Stock option cost capitalized in inventory
|
|
|
|
|
|
|
|
$
|
91
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts included in
cost of sales, research and development and other engineering, selling, or
general and administrative expense depend on the job functions performed by the
employees to whom the stock options were granted. Shares of common stock issued
on exercise of stock options under the plans are registered under the
Securities Act of 1933.
The assumptions used to
calculate the fair value of options granted are evaluated and revised, as
necessary, to reflect market conditions and the Companys experience.
Fair
Value of Financial Instruments
Statement of Financial
Accounting Standards (SFAS) No. 157 establishes a valuation hierarchy
for disclosure of the inputs used to measure fair value. This hierarchy
prioritizes the inputs into three broad levels as follows: Level 1 inputs are
quoted prices (unadjusted) in active markets for identical assets or
liabilities; Level 2 inputs are quoted prices for similar assets and
liabilities in active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market corroboration, for
substantially the full term of the financial instrument; Level 3 inputs are
unobservable inputs based on the Companys assumptions used to measure assets
and liabilities at fair value. A financial assets or liabilitys
classification within the hierarchy is determined based on the lowest level
input that is significant to the fair value measurement.
8
The Companys investments
consist of only United States Treasury instruments and money market funds
aggregating $54.8 million, which are maintained in cash equivalents and are
carried at fair value, approximating cost, based on Level 1 inputs.
Acquisitions
In April 2008, the
Companys subsidiary, Simpson Strong-Tie Ireland Limited, purchased certain
assets of Liebig International Ltd., an Irish company, Heinrich Liebig
Stahldübelwerke GmbH, Liebig GmbH & Co. KG and Liebig International
Verwaltungsgesellschaft GmbH, all German companies, Liebig Bolts Limited, an
English company, and Liebig International Inc., a Virginia corporation
(collectively Liebig). Liebig manufactures mechanical anchor products in
Ireland and distributes them primarily throughout Europe through warehouses
located in Germany and the United Kingdom. Liebig expands the Companys anchor
product offerings in its connector product segment. The purchase price (subject
to post-closing adjustment) was $18.3 million in cash. The Company recorded
goodwill of $6.3 million and intangible assets subject to amortization of $2.4
million as a result of the acquisition. Tangible assets, including real estate,
machinery and equipment, inventory and trade accounts receivable, accounted for
the balance of the purchase price, but the purchase price allocation has not
been finalized.
In June 2008, the
Companys subsidiary, Simpson Dura-Vent Company, Inc., purchased 100% of
the equity of ProTech Systems, Inc. (ProTech), a New York company.
ProTech manufactures venting products in New York and distributes them
throughout North America. ProTech expands the Companys product offerings in
the venting product segment. The purchase price (subject to post-closing
adjustment) was $7.5 million in cash, plus an additional earn-out of up to
$2.25 million if certain future performance targets are met. The Company
recorded goodwill of $5.3 million as a result of the acquisition. Tangible
assets, including machinery and equipment, inventory and trade accounts receivable,
accounted for the balance of the purchase price, but the purchase price
allocation has not been finalized.
The results of operations
of Liebig and ProTech are included in the Companys consolidated results of
operations since the respective dates of the acquisitions. Results of
operations for periods prior to the acquisition of Liebig and ProTech were not
material to the Company on either an individual or aggregate basis, and
accordingly, pro forma results of operations have not been presented.
Recently
Issued Accounting Standards
In December 2007,
the Financial Accounting Standards Board (FASB) issued SFAS No. 141(R),
Business Combinations. SFAS No. 141(R) requires the acquiring
entity in a business combination to recognize the full fair value of assets
acquired and liabilities assumed in the transaction (whether a full or partial
acquisition); establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; requires expensing
of most transaction and restructuring costs; and requires the acquirer to
disclose to investors and other users the information needed to evaluate and
understand the nature and financial effect of the business combination. SFAS No. 141(R) applies
to all transactions or other events in which the Company obtains control of one
or more businesses, including combinations achieved without the transfer of
consideration, for example, by contract alone or through the lapse of minority
veto rights. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after January 1,
2009, except that resolution of certain tax contingencies and adjustments to
valuation allowances related to business combinations, which previously were
adjusted to goodwill, will be adjusted to income tax expense for all such
adjustments after January 1, 2009, regardless of the date of the original
business combination. Management has not yet determined the effect, if any, of
SFAS No. 141(R) on the Companys financial statements for its fiscal
year ending December 31, 2009.
In December 2007,
the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan amendment of Accounting Research Bulletin No. 51.
SFAS No. 160 requires reporting entities to present noncontrolling
(minority) interests as equity (as opposed to a liability or mezzanine equity)
and provides guidance on the accounting for transactions between an entity and
noncontrolling interests. SFAS No. 160 applies prospectively as of January 1,
2009, except for the presentation and disclosure requirements, which will be
applied retrospectively for all periods presented. Management has not yet
determined the effect, if any, of SFAS No. 160 on the Companys financial
statements for its fiscal year ending December 31, 2009.
9
In September 2006,
the FASB finalized SFAS No. 157 which became effective January 1,
2008, except as amended by FASB Staff Position (FSP) Financial Accounting
Standard (FAS) 157-1 and FSP FAS 157-2 (see below). This Statement defines
fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements, but does not require any new fair
value measurements. The provisions of SFAS No. 157 were applied
prospectively to fair value measurements and disclosures for financial assets
and financial liabilities recognized or disclosed at fair value in the
financial statements on at least an annual basis beginning in the first quarter
of 2008. The adoption of this statement did not have a material effect on the
interim condensed consolidated financial statements for fair value measurements
made during the first half of 2008. While the Company does not expect the
adoption of this statement to have a material effect on its interim condensed
consolidated financial statements in subsequent reporting periods, the Company
continues to monitor any additional implementation guidance that is issued that
addresses the fair value measurements for financial and nonfinancial assets and
nonfinancial liabilities not disclosed at fair value in the financial
statements (at least annually).
In February 2008,
the FASB issued FSP FAS 157-1, Application of FASB Statement No. 157 to
FASB Statement No. 13 and Its Related Interpretive Accounting
Pronouncements That Address Leasing Transactions, and FSP FAS 157-2, Effective
Date of FASB Statement No. 157. FSP FAS 157-1 removes leasing from the
scope of SFAS No. 157, Fair Value Measurements. FSP FAS 157-2 delays the
effective date of SFAS No. 157 from 2008 to 2009 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually).
In February 2007,
the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities. SFAS No. 159 allows entities to choose to
elect, at specified dates, to measure eligible financial instruments at fair
value. Entities must report unrealized gains and losses on items for which the
fair value option has been elected in earnings. The Company did not make any
fair value elections at the date of adoption of the provisions of SFAS No. 159
for financial assets and financial liabilities or during the three or six
months ended June 30, 2008.
In March 2008, the
FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133. SFAS No. 161
expands the disclosure requirements included in SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, about an entitys
derivative instruments and hedging activities. SFAS No. 161 is effective
for fiscal years beginning after November 15, 2008. Management does not
expect the adoption of SFAS No. 161 to have a material effect on the
Companys financial statements.
In April 2008, the
FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible
Assets. FSP FAS 142-3 removes the requirement of SFAS No. 142 Goodwill
and Other Intangible Assets for an entity to consider, when determining the
useful life of a recognized intangible asset, whether an intangible asset can
be renewed without substantial cost or material modifications to the existing
terms and conditions. FSP FAS 142-3 requires an entity to consider its
own historical experience in developing renewal or extension assumptions.
In the absence of entity specific experience, FSP FAS 142-3 requires an entity
to consider assumptions that a marketplace participant would use about renewal
or extension that are consistent with the highest and best use of the asset by
a marketplace participant. FSP FAS 142-3 is effective prospectively for
all intangible assets acquired after its effective date, with additional
disclosures required for all recognized intangible assets as of the effective
date. FSP FAS 142-3 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Management has not yet determined the effect, if any, of
FSP FAS 142-3 on the Companys financial statements for its fiscal year ending December 31,
2009, and the fiscal quarters of that year.
In May 2008, the
FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements. SFAS No. 162 is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board amendments to
Auditing Standard (AU) Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. Management does not
expect the adoption of SFAS No. 162 to have a material effect on the
Companys financial statements.
10
2. Trade Accounts Receivable, net
Trade accounts receivable
consist of the following:
|
|
At June 30,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
144,313
|
|
$
|
151,166
|
|
$
|
92,879
|
|
Allowance for doubtful accounts
|
|
(2,080
|
)
|
(2,614
|
)
|
(2,724
|
)
|
Allowance for sales discounts and returns
|
|
(3,071
|
)
|
(3,164
|
)
|
(1,815
|
)
|
|
|
$
|
139,162
|
|
$
|
145,388
|
|
$
|
88,340
|
|
3. Inventories
Inventories consist of
the following:
|
|
At
June 30
,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
83,616
|
|
$
|
82,503
|
|
$
|
82,164
|
|
In-process products
|
|
26,161
|
|
20,266
|
|
23,674
|
|
Finished products
|
|
122,798
|
|
107,484
|
|
112,504
|
|
|
|
$
|
232,575
|
|
$
|
210,253
|
|
$
|
218,342
|
|
4. Property, Plant and Equipment, net
Property, plant and
equipment, net, consist of the following:
|
|
At
June 30
,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
21,305
|
|
$
|
20,066
|
|
$
|
19,820
|
|
Buildings and site improvements
|
|
133,920
|
|
111,836
|
|
131,166
|
|
Leasehold improvements
|
|
4,523
|
|
3,989
|
|
4,054
|
|
Machinery and equipment
|
|
221,005
|
|
195,714
|
|
213,188
|
|
|
|
380,753
|
|
331,605
|
|
368,228
|
|
Less accumulated depreciation and amortization
|
|
(188,662
|
)
|
(165,687
|
)
|
(175,893
|
)
|
|
|
192,091
|
|
165,918
|
|
192,335
|
|
Capital projects in progress
|
|
6,964
|
|
33,331
|
|
5,782
|
|
|
|
$
|
199,055
|
|
$
|
199,249
|
|
$
|
198,117
|
|
The Companys vacant
facility in San Leandro, California, remains classified as an asset held for
sale as of June 30, 2008, consistent with the classification at December 31,
2007. This facility is associated with the connector segment. In April 2008,
the Company completed the sale of its vacant warehouse in McKinney, Texas,
previously classified as an asset held for sale, for $1.8 million, and no
material gain or loss was recorded.
In September 2007,
an environmental analysis of the San Leandro property indicated that the
property had contamination related to spilled fuel that would require an
estimated $0.3 million to remediate. In June 2008, the Company performed
additional analysis and determined that an additional $0.4 million would be
needed to remediate the site. The clean-up is expected to be completed in late
2008. The Company expects to sell the property after the remediation is
completed.
11
5. Investments
Equity
Method Investment
The Company has a 35%
equity interest in Keymark Enterprises, LLC (Keymark), for which the Company
accounts using the equity method. Keymark develops software that assists in
designing and engineering residential structures. The Companys relationship
with Keymark includes the specification of the Companys products in the
Keymark software. The Company has no obligation to make any additional future
capital contributions to Keymark.
6. Debt
Outstanding debt at June 30,
2008 and 2007, and December 31, 2007, and the available lines of credit at
June 30, 2008, consisted of the following:
|
|
Available
|
|
Debt Outstanding
|
|
|
|
Credit at
|
|
at
|
|
at
|
|
|
|
June 30,
|
|
June 30,
|
|
December 31,
|
|
(dollar amounts in thousands)
|
|
2008
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit, interest at LIBOR plus 0.27% (at
June 30, 2008, LIBOR plus 0.27% was 2.73%), matures October 2012,
commitment fees payable at the annual rate of 0.08% on the unused portion of
the facility
|
|
$
|
200,000
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit, interest at the banks base rate plus 2%
(at June 30, 2008, the banks base rate plus 2% was 7.00%), expires
October 2008
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving lines of credit, interest rates between 4.81% and 6.01%
|
|
2,897
|
|
3,177
|
|
5,942
|
|
1,029
|
|
|
|
203,395
|
|
3,177
|
|
5,942
|
|
1,029
|
|
Less line of credit and current portion of long-term debt
|
|
|
|
(3,177
|
)
|
(5,942
|
)
|
(1,029
|
)
|
Long-term debt, net of current portion
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Available credit
|
|
$
|
203,395
|
|
|
|
|
|
|
|
7. Commitments and Contingencies
Note 9 to the
consolidated financial statements in the 2007 Annual Report provides
information concerning commitments and contingencies. From time to time, the
Company is involved in various legal proceedings and other matters arising in
the normal course of business. The resolution of claims and litigation is
subject to inherent uncertainty and could have a material adverse effect on the
Companys financial condition, cash flows and results of operations.
The Companys
policy with regard to environmental liabilities is to accrue for future
environmental assessments and remediation costs when information becomes
available that indicates that it is probable that the Company is liable for any
related claims and assessments and the amount of the liability is reasonably
estimable. The Company does not believe that these matters will have a material
adverse effect on the Companys financial condition, cash flows or results of
operations. In June 2008, the Company accrued an additional $0.4 million
related to clean-up and regulatory costs associated with its San Leandro,
California, facility (see Note 4).
Corrosion, hydrogen
enbrittlement, cracking, material hardness, wood pressure-treating chemicals,
misinstallations, misuse, environmental conditions or other factors can
contribute to failure of fasteners, connectors and tools. On occasion, some of
the fasteners and connectors that the Company sells have failed, although the
Company has not incurred any material liability resulting from those failures.
The Company attempts to avoid such failures by
12
establishing and
monitoring appropriate product specifications, manufacturing quality control
procedures, inspection procedures and information on appropriate installation
methods and conditions. The Company subjects its products to extensive testing,
with results and conclusions published in Company catalogues and on its
websites. Based on test results to date, the Company believes that, generally,
if its products are appropriately selected, installed and used in accordance
with the Companys guidance, they may be reliably used in appropriate
applications.
8. Stock Option Plans
The Company currently has
two stock option plans (see Note 1
Accounting
for Stock-Based Compensation
). Participants are granted stock
options only if the applicable company-wide or profit-center operating goals,
or both, established by the Compensation Committee of the Board of Directors at
the beginning of the year, are met.
The fair value of each
option award was estimated on the date of grant using the Black-Scholes option
pricing model. Expected volatility is based on historical volatilities of the
Companys common stock measured monthly over a term that is equivalent to the
expected life of the option. The expected term of options granted is estimated
based on the Companys prior exercise experience and future expectations of the
exercise and termination behavior of the grantees. The risk-free rate is based
on the yield of United States Treasury zero-coupon bonds with maturities
comparable to the expected life in effect at the time of grant. The dividend
yield is based on the expected dividend yield on the grant date.
Black-Scholes option
pricing model assumptions for options granted in 2008 and 2007 are as follows:
Number
|
|
|
|
Risk
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
of Options
|
|
|
|
Free
|
|
|
|
|
|
|
|
|
|
Average
|
|
Granted
|
|
Grant
|
|
Interest
|
|
Dividend
|
|
Expected
|
|
|
|
|
|
Fair
|
|
(in thousands)
|
|
Date
|
|
Rate
|
|
Yield
|
|
Life
|
|
Volatility
|
|
Exercise Price
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
04/23/08
|
|
3.15
|
%
|
1.55
|
%
|
6.0
years
|
|
27.1
|
%
|
$
|
25.74
|
|
$
|
6.92
|
|
40
|
|
|
02/13/08
|
|
2.90
|
%
|
1.68
|
%
|
6.0
years
|
|
27.1
|
%
|
$
|
23.78
|
|
$
|
6.16
|
|
123
|
|
|
02/02/07
|
|
4.84
|
%
|
1.19
|
%
|
5.9
years
|
|
29.0
|
%
|
$
|
33.62
|
|
$
|
11.11
|
|
There were no options
granted under the 1995 Plan in 2008 or 2007.
The following table
summarizes the Companys stock option activity for the six months ended June 30,
2008:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
|
Shares
|
|
Exercise
|
|
Contractual
|
|
Value*
|
|
Non-Qualified Stock Options
|
|
(in thousands)
|
|
Price
|
|
Life
(in years)
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2008
|
|
2,656
|
|
$
|
27.91
|
|
|
|
|
|
Granted
|
|
40
|
|
23.78
|
|
|
|
|
|
Additional granted
|
|
14
|
|
25.74
|
|
|
|
|
|
Exercised
|
|
(38
|
)
|
19.34
|
|
|
|
|
|
Forfeited
|
|
(35
|
)
|
33.24
|
|
|
|
|
|
Outstanding at June 30, 2008
|
|
2,637
|
|
$
|
27.89
|
|
3.0
|
|
$
|
4,718
|
|
Outstanding and expected to vest at June 30, 2008
|
|
2,623
|
|
$
|
27.85
|
|
3.0
|
|
$
|
4,718
|
|
Exercisable at June 30, 2008
|
|
2,244
|
|
$
|
26.45
|
|
2.7
|
|
$
|
4,718
|
|
* The intrinsic value represents the amount, if
any, by which the fair market value of the underlying common stock exceeds the
exercise price of the option, using the closing price per share of $23.74 on June 30,
2008.
13
The total intrinsic value
of options exercised during the six months ended June 30, 2008 and 2007,
was $0.3 million and $2.2 million, respectively.
A summary of the status
of unvested options as of June 30, 2008, and changes during the six months
ended June 30, 2008, are presented below:
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
Grant-Date
|
|
Unvested Options
|
|
(in thousands)
|
|
Fair Value
|
|
|
|
|
|
|
|
Unvested at January 1, 2008
|
|
543
|
|
$
|
12.34
|
|
Granted
|
|
54
|
|
6.36
|
|
Vested
|
|
(199
|
)
|
11.54
|
|
Forfeited
|
|
(5
|
)
|
13.29
|
|
Unvested at June 30, 2008
|
|
393
|
|
$
|
11.91
|
|
As of June 30, 2008,
$4.1 million of total unrecognized compensation cost was related to unvested
share-based compensation arrangements under the 1994 Plan. This cost is
expected to be recognized over a weighted-average period of 1.67 years. Options
granted under the 1995 Plan are fully vested and are expensed on the date of
grant.
9. Segment Information
The Company is organized
into two primary operating segments. The segments are defined by types of
products manufactured, marketed and distributed to the Companys customers. The
two product segments are connector products and venting products. These
segments are differentiated in several ways, including the types of materials,
the production processes, the distribution channels and the product
applications. Transactions between the two segments were immaterial for each of
the periods presented.
The following table
illustrates certain measurements used by management to assess the performance
of the segments described above as of or for the following periods:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Connector products
|
|
$
|
205,714
|
|
$
|
216,204
|
|
$
|
359,882
|
|
$
|
395,672
|
|
Venting products
|
|
13,549
|
|
15,084
|
|
27,037
|
|
28,770
|
|
Total
|
|
$
|
219,263
|
|
$
|
231,288
|
|
$
|
386,919
|
|
$
|
424,442
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
|
|
|
|
|
|
|
Connector products
|
|
$
|
36,396
|
|
$
|
44,286
|
|
$
|
52,903
|
|
$
|
73,304
|
|
Venting products
|
|
(2,813
|
)
|
(788
|
)
|
(5,638
|
)
|
(2,727
|
)
|
Administrative and all other
|
|
(1,229
|
)
|
103
|
|
(1,438
|
)
|
(405
|
)
|
Total
|
|
$
|
32,354
|
|
$
|
43,601
|
|
$
|
45,827
|
|
$
|
70,172
|
|
|
|
|
|
|
|
At
|
|
|
|
At June 30,
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
Total Assets
|
|
|
|
|
|
|
|
Connector products
|
|
$
|
628,308
|
|
$
|
560,395
|
|
$
|
575,707
|
|
Venting products
|
|
77,494
|
|
80,095
|
|
78,541
|
|
Administrative and all other
|
|
164,281
|
|
188,368
|
|
163,431
|
|
Total
|
|
$
|
870,083
|
|
$
|
828,858
|
|
$
|
817,679
|
|
14
Cash collected by
the Companys subsidiaries is routinely transferred into the Companys cash
management accounts and, therefore, has been included in the total assets of Administrative
and all other. Cash and cash equivalent balances in the Administrative and
all other segment were $137.2 million, $166.5 million, and $159.8 million, as
of June 30, 2008 and 2007, and December 31, 2007, respectively.
10. Subsequent Events
In August 2008, the
Companys Board of Directors declared a cash dividend of $0.10 per share,
estimated to total $4.9 million, to be paid on October 24, 2008, to
stockholders of record on October 3, 2008.
In July 2008,
Simpson Strong-Tie purchased 100% of the equity of Ahorn-Geräte &
Werkzeuge Vertriebs GmbH (Ahorn), a German company, and its subsidiaries in
the Czech Republic and China. The acquisition will broaden Simpson Strong-Ties
collated fastener product line and add production capacity in both Europe and
China. The purchase price (subject to post-closing adjustment) was $8.5 million
in cash.
In July 2008,
Simpson Dura-Vent also purchased certain assets to produce the Ventinox
stainless steel chimney liner product line from American BOA Inc. ProTech had
been the distributor of Ventinox products. The purchase price (subject to
post-closing adjustment) was $1.5 million in cash.
15
Item
2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
This
document contains forward-looking statements, based on numerous assumptions and
subject to risks and uncertainties. Although the Company believes that the
forward-looking statements are reasonable, it does not and cannot give any
assurance that its beliefs and expectations will prove to be correct. Many
factors could significantly affect the Companys operations and cause the
Companys actual results to be substantially different from the Companys
expectations. See Part II, Item 1A - Risk Factors. Actual results might
differ materially from results suggested by any forward-looking statements in
this report. The Company does not have an obligation to publicly update any
forward-looking statements, whether as a result of the receipt of new
information, the occurrence of future events or otherwise.
The following is a
discussion and analysis of the consolidated financial condition and results of
operations for the Company for the three and six months ended June 30,
2008 and 2007. The following should be read in conjunction with the interim
Condensed Consolidated Financial Statements and related Notes appearing
elsewhere herein.
Results of Operations for
the Three Months Ended June 30, 2008, Compared with the Three Months Ended
June 30, 2007
Net sales decreased 5.2%
to $219.3 million in the second quarter of 2008 as compared to net sales of
$231.3 million for the second quarter of 2007. Net income decreased 28.0% to
$20.4 million for the second quarter of 2008 as compared to net income of $28.3
million for the second quarter of 2007. Diluted net income per common share was
$0.42 for the second quarter of 2008 as compared to $0.58 for the second
quarter of 2007.
In the second quarter of
2008, sales declined throughout the United States, with the exception of the
northeastern and midwestern regions of the country. California and the western
states had the largest decrease in sales. Sales during the quarter in Canada
and in continental Europe increased significantly, while sales were down in the
United Kingdom. Simpson Strong-Ties second quarter sales decreased 4.9% from
the same quarter last year, while Simpson Dura-Vents sales decreased 10.2%.
Simpson Strong-Ties sales to contractor distributors had the largest
percentage rate decrease, and sales to dealer distributors and home centers
also decreased. Sales decreased across all of Simpson Strong-Ties major
product lines, particularly those used in new home construction. Sales of the
Swan Secure product line, acquired in July 2007, accounted for
approximately 4.5% of Simpson Strong-Ties second quarter sales. Sales of
Simpson Dura-Vents pellet vent and chimney products increased, while sales of
its gas vent and Direct-Vent product lines decreased as a result of several
factors, including the decline in new home construction.
Income from operations
decreased 25.8% from $43.6 million in the second quarter of 2007 to $32.4
million in the second quarter of 2008. Gross margin decreased from 40.4% in the
second quarter of 2007 to 38.2% in the second quarter of 2008. The decrease in
gross margin was primarily due to higher manufacturing and distribution costs
and a higher proportion of fixed overhead costs to total costs, resulting
primarily from the lower sales volume. The steel market continues to be dynamic
with a high degree of uncertainty. Since December 31, 2007, the Companys
total inventories have increased 6.5%. In the second half of 2008, the Company
is anticipating further increases in steel prices. If steel prices continue to
increase and the Company is not able to increase its prices sufficiently, the Companys
margins could further deteriorate.
Selling expense increased
10.4% from $20.1 million in the second quarter of 2007 to $22.1 million in the
second quarter of 2008. The increase was driven primarily by a $3.5 million
increase in expenses associated with sales and marketing personnel, including
those at businesses acquired since July 2007. This increase was offset by
decreases in donations of $0.7 million, primarily related to the gift made in
the second quarter of 2007 to Habitat for Humanity International, Inc.,
professional services expenses of $0.3 million and promotional expenses of $0.2
million. General and administrative expense decreased 2.2% from $24.3 million
in the second quarter of 2007 to $23.8 million in the second quarter of 2008.
The decrease mainly comprised a $5.2 million decrease in cash profit sharing,
the result of both lower operating profit and a shift begun in the second
quarter of 2008 of some of the compensation of U.S. based salaried employees
from cash profit sharing to salary. This decrease was mostly offset by
increases in personnel expenses of $3.0 million, including the shift in
compensation as well as the expenses associated with personnel at businesses
acquired since July 2007, legal and professional service expenses of $1.3
million and higher amortization expense of $0.5 million, primarily related to
intangible assets acquired from Swan Secure Products, Inc. in July 2007.
The effective tax rate was 38.0% in the second quarter of 2008, up from 37.2%
in the second quarter of 2007. The increase in the effective tax rate was
caused by several factors, including a decrease in tax-exempt interest income
and the expiration of the federal research and development tax credit in 2008.
16
Connector Products Simpson Strong-Tie
Simpson Strong-Ties
income from operations decreased 17.8% from $44.3 million in the second quarter
of 2007 to $36.4 million in the second quarter of 2008.
Net
Sales
In the second quarter of
2008, Simpson Strong-Ties net sales decreased 4.9% to $205.7 million from
$216.2 million in the second quarter of 2007. Simpson Strong-Tie accounted for
93.8% of the Companys total net sales in the second quarter of 2008, an
increase from 93.5% in the second quarter of 2007. The decrease in net sales at
Simpson Strong-Tie resulted from a decrease in sales volume, although average
prices increased 3.0% as compared to the second quarter of 2007. In the second
quarter of 2008, Simpson Strong-Ties sales declined throughout the United
States, with the exception of the northeastern and midwestern regions of the
country. California and the western states had the largest decrease in sales.
Simpson Strong-Ties sales during the quarter in Canada and in continental
Europe increased significantly, while sales were down in the United Kingdom.
Simpson Strong-Ties sales to contractor distributors had the largest
percentage rate decrease, and sales to dealer distributors and home centers
also decreased. Sales decreased across all of Simpson Strong-Ties major
product lines, particularly those used in new home construction. Sales of the
Swan Secure product line, acquired in July 2007, accounted for
approximately 4.5% of Simpson Strong-Ties second quarter sales.
Gross
Profit
Simpson Strong-Ties
gross profit decreased 7.8% to $84.3 million in the second quarter of 2008 from
$91.4 million in the second quarter of 2007. As a percentage of net sales,
gross profit decreased to 41.0% in the second quarter of 2008 from 42.3% in the
second quarter of 2007. This decrease was primarily due to higher manufacturing
and distribution costs and a higher proportion of fixed overhead costs to total
costs, resulting from the lower sales volume.
Selling
Expense
Simpson Strong-Ties
selling expense increased 12.3% to $20.7 million in the second quarter of 2008
from $18.4 million in the second quarter of 2007. The increase was driven
primarily by a $3.5 million increase in expenses associated with sales and
marketing personnel, including those at businesses acquired since July 2007.
This increase was offset by decreases in donations expense of $0.7 million,
legal and professional fees of $0.3 million, and promotional activities of $0.1
million.
General
and Administrative Expense
Simpson Strong-Ties general
and administrative expense decreased 7.2% to $21.9 million in the second
quarter of 2008 from $23.6 million in the second quarter of 2007. The decrease
was primarily due to reduced cash profit sharing expenses included in
administrative expense totaling $5.9 million, the result of both lower
operating profit and a shift begun in the second quarter of 2008 of some of the
compensation of U.S. based employees from cash profit sharing to salary. This decrease
was mostly offset by increases in expenses associated with administrative
personnel of $2.9 million, including the shift in compensation as well as
expenses associated with personnel at businesses acquired since July 2007,
legal and professional service expenses of $0.7 million and higher amortization
expense of $0.5 million, primarily related to assets acquired from Swan Secure
in July 2007.
European
Operations
For its European
operations, Simpson Strong-Tie recorded income from operations of $2.6 million
in the second quarter of 2008 compared to income from operations of $2.1
million in the second quarter of 2007.
Venting Products Simpson Dura-Vent
Simpson Dura-Vents loss
from operations increased from $0.8 million in the second quarter of 2007 to
$2.8 million in the second quarter of 2008.
17
Net
Sales
In the second quarter of
2008, Simpson Dura-Vents net sales decreased 10.2% to $13.5 million as
compared to net sales of $15.1 million in the second quarter of 2007. Simpson
Dura-Vent accounted for 6.2% of the Companys total net sales in the second
quarter of 2008, a decrease from 6.5% in the second quarter of 2007. The
decrease in net sales at Simpson Dura-Vent resulted primarily from a decrease
in sales volume, while average prices were flat as compared to the second
quarter of 2007. In the second quarter of 2008, Simpson Dura-Vents sales
increased in the northeastern region of the United States, while sales in
California, the west and the south/southeast were down sharply. Sales to
fireplace distributors were flat in the second quarter of 2008 as compared to
the second quarter of 2007, and sales to HVAC (heating, ventilating and air
conditioning) distributors were down substantially. Sales of Simpson Dura-Vents
pellet vent and chimney products increased while sales of its gas vent and
Direct-Vent product lines decreased as a result of several factors, including
the decline in new home construction.
Gross
Profit
Simpson Dura-Vents gross
profit decreased from $2.0 million in the second quarter of 2007 to a loss of
$0.2 million in the second quarter of 2008. This decrease was primarily due to
higher manufacturing and distribution costs and a higher proportion of fixed
overhead costs to total costs, resulting from the lower sales volume.
Administrative and All Other (Company)
Interest
Income and Expense
Interest income is
generated on the Companys cash and cash equivalents balances. Interest income
decreased primarily as a result of lower interest rates. Interest expense
includes interest, account maintenance fees and bank charges.
Results of Operations for
the Six Months Ended June 30, 2008, Compared with the Six Months Ended June 30,
2007
Net sales decreased 8.8%
to $386.9 million in the first half of 2008 as compared to net sales of $424.4
million for the first half of 2007. Net income decreased 37.0% to $28.7 million
for the first half of 2008 as compared to net income of $45.6 million for the
first half of 2007. Diluted net income per common share was $0.59 for the first
half of 2008 as compared to $0.93 for the first half of 2007.
In the first half of
2008, sales declined throughout the United States, with the exception of the
northeastern region of the country. California and the western states had the
largest decrease in sales. Sales during the period in Canada and in continental
Europe increased significantly, while sales were down in the United Kingdom.
Simpson Strong-Ties first half sales decreased 9.0% from the first half of
last year, while Simpson Dura-Vents sales decreased 6.0%. Simpson Strong-Ties
sales to contractor distributors had the largest percentage rate decrease, and
sales to dealer distributors and home centers also decreased. Sales decreased
across all of Simpson Strong-Ties major product lines, particularly those used
in new home construction. Sales of the Swan Secure product line, acquired in July 2007,
accounted for approximately 4.8% of Simpson Strong-Ties first half sales.
Sales of Simpson Dura-Vents pellet vent and chimney products increased, while
sales of its gas vent and Direct-Vent product lines decreased.
Income from operations
decreased 34.7% from $70.2 million in the first half of 2007 to $45.8 million
in the first half of 2008. Gross margin decreased from 38.9% in the first half
of 2007 to 36.2% in the first half of 2008. The decrease in gross margin was
due primarily to higher manufacturing and distribution costs and a higher
proportion of fixed overhead costs to total costs, resulting primarily from the
lower sales volume.
Selling expense increased
9.8% from $38.2 million in the first half of 2007 to $41.9 million in the first
half of 2008. The increase was driven primarily by a $5.1 million increase in
expenses associated with sales and marketing personnel, including those at
businesses acquired since July 2007. This increase was partly offset by
decreases in donations of $0.5 million and promotional expenses of $0.3
million. General and administrative expense decreased 9.4% from $46.0 million
in the first half of 2007 to $41.7 million in the first half of 2008. The major
components of the decrease were decreases in cash profit sharing of $9.1
million, resulting primarily from decreased operating profit, and adjustments
to the provision for doubtful accounts of $0.9 million. These decreases were partly
offset by increases in personnel expenses of $4.1 million, including those at
businesses acquired since July 2007, higher amortization expense of $1.1
million and increased legal and professional service expenses of $0.6 million.
The
18
effective tax rate was
39.5% in the first half of 2008, up from 37.5% in the first half of 2007. The
increase in the effective tax rate resulted from most of the same factors that
affected the effective tax rate in the second quarter.
Connector Products Simpson Strong-Tie
Simpson Strong-Ties
income from operations decreased 27.8% from $73.3 million in the first half of
2007 to $52.9 million in the first half of 2008.
Net
Sales
In the first half of
2008, Simpson Strong-Ties net sales decreased 9.0% to $359.9 million from
$395.7 million in the first half of 2007. Simpson Strong-Tie accounted for
93.0% of the Companys total net sales in the first half of 2008, a decrease
from 93.2% in the first half of 2007. The decrease in net sales at Simpson
Strong-Tie resulted from a decrease in sales volume, although average prices
increased 1.6% as compared to the first half of 2007. In the first half of
2008, Simpson Strong-Ties sales declined throughout the United States, with the
exception of the northeastern region of the country. California and the western
states had the largest decrease in sales. Sales during the period in Canada and
in continental Europe increased significantly, while sales were down in the
United Kingdom. Simpson Strong-Ties sales to contractor distributors had the
largest percentage rate decrease and sales to dealer distributors and home
centers also decreased. Sales decreased across all of Simpson Strong-Ties
major product lines, particularly those used in new home construction. Sales of
the Swan Secure product line, acquired in July 2007, accounted for
approximately 4.8% of Simpson Strong-Ties first half sales.
Gross
Profit
Simpson Strong-Ties
gross profit decreased 13.4% to $140.3 million in the first half of 2008 from
$162.1 million in the first half of 2007. As a percentage of net sales, gross
profit decreased to 39.0% in the first half of 2008 from 41.0% in the first
half of 2007. The decrease in gross margin was due primarily to higher manufacturing
and distribution costs and a higher proportion of fixed overhead costs to total
costs, resulting primarily from the lower sales volume.
Selling
Expense
Simpson Strong-Ties
selling expense increased 11.5% to $38.8 million in the first half of 2008 from
$34.8 million in the first half of 2007. The increase was driven primarily by a
$5.0 million increase in expenses associated with sales and marketing
personnel, including those at businesses acquired since July 2007. This
increase was partly offset by a decrease in donations of $0.5 million.
General
and Administrative Expense
Simpson Strong-Ties
general and administrative expense decreased 12.5% to $38.4 million in the
first half of 2008 from $43.9 million in the first half of 2007. The major
components of the decrease were decreases in cash profit sharing of $9.9
million, resulting primarily from decreased operating profit, adjustments to
the provision for doubtful accounts of $1.1 million, and a reduction in
depreciation expense of $0.3 million. These decreases were partly offset by
increases in personnel expenses of $3.8 million, including those at businesses
acquired since July 2007, higher amortization expense of $1.1 million and
increased legal and professional service expenses of $0.4 million.
European
Operations
For its European
operations, Simpson Strong-Tie recorded income from operations of $1.6 million
in the first half of 2008 compared to income from operations of $2.6 million in
the first half of 2007.
Venting Products Simpson Dura-Vent
Simpson Dura-Vents loss
from operations increased from $2.7 million the first half of 2007 to $5.6
million in the first half of 2008.
19
Net
Sales
In the first half of
2008, Simpson Dura-Vents net sales decreased 6.0% to $27.0 million as compared
to net sales of $28.8 million in the first half of 2007. Simpson Dura-Vent
accounted for 7.0% of the Companys total net sales in the first half of 2008,
an increase from 6.8% in the first half of 2007. The decrease in net sales at
Simpson Dura-Vent resulted from a decrease in sales volume, partly off set by
price increases that averaged 0.7%. In the first half of 2008, Simpson
Dura-Vent sales increased in the northeastern region of the United States while
sales in California and the south/southeast were down sharply. Sales to
fireplace distributors were up in the first half of 2008 as compared to the
first half of 2007, but were off set by substantial decreases in sales to HVAC
distributors. Sales of Simpson Dura-Vents pellet vent and chimney products
increased while sales of its gas vent and Direct-Vent product lines decreased.
Gross
Profit
Simpson Dura-Vents gross
profit decreased from $2.9 million in the first half of 2007 to a loss of $0.1
million in the first half of 2008. This decrease was primarily due to higher
manufacturing and distribution costs and a higher proportion of fixed overhead
costs to total costs, resulting from the lower sales volume.
Administrative and All Other (Company)
Interest
Income and Expense
Interest income is
generated on the Companys cash and cash equivalents balances. Interest income
decreased primarily as a result of lower interest rates. Interest expense
includes interest, account maintenance fees and bank charges.
Critical Accounting
Policies and Estimates
Allowance
for Doubtful Accounts
The Company
assesses the collectibility of specific customer accounts that would be
considered doubtful based upon the customers financial condition, payment
history, credit rating and other factors that the Company considers relevant,
or accounts that the Company assigns for collection. The Company reserves for
the portion of those outstanding balances that the Company believes it is not
likely to collect based on historical collection experience. The Company also
reserves 100% of the amount that it deems potentially uncollectible due to a
customers bankruptcy or deteriorating financial condition. If the financial
condition of the Companys customers were to deteriorate, resulting in
inability to make payments, additional allowances may be required.
Recently
Issued Accounting Standards
On January 1, 2008,
the Company adopted SFAS No. 157, Fair Value Measurements, except as
amended by FSP FAS 157-1 and FSP FAS 157-2, and SFAS No. 159, The Fair
Value Option for Financials Assets and Financial Liabilities. The Company has
not yet adopted the provisions of SFAS No. 141(R), Business Combinations,
SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51, SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activitiesan amendment
of FASB Statement No. 133, FSP FAS 142-3, Determination of the
Useful Life of Intangible Assets or SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles. See Note 1 to the Companys
Condensed Consolidated Financial Statements.
Liquidity and Sources of
Capital
As of June 30, 2008,
working capital was $448.7 million as compared to $438.3 million at June 30,
2007, and $438.5 million at December 31, 2007. The increase in working
capital from December 31, 2007, was primarily due to increases in net
trade accounts receivable of $50.8 million and inventories of $14.2 million and
a decrease in accrued profit sharing trust contributions of $3.4 million. Net
trade accounts receivable increased 57.5% from December 31, 2007, while
inventories increased 6.5% from December 31, 2007. The increase in net
trade accounts receivable was the result of increased sales in the latter part
of the second quarter of 2008 as compared to the latter
20
part of the fourth
quarter of 2007. Offsetting this increase in working capital were decreases in
cash and cash equivalents of $24.0 million and increases in trade accounts
payable, cash profit sharing and commissions payable, and line of credit
borrowings of $19.1 million, $6.5 million, and $2.1 million, respectively.
Assets held for sale decreased by $1.8 million due to the sale of the vacant
warehouse in McKinney, Texas, in April 2008. Other decreases to working
capital were decreases in other current assets of $2.4 million and increases in
income taxes payable of $1.6 million. The balance of the change in working
capital was due to the fluctuation of various other asset and liability
accounts, none of which was individually material. The working capital change
and changes in noncurrent assets and liabilities, combined with net income of
$28.7 million and noncash expenses, primarily depreciation, amortization and
stock-based compensation charges totaling $16.9 million, resulted in net cash
provided by operating activities of $13.3 million. As of June 30, 2008,
the Company had unused credit facilities available of $203.4 million.
The Company used $30.2
million in its investing activities, primarily for the Liebig and ProTech asset
acquisitions and capital expenditures at various facilities throughout the
United States and in Asia, offset by sales of assets, including the vacant
factory in McKinney, Texas. The Company estimates its capital spending will
total $21.0 million for 2008.
In April 2008, the
Companys newly formed subsidiary, Simpson Strong-Tie Ireland Limited,
purchased certain assets of Liebig International Ltd., an Irish company,
Heinrich Liebig Stahldübelwerke GmbH, Liebig GmbH & Co. KG and Liebig
International Verwaltungsgesellschaft GmbH, all German companies, Liebig Bolts
Limited, an English company, and Liebig International Inc., a Virginia
corporation (collectively Liebig). Liebig manufactures mechanical anchor
products in Ireland and distributes them primarily throughout Europe through
warehouses located in Germany and in the United Kingdom. The purchase price
(subject to post-closing adjustments) was $18.3 million in cash.
In June 2008, the
Companys subsidiary, Simpson Dura-Vent Company, Inc., purchased 100% of
the equity of ProTech Systems, Inc. (ProTech). ProTech manufactures
venting products in New York and distributes them throughout North America. The
purchase price (subject to post-closing adjustment) was $7.5 million in cash,
plus an additional earn-out of up to $2.25 million if certain future
performance targets are met. In July 2008, Simpson Dura-Vent also
purchased certain assets to produce the Ventinox stainless steel chimney liner
product line from American BOA Inc. ProTech had been the distributor of
Ventinox products. The purchase price (subject to post-closing adjustment) was
$1.5 million in cash.
In July 2008,
Simpson Strong-Tie purchased 100% of the equity of Ahorn-Geräte &
Werkzeuge Vertriebs GmbH (Ahorn), a German company, and its subsidiaries in
the Czech Republic and China. The acquisition will broaden Simpson Strong-Ties
collated fastener product line and add production capacity in both Europe and
China. The purchase price (subject to post-closing adjustment) was $8.5 million
in cash.
The Companys vacant
facility in San Leandro, California, has been classified as an asset held for
sale. In September 2007, an environmental analysis of the San Leandro
property indicated that it had contamination related to spilled fuel that would
require an estimated $0.3 million to remediate. In June 2008, the Company
performed additional analysis and determined that an additional $0.4 million
would be needed to remediate the site. The clean-up is expected to be completed
in late 2008. The Company expects to sell the property after the remediation is
completed.
The Companys financing
activities used net cash of $6.9 million. Uses of cash for financing activities
were for the payment of cash dividends in the amount of $9.7 million and
payments on the Companys credit lines of its European subsidiaries of $1.2
million. Cash provided by financing activities was primarily from borrowings on
the Companys credit lines of its European subsidiaries of $3.2 million and the
issuance of the Companys common stock through the exercise of stock options
totaling $0.7 million. In August 2008, the Companys Board of Directors
declared a cash dividend of $0.10 per share, estimated to total of $4.9
million, to be paid on October 24, 2008, to stockholders of record on October 3,
2008.
The Company believes that
cash generated by operations and borrowings available under its credit facility
will be sufficient for the Companys working capital needs and planned capital
expenditures. Depending on the Companys future growth and possible
acquisitions, it may become necessary to secure additional sources of financing,
which may not be available on reasonable terms, or at all.
21
The Company believes that
the effect of inflation on the Company has not been material in recent years,
as general inflation rates have remained relatively low. The Company
anticipates further increases in steel prices. If steel prices continue to
increase and the Company is not able to increase its prices sufficiently, the
Companys margins could further deteriorate.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
The Company has
foreign exchange rate risk in its international operations, primarily Europe
and Canada, and through purchases from foreign vendors. The Company does not
currently hedge this risk. If the exchange rate were to change by 10% in any
one country where the Company has operations, the change in net income would
not be material to the Companys operations taken as a whole. The translation
adjustment resulted in an increase in accumulated other comprehensive income of
$0.9 million and $2.5 million for the three and six months ended June 30,
2008, respectively, primarily due to the effect of the strengthening of the
United States dollar in relation to most of the European currencies, partly
offset by the effect of the weakening of the United States dollar in relation
to the Canadian dollar and the British pound.
Item
4. Controls and Procedures.
Disclosure
Controls and Procedures.
As of June 30, 2008, an evaluation of the effectiveness of the
design and operation of the Companys disclosure controls and procedures was
performed under the supervision and with the participation of the Companys
management, including the chief executive officer (CEO) and the chief
financial officer (CFO). Based on that evaluation, the CEO and the CFO
concluded that the Companys disclosure controls and procedures were effective
as of that date.
Changes
in Internal Control over Financial Reporting.
During the three months ended June 30,
2008, the Company made no changes to its internal control over financial
reporting (as defined in Securities Exchange Act of 1934 Rules 13a-15(f) and
15d-15(f)) that have materially affected, or are reasonably likely to
materially affect, its internal control over financial reporting.
The Company is in the
process of implementing an integrated accounting software system to be used in
its China operations.
22
PART II
OTHER INFORMATION
Item
1. Legal Proceedings.
From time to time,
the Company is involved in various legal proceedings and other matters arising
in the normal course of business. The resolution of claims and litigation is
subject to inherent uncertainty and could have a material adverse effect on the
Companys financial condition, cash flows or results of operations.
Item
1A. Risk Factors
We are affected by
risks specific to us, as well as risks that affect all businesses
operating in global markets. Some of the significant factors that could
materially adversely affect our business, financial condition and
operating results appear in Item 1A of our most recent Annual Report
on Form 10-K (available at www.simpsonmfg.com/docs/10K-2007.pdf
or www.sec.gov), and we have added the following additional risk factor:
Additional
financing, if needed, to fund our working capital, growth or acquisitions may
not be available on reasonable terms, or at all.
If our cash
requirements for working capital or to fund our growth increase to a level that
exceeds the amount of cash that we generate from operations, or if we should
decide to make an acquisition that requires more cash than we have available
internally and through our current credit arrangements, we will need to seek
additional resources. In that event, we
may need to enter into additional or new borrowing arrangements or consider
equity financing. Additional or new
borrowings may not be available on reasonable terms, or at all, especially
under current conditions in the financial markets. Our ability to raise money by selling and
issuing shares of our common or preferred stock would depend on general market
conditions and the demand for our stock.
We may be unable to raise adequate capital on reasonable terms by
selling stock. If we sell stock, our
existing stockholders could experience substantial dilution. Our inability to secure additional financing
could prevent the expansion of our business, internally and through
acquisitions.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
In December 2007,
the Board of Directors authorized the Company to repurchase up to $50.0 million
of the Companys common stock. This replaced the $50.0 million repurchase
authorization from February 2007. The authorization will remain in effect
through the end of 2008. There were no repurchases of the Companys common
stock in the second quarter of 2008.
Item
4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting
of Stockholders (Annual Meeting) was held on April 23, 2008. The
following nominees were elected as directors by the votes indicated:
|
|
Total Votes
|
|
Total Votes
|
|
|
|
|
|
for Each
|
|
Withheld from
|
|
Term
|
|
Name
|
|
Director
|
|
Each Director
|
|
Expires*
|
|
|
|
|
|
|
|
|
|
Earl F. Cheit
|
|
40,907,977
|
|
4,283,001
|
|
2011
|
|
Thomas J Fitzmyers
|
|
44,752,465
|
|
438,514
|
|
2011
|
|
Barry Lawson Williams
|
|
44,352,428
|
|
838,550
|
|
2011
|
|
* The term expires
on the date of the Annual Meeting in the year indicated.
The terms as
directors of Barclay Simpson, Peter N. Louras, Jr., Jennifer A. Chatman,
Robin G. MacGillivray and Gary M. Cusumano continued after the meeting.
The following
proposals were also adopted at the Annual Meeting by the vote indicated:
Proposal
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
|
|
|
|
|
|
To amend and re-approve the Companys Executive Cash Profit Sharing
Plan
|
|
44,424,850
|
|
644,844
|
|
121,283
|
|
|
|
|
|
|
|
|
|
To amend and re-approve the Companys 1994 Stock Option Plan
|
|
43,241,694
|
|
1,861,170
|
|
88,112
|
|
|
|
|
|
|
|
|
|
To ratify the appointment of PricewaterhouseCoopers LLP as the
independent registered public accounting firm of the Company for 2008
|
|
44,600,344
|
|
534,012
|
|
56,622
|
|
23
As stated in the Companys
Proxy Statement in connection with the Annual Meeting, the amendment and
re-approval of the 1994 Stock Option Plan had only two purposes: to comply with a requirement for periodic
re-approval under Internal Revenue Code section 162(m); and to conform the 1994
Stock Option Plan to recently adopted requirements of Internal Revenue Code
section 409A. A copy of the 1994 Stock
Option Plan was included with the Proxy Statement as Exhibit B. Section 4(a) of the 1994 Stock
Option Plan states the maximum number of shares of the Companys common stock
that may be sold pursuant to options granted under the 1994 Stock Option
Plan. That maximum number, after
adjustments for stock splits and stock dividends (as required by section 10(a) of
the 1994 Stock Option Plan), was and is 16,000,000 shares. Section 4(a) of Exhibit B of
the Proxy Statement, however, failed to reflect the most recent stock split and
erroneously stated that the maximum number was 8,000,000 shares. The correct 1994 Stock Option Plan, as
amended to date, is filed herewith as Exhibit 4.3.
24
Item
6. Exhibits.
The following exhibits
are either incorporated by reference into this report or filed with this report
as indicated below.
3.1
|
|
Certificate of Incorporation of Simpson
Manufacturing Co., Inc., as amended, is incorporated by reference to
Exhibit 3.1 of its Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007.
|
|
|
|
3.2
|
|
Bylaws of Simpson Manufacturing Co., Inc., as
amended through August 1, 2008, are incorporated by reference to
Exhibit 3.2 of its Current Report on Form 8-K dated August 4,
2008.
|
|
|
|
4.1
|
|
Rights Agreement dated as of July 30, 1999,
between Simpson Manufacturing Co., Inc. and BankBoston, N.A., which
includes as Exhibit B the form of Rights Certificate, is incorporated by
reference to Exhibit 4.1 of Simpson Manufacturing Co., Inc.s
Registration Statement on Form 8-A dated August 4, 1999.
|
|
|
|
4.2
|
|
Certificate of Designation, Preferences and Rights
of Series A Participating Preferred Stock of Simpson Manufacturing
Co., Inc., dated July 30, 1999, is incorporated by reference to
Exhibit 4.2 of its Registration Statement on Form 8-A dated
August 4, 1999.
|
|
|
|
10.1
|
|
Simpson Manufacturing Co., Inc. 1994 Stock
Option Plan, as amended through February 13, 2008, is filed herewith.
|
|
|
|
10.2
|
|
Simpson Manufacturing Co., Inc. 1995
Independent Director Stock Option Plan, as amended through November 18,
2004, is filed herewith.
|
|
|
|
10.3
|
|
Simpson Manufacturing Co., Inc. Executive
Officer Cash Profit Sharing Plan, as amended through February 25, 2008,
is filed herewith.
|
|
|
|
10.4
|
|
Credit Agreement dated as of October 10, 2007,
among Simpson Manufacturing Co., Inc. as Borrower, the Lenders party
thereto, Wells Fargo Bank as Agent, and Simpson Dura-Vent Company, Inc.,
Simpson Strong Tie Company Inc., and Simpson Strong-Tie
International, Inc. as Guarantors, is incorporated by reference to
Exhibit 10.1 of Simpson Manufacturing Co., Inc.s Current Report on
Form 8-K dated October 15, 2007.
|
|
|
|
10.5
|
|
Form of Indemnification Agreement between
Simpson Manufacturing Co., Inc. and its directors and executive
officers, as well as the officers of Simpson Strong-Tie Company Inc. and
Simpson Dura-Vent Company, Inc., is incorporated by reference to
Exhibit 10.2 of Simpson Manufacturing Co., Inc.s Annual Report on
Form 10-K for the year ended December 31, 2004.
|
|
|
|
10.6
|
|
Stock Purchase Agreement dated as of July 23,
2007, between Hobart K. Swan and Reliance Trust Company, solely in its
capacity as independent trustee of the Swan Secure Products, Inc.
Employee Stock Ownership Plan and Trust, on the one hand, and Simpson
Strong-Tie Company Inc. and Simpson Manufacturing Co., Inc., on the
other hand, is incorporated by reference to Exhibit 10.1 of Simpson
Manufacturing Co., Inc.s Current Report on Form 8-K dated July 24,
2007.
|
|
|
|
31
|
|
Rule 13a-14(a)/15d-14(a) Certifications
are filed herewith.
|
|
|
|
32
|
|
Section 1350 Certifications are filed herewith
.
|
|
|
|
99.1
|
|
Simpson Manufacturing Co., Inc. 1994 Employee
Stock Bonus Plan, as amended through November 18, 2004, is incorporated
by reference to Exhibit 99.1 of Simpson Manufacturing Co., Inc.s
Annual Report on Form 10-K for the year ended December 31, 2007.
|
25
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
Simpson
Manufacturing Co., Inc.
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
DATE:
|
August 8, 2008
|
|
By
|
/s/Michael J. Herbert
|
|
|
|
Michael J. Herbert
|
|
|
|
Chief Financial Officer
|
|
|
|
(principal accounting
and financial officer)
|
|
|
|
|
|
26
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