UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q/A
Amendment
No. 1
(Mark One)
x
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QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF
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THE SECURITIES EXCHANGE
ACT OF 1934
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For the quarterly period
ended: March 31, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF
THE SECURITIES EXCHANGE
ACT OF 1934
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For the transition period from to
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Commission file number: 1-13429
Simpson Manufacturing Co., Inc.
(Exact name of
registrant as specified in its charter)
Delaware
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94-3196943
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(State or other
jurisdiction of incorporation
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(I.R.S. Employer
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or organization)
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Identification
No.)
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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
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|
|
|
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 March 31, 2008: 48,586,554
EXPLANATORY NOTE
Simpson Manufacturing
Co., Inc. (the Company) is filing this Amendment No. 1 (the Amendment) to
its Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, which
was originally filed on May 9, 2008 (Original Filing), to correct the
reference to the quarter covered by the certification in Exhibit 32. The
Amendment continues to speak as of the date of the Original Filing, and the
Company has not updated the disclosure herein to reflect events or
circumstances since the Original Filing. The Amendment should be read in
conjunction with the Companys filings with the Securities and Exchange
Commission subsequent to the Original Filing.
2
PART I FINANCIAL
INFORMATION
Item 1. Financial Statements.
Simpson
Manufacturing Co., Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
(In
thousands, unaudited)
|
|
March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
164,381
|
|
$
|
149,310
|
|
$
|
186,142
|
|
Trade
accounts receivable, net
|
|
107,634
|
|
126,577
|
|
88,340
|
|
Inventories
|
|
227,855
|
|
208,797
|
|
218,342
|
|
Deferred
income taxes
|
|
11,236
|
|
11,042
|
|
11,623
|
|
Assets
held for sale
|
|
9,677
|
|
|
|
9,677
|
|
Other
current assets
|
|
8,825
|
|
8,003
|
|
8,753
|
|
Total
current assets
|
|
529,608
|
|
503,729
|
|
522,877
|
|
|
|
|
|
|
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Property,
plant and equipment, net
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195,319
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|
206,442
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|
198,117
|
|
Goodwill
|
|
57,845
|
|
44,617
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|
57,418
|
|
Intangible
assets
|
|
22,142
|
|
9,123
|
|
23,239
|
|
Other
noncurrent assets
|
|
18,513
|
|
12,445
|
|
16,028
|
|
Total
assets
|
|
$
|
823,427
|
|
$
|
776,356
|
|
$
|
817,679
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
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|
Current
liabilities
|
|
|
|
|
|
|
|
Line
of credit and current portion of long-term debt
|
|
$
|
3,390
|
|
$
|
2,691
|
|
$
|
1,029
|
|
Trade
accounts payable
|
|
34,745
|
|
35,863
|
|
27,226
|
|
Accrued
liabilities
|
|
30,357
|
|
34,239
|
|
39,188
|
|
Income
taxes payable
|
|
1,639
|
|
5,994
|
|
|
|
Accrued
profit sharing trust contributions
|
|
2,411
|
|
10,309
|
|
8,651
|
|
Accrued
cash profit sharing and commissions
|
|
4,665
|
|
8,345
|
|
4,129
|
|
Accrued
workers compensation
|
|
4,116
|
|
3,712
|
|
4,116
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|
Total
current liabilities
|
|
81,323
|
|
101,153
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|
84,339
|
|
|
|
|
|
|
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Long-term
debt, net of current portion
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|
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|
337
|
|
|
|
Other
long-term liabilities
|
|
12,144
|
|
8,775
|
|
9,940
|
|
Total
liabilities
|
|
93,467
|
|
110,265
|
|
94,279
|
|
|
|
|
|
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Commitments
and contingencies (Note 7)
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Stockholders
equity
|
|
|
|
|
|
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|
Common
stock, at par value
|
|
486
|
|
484
|
|
485
|
|
Additional
paid-in capital
|
|
127,573
|
|
118,590
|
|
126,119
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|
Retained
earnings
|
|
574,988
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|
534,597
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|
571,499
|
|
Accumulated
other comprehensive income
|
|
26,913
|
|
12,420
|
|
25,297
|
|
Total
stockholders equity
|
|
729,960
|
|
666,091
|
|
723,400
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|
Total
liabilities and stockholders equity
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|
$
|
823,427
|
|
$
|
776,356
|
|
$
|
817,679
|
|
The accompanying
notes are an integral part of these condensed consolidated financial
statements.
3
Simpson
Manufacturing Co., Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(In
thousands except per-share amounts, unaudited)
|
|
Three Months Ended
|
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|
March 31,
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2008
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2007
|
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Net
sales
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$
|
167,656
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$
|
193,155
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Cost
of sales
|
|
111,398
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|
121,533
|
|
Gross
profit
|
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56,258
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|
71,622
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Operating
expenses:
|
|
|
|
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Research
and development and other engineering
|
|
5,103
|
|
5,260
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|
Selling
|
|
19,807
|
|
18,154
|
|
General
and administrative
|
|
17,874
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|
21,638
|
|
|
|
42,784
|
|
45,052
|
|
|
|
|
|
|
|
Income
from operations
|
|
13,474
|
|
26,570
|
|
|
|
|
|
|
|
Loss
on equity method investment, before tax
|
|
|
|
(33
|
)
|
Interest
income, net
|
|
1,128
|
|
1,374
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
14,602
|
|
27,911
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
6,250
|
|
10,621
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,352
|
|
$
|
17,290
|
|
|
|
|
|
|
|
Net
income per common share
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
$
|
0.36
|
|
Diluted
|
|
$
|
0.17
|
|
$
|
0.35
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
|
|
|
|
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|
Number
of shares outstanding
|
|
|
|
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|
Basic
|
|
48,574
|
|
48,414
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|
Diluted
|
|
48,931
|
|
48,886
|
|
The accompanying
notes are an integral part of these condensed consolidated financial
statements.
4
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed
Consolidated Statements of
Stockholders Equity
for the
three months ended March 31, 2007 and 2008 and the nine months ended 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
|
|
|
|
|
|
|
|
17,290
|
|
|
|
|
|
17,290
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment, net of tax of $17
|
|
|
|
|
|
|
|
|
|
926
|
|
|
|
926
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,216
|
|
Options
exercised
|
|
110
|
|
1
|
|
1,917
|
|
|
|
|
|
|
|
1,918
|
|
Stock
compensation
|
|
|
|
|
|
1,468
|
|
|
|
|
|
|
|
1,468
|
|
Tax
benefit of options exercised
|
|
|
|
|
|
363
|
|
|
|
|
|
|
|
363
|
|
Cash
dividends declared on Common stock ($0.10 per share)
|
|
|
|
|
|
|
|
(4,849
|
)
|
|
|
|
|
(4,849
|
)
|
Common
stock issued at $31.65 per share
|
|
10
|
|
|
|
307
|
|
|
|
|
|
|
|
307
|
|
Repurchase
of common stock
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
(4,191
|
)
|
(4,191
|
)
|
Retirement
of common stock
|
|
|
|
(1
|
)
|
|
|
(4,190
|
)
|
|
|
4,191
|
|
|
|
Balance,
March 31, 2007
|
|
48,410
|
|
484
|
|
118,590
|
|
534,597
|
|
12,420
|
|
|
|
666,091
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
51,452
|
|
|
|
|
|
51,452
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment, net of tax of $44
|
|
|
|
|
|
|
|
|
|
12,877
|
|
|
|
12,877
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,329
|
|
Options
exercised
|
|
142
|
|
1
|
|
2,913
|
|
|
|
|
|
|
|
2,914
|
|
Stock
compensation
|
|
|
|
|
|
4,425
|
|
|
|
|
|
|
|
4,425
|
|
Tax
benefit of options exercised
|
|
|
|
|
|
191
|
|
|
|
|
|
|
|
191
|
|
Cash
dividends declared on common stock ($0.30 per share)
|
|
|
|
|
|
|
|
(14,550
|
)
|
|
|
|
|
(14,550
|
)
|
Balance,
December 31, 2007
|
|
48,552
|
|
485
|
|
126,119
|
|
571,499
|
|
25,297
|
|
|
|
723,400
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
8,352
|
|
|
|
|
|
8,352
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment, net of tax of $17
|
|
|
|
|
|
|
|
|
|
1,616
|
|
|
|
1,616
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,968
|
|
Options
exercised
|
|
26
|
|
1
|
|
507
|
|
|
|
|
|
|
|
508
|
|
Stock
compensation
|
|
|
|
|
|
765
|
|
|
|
|
|
|
|
765
|
|
Tax
benefit of options exercised
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
(65
|
)
|
Cash
dividends declared on Common stock ($0.10 per share)
|
|
|
|
|
|
|
|
(4,863
|
)
|
|
|
|
|
(4,863
|
)
|
Common
stock issued at $26.59 per share
|
|
9
|
|
|
|
247
|
|
|
|
|
|
|
|
247
|
|
Balance,
March 31, 2008
|
|
48,587
|
|
$
|
486
|
|
$
|
127,573
|
|
$
|
574,988
|
|
$
|
26,913
|
|
$
|
|
|
$
|
729,960
|
|
The accompanying notes
are an integral part of these condensed consolidated financial statements.
5
Simpson
Manufacturing Co., Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(In
thousands, unaudited)
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Cash flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
8,352
|
|
$
|
17,290
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Loss
(gain) on sale of assets
|
|
2
|
|
(6
|
)
|
Depreciation
and amortization
|
|
7,420
|
|
7,078
|
|
Deferred
income taxes
|
|
172
|
|
(507
|
)
|
Noncash
compensation related to stock plans
|
|
936
|
|
1,677
|
|
Loss
in equity method investment
|
|
|
|
33
|
|
Excess
tax benefit of options exercised
|
|
(25
|
)
|
(431
|
)
|
Provision
for (recovery of) doubtful accounts
|
|
(727
|
)
|
271
|
|
Changes
in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Trade
accounts receivable
|
|
(17,788
|
)
|
(30,629
|
)
|
Inventories
|
|
(8,514
|
)
|
9,069
|
|
Trade
accounts payable
|
|
2,069
|
|
11,396
|
|
Income
taxes payable
|
|
3,043
|
|
8,504
|
|
Accrued
profit sharing trust contributions
|
|
(6,228
|
)
|
1,687
|
|
Accrued
cash profit sharing and commissions
|
|
512
|
|
528
|
|
Other
current assets
|
|
(2,650
|
)
|
(3,471
|
)
|
Accrued
liabilities
|
|
(4,196
|
)
|
(3,735
|
)
|
Other
long-term liabilities
|
|
1,474
|
|
(1,714
|
)
|
Other
noncurrent assets
|
|
(415
|
)
|
1,737
|
|
Net
cash provided by (used in) operating activities
|
|
(16,563
|
)
|
18,777
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Capital
expenditures
|
|
(2,849
|
)
|
(14,164
|
)
|
Proceeds
from sale of capital assets
|
|
19
|
|
20
|
|
Asset
acquisitions
|
|
|
|
(327
|
)
|
Net
cash used in investing activities
|
|
(2,830
|
)
|
(14,471
|
)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Line
of credit borrowings
|
|
2,206
|
|
2,347
|
|
Repayment
of debt and line of credit borrowings
|
|
|
|
(2
|
)
|
Repurchase
of common stock
|
|
|
|
(4,191
|
)
|
Issuance
of common stock
|
|
508
|
|
1,918
|
|
Excess
tax benefit of options exercised
|
|
25
|
|
431
|
|
Dividends
paid
|
|
(4,857
|
)
|
(3,875
|
)
|
Net
cash used in financing activities
|
|
(2,118
|
)
|
(3,372
|
)
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
(250
|
)
|
77
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
(21,761
|
)
|
1,011
|
|
Cash
and cash equivalents at beginning of period
|
|
186,142
|
|
148,299
|
|
Cash
and cash equivalents at end of period
|
|
$
|
164,381
|
|
$
|
149,310
|
|
|
|
|
|
|
|
Noncash activity during the period
|
|
|
|
|
|
Noncash
capital expenditures
|
|
$
|
161
|
|
$
|
1,438
|
|
Dividends
declared but not paid
|
|
$
|
4,863
|
|
$
|
4,849
|
|
Issuance
of Companys common stock for compensation
|
|
$
|
247
|
|
$
|
307
|
|
Noncash
asset acquisition
|
|
$
|
|
|
$
|
608
|
|
The accompanying
notes are an integral part of these condensed consolidated financial
statements.
6
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.
7
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,
|
|
|
|
March 31, 2008
|
|
March 31, 2007
|
|
(in thousands, except
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
per-share amounts)
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
8,352
|
|
48,574
|
|
$
|
0.17
|
|
$
|
17,290
|
|
48,414
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
357
|
|
|
|
|
|
472
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
8,352
|
|
48,931
|
|
$
|
0.17
|
|
$
|
17,290
|
|
48,886
|
|
$
|
0.35
|
|
Anti-dilutive shares
attributable to outstanding stock options were excluded from the calculation of
diluted net income per share. For both the three months ended March 31,
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 Company generally grants options under each of the 1994 Plan and the 1995
Plan once each year. 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.
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.
8
The following table
represents the Companys stock option activity for the three months ended March 31,
2008 and 2007:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
Stock
option expense recognized in operating expenses
|
|
$
|
900
|
|
$
|
1,545
|
|
|
|
|
|
|
|
Tax
benefit of stock option expense in provision for income taxes
|
|
355
|
|
589
|
|
|
|
|
|
|
|
Stock
option expense, net of tax
|
|
$
|
545
|
|
$
|
956
|
|
|
|
|
|
|
|
Fair
value of shares vested
|
|
$
|
765
|
|
$
|
1,468
|
|
|
|
|
|
|
|
Proceeds
to the Company from the exercise of stock options
|
|
$
|
508
|
|
$
|
1,918
|
|
|
|
|
|
|
|
Tax
benefit from exercise of stock options
|
|
$
|
(65
|
)
|
$
|
363
|
|
|
|
At March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Stock
option cost capitalized in inventory
|
|
$
|
117
|
|
$
|
188
|
|
|
|
|
|
|
|
|
|
The amounts included in
cost of sales, research and development and other engineering, selling, or
general and administrative expenses 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.
In April 2008, the Companys
Board of Directors approved the grant of stock options on an additional 14
thousand shares at an exercise price of $25.74.
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 our own 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.
The Company only has Treasury Instruments and money
market funds aggregating $63.4 million, which are maintained in cash
equivalents and are carried at fair value, approximating cost, based upon Level
1 inputs.
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
9
expensing of most
transaction and restructuring costs; and requires the acquirer to disclose to
investors and other users of 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, 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, on the Companys financial statements for its
fiscal year ending December 31, 2009.
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. 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 quarter
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 on at least
an annual basis.
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 in connection with its adoption of the provisions of SFAS No. 159
for financial assets and financial liabilities during the quarter ended March 31,
2008.
2.
Trade Accounts
Receivable, net
Trade accounts receivable
consist of the following:
|
|
At March 31,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
$
|
112,019
|
|
$
|
131,380
|
|
$
|
92,879
|
|
Allowance
for doubtful accounts
|
|
(1,968
|
)
|
(2,502
|
)
|
(2,724
|
)
|
Allowance
for sales discounts and returns
|
|
(2,417
|
)
|
(2,301
|
)
|
(1,815
|
)
|
|
|
$
|
107,634
|
|
$
|
126,577
|
|
$
|
88,340
|
|
10
3.
Inventories
Inventories consist of
the following:
|
|
At
March 31
,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
85,756
|
|
$
|
81,753
|
|
$
|
82,164
|
|
In-process
products
|
|
25,592
|
|
20,778
|
|
23,674
|
|
Finished
products
|
|
116,507
|
|
106,266
|
|
112,504
|
|
|
|
$
|
227,855
|
|
$
|
208,797
|
|
$
|
218,342
|
|
4.
Property, Plant and
Equipment, net
Property, plant and
equipment, net, consist of the following:
|
|
At
March 31
,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
19,783
|
|
$
|
23,838
|
|
$
|
19,820
|
|
Buildings
and site improvements
|
|
131,907
|
|
121,006
|
|
131,166
|
|
Leasehold
improvements
|
|
4,005
|
|
2,832
|
|
4,054
|
|
Machinery
and equipment
|
|
214,232
|
|
190,308
|
|
213,188
|
|
|
|
369,927
|
|
337,984
|
|
368,228
|
|
Less
accumulated depreciation and amortization
|
|
(182,262
|
)
|
(161,607
|
)
|
(175,893
|
)
|
|
|
187,665
|
|
176,377
|
|
192,335
|
|
Capital
projects in progress
|
|
7,654
|
|
30,065
|
|
5,782
|
|
|
|
$
|
195,319
|
|
$
|
206,442
|
|
$
|
198,117
|
|
The Companys vacant facilities in San Leandro,
California, and in McKinney, Texas, have been classified as assets held for
sale as of March 31, 2008. Both facilities are associated with the
connector segment. The sale of the McKinney facility was completed in April 2008
for $1.8 million.
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. The
clean-up is expected to be completed in late 2008. The Company expects to sell
the property after the remediation is completed.
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 the
design and engineering of 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.
11
6.
Debt
Outstanding debt at March 31,
2008 and 2007, and December 31, 2007, and the available lines of credit at
March 31, 2008, consisted of the following:
|
|
Available
|
|
Debt Outstanding
|
|
|
|
Credit at
|
|
at
|
|
at
|
|
|
|
March 31,
|
|
March 31,
|
|
December 31,
|
|
(dollar amounts in thousands)
|
|
2008
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
line of credit, interest at LIBOR plus 0.27% (at March 31, 2008, LIBOR plus
0.27% was 2.98%), 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 March 31, 2008,
the banks base rate plus 2% was 7.25%), expires October 2008
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
lines of credit, interest rates between 4.88% and 6.01%
|
|
2,698
|
|
3,390
|
|
2,363
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
|
Term
loan, interest at LIBOR plus 1.375% repaid June 2007
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
loans, interest rates between 4.00% and 5.00%, repaid May 2007
|
|
|
|
|
|
215
|
|
|
|
|
|
203,194
|
|
3,390
|
|
3,028
|
|
1,029
|
|
Less
line of credit and current portion of long-term debt
|
|
|
|
(3,390
|
)
|
(2,691
|
)
|
(1,029
|
)
|
Long-term
debt, net of current portion
|
|
|
|
$
|
|
|
$
|
337
|
|
$
|
|
|
Available
credit
|
|
$
|
203,194
|
|
|
|
|
|
|
|
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 September 2007,
the Company accrued $0.3 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 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
12
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:
|
|
|
|
Risk
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Number
|
|
|
|
Free
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Of Options
|
|
Grant
|
|
Interest
|
|
Dividend
|
|
Expected
|
|
|
|
|
|
|
|
Fair
|
|
Granted
|
|
Date
|
|
Rate
|
|
Yield
|
|
Life
|
|
Volatility
|
|
Exercise Price
|
|
Value
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 three months ended March 31,
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
|
|
|
|
|
|
Exercised
|
|
(26
|
)
|
19.69
|
|
|
|
|
|
Forfeited
|
|
(22
|
)
|
33.08
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
2,648
|
|
$
|
27.89
|
|
3.2
|
|
$
|
8,766
|
|
Outstanding
and expected to vest at March 31, 2008
|
|
2,633
|
|
$
|
27.48
|
|
3.1
|
|
$
|
8,630
|
|
Exercisable
at March 31, 2008
|
|
2,205
|
|
$
|
26.14
|
|
2.9
|
|
$
|
8,633
|
|
* The
intrinsic value represents the amount 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 $27.18 on March 31, 2008.
The total intrinsic value of options exercised during the
three months ended March 31, 2008 and 2007, was $0.2 million and $1.7
million, respectively.
13
A summary of the status of unvested options as of March 31,
2008, and changes during the three months ended March 31, 2008, are
presented below:
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
Grant-Date
|
|
Unvested
Options
|
|
(in thousands)
|
|
Fair Value
|
|
|
|
|
|
|
|
Unvested
at January 1, 2008
|
|
543
|
|
$
|
12.34
|
|
Granted
|
|
40
|
|
6.16
|
|
Vested
|
|
(136
|
)
|
11.18
|
|
Forfeited
|
|
(4
|
)
|
13.24
|
|
Unvested
at March 31, 2008
|
|
443
|
|
$
|
12.13
|
|
As
of
March 31, 2008, $4.8 million
of total unrecognized compensation cost was related to unvested share-based
compensation arrangements granted under the 1994 Plan. This cost is expected to
be recognized over a weighted-average period of 1.81 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
|
|
|
|
March 31,
|
|
(in
thousands)
|
|
2008
|
|
2007
|
|
Net Sales
|
|
|
|
|
|
Connector
products
|
|
$
|
154,168
|
|
$
|
179,470
|
|
Venting
products
|
|
13,488
|
|
13,685
|
|
Total
|
|
$
|
167,656
|
|
$
|
193,155
|
|
Income (Loss) from Operations
|
|
|
|
|
|
Connector
products
|
|
$
|
16,519
|
|
$
|
29,013
|
|
Venting
products
|
|
(2,847
|
)
|
(1,943
|
)
|
Administrative
and all other
|
|
(198
|
)
|
(500
|
)
|
Total
|
|
$
|
13,474
|
|
$
|
26,570
|
|
|
|
|
|
|
|
At
|
|
|
|
At March 31,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
Total Assets
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
573,651
|
|
$
|
538,432
|
|
$
|
575,707
|
|
Venting
products
|
|
73,418
|
|
75,195
|
|
78,541
|
|
Administrative
and all other
|
|
176,358
|
|
162,729
|
|
163,431
|
|
Total
|
|
$
|
823,427
|
|
$
|
776,356
|
|
$
|
817,679
|
|
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
14
balances in the Administrative and
all other segment were $145.6 million, $140.2 million, and $159.8 million, as
of March 31, 2008 and 2007, and December 31, 2007, respectively.
10.
Subsequent
Events
In
April 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 July 24,
2008, to stockholders of record on July 3, 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 mbH, 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 April 2008, the
Company sold its vacant factory in McKinney, Texas, for total proceeds of $1.8
million.
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 months ended March 31, 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 March 31,
2008, Compared with the Three Months Ended March 31, 2007
Net sales decreased 13.2% to $167.7
million in the first quarter of 2008 as compared to net sales of $193.2 million
for the first quarter of 2007. Net income decreased 51.7% to $8.4 million for
the first quarter of 2008 as compared to net income of $17.3 million for the
first quarter of 2007. Diluted net income per common share was $0.17 for the
first quarter of 2008 as compared to $0.35 for the first quarter of 2007.
In
the first quarter 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 quarter in
Canada increased significantly while sales in Europe, as a whole, were up
slightly. Simpson Strong-Ties first quarter sales decreased 14.1% from the
same quarter last year, while Simpson Dura-Vents sales decreased 1.4%. Simpson
Strong-Ties sales to contractor distributors had the largest percentage
decrease and sales to home centers and dealer distributors 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 5% of Simpson
Strong-Ties first quarter sales. Sales of Simpson Dura-Vents pellet vent,
chimney and Direct-Vent products increased while sales of its gas vent product
line decreased as a result of several factors, including the decline in new
home construction.
Income
from operations decreased 49.3% from $26.6 million in the first quarter of 2007
to $13.5 million in the first quarter of 2008. Gross margins decreased from
37.1% in the first quarter of 2007 to 33.6% in the first quarter of 2008. The
decrease in gross margins was primarily due to higher fixed overhead costs as a
percentage of 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, total inventories have increased 4.4%. In 2008, the Company has
experienced steel price increases and is anticipating further increases in
steel prices. The Company will increase its prices in June 2008 to
partially off set rising 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.
Research
and development and engineering expenses decreased 3.0% from $5.3 million in
the first quarter of 2007 to $5.1 million in the first quarter of 2008. This
decrease was primarily due to a decrease in cash profit sharing of $0.4 million
partially offset by an increase in other personnel costs of $0.2 million.
Selling expenses increased 9.1% from $18.2 million in the first quarter of 2007
to $19.8 million in the first quarter of 2008. The increase was driven
primarily by a $1.5 million increase in expenses associated with sales and
marketing personnel. General and administrative expenses decreased 17.4% from
$21.6 million in the first quarter of 2007 to $17.9 million in the first
quarter of 2008. The major components of the decrease were decreases in cash
profit sharing of $4.0 million, resulting from decreased operating profit, a
decrease in bad debt expense of $1.0 million and a decrease in professional
service fees of $0.6 million. This decrease was partly offset by increases in
personnel costs of $1.1 million and an increase in amortization of intangible
assets of $0.6 million, both of which increased primarily as a result of the
acquisition of Swan Secure Products, Inc. in July 2007. The effective
tax rate was 42.8% in the first quarter of 2008, up from 38.1% in the first
quarter of 2007. The increase in the effective tax rate was caused by many
factors, including a decrease in tax-exempt interest income, losses in certain
foreign operations where the Company did not record a tax benefit and the
expiration of the federal research and development tax credit provision in
2008.
16
Connector
Products Simpson Strong-Tie (SST)
Simpson
Strong-Ties income from operations decreased 43.1% from $29.0 million in the
first quarter of 2007 to $16.5 million in the first quarter of 2008.
Net Sales
In the first quarter of
2008, Simpson Strong-Ties net sales decreased 14.1% to $154.2 million from
$179.5 million in the first quarter of 2007.
SST accounted for 92.0% of the Companys total net sales in the first quarter
of 2008, a decrease from 92.9% in the first quarter of 2007. The decrease in
net sales at Simpson Strong-Tie resulted from a decrease in sales volume while
average prices were flat as compared to the first quarter of 2007. In
the first quarter 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. Simpson
Strong-Ties sales during the quarter in Canada increased significantly while
sales in Europe, as a whole, were up slightly. Simpson Strong-Ties sales to
contractor distributors had the largest percentage decrease and sales to home
centers and dealer distributors 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 5% of Simpson Strong-Ties first quarter sales.
Gross
Profit
Simpson Strong-Ties gross profit decreased 20.8% to $56.0 million in
the first quarter of 2008 from $70.7 million in the first quarter of 2007. As a
percentage of net sales, gross profit decreased to 36.3% in the first
quarter of 2008 from 39.4% in the first
quarter of 2007. This decrease was primarily due to higher manufacturing
costs, including material costs, and to higher fixed overhead costs as a
percentage of sales as a result of the lower sales volume.
Selling
Expense
Simpson Strong-Ties
selling expense increased 10.6% to $18.1 million in the first quarter of 2008 from $16.4 million in the first quarter of 2007. The increase
was driven primarily by a $1.5 million increase in expenses associated with
sales and marketing personnel and an increase in professional services expenses
of $0.4 million.
General and
Administrative Expense
Simpson Strong-Ties
general and administrative expense decreased 18.6% to $16.5 million in the first quarter of 2008 from $20.3
million in the first quarter of 2007.
The decrease was primarily due to reduced cash profit sharing expenses included
in administrative expenses totaling $4.0 million, a decrease in bad debt
expense of $1.1 million and a decrease in professional fees of $0.3 million.
These decreases were partly offset by increases in expenses associated with
administrative personnel of $0.8 million and an increase in amortization of
intangible assets of $0.6 million, which included incremental expenses associated
with the acquisition of Swan Secure in July 2007.
European
Operations
For its European operations,
Simpson
Strong-Tie recorded an operating loss of
$0.8 million in the first quarter of 2008 compared to operating income of $0.8
million in the first quarter of 2007.
Venting
Products Simpson Dura-Vent (SDV)
Simpson
Dura-Vents loss from operations increased to $2.9 million the first quarter of
2008 from $1.9 million in the first quarter of 2007.
Net Sales
In the first quarter of 2008, Simpson Dura-Vents
net sales decreased 1.4% to $13.5 million as compared to net sales of $13.7
million in the first quarter of 2007. SDV accounted for 8.0% of the Companys total
net sales in the first quarter of 2008, an increase from 7.0% in the first
quarter of 2007. The decrease in net sales at SDV resulted from a decrease in
sales volume, partly off set by price increases that averaged 1.3%. In the first quarter of 2008, Simpson
17
Dura-Vent
s
ales increased in the northeastern and midwestern regions of the United
States while sales in California were down sharply. Sales to fireplace distributors were up sharply in the first quarter of 2008 as compared to the first quarter of 2007, but were partly off
set by substantial decreases in sales to HVAC (heating, ventilating and air conditioning) distributors. Sales of
Simpson Dura-Vents pellet vent, chimney and Direct-Vent products increased
while sales of its gas vent product line decreased as a result of several factors,
including the decline in new home construction.
Gross
Profit
Simpson Dura-Vents gross profit decreased 88.2% to $0.1 million in
the first quarter of 2008 from $1.0 million in the first quarter of 2007. As a
percentage of net sales, gross profit decreased to 0.9% in the first quarter of 2008 from 7.1% in the first quarter of 2007. This decrease
was primarily due to higher manufacturing costs and higher fixed overhead costs
as a percentage of sales.
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
In the quarter ended March 31,
2008, the Company revised its calculation for its allowance for doubtful
accounts to better reflect its recent collection history.
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 and SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan amendment of Accounting Research Bulletin No. 51.
See Note 1 to the Companys Condensed Consolidated Financial Statements.
Liquidity and Sources of Capital
As of March 31, 2008, working capital was $448.3
million as compared to $402.6 million at March 31, 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 $19.3
million and inventories of $9.5 million and decreases in accrued liabilities
and accrued profit sharing trust contributions of $8.8 million and $6.2
million, respectively. Net trade accounts receivable increased 21.8% from December 31,
2007, while inventories increased 4.4% from December 31, 2007. The
increase in net trade accounts receivable was the result of increased sales in
the latter part of the first quarter of 2008 as compared to the latter part of
the fourth quarter of 2007. Offsetting this increase in working capital were
decreases in cash and cash equivalents of $21.8 million and increases in trade
accounts payable, line of credit borrowings, and income taxes payable of $7.5
million, $2.4 million, and $1.6 million, respectively. 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 $8.4 million and noncash expenses, primarily depreciation,
amortization and stock-based compensation charges totaling $8.4 million,
resulted in net cash used by operating
18
activities of $16.6 million. As of March 31,
2008, the Company had unused credit facilities available of $203.2 million.
The Company used $2.8 million in its investing activities,
primarily for machinery and equipment for various facilities throughout the
United States and in Asia. The Company estimates its capital spending will
total $21.2 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 mbH, 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.
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. The clean-up is expected to be
completed in late 2008. The Company expects to sell the property after the
remediation is completed.
In April 2008, the
Company sold its vacant factory in McKinney, Texas, for total proceeds of $1.8
million. As of March 31, 2008, this facility was classified as an asset
held for sale.
The Companys financing
activities used net cash of $2.1 million. Uses of cash for financing activities
were for the payment of cash dividends in the amount of $4.9 million. Cash
provided by financing activities were primarily from borrowings on the Companys
credit lines of its European subsidiaries of approximately $2.2 million and the
issuance of the Companys common stock through the exercise of stock options
totaling $0.5 million. In April 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 July 24, 2008, to stockholders of record on July 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 over the next
12 months. Depending on the Companys future growth and possible acquisitions,
it may become necessary to secure additional sources of financing.
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. In 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.
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
$1.6 million for the three months ended March 31, 2008, primarily due to
the effect of the weakening of the United States dollar in relation to most of
the European currencies, offset by the effect of the strengthening of the
United States dollar in relation to the Canadian dollar and the British pound,
during the first three months of 2008.
Item 4. Controls and Procedures.
Disclosure
Controls and Procedures.
As of March 31, 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
19
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 March 31, 2008, the Company made 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. Those changes were the installation of a general
ledger module of an integrated accounting software system in replacement of the
Companys legacy system. The Company is also in the process of implementing an
integrated accounting software system to be used in its China operations.
20
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).
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 first quarter of 2008.
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. are incorporated by reference to
Exhibit 3.2 of its Registration Statement on Form 8-A dated
August 4, 1999.
|
|
|
|
|
|
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.
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4.2
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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.
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4.3
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Simpson Manufacturing
Co., Inc. 1994 Stock Option Plan, as amended through July 29, 2002,
is incorporated by reference to Exhibit 4.1 of Simpson Manufacturing
Co., Inc.s Registration Statement on Form S-8 dated July 30,
2002.
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4.4
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Simpson Manufacturing
Co., Inc. 1995 Independent Director Stock Option Plan, as amended
through July 29, 2002, is incorporated by reference to Exhibit 4.1
of Simpson Manufacturing Co., Inc.s Registration Statement on
Form S-8 dated July 30, 2002.
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10.1
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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.
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21
10.2
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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.
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10.3
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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.
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31
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Rule 13a-14(a)/15d-14(a) Certifications
are filed herewith.
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32
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Section 1350
Certifications are filed herewith
.
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99.1
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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.
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22
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.
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Simpson
Manufacturing Co., Inc.
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(Registrant)
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DATE:
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May 9, 2008
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By
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/s/Michael J. Herbert
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Michael J.
Herbert
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Chief Financial
Officer
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(principal
accounting and financial officer)
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