UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the
quarterly period ended: March 31, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the
transition period
from to
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Commission file number: 1-13429
Simpson Manufacturing Co., Inc.
(Exact name of registrant as specified in its charter)
Delaware
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94-3196943
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(State or other
jurisdiction of incorporation
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(I.R.S. Employer
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or organization)
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Identification
No.)
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5956 W.
Las Positas Blvd., Pleasanton, CA 94588
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(Address of
principal executive offices)
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(Registrants telephone number, including area
code):
(925)
560-9000
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate by check
mark whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
o
No
o
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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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
The number of
shares of the registrants common stock outstanding as of March 31, 2009: 48,989,123
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Balance
Sheets
(In thousands, unaudited)
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March 31,
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December 31,
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2009
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2008
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2008
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ASSETS
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Current assets
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|
|
|
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Cash and cash
equivalents
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$
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158,208
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$
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164,381
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$
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170,750
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Trade accounts
receivable, net
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79,383
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107,634
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76,005
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Inventories
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225,568
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227,855
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251,878
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Deferred income
taxes
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13,672
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11,236
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11,995
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Assets held for
sale
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8,387
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9,677
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|
8,387
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Other current
assets
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13,236
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|
8,825
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8,582
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Total current
assets
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498,454
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529,608
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527,597
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Property, plant
and equipment, net
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191,412
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195,319
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193,318
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Goodwill
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69,160
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57,845
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68,619
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Equity method
investment
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21
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214
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Intangible
assets, net
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22,137
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22,142
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23,453
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Other noncurrent
assets
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18,225
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18,513
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16,999
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Total assets
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$
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799,409
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$
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823,427
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$
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830,200
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current
liabilities
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Line of credit
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$
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821
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$
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3,390
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$
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26
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Trade accounts
payable
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22,232
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34,745
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21,675
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Accrued
liabilities
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28,873
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30,357
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34,102
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Income taxes
payable
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1,639
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Accrued profit
sharing trust contributions
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1,973
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2,411
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9,541
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Accrued cash
profit sharing and commissions
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1,353
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4,665
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2,264
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Accrued workers
compensation
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4,299
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4,116
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4,286
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Total current
liabilities
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59,551
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81,323
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71,894
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Other long-term
liabilities
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9,289
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12,144
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9,280
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Total
liabilities
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68,840
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93,467
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81,174
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Commitments and
contingencies (Note 7)
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Stockholders
equity
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Common stock, at
par value
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490
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|
486
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|
490
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Additional
paid-in capital
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137,503
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127,573
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136,867
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Retained
earnings
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592,644
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574,988
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605,950
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Accumulated
other comprehensive income (loss)
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(68
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)
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26,913
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5,719
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Total
stockholders equity
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730,569
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729,960
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749,026
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Total
liabilities and stockholders equity
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$
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799,409
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$
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823,427
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$
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830,200
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The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Statements
of Operations
(In thousands except per-share amounts, unaudited)
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Three Months Ended
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March 31,
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2009
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2008
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Net sales
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$
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119,323
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$
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167,656
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Cost of sales
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88,610
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111,398
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Gross profit
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30,713
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56,258
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Operating
expenses:
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Research and
development and other engineering
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4,864
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5,103
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Selling
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16,025
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19,807
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General and
administrative
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20,162
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17,874
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41,051
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42,784
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Income (loss)
from operations
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(10,338
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)
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13,474
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Loss on equity
method investment, before tax
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(193
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)
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Interest income,
net
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102
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1,128
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Income (loss)
before income taxes
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(10,429
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)
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14,602
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Provision for
(benefit from) income taxes
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(2,020
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)
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6,250
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Net income
(loss)
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$
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(8,409
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)
|
$
|
8,352
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|
|
|
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Net income
(loss) per common share
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Basic
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$
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(0.17
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)
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$
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0.17
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Diluted
|
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$
|
(0.17
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)
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$
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0.17
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|
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|
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Cash dividends
declared per common share
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$
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0.10
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$
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0.10
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Number of shares
outstanding
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Basic
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48,987
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48,574
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Diluted
|
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48,987
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48,931
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed
Consolidated Statements of
Stockholders Equity
for the
three months ended March 31, 2008 and 2009 and the nine months ended December 31,
2008
(In thousands except per-share amounts, unaudited)
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Accumulated
|
|
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Additional
|
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Other
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
|
|
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|
Shares
|
|
Par Value
|
|
Capital
|
|
Earnings
|
|
Income (Loss)
|
|
Total
|
|
Balance, January 1, 2008
|
|
48,552
|
|
$
|
485
|
|
$
|
126,119
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|
$
|
571,499
|
|
$
|
25,297
|
|
$
|
723,400
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
8,352
|
|
|
|
8,352
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net of tax of $17
|
|
|
|
|
|
|
|
|
|
1,616
|
|
1,616
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
9,968
|
|
Stock options exercised
|
|
26
|
|
1
|
|
507
|
|
|
|
|
|
508
|
|
Stock compensation
|
|
|
|
|
|
765
|
|
|
|
|
|
765
|
|
Tax benefit of options exercised
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
(65
|
)
|
Cash dividends declared on common stock ($0.10 per share)
|
|
|
|
|
|
|
|
(4,863
|
)
|
|
|
(4,863
|
)
|
Common stock issued at $26.59 per share for stock bonus
|
|
9
|
|
|
|
247
|
|
|
|
|
|
247
|
|
Balance, March 31, 2008
|
|
48,587
|
|
486
|
|
127,573
|
|
574,988
|
|
26,913
|
|
729,960
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
45,582
|
|
|
|
45,582
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net of tax of ($695)
|
|
|
|
|
|
|
|
|
|
(21,194
|
)
|
(21,194
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
24,388
|
|
Stock options exercised
|
|
384
|
|
4
|
|
6,369
|
|
|
|
|
|
6,373
|
|
Stock compensation
|
|
|
|
|
|
2,484
|
|
|
|
|
|
2,484
|
|
Tax benefit of options exercised
|
|
|
|
|
|
441
|
|
|
|
|
|
441
|
|
Cash dividends declared on common stock ($0.30 per share)
|
|
|
|
|
|
|
|
(14,620
|
)
|
|
|
(14,620
|
)
|
Balance, December 31, 2008
|
|
48,971
|
|
490
|
|
136,867
|
|
605,950
|
|
5,719
|
|
749,026
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
(8,409
|
)
|
|
|
(8,409
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net of tax of ($9)
|
|
|
|
|
|
|
|
|
|
(5,787
|
)
|
(5,787
|
)
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(14,196
|
)
|
Stock options exercised
|
|
8
|
|
|
|
128
|
|
|
|
|
|
128
|
|
Stock compensation
|
|
|
|
|
|
393
|
|
|
|
|
|
393
|
|
Tax benefit of options exercised
|
|
|
|
|
|
(185
|
)
|
|
|
|
|
(185
|
)
|
Cash dividends declared on common stock ($0.10 per share)
|
|
|
|
|
|
|
|
(4,897
|
)
|
|
|
(4,897
|
)
|
Common stock issued at $27.76 per share for stock bonus
|
|
10
|
|
|
|
300
|
|
|
|
|
|
300
|
|
Balance, March 31, 2009
|
|
48,989
|
|
$
|
490
|
|
$
|
137,503
|
|
$
|
592,644
|
|
$
|
(68
|
)
|
$
|
730,569
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(8,409
|
)
|
$
|
8,352
|
|
Adjustments to
reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
(Gain) loss on
sale of assets
|
|
(111
|
)
|
2
|
|
Depreciation and
amortization
|
|
6,848
|
|
7,420
|
|
Deferred income
taxes
|
|
(1,497
|
)
|
172
|
|
Noncash
compensation related to stock plans
|
|
557
|
|
936
|
|
Loss in equity
method investment
|
|
193
|
|
|
|
Excess tax
benefit of options exercised
|
|
(8
|
)
|
(25
|
)
|
Provision for
(recovery of) doubtful accounts
|
|
1,760
|
|
(727
|
)
|
Provision for
obsolete inventory
|
|
1,018
|
|
|
|
Changes in
operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Trade accounts
receivable
|
|
(5,946
|
)
|
(17,788
|
)
|
Inventories
|
|
23,381
|
|
(8,514
|
)
|
Trade accounts
payable
|
|
835
|
|
2,069
|
|
Income taxes
payable
|
|
(2,965
|
)
|
3,043
|
|
Accrued profit
sharing trust contributions
|
|
(7,556
|
)
|
(6,228
|
)
|
Accrued cash
profit sharing and commissions
|
|
(880
|
)
|
512
|
|
Other current
assets
|
|
(2,374
|
)
|
(2,650
|
)
|
Accrued
liabilities
|
|
(4,428
|
)
|
(4,196
|
)
|
Other long-term
liabilities
|
|
1
|
|
1,474
|
|
Accrued workers
compensation
|
|
13
|
|
|
|
Other noncurrent
assets
|
|
99
|
|
(415
|
)
|
Net cash
provided by (used in) operating activities
|
|
531
|
|
(16,563
|
)
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
Capital
expenditures
|
|
(5,895
|
)
|
(2,849
|
)
|
Proceeds from
sale of capital assets
|
|
41
|
|
19
|
|
Asset
acquisitions, net of cash acquired
|
|
(1,655
|
)
|
|
|
Net cash used in
investing activities
|
|
(7,509
|
)
|
(2,830
|
)
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
Line of credit
borrowings
|
|
817
|
|
2,206
|
|
Issuance of
common stock
|
|
128
|
|
508
|
|
Excess tax
benefit of options exercised
|
|
8
|
|
25
|
|
Dividends paid
|
|
(4,898
|
)
|
(4,857
|
)
|
Net cash used in
financing activities
|
|
(3,945
|
)
|
(2,118
|
)
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash
|
|
(1,619
|
)
|
(250
|
)
|
|
|
|
|
|
|
Net decrease in
cash and cash equivalents
|
|
(12,542
|
)
|
(21,761
|
)
|
Cash and cash
equivalents at beginning of period
|
|
170,750
|
|
186,142
|
|
Cash and cash
equivalents at end of period
|
|
$
|
158,208
|
|
$
|
164,381
|
|
|
|
|
|
|
|
Noncash
activity during the period
|
|
|
|
|
|
Noncash capital
expenditures
|
|
$
|
180
|
|
$
|
161
|
|
Dividends
declared but not paid
|
|
$
|
4,897
|
|
$
|
4,863
|
|
Issuance of
Companys common stock for compensation
|
|
$
|
300
|
|
$
|
247
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
Simpson Manufacturing Co., Inc. and
Subsidiaries
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
1. Basis of Presentation
Principles of
Consolidation
The consolidated
financial statements include the accounts of Simpson Manufacturing Co., Inc.
and its subsidiaries (the Company). Investments in 50% or less owned
affiliates are accounted for using either cost or the equity method. All
significant intercompany transactions have been eliminated.
Interim Period Reporting
The accompanying
unaudited interim condensed consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by accounting
principles generally accepted in the United States of America have been
condensed or omitted. These interim statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in
the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2008 (the 2008 Annual Report).
The unaudited quarterly
condensed consolidated financial statements have been prepared on the same
basis as the audited annual consolidated financial statements and, in the
opinion of management, contain all adjustments (consisting of only normal
recurring adjustments) necessary to state fairly the financial information set
forth therein, in accordance with accounting principles generally accepted in
the United States of America. The year-end condensed consolidated balance sheet
data were derived from audited financial statements, but do not include all
disclosures required by accounting principles generally accepted in the United
States of America. The Companys quarterly results fluctuate. As a result, the
Company believes the results of operations for the interim periods are not
necessarily indicative of the results to be expected for any future period.
Revenue Recognition
The Company recognizes revenue when
the earnings process is complete, net of applicable provision for discounts,
returns and incentives, whether actual or estimated based on the Companys
experience. This generally occurs when products are shipped to the customer in
accordance with the sales agreement or purchase order, ownership and risk of
loss pass to the customer, collectibility is reasonably assured and pricing is
fixed or determinable. The Companys general shipping terms are F.O.B. shipping
point, where title is transferred and revenue is recognized when the products
are shipped to customers. When the Company sells F.O.B. destination point,
title is transferred and the Company recognizes revenue on delivery or customer
acceptance, depending on terms of the sales agreement. Service sales,
representing aftermarket repair and maintenance, engineering activities, and
software sales and service, though both significantly less than 1% of net sales
and not material to the consolidated financial statements, are recognized as
the services are completed or the software products and services are delivered.
If actual costs of sales returns, incentives, and discounts were to
significantly exceed the recorded estimated allowance, the Companys sales
would be adversely affected.
Net Income (Loss) Per Common
Share
Basic net income
(loss) per common share is computed based on the weighted average number of
common shares outstanding. Potentially dilutive securities, using the treasury
stock method, are included in the diluted per-share calculations for all
periods when the effect of their inclusion is dilutive.
6
The following is a
reconciliation of basic earnings per share (EPS), to diluted EPS:
|
|
Three Months Ended,
|
|
Three Months Ended,
|
|
|
|
March 31, 2009
|
|
March 31, 2008
|
|
(in thousands, except
|
|
Income
|
|
|
|
Per
|
|
Income
|
|
|
|
Per
|
|
per-share amounts)
|
|
(Loss)
|
|
Shares
|
|
Share
|
|
(Loss)
|
|
Shares
|
|
Share
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
available to common stockholders
|
|
$
|
(8,409
|
)
|
48,987
|
|
$
|
(0.17
|
)
|
$
|
8,352
|
|
48,574
|
|
$
|
0.17
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
357
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
available to common stockholders
|
|
$
|
(8,409
|
)
|
48,987
|
|
$
|
(0.17
|
)
|
$
|
8,352
|
|
48,931
|
|
$
|
0.17
|
|
Anti-dilutive
shares attributable to outstanding stock options were excluded from the
calculation of diluted net income per share. All potentially dilutive
securities were excluded from the diluted loss per share calculation for the
three months ended March 31, 2009, because the effect of their inclusion
would be antidilutive, or would decrease the reported loss per share. For both
the three months ended March 31, 2009 and 2008, 1.1 million shares subject
to stock options were anti-dilutive.
Accounting
for Stock-Based Compensation
The Company maintains two
stock option plans under which it may grant incentive stock options and
non-qualified stock options, although the Company has granted only
non-qualified stock options under these plans. The Simpson Manufacturing Co., Inc.
1994 Stock Option Plan (the 1994 Plan) is principally for the Companys
employees, and the Simpson Manufacturing Co., Inc. 1995 Independent
Director Stock Option Plan (the 1995 Plan) is for its independent directors.
The Company generally grants options under each of the 1994 Plan and the 1995
Plan once each year. The exercise price per share of each option granted in February 2009
and February 2008 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. 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. There were no options granted under the
1995 Plan in 2009 or 2008.
Under the 1994 Plan, no
more than 16 million shares of the Companys common stock may be sold
(including shares already sold) pursuant to all options granted under the 1994
Plan. Under the 1995 Plan, no more than 320 thousand shares of common stock may
be sold (including shares already sold) pursuant to all options granted under
the 1995 Plan. Options granted under the 1994 Plan typically vest evenly over
the requisite service period of four years and have a term of seven years. The
vesting of options granted under the 1994 Plan will be accelerated if the
grantee ceases to be employed by the Company after reaching age 60 or if there
is a change in control of the Company. Options granted under the 1995 Plan are
fully vested on the date of grant.
7
The following table
represents the Companys stock option activity for the three months ended March 31,
2009 and 2008:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Stock option
expense recognized in operating expenses
|
|
$
|
448
|
|
$
|
900
|
|
Tax benefit of
stock option expense in provision for (benefit from) income taxes
|
|
148
|
|
355
|
|
Stock option
expense, net of tax
|
|
$
|
300
|
|
$
|
545
|
|
Fair value of
shares vested
|
|
$
|
393
|
|
$
|
765
|
|
Proceeds to the
Company from the exercise of stock options
|
|
$
|
128
|
|
$
|
508
|
|
Tax benefit from
exercise of stock options, including windfall (shortfall) tax benefits, net
|
|
$
|
(185
|
)
|
$
|
(65
|
)
|
|
|
At March 31,
|
|
|
|
2009
|
|
2008
|
|
Stock option
cost capitalized in inventory
|
|
$
|
46
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
The amounts included in
cost of sales, research and development and other engineering, selling, or
general and administrative expense depend on the job functions performed by the
employees to whom the stock options were granted. Shares of common stock issued on exercise of stock options under the
plans are registered under the Securities Act of 1933.
The assumptions used to
calculate the fair value of options granted are evaluated and revised, as
necessary, to reflect market conditions and the Companys experience.
Fair Value of Financial
Instruments
As of March 31, 2009, the Companys investments
consisted of only United States Treasury securities and money market funds
aggregating $59.5 million, which are maintained in cash equivalents and are
carried at cost, approximating fair value, based on Level 1 inputs. Level 1
inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities, as defined in Statement of Financial Accounting Standards (SFAS)
No. 157.
Income Taxes
In general, the Company
is required to use an estimated annual effective tax rate to measure the tax
benefit or tax expense recognized in an interim period. The income tax benefit
for the three months ended March 31, 2009, however, has been computed
based on the first three months of 2009 as a discrete period due to the
uncertainty regarding the Companys ability to reliably estimate pre-tax income
for the remainder of the year. The Company cannot reliably estimate pre-tax
income for the remainder of 2009 or for the full year, primarily due to the
continued uncertainty in the construction markets in which the Company
operates. The income tax provision for the three months ended March 31,
2008, was calculated using estimated annual effective tax rates.
The effective tax rate
was 19.4% in the first quarter of 2009, which resulted in income tax benefit of
$2.0 million, versus an effective tax rate of 42.8% in the first quarter of
2008, which resulted in income tax expense of $6.3 million. The effective tax
rate of 19.4% is lower than the statutory rate primarily due to the valuation allowances taken on foreign losses
and a reduced benefit from the reduction or loss of enterprise zone tax credits
at two of the Companys facilities in California. As a result of the loss
before taxes in the first quarter of 2009, the lower effective tax rate resulted
in a smaller benefit than if the Company had a higher effective tax rate.
8
Acquisitions
Effective January 1,
2009, the Company adopted the provisions of 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, such as 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. While this
statement did not have a material effect on the companys consolidated
financial statements upon adoption, the effects on future periods will depend
upon the nature and significance of future business combinations subject to
this statement.
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. Payments under this agreement total $4.0
million in cash, including $2.5 million to be paid in the future, which will be
treated as compensation expense to the principal officer of RO Design Corp, who
is now employed by the Company. The Company recorded goodwill of $1.5 million
in the connector products segment as a result of the acquisition. The Company
has not finalized the purchase price allocation for the RO Design Corp
acquisition, as the Company is still obtaining information and analyzing the
fair value of certain acquired assets and liabilities. The results of
operations of the business acquired in 2009 are included in the Companys
consolidated results of operations since the date of the acquisition and, for
periods prior to 2009, were not material to the Company. Accordingly, pro forma
results of operations have not been presented.
Recently Issued Accounting
Standards
In April 2009, the
Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP)
Financial Accounting Standard (FAS) 141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies. FSP FAS 141(R)-1 applies to all
assets and liabilities assumed in a business combination that would be within
the scope of SFAS No. 5, Accounting for Contingencies, if not acquired in
a business combination, except for assets or liabilities arising from
contingencies that are subject to specific guidance in SFAS No. 141(R). An
acquirer shall recognize at fair value, at the acquisition date, an asset or
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the
acquisition-date fair value of an asset acquired or liability assumed in a
business combination that arises from a contingency cannot be determined during
the measurement period, an asset or liability shall be recognized at the
acquisition date if both information is available before the end of the
measurement period indicates that it is probable that an asset existed or that
a liability had been incurred at the acquisition date and the amount of the
assets or liability can be reasonably estimated. FSP FAS 141(R)-1 became
effective for the Company for business combinations for which the acquisition
date was on or after January 1, 2009, and is not expected to have a
material effect on the Companys consolidated financial statements.
9
2. Trade Accounts Receivable, Net
Trade accounts receivable
consist of the following:
|
|
At March 31,
|
|
At December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Trade accounts
receivable
|
|
$
|
87,154
|
|
$
|
112,019
|
|
$
|
81,929
|
|
Allowance for
doubtful accounts
|
|
(5,924
|
)
|
(1,968
|
)
|
(4,368
|
)
|
Allowance for
sales discounts and returns
|
|
(1,847
|
)
|
(2,417
|
)
|
(1,556
|
)
|
|
|
$
|
79,383
|
|
$
|
107,634
|
|
$
|
76,005
|
|
3. Inventories
Inventories consist of
the following:
|
|
At
March 31
,
|
|
At December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
86,411
|
|
$
|
85,756
|
|
$
|
92,638
|
|
In-process
products
|
|
24,890
|
|
25,592
|
|
26,371
|
|
Finished
products
|
|
114,267
|
|
116,507
|
|
132,869
|
|
|
|
$
|
225,568
|
|
$
|
227,855
|
|
$
|
251,878
|
|
4. Property, Plant and Equipment, Net
Property, plant and
equipment, net, consist of the following:
|
|
At
March 31
,
|
|
At December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
22,654
|
|
$
|
19,783
|
|
$
|
23,989
|
|
Buildings and
site improvements
|
|
137,589
|
|
131,907
|
|
135,992
|
|
Leasehold
improvements
|
|
4,261
|
|
4,005
|
|
4,287
|
|
Machinery and
equipment
|
|
219,372
|
|
214,232
|
|
219,641
|
|
|
|
383,876
|
|
369,927
|
|
383,909
|
|
Less accumulated
depreciation and amortization
|
|
(197,788
|
)
|
(182,262
|
)
|
(193,639
|
)
|
|
|
186,088
|
|
187,665
|
|
190,270
|
|
Capital projects
in progress
|
|
5,324
|
|
7,654
|
|
3,048
|
|
|
|
$
|
191,412
|
|
$
|
195,319
|
|
$
|
193,318
|
|
The Companys vacant facility in San Leandro,
California, remained classified as an asset held for sale as of March 31,
2009, consistent with the classification at December 31, 2008. This
facility is associated with the connector segment. In 2007 and 2008,
environmental analyses of the San Leandro property indicated that it had
contamination related to spilled fuel that would require an estimated $0.7
million to remediate. The clean-up is expected to be completed in 2009. The
Company expects to sell the San Leandro property after the remediation is
completed.
5. Investments
Equity Method Investment
The Company has a 35%
equity interest in Keymark Enterprises, LLC (Keymark), for which the Company
accounts using the equity method. Keymark develops software that assists in
designing and engineering residential structures. The Companys relationship
with Keymark includes the specification of the Companys products in the
Keymark software. The Company has no obligation to make any additional capital
contributions to Keymark.
10
6. Debt
Outstanding debt at March 31,
2009 and 2008, and December 31, 2008, and the available lines of credit at
March 31, 2009, consisted of the following:
|
|
Available
|
|
Debt Outstanding
|
|
|
|
Credit at
|
|
at
|
|
at
|
|
|
|
March 31,
|
|
March 31,
|
|
December 31,
|
|
(dollar amounts in thousands)
|
|
2009
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line
of credit, interest at LIBOR plus 0.27% (at March 31, 2009, LIBOR plus
0.27% was 0.79%), expires October 2012, commitment fees payable at the annual
rate of 0.08% on the unused portion of the facility
|
|
$
|
200,000
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line
of credit, interest at the banks base rate plus 3% (at March 31, 2009,
the banks base rate plus 3% was 3.50%), expires October 2009
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving lines
of credit, interest rates between 1.86% and 3.82%
|
|
4,331
|
|
821
|
|
3,390
|
|
26
|
|
Line of credit
|
|
|
|
$
|
821
|
|
$
|
3,390
|
|
$
|
26
|
|
Available credit
|
|
$
|
204,689
|
|
|
|
|
|
|
|
7. Commitments and Contingencies
Note 9 to the consolidated financial
statements in the 2008 Annual Report provides information concerning
commitments and contingencies. From time to time, the Company is involved in
various legal proceedings and other matters arising in the normal course of
business. The resolution of claims and litigation is subject to inherent
uncertainty and could have a material adverse effect on the Companys financial
condition, cash flows and results of operations.
The Companys
policy with regard to environmental liabilities is to accrue for future
environmental assessments and remediation costs when information becomes
available that indicates that it is probable that the Company is liable for any
related claims and assessments and the amount of the liability is reasonably
estimable. The Company does not believe that these matters will have a material
adverse effect on the Companys financial condition, cash flows or results of
operations. See Note 4 Property, Plant and Equipment, Net.
Corrosion, hydrogen
enbrittlement, cracking, material hardness, wood pressure-treating chemicals,
misinstallations, misuse, environmental conditions or other factors can
contribute to failure of fasteners, connectors, tools and venting products. On
occasion, some of the fasteners and connectors that the Company sells have
failed, although the Company has not incurred any material liability resulting
from those failures. The Company attempts to avoid such failures by
establishing and monitoring appropriate product specifications, manufacturing
quality control procedures, inspection procedures and information on
appropriate installation methods and conditions. The Company subjects its
products to extensive testing, with results and conclusions published in
Company catalogues and on its websites. Based on test results to date, the
Company believes that, generally, if its products are appropriately selected,
installed and used in accordance with the Companys guidance, they may be
reliably used in appropriate applications.
11
8. Stock Option Plans
The Company currently has
two stock option plans (see Note 1 Basis of Presentation
Accounting for Stock-Based Compensation
). Participants are
granted stock options only if the applicable Company-wide or profit-center
operating goals, or both, established by the Compensation Committee of the
Board of Directors at the beginning of the year, are met.
The fair value of each
option award was estimated on the date of grant using the Black-Scholes option
pricing model. Expected volatility is based on historical volatilities of the
Companys common stock measured monthly over a term that is equivalent to the
expected life of the option. The expected term of options granted is estimated
based on the Companys prior exercise experience and future expectations of the
exercise and termination behavior of the grantees. The risk-free rate is based
on the yield of United States Treasury zero-coupon bonds with maturities
comparable to the expected life in effect at the time of grant. The dividend
yield is based on the expected dividend yield on the grant date.
Black-Scholes option
pricing model assumptions for options granted in 2009 and 2008 are as follows:
Number
|
|
|
|
Risk
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
of Options
|
|
|
|
Free
|
|
|
|
|
|
|
|
|
|
Average
|
|
Granted
|
|
Grant
|
|
Interest
|
|
Dividend
|
|
Expected
|
|
|
|
|
|
Fair
|
|
(in thousands)
|
|
Date
|
|
Rate
|
|
Yield
|
|
Life
|
|
Volatility
|
|
Exercise Price
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
There were no options
granted under the 1995 Plan in 2009 or 2008.
The following table
summarizes the Companys stock option activity for the three months ended March 31,
2009:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
|
|
Shares
|
|
Exercise
|
|
Contractual
|
|
Value *
|
|
Non-Qualified Stock Options
|
|
(in thousands)
|
|
Price
|
|
Life (in years)
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
January 1, 2009
|
|
2,250
|
|
$
|
29.70
|
|
|
|
|
|
Granted
|
|
53
|
|
18.92
|
|
|
|
|
|
Exercised
|
|
(8
|
)
|
16.45
|
|
|
|
|
|
Forfeited
|
|
(38
|
)
|
38.84
|
|
|
|
|
|
Outstanding at
March 31, 2009
|
|
2,257
|
|
$
|
29.34
|
|
2.6
|
|
$
|
467
|
|
Outstanding and
expected to vest at March 31, 2009
|
|
2,245
|
|
$
|
29.34
|
|
2.6
|
|
$
|
463
|
|
Exercisable at
March 31, 2009
|
|
2,006
|
|
$
|
29.03
|
|
2.3
|
|
$
|
422
|
|
* The intrinsic value represents the amount, if
any, by which the fair market value of the underlying common stock exceeds the
exercise price of the option, using the closing price per share of $18.02 on March 31,
2009.
The total intrinsic value of options exercised during the
three months ended March 31, 2009 and 2008, was $60 thousand and $179
thousand, respectively.
12
A summary
of the status of unvested options as of March 31, 2009, and changes during
the three months ended March 31, 2009, are presented below:
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
Grant-Date
|
|
Unvested Options
|
|
(in thousands)
|
|
Fair Value
|
|
|
|
|
|
|
|
Unvested at
January 1, 2009
|
|
258
|
|
$
|
11.58
|
|
Granted
|
|
53
|
|
5.04
|
|
Vested
|
|
(59
|
)
|
12.24
|
|
Forfeited
|
|
(1
|
)
|
13.68
|
|
Unvested at
March 31, 2009
|
|
251
|
|
$
|
10.05
|
|
As of
March 31, 2009, $2.2 million of total unrecognized compensation
cost was related to unvested share-based compensation arrangements under the
1994 Plan. This cost is expected to be recognized over a weighted-average
period of 1.47 years. Options granted under the 1995 Plan are fully
vested and are expensed on the date of grant.
9. Segment Information
The Company is organized
into two primary operating segments. The segments are defined by types of
products manufactured, marketed and distributed to the Companys customers. The
two product segments are connector products and venting products. These segments
are differentiated in several ways, including the types of materials, the
production processes, the distribution channels and the product applications.
Transactions between the two segments were immaterial for each of the periods
presented.
The following table
illustrates certain measurements used by management to assess the performance
of the segments described above as of or for the following periods:
|
|
Three Months
Ended
|
|
|
|
March 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
Connector
products
|
|
$
|
109,144
|
|
$
|
154,168
|
|
Venting products
|
|
10,179
|
|
13,488
|
|
Total
|
|
$
|
119,323
|
|
$
|
167,656
|
|
|
|
|
|
|
|
Income
(Loss) from Operations
|
|
|
|
|
|
Connector
products
|
|
$
|
(7,088
|
)
|
$
|
16,519
|
|
Venting products
|
|
(3,260
|
)
|
(2,847
|
)
|
Administrative
and all other
|
|
10
|
|
(198
|
)
|
Total
|
|
$
|
(10,338
|
)
|
$
|
13,474
|
|
|
|
|
|
|
|
At
|
|
|
|
At March 31,
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
596,575
|
|
$
|
573,651
|
|
$
|
612,733
|
|
Venting products
|
|
72,804
|
|
73,418
|
|
77,218
|
|
Administrative
and all other
|
|
130,030
|
|
176,358
|
|
140,249
|
|
Total
|
|
$
|
799,409
|
|
$
|
823,427
|
|
$
|
830,200
|
|
Cash collected by the Companys subsidiaries is routinely
transferred into the Companys cash management accounts and, therefore, has
been included in the total assets of Administrative and all other. Cash and
cash equivalent balances in the Administrative and all other segment were
$107.2 million, $145.6 million, and $136.2 million, as of March 31, 2009
and 2008, and December 31, 2008, respectively.
13
10. Subsequent Events
In April 2009, the Companys
subsidiary, Simpson Strong-Tie Europe EURL, purchased the equity of Agence
Internationale Commerciale et Industrielle, S.A.S. (Aginco). Aginco
manufactures a line of high quality builder products and distributes them in
France. The purchase price (subject to post-closing adjustments) was $21.9
million in cash.
In April 2009, the
Companys Board of Directors declared a cash dividend of $0.10 per share, a
total currently estimated at $4.9 million, to be paid on July 23, 2009, to
stockholders of record on July 2, 2009.
14
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
This
document contains forward-looking statements, based on numerous assumptions and
subject to risks and uncertainties. Although the Company believes that the
forward-looking statements are reasonable, it does not and cannot give any
assurance that its beliefs and expectations will prove to be correct. Many
factors could significantly affect the Companys operations and cause the
Companys actual results to be substantially different from the Companys
expectations. See Part II, Item 1A -
Risk
Factors.
Actual results might differ materially from results
suggested by any forward-looking statements in this report.
The Company does not
have an obligation to publicly update any forward-looking statements, whether
as a result of the receipt of new information, the occurrence of future events
or otherwise.
The following is a discussion and
analysis of the consolidated financial condition and results of operations for
the Company for the three months ended March 31, 2009 and 2008. The
following should be read in conjunction with the interim Condensed Consolidated
Financial Statements and related Notes appearing elsewhere herein.
Results of Operations for the Three Months Ended March 31,
2009, Compared with the Three Months Ended March 31, 2008
Net sales decreased 28.8% from $167.7
for the first quarter of 2008 to $119.3 million in the first quarter of 2009.
The Company had a net loss of $8.4 million for the first quarter of 2009
compared to net income of $8.4 million for the first quarter of 2008. Diluted
net loss per common share was $0.17 for the first quarter of 2009 compared to
diluted net income per common share of $0.17 for the first quarter of 2008.
In the first quarter of 2009, sales
declined throughout the United States. California, the western states and the
south/southeastern states had the largest decrease in sales. Sales during the
quarter also decreased throughout Europe, the United Kingdom and Canada. Sales
in Asia, although relatively small, have increased as Simpson Strong-Tie has
recently expanded its presence in the region. Simpson Strong-Ties first
quarter sales decreased 29.2% from the same quarter last year, while Simpson
Dura-Vents sales decreased 24.5%. Simpson Strong-Ties sales to dealer
distributors and contractor distributors decreased significantly as
homebuilding continued to decline and general economic conditions continued to
worsen. In response to changing conditions, the Company recomposed the group of
customers that it classifies as home centers by removing those customers that
serve professional users rather than retail customers and classifying them as
dealer distributors. Under the new classification, sales to home centers decreased
slightly whereas under the old composition, the decrease would have been
larger. Sales decreased across all of Simpson Strong-Ties major product lines,
particularly those used in new home construction. Sales of most of Simpson
Dura-Vents product lines also decreased, with the exception of special gas
vent and relining products, which increased as a result of the acquisition of
ProTech Systems, Inc. in June 2008.
Income from operations decreased
176.7% from $13.5 million in income in the first quarter of 2008 to a loss of
$10.3 million in the first quarter of 2009. Gross margins decreased from 33.6%
in the first quarter of 2008 to 25.7% in the first quarter of 2009. The
decrease in gross margins was primarily due to reduced absorption of fixed
overhead, as a result of lower production volumes, as well as higher
manufacturing costs, including higher cost of material, labor and distribution.
Steel prices continued to decline from their peak in July 2008, as a
result of weak demand. The Company has focused on reducing its inventories,
which have come down by 10.4% since December 31, 2008, but, with lower
sales volumes, it may take several quarters to sell excess inventory.
Research and development expenses
decreased 4.7% from $5.1 million in the first quarter of 2008 to $4.9 million
in the first quarter of 2009. This decrease was primarily due to a $0.4 million
decrease in professional service fees, partly offset by $0.2 million increase
in expenses related to additional personnel, including those at businesses
acquired in 2008. Selling expenses decreased 19.1% from $19.8 million in the
first quarter of 2008 to $16.0 million in the first quarter of 2009. The
decrease resulted from a $2.0 million decrease in expenses associated with
sales and marketing personnel, most of which was related to cost-cutting
measures, and a $1.1 million decrease in promotional expenditures. General and
administrative expenses increased 12.8% to $20.2 million in the first quarter
of 2009 from $17.9 million in the first quarter of 2008. The increase was the
result of several factors, including higher bad debt expense of $2.5 million,
primarily related to one customer, increased legal and professional service
expenses of $0.8 million and higher administrative personnel expenses of $0.7 million,
including those at businesses acquired in 2008. This increase was partly offset
by a decrease in cash profit sharing of $1.5 million, primarily due to the
operating loss. Interest income decreased 91.0% from $1.1 million in the first
quarter of 2008 to $0.1 million in the first quarter of 2009, primarily as a
result of lower interest rates. The effective tax rate was 19.4% in the first
quarter of 2009, which resulted in income tax benefit of $2.0 million, versus
an effective tax rate of 42.8% in the first quarter of 2008, which resulted in
income tax expense of $6.3 million. The effective tax rate of 19.4% is lower
than the
15
statutory rate primarily due to the valuation allowances taken on foreign losses
and a reduced benefit from the reduction or loss of enterprise zone tax credits
at two of the Companys facilities in California. As a result of the loss
before taxes in the first quarter of 2009, the lower effective tax rate
resulted in a smaller benefit than if the Company had a higher effective tax
rate. In general, the Company is required to use an estimated annual
effective tax rate to measure the tax benefit or tax expense recognized in an
interim period. The income tax benefit for the three months ended March 31,
2009, however, has been computed based on the first three months of 2009 as a
discrete period due to the uncertainty regarding the Companys ability to
reliably estimate pre-tax income for the remainder of the year. The Company cannot
reliably estimate pre-tax income for the remainder of 2009 or for the full
year, primarily due to the continued uncertainty in the construction markets in
which the Company operates. The income tax provision for the three months ended
March 31, 2008, was calculated using estimated annual effective tax rates.
Connector
Products Simpson Strong-Tie
In the first quarter of
2009, Simpson Strong-Ties net sales decreased 29.2% to $109.1 million from
$154.2 million in the first quarter of 2008.
Simpson Strong-Tie accounted for
91.5% of the Companys total net sales in the first quarter of 2009, a decrease
from 92.0% in the first quarter of 2008. The decrease in net sales at Simpson
Strong-Tie resulted primarily from a decrease in sales volume, although average
prices increased 22.1% as compared to the first quarter of 2008. In the
first quarter of 2009, Simpson Strong-Ties sales declined throughout the
United States. California, the western states and the south/southeastern states
had the largest decrease in sales. Simpson Strong-Ties sales during the
quarter also decreased throughout Europe, the United Kingdom and Canada. Sales
in Asia, although relatively small, have increased as Simpson Strong-Tie has
recently expanded its presence in the region. Simpson Strong-Ties sales to
dealer distributors and contractor distributors decreased significantly as
homebuilding continued to decline and general economic conditions continued to
worsen. In response to changing conditions, the Company recomposed the group of
customers which it classifies as home centers by removing those customers that
serve professional users rather than retail customers and classifying them as
dealer distributors. Under the new classification, sales to home centers
decreased slightly whereas under the old composition, the decrease would have
been larger. Sales decreased across all of Simpson Strong-Ties major product
lines, particularly those used in new home construction.
Simpson Strong-Ties gross profit decreased 45.2% from $56.0 million
in the first quarter of 2008 to $30.7 million in the first quarter of 2009. As
a percentage of net sales, gross profit decreased from 36.3% in the first quarter of 2008 to 28.1% in the
first quarter of 2009. This decrease was primarily due to reduced absorption of
fixed overhead, as a result of lower production volumes, as well as higher
manufacturing costs, including higher costs of material, labor and
distribution.
Simpson Strong-Ties
research and development expenses decreased 6.7% from $4.8 million in the first
quarter of 2008 to $4.5 million in the first quarter of 2009. This decrease was
primarily due to a $0.5 million decrease in professional services partly offset
by increases in expenses related to additional personnel, including those
associated with the acquisitions made during 2008. Simpson Strong-Ties selling expenses decreased 18.9% from $18.1
million in the first quarter of 2008 to
$14.7 million in the first quarter of 2009.
The decrease resulted primarily from a $1.9 million decrease in expenses
associated with sales and marketing personnel, most of which was related to
cost cutting measures, a decrease of $1.0 million in promotional expenditures,
and a $0.5 million decrease in professional services. Simpson Strong-Ties
general and administrative expenses increased 12.2% to $18.5 million in the
first quarter of 2009 from $16.5 million in the
first quarter of 2008. The increase was primarily due to an increase in
the provision for bad debt of $2.5 million, primarily related to one customer,
higher administrative personnel expenses of $0.3 million, including those at
businesses acquired in 2008, and increased home office administrative
allocations of $1.3 million. The increase was partly offset by decreases in
cash profit sharing of $1.5 million, as a result of the operating loss, and in
information technology expenditures of $0.2 million.
Simpson
Strong-Tie recorded a loss from operations of $7.1 million in the first quarter
of 2009 as compared to income from operations of $16.5 million in the first
quarter of 2008.
For its European operations,
Simpson
Strong-Tie recorded losses from operations
of $4.2 million in the first quarter of 2009 compared to losses from operations
of $1.0 million in the first quarter of 2008.
Simpson
Strong-Tie has continued to adjust production levels downward at various
facilities in the United States, and as a result, has reduced its labor force
at these facilities.
16
Venting
Products Simpson Dura-Vent
In the first quarter of 2009, Simpson
Dura-Vents net sales decreased 24.5% to $10.2 million from $13.5 million in the first quarter of 2008. Simpson Dura-Vent accounted for 8.5% of the Companys total net sales in the first quarter
of 2009, an increase from 8.0% in the first quarter of 2008. The decrease in
net sales at Simpson Dura-Vent
resulted primarily from a decrease in sales volume, although average prices
increased 10.0% as compared to the first quarter of 2008. In the first quarter of 2009, Simpson Dura-Vents sales
decreased throughout the United States, with significant decreases in the
western region resulting from the weakness
in new home construction. Sales
of most of Simpson Dura-Vents product lines also decreased, with the exception
of special gas vent and relining products, which increased as a result of the
acquisition of ProTech Systems, Inc. in June 2008.
Simpson Dura-Vents gross profit decreased slightly from $115
thousand in the first quarter of 2008 to $92 thousand in the first quarter of 2009.
This decrease was primarily due to higher manufacturing costs, including
higher cost of material and distribution costs, partly offset by lower fixed
overhead costs.
Simpson Dura-Vents
selling expenses decreased 21.5% from $1.7 million in the first quarter of 2008 to $1.3 million in the first quarter of
2009. The decrease resulted
primarily from decreases of $0.2 million in promotional activities, $0.2
million in agent commissions and $0.1 million in expenses associated with sales
and marketing personnel. Simpson Dura-Vents general and administrative
expenses increased 65.7% to $1.7 million in the first quarter of 2009 from $1.0
million in the first quarter of 2008. This increase was primarily due to
increased expenses associated with administrative personnel of $0.1 million,
including those at businesses acquired in 2008, and higher intangible asset
amortization expense of $0.2 million.
Simpson
Dura-Vents loss from operations increased to $3.3 million in the first quarter
of 2009 from $2.9 million in the first quarter of 2008.
Administrative
and All Other (Company)
Interest
income is generated on the Companys cash and cash equivalents balances.
Interest income decreased primarily as a
result of lower interest rates. Interest
expense includes interest, account maintenance fees and bank charges.
Critical
Accounting Policies and Estimates
The Company did not make
any significant changes to its critical accounting policies and estimates
during the three months ended March 31, 2009, from those disclosed in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations, included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2008.
Recently
Issued Accounting Standards
See
Note 1,
Basis of
Presentation
Recently Issued Accounting Standards,
to the Companys Condensed Consolidated
Financial Statements for a discussion of recently issued accounting standards.
Liquidity and Sources of Capital
As of March 31, 2009, working capital was $438.9
million as compared to $448.3 million at March 31, 2008, and $455.7
million at December 31, 2008. The decrease in working capital from December 31,
2008, was primarily due to decreases in inventories and cash and cash
equivalents of $26.3 million and $12.5 million, respectively. Raw material
inventories decreased 6.7% from December 31, 2008, while in-progress and
finished goods inventories decreased 12.6% over the same period. The decrease
in raw material inventories resulted from lower purchasing activity during the
quarter, and the decreases in in-progress and finished goods inventories
resulted from lower production volumes at the Companys manufacturing
facilities. Partly offsetting the decreases in working capital were decreases
in accrued profit sharing contributions and accrued liabilities of $7.6 million
and $5.2 million, respectively, and increases in net trade accounts receivable
and other current assets of $3.4 million and $4.7 million, respectively. The
balance of the change in working capital was due to the fluctuation of various
other asset and liability accounts, none of which was individually material.
The working capital change and changes in noncurrent
17
assets and liabilities, combined with a net loss of
$8.4 million and noncash expenses, primarily depreciation, amortization and
stock-based compensation charges totaling $7.4 million, resulted in net cash
provided by operating activities of $0.5 million. As of March 31, 2009,
the Company had unused credit facilities available of $204.7 million.
The Company used $7.5 million in its investing activities,
primarily for the acquisition of the DeckTools business and capital
expenditures mainly at its facilities in Europe and Asia. The Company estimates
that its full-year capital spending will total $15.0 million for 2009.
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. Payments under this agreement total $4.0
million in cash, including $2.5 million to be paid in the future, which will be
treated as compensation expense to the principal officer of RO Design Corp, who
is now employed by the Company. The Company recorded goodwill of $1.5 million
as a result of the acquisition, but the purchase price allocation has not been
finalized.
In April 2009, the Companys
subsidiary, Simpson Strong-Tie Europe EURL, purchased the equity of Agence
Internationale Commerciale et Industrielle, S.A.S. (Aginco). Aginco
manufactures a line of high quality builder products and distributes them in
France. The purchase price (subject to post-closing adjustments) was $21.9
million in cash.
The Company has
classified its vacant facility in San Leandro, California, as an asset held for
sale. In 2007 and 2008, environmental analyses of the San Leandro property
indicated that it had contamination related to spilled fuel that would require
an estimated $0.7 million to remediate. The clean-up is expected to be
completed in 2009. The Company expects to sell the San Leandro property after
the remediation is completed.
The Companys financing
activities used net cash of $3.9 million. The payment of cash dividends in the
amount of $4.9 million was the primary financing activity use of cash. Cash
provided by financing activities was primarily from borrowings of $0.8 million
on credit lines of the Companys European subsidiaries. In April 2009, the
Companys Board of Directors declared a cash dividend of $0.10 per share, a
total currently estimated at $4.9 million, to be paid on July 23, 2009, to
stockholders of record on July 2, 2009.
The Company believes that cash generated by operations and
borrowings available under its credit facility will be sufficient for the
Companys working capital needs and planned capital expenditures for the next
12 months. Depending, however, on the Companys future growth and possible
acquisitions, it may become necessary to secure additional sources of
financing, which may not be available on reasonable terms, or at all.
The Company believes that the effect of inflation on the
Company has not been material in recent years, as general inflation rates have
remained relatively low. Because, however, the Companys main raw material is
steel, increases in steel prices may adversely affect the Companys gross
margins if it cannot recover the higher costs through price increases.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
The Company has
foreign exchange rate risk in its international operations, primarily Europe and
Canada, and through purchases from foreign vendors. The Company does not
currently hedge this risk. If the exchange rate were to change by 10% in any
one country where the Company has operations, the change in net income would
not be material to the Companys operations as a whole. The translation
adjustment resulted in a decrease in accumulated other comprehensive income of
$5.8 million for the three months ended March 31, 2009, primarily due to
the effect of the strengthening of the United States dollar in relation to the
Canadian dollar and most European currencies.
18
Item 4.
Controls and Procedures.
Disclosure
Controls and Procedures.
As of March 31, 2009, an evaluation of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures was performed under the supervision and with the participation
of the Companys management, including the chief executive officer (CEO) and
the chief financial officer (CFO). Based on that evaluation, the CEO and the
CFO concluded that the Companys disclosure controls and procedures were
effective as of that date.
Changes
in Internal Control over Financial Reporting.
During the three months ended March 31,
2009, the Company made no changes to its internal control over financial
reporting (as defined in Securities Exchange Act of 1934 Rules 13a-15(f) and
15d-15(f)) that have materially affected, or are reasonably likely to
materially affect, its internal control over financial reporting.
19
PART II OTHER
INFORMATION
Item 1.
Legal Proceedings.
From time to time,
the Company is involved in various legal proceedings and other matters arising
in the normal course of business. The 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. The resolution of claims and
litigation is, however, subject to inherent uncertainty and could have a
material adverse effect on the Companys financial condition, cash flows or
results of operations.
Item 1A.
Risk Factors
We are affected by risks
specific to us, as well as risks that affect all businesses operating in
global markets. Some of the significant factors that could materially adversely
affect our business, financial condition and operating results appear in Item
1A. Risk Factors of our most recent Annual Report on Form 10-K
(available at www.simpsonmfg.com/docs/10K-2008.pdf or www.sec.gov), but we
have changed the risk factor titled Impairment
charges on goodwill or other intangible assets would adversely affect our
financial position and results of operations, to read as follows:
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. If current adverse conditions in
the home-building industry, the financial markets or the economy generally
should continue longer than we anticipate, we may need to take further charges
for impairment, which we are not now able to estimate, but which may be
substantial.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
In December 2008,
the Board of Directors authorized the Company to repurchase up to $50.0 million
of the Companys common stock. This replaced the $50.0 million repurchase
authorization from December 2007. The authorization will remain in effect
through the end of 2009. There were no repurchases of the Companys common
stock in the first quarter of 2009.
Item 6.
Exhibits.
The following exhibits
are either incorporated by reference into this report or filed with this
report, as indicated below. Any representation, warranty or other statement of
purported fact in any such exhibit that is a contract, agreement or similar
instrument may not be true or complete, either at the date of such instrument
or at any later time. Even if such
statements were accurate when made, they may not be accurate now. The parties to such instruments did not
intend such statements to establish any facts, but intended such statements to
allocate contractual risk between the parties.
Such instruments may be subject to standards of materiality that differ
from the standards applicable to this report.
No one other than the parties to the instrument is entitled to rely or
should rely on any statement in such instrument for any purpose. Such statements were provided for the private
purposes of the parties to the instruments and may have been qualified by
schedules and other disclosures that have not been filed with (or incorporated
by reference into) this or any other report or document. Only the parties to any such instrument are
entitled to enforce it.
20
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.
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4.2
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|
Certificate of
Designation, Preferences and Rights of Series A Participating Preferred
Stock of Simpson Manufacturing Co., Inc., dated July 30, 1999, is
incorporated by reference to Exhibit 4.2 of its Registration Statement
on Form 8-A dated August 4, 1999.
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|
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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.
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10.2
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Simpson
Manufacturing
Co.,
Inc.
1995
Independent
Director
Stock
Option
Plan,
as
amended
through
November
18,
2004,
is
incorporated
by
reference
to
exhibit
10.2
of
Simpson
Manufacturing
Co.,
Inc.s
Quarterly
Report
on
Form
10-Q
for
the
quarter
ended
June
30,
2008.
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|
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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.
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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.
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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.
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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.
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31
|
|
Rule 13a-14(a)/15d-14(a) Certifications
are filed herewith.
|
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32
|
|
Section 1350
Certifications are filed herewith
.
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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.
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21
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
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Simpson Manufacturing Co., Inc.
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(Registrant)
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DATE:
|
May 8, 2009
|
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By
|
/s/Michael J.
Herbert
|
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|
Michael J. Herbert
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Chief Financial Officer
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(principal accounting and financial officer)
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22
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