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
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|
|
|
For the quarterly period ended:
September 30, 2008
|
|
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|
OR
|
|
|
|
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
|
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)
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|
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.
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).
The number of
shares of the Registrants common stock outstanding as of September 30,
2008: 48,635,796
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, unaudited)
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|
September 30,
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|
December 31,
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|
2008
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|
2007
|
|
2007
|
|
|
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|
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|
ASSETS
|
|
|
|
|
|
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|
Current assets
|
|
|
|
|
|
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|
Cash and cash
equivalents
|
|
$
|
163,857
|
|
$
|
156,928
|
|
$
|
186,142
|
|
Trade accounts
receivable, net
|
|
125,875
|
|
126,588
|
|
88,340
|
|
Inventories
|
|
251,647
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|
221,318
|
|
218,342
|
|
Deferred income
taxes
|
|
11,745
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|
12,158
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|
11,623
|
|
Assets held for
sale
|
|
8,429
|
|
9,704
|
|
9,677
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|
Other current
assets
|
|
7,191
|
|
7,153
|
|
8,753
|
|
Total current
assets
|
|
568,744
|
|
533,849
|
|
522,877
|
|
|
|
|
|
|
|
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Property, plant
and equipment, net
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|
195,062
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|
197,096
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|
198,117
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|
Goodwill
|
|
75,799
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|
67,576
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|
57,418
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|
Intangible
assets, net
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|
22,376
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|
24,430
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|
23,239
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|
Other noncurrent
assets
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|
16,720
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|
13,917
|
|
16,028
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|
Total assets
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|
$
|
878,701
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|
$
|
836,868
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|
$
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817,679
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|
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current
liabilities
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|
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|
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|
Line of credit
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|
$
|
629
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|
$
|
772
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|
$
|
1,029
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|
Trade accounts
payable
|
|
46,113
|
|
38,054
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|
27,226
|
|
Accrued
liabilities
|
|
39,835
|
|
44,925
|
|
39,188
|
|
Income taxes
payable
|
|
3,593
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|
|
|
|
|
Accrued profit
sharing trust contributions
|
|
7,603
|
|
6,880
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|
8,651
|
|
Accrued cash
profit sharing and commissions
|
|
10,313
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|
9,723
|
|
4,129
|
|
Accrued workers
compensation
|
|
4,116
|
|
3,448
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|
4,116
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Total current
liabilities
|
|
112,202
|
|
103,802
|
|
84,339
|
|
|
|
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|
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Other long-term
liabilities
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10,607
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9,552
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9,940
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Total
liabilities
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|
122,809
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|
113,354
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|
94,279
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Commitments and
contingencies (Note 7)
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Stockholders
equity
|
|
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|
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Common stock, at
par value
|
|
486
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|
485
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|
485
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|
Additional
paid-in capital
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|
130,032
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|
124,088
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|
126,119
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|
Retained
earnings
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|
609,010
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|
575,868
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|
571,499
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Accumulated
other comprehensive income
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|
16,364
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|
23,073
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|
25,297
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|
Total
stockholders equity
|
|
755,892
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|
723,514
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|
723,400
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|
Total
liabilities and stockholders equity
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|
$
|
878,701
|
|
$
|
836,868
|
|
$
|
817,679
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|
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)
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|
Three Months Ended
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|
Nine Months Ended
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September 30,
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September 30,
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2008
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|
2007
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|
2008
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2007
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Net sales
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$
|
219,823
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|
$
|
217,265
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$
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606,742
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|
$
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641,707
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|
Cost of sales
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|
130,143
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136,055
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|
376,939
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|
395,512
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|
Gross profit
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|
89,680
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|
81,210
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|
229,803
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|
246,195
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Operating
expenses (income):
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Research and development
and other engineering
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|
5,662
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|
4,987
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|
16,375
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|
15,710
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|
Selling
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|
21,323
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|
18,271
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|
63,264
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|
56,478
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|
General and
administrative
|
|
25,555
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|
22,991
|
|
67,213
|
|
68,967
|
|
Gain on sale of
assets
|
|
(41
|
)
|
(561
|
)
|
(58
|
)
|
(654
|
)
|
|
|
52,499
|
|
45,688
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|
146,794
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|
140,501
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|
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|
|
|
|
|
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Income from
operations
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|
37,181
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|
35,522
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|
83,009
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|
105,694
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|
|
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|
|
|
|
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Loss in equity
method investment, before tax
|
|
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|
(59
|
)
|
|
|
(33
|
)
|
Interest income,
net
|
|
579
|
|
1,370
|
|
2,213
|
|
4,168
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
|
37,760
|
|
36,833
|
|
85,222
|
|
109,829
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
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|
14,398
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|
14,186
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|
33,126
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|
41,574
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|
|
|
|
|
|
|
|
|
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Net income
|
|
$
|
23,362
|
|
$
|
22,647
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|
$
|
52,096
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|
$
|
68,255
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
common share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.48
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|
$
|
0.47
|
|
$
|
1.07
|
|
$
|
1.41
|
|
Diluted
|
|
$
|
0.48
|
|
$
|
0.46
|
|
$
|
1.06
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
declared per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.30
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
48,612
|
|
48,500
|
|
48,593
|
|
48,449
|
|
Diluted
|
|
48,946
|
|
48,979
|
|
48,939
|
|
48,923
|
|
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
nine months ended September 30, 2007 and 2008 and three 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
|
|
|
|
|
|
|
|
68,255
|
|
|
|
|
|
68,255
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment, net of tax of $156
|
|
|
|
|
|
|
|
|
|
11,579
|
|
|
|
11,579
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,834
|
|
Stock options
exercised
|
|
230
|
|
2
|
|
4,426
|
|
|
|
|
|
|
|
4,428
|
|
Stock
compensation
|
|
|
|
|
|
4,275
|
|
|
|
|
|
|
|
4,275
|
|
Tax benefit of
options exercised
|
|
|
|
|
|
545
|
|
|
|
|
|
|
|
545
|
|
Cash dividends
declared on common stock ($0.30 per share)
|
|
|
|
|
|
|
|
(14,543
|
)
|
|
|
|
|
(14,543
|
)
|
Common stock
issued at $31.65 per share for stock bonus
|
|
10
|
|
|
|
307
|
|
|
|
|
|
|
|
307
|
|
Repurchase of
common stock
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
(4,191
|
)
|
(4,191
|
)
|
Retirement of
common stock
|
|
|
|
(1
|
)
|
|
|
(4,190
|
)
|
|
|
4,191
|
|
|
|
Balance,
September 30, 2007
|
|
48,529
|
|
485
|
|
124,088
|
|
575,868
|
|
23,073
|
|
|
|
723,514
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
487
|
|
|
|
|
|
487
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment, net of tax of ($95)
|
|
|
|
|
|
|
|
|
|
2,224
|
|
|
|
2,224
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,711
|
|
Stock options
exercised
|
|
23
|
|
|
|
404
|
|
|
|
|
|
|
|
404
|
|
Stock
compensation
|
|
|
|
|
|
1,618
|
|
|
|
|
|
|
|
1,618
|
|
Tax benefit of options
exercised
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Cash dividends
declared on common stock ($0.10 per share)
|
|
|
|
|
|
|
|
(4,856
|
)
|
|
|
|
|
(4,856
|
)
|
Balance,
December 31, 2007
|
|
48,552
|
|
485
|
|
126,119
|
|
571,499
|
|
25,297
|
|
|
|
723,400
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
52,096
|
|
|
|
|
|
52,096
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment, net of tax of ($317)
|
|
|
|
|
|
|
|
|
|
(8,933
|
)
|
|
|
(8,933
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,163
|
|
Stock options
exercised
|
|
75
|
|
1
|
|
1,380
|
|
|
|
|
|
|
|
1,381
|
|
Stock
compensation
|
|
|
|
|
|
2,309
|
|
|
|
|
|
|
|
2,309
|
|
Tax benefit of
options exercised
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(23
|
)
|
Cash dividends
declared on common stock ($0.30 per share)
|
|
|
|
|
|
|
|
(14,585
|
)
|
|
|
|
|
(14,585
|
)
|
Common stock
issued at $26.59 per share for stock bonus
|
|
9
|
|
|
|
247
|
|
|
|
|
|
|
|
247
|
|
Balance,
September 30, 2008
|
|
48,636
|
|
$
|
486
|
|
$
|
130,032
|
|
$
|
609,010
|
|
$
|
16,364
|
|
$
|
|
|
$
|
755,892
|
|
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)
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net income
|
|
$
|
52,096
|
|
$
|
68,255
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Gain on sale of
assets
|
|
(58
|
)
|
(654
|
)
|
Depreciation and
amortization
|
|
22,634
|
|
21,616
|
|
Impairment of
long-lived assets
|
|
|
|
465
|
|
Deferred income
taxes
|
|
(505
|
)
|
(3,033
|
)
|
Noncash
compensation related to stock plans
|
|
2,715
|
|
4,614
|
|
Loss in equity
method investment
|
|
|
|
33
|
|
Excess tax
benefit of options exercised
|
|
(118
|
)
|
(690
|
)
|
Provision for
(recovery of) doubtful accounts
|
|
7
|
|
182
|
|
Provision for
obsolete inventory
|
|
|
|
2,966
|
|
Changes in
operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Trade accounts
receivable
|
|
(36,078
|
)
|
(24,590
|
)
|
Inventories
|
|
(27,616
|
)
|
3,930
|
|
Trade accounts
payable
|
|
15,679
|
|
13,808
|
|
Income taxes
payable
|
|
6,206
|
|
2,309
|
|
Accrued profit
sharing trust contributions
|
|
(991
|
)
|
(1,838
|
)
|
Accrued cash
profit sharing and commissions
|
|
6,223
|
|
1,856
|
|
Other current
assets
|
|
(858
|
)
|
(2,046
|
)
|
Accrued
liabilities
|
|
(454
|
)
|
5,350
|
|
Other long-term
liabilities
|
|
631
|
|
(808
|
)
|
Accrued workers
compensation
|
|
|
|
(264
|
)
|
Other noncurrent
assets
|
|
(2,931
|
)
|
(3,775
|
)
|
Net cash
provided by operating activities
|
|
36,582
|
|
87,686
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
Capital
expenditures
|
|
(10,326
|
)
|
(30,108
|
)
|
Proceeds from
sale of capital assets
|
|
2,674
|
|
3,132
|
|
Asset
acquisitions, net of cash acquired
|
|
(34,028
|
)
|
(42,354
|
)
|
Net cash used in
investing activities
|
|
(41,680
|
)
|
(69,330
|
)
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
Line of credit
borrowings
|
|
3,695
|
|
6,756
|
|
Repayment of
line of credit borrowings
|
|
(4,101
|
)
|
(6,687
|
)
|
Repurchase of
common stock
|
|
|
|
(4,191
|
)
|
Issuance of
common stock
|
|
1,381
|
|
4,428
|
|
Excess tax
benefit of options exercised
|
|
118
|
|
690
|
|
Dividends paid
|
|
(14,576
|
)
|
(13,562
|
)
|
Net cash used in
financing activities
|
|
(13,483
|
)
|
(12,566
|
)
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
(3,704
|
)
|
2,839
|
|
|
|
|
|
|
|
Net increase (decrease)
in cash and cash equivalents
|
|
(22,285
|
)
|
8,629
|
|
Cash and cash
equivalents at beginning of period
|
|
186,142
|
|
148,299
|
|
Cash and cash equivalents at end of period
|
|
$
|
163,857
|
|
$
|
156,928
|
|
|
|
|
|
|
|
Noncash
activity during the period
|
|
|
|
|
|
Noncash capital
expenditures
|
|
$
|
135
|
|
$
|
1,001
|
|
Dividends
declared but not paid
|
|
$
|
4,863
|
|
$
|
4,854
|
|
Issuance of
Companys common stock for compensation
|
|
$
|
247
|
|
$
|
307
|
|
Noncash asset
acquisition
|
|
$
|
1,457
|
|
$
|
6,058
|
|
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,
|
|
|
|
September 30, 2008
|
|
September 30, 2007
|
|
(in thousands, except
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
per-share amounts)
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available
to common stockholders
|
|
$
|
23,362
|
|
48,612
|
|
$
|
0.48
|
|
$
|
22,647
|
|
48,500
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
334
|
|
|
|
|
|
479
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available
to common stockholders
|
|
$
|
23,362
|
|
48,946
|
|
$
|
0.48
|
|
$
|
22,647
|
|
48,979
|
|
$
|
0.46
|
|
|
|
Nine Months Ended,
|
|
Nine Months Ended,
|
|
|
|
September 30, 2008
|
|
September 30, 2007
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available
to common stockholders
|
|
$
|
52,096
|
|
48,593
|
|
$
|
1.07
|
|
$
|
68,255
|
|
48,449
|
|
$
|
1.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
346
|
|
(0.01
|
)
|
|
|
474
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available
to common stockholders
|
|
$
|
52,096
|
|
48,939
|
|
$
|
1.06
|
|
$
|
68,255
|
|
48,923
|
|
$
|
1.40
|
|
Anti-dilutive
shares attributable to outstanding stock options were excluded from the
calculation of diluted net income per share. For the three months ended September 30,
2008 and 2007, 1.0 million and 1.1 million shares subject to stock options were
anti-dilutive, respectively. For both the nine months ended September 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 nine months ended
September 30, 2008 and 2007:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Stock option
expense recognized in operating expenses
|
|
$
|
772
|
|
$
|
1,385
|
|
$
|
2,473
|
|
$
|
4,347
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of
stock option expense in provision for income taxes
|
|
305
|
|
534
|
|
975
|
|
1,647
|
|
|
|
|
|
|
|
|
|
|
|
Stock option
expense, net of tax
|
|
$
|
467
|
|
$
|
851
|
|
$
|
1,498
|
|
$
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
shares vested
|
|
$
|
769
|
|
$
|
1,402
|
|
$
|
2,309
|
|
$
|
4,275
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds to the
Company from the exercise of stock options
|
|
$
|
640
|
|
$
|
1,501
|
|
$
|
1,381
|
|
$
|
4,428
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from
exercise of stock options, including windfall (shortfall) tax benefits
|
|
$
|
159
|
|
$
|
161
|
|
$
|
272
|
|
$
|
545
|
|
|
|
At September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Stock option cost capitalized in inventory
|
|
$
|
88
|
|
$
|
192
|
|
|
|
|
|
|
|
|
|
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.
8
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.
The Companys investments consist of only United
States Treasury instruments and money market funds aggregating $61.3 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 $6.9 million and intangible assets subject to amortization of $2.8
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 corporation.
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, including $1.4 million to be paid in the
future, plus an additional earn-out of up to $2.25 million if certain future
performance targets are met. The Company recorded goodwill of $6.0 million as a
result of the acquisition. Net 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. 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.
The Ventinox purchase price allocation has not been finalized.
In July 2008,
Simpson Strong-Tie purchased 100% of the equity of Ahorn-Geräte &
Werkzeuge Vertriebs GmbH, a German company, and its subsidiaries Ahorn
Upevnovaci Technika s.r.o., a Czech company, and Ahorn Pacific Fasteners
(Kunshan) Co., Ltd., a Chinese company (collectively Ahorn). 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 Company recorded
goodwill of $6.8 million as a result of the acquisition. Net 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 the businesses acquired in 2008 are included in the Companys consolidated
results of operations since the respective dates of the acquisitions. Results
of operations for periods prior to the 2008 acquisitions were not material to
the Company on either an individual or aggregate basis, and accordingly, pro
forma results of operations have not been presented.
9
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.
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 nine months 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
(at least annually) in the financial statements.
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 nine
months ended September 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.
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.
10
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 Securities and Exchange Commissions
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. The adoption of SFAS No. 162 did not
have a material effect on the Companys financial statements.
In October 2008, the
FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active. FSP 157-3 clarifies
how FAS 157 should be applied when valuing securities in markets that are not
active by illustrating key considerations in determining fair
value. It also reaffirms the notion of fair value as the exit price
as of the measurement date. FSP 157-3 was effective upon issuance,
which included periods for which financial statements have not yet been
issued. This new accounting standard has been adopted for the
Companys consolidated financial statements ended September 30,
2008. The adoption of FSP157-3 did not have a material effect on the
Companys consolidated financial statements.
2. Trade Accounts Receivable, Net
Trade accounts receivable
consist of the following:
|
|
At September 30,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Trade accounts
receivable
|
|
$
|
130,919
|
|
$
|
131,518
|
|
$
|
92,879
|
|
Allowance for
doubtful accounts
|
|
(2,222
|
)
|
(2,363
|
)
|
(2,724
|
)
|
Allowance for
sales discounts and returns
|
|
(2,822
|
)
|
(2,567
|
)
|
(1,815
|
)
|
|
|
$
|
125,875
|
|
$
|
126,588
|
|
$
|
88,340
|
|
3. Inventories
Inventories consist of
the following:
|
|
At
September 30
,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
96,021
|
|
$
|
83,702
|
|
$
|
82,164
|
|
In-process
products
|
|
29,246
|
|
22,596
|
|
23,674
|
|
Finished
products
|
|
126,380
|
|
115,020
|
|
112,504
|
|
|
|
$
|
251,647
|
|
$
|
221,318
|
|
$
|
218,342
|
|
11
4. Property, Plant and Equipment, Net
Property, plant and
equipment, net, consist of the following:
|
|
At
September 30
,
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
22,856
|
|
$
|
19,790
|
|
$
|
19,820
|
|
Buildings and
site improvements
|
|
132,525
|
|
127,559
|
|
131,166
|
|
Leasehold
improvements
|
|
4,440
|
|
4,182
|
|
4,054
|
|
Machinery and
equipment
|
|
220,448
|
|
205,522
|
|
213,188
|
|
|
|
380,269
|
|
357,053
|
|
368,228
|
|
Less accumulated
depreciation and amortization
|
|
(192,430
|
)
|
(171,301
|
)
|
(175,893
|
)
|
|
|
187,839
|
|
185,752
|
|
192,335
|
|
Capital projects
in progress
|
|
7,223
|
|
11,344
|
|
5,782
|
|
|
|
$
|
195,062
|
|
$
|
197,096
|
|
$
|
198,117
|
|
The Companys vacant facility in San Leandro, California,
remains classified as an asset held for sale as of September 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. The Company has classified a property in Ireland as an asset
held for sale in the third quarter of 2008. This property is associated with
the connector segment and was sold in November 2008.
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 or early 2009. 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
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, although, in October 2008, the Company
made an additional capital contribution of $0.7 million to allow Keymark to
further develop its business. Also in October 2008, the Company lent $1.3
million to Keymark's other owner, which concurrently contributed that amount to
Keymark's capital. The loan bears
interest at the annual rate of 6%, has a term of two years, is secured by a
pledge of an ownership interest in Keymark of 10% (subject to adjustment), and
is non-recourse.
12
6. Debt
Outstanding
debt at September 30, 2008 and 2007, and December 31, 2007, and the
available lines of credit at September 30, 2008, consisted of the
following:
|
|
Available
|
|
Debt Outstanding
|
|
|
|
Credit at
|
|
at
|
|
at
|
|
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
|
(dollar amounts in thousands)
|
|
2008
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
line of credit, interest at LIBOR plus 0.27% (at September 30, 2008,
LIBOR plus 0.27% was 4.38%), expires 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
September 30, 2008, the banks base rate plus 2% was 7.00%), expires
October 2009
|
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
lines of credit, interest rates between 5.10% and 6.24%
|
|
4,909
|
|
629
|
|
772
|
|
1,029
|
|
|
|
205,361
|
|
629
|
|
772
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
|
Less
line of credit and current portion of long-term debt
|
|
|
|
(629
|
)
|
(772
|
)
|
(1,029
|
)
|
Long-term
debt, net of current portion
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Available
credit
|
|
$
|
205,361
|
|
|
|
|
|
|
|
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. 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, tools and venting products. 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 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.
13
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 nine months ended September 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
|
|
(75
|
)
|
18.41
|
|
|
|
|
|
Forfeited
|
|
(36
|
)
|
33.48
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
2,599
|
|
$28.04
|
|
2.8
|
|
$8,172
|
|
Outstanding
and expected to vest at September 30, 2008
|
|
2,588
|
|
$28.00
|
|
2.8
|
|
$8,167
|
|
Exercisable
at September 30, 2008
|
|
2,268
|
|
$26.86
|
|
2.5
|
|
$8,042
|
|
*
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 $27.09 on September 30, 2008.
The total intrinsic value of options
exercised during the nine months ended September 30, 2008 and 2007, was
$0.7 million and $3.2 million, respectively.
14
A summary of the status
of unvested options as of September 30, 2008, and changes during the nine
months ended September 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
|
|
(258
|
)
|
11.71
|
|
Forfeited
|
|
(8
|
)
|
12.74
|
|
Unvested
at September 30, 2008
|
|
331
|
|
$
|
11.84
|
|
As
of
September 30, 2008, $3.3
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 1.51 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
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
192,450
|
|
$
|
196,609
|
|
$
|
552,332
|
|
$
|
592,282
|
|
Venting products
|
|
27,373
|
|
20,656
|
|
54,410
|
|
49,425
|
|
Total
|
|
$
|
219,823
|
|
$
|
217,265
|
|
$
|
606,742
|
|
$
|
641,707
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Operations
|
|
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
35,310
|
|
$
|
35,101
|
|
$
|
88,241
|
|
$
|
108,357
|
|
Venting products
|
|
1,777
|
|
14
|
|
(3,861
|
)
|
(2,664
|
)
|
Administrative
and all other
|
|
94
|
|
407
|
|
(1,371
|
)
|
1
|
|
Total
|
|
$
|
37,181
|
|
$
|
35,522
|
|
$
|
83,009
|
|
$
|
105,694
|
|
|
|
|
|
|
|
At
|
|
|
|
At September 30,
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2007
|
|
Total
Assets
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
646,677
|
|
$
|
597,148
|
|
$
|
575,707
|
|
Venting products
|
|
79,121
|
|
83,540
|
|
78,541
|
|
Administrative
and all other
|
|
152,903
|
|
156,180
|
|
163,431
|
|
Total
|
|
$
|
878,701
|
|
$
|
836,868
|
|
$
|
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 balances in the Administrative and all other segment were
$135.6 million, $134.1 million, and $159.8 million, as of September 30,
2008 and 2007, and December 31, 2007, respectively.
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 nine months ended September 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 September 30, 2008, Compared with the Three Months
Ended September 30, 2007
Net
sales increased 1.2% from $217.3 for the third quarter of 2007 to $219.8
million in the third quarter of 2008. Net income increased 3.2% from $22.6
million for the third quarter of 2007 to $23.4 million for the third quarter of
2008. Diluted net income per common share was $0.48 for the third quarter of
2008 as compared to $0.46 for the third quarter of 2007.
In the third 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 continental Europe
increased significantly, partly as a result of the two acquisitions there in
2008. Sales in Canada also increased, while sales were down in the United
Kingdom. Simpson Strong-Ties third quarter sales decreased 2.1% from the same
quarter last year, while Simpson Dura-Vents sales increased 32.5%. Simpson
Strong-Ties sales to contractor distributors and dealer distributors had the
largest percentage rate decrease and sales to home centers increased slightly.
Reflecting the deterioration of construction markets and economic conditions
generally, sales decreased across most 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, increased significantly and
Anchor Systems sales benefited from the acquisition of the Liebig companies in April 2008.
Sales of Simpson Dura-Vents pellet vent, chimney, special gas vent and
relining products increased. The increase in special gas vent products and a
significant component of the increase in relining products resulted from the
acquisition of ProTech Systems, Inc. (ProTech) in June 2008. Sales of its Direct-Vent and gas vent product
lines decreased as a result of several factors, including the continuing
weakness in new home construction. The Company expects the weakness in new home
construction and limited credit availability to continue into, and possibly
beyond, 2009.
Income from operations increased 4.7%
from $35.5 million in the third quarter of 2007 to $37.2 million in the third
quarter of 2008. Gross margins increased from 37.4% in the third quarter of
2007 to 40.8% in the third quarter of 2008. The increase in gross margins was
primarily due to lower manufacturing and fixed overhead costs, partly offset by
higher distribution costs. Depending on future economic conditions, the Companys
margins could deteriorate as a result of higher manufacturing and fixed
overhead costs. The steel market continues to be dynamic with a high degree of
uncertainty. Steel prices have declined somewhat since July 2008, but the
Company believes that they may increase again in the near future. Since December 31,
2007, the Companys total inventories have increased 15.3%, primarily as a
result of higher cost of steel. If steel prices increase above current levels and
the Company is not able to increase its prices sufficiently, the Companys
margins could again deteriorate.
Research and development expense increased 13.5% from
$5.0 million in the third quarter of 2007 to $5.7 million in the third quarter
of 2008. This increase was primarily due to a $0.8 million increase in expenses
related to additional personnel in the acquisitions during 2008. Selling
expense increased 16.7% from $18.3 million in the third quarter of 2007 to
$21.3 million in the third quarter of 2008. The increase resulted from a $3.0
million increase in expenses associated with additional sales and marketing
personnel, including those at businesses acquired since July 2007 and
those in Asia. General and administrative expense increased 11.2% from $23.0
million in the third quarter of 2007 to $25.6 million in the third quarter of
2008. The increase was primarily the result of increased professional service
costs of $1.2 million, which included costs associated with potential
acquisitions that were not pursued, an increase in the provision for bad debt
of $0.8 million and higher amortization expense of $0.2 million, primarily
related to
intangible
assets acquired since July 2007. The effective tax rate was 38.1% in the
third quarter of 2008, down from 38.5% in the third quarter of 2007.
16
Connector
Products Simpson Strong-Tie
Simpson
Strong-Ties income from operations increased 0.6% from $35.1 million in the
third quarter of 2007 to $35.3 million in the third quarter of 2008.
Net Sales
In the third quarter of
2008, Simpson Strong-Ties net sales decreased 2.1% to $192.4 million from
$196.6 million in the third quarter of 2007.
Simpson Strong-Tie accounted for
87.5% of the Companys total net sales in the third quarter of 2008, a decrease
from 90.5% in the third quarter of 2007. The decrease in net sales at Simpson
Strong-Tie resulted primarily from a decrease in sales volume, although average
prices increased 14.5% as compared to the third quarter of 2007. In the
third 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 continental Europe increased
significantly, partly as a result of two acquisitions there in 2008. Sales in
Canada also increased, while sales were down in the United Kingdom. Simpson
Strong-Ties sales to contractor distributors and dealer distributors had the
largest percentage rate decrease and sales to home centers increased slightly.
Reflecting the deterioration of construction markets and economic conditions
generally, sales decreased across most 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, increased significantly and
Anchor Systems sales benefited from the acquisition of the Liebig companies in April 2008.
Gross Profit
Simpson Strong-Ties gross profit increased 8.5% from $77.5 million in
the third quarter of 2007 to $84.1 million in the third quarter of 2008. As a
percentage of net sales, gross profit increased to 43.7% in the third
quarter of 2008 from 39.4% in the third
quarter of 2007. This increase was primarily due to lower manufacturing
and fixed overhead costs, partly offset by higher distribution costs.
Research and Development and Engineering Expense
Simpson Strong-Ties
research and development expense increased 12.5% from $4.7 million in the third
quarter of 2007 to $5.3 million in the third quarter of 2008. This increase was
primarily due to a $0.7 million increase in expenses related to additional
personnel, including those associated with the acquisitions made during 2008.
Selling
Expense
Simpson Strong-Ties
selling expense increased 18.5% from $16.2 million in the third quarter of 2007 to $19.2 million in the third quarter of 2008. The increase
was driven primarily by a $3.0 million increase in expenses associated with
sales and marketing personnel, including those at businesses acquired since July 2007.
General and
Administrative Expense
Simpson Strong-Ties
general and administrative expense increased 10.1% from $22.0 million in the third quarter of 2007 to $24.3 million
in the third quarter of 2008. The
increase was primarily due to increased professional service expenses of $0.6
million, which included costs associated with potential acquisitions that were
not pursued and an increase in the provision for bad debt of $0.7 million.
European
Operations
For its European operations,
Simpson
Strong-Tie recorded income from operations
of $1.4 million in the third quarter of 2008 compared to income from operations
of $2.0 million in the third quarter of 2007.
17
Other
Simpson
Strong-Tie has adjusted production levels downward at various facilities in the
United States, and as a result, has reduced its labor force at these
facilities.
Venting
Products Simpson Dura-Vent
Simpson
Dura-Vents income from operations increased from $14 thousand in the third
quarter of 2007 to $1.8 million in the third quarter of 2008.
Net Sales
In the third quarter of 2008, Simpson
Dura-Vents net sales increased 32.5% from $20.7 million in the third quarter of 2007 to $27.4 million
in the third quarter of 2008. Simpson
Dura-Vent accounted for 12.5% of the
Companys total net sales in the third quarter of 2008, an increase from 9.5%
in the third quarter of 2007. The increase in net sales at Simpson
Dura-Vent resulted primarily from an
increase in sales volume and from average price increases of 4.7% as compared
to the third quarter of 2007. In the
third quarter of 2008, Simpson Dura-Vents sales increased throughout the
United States, with significant increases in the northeastern region resulting
from the acquisition of ProTech, while sales in California decreased as a result of the weakness in new home
construction. Sales of pellet
vent, chimney, special gas vent and relining products increased. The increase
in special gas vent products and a significant component of the increase in
relining products resulted from the acquisition of ProTech in June 2008. Sales of its Direct-Vent and gas vent product
lines decreased as a result of several factors, including the continuing
weakness in new home construction.
Gross
Profit
Simpson Dura-Vents gross profit increased from $3.2 million in the
third quarter of 2007 to $5.6 million in the third quarter of 2008. This
increase was primarily due to lower fixed overhead costs, offset by increased
manufacturing and distribution costs.
General and
Administrative Expense
Simpson Dura-Vents
general and administrative expense increased 50.7% from $0.9 million in the
third quarter of 2007 to $1.4 million in the third quarter of 2008. This
increase was primarily due to increased expenses associated with administrative
personnel of $0.2 million, including personnel associated with ProTech, and
increased professional fees of $0.1 million.
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 Nine Months Ended September 30, 2008, Compared with
the Nine Months Ended September 30, 2007
Net sales decreased 5.4% to $606.7
million in the first nine months of 2008 as compared to net sales of $641.7
million for the first nine months of 2007. Net income decreased 23.7% to $52.1
million for the first nine months of 2008 as compared to net income of $68.3
million for the first nine months of 2007. Diluted net income per common share
was $1.06 for the first nine months of 2008 as compared to $1.40 for the first
nine months of 2007.
In the first nine months 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 continental Europe and in
Canada increased significantly, while sales were down in the United Kingdom.
Simpson Strong-Ties first nine months sales decreased 6.7% from the first nine
months of last year, while Simpson Dura-Vents sales increased 10.1%. Simpson
Strong-Ties sales to contractor distributors had the largest percentage rate
18
decrease and sales to dealer distributors
and home centers also decreased. Reflecting the deterioration of construction
markets and economic conditions generally, 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 accounted for approximately
4.8% of Simpson Strong-Ties first nine months sales in 2008 and Anchor
Systems sales benefited from the acquisition of the Liebig companies. Sales of
Simpson Dura-Vents pellet vent, chimney, special gas vent and relining
products increased. Sales of its Direct-Vent and gas vent product lines
decreased as a result of several factors, including the continuing weakness in
new home construction.
Income from operations decreased
21.5% to $83.0 million for the first nine months of 2008 from $105.7 million
for the first nine months of 2007. Gross margins decreased from 38.4% for the
first nine months of 2007 to 37.9% for the first nine months of 2008. The
decrease in gross margins was due primarily to higher distribution costs,
partly offset by lower manufacturing costs.
Selling expense increased 12.0% from
$56.5 million in the first nine months of 2007 to $63.3 million in the first
nine months of 2008. The increase was driven primarily by an $8.1 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, 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 $0.3
million. General and administrative expense decreased 2.5% to $67.2 million in
the first nine months of 2008 from $69.0 million in the first nine months of
2007. The major components of the decrease were decreases in cash profit
sharing of $11.3 million, resulting primarily from decreased operating profit,
partly offset by increases in administrative personnel expenses of $6.5
million, including those at businesses acquired since July 2007, higher
amortization expense of $1.3 million and increased legal and professional
service expenses of $1.8 million. The effective tax rate was 38.9% in the first
nine months of 2008, up from 37.9% in the first nine months of 2007. The
increase in the effective tax rate was caused by many factors, including a
decrease in tax-exempt interest income and the expiration of the federal
research and development tax credit in 2008, which was renewed in the fourth
quarter of 2008.
Connector
Products Simpson Strong-Tie
Simpson
Strong-Ties income from operations decreased 18.6% to $88.2 million in the
first nine months of 2008 from $108.4 million in the first nine months of 2007.
Net Sales
In the first nine months
of 2008, Simpson Strong-Ties net sales decreased 6.7% to $552.3 million from
$592.3 million in the first nine months of 2007. Simpson Strong-Tie accounted
for 91.0% of the Companys total net sales in the first nine months of 2008, a
decrease from 92.3% in the first nine months of 2007. The decrease in net sales
at Simpson Strong-Tie resulted from a decrease in sales volume, primarily due
to reduced construction activity, although average prices increased 5.5% as
compared to the first nine months of 2007. In the first nine months 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. Reflecting the deterioration of construction
markets and economic conditions generally, 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 accounted for approximately
4.8% of Simpson Strong-Ties first nine months sales in 2008 and Anchor
Systems sales benefited from the acquisition of the Liebig companies.
Gross
Profit
Simpson Strong-Ties gross profit decreased 6.3% to $224.4 million in
the first nine months of 2008 from $239.6 million in the first nine months of
2007. As a percentage of net sales, gross profit increased from 40.5% in
the first nine months of 2007 to 40.6% in the
first nine months of 2008.
19
Selling
Expense
Simpson Strong-Ties
selling expense increased 13.8% from $51.0 million in the first nine months of 2007 to $58.0 million in the first nine months of 2008. The
increase was driven primarily by an $8.0 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 and a decrease in professional services of $0.2
million.
General and
Administrative Expense
Simpson Strong-Ties
general and administrative expense decreased 5.0% to $62.7 million in the first nine months of 2008 from $66.0
million in the first nine months of 2007.
The major components of the decrease were decreases in cash profit sharing of
$11.4 million, resulting primarily from decreased operating profit, a reduction
in depreciation expense of $0.9 million, and adjustments to the provision for
doubtful accounts of $0.4 million. These decreases were partly offset by
increases in personnel expenses of $5.2 million, including those at businesses
acquired since July 2007, higher amortization expense of $1.2 million and
increased legal and professional service expenses of $1.0 million.
European
Operations
For its European operations,
Simpson
Strong-Tie recorded income from operations
of $3.0 million in the first nine months of 2008 compared to income from
operations of $4.7 million in the first nine months of 2007.
Venting
Products Simpson Dura-Vent
Simpson
Dura-Vents loss from operations increased from $2.7 million the first nine
months of 2007 to $3.9 million in the first nine months of 2008.
Net Sales
In the first nine months of 2008, Simpson
Dura-Vents net sales increased 10.1% from $49.4 million in the first nine months of 2007 to $54.4
million in the first nine months of 2008. Simpson
Dura-Vent accounted for 9.0% of the Companys
total net sales in the first nine months of 2008, an increase from 7.7% in the
first nine months of 2007. The increase in net sales at Simpson
Dura-Vent resulted from an increase in
sales volume and from price increases that averaged 3.2% as compared to the
first nine months of 2007. In the
first nine months of 2008, Simpson Dura-Vents sales increased
throughout the United States, primarily due to significant increases in sales
in the northeastern region. Sales decreased significantly in California, while
sales in the western states and south/southeast also decreased. Sales of Simpson Dura-Vents pellet vent,
chimney, special gas vent and relining products increased. Sales of its
Direct-Vent and gas vent product lines decreased as a result of several
factors, including the continuing weakness in new home construction.
Gross
Profit
Simpson Dura-Vents gross profit decreased 9.6 % to $5.6 million in
the first nine months of 2008 from $6.2 million in the first nine months of
2007. This decrease was primarily due to higher fixed overhead and
distribution costs, offset slightly be lower manufacturing costs.
General and
Administrative Expense
Simpson Dura-Vents
general and administrative expense increased 23.3% from $2.8 million in the
first nine months of 2007 to $3.4 million in the first nine months of 2008.
This increase was primarily due to increased expenses associated with
administrative personnel of $0.3 million, including personnel associated with
ProTech, an increase in the provision for bad debt of $0.2 million and
increased professional fees of $0.2 million.
20
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
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, FSP FAS 157-2 and FSP FAS 157-3, SFAS No. 159,
The Fair Value Option for Financials Assets and Financial Liabilities, and
SFAS
No. 162, The Hierarchy of
Generally Accepted Accounting Principles. See Note 1 to the Companys
Condensed Consolidated Financial Statements.
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,
or FSP FAS 142-3, Determination of the Useful Life of Intangible Assets.
Liquidity and Sources of Capital
As of September 30, 2008, working capital was
$456.5 million as compared to $430.0 million at September 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 $37.5
million and inventories of $33.3 million and a decrease in accrued profit
sharing trust contributions of $1.0 million. Net trade accounts receivable
increased 42.5% from December 31, 2007, while inventories increased 15.3%
from December 31, 2007, primarily as a result of the higher costs of
steel. The increase in net trade accounts receivable was the result of
increased sales in the latter part of the third 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 $22.3 million
and increases in trade accounts payable, cash profit sharing and commissions
payable, and income taxes payable of $18.9 million, $6.2 million, and $3.6
million, respectively. Assets held for sale decreased by $1.2 million due to
the sale of the vacant warehouse in McKinney, Texas, in April 2008, partly
offset by the addition of a property in Ireland that is held for sale. Other
decreases to working capital were decreases in other current assets 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 $52.1 million and noncash
expenses, primarily depreciation, amortization and stock-based compensation
charges totaling $25.3 million, resulted in net cash provided by operating
activities of $36.6 million. As of September 30, 2008, the Company had
unused credit facilities available of $205.4 million.
The Company used $41.7 million in its investing activities,
primarily for the Liebig, ProTech, Ahorn and Ventinox 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 full year capital spending will total $15.0 million for
2008.
21
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,
including $1.4 million to be paid in the future, 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, and a property in Ireland have been
classified as assets 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 or early 2009. The
Company expects to sell the San Leandro property after the remediation is
completed. The Company sold the Ireland property in November 2008.
The Companys financing
activities used net cash of $13.5 million. Uses of cash for financing
activities were for the payment of cash dividends in the amount of $14.6
million and payments on the Companys credit lines of its European subsidiaries
of $4.1 million. Cash provided by financing activities was primarily from
borrowings on the Companys credit lines of its European subsidiaries of $3.7
million and the issuance of the Companys common stock through the exercise of
stock options totaling $1.4 million.
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.
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 increase and the Company is not able to increase its
prices sufficiently, the Companys margins could 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 a decrease in accumulated other comprehensive income of
$11.5 million and $8.9 million for the three and nine months ended September 30,
2008, respectively, primarily due to the effect of the strengthening of the
United States dollar in relation to the Canadian dollar and most European
currencies.
22
Item 4.
Controls and Procedures.
Disclosure
Controls and Procedures.
As of September 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 September 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.
23
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 third 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
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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.
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3.2
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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.
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4.1
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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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24
10.1
|
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Simpson Manufacturing
Co., Inc. 1994 Stock Option Plan, as amended through February 13,
2008, is incorporated by reference to exhibit 10.1 of Simpson Manufacturing
Co., Inc.s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008.
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10.2
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Simpson Manufacturing
Co., Inc. 1995 Independent Director Stock Option Plan, as amended
through November 18, 2004, is incorporated by reference to exhibit 10.2
of Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2008.
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10.3
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Simpson Manufacturing
Co., Inc. Executive Officer Cash Profit Sharing Plan, as amended through
February 25, 2008, is incorporated by reference to exhibit 10.3 of
Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2008.
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10.4
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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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10.5
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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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10.6
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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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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.
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Simpson Manufacturing Co., Inc.
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(Registrant)
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DATE:
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November 7,
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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26
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