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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
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Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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for the fiscal year ended December 31, 2008
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
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94-3196943
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(State or other
jurisdiction of
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(I.R.S. Employer
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incorporation or
organization)
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Identification No.)
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5956 W. Las Positas Blvd., Pleasanton, CA 94588
(Address of principal
executive offices)
Registrants telephone number, including area
code:
(925)
560-9000
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, par value $0.01
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New York Stock Exchange, Inc.
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(Title of each class)
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(Name of each exchange on
which registered)
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of class)
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act.
Yes
o
No
x
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act.
Yes
o
No
x
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes
x
No
o
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act.
Large accelerated filer
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x
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Accelerated filer
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o
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Non-accelerated filer
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o
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(Do not check if a smaller reporting company)
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Smaller reporting company
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o
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Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
x
As of June 30, 2008, there were outstanding 48,599,104
shares of the registrants common stock, par value $0.01, which is the only
outstanding class of common or voting stock of the registrant. The aggregate
market value of the shares of common stock held by nonaffiliates of the
registrant (based on the closing price for the common stock on the New York
Stock Exchange on June 30, 2008) was approximately $892,224,076. As of February
23, 2009, 48,986,689 shares of the registrants common stock were outstanding.
Documents Incorporated by Reference
The information called for by Part III is incorporated
by reference to the definitive Proxy Statement for the Annual Meeting of
Stockholders of the Company to be held April 17, 2009, which will be filed with
the Securities and Exchange Commission not later than 120 days after December 31,
2008.
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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. Those factors include, but are not limited to: (i) general
economic and construction business conditions; (ii) customer acceptance of the
Companys products; (iii) relationships with key customers; (iv) materials and
manufacturing costs; (v) the financial condition of customers, competitors and
suppliers; (vi) technological developments; (vii) increased competition; (viii)
changes in capital and credit markets; (ix) governmental and business conditions
in countries where the Companys products are manufactured and sold; (x) changes
in trade regulations; (xi) the effect of acquisition activity; (xii) changes in
the Companys plans, strategies, objectives, expectations or intentions; and
(xiii) other risks and uncertainties indicated from time to time in the Companys
filings with the Securities and Exchange Commission. 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. See Item 1A Risk Factors.
PART I
Item 1. Business.
Background
Simpson Manufacturing Co.,
Inc., a Delaware Corporation, (the Company), through its subsidiary, Simpson
Strong-Tie Company Inc. (Simpson Strong-Tie or SST), designs, engineers and
is a leading manufacturer of wood-to-wood, wood-to-concrete and wood-to-masonry
connectors, SST Quik Drive screw fastening systems and collated screws,
stainless steel fasteners, and pre-fabricated shearwalls. SST Anchor Systems
also offers a full line of adhesives, mechanical anchors, carbide drill bits
and powder actuated tools for concrete, masonry and steel. SST is the Companys
connector products segment. The Companys subsidiary, Simpson Dura-Vent Company,
Inc. (Simpson Dura-Vent or SDV), designs, engineers and manufactures
venting systems for gas, wood, oil, pellet and other alternative fuel burning
appliances. The Company markets its products to the residential construction,
light industrial and commercial construction, remodeling and do-it-yourself (DIY)
markets. SDV is the Companys venting products segment. The Company believes
that SST benefits from strong brand name recognition among architects and
engineers who frequently specify in building plans the use of SST products, and
that SDV benefits from strong brand name recognition among contractors,
dealers, distributors and SDVs relationships with original equipment
manufacturers (OEMs) to which SDV markets its products. SST has continuously
manufactured structural connectors since 1956. See Note 14 to the Companys
Consolidated Financial Statements for information regarding the net sales,
income (loss) from operations, depreciation and amortization, significant
non-cash charges, income tax expense (benefit), capital expenditures and
acquisitions and total assets for the Companys two operating segments. See Item
1A Risk Factors.
Connectors produced by
Simpson Strong-Tie typically are steel devices that are used to strengthen,
support and connect joints in residential and commercial construction and DIY
projects. SSTs Anchor Systems product line is included in the connector
product segment. SSTs connector products enhance the safety and durability of
the structures in which they are installed and can save time and labor costs.
SSTs connector products contribute to structural integrity and resistance to
seismic, wind and other forces. Applications range from commercial and
residential building, to deck construction, to DIY projects. SST produces and
markets over 11,000 standard and custom products.
Simpson Dura-Vents
venting systems are used to vent gas furnaces, water heaters, fireplaces and
stoves, wood and oil burning appliances and wood pellet and corn stoves. SDVs
metal vents, chimneys and chimney liner systems exhaust combustion products to
the exterior of the building. SDV designs its products for ease of assembly and
safe operation and to achieve a high level of performance. SDV produces and
markets approximately 4,000 different venting products.
The Company emphasizes
continuous new product development and often obtains patent protection for its
new products. The Companys products are marketed in all 50 states of the
United States and in Europe, Canada, Asia, Australia, New Zealand, Mexico and
several countries in Central and South America and the Middle East. Both
Simpson Strong-Tie and Simpson Dura-Vent products are distributed to home
centers, through wholesale distributors and to contractors and dealers. Simpson
Dura-Vent also sells to OEMs.
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The Company has developed
and uses automated manufacturing processes. Its innovative manufacturing
systems and techniques have allowed it to control manufacturing costs, while
developing both new products and products that meet customized requirements and
specifications. The Companys development of specialized manufacturing
processes has also permitted increased operating flexibility and enhanced
product design innovation. The Company has 20 manufacturing locations in the
United States, Canada, France, Denmark, Ireland, Germany, China and
England. SST is constructing a new
manufacturing facility in Zhangjiagang, China, to be completed in early 2009,
and began to move its production of mechanical anchors to the new facility from
its facility in Brampton, Ontario, in late 2008. SDV consolidated its
production of venting products in Vacaville, California, and discontinued
production at its Vicksburg, Mississippi, facility. SDV also added a
manufacturing facility in Albany, New York, with the acquisition of ProTech
Systems, Inc. in June 2008.
Industry
and Market Trends
Based on trade
periodicals, participation in trade and professional associations and
communications with governmental and quasi-governmental organizations and with
customers and suppliers, the Company believes that a variety of events and
trends have resulted in significant developments in the markets that the
Company serves. The Companys products are designed to respond to increasing
demand resulting from these trends. Some of these events and trends are
discussed below.
Natural disasters
throughout the world have focused attention on safety concerns relating to the
structural integrity of homes and other buildings. The 1995 earthquake in Kobe,
Japan, the 1994 earthquake in Northridge, California, the 1989 Loma Prieta
earthquake in Northern California, Hurricanes Hugo in 1989 and Andrew in 1992
and a series of hurricanes in 2004 and 2005, including Katrina, in the
southeastern United States, and other less cataclysmic natural disasters,
damaged and destroyed innumerable homes and other buildings, resulting in
heightened consciousness of the fragility of some of those structures.
In recent years,
architects, engineers, model code agencies, contractors, building inspectors
and legislators have continued efforts to improve structural integrity and
safety of homes and other buildings in the face of disasters of various types,
including seismic events, storms and fires. Based on ongoing participation in
trade and professional associations and communications with governmental and
quasi-governmental regulatory agencies, the Company believes that building
codes are being more uniformly applied around the country and their enforcement
is becoming more rigorous.
Recently, there has been
consolidation among several of the Companys customer groups. The industry has
experienced increased complexity in home design, and builders are more
aggressively trying to reduce their costs. The Company has responded to these
trends by marketing its products as systems, in addition to individual parts.
In some cases, the Company uses sophisticated design and specification software
to facilitate systems marketing.
The requirements of the
Endangered Species Act, the Federal Lands Policy Management Act and the
National Forest Management Act have reduced the amount of timber available for
harvest from public lands. Over the past several years, this and other factors
have led to the increased use of engineered wood products. Engineered wood
products, which substitute for strong, clear-grained lumber historically
obtained from logging older, large-diameter trees, have been developed to
conserve lumber. Engineered wood products frequently require specialized
connectors and fasteners. Sales of Simpson Strong-Ties engineered wood
connector and fastener products have contributed significant revenues over the
past several years.
Concerns about energy
conservation and air quality have led to increasing recognition of the
advantages of natural gas as a heating fuel, including its clean burning
characteristics. Use of natural gas for home heating has been increasing in the
United States over a number of years. The cyclical nature of natural gas costs
has resulted in fluctuating demand for Simpson Dura-Vents natural gas products
and its products for alternative fuel appliances.
The Company continues to
develop its distribution through home centers throughout the United States. The
Companys sales to home centers were flat in 2006 and 2007 and declined in
2008. See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of Operations.
The Companys principal
markets are in the building construction industry. That industry is subject to
significant volatility due to real estate market cycles, fluctuations in
interest rates, the availability, or lack thereof, of credit to builders,
developers and consumers, inflation rates, weather, and other factors and
trends. The world-wide recession
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and the declines in
residential construction that began in 2007 have reduced the demand for the
Companys products. See Item 1A Risk
Factors.
Business
Strategy
The Company designs,
manufactures and sells products that are of high quality and performance, easy
to use and cost-effective for customers. The Company provides rapid delivery of
its products and prompt engineering and sales support. Based on its communications
with customers, engineers, architects, contractors and other industry
participants, the Company believes that its products have strong brand-name
recognition, and the Company seeks to continue to develop the value of its
brand names through a variety of customer-driven strategies. Information
provided by customers has led to the development of many of the Companys
products, and the Company expects that customer needs will continue to shape
the Companys product development, marketing and services.
Specification in
architects and engineers plans and drawings influences which products will be
used for particular purposes and therefore is key to the use of the Companys
products in construction projects. The Company encourages architects and engineers
to specify the installation of the Companys products in projects they design
and supervise, and encourages construction contractors to accept the Companys
products. The Company maintains frequent contacts with architects, engineers
and contractors, as well as private organizations that provide information to
building code officials, both to inform them regarding the quality, proper
installation, capabilities and value of the Companys products and to update
them about product modifications and new products that may be useful or
necessary. The Company sponsors seminars to inform architects, engineers,
contractors and building officials on appropriate use and proper installation
of the Companys products. Additionally, the Company maintains relationships
with home builders throughout the country to promote the use of its products.
The Company seeks to
expand its product and distribution coverage through several channels:
Distributors.
The Company regularly evaluates its distribution coverage and
service levels provided by its distributors and from time to time modifies its
distribution strategy and implements changes to address weaknesses and
opportunities. The Company has various programs to evaluate distributor product
mix and conducts promotions to encourage distributors to add Company products
that complement the mix of product offerings in their markets.
Through its efforts to
increase specifications by architects and engineers, and through increasing the
number of products sold to particular contractors, the Company seeks to
increase sales to channels that serve building contractors. The Company
continuously seeks to expand the number of contractors served by each
distributor through such sales efforts as demonstrations of product cost-effectiveness
and information programs.
Home
Centers.
The Company intends to increase penetration of the
DIY markets by solicitation of home centers. The Companys sales force
maintains on-going contact with home centers to work with them in a broad range
of areas including inventory levels, retail display maintenance, and product
knowledge training. To satisfy specialized requirements of the home center
market, the Company has developed extensive bar coding and merchandising aids
and has devoted a portion of its research efforts to the development of DIY
products.
Dealers.
In some markets, the Company sells its products directly to lumber dealers.
OEM
Relationships.
The Company works closely with manufacturers
of engineered wood products and OEMs in developing and expanding the
application and sales of Simpson Strong-Ties engineered wood connector and
fastener products and Simpson Dura-Vents gas, wood and pellet stove venting
products. SST has relationships with several of the largest manufacturers of
engineered wood products, and SDV has OEM relationships with major fireplace
and stove manufacturers.
While the Company is
expanding its established facilities outside of California to increase its
presence and sales in these markets, sales of some products may relate
primarily to certain regions. For example, sales of SSTs line of shearwalls,
which the Company expanded with the introduction of a steel wall, are
concentrated in the western region of the United States, because their use is
primarily intended to resist the effects of seismic forces. Since 1993 the
Company
·
has established operations in the
United Kingdom,
·
opened warehouse and distribution
facilities in western Canada and the midwestern, northeastern, and eastern
seaboard regions of the United States,
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·
purchased anchor products
manufacturers in Illinois, eastern Canada and Ireland and connector product
manufacturers in France, Denmark, Germany and Canada,
·
acquired the assets of a leading
manufacturer and distributor of screw fastening systems and collated screws
with manufacturing and distribution operations in Tennessee and distribution in
Canada, Europe, Australia and New Zealand, and acquired a German manufacturer
with manufacturing in Germany, Czech Republic and China,
·
acquired a manufacturer and
distributor of stainless steel fasteners with manufacturing in Maryland and
distribution in Maryland, Florida, Oregon and Massachusetts,
·
purchased a venting products
manufacturer in New York and acquired the assets of a specialized venting
manufacturing line, and
·
is building a manufacturing facility
in China and opened sales offices in Hong Kong, Beijing and Shanghai for
distribution in Asia and the Middle East.
The Company intends its
European investments to establish a presence in the European Community through
companies with existing customer bases and through servicing United
States-based customers operating there. The Company also distributes connector,
anchor and epoxy products in Mexico, Australia, New Zealand, Asia and the
Middle East. The Company intends to continue to pursue and expand operations
both inside and outside of the United States (see Note 14 to the Companys
Consolidated Financial Statements).
A Company goal is to
manufacture and warehouse its products in geographic proximity to its markets
to provide availability and rapid delivery of products to customers and prompt
response to customer requests for specially designed products and services.
With respect to the DIY and dealer markets, the Companys strategy is to keep
the customers retail stores continuously stocked with adequate supplies of the
full line of the Companys products that those stores carry. The Company
manages its inventory to help assure continuous product availability. Most
customer orders are filled within a few days. High levels of manufacturing
automation and flexibility allow the Company to maintain its quality standards
while continuing to provide prompt delivery.
The Companys product
research and development is based largely on needs that customers communicate
to the Company. The Company typically has developed 10 to 25 new products
annually (some of which may be produced in a range of sizes). The Companys
strategy is to develop new products on a proprietary basis, to patent them when
appropriate and to seek trade secret protection for others.
The Companys long-term
strategy is to develop, acquire or invest in product lines or businesses that
·
complement the Companys existing
product lines,
·
can be marketed through its existing
distribution channels,
·
might benefit from use of the Simpson
Strong-Tie or Simpson Dura-Vent brand names and expertise,
·
are responsive to needs of the
Companys customers,
·
expand the Companys markets
geographically and
·
reduce the Companys dependence on
the United States residential construction market.
Simpson
Strong-Tie
Overview
Connectors produced by
Simpson Strong-Tie typically are steel devices that are used to strengthen,
support and connect joints in residential and commercial construction and DIY
projects. These products enhance the safety and durability of the structures in
which they are installed and can save time and labor costs for the contractor.
SSTs connector products increase structural integrity and improve structural resistance
to seismic, wind and other forces. Applications range from building framing to
deck construction to DIY projects. SST produces and markets over 11,000
standard and custom products.
In the United States,
connector usage developed faster in the West than elsewhere due to the low cost
and abundance of timber and to local construction practices. Increasingly, the
market has been influenced both by a growing awareness that the devastation
caused by seismic, wind and other disasters can be reduced through improved
building codes and construction practices and by environmental concerns that
contribute to the increasing cost and reduced availability of wood. Most
Simpson Strong-Tie products are listed by recognized building standards
agencies as complying with model building codes and are specified by architects
and engineers for use in projects they are designing or supervising. The
engineered wood products industry continues to develop in response to
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concerns about the
availability of wood, and the Company believes that SST is the leading supplier
of connectors for use with engineered wood products.
Metal connectors, anchors
and fasteners will corrode and lose load carrying capacity when installed in
corrosive environments or exposed to corrosive materials. There are many
environments and materials that may cause corrosion, including ocean salt air,
fire retardants, preservative-treated wood, dissimilar metals, fumes and
fertilizers. The variables present in a single building environment make it
impossible to predict accurately if, or when, significant corrosion will begin
or reach a critical level. This relative uncertainty makes it crucial that the
specifiers be knowledgeable of the potential risks and select a product coating
or metal that is suitable for the intended use. Changes in the
preservative-treated wood industry have created additional concerns. Effective December
31, 2003, the preservative-treated wood industry voluntarily transitioned from
Chromated Copper Arsenate (CCA-C) used in residential applications to
alternative treatments. Testing has shown that certain alternative replacement
treatments are generally more corrosive than CCA-C. SST publishes technical
bulletins on subjects such as this and others that affect the installation and
use of its products. SST makes its technical bulletins available on its website
at www.strongtie.com.
Products
Simpson Strong-Tie is a
recognized brand name in the markets it serves. SST manufactures and markets
products that strengthen the three types of connections typically found in
residential and commercial construction:
wood-to-wood, wood-to-concrete and wood-to-masonry. The Companys
connector products, including its pre-fabricated shearwalls, are installed in a
continuous load path from the foundation to the roof system. SST also markets
specialty screws and nails for proper installation of certain of its connector
products. These products have seismic, retrofit and remodeling applications for
both new construction and DIY markets. Through its Anchor Systems product line,
SST offers a full line of adhesives, mechanical anchors and powder-actuated
tools for numerous anchoring applications in concrete, masonry and steel in
both standard and metric sizes. SST also offers screw fastening systems and
collated screws for various construction applications through the Quik Drive
product line and a line of stainless steel fasteners through the Swan Secure
product line.
Most of Simpson
Strong-Ties products are listed by recognized model building code agencies. To
achieve such listings, SST conducts extensive product testing, which is
witnessed and certified by independent testing engineers. The tests also
provide the basis for publication of load ratings for SST structural
connectors, and this information is used by architects, engineers, contractors
and homeowners. The information is useful across the range of applications of
SSTs products, from the deck constructed by a homeowner to a multi-story
structure designed by an architect or engineer in an earthquake zone.
Simpson Strong-Tie also
manufactures connector products specifically designed for use with engineered wood
products, such as wood I-joists. With increased timber costs and reduced
availability of trees suitable for making traditional solid sawn lumber,
construction with engineered wood products has increased substantially in the
last several years. Sales of Simpson Strong-Ties engineered wood connector and
fastener products have contributed significant revenues over the past several
years.
New
Product Development
Simpson Strong-Tie
commits substantial resources to new product development. The majority of
products have been developed through SSTs internal research and development
program. SSTs research and development expense for the three years ended December
31, 2008, 2007 and 2006, was $6,148,000, $5,206,000 and $5,075,000,
respectively. SST is the only known United States manufacturer with the
capability to test multi-story wall systems, thus enabling testing rather than
calculations to prove system performance. SST engineering, sales, product
management, and marketing teams work together with architects, engineers,
building inspectors, code officials and customers in the new product
development process.
SST typically develops 10
to 20 new products each year. This year, SST introduced the Strong Frame
Ordinary Moment Frame, a high capacity lateral force resistance product for use
in both non-residential and residential construction. SST also developed new
products for Cold Form Steel truss bracing, mudsill anchor bolt replacement,
Hawaiian wind tie retrofit, mechanical and adhesive anchors for use in cracked
concrete, as well as several other products for general construction and DIY.
SST also developed fasteners and collated delivery systems for several sectors
including, steel pan decking, tile backer board, hardwood decking and
truck/trailer/RV bed wood to steel attachment.
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While continuing to
service the new single-family residential housing market, SST has increased
development efforts for products used in DIY, multi-family residential, and
some light commercial and industrial markets.
Sales
and Marketing
Simpson Strong-Ties sales
and marketing programs are implemented through SSTs branch system. SST
currently maintains branches in Northern and Southern California, Texas, Ohio,
Canada, England, France, Germany, Denmark and China. Each branch is served by
its own sales force, as well as manufacturing, warehouse and office facilities.
Each branch is responsible for a broad geographic area. Each is responsible for
setting and executing sales and marketing strategies that are consistent with
the markets that the branch serves and the goals of SST. The domestic branches
closely integrate their manufacturing activities to enhance product
availability. Branch sales forces in the United States are supported by
marketing managers in the home office in Pleasanton, California. The home office
also coordinates issues affecting customers that operate in multiple regions.
The sales force maintains close working relationships with customers, develops
new business, calls on architects, engineers and building officials and
participates in a range of educational seminars.
Simpson Strong-Tie sells
its products through an extensive distribution system comprising dealer
distributors supplying thousands of retail locations nationwide, contractor
distributors, home centers, lumber dealers, manufacturers of engineered wood
products, and specialized contractors such as roof framers. In recent years,
home centers have been one of the SSTs fastest growing distribution channels.
A large part of that growth was sales to The Home Depot, which exceeded 10% of
the Companys consolidated net sales in both 2006 and 2007 (see Item 1A Risk Factors, Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations, and Note 14 to the Companys
Consolidated Financial Statements). SSTs DIY and dealer products are used to
build projects such as decks, patio covers and garage organization systems.
Simpson Strong-Tie
dedicates substantial resources to customer service. SST produces numerous
publications and point-of-sale marketing aids to serve specifiers,
distributors, retailers and users for the various markets that it serves. These
publications include general catalogs, as well as various specific catalogs,
such as those for its Anchor System products. The catalogs and publications
describe the products and provide load and installation information. SST also
maintains several linked websites centered on www.strongtie.com, which include
catalogs, product and technical information, code reports and other general information
related to SSTs product lines and promotional programs.
Simpson Strong-Ties
engineers not only design and test products, but also provide engineering
support for customers. This support might range from the discussion of a load
value in a catalog to testing a unique application for an existing product. SSTs
sales force communicates with customers in each of its marketing channels,
through its publications, seminars and frequent sales calls.
Based on its
communications with customers, Simpson Strong-Tie believes that its products
are important to its customers businesses, and it is SSTs policy to ship
products within a few days of receiving the order, with many of the orders
shipped the same day as the order is received. Many of SSTs customers serve
contractors that require rapid delivery of needed products. Home centers and
dealers also require superior service because of fluctuating demand and to
serve the needs of a broad base of customers. To satisfy these requirements,
SST maintains high inventory levels, has redundant manufacturing capability and
some multiple dies to produce the same parts. SST also maintains information
systems that provide sales and inventory control and forecasting capabilities
throughout its network of factories and warehouses. SST also has special
programs for contractors intended to ensure the prompt manufacture and delivery
of custom products.
Simpson Strong-Tie
believes that dealer and home center sales of SST products are significantly
greater when the bins and racks at large dealer and home center locations are
adequately stocked with appropriate products. Various retailers carry varying
numbers of SST products. SSTs sales force is engaged in ongoing efforts to
inform retailers about SSTs merchandising programs and the appeal of the SST
brand.
Simpson
Dura-Vent
Overview
Simpson Dura-Vents
venting systems are used to vent gas furnaces, water heaters, fireplaces and
stoves, wood and oil burning appliances and wood pellet and corn stoves. SDVs
metal vents, chimneys and chimney liner systems
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exhaust the products of
combustion to the exterior of the building. SDVs products have been designed
for ease of assembly and safe operation and to achieve a high level of
performance. SDV produces and markets approximately 4,000 different venting
products.
The clean burning
characteristics of natural gas have gained public recognition, resulting in
increased market share for natural gas appliances in the new construction and
the appliance replacement markets. As a result, Simpson Dura-Vent has developed
venting systems, such as Direct-Vent, to address changes in appliance
technology. Fluctuations in natural gas prices, however, affect demand for gas
appliances. Historically, during periods of high oil and natural gas prices and
energy shortages, sales of wood and pellet burning stoves, considered
alternative energy sources, have increased, while sales of gas burning
appliances have tended to decline.
Simpson Dura-Vents
objective is to expand market share in all of its distribution channels by
entering expanding markets that address energy and environmental concerns. SDVs
strategy is to capitalize on its strengths in new product development and its
established distribution network and to continue its commitment to high quality
and service. SDV operates manufacturing and warehouse facilities in California,
Mississippi, Minnesota, and New York. In January 2008, SDV decided to close its
Vicksburg, Mississippi, facility and consolidate its manufacturing operations
in Vacaville, California.
In June 2008, SDV
acquired the equity of ProTech Systems, Inc. (ProTech) which is based in
Albany, New York. ProTech manufactures special gas vent for condensing
appliances including tankless water heaters and boilers. In July 2008, SDV
acquired the assets and trademarks of Ventinox relining systems from American
BOA, Inc.
Products
Simpson Dura-Vent is a
leading supplier of double-wall Type B Gas Vent systems, used for venting gas
furnaces, water heaters, boilers and decorative gas fireplaces. SDVs Type B
Gas Vent product line features heavy-duty quality construction and a twist-lock
design that provides for fast and easy job-site assembly compared to
conventional snap-together designs. The twist-lock design has broader
applications and has been incorporated into SDVs gas, pellet and Direct-Vent
product lines. SDV also markets a patented flexible vent connector, Dura/Connect,
for use between the gas appliance flue outlet and the connection to the Type B
Gas Vent installed in the ceiling. Dura/Connect offers a simple twist, bend and
connect installation for water heaters and gas furnaces. As a result of the
acquisition of ProTech in July 2008, SDV offers special gas vent and relining
products.
Consumer concerns over
the rising costs of natural gas and home heating oil in 2003 through the first
half of 2006 increased demand for alternative fuel appliances. This resulted in
increased demand for SDVs all-fuel chimney and pellet vent products, although
demand for these and other SDV products declined along with the slowdown in
home building activity in the first half of 2006 and again in late 2007 and
2008. The gas fireplace market has evolved into two basic types of fireplace:
top-vent fireplaces that are vented with the standard Type B Gas Vent and
direct-vent fireplaces that use a special double-wall venting system. SDVs
Direct-Vent system is designed not only to exhaust the flue products, but also
to draw in outside air for combustion, an important feature in modern
energy-efficient home construction. The Direct-Vent gas fireplace systems
provide ease of installation, permitting horizontal through-the-wall venting or
standard vertical through-the-roof venting. SDV has established relationships
with several large manufacturers of gas stoves and gas fireplaces to supply
Direct-Vent venting products.
New
Product Development
Simpson Dura-Vent has
gained industry recognition by offering innovative new products that meet
changing needs of customers. SDV representatives serve on industry committees
concerned with issues such as new appliance standards and government
regulations. SDVs research and development expense for the three years ended December
31, 2008, 2007 and 2006, was $812,000, $816,000 and $601,000, respectively. SDV
also maintains working relationships with research and development departments
of major appliance manufacturers, providing prototypes for field testing and
conducting tests in SDVs testing laboratory. SDV believes that such
relationships provide competitive advantages. For example, SDV introduced the
first venting system for Direct-Vent gas appliances. In 2004, SDV completed
testing for a new chimney product line, Dura-Plus HTC, which is designed to
meet Canadian standards for chimney systems, and began marketing in Canada in
2005. In 2006, SDV launched a new, improved PelletVent for venting pellet
burning stoves. SDV manufactures the new PelletVent product line using laser
welding equipment. SDV has filed a patent application for the new PelletVent
product line. In 2007, SDV determined that the exhaust gases that result from
burning corn pellets and other bio fuels can be corrosive and has begun using
material that is more suited to this application. Also in 2007, SDV launched
improvements in its Direct-
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Vent categories, applying
laser weld techniques, and launched a new air-cooled large diameter (10
through 16) chimney product line, Dura-Chimney 2, for venting very large
wood-burning fireplaces.
Sales
and Marketing
Simpson Dura-Vents sales
and marketing programs are implemented through SDVs sales and marketing staff
and a network of independent manufacturers agents. SDV markets venting systems
for both gas and wood burning appliances through wholesale distributors in the
United States, Canada and Australia to the HVAC (heating, ventilating and air
conditioning) and PHC (plumbing, heating and cooling) contractor markets, and
to fireplace specialty distributors. These customers sell to contractor and DIY
markets. SDV also markets venting products to home center and hardware store
chains. SDV has established OEM relationships with several major gas fireplace
and gas stove manufacturers, which SDV believes are leaders in the direct-vent
gas appliance market.
Simpson Dura-Vent
responds to technological changes occurring in the industry through new product
development and has developed a reputation for quality and service to its
customers. To reinforce its reputation for quality, SDV produces extensive
sales support literature and advertising materials. Recognizing the difficulty
that customers and users may have in understanding correct sizing for venting,
SDV publishes a sizing handbook to assist contractors, building officials and
retail outlets. Advertising and promotional
materials have been designed to be used by distributors and their customers, as
well as home centers and hardware chains.
To enhance its marketing
effort, SDV maintains a website, www.duravent.com, that includes product
descriptions, catalogs and installation instructions, as well as a direct link
to SDVs customer service and engineering departments. SDV also regularly
publishes and sends e-mail newsletters to its distributors and authorized
Dura-Pro dealers.
Manufacturing
Process
The Company designs and
manufactures most of its standard products. The Company has concentrated on
making its manufacturing processes as efficient as possible without
compromising the quality or flexibility necessary to serve the needs of its
customers. The Company has developed and uses automated manufacturing
processes. The Companys innovative manufacturing systems and techniques have
allowed it to control manufacturing costs, even while developing both new
products and products that meet customized requirements and specifications. The
Companys development of specialized manufacturing processes also has permitted
increased operating flexibility and enhanced product design innovation. The
Company sources some products from third party vendors, both domestically and
internationally.
The Company is committed
to helping people build safer structures economically through the design,
engineering and manufacturing of structural connectors, pre-fabricated
shearwalls, anchors, fasteners and related products. With the support and
involvement of management, the Company has developed a quality system that
manages defined procedures to ensure consistent product quality and also meets
the requirements of International Code Council (ICC) product evaluation
reports. Simpson Strong-Tie is recognized in its industry as a manufacturer of
high quality products. Since 1996, SSTs
quality system has been registered under ISO 9001, an internationally
recognized set of quality-assurance standards. The Company believes that ISO
registration is a valuable tool for maintaining its high quality
standards. As SST establishes new
business locations through expansion or acquisitions, projects are established
to integrate SSTs quality systems and achieve ISO 9001 registration. In addition, SST has five testing
laboratories accredited to ISO standard 17025, an internationally accepted
standard that provides requirements for the competence of testing and
calibration laboratories.
Simpson Strong-Tie
operates manufacturing or warehouse facilities in California, Texas, Ohio,
Florida, Connecticut, Illinois, Washington, Tennessee, Minnesota, North
Carolina, Maryland, Oregon, Massachusetts, British Columbia, Ontario, England,
France, Denmark, Germany, Australia, Scotland, Poland, Ireland, Czech Republic
and China. Most of SSTs products are produced with a high level of automation,
using progressive dies run in automatic presses making parts from coiled sheet
steel at rates that often exceed 100 strokes per minute. SST estimates that it
produces over 1 billion product pieces per year. Most of SSTs products (SKUs)
are bar coded with UPC numbers for easy identification, and nearly all of the
products sold to home centers are labeled with bar codes. SST has significant
press capacity and has multiple dies for some of its high volume products
because of the need to produce these products close to the customer and to
provide backup capacity. The balance of production is accomplished through a
combination of manual, blanking and numerically controlled (NC) processes that
include robotic welders, lasers and turret punches. This capability allows SST
to produce products with little redesign or set-up time,
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facilitating rapid turnaround for customers. New
tooling is also highly automated. Dies are designed and produced using computer
aided design (CAD) and computer aided machining (CAM) systems. CAD/CAM
capability enables SST to create multiple dies quickly and design them to high
standards. The Company is constantly reviewing its product line to reduce
manufacturing costs, increase automation, and take advantage of new types of
materials.
Simpson Strong-Tie also manufactures chemical
anchoring products at its facility in Addison, Illinois. The chemicals are
mixed in batches and are then loaded in two-part dispensers. These dispensers
mix the product on the job site because set up times are usually very short. In
addition, SST purchases a number of products, primarily fasteners, powder
actuated tools and accessories and certain of its mechanical anchoring
products, from various sources around the world. These purchased products
undergo inspections on a sample basis for conformance with ordered
specifications and tolerances before being distributed.
Simpson Dura-Vent operates manufacturing or warehouse
facilities in California, Mississippi, Minnesota, and New York. SDV produces
component parts for venting systems using NC-controlled punch presses equipped
with high-speed progressive and compound tooling. SDVs vent pipe and elbow
assembly lines are automated, to produce finished products efficiently from
large coils of steel and aluminum. UPC bar coding and computer tracking systems
provide SDVs industrial engineers and production supervisors with real-time
productivity tools to measure and evaluate current production rates, methods
and equipment.
Regulation
Simpson Strong-Ties product lines are subject to
federal, state, county, municipal and other governmental and quasi-governmental
regulations that affect product design, development, testing, applications,
marketing, sales, installation and use. Most SST products are recognized by
building code and standards agencies. Agencies that recognize Company products
include the International Code Council Evaluation Service (ICC-ES), the
International Association of Plumbing and Mechanical Officials (IAPMO), the
City of Los Angeles, the State of Florida, and the California Division of the
State Architect. These and other agencies adopt various testing and design
standards and incorporate them into their related building codes. With the
adoption of the International Residential Code and the International Building
Code, these standards are being applied more uniformly, and these Codes are
recognized throughout most of the United States. SST considers code recognition
to be a significant marketing tool and devotes considerable effort to obtaining
and maintaining appropriate approvals for its products. SST believes that
architects, engineers, contractors and other customers are more likely to
purchase structural products that have the appropriate code acceptance than
competitive products that lack code acceptance. SST actively participates in
industry related professional associations to keep abreast of regulatory
changes and to provide information to regulatory agencies.
Simpson Dura-Vent operates under a regulatory
environment that includes appliance and venting performance standards related
to safety, energy efficiency and air quality. Gas venting regulations are
contained in the National Fuel Gas Code (NFGC), while safety and performance
regulations for wood burning appliances and chimney systems are contained in a
National Fire Protection Association standard (NFPA 211). Standards for
testing gas vents and chimneys are developed by testing laboratories such as
Underwriters Laboratories (UL) in compliance with the American National
Standards Institute. The Environmental Protection Agency (EPA) regulates
clean air standards for both gas and wood burning appliances. The Department of
Energy (DOE) regulates energy efficiency standards under the authority of the
National Appliance Energy Conservation Act. Under this Act, the DOE
periodically reviews the necessity for increased efficiency standards with
respect to gas furnaces and gas water heaters. A substantial percentage of
SDVs Type B Gas Vent sales are for gas furnaces and gas water heaters. Minimum
appliance efficiency standards have been enacted that could negatively affect
sales of Type B Gas Vents, which could adversely affect the Companys operating
results. In turn, the various building codes could be adopted by local
authorities, resulting in enforcement through the building permit process.
Safety, air quality and energy efficiency requirements are enforced by local
air quality districts and municipalities by requiring proper UL, EPA and DOE
labels on appliances and venting systems.
Competition
The Company faces a variety of competition in all of
the markets in which it participates. This competition ranges from subsidiaries
of large national or international corporations to small regional
manufacturers. While price is an important factor, the Company competes on the
basis of quality, breadth of product line, technical support, availability of
inventory, service (including custom design and manufacturing), field support
and product innovation. As a result of differences in structural design and
building practices and codes, Simpson Strong-Ties markets tend to
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differ by region. Within these regions, SST competes
with companies of varying size, several of which also distribute their products
nationally.
The venting industry is highly competitive. SDVs
competitors include a variety of manufacturers that have operations in the
United States, Canada, China and Mexico. Most of its competitors do not compete
in all of SDVs product lines, and some have additional product lines that SDV
does not offer. SDV competes on the basis of quality, service, breadth of
product line, availability of inventory, technical support and product
innovation.
Raw Materials
The principal raw material used by both Simpson
Strong-Tie and Simpson Dura-Vent is steel, including stainless steel. The
Company generally orders steel to specific American Society of Testing and
Materials (ASTM) standards. SST also uses materials such as epoxies and
acrylics in the manufacture of its chemical anchoring products. SDV also uses
raw materials such as aluminum, aluminum alloys and ceramic and other insulation
materials, and both SST and SDV use cartons. The Company purchases raw
materials from a variety of commercial sources. The Companys practice is to
seek cost savings and enhanced quality by purchasing from a limited number of
suppliers.
The steel industry is highly cyclical and prices for
the Companys raw materials are influenced by numerous factors beyond the
Companys control, including general economic conditions, competition, labor
costs, foreign exchange rates, import duties, raw material shortages and trade
restrictions. Steel prices increased in 2006 and, after easing early in 2007,
rose again mid-year 2007. Steel prices have declined from their peak in July 2008,
but the Company believes that they may have reached bottom and does not expect
them to decrease further for the balance of the first quarter of 2009. The
steel market continues to be dynamic, however, with a high degree of
uncertainty about future pricing trends. Demand for steel has recently declined
due to the weakening of the global economy and tightening of financial credit
markets. Numerous factors may cause steel prices to increase in the future. In
addition to increases in steel prices, mills have added surcharges for zinc,
energy and freight in response to increases in their costs. These and other
factors could adversely affect the Companys cost and access to steel in 2009.
If steel prices increase and the Company is not able to maintain its prices or
increase them sufficiently, the Companys margins could deteriorate. See Item
1A Risk Factors and Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations. The Company historically has
not attempted to hedge against changes in prices of steel or other raw
materials.
Patents and Proprietary Rights
The Companys subsidiaries have United States and
foreign patents, the majority of which cover products that they currently
manufacture and market. These patents, and applications for new patents, cover
various design aspects of the subsidiaries products, as well as processes used
in their manufacture. The Companys subsidiaries are continuing to develop new
potentially patentable products, product enhancements and product designs.
Although the Companys subsidiaries do not intend to apply for additional
foreign patents covering existing products, the Company has developed an
international patent program to protect new products that its subsidiaries may
develop. In addition to seeking patent protection, the Company relies on
unpatented proprietary technology to maintain its competitive position. See
Item 1A Risk Factors.
Acquisitions and Expansion into New
Markets
The Companys future growth, if any, may depend to
some extent on its ability to penetrate new markets, both domestically and
internationally. See Industry and Market Trends and Business Strategy.
Therefore, the Company may in the future pursue acquisitions of product lines
or businesses. See Item 1A Risk Factors and Item 7 Managements
Discussion and Analysis of Financial Condition and Results of Operations.
In July 2007, the Company purchased the stock of
Swan Secure Products, Inc. (Swan Secure) for $42.1 million in cash, net
of cash received. Swan Secure is a manufacturer and distributor of fasteners,
largely stainless steel, and its products are marketed throughout the United
States.
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
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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 was $19.2 million in cash, including due diligence
and transaction costs. The Company recorded goodwill of $7.6 million and intangible
assets subject to amortization of $2.7 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.
In June 2008, the Companys subsidiary, Simpson
Dura-Vent Company, Inc., purchased the equity of ProTech Systems, Inc.,
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 $8.3 million in cash, including due diligence and
transaction costs and $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 $3.7 million and intangible assets subject to
amortization of $3.0 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 was $1.6 million in cash, including due
diligence and transaction costs. The Company recorded goodwill of $0.7 million.
The Ventinox purchase price allocation has not been finalized.
In July 2008, Simpson Strong-Tie purchased 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 broadened Simpson Strong-Ties collated fastener
product line and added production capacity in both Europe and China. The
purchase price was $9.2 million in cash, including due diligence and
transaction costs. The Company recorded goodwill of $6.9 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 January 2009, the Company acquired the
business of RO Design Corp, a Florida corporation doing business as DeckTools,
which licenses deck design and estimation software. The software provides
professional deck builders, home centers and lumber yards a simple,
graphics-driven, solution for designing decks and estimating material and labor
costs for the project. The purchase price was $4.0 million in cash, including
$2.5 million to be paid in the future.
Seasonality and Cyclicality
The Companys sales are seasonal and cyclical, and
operating results vary from quarter to quarter. The Companys sales are also
dependent, to a large degree, on the North American residential home
construction industry and operating results vary with economic cycles. See
Item 1A Risk Factors and Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Environmental, Health and Safety
Matters
The Company is subject to environmental laws and
regulations governing emissions into the air, discharges into water, and
generation, handling, storage, transportation, treatment and disposal of waste
materials. The Company is also subject to other federal and state laws and regulations
regarding health and safety matters. The Company believes that it has obtained
all material licenses and permits required by environmental, health and safety
laws and regulations in connection with the Companys operations and that its
policies and procedures comply in all material respects with existing
environmental, health and safety laws and regulations. See Item 1A Risk
Factors.
Employees and Labor Relations
As of January 1, 2009, the Company had 2,504
full-time employees, of whom 1,399 were hourly employees and 1,105 were
salaried employees. The Company believes that its overall compensation and
benefits for the most part meet or exceed industry averages and that its
relations with its employees are good.
A significant number of the employees at three of the
Companys facilities are represented by labor unions and are covered by
collective bargaining agreements. Two of the Companys collective bargaining
agreements cover the
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Companys tool and die craftsmen and maintenance
workers in Brea, California, and its sheetmetal workers in Brea and Ontario,
California. These two contracts expire February 2011 and June 2011,
respectively. Simpson Strong-Ties facility in Stockton, California, is also a
union facility with two collective bargaining agreements, which cover its tool
and die craftsmen and maintenance workers, and its sheetmetal workers. These two
contracts will expire June 2011 and September 2011,
respectively. See Item 1A Risk
Factors.
Available Information
The SEC maintains
an internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. The Company makes available, free of charge,
copies of its recent annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, proxy statement, company governance guidelines
and code of ethics and the charters of the Audit, Compensation, and Governance
and Nominating Committees of its Board of Directors on its website at
www.simpsonmfg.com.
Printed
copies of any of these materials will be provided on request.
Item 1A. Risk Factors.
You should carefully consider the
following risks before you decide to buy or hold shares of our common stock. If
any of the following risks actually occurs, our business, results of operations
or financial condition would likely suffer. In such case, the trading price of
our common stock could decline, and you may lose all or part of the money you
paid to buy our stock.
This and other public reports may
contain forward-looking statements based on current expectations, assumptions,
estimates and projections about us and our industry. Those forward-looking
statements involve risks and uncertainties. Our actual results could differ
materially from those forward-looking statements as a result of many factors,
as more fully described below and elsewhere in our public reports. We do not
undertake to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
Worldwide economic conditions and
credit tightening materially and adversely affect our business.
Our business has been materially and adversely
affected by changes in regional, national or global economic conditions. Such changes have included or may include
reduced consumer spending, reduced availability of capital, inflation,
deflation, adverse changes in interest rates, reduced energy availability and
increased energy costs, and government initiatives to manage economic
conditions. Continuing instability in financial markets and the deterioration
of other national and global economic conditions may have further materially
adverse effects on our operations, financial results or liquidity, including
the following:
·
the financial
stability of our customers or suppliers may be compromised, which could result
in additional bad debts for us or non-performance by suppliers;
·
one or more of
the financial institutions that make available our revolving credit facility
may become unable to fulfill their funding obligations, which could materially
and adversely affect our liquidity;
·
it may become
even more costly or difficult for us to obtain the agreed or additional
financing or to refinance our existing credit facility; or
·
our assets may
be impaired or subject to write down or write off.
Uncertainty about current global economic conditions
may cause consumers of our products to postpone or refrain from spending in
response to tighter credit, negative financial news, declines in income or
asset values, or other adverse economic events or conditions, which could materially
reduce demand for our products and materially and adversely affect our
financial condition and operating results.
Further deterioration of economic conditions would likely exacerbate
these adverse effects, result in wide-ranging, adverse and prolonged effects on
general business conditions, and materially and adversely affect our
operations, financial results and liquidity.
Failure to comply with industry
regulations could result in reduced sales and increased costs.
The design, capacity and quality of most of our
products and manufacturing processes are subject to numerous and extensive
regulations and standards promulgated by governmental, quasi-governmental and
industry organizations. These regulations and standards are highly technical,
complex and subject to frequent revision. If our products or manufacturing
processes fail to comply with any regulations or standards, we may not be able
to manufacture and
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market our products profitably. Failure to comply with
regulations and standards could therefore materially reduce our sales and
increase our costs.
If we fail to compete effectively,
our revenue and profit margins could decline.
We face a variety of competition in all of the markets
in which we participate. Many of our competitors have greater financial and
other resources than we do. In addition, other technologies may be the bases
for competitive products that could render our products obsolete or
noncompetitive. Other companies may find our markets attractive and enter those
markets. Competitive pricing, including price competition or the introduction
of new products, could have material adverse effects on our revenues and profit
margins.
Our ability to compete effectively depends to a
significant extent on the specification or approval of our products by
architects, engineers, building inspectors, building code officials and
customers. If a significant segment of those communities were to decide that
the design, materials, manufacturing, testing or quality control of our
products is inferior to that of any of our competitors, our sales and profits
would be materially reduced.
If we lose all or part of a large
customer, our sales and profits would decline.
We have substantial sales to a few large customers.
Loss of all or part of our sales to a large customer would have a material
adverse effect on our revenues and profits. Our largest customer accounted for
slightly less than 10% of net sales for the year ended December 31, 2008.
In August 2007, this customer sold a division, which is now a separate
customer of the Company. As a combined company in 2007, these two customers
accounted for 15% of our net sales. As two separate customers, neither would
have accounted for more than 10% of our consolidated net sales for 2007. See Note 14 to the Companys
Consolidated Financial Statements. This customer may endeavor to replace, in
some or all markets, our products with lower-priced products supplied by others
or may otherwise reduce its purchases of our products. We also might reduce our
dependence on our largest customer by reducing or terminating sales to one or
more of the customers subsidiaries. Any reduction in, or termination of, our
sales to this customer would at least temporarily, and possibly longer, cause a
material reduction in our net sales, income from operations and net income. A
reduction in or elimination of our sales to our largest customer, or another of
our larger customers, would increase our relative dependence on our remaining
large customers.
In addition, our customers include retailers and
distributors. Retail and distribution businesses have consolidated over time,
which could increase the material adverse effect of losing any of them.
Increases in prices of raw materials
could negatively affect our sales and profits.
Our principal raw material is steel, including
stainless steel. The steel industry is highly cyclical. Numerous factors beyond
our control, such as general economic conditions, competition, worldwide
demand, labor costs, energy costs, foreign exchange rates, import duties and
other trade restrictions, influence prices for our raw materials. Consolidation
among domestic integrated steel producers, changes in supply and demand in
steel markets, changes in foreign currency exchange rates and economic
conditions, and other events have led to volatility in steel costs. The
domestic steel market is heavily influenced by three major United States
manufacturers. We have not always been able, and in the future we might not be
able, to increase our product prices in amounts that correspond to increases in
costs of raw materials, without materially and adversely affecting our sales
and profits.
We have not attempted to hedge against changes in
prices of steel or other raw materials. In recent years, however, we have
increased our steel purchases in an effort to mitigate the effects of rising
steel prices. At the same time, since 2007 our sales have declined with the
declines in the housing and financial markets. As a result, our inventory of
raw materials has increased substantially. Inventory increases can materially
and adversely affect our margins, cash flow and profits.
If we cannot protect our technology,
we will not be able to compete effectively.
Our ability to compete effectively with other
companies depends in part on our ability to maintain the proprietary nature of
our technology, in part through patents. We might not be able to protect or
rely on our patents. Patents might not issue pursuant to pending patent
applications. Others might independently develop the same or similar
technology, develop around the patented aspects of any of our products or
proposed products, or otherwise obtain access to or circumvent our proprietary
technology. We also rely on unpatented proprietary technology to maintain our
competitive position. We might not be able to protect our know-how or other
proprietary information. If we are
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unable to maintain the proprietary nature of our
significant products, our sales and profits could be materially reduced.
In attempting to protect our proprietary information,
we sometimes initiate lawsuits against competitors and others that we believe
have infringed or are infringing our rights. In such an event, the defendant
may assert counterclaims to complicate or delay the litigation or for other
reasons. Litigation may be very costly and may result in adverse judgments that
affect our sales and profits materially and adversely.
Integrating acquired businesses may
divert managements attention away from our day-to-day operations.
In the future, we may pursue acquisitions of product
lines or businesses. Acquisitions involve numerous risks, including, for
example:
·
difficulties
assimilating the operations and products of acquired businesses;
·
diversion of
managements attention from other business concerns;
·
overvaluation of
acquired businesses;
·
undisclosed
existing or potential liabilities of acquired businesses;
·
slow acceptance
or rejection of acquired businesses products by our customers;
·
risks of entering
markets in which we have little or no prior experience;
·
litigation
involving activities, properties or products of acquired businesses;
·
consumer and
other claims related to products of acquired businesses; and
·
the potential
loss of key employees of acquired businesses.
In addition, future acquisitions may cause us to issue
additional equity securities that dilute the value of our existing equity
securities, increase our debt, and cause impairment and amortization expenses
related to goodwill and other intangible assets, which could materially and
adversely affect our profitability. Any acquisition could materially and
adversely affect our business and operating results.
Significant
costs to integrate our acquired operations may negatively affect our financial
condition and the market price of our stock.
We will incur costs from
integrating acquired business operations, products and personnel. These costs
may be significant and may include expenses and other liabilities for employee
redeployment, relocation or severance, combining teams and processes in various
functional areas, reorganization or closures of facilities, and relocation or
disposition of excess equipment. The integration costs that we incur may
negatively affect our profitability and the market price of our stock.
Our future growth may depend on our
ability to penetrate new domestic and international markets, which could reduce
our profitability.
International construction customs, standards,
techniques and methods differ from those in the United States. Laws and
regulations applicable in new markets may be unfamiliar to us. Compliance may
be substantially more costly than we anticipate. As a result, we may need to
redesign products, or invent or design new products, to compete effectively and
profitably in new markets. We expect that we will need significant time, which
may be years, to generate substantial sales or profits in new markets.
Other significant challenges to conducting business in
foreign countries include, among other factors, local acceptance of our
products, political instability, changes in import and export regulations,
changes in tariff and freight rates, fluctuations in foreign exchange rates and
currency controls. We might not be able to penetrate these markets and any
market penetration that occurs might not be timely or profitable. If we do not
penetrate these markets within a reasonable time, we will be unable to recoup
part or all of the significant investments we will have made in attempting to
do so.
Seasons and business cycles affect
our operating results.
Our sales are seasonal, with operating results varying
from quarter to quarter. With some exceptions, our sales and income have
historically been lower in the first and fourth quarters than in the second and
third quarters of the year, as customers purchase construction materials in the
late spring and summer months for the construction season. In addition, weather
conditions, such as unseasonably warm, cold or wet weather, which affect, and
sometimes delay or
15
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accelerate, installation of some of our products,
significantly affect our results of operations. Political and economic events
can also affect our revenues.
We have little control over the timing of customer
purchases. Sales that we anticipate in one quarter may occur in another
quarter, affecting both quarters results. In addition, we incur significant
expenses as we develop, produce and market our products in anticipation of
future orders. We maintain high inventory levels and typically ship orders as
we receive them, so we operate with little backlog. As a result, net sales in
any quarter generally depend on orders booked and shipped in that quarter. A
significant portion of our operating expenses is fixed. Planned expenditures
are based primarily on sales forecasts. When sales do not meet our
expectations, our operating results will be reduced for the relevant quarters,
as we will have already incurred expenses based on those expectations.
Our principal markets are in the building construction
industry. That industry is subject to significant volatility due to real estate
market cycles, fluctuations in interest rates, the availability, or lack
thereof, of credit to builders and developers, inflation rates, weather, and
other factors and trends. None of these factors or trends is within our
control. Declines in commercial and residential construction, such as housing
starts, and remodeling projects have reduced, and in the future can be expected
to reduce, the demand for our products. Negative economic or construction
industry performance adversely affects our business. Declines in construction
activity or demand for our products have materially and adversely affected, and
could in the future materially and adversely affect, our sales and
profitability.
Product liability claims and product
recalls could harm our reputation, sales and financial condition.
We design and manufacture most of our standard
products and expect to continue to do so, although we buy raw materials and
some manufactured products from others. We have on occasion found flaws and
deficiencies in the manufacturing, design or testing of our products. We also
have on occasion found flaws and deficiencies in raw materials and finished
goods produced by others. Some flaws and deficiencies have not been apparent
until after the products were installed by customers.
Many of our products are integral to the structural
soundness or safety of the structures in which they are used. If any flaws or
deficiencies exist in our products and if such flaws or deficiencies are not
discovered and corrected before our products are incorporated into structures,
the structures could be unsafe or could suffer severe damage, such as collapse
or fire, and personal injury could result. Errors in the installation of our
products, even if the products are free of flaws and deficiencies, could also
cause personal injury and unsafe structural conditions. To the extent that such
damage or injury is not covered by our product liability insurance and we are
held to be liable, we could be required to correct such damage and to
compensate persons who might have suffered injury, and our reputation, business
and financial condition could be materially and adversely affected.
Even if a flaw or deficiency is discovered before any
damage or injury occurs, we may need to recall products, and we may be liable
for any costs necessary to replace recalled products or retrofit the affected
structures. Any such recall or retrofit could entail substantial costs and
adversely affect our reputation, sales and financial condition. We do not carry
insurance against recall costs or the adverse business effect of a recall, and
our product liability insurance may not cover retrofit costs.
Claims resulting from a natural disaster might be made
against us with regard to damage or destruction of structures incorporating our
products. Any such claims, if asserted, could materially and adversely affect
our business and financial condition.
Complying or failing to comply with
environmental, health and safety laws and regulations could affect us
materially and adversely.
We are subject to environmental laws and regulations
governing emissions into the air, discharges into water, and generation,
handling, storage, transportation, treatment and disposal of waste materials.
We are also subject to other federal and state laws and regulations regarding health
and safety matters.
Our manufacturing operations involve the use of
solvents, chemicals, oils and other materials that are regarded as hazardous or
toxic. We also use complex and heavy machinery and equipment that can pose
severe safety hazards, especially if not properly and carefully used. Some of
our products also incorporate materials that are hazardous or toxic in some
forms, such as zinc and lead used in some steel galvanizing processes and
chemicals used in our
16
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acrylic and epoxy anchoring products. The gun powder
used in our powder-actuated tools is explosive. Misuse of other materials in
some of our products could also cause injury or sickness.
If we do not obtain all material licenses and permits
required by environmental, health and safety laws and regulations, we may be
subject to regulatory action by governmental authorities. If our policies and procedures
do not comply in all respects with existing environmental, health and safety
laws and regulations, our activities might violate such laws and regulations.
Even if our policies and procedures do comply, but our employees fail or
neglect to follow them in all respects, we might incur similar liability.
Relevant laws and regulations could change or new ones could be adopted that
require us to obtain additional licenses and permits and cause us to incur
substantial expense.
Our generation, handling, use, storage,
transportation, treatment or disposal of hazardous or toxic materials,
machinery and equipment might cause injury to persons or to the environment. We
may need to take remedial action if properties that we occupy are contaminated
by hazardous or toxic substances.
Any change in laws or regulations, any legal or
regulatory violations, or any contamination, could materially and adversely
affect our business and financial condition.
New appliance efficiency standards
could materially and adversely affect our operating results and financial
condition.
The Department of Energy regulates energy efficiency
under the authority of the National Appliance Energy Conservation Act. Under
this Act, the Department of Energy periodically reviews the need for increased
efficiency standards with respect to gas furnaces and gas water heaters. A
substantial percentage of our Type B Gas Vent sales are for gas furnaces and
gas water heaters. The Department of Energy might adopt minimum appliance
efficiency standards that negatively affect sales of Type B Gas Vents, which
could materially and adversely affect our operating results.
We depend on key management and
technical personnel, the loss of whom could harm our business.
We depend on certain key management and technical
personnel, including, among others, Thomas J Fitzmyers, Michael J. Herbert,
Phillip Terry Kingsfather, Barclay Simpson, Stephen P. Eberhard, Karen W.
Colonias and Jeffrey E. Mackenzie. The loss of one or more key employees could
materially and adversely affect us.
Our success also depends on our ability to attract and
retain additional highly qualified technical, marketing and management
personnel necessary for the maintenance and expansion of our activities. We
face strong competition for such personnel. We might not be able to attract or
retain such personnel. In addition, when we experience periods with little or
no profits, a decrease in compensation based on our profits may make it
difficult to attract and retain highly qualified personnel.
Any work stoppage or
interruption by employees could materially and adversely affect our business
and financial condition.
A significant number of our employees are represented
by labor unions and are covered by collective bargaining agreements that will
expire in 2011. A work stoppage or interruption by a significant number of
our employees could have a material and adverse effect on our sales and
profitability.
International operations expose us to
foreign exchange rate risk.
We have foreign exchange rate risk in our
international operations and through purchases from foreign vendors. We do not
currently hedge this risk. Changes in currency exchange rates could materially
and adversely affect our sales and profitability.
Natural disasters could decrease our
manufacturing capacity.
Most of our current and planned manufacturing
facilities are located in geographic regions that have experienced major
natural disasters, such as earthquakes, floods and hurricanes. For example, the
earthquakes in Northridge, California, in January 1994, destroyed several
freeways and numerous buildings in the region in which our facilities in Brea
are located. Our disaster recovery plan may not be adequate or effective. We do
not carry earthquake
17
Table
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insurance. Other insurance that we carry is limited in
the risks covered and the amount of coverage. Our insurance would not be
adequate to cover all of our resulting costs, business interruption and lost
profits when a major natural disaster occurs. A natural disaster rendering one
or more of our manufacturing facilities totally or partially unusable, whether
or not covered by insurance, would materially and adversely affect our business
and financial condition.
Control by our principal stockholder
will prevent other stockholders from influencing management.
Barclay Simpson, the Chairman of our Board of
Directors, controls approximately 22% of the outstanding shares of our common
stock. Mr. Simpson and Thomas J Fitzmyers, our President and Chief
Executive Officer (even though he owns less than 1% of the outstanding shares
of our common stock), have substantial influence with respect to the election
of our directors and are also expected to continue to exercise substantial
control over some fundamental changes affecting us, such as a merger or sale of
assets or amendment of our Certificate of Incorporation or Bylaws.
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.
Any issuance of preferred stock may
dilute your investment and reduce funds available for dividends.
Our Board of Directors is authorized by our
Certificate of Incorporation to determine the terms of one or more series of
preferred stock and to authorize the issuance of shares of any such series on
such terms as our Board of Directors may approve. Any such issuance could be
used to impede an acquisition of our business that our Board of Directors does
not approve, further dilute the equity investments of holders of our common
stock and reduce funds available for the payment of dividends to holders of our
common stock.
Our stock price is likely to be
volatile and could drop.
The trading price of our common stock could be subject
to wide fluctuations in response to period to period variations in operating
results, changes in earnings estimates by analysts, announcements of
technological innovations or new products by us or our competitors, general
conditions in the construction and construction materials industries,
relatively low trading volume in our common stock and other events or factors.
In addition, the stock market is subject to extreme price fluctuations. This
volatility has had a substantial effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
those companies. Securities market fluctuations may materially and adversely
affect the market price of our common stock.
Future sales of common stock could
adversely affect our stock price.
Sales of substantial amounts of our common stock in
the public market could adversely affect the prevailing market price for our
common stock. All of the outstanding shares of our common stock are freely
tradable without restriction under the Securities Act of 1933, other than 10.9
million shares held (as of February 23, 2009) by our affiliates, as that
term is defined in Rule 144 under the Securities Act of 1933. Options to
purchase 2.2 million shares of our common stock were outstanding as of December 31,
2008, including options to purchase 2.0 million shares that were exercisable.
If a substantial number of shares were sold in the public market pursuant to Rule 144
or on exercise of options, the trading price of our common stock in the public
market could be adversely affected.
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Delaware law and our stockholder
rights plan contain anti-takeover provisions that could deter takeover attempts
that might otherwise be beneficial to our stockholders.
Provisions of Delaware law could make it more
difficult for a third party to acquire us, even if doing so could be beneficial
to our stockholders. Section 203 of the Delaware General Corporation Law
may make the acquisition of Simpson Manufacturing Co., Inc. and the removal
of incumbent officers and directors more difficult by prohibiting stockholders
holding 15% or more of our outstanding voting stock from acquiring Simpson
Manufacturing Co., Inc. without the consent of our Board of Directors for
at least three years from the date they first hold 15% or more of the voting
stock. Barclay Simpson and his affiliates are not subject to this provision of
Delaware law with respect to their investment in Simpson Manufacturing Co., Inc.
In addition, our Stockholder Rights Plan has significant anti-takeover effects
by causing substantial dilution to a person or group that attempts to acquire
us on terms not approved by our Board of Directors.
We are subject to a number of
significant risks that might cause our actual results to vary materially from
our plans, targets or projections, including:
·
lack of market
acceptance of new products;
·
failing to
develop new products with significant market potential;
·
increased labor
costs, including significant increases in workers compensation insurance
premiums and health care benefits;
·
failing to
increase, or even maintain, net revenues and operating income;
·
failing to
anticipate, appropriately invest in and effectively manage the human,
information technology and logistical resources necessary to support the growth
of our business, including managing the costs associated with such resources;
·
failing to
integrate, leverage and generate expected rates of return on investments,
including expansion of existing businesses and expansion through acquisitions;
·
failing to
generate sufficient future positive operating cash flows and, if necessary,
secure adequate external financing to fund our growth; and
·
interruptions in
service by common carriers that ship goods within our distribution channels.
If we change significantly the
location, nature or extent of some of our manufacturing operations, we may
reduce our net income.
If we decide to change significantly the location,
nature or extent of a portion of our manufacturing operations, we may need to
record an impairment of our goodwill. Our goodwill totaled $68.6 million at December 31,
2008. Recording an impairment of our goodwill correspondingly reduces our net
income. In 2007, for example, we decided to move part of our Canadian manufacturing
operations to China in 2008 or 2009, and as a result, we recorded a goodwill
impairment of $10.7 million, which materially reduced our net income in 2007.
Other changes or events in the future could further impair our recorded
goodwill, which could also materially and adversely affect our profitability.
Impairment charges on goodwill or
other intangible assets would adversely affect our financial position and
results of operations.
We are required to perform impairment tests on our
goodwill and other intangible assets annually or at any time when events occur
that could affect the value of our business segments. To determine whether a goodwill impairment
has occurred, we compare fair value of each of our reporting units with its
carrying value. Significant and
unanticipated changes in circumstances, such as significant adverse changes in
business climate, adverse actions by regulatory authorities, unanticipated
competition, loss of key customers or changes in technology or markets, can
require a charge for impairment that can materially and adversely affect our
reported net income and our stockholders equity. For example, in 2008, our annual impairment
test resulted in goodwill impairment charge of $3.0 million associated with
assets acquired in England in 1999 as part of our U.K. reporting unit. Our U.K. reporting units carrying value
exceeded its fair value, primarily due to reduced future expected net cash
flows.
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Failure of our internal control
over financial reporting could harm our business and financial results.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
a process to provide reasonable assurance regarding the reliability of
financial reporting for external purposes in accordance with accounting
principles generally accepted in the United States. Internal control over
financial reporting includes:
·
|
maintaining
records that in reasonable detail accurately and fairly reflect our
transactions;
|
·
|
providing
reasonable assurance that transactions are recorded as necessary for
preparation of the consolidated financial statements;
|
·
|
providing
reasonable assurance that receipts and expenditures of our assets are made in
accordance with management authorization; and
|
·
|
providing
reasonable assurance that unauthorized acquisition, use or disposition of our
assets that could have a material effect on our consolidated financial
statements would be prevented or detected on a timely basis.
|
Because
of the inherent limitations of internal control, our internal control over
financial reporting might not detect or prevent misstatement of our
consolidated financial statements. Our growth and entry into new, globally
dispersed markets puts significant additional pressure on our system of
internal control over financial reporting. Failure to maintain an effective
system of internal control over financial reporting could limit our ability to
report our financial results accurately and timely or to detect and prevent
fraud.
Failure of our accounting systems could harm our
business and financial results.
We
have recently implemented a new commercially available Microsoft third-party
accounting software system, initially focused on replacing our internally
developed general ledger and purchasing and payables systems, for use in our
operations in the United States and Europe. We are also implementing the full
version of our enterprise resource planning (ERP) system in our operations in
Asia and plan to convert our United States and European operations to our full ERP system over the
next two to three years.
Any errors or defects in, or unavailability of,
third-party software or our implementation of the systems, could result in
errors in our financial statements, which could materially and adversely affect
our business. If we continue to use our other internally developed accounting
systems and they are not able to accommodate our future business needs, or if
we find that they or any new systems we may implement contain errors or
defects, our business and financial condition could be materially and adversely
affected.
Our international operations may be materially and adversely
affected by factors beyond our control.
Economic,
social and political conditions, laws, practices and customs vary widely among
the countries where we produce or sell
our products. Our operations outside of the United States are subject to a
number of risks and potential costs, including, for example, lower profit
margins, less protection of intellectual property and economic, political and
social uncertainty in some countries, especially in emerging markets. Our sales
and profits depend, in part, on our ability to develop and implement policies
and strategies that effectively anticipate and manage these and other risks in
the countries where we do business. These and other risks may have a material
adverse effect on our operations in any particular country and on our business
as a whole. Inflation in emerging markets also makes our products more
expensive there and increases the market and credit risks to which we are
exposed.
Our international operations depend on our successful
management of our subsidiaries outside of the United States.
We
conduct most of our international business through wholly owned subsidiaries.
Managing distant subsidiaries and fully integrating them into our business is
challenging. We cannot directly supervise every aspect of the operations of our
subsidiaries operating outside the United States. As a result, we rely on local
managers and staff. Cultural factors and language differences can result in
misunderstandings among internationally dispersed personnel. The risk that
unauthorized conduct may go undetected may be greater in subsidiaries outside
of the United States. These problems could adversely affect our sales and profits.
Our new
manufacturing facilities in China complicate our inventory management.
We
maintain manufacturing capability in various parts of the world, in part to
allow us to serve our customers with prompt delivery of needed products. Such
customer service is a significant factor in our efforts to compete with
20
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larger
companies that have greater resources than we have. We have recently begun, and
plan to expand substantially, our manufacturing in China. Much of the output of
our manufacturing in China is and will be intended for export to other parts of
Asia and elsewhere. Because of the unusually great distances between our
manufacturing facilities in China and the markets to which the products made
there will be shipped, we may have difficulty providing adequate service to our
customers, which may put us at a competitive disadvantage. Our attempts to
provide prompt delivery may necessitate that in China we produce and keep on
hand substantially more inventory of finished products than would otherwise be
needed. Inventory increases can materially and adversely affect our margins,
cash flow and net income.
If we fail to keep pace with advances in our industry or fail
to persuade customers to adopt new products we introduce, customers may not buy
our products, which would adversely affect our sales and profits.
Constant
development of new technologies and techniques, frequent new product
introductions and strong price competition characterize the construction
industry. The first company to introduce a new product or technique to the
market gains a competitive advantage. Our future growth depends, in part, on
our ability to develop products that are more effective, safer, or incorporate
emerging technologies better than our competitors products. Sales of our
existing products may decline rapidly if a competitor were to introduce
superior products, or even if we announce a new product of our own. If we fail
to make sufficient investments in research and development or if we focus on
technologies that do not lead to better products, our current and planned
products could be surpassed by more effective or advanced products. If we fail
to manufacture our products economically and market them successfully, our
sales and profits would be materially and adversely affected.
Changes in accounting standards could materially and
adversely affect our financial results.
The
accounting rules applicable to public companies are subject to frequent
revision. Future changes in accounting standards and interpretations could
require us to change the way we calculate revenue, expense or balance sheet
amounts, which could result in material and adverse change to our reported
results of operations or financial condition.
Global warming could materially and adversely affect our
business.
Scientific
reports indicate that, as a result of human activity:
·
|
temperatures
around the world have been increasing and are likely to continue to increase
as a result of increasing atmospheric concentrations of carbon dioxide and
other carbon compounds,
|
·
|
the frequency
and severity of storms, and flooding, are likely to increase,
|
·
|
severe weather
is likely to occur in places where the climate has historically been more
mild, and
|
·
|
average sea
levels have risen and are likely to rise more, threatening worldwide coastal
development.
|
We
cannot predict the effects that these phenomena may have on our business. They
might, for example:
·
|
depress or
reverse economic development,
|
·
|
reduce the
demand for construction,
|
·
|
increase the
cost and reduce the availability of fresh water,
|
·
|
destroy forests,
increasing the cost and reducing the availability of wood products used in
construction,
|
·
|
increase the
cost and reduce the availability of raw materials and energy,
|
·
|
increase the
cost of capital,
|
·
|
increase the
cost and reduce the availability of insurance covering damage from natural
disasters, and
|
·
|
lead to new laws
and regulations that increase our expenses and reduce our sales.
|
Any of
these consequences, and other consequences of global warming that we do not
foresee, could materially and adversely affect our sales, profits and financial
condition.
We are subject to international tax laws that could affect
our financial results.
We
conduct international operations through our subsidiaries. Tax laws affecting
international operations are complex and subject to change. Our income tax
liabilities in the different countries where we operate depend in part on
internal settlement prices and administrative charges among us and our
subsidiaries. These arrangements require us to make judgments with which tax
authorities may disagree. Tax authorities may impose additional taxes,
21
Table
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penalties
and interest on us. In addition, transactions that we have arranged in light of
current tax rules could have material and adverse consequences if tax rules change.
If we are unable to protect our information systems against
data corruption, cyber-based attacks or network security breaches, our operations
could be disrupted.
We depend on information
technology networks and systems, including the Internet, to process, transmit
and store electronic information. We depend on our information technology
infrastructure for electronic communications among our locations around the
world and between our personnel and our subsidiaries, customers and suppliers.
Security breaches of this infrastructure could create system disruptions,
shutdowns or unauthorized disclosure of confidential information. Security breaches
could disrupt our operations, and we could suffer financial damage or loss
because of lost or misappropriated information.
Item 1B. Unresolved Staff Comments.
None.
22
Table of Contents
Item 2.
Properties.
The
Company maintains its home office in Pleasanton, California, and other offices,
manufacturing and warehouse facilities elsewhere in California and in Texas,
Ohio, Florida, Mississippi, Illinois, Connecticut, Washington, Tennessee,
Minnesota, North Carolina, Oregon, Massachusetts, Maryland, New York,
Australia, British Columbia, Ontario, England, Scotland, Ireland, France,
Denmark, Germany, Poland, Czech Republic, China and Hong Kong.
As of February 27,
2009, the Companys facilities were as follows:
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
Owned
or
|
|
|
|
Lease
|
|
Segment
|
|
Location
|
|
Footage
|
|
Leased
|
|
Lessee
|
|
Expires
|
|
and
Function
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pleasanton, California
|
|
89,000
|
|
Owned
|
|
|
|
|
|
Company Office,
SST Research and Development
|
|
Stockton, California
|
|
802,000
|
|
Owned
|
|
|
|
|
|
SST Office,
Manufacturing and Warehouse
|
|
Stockton, California
|
|
25,000
|
|
Owned
|
|
|
|
|
|
SST Research and Development
|
|
San Leandro, California
|
|
47,100
|
|
Owned (1)
|
|
|
|
|
|
SST Office,
Manufacturing and Warehouse
|
|
San Leandro, California
|
|
71,000
|
|
Owned (1)
|
|
|
|
|
|
SST Office,
Manufacturing and Warehouse
|
|
San Leandro, California
|
|
57,000
|
|
Owned (1)
|
|
|
|
|
|
SST Manufacturing and Warehouse
|
|
San Leandro, California
|
|
27,000
|
|
Owned (1)
|
|
|
|
|
|
SST Manufacturing and Warehouse
|
|
Brea, California
|
|
50,700
|
|
Owned
|
|
|
|
|
|
SST Office,
Manufacturing and Warehouse
|
|
Brea, California
|
|
78,000
|
|
Owned
|
|
|
|
|
|
SST Office and Warehouse
|
|
Brea, California
|
|
30,500
|
|
Owned
|
|
|
|
|
|
SST Office,
Manufacturing and Warehouse
|
|
Brea, California
|
|
42,900
|
|
Owned
|
|
|
|
|
|
SST Warehouse
|
|
Brea, California
|
|
19,200
|
|
Owned
|
|
|
|
|
|
SST Warehouse
|
|
Brea, California
|
|
20,000
|
|
Owned
|
|
|
|
|
|
SST Warehouse
|
|
Ontario, California
|
|
181,000
|
|
Leased
|
|
SST
|
|
2009
|
|
SST Office and Warehouse
|
|
McKinney, Texas
|
|
317,000
|
|
Owned
|
|
|
|
|
|
SST Office,
Manufacturing and Warehouse
|
|
Columbus, Ohio
|
|
300,500
|
|
Owned
|
|
|
|
|
|
SST Office,
Manufacturing and Warehouse
|
|
Jacksonville, Florida
|
|
112,000
|
|
Leased
|
|
SST
|
|
2011
|
|
SST Office and Warehouse
|
|
High Point, North Carolina
|
|
50,150
|
|
Leased
|
|
SST
|
|
2011
|
|
SST Office and Warehouse
|
|
Addison, Illinois
|
|
52,400
|
|
Leased
|
|
SST
|
|
2013
|
|
SST Office,
Manufacturing and Warehouse
|
|
Enfield, Connecticut
|
|
55,100
|
|
Leased
|
|
SST
|
|
2013
|
|
SST Office and Warehouse
|
|
Kent, Washington
|
|
28,800
|
|
Leased
|
|
SST
|
|
2012
|
|
SST Office,
Manufacturing and Warehouse
|
|
Visalia, California
|
|
92,000
|
|
Owned
|
|
|
|
|
|
SST Office,
Manufacturing and Warehouse
|
|
Eagan, Minnesota
|
|
54,000
|
|
Leased
|
|
SST
|
|
2011
|
|
SST & SDV Office and Warehouse
|
|
Jessup, Maryland
|
|
39,600
|
|
Leased
|
|
SST
|
|
2013
|
|
SST Office and Warehouse
|
|
Tamworth, England
|
|
78,100
|
|
Leased
|
|
SST (2)
|
|
2012
|
|
SST Office,
Manufacturing and Warehouse
|
|
Tamworth, England
|
|
30,000
|
|
Leased
|
|
SST (2)
|
|
2012
|
|
SST Office,
Research and Development
|
|
Livingston, Scotland
|
|
2,800
|
|
Leased
|
|
SST (2)
|
|
2009
|
|
SST Warehouse
|
|
23
Table of
Contents
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
Owned
or
|
|
|
|
Lease
|
|
Segment
|
|
Location
|
|
Footage
|
|
Leased
|
|
Lessee
|
|
Expires
|
|
and
Function
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacaville,
California
|
|
159,000
|
|
Owned
|
|
|
|
|
|
SDV Office, Manufacturing and Warehouse
|
|
Vacaville,
California
|
|
120,300
|
|
Owned
|
|
|
|
|
|
SDV Office, Manufacturing and Warehouse
|
|
Vicksburg,
Mississippi
|
|
302,000
|
|
Owned (3)
|
|
|
|
|
|
SDV Office, Manufacturing and Warehouse
|
|
Gallatin,
Tennessee
|
|
48,000
|
|
Leased
|
|
SST
|
|
2009
|
|
SST Office, Manufacturing and Warehouse
|
|
Gallatin,
Tennessee
|
|
194,000
|
|
Owned
|
|
|
|
|
|
SST Office, Manufacturing and Warehouse
|
|
Maple Ridge,
British Columbia
|
|
36,400
|
|
Owned
|
|
|
|
|
|
SST Office, Manufacturing and Warehouse
|
|
Maple Ridge, British
Columbia
|
|
2,300
|
|
Leased
|
|
SST (4)
|
|
2009
|
|
SST Warehouse
|
|
Maple Ridge, British
Columbia
|
|
2,400
|
|
Leased
|
|
SST (4)
|
|
2009
|
|
SST Warehouse
|
|
Langley, British
Columbia
|
|
19,700
|
|
Leased
|
|
SST (4)
|
|
2010
|
|
SST Warehouse
|
|
Brampton,
Ontario
|
|
158,000
|
|
Leased
|
|
SST (4)
|
|
2009
|
|
SST & SDV Office, Manufacturing and
Warehouse
|
|
Odder, Denmark
|
|
162,500
|
|
Owned
|
|
|
|
|
|
SST Office, Manufacturing and Warehouse
|
|
Warsaw, Poland
|
|
8,300
|
|
Leased
|
|
SST (5)
|
|
2009
|
|
SST Office and
Warehouse
|
|
St. Gemme La
Plaine, France
|
|
99,000
|
|
Owned
|
|
|
|
|
|
SST Office, Manufacturing and Warehouse
|
|
Blacktown, NSW,
Australia
|
|
9,800
|
|
Leased
|
|
SST (6)
|
|
2011
|
|
SST Warehouse
|
|
Mulgrave, NSW,
Australia
|
|
700
|
|
Leased
|
|
SST (6)
|
|
2011
|
|
Office
|
|
Frankfurt,
Germany
|
|
42,100
|
|
Leased
|
|
SST (7)
|
|
2011
|
|
SST Office and
Warehouse
|
|
Hong Kong, China
|
|
3,500
|
|
Leased
|
|
SST (8)
|
|
2010
|
|
SST Office
|
|
Beijing, China
|
|
2,300
|
|
Leased
|
|
SST (9)
|
|
2009
|
|
SST Office
|
|
Shanghai, China
|
|
1,400
|
|
Leased
|
|
SST (9)
|
|
2010
|
|
SST Office
|
|
Baltimore,
Maryland
|
|
60,750
|
|
Leased
|
|
SST
|
|
2012
|
|
SST Office, Manufacturing and Warehouse
|
|
Portland, Oregon
|
|
5,000
|
|
Leased
|
|
SST
|
|
2010
|
|
SST Warehouse
|
|
Canton,
Massachusetts
|
|
5,000
|
|
Leased
|
|
SST
|
|
2010
|
|
SST Warehouse
|
|
Albany, New York
|
|
64,400
|
|
Leased
|
|
SDV
|
|
2013
|
|
SDV Office, Manufacturing and Warehouse
|
|
Kilorglin,
Ireland
|
|
46,300
|
|
Owned
|
|
|
|
|
|
SST Office, Manufacturing and Warehouse
|
|
Hungen, Germany
|
|
26,400
|
|
Owned
|
|
|
|
|
|
SST Office, Manufacturing and Warehouse
|
|
Pfungstad,
Germany
|
|
20,100
|
|
Leased
|
|
SST (10)
|
|
2009
|
|
SST Office and
Warehouse
|
|
Havlikuv Brod,
Czech Republic
|
|
17,200
|
|
Owned
|
|
|
|
|
|
SST Office, Manufacturing and Warehouse
|
|
Kunshan, China
|
|
26,900
|
|
Leased
|
|
SST (11)
|
|
2009
|
|
SST Office, Manufacturing and Warehouse
|
|
Zhangjiagang
, China
|
|
175,000
|
|
Owned (12)
|
|
|
|
|
|
SST Office, Manufacturing and Warehouse
|
|
(1)
|
The Company has
classified its facilities in San Leandro, California, as assets held for sale
and intends to sell this property in 2009.
|
(2)
|
Lessee is
Simpson Strong-Tie International, Inc., a wholly-owned subsidiary of
SST.
|
(3)
|
The Company
intends to sell its facility in Vicksburg, Mississippi, and will close it at
that time. On the sale of the Vicksburg facility, if it is sold below its
carrying value, the Company will record an impairment charge equal to the
amount by which its carrying value exceeds its net realized value.
|
24
Table
of Contents
(4)
|
Lessee is
Simpson Strong-Tie Canada, Ltd., a wholly-owned subsidiary of SST.
|
(5)
|
Lessee is
Simpson Strong-Tie
Sp.z,o.o.
, a wholly-owned subsidiary of SST.
|
(6)
|
Lessee is
Simpson Strong-Tie Australia Pty. Ltd., a wholly-owned subsidiary of SST.
|
(7)
|
Lessee is
Simpson Strong-Tie GmbH, a wholly-owned subsidiary of SST.
|
(8)
|
Lessee is
Simpson Strong-Tie Asia Limited, a wholly-owned subsidiary of SST.
|
(9)
|
Lessee is
Simpson Strong-Tie (Beijing) Company Limited, a wholly owned subsidiary of
SST.
|
(10)
|
Lessee is
Simpson Strong-Tie Ireland Limited, a wholly-owned subsidiary of SST.
|
(11)
|
Lessee is Ahorn
Pacific Fasteners (Kunshan), a wholly-owned subsidiary of SST.
|
(12)
|
The Company is
constructing a new manufacturing facility in Zhangjiagang, China, to be completed in early 2009.
|
The Companys
manufacturing facilities are equipped with specialized equipment and use
extensive automation. The Company considers its existing and planned facilities
to be suitable and adequate for its operations as currently conducted and as
planned through 2009. The manufacturing facilities currently are being operated
with one full shift. The Company anticipates that it may require additional
facilities to accommodate possible future growth.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation
that it considers to be in the normal course of its business. No such
litigation within the last five years resulted in any material loss. The
Company is not engaged in any legal proceedings as of the date hereof, which
the Company expects individually or in the aggregate to have a material adverse
effect on the Companys financial condition, cash flows or results of
operations.
Item 4. Submission of Matters to a Vote of
Security Holders.
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Companys common stock is
listed on the New York Stock Exchange (NYSE) under the symbol SSD.
The following table shows the range of high and
low closing sale prices per share of the common stock as reported by the NYSE
and dividends paid per share of common stock for the calendar quarters indicated:
|
|
Market Price
|
|
Dividends
|
|
Quarter
|
|
High
|
|
Low
|
|
Paid
|
|
2008
|
|
|
|
|
|
|
|
Fourth
|
|
$
|
29.23
|
|
$
|
19.70
|
|
$
|
0.10
|
|
Third
|
|
31.90
|
|
20.72
|
|
0.10
|
|
Second
|
|
28.25
|
|
23.26
|
|
0.10
|
|
First
|
|
28.43
|
|
22.97
|
|
0.10
|
|
2007
|
|
|
|
|
|
|
|
Fourth
|
|
$
|
33.55
|
|
$
|
25.59
|
|
$
|
0.10
|
|
Third
|
|
37.15
|
|
28.78
|
|
0.10
|
|
Second
|
|
33.88
|
|
31.16
|
|
0.10
|
|
First
|
|
35.58
|
|
29.49
|
|
0.08
|
|
The Company estimates that as of February 23, 2009,
approximately 48,000 persons beneficially owned shares of the Companys common
stock either directly or through nominees.
25
Table of Contents
In February 2009, the Companys Board of Directors
declared a dividend of $0.10 per share to be paid on April 24, 2009, to
stockholders of record on April 3, 2009. The Company began declaring
quarterly dividends of $0.05 per common share in January 2004. Future
dividends, if any, will be determined by the Companys Board of Directors,
based on the Companys earnings, cash flows, financial condition and other
factors deemed relevant by the Board of Directors.
In December 2008, the Board of Directors authorized the
Company to repurchase up to $50.0 million of the Companys common stock. The authorization
will remain in effect through the end of 2009. This replaces the $50.0 million
repurchase authorization from December 2007. The Company did not
repurchase any shares in 2008. In February 2007, the Company repurchased
122,500 shares of its common stock for $4.2 million, which the Company retired
in March 2007, with the excess over the par value of the repurchased
shares recorded against retained earnings. During 2006, the Company repurchased
500,000 shares of its common stock for $17.2 million, which the Company retired
in June 2006, with the excess over the par value of the repurchased shares
recorded against retained earnings. The Company did not repurchase any shares
in 2005.
The following
table sets forth certain information as of December 31, 2008, concerning (a) all
equity compensation plans of the Company previously approved by the
stockholders and (b) all equity compensation plans of the Company not
previously approved by the stockholders.
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
securities remaining
|
|
|
|
Number of securities
|
|
|
|
available for future
|
|
|
|
to be issued
|
|
Weighted-average
|
|
issuance under equity
|
|
|
|
upon exercise of
|
|
exercise price of
|
|
compensation plans
|
|
|
|
outstanding options,
|
|
outstanding options,
|
|
(excluding securities
|
|
Plan Category
|
|
warrants & rights
|
|
warrants & rights
|
|
reflected in column (a))
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by stockholders
|
|
2,249,516
|
(1)
|
$
|
29.70
|
|
7,233,989
|
(2)
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by stockholders
|
|
0
|
|
N/A
|
|
94,200
|
(3)
|
|
|
|
|
|
|
|
|
|
Total
|
|
2,249,516
|
|
$
|
29.70
|
|
7,328,189
|
|
(1)
|
Excludes
an additional 53,000 shares subject to options granted under the Companys
1994 Stock Option Plan on February 4, 2009, and February 23, 2009.
|
(2)
|
Reflects
53,000 shares subject to options granted under the Companys 1994 Stock
Option Plan on February 4, 2009, and February 23, 2009.
|
(3)
|
Excludes
an additional 10,700 shares issued on January 2, 2009, under the
Companys 1994 Employee Stock Bonus Plan. As of December 31, 2008, the
Company had reserved 200,000 shares of common stock for issuance as bonuses
under the 1994 Employee Stock Bonus Plan, of which 105,800 shares had been
issued.
|
In accordance with section 303A.12(a) of the New York
Stock Exchange Listed Company Manual, the Companys Chief Executive Officer
submitted to the NYSE an unqualified certification. In addition, the Company
filed as Exhibit 31 to its Annual Report on Form 10-K for the year
ended December 31, 2007, the Sarbanes-Oxley Act of 2002 Section 302
certification regarding the quality of the Companys public disclosure.
26
Table of Contents
Company Stock Price Performance
The graph below compares the cumulative total stockholder
return on the Companys common stock from December 31, 2003, through December 31,
2008, with the cumulative total return on the S & P 500 Index and the
Dow Jones Building Materials Index over the same period (assuming the
investment of $100 in the Companys common stock and in each of the indices on December 31,
2003, and reinvestment of all dividends).
COMPARISON OF 5 YEAR CUMULATIVE
TOTAL RETURN*
Among Simpson
Manufacturing Co., Inc., The S&P 500 Index
And The Dow Jones US
Building Materials & Fixtures Index
*$100 invested on 12/31/03 in stock &
index-including reinvestment of dividends. Fiscal year ended December 31.
27
Table
of Contents
Item
6. Selected Financial Data.
The following table sets forth selected consolidated
financial information with respect to the Company for each of the five years
ended December 31, 2008, 2007, 2006,
2005 and 2004 (presented in thousands, except per share amounts), derived from
the audited Consolidated Financial Statements of the Company, the most recent
three years of which appear elsewhere herein. The Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109 (FIN 48), on January 1, 2007. The presentation of the information
in the tables below complies with the accounting pronouncements, but is not
necessarily comparable with prior years. These results include acquired company
results of operations beginning on the dates of acquisition. For a summary of
recent acquisitions, see Note 2 Acquisitions to the consolidated financial
statements included herein. The data presented below should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto and Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere herein.
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
756,499
|
|
$
|
816,988
|
|
$
|
863,180
|
|
$
|
846,256
|
|
$
|
698,053
|
|
Cost of sales
|
|
474,190
|
|
511,499
|
|
517,885
|
|
515,420
|
|
404,388
|
|
Gross profit
|
|
282,309
|
|
305,489
|
|
345,295
|
|
330,836
|
|
293,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development and other engineering expense
|
|
21,327
|
|
20,115
|
|
19,254
|
|
14,573
|
|
13,029
|
|
Selling expense
|
|
80,703
|
|
75,954
|
|
72,199
|
|
64,317
|
|
58,869
|
|
General and
administrative expense
|
|
89,897
|
|
88,618
|
|
91,975
|
|
100,261
|
|
90,959
|
|
Impairment of
goodwill
|
|
2,964
|
|
10,666
|
|
|
|
|
|
|
|
Loss (gain) on
sale of assets
|
|
(124
|
)
|
(713
|
)
|
457
|
|
(2,044
|
)
|
(409
|
)
|
Income from
operations
|
|
87,542
|
|
110,849
|
|
161,410
|
|
153,729
|
|
131,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) in
equity method investment, before tax
|
|
(486
|
)
|
(33
|
)
|
(97
|
)
|
284
|
|
|
|
Interest income,
net
|
|
2,596
|
|
5,759
|
|
3,719
|
|
1,551
|
|
385
|
|
Income before
income taxes
|
|
89,652
|
|
116,575
|
|
165,032
|
|
155,564
|
|
131,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
35,718
|
|
47,833
|
|
62,370
|
|
57,170
|
|
50,094
|
|
Minority
interest
|
|
|
|
|
|
166
|
|
|
|
|
|
Net income
|
|
$
|
53,934
|
|
$
|
68,742
|
|
$
|
102,496
|
|
$
|
98,394
|
|
$
|
81,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
per share of common stock
|
|
$
|
1.11
|
|
$
|
1.42
|
|
$
|
2.12
|
|
$
|
2.05
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net
income per share of common stock
|
|
$
|
1.10
|
|
$
|
1.40
|
|
$
|
2.10
|
|
$
|
2.02
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
declared per share of common stock
|
|
$
|
0.40
|
|
$
|
0.40
|
|
$
|
0.32
|
|
$
|
0.23
|
|
$
|
0.20
|
|
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
455,703
|
|
$
|
438,538
|
|
$
|
399,082
|
|
$
|
342,496
|
|
$
|
268,711
|
|
Property, plant
and equipment, net
|
|
193,318
|
|
198,117
|
|
197,180
|
|
166,480
|
|
137,609
|
|
Total assets
|
|
830,200
|
|
817,679
|
|
735,334
|
|
659,715
|
|
545,137
|
|
Line of credit
and long-term debt, including current portion
|
|
26
|
|
1,029
|
|
665
|
|
5,114
|
|
2,976
|
|
Total
liabilities
|
|
81,174
|
|
94,279
|
|
82,459
|
|
96,249
|
|
82,212
|
|
Minority
interest in consolidated VIEs
|
|
|
|
|
|
|
|
5,337
|
|
|
|
Total
stockholders equity
|
|
749,026
|
|
723,400
|
|
652,875
|
|
558,129
|
|
462,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Table
of Contents
Item
7. 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 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 years ended December 31, 2008, 2007
and 2006, and of certain factors that may affect the Companys prospective
financial condition and results of operations. The following should be read in
conjunction with the Consolidated Financial Statements and related Notes
appearing elsewhere herein.
Overview
The Companys net sales decreased to $756.5 million in
2008 from $863.2 million in 2006, reflecting slower homebuilding activity. Net
sales decreased in 2008 from 2006 in all regions of the United States with the
exception of the northeast, with above average rates of decline in California
and the western and southeastern portions of the country, and net sales to home
centers decreased over the same period. Expansion into international markets
helped to offset in part the sales decline in the United States over the last
three years. Sales outside of the United States have increased significantly,
due in part to the acquisitions of:
·
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) in April
2008, and
·
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) in July 2008.
Gross profit margin decreased to 37.3% in 2008 from
40.0% in 2006 primarily due to increased costs of steel and other materials, a
higher proportion of fixed overhead costs and higher distribution costs, partly
offset by reduced labor costs.
In recent years, home centers have been one of the
Companys fastest growing distribution channels. A large part of that growth
was sales to The Home Depot, which exceeded 10% of the Companys consolidated
net sales in the years ended December 31,
2007, and 2006, but not in the year ended December 31, 2008. (see Item 1A Risk Factors and
Note 14 to the Companys Consolidated Financial Statements). Consolidation of
retailers and distributors has occurred over time. While the consolidation of
these large retailers and distributors provides the Company with opportunities
for growth, the increasing size and importance of individual customers exposes
Simpson Strong-Tie to potential over-dependence. The loss of any of the larger
home centers and distributors as customers would have a material adverse effect
on SST, unless and until either such customers are replaced or SST makes the
necessary adjustments (if possible) to compensate for the loss of business.
29
Table of Contents
Results of Operations
The following table sets forth, for the years
indicated, the percentage of net sales of certain items in the Companys
Consolidated Statements of Operations.
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Net sales
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost of sales
|
|
62.7
|
%
|
62.6
|
%
|
60.0
|
%
|
Gross profit
|
|
37.3
|
%
|
37.4
|
%
|
40.0
|
%
|
Research and
development and other engineering
|
|
2.8
|
%
|
2.5
|
%
|
2.2
|
%
|
Selling expense
|
|
10.7
|
%
|
9.3
|
%
|
8.4
|
%
|
General and
administrative expense
|
|
11.9
|
%
|
10.8
|
%
|
10.7
|
%
|
Impairment of
goodwill
|
|
0.4
|
%
|
1.3
|
%
|
|
|
Loss (gain) on
sale of assets
|
|
|
|
(0.1
|
)%
|
|
|
Income from operations
|
|
11.5
|
%
|
13.6
|
%
|
18.7
|
%
|
Income (loss) in
equity method Investment
|
|
(0.1
|
)%
|
|
|
|
|
Interest income,
net
|
|
0.4
|
%
|
0.7
|
%
|
0.4
|
%
|
Income before
income taxes
|
|
11.8
|
%
|
14.3
|
%
|
19.1
|
%
|
Provision for
income taxes
|
|
4.7
|
%
|
5.9
|
%
|
7.2
|
%
|
Net income
|
|
7.1
|
%
|
8.4
|
%
|
11.9
|
%
|
In December 2008,
the Board of Directors authorized the Company to repurchase up to $50.0 million
of the Companys common stock. The authorization will remain in effect through
the end of 2009. This replaced the $50.0 million repurchase authorization from December 2007. The Company made no repurchases during
2008. In February 2007, the Company
repurchased 122,500 shares of its common stock for $4.2 million, which the
Company retired in March 2007. During
2006, the Company purchased 500,000 shares of its common stock for $17.2
million, which the Company retired in June
2006.
Comparison of the Years Ended December 31, 2008 and 2007
Net Sales
In 2008, net sales decreased 7.4% to $756.5 million
compared to net sales of $817.0 million for 2007. In 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 year in continental Europe, Canada and Asia increased,
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,
acquired in July 2007, accounted for
slightly more than 4% of Simpson Strong-Ties 2008 sales. Anchor Systems sales,
while down slightly, benefited from the acquisition of the Liebig companies as
well as Simpson Strong-Ties increasing presence in Asia and the Middle East.
Sales of Simpson Dura-Vents pellet vent, chimney, special gas vent and
relining products increased, a significant portion of the increase having
resulted from the ProTech acquisition. Sales of SDVs Direct-Vent and gas vent
product lines decreased as a result of several factors, including the continuing
weakness in new home construction.
Gross Profit
Gross profit decreased 7.6% from $305.5 million in
2007 to $282.3 million in 2008. As a percentage of net sales, gross profit
decreased slightly to 37.3% in 2008 from 37.4% in 2007. The decrease in gross
margins was primarily due to higher distribution costs, partly offset by lower
manufacturing costs. The Company continues to face uncertainty in the cost and
availability of steel. Several factors are contributing to this uncertainty.
Steel prices have declined from their peak in July 2008, but management believes that they may
have reached bottom and does not expect them to decrease further for the
balance of the first quarter of 2009. The steel market continues to be dynamic,
however, with a high degree of uncertainty about future pricing trends. Demand
for steel has recently declined due to the weakening of the global economy and
tightening of financial credit markets. If steel prices
30
Table
of Contents
increase and the Company is not able to maintain its
prices or increase them sufficiently, the Companys margins could deteriorate
further.
Selling Expense
Selling expenses increased 6.3% from $76.0 million in
2007 to $80.7 million in 2008. The increase was driven primarily by an increase
in expenses associated with sales and marketing personnel of $7.4 million,
including those at businesses acquired since July 2007. This increase was partly offset by
decreases in promotional expenses of $1.6 million and donations of $0.5
million, primarily related to the gift made to Habitat for Humanity
International, Inc. in 2007.
General and Administrative Expense
General and administrative expenses increased 1.4%
from $88.6 million in 2007 to $89.9 million in 2008. The major components of
the increase were increases in administrative personnel expenses of $8.5
million, including those at businesses acquired since July 2007, increased legal and professional
service expenses of $2.8 million, higher amortization expense of $1.9 million
and higher bad debt expense of $1.7 million. These increases were mostly offset
by a decrease in cash profit sharing of $14.2 million, resulting primarily from
decreased operating profit. The Company believes that the pre-tax stock option
expense for 2009 will be $1.7 million related to stock options granted during
2006, 2007, 2008 and through February 2009.
Impairment of Goodwill
Impairment of goodwill decreased 72.2% from $10.7
million in 2007 to $3.0 million in 2008. The impairment charge taken in 2008,
which was a result of the Companys annual impairment test in the fourth
quarter of 2008, was associated with assets that were acquired in England in
1999 and is associated with the Companys U.K. reporting unit. The reporting
units carrying value exceeded the fair value, primarily due to reduced future
expected net cash flows. In 2007, the Company recorded a goodwill impairment
charge of $10.7 million, primarily as a result of decreased expected future
cash flows from its Canadian unit that resulted from the move of production
from Canada to China. The method to determine the fair value of the U.K.
reporting unit was a discounted cash flow model. The method to determine the
fair value of the Canadian reporting unit was a discounted cash flow model
supported by market approaches, which were based on earnings multiples realized
by similar public companies and on representative merger and acquisition transactions
of a similar nature and industry. These reporting units are associated with the
connector products segment. See Critical Accounting Policies and Estimates
Goodwill Impairment Testing
.
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.
Provision for Income Taxes
The effective tax rate was 39.8% in 2008, down from 41.0 %
in 2007. The decrease in the effective
tax rate was caused primarily by the decrease of the impairment of goodwill
charge taken in the fourth quarter of 2007, the majority of which was not
deductible for tax purposes.
Connector Products
Simpson Strong-Tie (SST)
Simpson Strong-Ties income from operations decreased
19.9% from $114.4 million in 2007 to $91.6 million in 2008.
Net Sales
In 2008, Simpson Strong-Ties net sales decreased 9.2%
from $745.7 million in 2007 to $676.7 million in 2008. SST accounted for 89.5%
of the Companys total net sales in 2008, a decrease from 91.3% in 2007. The
decrease in net sales at SST resulted from a decrease in sales volume, partly
offset by an increase in average prices of 8.3%. In 2008, sales declined
throughout the United States, with the exception of the northeastern region of
the country,
31
Table
of Contents
which increased slightly. California and the western
states had the largest decrease in sales. Sales during the year in continental
Europe, Canada and Asia increased, 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, acquired in July
2007, accounted for slightly more than 4% of Simpson Strong-Ties 2008
sales. Anchor Systems sales, while down slightly, benefited from the
acquisition of the Liebig companies as well as Simpson Strong-Ties increasing
presence in Asia and the Middle East.
Gross Profit
Simpson Strong-Ties gross profit decreased 8.1% from
$296.2 million in 2007 to $272.2 million in 2008. As a percentage of net sales,
gross profit increased from 39.7% in 2007 to 40.2% in 2008. This slight
increase was primarily due to lower manufacturing costs, including material and
labor costs, offset by higher fixed overhead costs as a percentage of sales, as
a result of the lower sales volume, and higher distribution costs.
Research and Development and Other
Engineering Expense
Simpson Strong-Ties research and development and
other engineering expenses increased 6.2% from $19.0 million in 2007 to $20.1
million in 2008. The increase resulted primarily from a $1.5 million increase
in expenses related to additional personnel from the acquisitions during 2008,
partly offset by an overall reduction in other departmental overhead expenses.
Selling Expense
Simpson Strong-Ties selling expense increased 6.7%
from $68.8 million in 2007 to $73.4 million in 2008. The increase resulted
primarily from a $7.3 million increase in expenses associated with sales and
marketing personnel, including those at businesses acquired since July 2007, partly offset by decreases in
promotional expenses of $1.5 million and donations of $0.5 million, primarily
related to the gift made to Habitat for Humanity International, Inc. in 2007.
Impairment of Goodwill
Impairment of goodwill decreased 72.2% from $10.7
million in 2007 to $3.0 million in 2008. The impairment charge taken in 2008,
which was a result of the Companys annual impairment test in the fourth
quarter of 2008, was associated with assets that were acquired in England in
1999 and is associated with the Companys U.K. reporting unit. In 2007, the
Company recorded a goodwill impairment charge of $10.7 million, primarily as a
result of decreased expected future cash flows from its Canadian unit that
resulted from the move of production from Canada to China.
European Operations
For its European operations, Simpson Strong-Tie
recorded after-tax loss of $3.7 million in 2008 compared to after-tax net
income of $2.4 million in 2007. The loss was primarily related to the goodwill
impairment charge associated with the U.K. reporting unit.
Venting Products
Simpson Dura-Vent (SDV)
Simpson Dura-Vents loss from operations was flat at
$2.6 million in both 2007 and 2008.
Net Sales
In 2008, Simpson Dura-Vents net sales increased 11.9%
from $71.3 million in 2007 to $79.8 million in 2008. SDV accounted for 10.5% of
the Companys total net sales in 2008, an increase from 8.7% in 2007. The
increase in net sales at SDV resulted from an increase in sales volume, as well
as price increases that averaged 4.0%. Sales were down in California and the
western and southeastern regions of the United States and were up in the
midwestern and northeastern regions of the United States in 2008 compared to
2007. Sales of Simpson Dura-Vents pellet vent, chimney, special gas vent and
relining products increased, a significant portion of the increase having
resulted from
32
Table
of Contents
the ProTech acquisition. Sales of 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 10.5% from
$9.4 million in 2007 to $10.4 million in 2008. As a percentage of net sales,
gross profit decreased slightly to 13.0% in 2008 from 13.1% in 2007. This
decrease was primarily due to higher fixed overhead costs as a percentage of
net sales and higher distribution costs, offset by lower manufacturing costs,
including material and labor costs.
Administrative Expense
Simpson Dura-Vents administrative expense increased
16.7% from $4.0 million in 2007 to $4.6 million in 2008 primarily due to
increases in administrative personnel expenses of $0.5 million, including those
at businesses acquired in 2008.
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.
Comparison of the Years Ended December 31, 2007 and 2006
Net Sales
In 2007, net sales decreased 5.4% to $817.0 million
from $863.2 million in 2006. In 2007, sales declined throughout the United
States, while sales in Europe and Canada increased. Simpson Strong-Ties sales
to contractor and dealer distributors had the largest percentage rate decreases
in 2007, reflecting slower homebuilding activity, while sales to home centers
were flat. Sales decreased in 2007 across most of Simpson Strong-Ties major
product lines, particularly those used in new home construction. Sales of all
of Simpson Dura-Vents product lines decreased in 2007 when compared to 2006.
Gross Profit
Gross profit decreased 11.5% from $345.3 million in
2006 to $305.5 million in 2007. As a percentage of net sales, gross profit
decreased from 40.0% in 2006 to 37.4% in 2007. This decrease was primarily due
to higher manufacturing costs and a higher proportion of fixed overhead costs
to total costs, resulting primarily from the lower sales volume. The Company
continued to face uncertainty in the cost and availability of steel. Several
factors contributed to this uncertainty. Global demand and high raw material
and energy prices led the Company to believe that steel prices were likely to
increase further. In addition, major domestic integrated steel producers had
consolidated over the preceding several years. To mitigate the effect of rising
steel prices, the Company had sales price increases in 2007.
Research and Development and Other
Engineering Expense
Research and development and other engineering
expenses increased 4.5% from $19.3 million in 2006 to $20.1 million in 2007.
This increase was primarily due to additional staff, incentive pay, and other
personnel costs, totaling $0.5 million.
Selling Expense
Selling expenses increased 5.2% from $72.2 million in
2006 to $76.0 million in 2007. The increase was driven primarily by a $5.1
million increase in expenses associated with sales and marketing personnel, the
payment of a one-time $1.0 million commitment as a co-sponsor of a new exhibit
at INNOVENTIONS at
Epcot
®
at the
Walt
Disney World
®
Resort in Florida and the donation of $0.6
million in cash and products (expensed at cost) primarily to Habitat for
Humanity International, Inc. The
INNOVENTIONS exhibit is intended to educate homeowners about
33
Table of Contents
severe weather preparedness and mitigation, as well as
to showcase various products and techniques they can use to build weather
resistant housing. These increases were partly offset by a decrease in
promotional expenses of $2.0 million and decreased agent commissions, primarily
as a result of lower Simpson Dura-Vent sales, of $1.1 million.
General and Administrative Expense
General and administrative expenses decreased 3.7%
from $92.0 million in 2006 to $88.6 million in 2007. The major components of
the decrease were reduced cash profit sharing of $9.7 million and lower
expenses related to the relocation of the Companys home office in the second
quarter of 2006, of $0.9 million. These decreases were partly offset by an
increase in depreciation and amortization charges totaling $2.3 million and
higher administrative personnel costs of $2.1 million, both of which included
incremental expenses associated with the acquisition of Swan Secure. Legal and
professional services fees also increased by $0.9 million over the prior year.
Impairment of Goodwill
In 2007, the Company recorded a goodwill impairment
charge of $10.7 million, primarily as a result of decreased future cash flows
of its Canada unit that will result from the move of its production from Canada
to its facility in China. The decision to move the production was made in October 2007. The method to determine the fair value
of the Canadian reporting unit was a discounted cash flow model supported by
market approaches, which were based on earnings multiples realized by similar
public companies and on representative merger and acquisition transactions of a
similar nature and industry. This reporting unit is associated with the
connector products segment. See Critical Accounting Policies and Estimates
Goodwill Impairment Testing
.
Interest Income and Expense
Interest income is generated on the Companys cash and
cash equivalents balances. Interest income increased primarily as a result of
higher interest rates. Interest expense includes interest, account maintenance
fees and bank charges.
Provision for Income Taxes
The Companys effective tax rate was 41.0% in 2007, up
from 37.8% in 2006. The effective tax rate increased primarily because the
majority of the $10.7 million goodwill impairment charge was not deductible for
tax purposes.
Connector Products
Simpson Strong-Tie (SST)
Simpson Strong-Ties income from operations decreased
26.6% from $155.7 million in 2006 to $114.4 million in 2007.
Net Sales
In 2007, Simpson Strong-Ties net sales decreased 3.3%
to $745.7 million from $771.2 million in 2006. SST accounted for 91.3% of the
Companys total net sales in 2007, an increase from 89.3% in 2006. The decrease
in net sales at SST resulted from a decrease in sales volume, partly offset by
an increase in average prices of 6%. In 2007, sales declined throughout the
United States, with the exception of the Midwest, which was up slightly and the
Northeast, which was flat, while sales in Europe and Canada increased. Simpson
Strong-Ties sales to contractor and dealer distributors had the largest
percentage rate decreases in 2007, reflecting slower homebuilding activity,
while sales to home centers increased slightly. Sales decreased in 2007 across
most of Simpson Strong-Ties major product lines, particularly those used in
new home construction.
Gross Profit
Simpson Strong-Ties gross profit decreased 8.8% from
$324.9 million in 2006 to $296.2 million in 2007. As a percentage of net sales,
gross profit decreased to 39.7% in 2007 from 42.1% in 2006. This decrease was
primarily due to higher manufacturing costs, including material costs, and to
higher fixed overhead costs as a percentage of
net sales as a result of the lower sales volume.
34
Table
of Contents
Selling Expense
Simpson Strong-Ties selling expense increased 8.0% to
$68.8 million in 2007 from $63.7 million in 2006. The increase resulted
primarily from a $3.4 million increase in expenses associated with sales and
marketing personnel, the INNOVENTIONS one-time $1.0 million commitment and the
donation of $0.6 million in cash and products (expensed at cost) primarily to
Habitat for Humanity International, Inc.
General and Administrative Expense
Simpson Strong-Ties general and administrative
expense decreased 3.1% from $86.8 million in 2006 to $84.2 million in 2007. The
decrease was primarily due to reduced cash profit sharing expenses included in
administrative expenses totaling $9.3 million, partly offset by increases in
depreciation and amortization costs of $2.2 million, which included incremental
expenses associated with the acquisition of Swan Secure in July 2007, bad debt expense of $0.6 million, and
professional service expenses of $0.7 million.
European Operations
For its European operations, Simpson Strong-Tie
recorded after-tax net income of $2.4 million in 2007 compared to after-tax net
income of $4.4 million in 2006.
Venting Products
Simpson Dura-Vent (SDV)
Simpson Dura-Vents income from operations decreased
from $7.2 million in 2006 to a loss of $2.6 million in 2007.
Net Sales
In 2007, Simpson Dura-Vents net sales decreased 22.5%
to $71.3 million as compared to net sales of $92.0 million in 2006. SDV
accounted for 8.7% of the Companys total net sales in 2007, a decrease from
10.7% in 2006. The decrease in net sales at SDV resulted from a decrease in
sales volume, partly offset by price increases that averaged 6%. Sales were
down in all regions of the United States in 2007 compared to 2006. Sales to all
distribution channels were down in 2007 as compared to 2006. Sales of all of
Simpson Dura-Vents product lines decreased in 2007 when compared to 2006.
Gross Profit
Simpson Dura-Vents gross profit decreased 54.4% from
$20.5 million in 2006 to $9.4 million in 2007. As a percentage of net sales,
gross profit decreased to 13.1% in 2007 from 22.3% in 2006. This decrease was
primarily due to higher manufacturing costs and higher fixed overhead costs as
a percentage of net sales as a result of the lower sales volume.
Selling Expense
Simpson Dura-Vents selling expense decreased 15.2%
from $8.2 million in 2006 to $6.9 million in 2007 primarily due to decreased
agent commissions, on lower Simpson Dura-Vent sales, of $1.0 million.
Administrative and
All Other (Company)
Interest Income and Expense
Interest income is generated on the Companys cash and
cash equivalents balances. Interest income increased primarily as a result of
higher interest rates. Interest expense includes interest, account maintenance
fees and bank charges.
Critical Accounting Policies and
Estimates
The critical policies described below affect the
Companys more significant judgments and estimates used in the preparation of
the Consolidated Financial Statements. If the Companys business conditions
change or if it uses different assumptions or estimates in the application of
these and other accounting policies, the Companys future results of operations
could be adversely affected.
35
Table of Contents
Inventory
Valuation
Inventories are stated at
the lower of cost or net realizable value (market). Cost includes all costs
incurred in bringing each product to its present location and condition, as
follows:
·
Raw materials and purchased finished
goods principally valued at cost determined on a weighted average basis.
·
In-process products and finished
goods cost of direct materials and labor plus attributable overhead based on
a normal level of activity.
The Company applies net
realizable value and obsolescence to the gross value of the inventory. The
Company estimates net realizable value based on estimated selling price less
further costs to completion and disposal. The Company provides for slow moving
product by comparing inventories on hand to future projected demand. Obsolete
inventory is on-hand supply of a product in excess of two years sales of that
product or a supply of that product that the Company believes is no longer
marketable. The Company revalues obsolete inventory as having no net realizable
value and reserves for its full carrying value. The Company has consistently
applied this methodology. The Company believes that this approach is prudent
and makes suitable provisions for slow moving and obsolete inventory. When
provisions are established, a new cost basis of the inventory is created.
Comparable inventory
values are as follows (in thousands):
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
Gross
Inventories:
|
|
|
|
|
|
Raw materials
|
|
$
|
92,638
|
|
$
|
82,164
|
|
In-process
products
|
|
26,371
|
|
23,674
|
|
Finished goods
|
|
142,898
|
|
122,842
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
Slow moving,
obsolete and net
|
|
|
|
|
|
realizable value
provisions
|
|
(10,029
|
)
|
(10,338
|
)
|
Net inventory
valuation
|
|
$
|
251,878
|
|
$
|
218,342
|
|
Activity in the
inventory reserve is summarized as follows (in thousands):
|
|
Years ended
December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
10,338
|
|
$
|
5,480
|
|
$
|
5,399
|
|
Provisions
released following disposal of inventory
|
|
(749
|
)
|
57
|
|
|
|
Additional
provisions made
|
|
440
|
|
4,801
|
|
81
|
|
Ending balance
|
|
$
|
10,029
|
|
$
|
10,338
|
|
$
|
5,480
|
|
Unexpected change in
market demand, building codes or buyer preferences could reduce the rate of
inventory turnover and require the Company to increase its reserve for
obsolescence.
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
36
Table of Contents
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 on 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.
Activity in the allowance
for doubtful accounts is summarized as follows (in thousands):
|
|
Years ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
2,724
|
|
$
|
2,286
|
|
$
|
2,131
|
|
Adjustments,
recoveries and write-offs
|
|
(787
|
)
|
(275
|
)
|
(77
|
)
|
Increase to bad
debt provision
|
|
2,431
|
|
713
|
|
232
|
|
Ending balance
|
|
$
|
4,368
|
|
$
|
2,724
|
|
$
|
2,286
|
|
Goodwill Impairment Testing
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,
requires that goodwill be tested for impairment at the reporting unit level
(operating segment or one level below an operating segment) on an annual basis
(in the fourth quarter for the Company) and between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying value. These events or
circumstances could include a significant change in the business climate, legal
factors, operating performance indicators, competition, or disposition or
relocation of a significant portion of a reporting unit. Application of the
goodwill impairment test requires judgment, including the identification of
reporting units, assignment of assets and liabilities to reporting units,
assignment of goodwill to reporting units, and determination of the fair value
of each reporting unit. The fair value of each reporting unit is estimated
using discounted cash flow methodologies or a combination of market approaches,
if information is readily available, and discounted cash flow methodologies.
This process requires significant judgments, including estimation of future
cash flows, which depends on internal forecasts, estimation of the long-term
rate of growth for the Companys business, the useful life over which cash
flows will occur, and determination of the Companys weighted average cost of
capital. Changes in these estimates and assumptions could materially affect the
determination of fair value or goodwill impairment for each reporting unit.
Actual cash flows in the future may differ significantly from those assumed.
The Company has allocated goodwill to reporting units based on the reporting
unit expected to benefit from the acquisition.
The impairment charge taken in 2008, which was a
result of the Companys annual impairment test in the fourth quarter of 2008,
was associated with assets that were acquired in England in 1999 and is
associated with the Companys U.K. reporting unit. The reporting units
carrying value exceeded the fair value, primarily due to reduced future expected net cash flows. The
method to determine the fair value of the U.K. reporting unit was a discounted
cash flow model. In 2007, the Company recorded a goodwill impairment charge of
$10.7 million related to its Canadian reporting unit, resulting primarily from
decreased expected future cash flows due to the move of production from Canada
to China. The method to determine the fair value of the Canadian reporting unit
was a discounted cash flow model supported by market approaches, which were
based on earnings multiples realized by similar public companies and on
representative merger and acquisition transactions of a similar nature and
industry. At December 31, 2008, the
remaining balances of goodwill of the U.K. and Canadian reporting units were
$1.2 million and $3.1 million, respectively. These reporting units are
associated with the connector products segment.
Effect of New Accounting Standards
On January 1,
2008, the Company adopted SFAS No. 157, Fair
Value Measurements, except as amended by FASB Staff Position (FSP) Financial
Accounting Standard (FAS) 157-1, FSP FAS 157-2 and FSP FAS 157-3,
37
Table
of Contents
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 Consolidated Financial
Statements. As of December 31, 2008, the
Company had 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
The Companys liquidity needs arise principally from
working capital requirements, capital expenditures and business acquisitions. During
the three years ended December 31, 2008,
the Company relied on internally generated funds to finance these needs. The
Companys working capital requirements are seasonal with the highest need
typically occurring in the second and third quarters of the year. Cash and cash
equivalents were $170.8 million and $186.1 million at December 31, 2008 and 2007, respectively. Working
capital was $455.7 million and $438.5 million at December 31, 2008 and 2007, respectively. As of December 31, 2008, the Company had $26 thousand in
revolving line of credit borrowings and had available to it unused credit
facilities of $205.8 million.
The Companys operating activities provided $56.1
million, $126.8 million and $99.1 million in net cash in 2008, 2007 and 2006,
respectively. In 2008, cash was provided by net income of $53.9 million and
noncash expenses, including impairments of goodwill and a long-lived asset,
depreciation and amortization, and noncash compensation related to stock plans,
totaling $37.0 million and a decrease in trade accounts receivable of $9.9
million. These increases were offset by increases in net inventories and other
noncurrent assets of $32.4 million and $1.2 million, respectively, and
decreases in trade accounts payable, other accrued liabilities and accrued cash
profit sharing of $7.5 million, $5.4 million and $1.8 million, respectively.
The increase in inventories was primarily related to increases in prices of raw
materials, primarily steel. The balance of the cash provided in 2008 resulted
from changes in other asset and liability accounts, none of which was material.
The Companys investing activities used $51.0 million,
$75.2 million and $60.5 million in net cash in 2008, 2007 and 2006,
respectively. Cash paid for asset acquisitions, primarily for the acquisitions
of Liebig, ProTech, Ventinox and Ahorn, was $36.3 million, down from $42.5 million
for acquisitions in 2007 when the Company acquired Swan Secure. Cash paid for
capital expenditures was $16.0 million in 2008, down from $36.1 million in
2007. The cash paid was partly offset by sales of assets, primarily the sale of
the vacant factory in McKinney, Texas, in April
2008 for total proceeds of $1.8 million. The Company used $9.3 million
of these expenditures in 2008 to purchase or improve its real estate, primarily
to construct its new manufacturing facility in China. The Company also used
$6.7 million in 2008 to purchase machinery and equipment for its facilities
throughout the United States and Europe. The Companys planned capital
expenditures for 2009 total approximately $13.5 million.
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 was $19.2
million in cash, including due diligence and transaction costs.
In June 2008,
Simpson Dura-Vent purchased the equity of ProTech Systems, Inc. (ProTech). ProTech manufactures
venting products in New York and distributes them throughout North America. The
purchase price was $8.3 million in cash, including due diligence and
transaction costs and $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 was $1.6 million in cash, including due
diligence and transaction costs.
In July 2008,
Simpson Strong-Tie purchased 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 was
$9.2 million in cash, including due diligence and transaction costs.
38
Table of Contents
In January 2009,
the Company acquired the assets of RO Design Corp, a Florida corporation doing
business as DeckTools, which licenses deck design and estimation software. The
software provides professional deck builders, home centers and lumber yards a
simple, graphics-driven, solution for designing decks and estimating material
and labor costs for the project. The purchase price was $4.0 million in cash,
including $2.5 million to be paid in the future.
The Companys vacant facility in San Leandro,
California, has been classified as an asset held for sale. In September 2007, an environmental analysis of this
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 early 2009. The
Company is currently marketing the San Leandro property and hopes to sell it
after the remediation is completed.
The Company plans to sell its facility in Vicksburg,
Mississippi, and will cease use of it around that time. If it is expected to be
sold below its carrying value, the Company will record an impairment charge
equal to the amount by which its carrying value exceeds its net realized value.
As of December 31, 2008, the property
did not qualify for held-for-sale accounting treatment and the Company expects
to record a charge in the range of $2 million to $3 million, based on current
market conditions, when the held-for-sale accounting treatment is met.
The Companys financing activities used $13.0 million,
$17.4 million, and $21.5 million in net cash in 2008, 2007 and 2006,
respectively. Uses of cash for financing activities were primarily from
payments of cash dividends of $19.4 million and payments on the Companys
line-of-credit borrowings, primarily related to its European operations, of
$4.7 million. Cash provided by financing activities was primarily from the
issuance of the Companys common stock through the exercise of stock options
totaling $6.9 million and line-of-credit borrowings of $3.7 million. In February 2009, the Companys Board of Directors
declared a dividend of $0.10 per share, a total of $4.9 million, to be paid on April 24, 2009, to stockholders of record on April 3, 2009.
In October 2007,
the Company entered into an unsecured credit agreement with a syndicate of
banks providing for a 5-year revolving credit facility of $200 million. The Company has the ability to increase the
amount available under the credit agreement by an additional $200 million, to a
maximum of $400 million, by obtaining additional commitments from existing
lenders or new lenders and satisfying certain other conditions. Under existing
conditions in credit markets, the Company does not believe that additional
commitments will be available on terms the Company considers reasonable. The
Company is required to pay an annual
facility
fee of 0.08% to 0.10% of the available commitments under the credit agreement,
regardless of usage, with the applicable fee determined on a quarterly basis
based on the Companys leverage ratio. Amounts borrowed under the credit
agreement will bear interest at an annual rate equal to either, at the Companys
option, (a) the British Bankers
Association London Interbank Offered Rate for the appropriate currency
appearing on Reuters Screen LIBOR01-02 Page
(the LIBO Rate) plus a spread of from 0.27% to 0.40%, as determined on
a quarterly basis based on the Companys leverage ratio, or (b) the Base Rate, plus a spread of 0.50%. The Company will pay participation fees for
outstanding standby letters of credit at an annual rate equal to the LIBO Rate
plus the applicable spreads described in the preceding sentence, and will pay
market-based fees for commercial letters of credit. Loans outstanding under the
credit agreement may be prepaid at any time without penalty except for LIBO
Rate breakage costs and expenses.
The proceeds of loans advanced under the credit
agreement and letters of credit issued thereunder may be used for working
capital and other general corporate needs of the Company, to pay dividends to
the Companys stockholders or to repurchase outstanding securities of the
Company as permitted by the credit agreement, and to finance acquisitions by
the Company permitted by the credit agreement. No loans or letters of credit
are currently outstanding under the credit agreement. The Company and its
subsidiaries are required to comply with various affirmative and negative
covenants. The covenants include provisions that would limit the availability
of funds as a result of a material adverse change to the Companys financial
position or results of operations. The Company is in compliance with its
financial covenants under the loan agreement.
39
Table of Contents
The
Companys contractual obligations, as of December 31, 2008, for future
payments are as follows, in thousands:
|
|
Payments Due by Period
|
|
|
|
Total
|
|
Less
|
|
|
|
|
|
More
|
|
|
|
all
|
|
than 1
|
|
1 3
|
|
3 5
|
|
than 5
|
|
Contractual Obligation
|
|
periods
|
|
year
|
|
years
|
|
years
|
|
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit obligations
|
|
$
|
26
|
|
$
|
26
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Debt interest obligations
|
|
613
|
|
160
|
|
320
|
|
133
|
|
|
|
Operating lease obligations
|
|
18,274
|
|
7,069
|
|
8,024
|
|
3,181
|
|
|
|
Purchase obligations
|
|
12,320
|
|
10,874
|
|
1,446
|
|
|
|
|
|
Total
|
|
$
|
31,233
|
|
$
|
18,129
|
|
$
|
9,790
|
|
$
|
3,314
|
|
$
|
|
|
Purchase
obligations consist of commitments primarily related to the construction or
expansion of facilities and equipment, consulting agreements, and minimum
purchase quantities of certain raw materials. The Company is not a party to any
long-term supply contracts with respect to the purchase of raw materials or
finished goods. Debt interest obligations include interest payments on fixed
term debt, line of credit borrowings and annual maintenance fees on the Companys
primary line-of-credit facility. Interest on line-of-credit facilities was
estimated based on historical borrowings and repayment patterns. The Companys
primary line-of-credit facility includes annual maintenance fees from 0.08% to
0.10%, depending on the Companys leverage ratio, on the unused portion of the
facilities.
The
Company adopted FIN 48 on January 1, 2007. At December 31, 2008, the
Companys expected payment for contractual obligations includes $8.2 million of
gross liability for uncertain tax positions associated with the adoption of FIN
48, although the Company cannot estimate the timing of cash settlement of this
liability. This amount does not include any amount receivable that may arise
from the settlement of the Companys uncertain tax positions. See Notes 1 and 10 to the Companys Consolidated
Financial Statements.
Inflation
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 Companys main raw material, however, is
steel, and increases in steel prices may adversely affect the Companys gross
margins if it cannot recover the higher costs through price increases.
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk
The Company has no variable interest-rate debt
investments.
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 $19.5 million for the year ended December 31,
2008, primarily due to the effect of the strengthening of the United States
dollar in relation to the European and Canadian currencies.
40
Table of Contents
Item 8. Consolidated Financial Statements and
Supplementary Data.
SIMPSON MANUFACTURING CO., INC.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS
41
Table of
Contents
Report of Independent
Registered Public Accounting Firm
To the Board of Directors
and Stockholders of Simpson Manufacturing Co., Inc.:
In our opinion, the consolidated financial statements listed in
the accompanying index present
fairly, in all material respects, the financial position of Simpson
Manufacturing Co., Inc. and its subsidiaries at December 31, 2008 and
2007, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the accompanying
index presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. Also in our opinion,
the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on criteria
established in
Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is
responsible for these financial statements and financial statement schedule,
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in Item 9A of the 2008 Annual Report.
Our responsibility is to express opinions on these financial statements,
on the financial statement schedule, and on the Companys internal control over
financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our
audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
As discussed in Note 1 to
the consolidated financial statements, the Company changed the manner in which
it accounts for uncertainty in income taxes upon adoption of the accounting
guidance of FASB Interpretation No. 48 Accounting for Uncertainty in
Income Taxes in 2007.
A companys internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
As described in Item 9A of the 2008 Annual Report,
management has excluded Liebig, ProTech and Ahorn from its assessment of
internal control over financial reporting as of December 31, 2008, because
they were purchased by the Company through business combinations during 2008.
We have also excluded Liebig, ProTech and Ahorn from our audit of internal
control over financial reporting. Liebig and Ahorn are divisions of Simpson
Strong-Tie Company Inc. and ProTech is a division of Simpson Dura-Vent Company, Inc.
The combined total assets and total revenues of the purchased businesses represent
approximately 7% and 2%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2008.
/s/
PricewaterhouseCoopers LLP
|
|
San Francisco,
California
|
|
February 27,
2009
|
|
42
Table of Contents
Simpson Manufacturing Co., Inc. and
Subsidiaries
Consolidated Balance Sheets
(In
thousands, except per share data)
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
170,750
|
|
$
|
186,142
|
|
Trade accounts
receivable, net
|
|
76,005
|
|
88,340
|
|
Inventories
|
|
251,878
|
|
218,342
|
|
Deferred income
taxes
|
|
11,995
|
|
11,623
|
|
Assets held for
sale
|
|
8,387
|
|
9,677
|
|
Other current
assets
|
|
8,582
|
|
8,753
|
|
Total current
assets
|
|
527,597
|
|
522,877
|
|
|
|
|
|
|
|
Property, plant
and equipment, net
|
|
193,318
|
|
198,117
|
|
Goodwill
|
|
68,619
|
|
57,418
|
|
Equity method
investment
|
|
214
|
|
|
|
Intangible
assets
|
|
23,453
|
|
23,239
|
|
Deferred income
taxes
|
|
8,755
|
|
9,619
|
|
Other noncurrent
assets
|
|
8,244
|
|
6,409
|
|
Total assets
|
|
$
|
830,200
|
|
$
|
817,679
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Line of credit
|
|
$
|
26
|
|
$
|
1,029
|
|
Trade accounts
payable
|
|
21,675
|
|
27,226
|
|
Accrued
liabilities
|
|
34,102
|
|
39,188
|
|
Accrued profit
sharing trust contributions
|
|
9,541
|
|
8,651
|
|
Accrued cash
profit sharing and commissions
|
|
2,264
|
|
4,129
|
|
Accrued workers
compensation
|
|
4,286
|
|
4,116
|
|
Total current
liabilities
|
|
71,894
|
|
84,339
|
|
|
|
|
|
|
|
Other long-term
liabilities
|
|
9,280
|
|
9,940
|
|
Total liabilities
|
|
81,174
|
|
94,279
|
|
|
|
|
|
|
|
Commitments and
contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
equity
|
|
|
|
|
|
Preferred stock,
par value $0.01; authorized shares, 5,000; issued and outstanding shares,
none
|
|
|
|
|
|
Common stock,
par value $0.01; authorized shares, 160,000; issued and outstanding shares,
48,971 and 48,552 at December 31, 2008 and 2007, respectively
|
|
490
|
|
485
|
|
Additional
paid-in capital
|
|
136,867
|
|
126,119
|
|
Retained
earnings
|
|
605,950
|
|
571,499
|
|
Accumulated
other comprehensive income
|
|
5,719
|
|
25,297
|
|
Total
stockholders equity
|
|
749,026
|
|
723,400
|
|
Total
liabilities and stockholders equity
|
|
$
|
830,200
|
|
$
|
817,679
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
43
Table of Contents
Simpson Manufacturing Co., Inc. and
Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
756,499
|
|
$
|
816,988
|
|
$
|
863,180
|
|
Cost of sales
|
|
474,190
|
|
511,499
|
|
517,885
|
|
Gross profit
|
|
282,309
|
|
305,489
|
|
345,295
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Research and
development and other engineering
|
|
21,327
|
|
20,115
|
|
19,254
|
|
Selling
|
|
80,703
|
|
75,954
|
|
72,199
|
|
General and
administrative
|
|
89,897
|
|
88,618
|
|
91,975
|
|
Impairment of
goodwill
|
|
2,964
|
|
10,666
|
|
|
|
Loss (gain) on
sale of assets
|
|
(124
|
)
|
(713
|
)
|
457
|
|
|
|
194,767
|
|
194,640
|
|
183,885
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
|
87,542
|
|
110,849
|
|
161,410
|
|
|
|
|
|
|
|
|
|
Loss in equity
method investment, before tax
|
|
(486
|
)
|
(33
|
)
|
(97
|
)
|
Interest income
|
|
2,977
|
|
5,988
|
|
3,927
|
|
Interest expense
|
|
(381
|
)
|
(229
|
)
|
(208
|
)
|
Income before
income taxes
|
|
89,652
|
|
116,575
|
|
165,032
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
35,718
|
|
47,833
|
|
62,370
|
|
Minority
interest
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
53,934
|
|
$
|
68,742
|
|
$
|
102,496
|
|
|
|
|
|
|
|
|
|
Net income per
common share
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.11
|
|
$
|
1.42
|
|
$
|
2.12
|
|
Diluted
|
|
$
|
1.10
|
|
$
|
1.40
|
|
$
|
2.10
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares outstanding
|
|
|
|
|
|
|
|
Basic
|
|
48,636
|
|
48,472
|
|
48,300
|
|
Diluted
|
|
48,970
|
|
48,928
|
|
48,891
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
44
Table of Contents
Simpson Manufacturing Co., Inc. and
Subsidiaries
Consolidated Statements
of Stockholders Equity
for the years ended December 31, 2006, 2007 and 2008
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
|
|
|
|
Shares
|
|
Par Value
|
|
Capital
|
|
Earnings
|
|
Income
|
|
Stock
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2006
|
|
48,322
|
|
$
|
483
|
|
$
|
94,398
|
|
$
|
456,474
|
|
$
|
6,774
|
|
$
|
|
|
$
|
558,129
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
102,496
|
|
|
|
|
|
102,496
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
|
|
|
|
|
|
|
4,720
|
|
|
|
4,720
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,216
|
|
Options
exercised
|
|
584
|
|
6
|
|
8,941
|
|
|
|
|
|
|
|
8,947
|
|
Stock
compensation expense
|
|
|
|
|
|
7,618
|
|
|
|
|
|
|
|
7,618
|
|
Tax benefit of
options exercised
|
|
|
|
|
|
3,349
|
|
|
|
|
|
|
|
3,349
|
|
Cash dividends
declared on common stock ($0.32 per share)
|
|
|
|
|
|
|
|
(15,447
|
)
|
|
|
|
|
(15,447
|
)
|
Repurchase of
common stock
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
(17,166
|
)
|
(17,166
|
)
|
Retirement of
treasury stock
|
|
|
|
(5
|
)
|
|
|
(17,161
|
)
|
|
|
17,166
|
|
|
|
Common stock
issued at $36.35 per share
|
|
6
|
|
|
|
229
|
|
|
|
|
|
|
|
229
|
|
Balance,
December 31, 2006
|
|
48,412
|
|
484
|
|
114,535
|
|
526,362
|
|
11,494
|
|
|
|
652,875
|
|
Cumulative
effect due to adoption of FIN 48
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
(16
|
)
|
Balance,
January 1, 2007
|
|
48,412
|
|
484
|
|
114,535
|
|
526,346
|
|
11,494
|
|
|
|
652,859
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
68,742
|
|
|
|
|
|
68,742
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
|
|
|
|
|
|
|
13,803
|
|
|
|
13,803
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,545
|
|
Options
exercised
|
|
252
|
|
2
|
|
4,830
|
|
|
|
|
|
|
|
4,832
|
|
Stock
compensation expense
|
|
|
|
|
|
5,893
|
|
|
|
|
|
|
|
5,893
|
|
Tax benefit of
options exercised
|
|
|
|
|
|
554
|
|
|
|
|
|
|
|
554
|
|
Cash dividends
declared on common stock ($0.40 per share)
|
|
|
|
|
|
|
|
(19,399
|
)
|
|
|
|
|
(19,399
|
)
|
Repurchase of
common stock
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
(4,191
|
)
|
(4,191
|
)
|
Retirement of
treasury stock
|
|
|
|
(1
|
)
|
|
|
(4,190
|
)
|
|
|
4,191
|
|
|
|
Common stock
issued at $31.65 per share
|
|
10
|
|
|
|
307
|
|
|
|
|
|
|
|
307
|
|
Balance,
December 31, 2007
|
|
48,552
|
|
485
|
|
126,119
|
|
571,499
|
|
25,297
|
|
|
|
723,400
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
53,934
|
|
|
|
|
|
53,934
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
|
|
|
|
|
|
|
(19,578
|
)
|
|
|
(19,578
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,356
|
|
Options
exercised
|
|
410
|
|
5
|
|
6,876
|
|
|
|
|
|
|
|
6,881
|
|
Stock
compensation expense
|
|
|
|
|
|
3,249
|
|
|
|
|
|
|
|
3,249
|
|
Tax benefit of
options exercised
|
|
|
|
|
|
376
|
|
|
|
|
|
|
|
376
|
|
Cash dividends
declared on common stock ($0.40 per share)
|
|
|
|
|
|
|
|
(19,483
|
)
|
|
|
|
|
(19,483
|
)
|
Common stock
issued at $26.59 per share
|
|
9
|
|
|
|
247
|
|
|
|
|
|
|
|
247
|
|
Balance,
December 31, 2008
|
|
48,971
|
|
$
|
490
|
|
$
|
136,867
|
|
$
|
605,950
|
|
$
|
5,719
|
|
$
|
|
|
$
|
749,026
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
45
Table of
Contents
Simpson Manufacturing Co., Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net income
|
|
$
|
53,934
|
|
$
|
68,742
|
|
$
|
102,496
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Loss (gain) on
sale of assets
|
|
(124
|
)
|
(713
|
)
|
457
|
|
Depreciation and
amortization
|
|
30,209
|
|
27,984
|
|
24,536
|
|
Impairment of
long-lived assets
|
|
|
|
465
|
|
|
|
Impairment of
goodwill
|
|
2,964
|
|
10,666
|
|
|
|
Deferred income
taxes
|
|
(1,079
|
)
|
(3,745
|
)
|
(2,141
|
)
|
Noncash
compensation related to stock plans
|
|
3,823
|
|
6,333
|
|
7,765
|
|
Loss in equity
method investment
|
|
486
|
|
33
|
|
97
|
|
Excess tax
benefit of options exercised
|
|
(515
|
)
|
(746
|
)
|
(3,056
|
)
|
Provision for
obsolete inventory
|
|
440
|
|
4,801
|
|
81
|
|
Provision for
doubtful accounts
|
|
2,431
|
|
713
|
|
232
|
|
Minority
interest
|
|
|
|
|
|
166
|
|
Changes in
operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
Trade accounts
receivable
|
|
9,862
|
|
12,999
|
|
7,109
|
|
Inventories
|
|
(32,408
|
)
|
5,803
|
|
(34,139
|
)
|
Other current
assets
|
|
174
|
|
(1,540
|
)
|
(654
|
)
|
Other noncurrent
assets
|
|
(1,213
|
)
|
340
|
|
(35
|
)
|
Trade accounts
payable
|
|
(7,456
|
)
|
3,105
|
|
(8,053
|
)
|
Accrued
liabilities
|
|
(5,433
|
)
|
(503
|
)
|
577
|
|
Accrued profit
sharing trust contributions
|
|
1,070
|
|
(77
|
)
|
868
|
|
Accrued cash
profit sharing and commissions
|
|
(1,773
|
)
|
(3,748
|
)
|
(2,417
|
)
|
Other long-term
liabilities
|
|
(684
|
)
|
(536
|
)
|
711
|
|
Accrued workers
compensation
|
|
170
|
|
404
|
|
450
|
|
Income taxes
payable
|
|
1,254
|
|
(3,935
|
)
|
4,017
|
|
Net cash
provided by operating activities
|
|
56,132
|
|
126,845
|
|
99,067
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
(15,984
|
)
|
(36,091
|
)
|
(51,537
|
)
|
Asset
acquisitions, net of cash acquired
|
|
(36,346
|
)
|
(42,470
|
)
|
|
|
Acquisition of
minority interest
|
|
|
|
|
|
(9,135
|
)
|
Distributions
from equity investment
|
|
|
|
|
|
114
|
|
Loan made to related
party
|
|
(1,300
|
)
|
|
|
|
|
Contribution to
equity investment
|
|
(700
|
)
|
|
|
|
|
Proceeds from
sale of capital assets
|
|
3,305
|
|
3,363
|
|
86
|
|
Net cash used in
investing activities
|
|
(51,025
|
)
|
(75,198
|
)
|
(60,472
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Line of credit
borrowings
|
|
3,655
|
|
7,166
|
|
727
|
|
Repayment of
debt and line of credit borrowings
|
|
(4,659
|
)
|
(6,868
|
)
|
(1,599
|
)
|
Debt issuance
costs
|
|
|
|
(687
|
)
|
|
|
Repurchase of
common stock
|
|
|
|
(4,191
|
)
|
(17,166
|
)
|
Issuance of
Companys common stock
|
|
6,881
|
|
4,832
|
|
8,947
|
|
Excess tax
benefit of options exercised
|
|
515
|
|
746
|
|
3,056
|
|
Dividends paid
|
|
(19,440
|
)
|
(18,415
|
)
|
(15,444
|
)
|
Net cash used in
financing activities
|
|
(13,048
|
)
|
(17,417
|
)
|
(21,479
|
)
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
(7,451
|
)
|
3,613
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
(15,392
|
)
|
37,843
|
|
17,096
|
|
Cash and cash
equivalents at beginning of period
|
|
186,142
|
|
148,299
|
|
131,203
|
|
Cash and cash
equivalents at end of period
|
|
$
|
170,750
|
|
$
|
186,142
|
|
$
|
148,299
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
Cash
paid during the year for
|
|
|
|
|
|
|
|
Interest
|
|
$
|
296
|
|
$
|
264
|
|
$
|
91
|
|
Income taxes
|
|
36,956
|
|
50,637
|
|
59,374
|
|
Noncash
activity during the year for
|
|
|
|
|
|
|
|
Noncash capital
expenditures
|
|
$
|
296
|
|
$
|
1,081
|
|
$
|
507
|
|
Noncash asset
acquisition
|
|
1,457
|
|
1,308
|
|
|
|
Common stock
issued for compensation
|
|
247
|
|
307
|
|
229
|
|
Dividends
declared but not paid
|
|
4,897
|
|
4,854
|
|
3,870
|
|
Consolidation of
VIE (Note 15)
|
|
|
|
|
|
(5,337
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
46
Table of
Contents
Simpson Manufacturing Co., Inc.
and Subsidiaries
Notes
to Consolidated Financial Statements
1. Operations and Summary of Significant Accounting
Policies
Nature of
Operations
Simpson
Manufacturing Co., Inc., through its subsidiaries Simpson Strong-Tie
Company Inc. (Simpson Strong-Tie) and Simpson Dura-Vent Company, Inc.
and its other subsidiaries (collectively, the Company), designs, engineers
and manufactures wood-to-wood, wood-to-concrete and wood-to-masonry connectors, screw fastening systems and collated screws,
stainless steel fasteners, pre-fabricated shearwalls
and moment-frames and venting systems for gas and wood burning and alternative
fuel appliances. The Company markets its products to the residential
construction, light industrial and commercial construction, remodeling and
do-it-yourself markets. Simpson Strong-Tie also offers a line of adhesives,
mechanical anchors and powder-actuated tools for concrete, masonry and steel.
The Company operates
exclusively in the building products industry. The Companys products are sold
primarily throughout the United States, Canada, Europe and Asia. Revenues have
some geographic market concentration on the west coast of the United States. A
portion of the Companys business is therefore dependent on economic activity
within this region and market. The Company is dependent on the availability of
steel, its primary raw material.
Principles of
Consolidation
The consolidated
financial statements include the accounts of Simpson Manufacturing Co., Inc.
and its subsidiaries. Investments in 50% or less owned entities are accounted
for using either cost or the equity method. The Company consolidates all
variable interest entities (VIEs) where it is the primary beneficiary. There
were no VIEs as of December 31, 2007 or 2008. All significant intercompany
transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
Cash
Equivalents
The Company considers all
highly liquid investments with an original or remaining maturity of three
months or less at the time of purchase to be cash equivalents.
Investments
The Company has a
minority investment in a privately held company. These kinds of investments are
carried either at cost or by the equity method of accounting, depending on the
Companys ownership interest and its ability to influence the operating or
financial decisions of the investee, and are classified as long-term
investments.
47
Table of Contents
The Company periodically
reviews its investments for impairment. If the carrying value of an investment
exceeds its fair value and the decline in fair value is determined to be
other-than-temporary, the Company writes down the value of the investment to
its fair value. The Company generally believes an other-than-temporary decline
occurs when the fair value of an investment is below the carrying value for two
consecutive quarters.
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
deteriorating financial condition or bankruptcy. If the financial condition of
the Companys customers were to deteriorate, resulting in probable inability to
make payments, additional allowances may be required.
Inventory
Valuation
Inventories are stated at the lower of cost or net realizable value (market). Cost includes all costs incurred in bringing each product to its present location and condition, as follows:
·
Raw materials and purchased finished goods for resale principally valued at cost determined on a weighted average basis.
·
In-process products and finished goods cost of direct materials and labor plus attributable overhead based on a normal level of activity.
The Company applies net realizable value and obsolescence to the gross value of the inventory. The Company estimates net realizable value based on estimated selling price less further costs to completion and disposal. The Company provides for slow moving product by comparing inventories on hand to future projected demand. Obsolete inventory is on-hand supply of a product in excess of two years sales of that product or a supply of that product that the Company believes is no longer marketable. The Company revalues obsolete inventory as having no net realizable value and writes off its full carrying value. The Company has consistently applied this methodology. The Company believes that this approach is prudent and makes suitable provisions for slow moving and obsolete inventory. When provisions are established, a new cost basis of the inventory is created.
Sales Incentive and Advertising Allowances
The Company records
estimated reductions to revenues for sales incentives, primarily rebates for
volume discounts, and allowances for co-operative advertising.
Allowances for Sales Discounts
The Company records
estimated reductions to revenues for discounts taken on early payment of
invoices by its customers.
Warranties
The Company provides
product warranties for specific product lines and accrues for estimated future
warranty costs, none of which has been material to the consolidated financial
statements, in the period in which the sale is recorded. In a limited number of
circumstances, the Company may also agree to indemnify customers against legal
claims made against those customers by the end users of the Companys
products. Historically, payments made by
the Company, if any, under such agreements have not had a material effect on
the Companys consolidated results of operations, cash flows or financial
position.
Fair
Value of Financial Instruments
Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements, 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
48
Table of Contents
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.
As of December 31, 2008, the Companys
investments consisted of only United States Treasury securities and money
market funds aggregating $61.4 million, which are maintained in cash
equivalents and are carried at cost, approximating fair value, based on Level 1
inputs.
Property,
Plant and Equipment
Property, plant and
equipment are carried at cost. Major renewals and betterments are capitalized.
Maintenance and repairs are expensed on a current basis. When assets are sold
or retired, their costs and accumulated depreciation are removed from the
accounts, and the resulting gains or losses are reflected in the consolidated
statements of operations.
American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, provides guidance on
capitalization of the costs incurred for computer software developed or
obtained for internal use. The Company
capitalizes substantially all external costs and qualifying internal costs
related to the purchase and implementation of software projects used for
business operations and engineering design activities. Capitalized software
costs primarily include purchased software and external consulting fees.
Capitalized software projects are amortized over the estimated useful lives of
the software, typically a three-to-five year period.
Depreciation
and Amortization
Depreciation of property,
plant and equipment is provided for using accelerated methods over the
following estimated useful lives:
System software
|
|
3 to 5 years
|
|
Machinery and equipment
|
|
3 to 10 years
|
|
Buildings and site improvements
|
|
15 to 45 years
|
|
Leasehold improvements
are amortized using the straight-line method over the shorter of the expected
life or the remaining term of the lease. Amortization of purchased intangible
assets with finite useful lives is computed using the straight-line method over
the estimated useful lives of the assets.
Cost of
Sales
The types of costs
included in cost of sales include material, labor, factory and tooling
overhead, shipping, and freight costs. Major components of these expenses are
material costs, such as steel, personnel, packaging and cartons and facility
costs such as rent, depreciation and utilities related to the production and
distribution of the Companys products. Inbound freight charges, purchasing and
receiving costs, inspection costs, warehousing costs, internal transfer costs,
and other costs of the Companys distribution network are also included in costs
of sales.
Tool and
Die Costs
Tool and die costs are
included in product costs in the year incurred.
Shipping
and Handling Costs
The Companys general
shipping terms are F.O.B. shipping point. Shipping and handling fees and costs
are included in revenues and product
costs, as appropriate, in the year incurred.
Product
Research and Development Costs
Product research and
development costs, which are included in operating expenses and are charged
against income as incurred, were $7.0 million, $6.0 million and $5.7 million in
2008, 2007 and 2006, respectively. The types of costs included as Product
Research and Development expenses are typically related to salaries and
benefits and supplies. The Company amortizes acquired patents over their
remaining lives and performs periodic reviews for impairment. The cost of
internally developed patents is expensed as incurred.
49
Table of Contents
Selling Costs
Selling
costs include expenses associated with selling, merchandising and marketing the
Companys products. Major components of these expenses are personnel, sales
commissions, facility costs such as rent, depreciation and utilities,
professional services, information technology related costs, sales promotion,
advertising, literature and trade shows.
Advertising
Costs
Advertising costs are
included in selling expenses, are expensed when the advertising occurs, and
were $9.6 million, $9.5 million and $12.1 million in 2008, 2007 and 2006,
respectively.
General and
Administrative Costs
General
and administrative costs include personnel, information technology related
costs, facility costs such as rent, depreciation and utilities, professional
services, amortization of intangibles and bad debt charges.
Income
Taxes
Income taxes are
calculated using an asset and liability approach. The provision for income
taxes includes federal, state and foreign taxes currently payable and deferred
taxes, due to temporary differences between the financial statement and tax
bases of assets and liabilities. In addition, future tax benefits are
recognized to the extent that realization of such benefits is more likely than
not.
Sales
Taxes
Pursuant to the Emerging
Issues Task Force (EITF) issued EITF 06-3, How Taxes Collected and Remitted
to Governmental Authorities Should Be Presented in the Income Statement (That Is,
Gross versus Net Presentation), the Company presents taxes collected and
remitted to governmental authorities on a net basis in the accompanying
consolidated statements of operations.
Foreign
Currency Translation
The
local currency is the functional currency of the Companys operations in
Europe, Canada and Asia. Assets and liabilities denominated in foreign
currencies are translated using the exchange rate on the balance sheet date.
Revenues and expenses are translated using average exchange rates prevailing
during the year. The translation adjustment resulting from this process is
shown separately as a component of stockholders equity. Foreign currency
transaction gains or losses are included in general and administrative expenses
and have not been significant in any of the years presented.
Common Stock
Subject
to the rights of holders of any preferred stock that may be issued in the
future, holders of common stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors (the Board)
out of legally available funds, and in the event of liquidation, dissolution or
winding-up of the Company, to share ratably in all assets available for
distribution. The holders of common stock have no preemptive or conversion
rights. Subject to the rights of any preferred stock that may be issued in the
future, the holders of common stock are entitled to one vote per share on any
matter submitted to a vote of the stockholders, except that, subject to
compliance with pre-meeting notice and other conditions pursuant to the Companys
Bylaws, stockholders may cumulate their votes in an election of directors, and
each stockholder may give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares held by such
stockholder or may distribute such stockholders votes on the same principle
among as many candidates as such stockholder thinks fit. There are no
redemption or sinking fund provisions applicable to the common stock.
In 1999, the Company declared a dividend distribution of one Right to
purchase Series A Participating preferred stock per share of common stock.
The Rights will be exercisable, unless redeemed earlier by the Company, if a
person or group acquires, or obtains the right to acquire, 15% or more of the
outstanding shares of common stock or commences a tender or exchange offer that
would result in it acquiring 15% or more of the outstanding shares of common
stock, either event occurring without the prior consent of the Company. The
amount of Series A Participating preferred stock that the holder of a
Right is entitled to receive and the purchase price payable on exercise of a
Right are both subject to adjustment. Any person or group that acquires 15% or
more of the outstanding shares of common stock without the prior consent of the
Company would not be entitled to this purchase. Any
50
Table
of Contents
stockholder who holds 25% or more of the Companys common stock when
the Rights were originally distributed would not be treated as having acquired
15% or more of the outstanding shares unless such stockholders ownership is
increased to more than 40% of the outstanding shares.
The Rights will expire on July 29, 2009, or they may be redeemed
by the Company at one cent per Right prior to that date. The Rights do not
have voting or dividend rights and, until they become exercisable, have no
dilutive effect on the earnings of the Company. One million shares of the
Companys preferred stock have been designated Series A Participating
preferred stock and reserved for issuance on exercise of the Rights. No event
during 2008 made the Rights exercisable.
Preferred Stock
The Board has the
authority to issue the authorized and unissued preferred stock in one or more
series with such designations, rights and preferences as may be determined from
time to time by the Board. Accordingly, the Board is empowered, without
stockholder approval, to issue preferred stock with dividend, redemption,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Companys common stock.
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 shares, using the treasury
stock method, are included in the diluted per-share calculations for all
periods when the effect of their inclusion is dilutive.
The
following is a reconciliation of basic earnings per share (EPS) to diluted
EPS:
|
|
Years ended December 31,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
(in thousands, except
|
|
Net
|
|
Average
|
|
Per
|
|
Net
|
|
Average
|
|
Per
|
|
Net
|
|
Average
|
|
Per
|
|
per-share amounts)
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available
to common stockholders
|
|
$
|
53,934
|
|
48,636
|
|
$
|
1.11
|
|
$
|
68,742
|
|
48,472
|
|
$
|
1.42
|
|
$
|
102,496
|
|
48,300
|
|
$
|
2.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
334
|
|
(0.01
|
)
|
|
|
456
|
|
(0.02
|
)
|
|
|
591
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available
to common stockholders
|
|
$
|
53,934
|
|
48,970
|
|
$
|
1.10
|
|
$
|
68,742
|
|
48,928
|
|
$
|
1.40
|
|
$
|
102,496
|
|
48,891
|
|
$
|
2.10
|
|
Anti-dilutive
shares attributable to outstanding stock options were excluded from the
calculation of diluted net income per share. For the years ended December 31,
2008, 2007, and 2006, 1.1 million, 1.0 million and 1.0 million shares,
respectively, subject to stock options were anti-dilutive.
The
potential tax benefits derived from the amount of the average stock price for
the period in excess of the grant date fair value of stock options, known as
the windfall tax benefit, is added to the proceeds of stock option exercises
under the treasury stock method for computing the amount of dilutive securities
used to determine the outstanding shares for the calculation of diluted
earnings per share.
Comprehensive Income
Comprehensive income,
which is included in the consolidated statements of stockholders equity, is
defined as net income plus other comprehensive income. Other comprehensive
income consists of changes in foreign currency translation adjustments recorded
directly into stockholders equity. The components of accumulated other
comprehensive income as of December 31, 2008, were $5.7 million, net of
tax of $0.9 million, and as of December 31, 2007, were $25.3 million, net
of tax of $1.6 million, all of which comprised foreign currency translation
adjustments.
51
Table of Contents
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash in banks, short-term investments in United States Treasury
securities, money market funds and trade accounts receivable. The Company
maintains its cash in demand deposit and money market accounts held primarily
at six banks.
Accounting
for Stock-Based Compensation
The Company maintains two
stock option plans under which it may grant incentive stock options and
non-qualified stock options, although the Company has granted only
non-qualified stock options under these plans. The Simpson Manufacturing Co., Inc.
1994 Stock Option Plan (the 1994 Plan) is principally for the Companys
employees, and the Simpson Manufacturing Co., Inc. 1995 Independent
Director Stock Option Plan (the 1995 Plan) is for its independent directors.
The Company generally grants options under each of the 1994 Plan and the 1995
Plan once each year. The exercise price per share of each option granted in 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
on the day preceding the day that the Compensation Committee of the Companys
Board of Directors met to approve the grant of the options. In prior years,
stock options were granted under the 1994 Plan with the exercise price equal to
or in excess of the closing market price per share of the Companys common
stock as reported by the New York Stock Exchange on the last trading day of the
preceding year. The exercise price per share under each option granted under
the 1995 Plan is at the fair market value on the date specified in the 1995
Plan. Options vest and expire according to terms established at the grant date.
Under the 1994 Plan, no
more than 16 million shares of the Companys common stock may be sold
(including shares already sold) pursuant to all options granted under the 1994
Plan. Under the 1995 Plan, no more than 320 thousand shares of common stock may
be sold (including shares already sold) pursuant to all options granted under
the 1995 Plan. Options granted under the 1994 Plan typically vest evenly over
the requisite service period of four years and have a term of seven years. The
vesting of options granted under the 1994 Plan will be accelerated if the
grantee ceases to be employed after reaching age sixty 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 years ended December 31,
2008, 2007 and 2006:
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Stock option
expense recognized in operating expenses
|
|
$
|
3,400
|
|
$
|
5,906
|
|
$
|
7,353
|
|
|
|
|
|
|
|
|
|
Tax benefit of
stock option expense in provision for income taxes
|
|
1,341
|
|
2,330
|
|
2,779
|
|
|
|
|
|
|
|
|
|
Stock option
expense, net of tax
|
|
$
|
2,059
|
|
$
|
3,576
|
|
$
|
4,574
|
|
|
|
|
|
|
|
|
|
Fair value of
shares vested
|
|
$
|
3,249
|
|
$
|
5,893
|
|
$
|
7,618
|
|
|
|
|
|
|
|
|
|
Proceeds to the
Company from the exercise of stock options
|
|
$
|
6,881
|
|
$
|
4,832
|
|
$
|
8,947
|
|
|
|
|
|
|
|
|
|
Tax benefit from
exercise of stock options, including windfall (shortfall) tax benefits, net
|
|
$
|
376
|
|
$
|
554
|
|
$
|
3,349
|
|
|
|
At December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
Stock option
cost capitalized in inventory
|
|
$
|
101
|
|
$
|
252
|
|
$
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts included in
cost of sales, research and development and engineering, selling, or general
and administrative expenses depend on the job functions performed by the
employees to whom the stock options were granted. Shares of common stock issued on exercise of stock options under the
plans are registered under the Securities Act of 1933.
52
Table of Contents
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.
Under the 1994 Plan, the Company allows for full vesting on ceasing to
be employed if the employee becomes retirement-eligible by reaching age
sixty. Prior to the adoption of SFAS 123R, stock-based employee compensation
expense was recorded over the nominal vesting period and if a
retirement-eligible employee retired before the end of the vesting period, the
Company recorded unrecognized compensation cost at the date of retirement (the nominal
vesting period approach). The nominal vesting period is four years of service
subsequent to the grant date. The non-substantive vesting period approach
specifies that awards, in substance, become vested when the employees
retention of the award is no longer contingent on providing service. Under this
approach, the unrecorded compensation cost is expensed when that condition is
met even if the employee continues providing service to the Company. This would
be the case for existing grants when an employee becomes retirement-eligible,
as well as when a retirement-eligible employee is granted an award.
Goodwill
and Intangible Assets
The Company reviews for
impairment its indefinite lived intangible assets annually, in the fourth
quarter of each year, and whenever events or changes in circumstances indicate
the carrying value of an asset may not be recoverable in accordance with SFAS
Statement No. 142, Goodwill and Other Intangible Assets. These events or
circumstances could include a significant change in the business climate, legal
factors, operating performance indicators, competition, or disposition or
relocation of a significant portion of a reporting unit. SFAS No. 142
requires that management perform a two-step impairment test on goodwill. In the
first step, management compares the fair value of each reporting unit to its
carrying value. The fair value calculation uses discounted cash flow model and
may be supplemented by market approaches if information is readily available.
If the carrying value of the net assets assigned to the reporting unit exceeds
the fair value of the reporting unit, a second step of the impairment test must
be performed to determine the implied fair value of the reporting units
goodwill. If the carrying value of a reporting units goodwill exceeds its
implied fair value, an impairment charge equal to the difference between the
implied fair value of the goodwill and the carrying cost would be reported.
Determining the fair
value of a reporting unit or an indefinite-lived purchased intangible asset is
a judgment involving significant estimates and assumptions. These estimates and
assumptions include revenue growth rates and operating margins used to
calculate projected future cash flows, risk-adjusted discount rates, and future
economic and market conditions. The Company bases its fair value estimates on
assumptions that management believes to be reasonable but that are
unpredictable and inherently uncertain. Actual future results may differ from
those estimates. The $3.0 million impairment charge taken in 2008, which was a
result of the Companys annual impairment test in the fourth quarter of 2008,
was associated with assets that were acquired in England in 1999 and is
associated with the Companys U.K. reporting unit. The reporting units
carrying value exceeded the fair value, primarily due to reduced future expected net cash flows. The
method to determine the fair value of the U.K. reporting unit was a discounted
cash flow model. The $10.7 million impairment charge taken in 2007 was
primarily attributed to the decision by the Company, in October 2007, to
move production of certain products from the Canadian reporting unit to China
in late 2008 and early 2009. The method to determine the fair value of the
Canadian reporting unit was a combination of a discounted cash flow model and
market approaches. The market approaches were based on multiples realized by
similar public companies and on representative merger and acquisition
transactions of a similar nature and industry. At December 31, 2008, the remaining
balances of goodwill of the U.K. and Canadian reporting units were $1.2 million
and $3.1 million, respectively. The Companys annual goodwill impairment
analysis did not result in any additional impairment charges in 2008 or 2007 or
any impairment charges in 2006.
53
Table of Contents
The changes in the
carrying amount of goodwill as of December 31, 2007 and 2008, were as follows:
(in thousands)
|
|
Goodwill
|
|
Balance at
January 1, 2007
|
|
$
|
44,337
|
|
Acquisitions
|
|
20,143
|
|
Impairment of
goodwill
|
|
(10,666
|
)
|
Foreign exchange
|
|
3,604
|
|
Balance at
December 31, 2007
|
|
57,418
|
|
Acquisitions
|
|
18,577
|
|
Impairment of
goodwill
|
|
(2,964
|
)
|
Foreign exchange
|
|
(4,412
|
)
|
Balance at
December 31, 2008
|
|
$
|
68,619
|
|
The carrying amount of
the Companys goodwill as of December 31, 2008 and 2007, was associated
with the following operating segments:
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Connector
Products
|
|
$
|
64,205
|
|
$
|
57,418
|
|
Venting Products
|
|
4,414
|
|
|
|
|
|
$
|
68,619
|
|
$
|
57,418
|
|
The goodwill associated
with the venting products operating segment resulted from the acquisitions of
the equity of ProTech Systems, Inc. (ProTech) and the Ventinox assets
completed in 2008. The balance of the additions to goodwill resulted from the
acquisitions related to the connector products operating segment. See Note 2.
The goodwill impairment charges taken in 2008 and 2007 were associated with the
connector products operating segment.
The total gross
carrying amount and accumulated amortization of intangible assets subject to
amortization at December 31, 2008, were $35.6 million and $12.2 million,
respectively. The aggregate amount of amortization expense of intangible assets
for the year ended December 31, 2008 was $5.1 million.
The changes in the
carrying amounts of patents, unpatented technologies and non-compete agreements
and other intangible assets subject to amortization as of December 31,
2007 and 2008, were as follows:
|
|
|
|
Accumulated
|
|
|
|
(in thousands)
|
|
Patents
|
|
Amortization
|
|
Net Patents
|
|
Balance at
January 1, 2007
|
|
$
|
6,917
|
|
$
|
(1,872
|
)
|
$
|
5,045
|
|
Amortization
|
|
|
|
(628
|
)
|
(628
|
)
|
Foreign exchange
|
|
36
|
|
|
|
36
|
|
Balance at
December 31, 2007
|
|
6,953
|
|
(2,500
|
)
|
4,453
|
|
Amortization
|
|
|
|
(630
|
)
|
(630
|
)
|
Foreign exchange
|
|
(24
|
)
|
|
|
(24
|
)
|
Balance at
December 31, 2008
|
|
$
|
6,929
|
|
$
|
(3,130
|
)
|
$
|
3,799
|
|
|
|
|
|
|
|
Net
|
|
|
|
Unpatented
|
|
Accumulated
|
|
Unpatented
|
|
|
|
Technology
|
|
Amortization
|
|
Technology
|
|
Balance at
January 1, 2007
|
|
$
|
3,835
|
|
$
|
(1,694
|
)
|
$
|
2,141
|
|
Amortization
|
|
|
|
(767
|
)
|
(767
|
)
|
Balance at
December 31, 2007
|
|
3,835
|
|
(2,461
|
)
|
1,374
|
|
Amortization
|
|
|
|
(767
|
)
|
(767
|
)
|
Balance at
December 31, 2008
|
|
$
|
3,835
|
|
$
|
(3,228
|
)
|
$
|
607
|
|
54
Table of
Contents
|
|
|
|
|
|
Net
|
|
|
|
Non-Compete
|
|
|
|
Non-Compete
|
|
|
|
Agreements,
|
|
|
|
Agreements,
|
|
|
|
Trademarks
|
|
Accumulated
|
|
Trademarks
|
|
|
|
and Other
|
|
Amortization
|
|
and Other
|
|
|
|
|
|
|
|
|
|
Balance at
January 1, 2007
|
|
$
|
1,843
|
|
$
|
(1,265
|
)
|
$
|
578
|
|
Acquisition
|
|
5,330
|
|
|
|
5,330
|
|
Amortization
|
|
|
|
(907
|
)
|
(907
|
)
|
Write-off fully
amortized asset
|
|
(65
|
)
|
65
|
|
|
|
Foreign exchange
|
|
58
|
|
|
|
58
|
|
Balance at
December 31, 2007
|
|
7,166
|
|
(2,107
|
)
|
5,059
|
|
Acquisition
|
|
2,793
|
|
|
|
2,793
|
|
Amortization
|
|
|
|
(1,555
|
)
|
(1,555
|
)
|
Write-off fully
amortized asset
|
|
(1,696
|
)
|
1,696
|
|
|
|
Foreign exchange
|
|
(270
|
)
|
|
|
(270
|
)
|
Balance at
December 31, 2008
|
|
$
|
7,993
|
|
$
|
(1,966
|
)
|
$
|
6,027
|
|
|
|
|
|
|
|
Net
|
|
|
|
Customer
|
|
Accumulated
|
|
Customer
|
|
|
|
Relationships
|
|
Amortization
|
|
Relationships
|
|
|
|
|
|
|
|
|
|
Balance at
January 1, 2007
|
|
$
|
1,738
|
|
$
|
(766
|
)
|
$
|
972
|
|
Acquisition
|
|
12,316
|
|
|
|
12,316
|
|
Amortization
|
|
|
|
(976
|
)
|
(976
|
)
|
Foreign exchange
|
|
41
|
|
|
|
41
|
|
Balance at
December 31, 2007
|
|
14,095
|
|
(1,742
|
)
|
12,353
|
|
Acquisition
|
|
2,886
|
|
|
|
2,886
|
|
Amortization
|
|
|
|
(2,112
|
)
|
(2,112
|
)
|
Foreign exchange
|
|
(107
|
)
|
|
|
(107
|
)
|
Balance at
December 31, 2008
|
|
$
|
16,874
|
|
$
|
(3,854
|
)
|
$
|
13,020
|
|
At December 31,
2008, estimated future amortization of intangible assets was as follows:
(in thousands)
|
|
|
|
2009
|
|
$
|
4,411
|
|
2010
|
|
3,411
|
|
2011
|
|
3,356
|
|
2012
|
|
2,501
|
|
2013
|
|
1,599
|
|
Thereafter
|
|
8,175
|
|
|
|
$
|
23,453
|
|
Adoption
of Statements of Financial Accounting Standards
In October 2008, the
Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP)
Financial Accounting Standard (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 December 31,
2008. The adoption of FSP157-3 did not have a material effect on the
Companys consolidated financial statements.
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
55
Table of
Contents
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 during the year
ended December 31, 2008.
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
was effective in the fourth quarter 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.
Recently
Issued Accounting Standards
In December 2007, the
FASB issued Statement of Financial Accounting Standards (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. The
adoption is not currently expected to have a material effect 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. The adoption is not
currently expected to have a material effect 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 FSP 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
consolidated financial statements for fair value measurements made during the year
ended December 31, 2008. While the Company does not currently expect the
adoption of the remaining portions of this statement to have a material effect
on its 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). The Company does not expect the adoption of these statements
to have a material effect on its consolidated financial statements.
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
56
Table
of Contents
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. The Company
does not currently expect the adoption of SFAS No. 161 to have a
material effect on the Companys financial statements.
In April 2008,
the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets. FSP FAS 142-3 removes the requirement of SFAS No. 142 Goodwill
and Other Intangible Assets for an entity to consider, when determining the
useful life of a recognized intangible asset, whether an intangible asset can
be renewed without substantial cost or material modifications to the existing
terms and conditions. FSP FAS 142-3 requires an entity to consider its
own historical experience in developing renewal or extension assumptions.
In the absence of entity specific experience, FSP FAS 142-3 requires an entity
to consider assumptions that a marketplace participant would use about renewal
or extension that are consistent with the highest and best use of the asset by
a marketplace participant. FSP FAS 142-3 is effective prospectively for
all intangible assets acquired after its effective date, with additional
disclosures required for all recognized intangible assets as of the effective
date. FSP FAS 142-3 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. The Company 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.
2. Acquisitions
In July 2007, the
Companys subsidiary, Simpson Strong-Tie, purchased the stock of Swan Secure
Products, Inc. (Swan Secure) for $42.1 million in cash, net of cash
received. Swan Secure is a manufacturer and distributor of fasteners, largely
stainless steel, and its products are marketed throughout the United States.
Swan Secure expands the Companys fastener product offerings in its connector
products segment. The Company recorded goodwill of $20.1 million, all of which
is expected to be deductible for income tax purposes, and intangible assets
subject to amortization of $16.7 million as a result of the acquisition. The
weighted-average amortization period for the intangible assets is 11.1 years.
Tangible assets, including inventory and trade accounts receivable, accounted
for the balance of the purchase price. Swan Secures results of operations have
been included in the Companys consolidated results of operations as of the
date of the acquisition. Through this acquisition, the Company increased its
presence in the stainless-steel fastener market. The Company believes that the
additional product line will further its position in the construction products
market. These factors contributed to a purchase price in excess of fair market
value of Swan Secures net tangible and intangible assets acquired, and as a
result, the Company has recorded goodwill in connection with the transaction.
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 was
$19.2 million in cash, including due diligence and transaction costs. The
Company recorded goodwill of $7.6 million and intangible assets subject to
amortization of $2.7 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. Through this
acquisition, the Company increased its presence in the European and Asian
anchor markets with metric size products. The Company believes that the
additional product line and geographic sales coverage will further its position
in the construction products market. These factors contributed to a purchase
price in excess of fair market value of Liebigs net tangible and intangible
assets acquired, and as a result, the Company has recorded goodwill in
connection with the transaction.
In June 2008, the
Companys subsidiary, Simpson Dura-Vent Company, Inc., purchased the
equity of ProTech Systems, Inc., 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 was $8.3 million in cash, including due diligence
and transaction costs and $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 $3.7 million and intangible
assets subject to amortization of $3.0 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 was $1.6 million in cash,
including due diligence and transaction costs. The Company recorded goodwill of
$0.7
57
Table of Contents
million. The Ventinox
purchase price allocation has not been finalized. Through these acquisitions,
the Company increased its presence in the venting market with additional
products and geographic distribution. The Company believes that the additional
product line and geographic distribution will further its position in the
venting products market. These factors contributed to a purchase price in
excess of fair market value of ProTechs and Ventinoxs net tangible and
intangible assets acquired, and as a result, the Company has recorded goodwill
in connection with the transaction.
In July 2008,
Simpson Strong-Tie purchased 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 was $9.2 million in cash,
including due diligence and transaction costs. The Company recorded goodwill of
$6.9 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 Company has not
finalized the purchase price allocations for the ProTech, Ventinox and Ahorn
acquisitions, as the Company is still obtaining information and analyzing the
fair value of certain acquired assets and liabilities.
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.
3. Trade Accounts Receivable, net
Trade accounts receivable
consisted of the following:
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
Trade accounts
receivable
|
|
$
|
81,929
|
|
$
|
92,879
|
|
Allowance for
doubtful accounts
|
|
(4,368
|
)
|
(2,724
|
)
|
Allowance for
sales discounts
|
|
(1,556
|
)
|
(1,815
|
)
|
|
|
$
|
76,005
|
|
$
|
88,340
|
|
The Company sells products on credit and generally
does not require collateral. The Companys largest customer accounted for 11%
of trade accounts receivable as of December 31, 2008. Due to the financial
condition of another customer, the Company in 2008 reserved $2 million that it
believes it is not likely to collect.
4. Inventories
The components of
inventories consisted of the following:
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
Raw materials
|
|
$
|
92,638
|
|
$
|
82,164
|
|
In-process
products
|
|
26,371
|
|
23,674
|
|
Finished
products
|
|
132,869
|
|
112,504
|
|
|
|
$
|
251,878
|
|
$
|
218,342
|
|
58
Table of Contents
5. Property, Plant and Equipment, net
Property, plant and
equipment consisted of the following:
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
Land
|
|
$
|
23,989
|
|
$
|
19,820
|
|
Buildings and
site improvements
|
|
135,992
|
|
131,166
|
|
Leasehold
improvements
|
|
4,287
|
|
4,054
|
|
Machinery and
equipment
|
|
219,641
|
|
213,188
|
|
|
|
383,909
|
|
368,228
|
|
Less accumulated
depreciation and amortization
|
|
(193,639
|
)
|
(175,893
|
)
|
|
|
190,270
|
|
192,335
|
|
Capital projects
in progress
|
|
3,048
|
|
5,782
|
|
|
|
$
|
193,318
|
|
$
|
198,117
|
|
Included
in property, plant and equipment at December 31, 2008 and 2007, are fully depreciated
assets with an original cost of $96.7 million and $80.5 million, respectively.
These fully depreciated assets are still in use in the Companys operations.
Depreciation
expense of the years ended December 31, 2008, 2007 and 2006, was $25.0 million,
$24.7 million and $22.3 million, respectively.
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 Companys vacant facility in San Leandro,
California, remains classified as an asset held for sale as of December 31,
2008, consistent with the classification at December 31, 2007. This
facility is associated with the connector segment.
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 early 2009. The Company is currently marketing the San Leandro
property and intends to sell it after the remediation is completed.
6. Investments
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 capital contributions to Keymark. Nevertheless, in October 2008
the Company made an additional voluntary capital contribution of $0.7 million
to Keymark and at the same time lent $1.3 million to Keymarks other owner,
which concurrently contributed that amount to Keymarks capital. The loan
bears interest at the annual rate of 6%, has a term of two years, is backed by a
pledge of an ownership interest in Keymark of 10% (subject to
adjustment), and is non-recourse.
59
Table of Contents
7.
Accrued
Liabilities
Accrued liabilities
consisted of the following:
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Sales incentive
and advertising accruals
|
|
$
|
14,916
|
|
$
|
17,650
|
|
Labor related
liabilities
|
|
4,667
|
|
5,517
|
|
Vacation
liability
|
|
5,418
|
|
4,991
|
|
Dividend payable
|
|
4,897
|
|
4,854
|
|
Sales tax
payable
|
|
3,743
|
|
5,146
|
|
Other
|
|
461
|
|
1,030
|
|
|
|
$
|
34,102
|
|
$
|
39,188
|
|
8.
Debt
The
outstanding debt at December 31, 2008 and 2007, and the available credit
at December 31, 2008, consisted of the following:
|
|
Available
on
|
|
|
|
|
|
|
|
Credit
Facility
|
|
Debt
Outstanding
|
|
|
|
at
December 31,
|
|
at
December 31,
|
|
(dollar amounts in thousands)
|
|
2008
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Revolving line
of credit, interest at LIBOR plus 0.27% (at December 31, 2008, LIBOR
plus 0.27% was 0.64%), matures October 2012, commitment fees payable at
the annual rate of 0.08% on the unused portion of the facility
|
|
$
|
200,000
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Revolving line
of credit, interest at the banks base rate plus 3% (at December 31, 2008,
the banks base rate plus 3% was 5.00%), expires October 2009
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving lines
of credit, interest rates between 3.25% and 4.74%, expirations through
August 2009
|
|
5,387
|
|
26
|
|
1,029
|
|
|
|
205,751
|
|
26
|
|
1,029
|
|
Less current
portion
|
|
|
|
(26
|
)
|
(1,029
|
)
|
|
|
|
|
$
|
|
|
$
|
|
|
Available credit
|
|
$
|
205,751
|
|
|
|
|
|
The revolving lines of credit are guaranteed by the Company
and its subsidiaries.
In October 2007, the
Company entered into an unsecured credit agreement with a syndicate of banks
providing for a 5-year revolving credit facility of $200 million. The Company has the ability to increase the
amount available under the credit agreement by an additional $200 million, to a
maximum of $400 million, by obtaining additional commitments from existing
lenders or new lenders and satisfying certain other conditions. Under existing
conditions in credit markets, the Company does not believe that additional
commitments will be available on terms the Company considers reasonable. The
Company is required to pay an annual
facility fee
of 0.08% to 0.10% on the available commitments under the credit agreement,
regardless of usage, with the applicable fee determined on a quarterly basis
based on the Companys leverage ratio. Amounts borrowed under the credit
agreement will bear interest at an annual rate equal to either, at the Companys
option, (a) the British Bankers Association London Interbank Offered Rate
for the appropriate currency appearing on Reuters Screen LIBOR01-02 Page (the
LIBO Rate) plus a spread of from 0.27% to 0.40%, as determined on a quarterly
basis based on the Companys leverage ratio, or (b) the Base Rate, plus a
spread of 0.50%. The Company will pay
participation fees for outstanding standby letters of credit at an annual rate
equal to the LIBO Rate plus the applicable spreads described in the preceding
sentence, and will pay market-based fees for commercial letters of credit.
Loans outstanding under the credit agreement may be prepaid at any time without
penalty except for LIBO Rate breakage costs and expenses.
60
Table
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The proceeds of loans advanced under the credit agreement and
letters of credit issued thereunder may be used for working capital and other
general corporate needs of the Company, to pay dividends to the Companys stockholders
or to repurchase outstanding securities of the Company as permitted by the
credit agreement, and to finance acquisitions by the Company permitted by the
credit agreement. No loans or letters of credit are currently outstanding under
the credit agreement.
The Company and its subsidiaries are required to comply with
various affirmative and negative covenants. The
covenants include provisions that would limit the availability of funds as a
result of a material adverse change to the Companys financial position or
results of operations. The Company is in compliance with its financial covenants
under the loan agreement.
The Company incurs interest
costs, which include interest, maintenance fees and bank charges. The
amount of costs incurred, capitalized, and expensed for the years ended December 31,
2008, 2007 and 2006, consisted of the following:
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Interest costs
incurred
|
|
$
|
558
|
|
$
|
481
|
|
$
|
329
|
|
Less: Interest
capitalized
|
|
(177
|
)
|
(252
|
)
|
(121
|
)
|
Interest expense
|
|
$
|
381
|
|
$
|
229
|
|
$
|
208
|
|
9.
Commitments
and Contingencies
Leases
Certain properties
occupied by the Company are leased. The leases expire at various dates through
2014 and generally require the Company to assume the obligations for insurance,
property taxes and maintenance of the facilities.
Through the first half of
2006, some of the properties were leased from partnerships formed by current
and former Company stockholders, directors, officers and employees. The Company
paid no rent to these related party partnerships in 2007 or 2008. Rental
expenses under these related party leases for the year ended December 31,
2006, were less than $0.3 million.
During the year ended December 31, 2006, the Company
purchased the properties that it previously leased from Doolittle Investors and
Vacaville Investors for $5.0 million and $6.5 million, respectively. The
transactions were completed in March 2006 and June 2006,
respectively.
Rental expense for 2008, 2007 and 2006 with respect to all
other leased property was approximately $6.6 million, $5.7 million and $5.5
million, respectively.
At December 31,
2008, minimum rental commitments under all noncancelable leases were as
follows:
(in thousands)
|
|
|
|
|
|
|
|
2009
|
|
$
|
7,069
|
|
2010
|
|
4,490
|
|
2011
|
|
3,534
|
|
2012
|
|
2,676
|
|
2013
|
|
505
|
|
Thereafter
|
|
|
|
|
|
$
|
18,274
|
|
Some of these minimum
rental commitments contain renewal options and provide for periodic rental
adjustments based on changes in the consumer price index or current market rental
rates.
The nominal term of
Simpson Strong-Tie International Inc.s (SSTIs) lease in the United Kingdom
is 25 years (expiring in 2022) but provides an option to terminate without
penalty in either the fifteenth year (2012) or twentieth
61
Table
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year (2017) on one years
written notice by SSTI. Future minimum rental payments associated with the
first 15 years of this lease are included in minimum rental commitments in the
table above.
Employee
Relations
Approximately
14% of the Companys employees are represented by labor unions and are covered
by collective bargaining agreements. Two of the Companys collective bargaining
agreements cover the Companys tool and die craftsmen and maintenance workers
in Brea, California, and its sheetmetal workers in Brea and Ontario,
California. These two contracts expire February 2011 and June 2011,
respectively. Simpson Strong-Ties facility in Stockton, California, is also a
union facility with two collective bargaining agreements, which cover its tool
and die craftsmen and maintenance workers, and its sheetmetal workers. These
two contracts will expire June 2011 and September 2011, respectively.
Environmental
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.
At one
of the Companys operating facilities, evidence of contamination resulting from
activities of prior occupants was discovered. The Company took remedial actions
at the facility in 1990. In September 2007, the Company accrued $0.3
million related to clean-up and regulatory costs associated with its facility
in San Leandro, California. In June 2008, the Company performed additional
analysis and determined that an additional $0.4 million would be needed to
remediate the site (see Note 5). The Company does not believe that any further
action will be required or that this matter will have a material adverse effect
on its financial condition, cash flows or results of operations.
Litigation
From time to time, the Company is involved in litigation
that it considers to be in the normal course of its business. No such
litigation within the last five years resulted in any material loss. The
Company is not engaged in any legal proceedings as of the date hereof, which
the Company expects individually or in the aggregate to have a material adverse
effect on the Companys financial condition, cash flows or results of
operations. Litigation is, however, subject to inherent uncertainties and
actual results could differ.
Other
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.
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Table
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10.
Income
Taxes
The provision for income
taxes consisted of the following:
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Federal
|
|
$
|
28,003
|
|
$
|
40,429
|
|
$
|
52,419
|
|
State
|
|
5,098
|
|
8,313
|
|
9,091
|
|
Foreign
|
|
3,696
|
|
2,836
|
|
3,001
|
|
Deferred
|
|
|
|
|
|
|
|
Federal
|
|
(1,544
|
)
|
(1,798
|
)
|
(2,414
|
)
|
State
|
|
(56
|
)
|
(119
|
)
|
152
|
|
Foreign
|
|
521
|
|
(1,828
|
)
|
121
|
|
|
|
$
|
35,718
|
|
$
|
47,833
|
|
$
|
62,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes for the years ended December 31, 2008, 2007 and 2006, consisted of
the following:
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
86,635
|
|
$
|
125,193
|
|
$
|
155,969
|
|
Foreign
|
|
3,017
|
|
(8,618
|
)
|
9,063
|
|
|
|
$
|
89,652
|
|
$
|
116,575
|
|
$
|
165,032
|
|
Reconciliations between
the statutory federal income tax rates and the Companys effective income tax
rates as a percentage of income before income taxes were as follows:
|
|
Years Ended December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Federal tax rate
|
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
State taxes, net
of federal benefit
|
|
3.7
|
%
|
4.4
|
%
|
3.9
|
%
|
Tax benefit of
domestic manufacturing deduction
|
|
(2.0
|
)%
|
(2.1
|
)%
|
(0.9
|
)%
|
Nondeductible
Canadian goodwill writedown
|
|
|
|
2.3
|
%
|
|
|
Change in
valuation allowance
|
|
1.6
|
%
|
0.4
|
%
|
0.1
|
%
|
Other
|
|
1.5
|
%
|
1.0
|
%
|
(0.3
|
)%
|
Effective income
tax rate
|
|
39.8
|
%
|
41.0
|
%
|
37.8
|
%
|
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Table
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The tax effects of the
significant temporary differences that constitute the deferred tax assets and
liabilities at December 31, 2008, 2007 and 2006, were as follows:
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Current deferred
tax assets (liabilities)
|
|
|
|
|
|
|
|
State tax
|
|
$
|
1,958
|
|
$
|
2,760
|
|
$
|
3,131
|
|
Workers
compensation
|
|
1,685
|
|
1,624
|
|
1,459
|
|
Health claims
|
|
540
|
|
591
|
|
623
|
|
Vacation accrual
|
|
611
|
|
655
|
|
1,214
|
|
Accounts receivable
allowance
|
|
1,450
|
|
806
|
|
749
|
|
Inventories
|
|
5,344
|
|
4,712
|
|
3,103
|
|
Sales incentive
and advertising allowances
|
|
683
|
|
813
|
|
893
|
|
Accrued rent
reserves
|
|
|
|
70
|
|
359
|
|
Other, net
|
|
(276
|
)
|
(408
|
)
|
(315
|
)
|
|
|
$
|
11,995
|
|
$
|
11,623
|
|
$
|
11,216
|
|
|
|
|
|
|
|
|
|
Long-term
deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(535
|
)
|
$
|
(402
|
)
|
$
|
(1,091
|
)
|
Goodwill and
other intangibles amortization
|
|
(1,106
|
)
|
(795
|
)
|
(372
|
)
|
Deferred
compensation related to stock options
|
|
7,550
|
|
7,512
|
|
6,139
|
|
State tax credit
carry forward
|
|
126
|
|
145
|
|
289
|
|
FIN 48
unrecognized tax benefits
|
|
1,551
|
|
1,957
|
|
|
|
Keymark
partnership basis difference
|
|
351
|
|
300
|
|
232
|
|
Non-United
States tax loss carry forward
|
|
1,048
|
|
1,547
|
|
559
|
|
Tax effect on
cumulative translation adjustment
|
|
(850
|
)
|
(1,502
|
)
|
(1,487
|
)
|
Other, net
|
|
620
|
|
857
|
|
32
|
|
|
|
$
|
8,755
|
|
$
|
9,619
|
|
$
|
4,301
|
|
The
total deferred tax assets for the years ended December 31, 2008, 2007 and
2006, were $24.3 million, $25.3 million and $19.5 million, respectively. The
total deferred tax liabilities for the years ended December 31, 2008,
2007, and 2006, were $3.6 million, $4.0 million and $4.0 million, respectively.
At December 31,
2008, the Company had $9.9 million of tax loss carryforwards in various
non-United States taxing jurisdictions. Tax loss carryforwards of $155 thousand
and $864 thousand will expire in 2013 and 2014, respectively, if not utilized.
The remaining tax losses can be carried forward indefinitely.
At
December 31, 2008 and 2007, the Company had deferred tax valuation allowances
of $2.4 million and $0.9 million, respectively. The change in the valuation
allowance for the years ended December 31, 2008, 2007 and 2006, were $1.5
million, $0.5 million and $0.1 million, respectively.
The Company does not
provide for federal income taxes on the undistributed earnings of its
international subsidiaries because such earnings are reinvested and, in the
Companys opinion, will continue to be reinvested indefinitely. At December 31,
2008, 2007 and 2006, the Company had not provided federal income taxes on
undistributed earnings of $16.2 million, $10.2 million and $7.4 million,
respectively, from its international subsidiaries. Should these earnings be
distributed in the form of dividends or otherwise, the Company would be subject
to both United States income taxes and withholding taxes in various
international jurisdictions. These taxes may be partially offset by United
States foreign tax credits. Determination of the related amount of unrecognized
deferred United States income taxes is not practicable because of the
complexities associated with this hypothetical calculation. United States
federal income taxes are provided on the earnings of the Companys foreign
branches, which are included in the United States federal income tax return.
On January 1, 2007, the Company adopted FIN 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109. FIN 48
prescribes a recognition threshold that a tax
position is required to meet before being recognized in the
financial statements and provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition issues.
64
Table
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A reconciliation of the
beginning and ending amounts of unrecognized tax benefits in 2008 and 2007 was
as follows*:
(in thousands)
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
7,668
|
|
$
|
7,497
|
|
Additions based
on tax positions related to prior years
|
|
573
|
|
308
|
|
Reductions based
on tax positions related to prior years
|
|
(875
|
)
|
(749
|
)
|
Additions for
tax positions of the current year
|
|
801
|
|
1,432
|
|
Settlements
|
|
|
|
(413
|
)
|
Lapse of statute
of limitations
|
|
(1,462
|
)
|
(407
|
)
|
Balance at
December 31
|
|
$
|
6,705
|
|
$
|
7,668
|
|
* Foreign currency
translation amounts are included within each line as applicable.
Included in the balance
of unrecognized tax benefits at December 31, 2008 and 2007, and January 1,
2007, are tax positions of $1.8 million, $2.0 million and $1.8 million,
respectively, which, if recognized, would reduce the effective tax rate. The Company does not believe it is
reasonably possible that the total amounts of unrecognized tax benefits will
significantly increase or decrease within the next 12 months.
The Company recognizes
accrued interest and penalties related to unrecognized tax benefits in income
tax expense, which is a continuation of the Companys historical accounting
policy. During the years ended December 31, 2008, and 2007, the Company
recognized $0.2 million and $0.5 million, respectively, in potential interest
payments, before income tax benefits. At December 31, 2008 and 2007, and January 1,
2007, the Company had accrued $1.7 million, $1.5 million and $1.0 million,
respectively, for the potential payment of interest, before income tax
benefits.
At December 31,
2008, the Company was subject to United States federal income tax examinations
for the tax years 2005 through 2008. In addition, the Company was subject to
state, local and foreign income tax examinations primarily for the tax years
2003 through 2008.
11.
Retirement
Plans
The Company has six defined contribution retirement plans covering
substantially all salaried employees and nonunion hourly employees. Two of the
plans, covering United States employees, provide for annual contributions in
amounts that the Companys Board of Directors may authorize, subject to certain
limitations, but in no event more than the amounts permitted under the Internal
Revenue Code as deductible expense. The other four plans, covering the Companys
European and Canadian employees, require the Company to make contributions
ranging from 3% to 15% of the employees compensation. The total cost for these
retirement plans for the years ended December 31, 2008, 2007 and 2006, was
$10.5 million, $9.6 million and $8.9 million, respectively.
The Company also
contributes to various industry-wide, union-sponsored pension funds for hourly
employees who are union members. Payments to these funds aggregated $2.6
million, $2.8 million and $2.7 million for the years ended December 31,
2008, 2007 and 2006, respectively.
12.
Related
Party Transactions
In 2003, the Companys Chief Executive Officer leased an airplane that
is managed by a charter company unrelated to the Company. The Company pays the
charter company standard hourly rates when this airplane is hired for use by
its Chief Executive Officer in travel between his home and Company offices or
by him and other Company employees in travel on business. As lessee of the
airplane, the Companys Chief Executive Officer is also responsible for its
maintenance and receives a portion of each payment to the charter company for
its use, whether by the Company or others. The total cost to the Company for
this and other airplanes that are used, including $21 thousand, $20 thousand
and $24 thousand paid to the Companys Chief Executive Officer for compensation
for the years ended December 31, 2008, 2007 and 2006, was $274 thousand,
$345 thousand and $213 thousand, respectively. The independent members of the
Board unanimously approved this arrangement. The Company computes the
compensation cost of the use of airplanes using the Standard Industrial Fare
Level (SIFL) tables prescribed under applicable Internal Revenue Service
regulations.
65
Table
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In January 2005, Michael Petrovic was appointed as an
officer of Simpson Strong-Tie Canada, Limited (SSTC), a wholly-owned
subsidiary of Simpson Strong-Tie. Mr. Petrovic was an owner of MGA
Construction Hardware & Steel Fabricating Limited and MGA Connectors
Limited (collectively, MGA), which SSTC acquired in 2003, and is a co-lessor
of the property that SSTC leases in Maple Ridge, British Columbia. SSTC paid $170
thousand per year to lease the property from Mr. Petrovic and his
associates. In February 2007, the Company purchased the building from Mr. Petrovic
and his associates for $4.0 million.
In March 2006, the Company completed the purchase, for
$5.0 million, of the property in San Leandro, California, that it previously
leased from a related party partnership, Doolittle Investors, which consisted
primarily of current and past employees and directors of the Company. In June 2006,
the Company completed the purchase, for $6.5 million, of the property in
Vacaville, California, that it previously leased from a related party
partnership, Vacaville Investors, which consisted primarily of current and past
employees and directors of the Company. These transactions were unanimously
approved by the independent members of the Board. See Note 9.
In December 2007,
the Company extended its lease on a property in Addison, Illinois, which is
co-owned by Gerald Hagel, who was appointed as a vice president of the Simpson
Strong-Tie in March 2007. The
renewal is for an additional five years through 2012. The Company paid $270
thousand per year to lease the property from Mr. Hagel and his wife Susan
Hagel, a former employee of Simpson Strong-Tie.
In October 2008, the
Company voluntarily contributed $0.7 million to Keymark, for which the Company
accounts using the equity method, and lent $1.3 million to Keymarks other
owner, which concurrently contributed that amount to Keymarks capital.
The loan bears interest at the annual rate of 6%, has a term of two years, is
backed by a pledge of an ownership interest in Keymark of 10% (subject to
adjustment), and is non-recourse. See Note 6.
13.
Stock
Option and Stock Bonus 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 at the beginning of the year, are
met.
The fair value of each
option award is 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 rate on the grant date.
Black-Scholes option
pricing model assumptions for options committed to be granted in 2009, and for
those granted in 2008, 2007 and 2006, were as follows:
Number
|
|
|
|
Risk-
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
of Options
|
|
|
|
Free
|
|
|
|
|
|
|
|
|
|
Average
|
|
Granted
|
|
Grant
|
|
Interest
|
|
Dividend
|
|
Expected
|
|
|
|
Exercise
|
|
Fair
|
|
(in thousands)
|
|
Date
|
|
Rate
|
|
Yield
|
|
Life
|
|
Volatility
|
|
Price Range
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
02/23/09
|
|
2.08%
|
|
2.48%
|
|
6.5 years
|
|
30.9%
|
|
$
|
16.10
|
|
$
|
4.06
|
|
29
|
|
|
02/04/09
|
|
2.17%
|
|
1.88%
|
|
6.5 years
|
|
30.9%
|
|
$
|
21.25
|
|
$
|
5.86
|
|
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
|
|
1
|
|
|
05/30/06
|
|
4.97%
|
|
0.90%
|
|
6.3 years
|
|
27.2%
|
|
$
|
35.75
|
|
$
|
12.25
|
|
489
|
|
|
01/26/06
|
|
4.46%
|
|
0.79%
|
|
6.3 years
|
|
27.2%
|
|
$ 40.72 to $
|
44.79
|
|
$
|
13.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1995
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
02/15/06
|
|
4.46%
|
|
0.81%
|
|
6.3 years
|
|
27.2%
|
|
$
|
39.27
|
|
$
|
13.14
|
|
66
Table
of Contents
The following table
summarizes the Companys stock option activity for the year ended December 31,
2008:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
|
Shares
|
|
Exercise
|
|
Contractual
|
|
Value*
|
|
Non-Qualified Stock Options
|
|
(in thousands)
|
|
Price
|
|
Life
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
January 1, 2008
|
|
2,656
|
|
$
|
27.91
|
|
3.4
|
|
$
|
7,895
|
|
Granted
|
|
54
|
|
$
|
24.29
|
|
|
|
|
|
Exercised
|
|
(410
|
)
|
$
|
16.79
|
|
|
|
|
|
Forfeited
|
|
(50
|
)
|
$
|
34.93
|
|
|
|
|
|
Outstanding at
December 31, 2008
|
|
2,250
|
|
$
|
29.70
|
|
2.8
|
|
$
|
5,424
|
|
Outstanding and
expected to vest at December 31, 2008
|
|
2,241
|
|
$
|
29.67
|
|
2.7
|
|
$
|
5,418
|
|
Exercisable at
December 31, 2008
|
|
1,992
|
|
$
|
28.94
|
|
2.5
|
|
$
|
5,265
|
|
*
The intrinsic value represents the amount by which the fair market value of the
underlying common stock exceeds the exercise price of the option, using the
closing price per share of $27.76 on December 31, 2008.
The total intrinsic value of options
exercised during the three years ended December 31, 2008, 2007 and 2006,
was $3.7 million, $3.5 million and $10.7 million, respectively.
A summary of the status of unvested
options as of December 31, 2008, and changes during the year ended December 31,
2008, is 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
|
|
(320
|
)
|
$
|
11.89
|
|
Forfeited
|
|
(19
|
)
|
$
|
13.28
|
|
Unvested at
December 31, 2008
|
|
258
|
|
$
|
11.58
|
|
As of December 31, 2008, $3.0 million of total unrecognized
compensation cost was related to unvested share-based compensation arrangements
granted under the 1994 Plan. This cost is expected to be recognized over a
weighted-average period of 2.0 years.
Options granted under the 1995
Plan are fully vested and recorded as expense on the date of grant.
The Company also
maintains a Stock Bonus Plan whereby it awards shares to employees, who do not
otherwise participate in one of the Companys stock option plans. The number of
shares awarded, as well as the period of service, are considered by the
Compensation Committee of the Board, at its discretion. In 2008, 2007 and 2006, the Company committed to issue 11
thousand, 9 thousand and 10 thousand shares, respectively, which resulted in
pre-tax compensation charges of $0.4 million, for each year ended December 31,
2008, 2007, and 2006. These employees are also awarded cash bonuses, which are
included in these charges, to compensate for their income taxes payable as a
result of the stock bonuses. Shares have been issued under this Plan in the
year following the year in which the employee reached the tenth anniversary of
employment with the Company.
14.
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,
67
Table
of Contents
the production processes,
the distribution channels and the product applications. Transactions between
the two segments were immaterial for each of the years presented.
The following table
illustrates certain measurements used by management to assess the performance
of the segments described above as of December 31, 2008, 2007 and 2006, or
for the years then ended:
(in thousands)
|
|
Connector
|
|
Venting
|
|
Administrative
|
|
|
|
2008
|
|
Products
|
|
Products
|
|
and All Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
676,724
|
|
$
|
79,775
|
|
$
|
|
|
$
|
756,499
|
|
Income (loss)
from operations
|
|
91,567
|
|
(2,616
|
)
|
(1,409
|
)
|
87,542
|
|
Depreciation and
amortization
|
|
24,082
|
|
4,903
|
|
1,224
|
|
30,209
|
|
Significant
non-cash charges
|
|
3,289
|
|
259
|
|
275
|
|
3,823
|
|
Goodwill
impairment
|
|
2,964
|
|
|
|
|
|
2,964
|
|
Income tax
expense (benefit)
|
|
35,861
|
|
(1,046
|
)
|
903
|
|
35,718
|
|
Capital
expenditures and acquisitions
|
|
41,933
|
|
9,968
|
|
429
|
|
52,330
|
|
Total assets
|
|
612,733
|
|
77,218
|
|
140,249
|
|
830,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connector
|
|
Venting
|
|
Administrative
|
|
|
|
2007
|
|
Products
|
|
Products
|
|
and All
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
745,692
|
|
$
|
71,296
|
|
$
|
|
|
$
|
816,988
|
|
Income (loss)
from operations
|
|
114,433
|
|
(2,629
|
)
|
(955
|
)
|
110,849
|
|
Depreciation and
amortization
|
|
23,044
|
|
4,891
|
|
49
|
|
27,984
|
|
Significant
non-cash charges
|
|
5,246
|
|
444
|
|
643
|
|
6,333
|
|
Goodwill
impairment
|
|
10,666
|
|
|
|
|
|
10,666
|
|
Long-lived asset
impairment
|
|
465
|
|
|
|
|
|
465
|
|
Income tax
expense (benefit)
|
|
49,127
|
|
(878
|
)
|
(416
|
)
|
47,833
|
|
Capital
expenditures and acquisitions
|
|
72,418
|
|
5,664
|
|
479
|
|
78,561
|
|
Total assets
|
|
575,707
|
|
78,541
|
|
163,431
|
|
817,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connector
|
|
Venting
|
|
Administrative
|
|
|
|
2006
|
|
Products
|
|
Products
|
|
and All
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
771,176
|
|
$
|
92,004
|
|
$
|
|
|
$
|
863,180
|
|
Income (loss)
from operations
|
|
155,718
|
|
7,248
|
|
(1,556
|
)
|
161,410
|
|
Depreciation and
amortization
|
|
20,468
|
|
3,989
|
|
79
|
|
24,536
|
|
Significant
non-cash charges
|
|
6,351
|
|
404
|
|
1,010
|
|
7,765
|
|
Income tax
expense (benefit)
|
|
61,197
|
|
2,875
|
|
(1,702
|
)
|
62,370
|
|
Capital
expenditures and acquisitions
|
|
48,940
|
|
10,666
|
|
1,066
|
|
60,672
|
|
Total assets
|
|
509,705
|
|
80,143
|
|
145,486
|
|
735,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 short-term investment balances in the Administrative
and All Other segment were $136.2 million, $159.8 million and $130.7 million as
of December 31, 2008, 2007 and 2006, respectively. The significant
non-cash charges comprise compensation related to the awards under the stock
option plans and the stock bonus plan.
68
Table
of Contents
The following
table illustrates how the Companys net sales and long-lived assets were
distributed geographically as of December 31, 2008, 2007 and 2006, or for
the years then ended:
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
Net
|
|
Long-Lived
|
|
Net
|
|
Long-Lived
|
|
Net
|
|
Long-Lived
|
|
(in thousands)
|
|
Sales
|
|
Assets
|
|
Sales
|
|
Assets
|
|
Sales
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
590,111
|
|
$
|
172,185
|
|
$
|
679,050
|
|
$
|
185,685
|
|
$
|
734,745
|
|
$
|
181,572
|
|
Denmark
|
|
29,175
|
|
4,616
|
|
17,985
|
|
5,496
|
|
23,482
|
|
5,081
|
|
Canada
|
|
42,334
|
|
5,231
|
|
35,692
|
|
8,470
|
|
30,168
|
|
3,188
|
|
United Kingdom
|
|
25,882
|
|
1,248
|
|
32,787
|
|
1,985
|
|
27,392
|
|
2,037
|
|
France
|
|
30,538
|
|
5,952
|
|
25,917
|
|
6,800
|
|
20,962
|
|
5,532
|
|
Germany
|
|
28,315
|
|
1,990
|
|
22,248
|
|
258
|
|
23,757
|
|
529
|
|
Ireland
|
|
3,637
|
|
4,177
|
|
|
|
|
|
|
|
|
|
Asia
|
|
2,659
|
|
9,056
|
|
90
|
|
60
|
|
|
|
|
|
Other countries
|
|
3,848
|
|
567
|
|
3,219
|
|
630
|
|
2,674
|
|
651
|
|
|
|
$
|
756,499
|
|
$
|
205,022
|
|
$
|
816,988
|
|
$
|
209,384
|
|
$
|
863,180
|
|
$
|
198,590
|
|
Net sales and
long-lived assets, net of intangible assets, are attributable to the country
where the operations are located. In prior years, the Asia category was
combined with and reported under the other countries category. The Ireland
category is newly formed due to the Companys acquisition of the Liebig assets
in 2008.
The companys
largest customer, attributable mostly to the connector products
segment, accounted for slightly less than 10% of net sales for the
year ended December 31, 2008. In August 2007, this customer, sold a
division, which is now a separate customer of the Company attributable mostly
to the connector products segment. As a combined company in 2007, these two
customers accounted for 15% of the Companys net sales. As combined companies
in 2006, this customer accounted for 17% of net sales for the year ended December 31,
2006. As two separate customers, neither would have accounted for net sales
greater than 10% of consolidated net sales for 2007 or 2006.
15.
Consolidation
of Variable Interest Entities
The Company
previously leased two facilities from related-party partnerships (see Notes 9
and 12) whose primary purpose was to own and lease these properties to the
Company. The partnerships did not have any other significant assets. These
partnerships were considered variable interest entities under FASB
Interpretation No. 46(R)
Consolidation of Variable Interest Entities
(revised December 2003)an Interpretation of ARB No. 51
(FIN 46(R)). Although the Company did not have ownership interests in the
partnerships, it was required to consolidate the partnerships, as it was
considered the primary beneficiary as interpreted by FIN 46(R). The Company
became the primary beneficiary when it agreed to a fixed price purchase option
for the properties owned by the related-party partnerships. The Company
purchased the two facilities during the year ended December 31, 2006.
The real estate
owned by the partnerships consisted of land, buildings and building
improvements, which were pledged as collateral for mortgages under which the
lender had no recourse to the Company. The Company had no off-balance sheet
arrangements at December 31, 2008 or 2007.
16.
Subsequent
Events
In January 2009, the Company acquired the assets of RO
Design Corp, a Florida corporation doing business as DeckTools, which licenses
deck design and estimation software. The software provides professional deck
builders, home centers and lumber yards a simple, graphics-driven, solution for
designing decks and estimating material and labor costs for the project. The
purchase price was $4.0 million in cash, including $2.5 million to be paid in
the future.
In February 2009,
the Board declared a dividend of $0.10 per share, a total currently estimated
at $4.9 million, to be paid on April 24, 2009, to stockholders of record
on April 3, 2009.
69
Table
of Contents
17.
Selected
Quarterly Financial Data (Unaudited)
The following
table sets forth selected quarterly financial data for each of the quarters in
2008 and 2007:
|
|
2008
|
|
2007
|
|
(in thousands, except
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
per share amounts)
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
149,756
|
|
$
|
219,823
|
|
$
|
219,263
|
|
$
|
167,656
|
|
$
|
175,280
|
|
$
|
217,265
|
|
$
|
231,288
|
|
$
|
193,155
|
|
Cost of sales
|
|
97,251
|
|
130,143
|
|
135,398
|
|
111,398
|
|
115,986
|
|
136,055
|
|
137,925
|
|
121,533
|
|
Gross profit
|
|
52,505
|
|
89,680
|
|
83,865
|
|
56,258
|
|
59,294
|
|
81,210
|
|
93,363
|
|
71,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development and other engineering
|
|
4,951
|
|
5,662
|
|
5,610
|
|
5,103
|
|
4,405
|
|
4,987
|
|
5,463
|
|
5,260
|
|
Selling expense
|
|
17,439
|
|
21,323
|
|
22,134
|
|
19,807
|
|
19,477
|
|
18,271
|
|
20,053
|
|
18,154
|
|
General and administrative
expense
|
|
22,684
|
|
25,555
|
|
23,786
|
|
17,872
|
|
19,651
|
|
22,991
|
|
24,332
|
|
21,642
|
|
Impairment of
goodwill
|
|
2,964
|
|
|
|
|
|
|
|
10,666
|
|
|
|
|
|
|
|
Loss (gain) on
sale of assets
|
|
(66
|
)
|
(41
|
)
|
(19
|
)
|
2
|
|
(60
|
)
|
(561
|
)
|
(86
|
)
|
(4
|
)
|
Income from
operations
|
|
4,533
|
|
37,181
|
|
32,354
|
|
13,474
|
|
5,155
|
|
35,522
|
|
43,601
|
|
26,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) in
equity method Investment
|
|
(486
|
)
|
|
|
|
|
|
|
|
|
(59
|
)
|
59
|
|
(33
|
)
|
Interest income,
net
|
|
383
|
|
579
|
|
505
|
|
1,128
|
|
1,592
|
|
1,370
|
|
1,424
|
|
1,374
|
|
Income before
income taxes
|
|
4,430
|
|
37,760
|
|
32,859
|
|
14,602
|
|
6,747
|
|
36,833
|
|
45,084
|
|
27,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
2,591
|
|
14,398
|
|
12,478
|
|
6,250
|
|
6,260
|
|
14,186
|
|
16,767
|
|
10,621
|
|
Net income
|
|
$
|
1,839
|
|
$
|
23,362
|
|
$
|
20,381
|
|
$
|
8,352
|
|
$
|
487
|
|
$
|
22,647
|
|
$
|
28,317
|
|
$
|
17,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
$
|
0.48
|
|
$
|
0.42
|
|
$
|
0.17
|
|
$
|
0.01
|
|
$
|
0.47
|
|
$
|
0.58
|
|
$
|
0.36
|
|
Diluted
|
|
0.04
|
|
0.48
|
|
0.42
|
|
0.17
|
|
0.01
|
|
0.46
|
|
0.58
|
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
declared per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.10
|
|
Basic and diluted
income per common share for each of the quarters presented above is based on
the respective weighted average numbers of common and dilutive potential common
shares outstanding for each quarter, and the sum of the quarters may not necessarily
be equal to the full year basic and diluted net income per common share
amounts.
In the fourth
quarter of 2008, the Company recorded an impairment charge of goodwill of $3.0
million. In the fourth quarter of 2007, the Company recorded an impairment
charge of goodwill of $10.7 million. See Note 1
Goodwill
and Intangible Assets.
70
Table
of Contents
SCHEDULE II
Simpson Manufacturing Co., Inc.
and Subsidiaries
VALUATION
AND QUALIFYING ACCOUNTS
for the years ended December 31,
2008, 2007 and 2006
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Charged
|
|
Charged
|
|
|
|
|
|
|
|
Balance at
|
|
to Costs
|
|
to Other
|
|
|
|
Balance
|
|
(in thousands)
|
|
Beginning
|
|
and
|
|
Accounts
|
|
|
|
at End
|
|
Classification
|
|
of Year
|
|
Expenses
|
|
Write-offs
|
|
Deductions
|
|
of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts
|
|
$
|
2,724
|
|
$
|
2,431
|
|
$
|
|
|
$
|
787
|
|
$
|
4,368
|
|
Allowance for
obsolete inventory
|
|
10,338
|
|
440
|
|
|
|
749
|
|
10,029
|
|
Allowance for
sales discounts
|
|
1,815
|
|
1,600
|
|
|
|
1,859
|
|
1,556
|
|
Allowance for
deferred tax assets
|
|
918
|
|
1,507
|
|
|
|
49
|
|
2,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts
|
|
2,286
|
|
713
|
|
|
|
275
|
|
2,724
|
|
Allowance for
obsolete inventory
|
|
5,480
|
|
4,801
|
|
|
|
(57
|
)
|
10,338
|
|
Allowance for
sales discounts
|
|
1,920
|
|
1,604
|
|
|
|
1,709
|
|
1,815
|
|
Allowance for
deferred tax assets
|
|
459
|
|
489
|
|
|
|
30
|
|
918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts
|
|
2,131
|
|
232
|
|
|
|
77
|
|
2,286
|
|
Allowance for
obsolete inventory
|
|
5,399
|
|
81
|
|
|
|
|
|
5,480
|
|
Allowance for
sales discounts
|
|
2,188
|
|
2,050
|
|
|
|
2,318
|
|
1,920
|
|
Allowance for
deferred tax assets
|
|
337
|
|
165
|
|
|
|
43
|
|
459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
Table of Contents
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosures.
None.
Item 9A.
Controls and Procedures.
Disclosure
Controls and Procedures.
As of December 31, 2008, an evaluation 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),
of the effectiveness of the design and operation of the Companys disclosure
controls and procedures. 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 December 31, 2008, the Company made no changes to its
internal controls over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended (the Exchange
Act), that have materially affected, or are reasonably likely to materially
affect, its internal controls over financial reporting.
Managements Report on Internal Control over Financial
Reporting
.
Management is responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Exchange Act Rule 13a-15(f)). Management assessed the
effectiveness of the Companys internal control over financial reporting as of December 31,
2008, using criteria established in
Internal
Control-Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and concluded that the
Company maintained effective internal control over financial reporting as of December 31,
2008.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
The Companys management has excluded Liebig, ProTech,
and Ahorn
from its assessment of
internal control over financial reporting as of December 31, 2008, because
they were acquired by the Company during 2008. Liebig and Ahorn are divisions
of Simpson Strong-Tie and ProTech is division of Simpson Dura-Vent. The total
assets and total revenues of these acquisitions represent approximately 7% and
2%, respectively, of the related consolidated financial statement amounts as of
and for the year ended December 31, 2008.
PricewaterhouseCoopers
LLP, an independent registered public accounting firm that audited the Companys
consolidated financial statements included in this Form 10-K, has issued a
report on the Companys internal control over financial reporting, which is
included herein.
Item 9B.
Other Information.
None
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
Information required by
this Item will be contained in the Companys proxy statement for the annual
meeting of its stockholders to be held on April 17, 2009, to be filed with
the Securities and Exchange Commission not later than 120 days following the
end of the Companys fiscal year ended December 31, 2008, which
information is incorporated herein by reference.
Item 11.
Executive Compensation.
Information required by
this Item will be contained in the Companys proxy statement for the annual
meeting of its stockholders to be held on April 17, 2009, to be filed with
the Securities and Exchange Commission not later than 120 days following the
end of the Companys fiscal year ended December 31, 2008, which
information is incorporated herein by reference.
72
Table of Contents
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Certain information
required by this Item will be contained in the Companys proxy statement for
the annual meeting of its stockholders to be held on April 17, 2009, to be
filed with the Securities and Exchange Commission not later than 120 days
following the end of the Companys fiscal year ended December 31, 2008,
which information is incorporated herein by reference. The other information
required by this Item appears in this report under Item 5 Market for Companys
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities, which is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Information
required by this Item will be contained in the Companys proxy statement for the
annual meeting of its stockholders to be held on April 17, 2009, to be
filed with the Securities and Exchange Commission not later than 120 days
following the end of the Companys fiscal year ended December 31, 2008,
which information is incorporated herein by reference.
Item 14.
Principal Accounting Fees and Services.
Information required by
this Item will be contained in the Companys proxy statement for the annual
meeting of its stockholders to be held on April 17, 2009, to be filed with
the Securities and Exchange Commission not later than 120 days following the
end of the Companys fiscal year ended December 31, 2008, which
information is incorporated herein by reference.
73
Table of Contents
PART IV
Item 15.
Exhibits and Financial Statement Schedules.
(a)
The following documents are filed as part of this
Annual Report:
1.
Consolidated financial statements
The following consolidated
financial statements are filed as a part of this report:
2.
Financial Statement Schedules
The following
consolidated financial statement schedule for each of the years in the
three-year period ended December 31, 2008, is filed as part of this Annual
Report:
All other schedules have
been omitted as the required information is not present or is not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements and
notes thereto.
(b)
Exhibits
The following exhibits
are either incorporated by reference into this report or filed with this report
as indicated below.
3.1
Certificate of Incorporation of Simpson Manufacturing
Co., Inc., as amended, is incorporated by reference to Exhibit 3.1 of
its Quarterly Report on Form 10-Q for the quarter ended September 30,
2007.
3.2
Bylaws of Simpson Manufacturing Co., Inc., as
amended through August 1, 2008, are incorporated by reference to Exhibit 3.2
of its Current Report on Form 8-K dated August 4, 2008.
4.1
Rights Agreement dated as of July 30, 1999,
between Simpson Manufacturing Co., Inc. and BankBoston, N.A., which
includes as Exhibit B the form of Rights Certificate, is incorporated by
reference to Exhibit 4.1 of Simpson Manufacturing Co., Inc.s
Registration Statement on Form 8-A dated August 4, 1999.
4.2
Certificate of Designation, Preferences and Rights of Series A
Participating Preferred Stock of Simpson Manufacturing Co., Inc., dated July 30,
1999, is incorporated by reference to Exhibit 4.2 of its Registration
Statement on Form 8-A dated August 4, 1999.
74
Table
of Contents
10.1
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.
10.2
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.
10.3
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.
10.4
Credit Agreement dated as of October 10, 2007,
among Simpson Manufacturing Co., Inc. as Borrower, the Lenders party
thereto, Wells Fargo Bank as Agent, and Simpson Dura-Vent Company, Inc.,
Simpson Strong Tie Company Inc., and Simpson Strong-Tie International, Inc.
as Guarantors, is incorporated by reference to Exhibit 10.1 of Simpson
Manufacturing Co., Inc.s Current Report on Form 8-K dated October 15,
2007.
10.5
Form of Indemnification Agreement between Simpson
Manufacturing Co., Inc. and its directors and executive officers, as well
as the officers of Simpson Strong-Tie Company Inc. and Simpson Dura-Vent
Company, Inc., is incorporated by reference to Exhibit 10.2 of
Simpson Manufacturing Co., Inc.s Annual Report on Form 10-K for the
year ended December 31, 2004.
10.6
Stock Purchase Agreement dated as of July 23,
2007, between Hobart K. Swan and Reliance Trust Company, solely in its capacity
as independent trustee of the Swan Secure Products, Inc. Employee Stock
Ownership Plan and Trust, on the one hand, and Simpson Strong-Tie Company Inc.
and Simpson Manufacturing Co., Inc., on the other hand, is incorporated by
reference to Exhibit 10.1 of Simpson Manufacturing Co., Inc.s
Current Report on Form 8-K dated July 24, 2007.
21.
List of Subsidiaries of the Registrant is filed herewith.
23.
Consent of Independent Registered Public Accounting
Firm is filed herewith.
31.
Rule 13a-14(a)/15d-14(a) Certifications are
filed herewith.
32.
Section 1350
Certifications are filed herewith.
99.1
Simpson Manufacturing Co., Inc. 1994 Employee
Stock Bonus Plan, as amended through November 18, 2004, is incorporated by
reference to Exhibit 99.1 of Simpson Manufacturing Co., Inc.s Annual
Report on Form 10-K for the year ended December 31, 2007.
75
Table of Contents
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated:
February 27, 2009
|
|
Simpson Manufacturing Co., Inc.
|
|
(Registrant)
|
|
|
|
|
|
By
|
/s/Michael J. Herbert
|
|
|
Michael J. Herbert
|
|
|
Chief Financial Officer
|
|
|
and Duly Authorized Officer
|
|
|
of the Registrant
|
|
|
(principal accounting and financial officer)
|
|
|
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated below.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
Chief
Executive Officer:
|
|
|
|
|
|
|
|
|
|
/s/Thomas J Fitzmyers
|
|
President, Chief
Executive
|
|
February 27,
2009
|
(Thomas J Fitzmyers)
|
|
Officer and
Director
|
|
|
|
|
|
|
|
Chief
Financial Officer:
|
|
|
|
|
|
|
|
|
|
/s/Michael J. Herbert
|
|
Chief Financial
Officer,
|
|
February 27,
2009
|
(Michael J. Herbert)
|
|
Treasurer and
Secretary
|
|
|
|
(principal
accounting and financial officer)
|
|
|
Directors:
|
|
|
|
|
|
|
|
|
|
/s/Barclay Simpson
|
|
Chairman of the
Board
|
|
February 27,
2009
|
(Barclay Simpson)
|
|
|
|
|
|
|
|
|
|
/s/Jennifer A. Chatman
|
|
Director
|
|
February 27,
2009
|
(Jennifer A. Chatman)
|
|
|
|
|
|
|
|
|
|
/s/Earl F. Cheit
|
|
Director
|
|
February 27,
2009
|
(Earl F. Cheit)
|
|
|
|
|
|
|
|
|
|
/s/Gary M. Cusumano
|
|
Director
|
|
February 27,
2009
|
(Gary M. Cusumano)
|
|
|
|
|
|
|
|
|
|
/s/Peter N. Louras
|
|
Director
|
|
February 27,
2009
|
(Peter N. Louras)
|
|
|
|
|
|
|
|
|
|
/s/Robin G. MacGillivray
|
|
Director
|
|
February 27,
2009
|
(Robin G. MacGillivray)
|
|
|
|
|
|
|
|
|
|
/s/Barry Lawson Williams
|
|
Director
|
|
February 27,
2009
|
(Barry Lawson Williams)
|
|
|
|
|
76
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