UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
|
For the
quarterly period ended: June 30, 2009
|
|
|
|
OR
|
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
|
|
For the
transition period
from to
|
Commission file number: 1-13429
Simpson Manufacturing Co., Inc.
(Exact name of registrant as specified in its charter)
Delaware
|
|
94-3196943
|
(State or other
jurisdiction of incorporation
|
|
(I.R.S. Employer
|
or organization)
|
|
Identification
No.)
|
5956 W. Las Positas Blvd., Pleasanton, CA 94588
(Address of principal executive offices)
(Registrants telephone number, including area
code):
(925)
560-9000
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate by check
mark whether the registrant 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
|
|
Accelerated filer
o
|
|
|
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
o
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
The number of
shares of the registrants common stock outstanding as of June 30,
2009: 49,049,791
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Balance
Sheets
(In thousands, unaudited)
|
|
June 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
169,132
|
|
$
|
162,098
|
|
$
|
170,750
|
|
Trade accounts receivable, net
|
|
118,646
|
|
139,162
|
|
76,005
|
|
Inventories
|
|
190,153
|
|
232,575
|
|
251,878
|
|
Deferred income taxes
|
|
12,153
|
|
11,262
|
|
11,995
|
|
Assets held for sale
|
|
7,887
|
|
7,887
|
|
8,387
|
|
Other current assets
|
|
10,686
|
|
6,335
|
|
8,582
|
|
Total current assets
|
|
508,657
|
|
559,319
|
|
527,597
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
193,958
|
|
199,055
|
|
193,318
|
|
Goodwill
|
|
79,858
|
|
69,500
|
|
68,619
|
|
Intangible assets, net
|
|
33,050
|
|
23,392
|
|
23,453
|
|
Equity method investment
|
|
|
|
|
|
214
|
|
Other noncurrent assets
|
|
14,374
|
|
18,817
|
|
16,999
|
|
Total assets
|
|
$
|
829,897
|
|
$
|
870,083
|
|
$
|
830,200
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
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|
Current liabilities
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
27
|
|
$
|
3,177
|
|
$
|
26
|
|
Trade accounts payable
|
|
22,574
|
|
46,362
|
|
21,675
|
|
Accrued liabilities
|
|
33,855
|
|
39,549
|
|
34,102
|
|
Income taxes payable
|
|
1,370
|
|
1,637
|
|
|
|
Accrued profit sharing trust contributions
|
|
3,718
|
|
5,228
|
|
9,541
|
|
Accrued cash profit sharing and commissions
|
|
4,436
|
|
10,581
|
|
2,264
|
|
Accrued workers compensation
|
|
4,279
|
|
4,116
|
|
4,286
|
|
Total current liabilities
|
|
70,259
|
|
110,650
|
|
71,894
|
|
|
|
|
|
|
|
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|
Other long-term liabilities
|
|
9,659
|
|
12,076
|
|
9,280
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|
Total liabilities
|
|
79,918
|
|
122,726
|
|
81,174
|
|
|
|
|
|
|
|
|
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Commitments and contingencies (Note 8)
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|
|
|
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|
|
|
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|
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Stockholders equity
|
|
|
|
|
|
|
|
Common stock, at par value
|
|
491
|
|
486
|
|
490
|
|
Additional paid-in capital
|
|
138,839
|
|
128,541
|
|
136,867
|
|
Retained earnings
|
|
598,412
|
|
590,510
|
|
605,950
|
|
Accumulated other comprehensive income
|
|
12,237
|
|
27,820
|
|
5,719
|
|
Total stockholders equity
|
|
749,979
|
|
747,357
|
|
749,026
|
|
Total liabilities and stockholders equity
|
|
$
|
829,897
|
|
$
|
870,083
|
|
$
|
830,200
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Statements
of Operations
(In thousands except per-share amounts, unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
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|
Net sales
|
|
$
|
165,923
|
|
$
|
219,263
|
|
$
|
285,246
|
|
$
|
386,919
|
|
Cost of sales
|
|
104,686
|
|
135,398
|
|
193,295
|
|
246,796
|
|
Gross profit
|
|
61,237
|
|
83,865
|
|
91,951
|
|
140,123
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development and other engineering
|
|
5,161
|
|
5,610
|
|
10,025
|
|
10,713
|
|
Selling
|
|
16,852
|
|
22,134
|
|
32,877
|
|
41,942
|
|
General and administrative
|
|
20,315
|
|
23,767
|
|
40,478
|
|
41,641
|
|
|
|
42,328
|
|
51,511
|
|
83,380
|
|
94,296
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
18,909
|
|
32,354
|
|
8,571
|
|
45,827
|
|
|
|
|
|
|
|
|
|
|
|
Loss in equity method investment, before tax
|
|
(21
|
)
|
|
|
(214
|
)
|
|
|
Interest income (expense), net
|
|
(38
|
)
|
505
|
|
64
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
18,850
|
|
32,859
|
|
8,421
|
|
47,461
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
8,167
|
|
12,478
|
|
6,147
|
|
18,728
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,683
|
|
$
|
20,381
|
|
$
|
2,274
|
|
$
|
28,733
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.22
|
|
$
|
0.42
|
|
$
|
0.05
|
|
$
|
0.59
|
|
Diluted
|
|
$
|
0.22
|
|
$
|
0.42
|
|
$
|
0.05
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.20
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
49,016
|
|
48,593
|
|
49,001
|
|
48,584
|
|
Diluted
|
|
49,114
|
|
48,936
|
|
49,099
|
|
48,933
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed
Consolidated Statements of
Stockholders Equity
for the
six months ended June 30, 2008 and 2009 and December 31, 2008
(In thousands except per-share amounts, unaudited)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Par
Value
|
|
Capital
|
|
Earnings
|
|
Income
(Loss)
|
|
Total
|
|
Balance, January 1, 2008
|
|
48,552
|
|
$
|
485
|
|
$
|
126,119
|
|
$
|
571,499
|
|
$
|
25,297
|
|
$
|
723,400
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
28,733
|
|
|
|
28,733
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net
of tax of $5
|
|
|
|
|
|
|
|
|
|
2,523
|
|
2,523
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
31,256
|
|
Stock options exercised
|
|
38
|
|
1
|
|
741
|
|
|
|
|
|
742
|
|
Stock compensation
|
|
|
|
|
|
1,541
|
|
|
|
|
|
1,541
|
|
Tax benefit of options exercised
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
(107
|
)
|
Cash dividends declared on
common stock ($0.20 per
share)
|
|
|
|
|
|
|
|
(9,722
|
)
|
|
|
(9,722
|
)
|
Common stock issued at $26.59
per share for stock bonus
|
|
9
|
|
|
|
247
|
|
|
|
|
|
247
|
|
Balance, June 30, 2008
|
|
48,599
|
|
486
|
|
128,541
|
|
590,510
|
|
27,820
|
|
747,357
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
25,201
|
|
|
|
25,201
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net
of tax of $707
|
|
|
|
|
|
|
|
|
|
(22,101
|
)
|
(22,101
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
3,100
|
|
Stock options exercised
|
|
372
|
|
4
|
|
6,135
|
|
|
|
|
|
6,139
|
|
Stock compensation
|
|
|
|
|
|
1,708
|
|
|
|
|
|
1,708
|
|
Tax benefit of options exercised
|
|
|
|
|
|
483
|
|
|
|
|
|
483
|
|
Cash dividends declared on
common stock ($0.20 per
share)
|
|
|
|
|
|
|
|
(9,761
|
)
|
|
|
(9,761
|
)
|
Balance, December 31, 2008
|
|
48,971
|
|
490
|
|
136,867
|
|
605,950
|
|
5,719
|
|
749,026
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
2,274
|
|
|
|
2,274
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net
of tax of ($38)
|
|
|
|
|
|
|
|
|
|
6,518
|
|
6,518
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
8,792
|
|
Stock options exercised
|
|
69
|
|
1
|
|
1,125
|
|
|
|
|
|
1,126
|
|
Stock compensation
|
|
|
|
|
|
791
|
|
|
|
|
|
791
|
|
Tax benefit of options exercised
|
|
|
|
|
|
(244
|
)
|
|
|
|
|
(244
|
)
|
Cash dividends declared on
common stock ($0.20 per
share)
|
|
|
|
|
|
|
|
(9,812
|
)
|
|
|
(9,812
|
)
|
Common stock issued at $27.76
per share for stock bonus
|
|
10
|
|
|
|
300
|
|
|
|
|
|
300
|
|
Balance, June 30, 2009
|
|
49,050
|
|
$
|
491
|
|
$
|
138,839
|
|
$
|
598,412
|
|
$
|
12,237
|
|
$
|
749,979
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
|
2009
|
|
2008
|
|
Cash flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
2,274
|
|
$
|
28,733
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
(Gain)
loss on sale of assets
|
|
71
|
|
(17
|
)
|
Depreciation
and amortization
|
|
14,599
|
|
15,007
|
|
Deferred
income taxes
|
|
(448
|
)
|
177
|
|
Noncash
compensation related to stock plans
|
|
1,043
|
|
1,856
|
|
Loss
in equity method investment
|
|
214
|
|
|
|
Excess
tax benefit of options exercised
|
|
(19
|
)
|
(45
|
)
|
Provision
for (recovery of) doubtful accounts
|
|
1,594
|
|
(559
|
)
|
Provision
for obsolete inventory
|
|
570
|
|
|
|
Changes
in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Trade
accounts receivable
|
|
(39,970
|
)
|
(48,164
|
)
|
Inventories
|
|
64,612
|
|
(7,193
|
)
|
Trade
accounts payable
|
|
(818
|
)
|
17,469
|
|
Income
taxes payable
|
|
3,061
|
|
3,027
|
|
Accrued
profit sharing trust contributions
|
|
(5,853
|
)
|
(3,414
|
)
|
Accrued
cash profit sharing and commissions
|
|
2,142
|
|
6,436
|
|
Other
current assets
|
|
(4,444
|
)
|
(121
|
)
|
Accrued
liabilities
|
|
(1,789
|
)
|
303
|
|
Other
long-term liabilities
|
|
3,254
|
|
1,802
|
|
Accrued
workers compensation
|
|
(8
|
)
|
|
|
Other
noncurrent assets
|
|
(1,903
|
)
|
(2,010
|
)
|
Net
cash provided by operating activities
|
|
38,182
|
|
13,287
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Capital
expenditures
|
|
(9,509
|
)
|
(6,745
|
)
|
Proceeds
from sale of capital assets
|
|
612
|
|
2,668
|
|
Asset
acquisitions, net of cash acquired
|
|
(23,670
|
)
|
(26,087
|
)
|
Net
cash used in investing activities
|
|
(32,567
|
)
|
(30,164
|
)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Line
of credit borrowings
|
|
842
|
|
3,242
|
|
Repayment
of debt and line of credit borrowings
|
|
(842
|
)
|
(1,237
|
)
|
Issuance
of common stock
|
|
1,126
|
|
742
|
|
Excess
tax benefit of options exercised
|
|
19
|
|
45
|
|
Dividends
paid
|
|
(9,798
|
)
|
(9,716
|
)
|
Net
cash used in financing activities
|
|
(8,653
|
)
|
(6,924
|
)
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
1,420
|
|
(243
|
)
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
(1,618
|
)
|
(24,044
|
)
|
Cash
and cash equivalents at beginning of period
|
|
170,750
|
|
186,142
|
|
Cash
and cash equivalents at end of period
|
|
$
|
169,132
|
|
$
|
162,098
|
|
|
|
|
|
|
|
Noncash activity during the period
|
|
|
|
|
|
Noncash
capital expenditures
|
|
$
|
194
|
|
$
|
95
|
|
Dividends
declared but not paid
|
|
$
|
4,915
|
|
$
|
4,860
|
|
Issuance
of Companys common stock for compensation
|
|
$
|
300
|
|
$
|
247
|
|
Noncash
asset acquisition
|
|
$
|
|
|
$
|
1,568
|
|
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 (GAAP) 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 GAAP. The year-end condensed consolidated
balance sheet data were derived from audited financial statements, but do not
include all disclosures required by GAAP. 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.
Subsequent Events
The Company has evaluated the
financial statements for subsequent events through August 7, 2009, the
date of the filing of this Form 10-Q. See Note 11 Subsequent Events.
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 after-market repair and maintenance, engineering activities and
software sales and service, though 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 Per Common Share
Basic net income
per common share is computed based on the weighted average number of common
shares outstanding. Potentially dilutive securities, using the treasury stock
method, are included in the diluted per-share calculations for all periods when
the effect of their inclusion is dilutive.
6
The following is a
reconciliation of basic earnings per share (EPS), to diluted EPS:
|
|
Three
Months Ended,
|
|
Three
Months Ended,
|
|
|
|
June 30,
2009
|
|
June 30,
2008
|
|
(in thousands, except
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
per-share amounts)
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
10,683
|
|
49,016
|
|
$
|
0.22
|
|
$
|
20,381
|
|
48,593
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
98
|
|
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
10,683
|
|
49,114
|
|
$
|
0.22
|
|
$
|
20,381
|
|
48,936
|
|
$
|
0.42
|
|
|
|
Six
Months Ended,
|
|
Six
Months Ended,
|
|
|
|
June 30,
2009
|
|
June 30,
2008
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
Shares
|
|
Share
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
2,274
|
|
49,001
|
|
$
|
0.05
|
|
$
|
28,733
|
|
48,584
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
98
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
2,274
|
|
49,099
|
|
$
|
0.05
|
|
$
|
28,733
|
|
48,933
|
|
$
|
0.59
|
|
Anti-dilutive
shares attributable to outstanding stock options were excluded from the
calculation of diluted net income per share. For the three months ended June 30,
2009 and 2008, 1.1 million shares and 1.0 million shares, respectively, subject
to stock options were anti-dilutive. For the six months ended June 30,
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,
February 2008 and April 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. Shares of common stock
issued on exercise of stock options under both of the plans are registered
under the Securities Act of 1933. 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 and six months
ended June 30, 2009 and 2008:
|
|
Three
Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense recognized in operating
expenses
|
|
$
|
397
|
|
$
|
801
|
|
$
|
845
|
|
$
|
1,702
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of stock option expense in provision for
income taxes
|
|
135
|
|
316
|
|
283
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense, net of tax
|
|
$
|
262
|
|
$
|
485
|
|
$
|
562
|
|
$
|
1,030
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares vested
|
|
$
|
398
|
|
$
|
776
|
|
$
|
791
|
|
$
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds to the Company from the exercise of stock
options
|
|
$
|
998
|
|
$
|
234
|
|
$
|
1,126
|
|
$
|
742
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from exercise of stock options,
including windfall (shortfall) tax benefits
|
|
$
|
(59
|
)
|
$
|
42
|
|
$
|
(244
|
)
|
$
|
113
|
|
|
|
At June 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Stock option cost capitalized in inventory
|
|
$
|
47
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
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.
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 June 30, 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 expense
for the first and second quarters of 2009, however, has been computed based on
those quarters as discrete periods due to the uncertainty regarding the Companys
ability to reliably estimate pre-tax income for the remainder of the year. The
effective tax rate was 19.4% in the first quarter of 2009, which, as a result of the loss before taxes in the
first quarter of 2009, resulted in income tax benefit of $2.0 million.
The effective tax rate was 43.3% in the second quarter of 2009 which resulted
in income tax expense of $8.2 million. 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 and six months ended June 30,
2008, was calculated using estimated annual effective tax rates.
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 on adoption, the effects on future periods will depend on
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 the purchase 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. As a result of the acquisition, the Company
recorded goodwill of $0.4 million and intangible assets subject to amortization
of $1.1 million in the connector products segment.
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. As a result of the acquisition, the Company recorded goodwill
of $12.1 million and intangible assets subject to amortization of $7.4 million
in the connector products segment. Net tangible assets, including 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 connector market in France. The Company believes that the
additional presence will further its position in the construction products
market. This factor contributed to a purchase price in excess of fair market
value of Agincos net tangible and intangible assets acquired, and as a result,
the Company has recorded goodwill in connection with the transaction.
The Company has not
finalized the purchase price allocation for the RO Design Corp and Aginco
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 2009 are included in the Companys
consolidated results of operations since the dates of the acquisitions 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 must 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 must 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
In May 2009, the
FASB issued SFAS No. 165, Subsequent Events, which establishes general
standards of accounting for, and disclosures of, events that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued. SFAS No. 165 requires the disclosure of the date
through which an entity has evaluated subsequent events and is effective for
interim and annual reporting periods ending after June 15,
2009. The Company adopted the new disclosure requirements in its June 30,
2009, condensed consolidated financial statements and the adoption did not have
a material effect on the Companys consolidated financial statements.
In June 2009, the
FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities. This statement clarifies the
characteristics that identify a variable interest entity (VIE) and changes
how a reporting entity identifies a primary beneficiary that would consolidate
the VIE from a quantitative risks and rewards calculation to a qualitative
approach based on which variable interest holder has controlling financial
interest and the ability to direct the most significant activities that affect
the VIEs economic performance. SFAS No. 167 requires the
primary beneficiary assessment to be performed on a continuous basis and also
requires additional disclosures about an entitys involvement with the VIE,
restrictions on the VIEs assets and liabilities that are included in the
reporting entitys consolidated balance sheet, significant risk exposures due to
the entitys involvement with the VIE, and how its involvement with a VIE
affects the reporting entitys consolidated financial statements. SFAS No.167
is effective for fiscal years beginning after November 15,
2009. The Company will adopt SFAS No. 167 on January 1,
2010, and has not yet determined the effect, if any, on its consolidated
financial statements.
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification
TM
and the Hierarchy of Generally
Accepted Accounting Principles a replacement of FASB Statement No. 162
(Codification). The Codification does
not change GAAP but becomes the sole source of authoritative GAAP for companies
that are registered under section 12 of the Securities Exchange Act of 1934.
This Statement is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. Once effective, the
Codification will supersede existing GAAP and become the source of
authoritative accounting principles recognized by the FASB. This Statement only
requires a change in disclosure and will not affect the Companys consolidated
financial statements.
2. Trade Accounts Receivable, Net
Trade accounts receivable
consist of the following:
|
|
At June 30,
|
|
At December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
126,686
|
|
$
|
144,313
|
|
$
|
81,929
|
|
Allowance for doubtful accounts
|
|
(5,469
|
)
|
(2,080
|
)
|
(4,368
|
)
|
Allowance for sales discounts and returns
|
|
(2,571
|
)
|
(3,071
|
)
|
(1,556
|
)
|
|
|
$
|
118,646
|
|
$
|
139,162
|
|
$
|
76,005
|
|
10
3.
Inventories
Inventories consist of
the following:
|
|
At
June 30
,
|
|
At
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
62,041
|
|
$
|
83,616
|
|
$
|
92,638
|
|
In-process products
|
|
23,670
|
|
26,161
|
|
26,371
|
|
Finished products
|
|
104,442
|
|
122,798
|
|
132,869
|
|
|
|
$
|
190,153
|
|
$
|
232,575
|
|
$
|
251,878
|
|
4.
Property, Plant and Equipment, Net
Property, plant and
equipment, net, consist of the following:
|
|
At
June 30
,
|
|
At
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
23,489
|
|
$
|
21,305
|
|
$
|
23,989
|
|
Buildings and site improvements
|
|
140,431
|
|
133,920
|
|
135,992
|
|
Leasehold improvements
|
|
4,395
|
|
4,523
|
|
4,287
|
|
Machinery and equipment
|
|
224,752
|
|
221,005
|
|
219,641
|
|
|
|
393,067
|
|
380,753
|
|
383,909
|
|
Less accumulated depreciation and amortization
|
|
(205,833
|
)
|
(188,662
|
)
|
(193,639
|
)
|
|
|
187,234
|
|
192,091
|
|
190,270
|
|
Capital projects in progress
|
|
6,724
|
|
6,964
|
|
3,048
|
|
|
|
$
|
193,958
|
|
$
|
199,055
|
|
$
|
193,318
|
|
The Companys vacant facility in San Leandro,
California, remained classified as an asset held for sale as of June 30,
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.
11
6.
Goodwill and Intangible Assets, Net
Goodwill and intangible
assets, net, by segment were as follows:
|
|
Goodwill
|
|
Intangible Assets, net
|
|
|
|
at
|
|
at
|
|
at
|
|
at
|
|
|
|
June 30,
|
|
December 31,
|
|
June 30,
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Connector
products
|
|
$
|
75,423
|
|
$
|
64,205
|
|
$
|
30,599
|
|
$
|
20,889
|
|
Venting
products
|
|
4,435
|
|
4,414
|
|
2,451
|
|
2,564
|
|
Total
|
|
$
|
79,858
|
|
$
|
68,619
|
|
$
|
33,050
|
|
$
|
23,453
|
|
Intangible assets,
net, were as follows:
|
|
At June 30, 2009
|
|
At December 31, 2008
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Accumulated
|
|
(in thousands)
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
|
Connector
products
|
|
$
|
45,194
|
|
$
|
14,595
|
|
$
|
32,669
|
|
$
|
11,780
|
|
Venting
products
|
|
3,291
|
|
840
|
|
2,962
|
|
398
|
|
Total
|
|
$
|
48,485
|
|
$
|
15,435
|
|
$
|
35,631
|
|
$
|
12,178
|
|
Intangible assets
consist primarily of customer relationships, patents, unpatented technology and
non-compete agreements. Amortization expense for intangible assets during the
three months ended June 30, 2009 and 2008, was $2.1 million and $1.2
million, respectively, and during the six months ended June 30, 2009 and
2008, was $3.3 million and $2.3 million, respectively.
At June 30, 2009,
estimated future amortization of intangible assets, including the second half
of 2009, was as follows:
(in thousands)
|
|
|
|
|
|
|
|
2009
|
|
$
|
2,720
|
|
2010
|
|
4,327
|
|
2011
|
|
4,289
|
|
2012
|
|
3,530
|
|
2013
|
|
2,508
|
|
2014
|
|
2,381
|
|
Thereafter
|
|
13,295
|
|
|
|
$
|
33,050
|
|
The changes in the
carrying amount of goodwill and intangible assets from December 31, 2008
to June 30, 2009, were as follows:
|
|
|
|
Intangible
|
|
(in thousands)
|
|
Goodwill
|
|
Assets
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$
|
68,619
|
|
$
|
23,453
|
|
Acquisitions
|
|
10,209
|
|
8,493
|
|
Amortization
|
|
|
|
(3,258
|
)
|
Reclassifications
|
|
(4,144
|
)
|
3,891
|
|
Adjustments
due to recognition of deferred tax assets
|
|
3,706
|
|
|
|
Foreign
exchange
|
|
1,468
|
|
471
|
|
Balance
at June 30, 2009
|
|
$
|
79,858
|
|
$
|
33,050
|
|
12
7.
Debt
Outstanding debt at June 30,
2009 and 2008, and December 31, 2008, and the available lines of credit at
June 30, 2009, consisted of the following:
|
|
Available
|
|
Debt Outstanding
|
|
|
|
Credit at
|
|
at
|
|
at
|
|
|
|
June 30,
|
|
June 30,
|
|
December 31,
|
|
(dollar amounts in thousands)
|
|
2009
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
line of credit, interest at LIBOR plus 0.27% (at June 30, 2009, LIBOR plus
0.27% was 0.57%), 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 June 30, 2009,
the banks base rate plus 3% was 3.50%), expires October 2009
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
lines of credit, interest rates between 1.48% and 3.86%
|
|
5,448
|
|
27
|
|
3,177
|
|
26
|
|
Line
of credit
|
|
|
|
$
|
27
|
|
$
|
3,177
|
|
$
|
26
|
|
Available
credit
|
|
$
|
205,863
|
|
|
|
|
|
|
|
8.
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.
9.
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.
13
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
|
|
No options were granted
under the 1995 Plan in 2009 or 2008.
The following table
summarizes the Companys stock option activity for the six months ended June 30,
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
|
|
(69
|
)
|
16.45
|
|
|
|
|
|
Forfeited
|
|
(55
|
)
|
36.83
|
|
|
|
|
|
Outstanding at
June 30, 2009
|
|
2,179
|
|
$
|
29.67
|
|
2.4
|
|
$
|
1,222
|
|
Outstanding and
expected to vest at June 30, 2009
|
|
2,168
|
|
$
|
29.68
|
|
2.4
|
|
$
|
1,212
|
|
Exercisable at
June 30, 2009
|
|
1,965
|
|
$
|
29.53
|
|
2.1
|
|
$
|
1,091
|
|
* 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 $21.62 as reported by the New York Stock
Exchange on June 30, 2009.
The total intrinsic value of options exercised during the six
months ended June 30, 2009 and 2008, was $0.4 million and $0.3 million,
respectively.
14
A
summary of the status of unvested options as of June 30, 2009, and changes
during the six months ended June 30, 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
|
|
(94
|
)
|
12.08
|
|
Forfeited
|
|
(3
|
)
|
13.68
|
|
Unvested at
June 30, 2009
|
|
214
|
|
$
|
9.71
|
|
As of
June 30, 2009, $1.8 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 1.28 years.
Options granted under the 1995 Plan are fully vested and are expensed on the
date of grant.
10.
Segment Information
The Company is organized
into two primary operating segments. The segments are defined by types of
products manufactured, marketed and distributed to the Companys customers. The
two product segments are connector products and venting products. These
segments are differentiated in several ways, including the types of materials,
the production processes, the distribution channels and the product
applications. Transactions between the two segments were immaterial for each of
the periods presented.
The following table
illustrates certain measurements used by management to assess the performance
of the segments described above as of or for the following periods:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
152,197
|
|
$
|
205,714
|
|
$
|
261,341
|
|
$
|
359,882
|
|
Venting
products
|
|
13,726
|
|
13,549
|
|
23,905
|
|
27,037
|
|
Total
|
|
$
|
165,923
|
|
$
|
219,263
|
|
$
|
285,246
|
|
$
|
386,919
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
20,637
|
|
$
|
36,396
|
|
$
|
13,552
|
|
$
|
52,903
|
|
Venting
products
|
|
(1,011
|
)
|
(2,813
|
)
|
(4,271
|
)
|
(5,638
|
)
|
Administrative
and all other
|
|
(717
|
)
|
(1,229
|
)
|
(710
|
)
|
(1,438
|
)
|
Total
|
|
$
|
18,909
|
|
$
|
32,354
|
|
$
|
8,571
|
|
$
|
45,827
|
|
|
|
|
|
At
|
|
|
|
At June 30,
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
Total Assets
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
636,105
|
|
$
|
628,308
|
|
$
|
612,733
|
|
Venting
products
|
|
72,858
|
|
77,494
|
|
77,218
|
|
Administrative
and all other
|
|
120,934
|
|
164,281
|
|
140,249
|
|
Total
|
|
$
|
829,897
|
|
$
|
870,083
|
|
$
|
830,200
|
|
15
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
$136.1 million, $137.2 million, and $136.2 million, as of June 30, 2009
and 2008, and December 31, 2008, respectively.
11.
Subsequent Events
In July 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 October 22, 2009,
to stockholders of record on October 1, 2009.
16
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
This
document contains forward-looking statements, based on numerous assumptions and
subject to risks and uncertainties. Although the Company believes that the
forward-looking statements are reasonable, it does not and cannot give any
assurance that its beliefs and expectations will prove to be correct. Many
factors could significantly affect the Companys operations and cause the
Companys actual results to be substantially different from the Companys
expectations. See Part II, Item 1A -
Risk
Factors.
Actual results might differ materially from results
suggested by any forward-looking statements in this report.
The Company does not
have an obligation to publicly update any forward-looking statements, whether
as a result of the receipt of new information, the occurrence of future events
or otherwise.
The following is a discussion and
analysis of the consolidated financial condition and results of operations for
the Company for the three and six months ended June 30, 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 June 30, 2009, Compared with the
Three Months Ended June 30, 2008
Net sales decreased 24.3% from $219.3
million in the second quarter of 2008 to $165.9 million in the second quarter
of 2009. Net income decreased 47.6% from $20.4 million in the second quarter of
2008 to $10.7 million in the second quarter of 2009. Diluted net income per
common share was $0.22 in the second quarter of 2009 compared to diluted net
income per common share of $0.42 in the second quarter of 2008.
In the second quarter of 2009, sales
declined throughout the United States. California and the western and
southeastern regions had the largest decreases in sales. Sales during the
quarter also decreased throughout Europe, with the exception of France, and
decreased in the United Kingdom and Canada. Sales in France were flat,
primarily due to the acquisition of Agence Internationale Commerciale et
Industrielle, S.A.S. (Aginco) in April 2009. Sales in Asia, although
relatively small, have increased as Simpson Strong-Tie has recently expanded
its presence in the region. Simpson Strong-Ties second quarter sales decreased
26.0% from the same quarter last year, while Simpson Dura-Vents sales
increased 1.3%. Simpson Strong-Ties sales to dealer distributors and
contractor distributors decreased significantly as homebuilding activity, and
general economic conditions, remain weak. Sales to home centers decreased
slightly. Sales decreased across all of Simpson Strong-Ties major product
lines, particularly those used in new home construction. Sales of Simpson
Dura-Vents Direct-Vent and gas vent product lines decreased, but the decrease
was offset by increases in sales of chimney and pellet vent products, as well
as an increase in sales of special gas vent and relining products resulting
from the acquisition of ProTech Systems, Inc. (ProTech) in June 2008.
Income from operations decreased
41.6% from $32.4 million in the second quarter of 2008 to $18.9 million in the
second quarter of 2009. Gross margins decreased from 38.2% in the second
quarter of 2008 to 36.9% in the second 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 costs of material and labor. The decline in steel prices slowed in the
second quarter of 2009. The Company expects steel prices to increase as demand
returns to the market. Through the first half of 2009, the Company had focused
on reducing inventories, which decreased by 24.5%.
Research and development expense
decreased 8.0% from $5.6 million in the second quarter of 2008 to $5.2 million
in the second quarter of 2009. This decrease was primarily due to a $0.3
million decrease in personnel-related expenses. Selling expense decreased 23.9%
from $22.1 million in the second quarter of 2008 to $16.9 million in the second
quarter of 2009. The decrease resulted primarily from a $3.1 million decrease
in expenses associated with sales and marketing personnel, most of which was
related to cost-cutting measures, and a $1.8 million decrease in promotional
expenditures. General and administrative expense decreased 14.5% from $23.8
million in the second quarter of 2008 to $20.3 million in the second quarter of
2009. The decrease was the result of several factors, including a $3.0 million
decrease in cash profit sharing, a $0.8 million decrease in administrative
personnel expenses, related in part to cost-cutting measures, and a $0.7
million decrease in legal and professional service expenses. These decreases
were partly offset by a $0.9 million increase in amortization of intangible
assets, primarily related to the businesses acquired since June 2008. The
Company had interest expense in excess of interest income, primarily related to
maintenance fees on its line of credit, in the second quarter of 2009, as
compared to interest income in the second quarter of 2008. Interest income
decreased primarily due to lower interest rates. The effective tax rate was
43.3% in the second quarter of 2009, up from 38.0% in the second quarter of
2008. The effective tax rate is higher than the statutory rate primarily due to
the valuation allowances taken on
foreign losses and a reduced
17
benefit
from the reduction or loss of enterprise zone tax credits at two of the Companys
facilities in California.
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 expense for the three
months ended June 30, 2009, however, has been computed based on the three
months ended June 30, 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 June 30, 2008, was calculated
using estimated annual effective tax rates.
Connector
Products Simpson Strong-Tie
Simpson Strong-Ties net
sales decreased 26.0% from $205.7 million in the second quarter of 2008 to
$152.2 million in the second quarter of 2009. Simpson Strong-Tie accounted
for 91.7% of the Companys total net sales in the second quarter of 2009, down
from 93.8% in the second quarter of 2008. The decrease in net sales at Simpson
Strong-Tie resulted primarily from a decrease in sales volume, some of which
was offset by increases from newly acquired businesses, although average prices
increased 18.0% as compared to the second quarter of 2008. In the second
quarter of 2009, Simpson Strong-Ties sales declined throughout the United
States. California and the western and the southeastern regions had the largest
decrease in sales. Simpson Strong-Ties sales during the quarter also decreased
throughout Europe, with the exception of France, and decreased in the United
Kingdom and Canada. Sales in France were flat, primarily due to the acquisition
of Aginco in April 2009. 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 activity, and general
economic conditions, remain weak. Sales decreased across all of Simpson
Strong-Ties major product lines, particularly those used in new home
construction.
Simpson
Strong-Ties income from operations decreased 43.3% from $36.4 million in the
second quarter of 2008 to $20.6 million in the second quarter of 2009. Gross
margin
decreased from
41.0% in the second quarter of 2008 to
38.8% in the second 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 and labor.
Simpson Strong-Ties research
and development expense decreased 9.5% from $5.4 million in the second quarter
of 2008 to $4.9 million in the second quarter of 2009. This decrease was
primarily due to a $0.3 million decrease in expenses related to personnel. Simpson Strong-Ties selling expense
decreased 25.4% from $20.7 million in the
second quarter of 2008 to $15.4 million in the second quarter of 2009. The decrease resulted primarily from a
$3.0 million decrease in expenses associated with sales and marketing
personnel, most of which was related to cost-cutting measures, and a $1.9
million decrease in promotional expenditures. Simpson Strong-Ties general and
administrative expense decreased 17.9% from $21.9 million in the second quarter
of 2008 to $18.0 million in the second quarter of 2009. The decrease was
primarily due to a $2.2 million decrease in cash profit sharing, a $1.3 million
decrease in administrative personnel expenses, a $0.5 million decrease in
information technology expenditures and a $0.4 million decrease in home office
administrative allocations. The decrease was partly offset by an increase of
$0.7 million in amortization of intangible assets, primarily related to the
businesses acquired since June 2008.
For its European operations,
Simpson
Strong-Tie recorded losses from operations
of $1.4 million in the second quarter of 2009 compared to income from
operations of $2.6 million in the second 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.
Venting
Products Simpson Dura-Vent
Simpson Dura-Vents net
sales increased 1.3% to $13.7 million in the
second quarter of 2009 from $13.5 million in the second quarter of 2008. Simpson
Dura-Vent accounted for 8.3% of the Companys
total net sales in the second quarter of 2009, an increase from 6.2% in the
second quarter of 2008. The increase in net sales at Simpson Dura-Vent resulted primarily from average price increases
of 6.9% as compared to the second quarter of 2008, offset by a decrease in
sales volume even with the increase from ProTech. In the second quarter of
2009, Simpson Dura-Vents sales increased primarily in the southeast and
northeast, but those increases were largely
18
offset by decreases
elsewhere, primarily in California, resulting from the weakness in new home construction. Sales were mixed across Simpson Dura-Vents product lines, with
sales increases of chimney, pellet vent, special gas vent and relining products
offset by decreases in gas vent and Direct-Vent products. The increase in special gas vent and relining
products was a result of the acquisition of ProTech in June 2008.
Simpson
Dura-Vents loss from operations decreased from $2.8 million in the second
quarter of 2008 to $1.0 million in the second quarter of 2009.
Simpson Dura-Vents gross profit increased to $2.2 million in the
second quarter of 2009 from a loss of $0.2 million in the second quarter of
2008. This increase was primarily due to lower fixed overhead, labor and
shipping costs, offset slightly by higher costs of material.
Simpson Dura-Vents
general and administrative expense increased 48.1% to $1.5 million in the
second quarter of 2009 from $1.0 million in the second quarter of 2008. This
increase was primarily due to a $0.1 million increase in expenses associated
with administrative personnel, including those at businesses acquired in 2008,
and a $0.3 million increase in intangible asset amortization expense.
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 and was more than offset by interest expense, which includes interest, account
maintenance fees and bank charges.
Results
of Operations for the Six Months Ended June 30, 2009, Compared with the
Six Months Ended June 30, 2008
Net sales decreased 26.3% from $386.9
million in the first half of 2008 to $285.2 million in the first half of 2009.
Net income decreased 92.1% from $28.7 million in the first half of 2008 to $2.3
million in the first half of 2009. Diluted net income per common share was
$0.05 in the first half of 2009 compared to diluted net income per common share
of $0.59 in the first half of 2008.
In the first half of 2009, sales
declined throughout the United States. California and the western and
southeastern regions had the largest decreases in sales. Sales during the
period also decreased throughout Europe, the United Kingdom and Canada. Simpson
Strong-Ties first half sales decreased 27.4% from the same period last year,
while Simpson Dura-Vents sales decreased 11.6%. Simpson Strong-Ties sales to
dealer distributors and contractor distributors decreased significantly as a
result of the weakness in the U.S. housing market. Sales to home centers
decreased slightly. Sales decreased across all of Simpson Strong-Ties major
product lines, particularly those used in new home construction. Sales of
Simpson Dura-Vents Direct-Vent and gas vent product lines decreased, but the
decrease was partly offset by an increase in sales of pellet vent products, as
well as an increase in sales of special gas vent and relining products
resulting from the acquisition of ProTech in June 2008.
Income from operations decreased
81.3% from $45.8 million in the first half of 2008 to $8.6 million in the first
half of 2009. Gross margins decreased from 36.2% in the first half of 2008 to
32.2% in the first half 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 costs of
material and labor.
Research and development expense
decreased 6.4% from $10.7 million in the first half of 2008 to $10.0 million in
the first half of 2009. This decrease was primarily due to a $0.4 million
decrease in professional service fees and a $0.1 million decrease in
personnel-related expenses. Selling expense decreased 21.6% from $41.9 million
in the first half of 2008 to $32.9 million in the first half of 2009. The
decrease resulted primarily from a $5.1 million decrease in expenses associated
with sales and marketing personnel, most of which was related to cost-cutting
measures, and a $2.8 million decrease in promotional expenditures. General and
administrative expense decreased 2.8% from $41.6 million in the first half of
2008 to $40.5 million in the first half of 2009. The decrease resulted from a
$4.5 million decrease in cash profit sharing, partly offset by a $2.2 million
increase in bad debt charges in the first quarter of 2009 and a $1.0 million
increase in amortization of intangible assets, primarily related to the
businesses acquired since June 2008. Interest income decreased 96.1% from
$1.6 million in the first half of 2008 to $0.1 million in the first half of
2009, primarily due to lower interest rates and maintenance fees on the Companys
line of credit. The effective tax rate was 73.0% in the first half of 2009, up
from 39.5% in the first half of 2008. The effective tax rate is higher 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. The income tax expense for the first half of 2009, however,
has been computed based on the first and second quarters of 2009 as discrete
periods due to the uncertainty regarding the Companys ability to reliably
estimate pre-tax income for the
19
remainder of the year. The effective
tax rate was 19.4% in the first quarter of 2009, which, as a result of the loss before taxes in the first quarter of 2009,
resulted in income tax benefit of $2.0 million. The effective tax rate was
43.3% in the second quarter of 2009 which resulted in income tax expense of
$8.2 million. 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 six months ended June 30, 2008, was
calculated using estimated annual effective tax rates.
Connector
Products Simpson Strong-Tie
Simpson Strong-Ties net
sales decreased 27.4% from $359.9 million in the first half of 2008 to $261.3
million in the first half of 2009. Simpson
Strong-Tie accounted for 91.6% of the
Companys total net sales in the first half of 2009, a decrease from 93.0% in
the first half of 2008. The decrease in net sales at Simpson Strong-Tie
resulted primarily from a decrease in sales volume, partly offset by increases
from newly acquired businesses and increases in prices averaging 19.6% from the
first half of 2008. In the first half of 2009, Simpson Strong-Ties
sales declined throughout the United States. California, the western states and
the southeastern states had the largest decrease in sales. Simpson Strong-Ties
sales during the first half of 2009 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 a result of the weakness in the U.S.
housing market. Sales decreased across all of Simpson Strong-Ties major
product lines, particularly those used in new home construction.
Simpson
Strong-Ties income from operations decreased 74.4% from $52.9 million in the
first half of 2008 to $13.6 million in the first half of 2009. Gross margin
decreased from 39.0% in the first half of 2008 to 34.3% in the
first half of 2009. This decrease was primarily due to reduced absorption of
fixed overhead, as a result of lower production volumes, as well as slightly
higher manufacturing costs, including higher costs of material, labor and
distribution.
Simpson Strong-Ties
research and development expense decreased 8.2% from $10.2 million in the first
half of 2008 to $9.4 million in the first half of 2009. This decrease was
primarily due to a $0.5 million decrease in professional services and a $0.2
million decrease in personnel-related expenses. Simpson Strong-Ties selling expense decreased 22.4% from $38.8
million in the first half of 2008 to
$30.1 million in the first half of 2009.
The decrease resulted primarily from a $4.9 million decrease in expenses
associated with sales and marketing personnel, most of which was related to
cost-cutting measures, a $2.8 million decrease in promotional expenditures and
a $0.4 million decrease in professional services. Simpson Strong-Ties general
and administrative expense decreased 4.7% from $38.4 million in the first half
of 2008 to $36.6 million in the first half of 2009. The decrease was primarily
due to a $3.7 million decrease in cash profit sharing that resulted from lower
operating income, a $0.9 million decrease in administrative personnel expenses,
and a $0.7 million decrease in information technology expenditures, which were
partly offset by a $2.2 million increase in the provision for bad debt,
primarily related to one customer, and a $0.9 million increase in home office
administrative allocations.
For its European operations,
Simpson
Strong-Tie recorded losses from operations
of $5.6 million in the first half of 2009 compared to income from operations of
$1.6 million in the first half 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.
Venting
Products Simpson Dura-Vent
Simpson Dura-Vents net sales
decreased 11.6% from $27.0 million in the first half of 2008 to $23.9 million
in the first half of 2009. Simpson Dura-Vent accounted for 8.4% of the Companys
total net sales in the first half of 2009, an increase from 7.0% in the first
half of 2008. The decrease in net sales at Simpson Dura-Vent resulted primarily
from a decrease in sales volume, partly offset by the addition of ProTech sales
and increases in prices averaging 8.1% from the first half of 2008. In the
first half of 2009, Simpson Dura-Vents sales decreased throughout the United
States, with the largest decreases in California and the western region,
resulting from the weakness in new home construction. These decreases were
offset slightly by increases in the southeastern and northeastern regions.
Sales of Simpson Dura-Vents Direct-Vent and gas vent product lines decreased,
while sales of its pellet vent products increased, as did sales of its special
gas vent and relining products resulting from the acquisition of ProTech in June 2008.
20
Simpson
Dura-Vents loss from operations decreased from $5.6 million in the first half
of 2008 to $4.3 million in the first half of 2009.
Simpson Dura-Vents gross profit increased to $2.3 million in the first half of 2009 from a
loss of $55 thousand in the first half of 2008. This increase was
primarily due to lower fixed overhead and labor costs, offset slightly by
higher material costs.
Simpson Dura-Vents
research and development expense increased 33.8% to $0.7 million in the first
half of 2009 from $0.5 million in the first half of 2008, which resulted
primarily from an increase of $0.1 million in professional service expenses and
a $0.1 million increase in personnel costs.
Simpson Dura-Vents selling expense decreased 10.9% from $3.1 million in
the first half of 2008 to $2.8 million
in the first half of 2009. This
decrease resulted primarily from a $0.2 million decrease in agent commissions
and a $0.1 million decrease in expenses associated with sales and marketing
personnel. Simpson Dura-Vents general and administrative expense increased
58.2% to $3.1 million in the first half of 2009 from $2.0 million in the first
half of 2008. This increase was primarily due to a $0.3 million increase in
expenses associated with administrative personnel, including those at
businesses acquired in 2008, and a $0.4 million increase in intangible asset
amortization expense.
Administrative
and All Other (Company)
Interest
income is generated on the Companys cash and cash equivalents balances. In the
first half of 2009, interest
income decreased primarily as a result of lower interest rates and was
nearly offset by interest expense, which
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 or six months ended June 30, 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. See Note 1, Basis of Presentation
Recently
Issued Accounting Standards,
to
the Companys Condensed Consolidated Financial Statements regarding recently
issued accounting standards.
Liquidity and Sources of Capital
As of June 30, 2009, working capital was $438.4
million as compared to $448.7 million at June 30, 2008, and $455.7 million
at December 31, 2008. The decrease in working capital from December 31,
2008, was primarily due to a $61.7 million decrease in inventories, a $1.6
million decrease in cash and cash equivalents, a $2.2 million increase in
accrued cash profit sharing and commissions and a $1.4 million increase in
income taxes payable. Raw material inventories decreased 33.0% from December 31,
2008, while in-progress and finished goods inventories decreased 19.5% 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 higher sales and lower production
volumes at the Companys manufacturing facilities. Partly offsetting the
decreases in working capital were a $42.6 million increase in net trade
accounts receivable, a $2.1 million increase in other current assets, and a
$5.8 million decrease in accrued profit sharing contributions. Net trade
accounts receivable increased 56.1% from December 31, 2008, as a result of
increased sales in the latter part of the second quarter of 2009 compared to
the latter part of the fourth quarter of 2008. The balance of the change in
working capital was due to the fluctuation of various other asset and liability
accounts, none of which was individually material. The working capital change
and changes in noncurrent assets and liabilities, combined with net income of
$2.3 million and noncash expenses, primarily depreciation, amortization and
stock-based compensation charges totaling $15.6 million, resulted in net cash
provided by operating activities of $38.2 million. As of June 30, 2009,
the Company had unused credit facilities available of $205.9 million.
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 $0.4 million
and intangible assets subject to amortization of $1.1 million in the connector
products segment as a result of the acquisition, but the purchase price
allocation has not been finalized.
21
In April 2009, the Companys
subsidiary, Simpson Strong-Tie Europe EURL, purchased the equity of Aginco,
which 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 recorded goodwill of $12.1 million and intangible
assets subject to amortization of $7.4 million in the connector products
segment 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 used $32.6 million in its investing activities,
primarily for the acquisitions of the RO Design Corp and Aginco businesses and
capital expenditures mainly at its facilities in Europe and Asia. The Company
estimates that its full-year capital spending will total $16.0 million in 2009.
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 $8.7 million. The payment of cash dividends in the
amount of $9.8 million was the primary financing activity use of cash. Cash
provided by financing activities was primarily from the issuance of the Companys
common stock through the exercise of stock options totaling $1.1 million. In July 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 October 22, 2009,
to stockholders of record on October 1, 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 an increase in accumulated other comprehensive income of $12.3
million and $6.5 million for the three and six months ended June 30, 2009,
primarily due to the effect of the weakening of the United States dollar in
relation to the Canadian dollar and most European currencies.
Item 4.
Controls and Procedures.
Disclosure
Controls and Procedures.
As of June 30, 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, at the reasonable assurance level, in ensuring that
information required to be disclosed is recorded, processed, summarized and
reported within the time period specified in the rules and forms of the
Securities and Exchange Commission and in seasonably alerting them to material
information required to be included in this report.
22
The Companys management,
including the CEO and the CFO, does not expect that the Companys disclosure
controls and procedures or the Companys internal control over financial
reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. In addition, the design of a control system
must reflect the facts that there are resource constraints and that the
benefits of controls must be considered relative to their costs. The inherent limitations in an internal
control system include the realities that judgments can be faulty and that
breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. The
design of any system of internal control is also based in part on assumptions
about the likelihood of future events, and there can be only reasonable, not
absolute, assurance that any design will succeed in achieving its stated goals
under all potential future events and conditions. Over time, controls may become inadequate
because of changes in circumstances, or the degree of compliance with the
policies and procedures may deteriorate.
Changes
in Internal Control over Financial Reporting.
During the three months ended June 30,
2009, the Company made no changes to its internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting.
23
PART II OTHER
INFORMATION
Item 1.
Legal Proceedings.
From time to time,
the Company is involved in various legal proceedings and other matters arising
in the normal course of business. The 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. The Company did not repurchase any of its common stock
in the first half of 2009.
Item 4.
Submission of Matters to a Vote of Security Holders.
The Annual Meeting
of Stockholders (Annual Meeting) was held on April 17, 2009. The
following nominees were elected as directors by the votes indicated:
|
|
Total Votes
|
|
Total Votes
|
|
|
|
|
|
for Each
|
|
Withheld from
|
|
Term
|
|
Name
|
|
Director
|
|
Each Director
|
|
Expires*
|
|
|
|
|
|
|
|
|
|
Barclay
Simpson
|
|
32,015,862
|
|
13,395,857
|
|
2012
|
|
Jennifer
A. Chatman
|
|
45,052,436
|
|
359,282
|
|
2012
|
|
Robin
G. MacGillivray
|
|
44,911,009
|
|
500,709
|
|
2012
|
|
* The term expires
on the date of the Annual Meeting in the year indicated.
The terms as
directors of Peter N. Louras, Jr., Gary M. Cusumano, Earl F. Cheit, Thomas
J Fitzmyers and Barry Lawson Williams continued after the meeting.
24
The following
proposals were also adopted at the Annual Meeting by the votes indicated:
Proposal
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
|
|
|
|
|
|
To
ratify the correction of a clerical error in the previously approved
Companys 1994 Stock Option Plan
|
|
42,863,893
|
|
2,495,064
|
|
52,761
|
|
|
|
|
|
|
|
|
|
To
ratify the appointment of PricewaterhouseCoopers LLP as the independent
registered public accounting firm of the Company for 2009
|
|
44,451,649
|
|
945,904
|
|
14,165
|
|
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.
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
Amended Rights Agreement dated as of June 15,
2009, between Simpson Manufacturing Co., Inc. and Computershare Trust
Company, 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/A dated June 15, 2009.
4.2
Certificate of Designation, Preferences and Rights of Series A
Participating Preferred Stock of Simpson Manufacturing Co., Inc., dated July 30,
1999, is incorporated by reference to Exhibit 4.2 of its Registration
Statement on Form 8-A dated August 4, 1999.
10.1
Simpson Manufacturing Co., Inc. 1994 Stock Option
Plan, as amended through February 13, 2008, is 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.
25
10.4
Credit Agreement dated as of October 10, 2007,
among Simpson Manufacturing Co., Inc. as Borrower, the Lenders party
thereto, Wells Fargo Bank as Agent, and Simpson Dura-Vent Company, Inc.,
Simpson Strong Tie Company Inc., and Simpson Strong-Tie International, Inc.
as Guarantors, is incorporated by reference to Exhibit 10.1 of Simpson
Manufacturing Co., Inc.s Current Report on Form 8-K dated October 15,
2007.
10.5
Form of Indemnification Agreement between Simpson
Manufacturing Co., Inc. and its directors and executive officers, as well
as the officers of Simpson Strong-Tie Company Inc. and Simpson Dura-Vent
Company, Inc., is incorporated by reference to Exhibit 10.2 of
Simpson Manufacturing Co., Inc.s Annual Report on Form 10-K for the
year ended December 31, 2004.
10.6
Stock Purchase Agreement dated as of July 23,
2007, between Hobart K. Swan and Reliance Trust Company, solely in its capacity
as independent trustee of the Swan Secure Products, Inc. Employee Stock
Ownership Plan and Trust, on the one hand, and Simpson Strong-Tie Company Inc.
and Simpson Manufacturing Co., Inc., on the other hand, is incorporated by
reference to Exhibit 10.1 of Simpson Manufacturing Co., Inc.s
Current Report on Form 8-K dated July 24, 2007.
31
Rule 13a-14(a)/15d-14(a) Certifications
are filed herewith.
32
Section 1350 Certifications are
filed herewith
.
99.1
Simpson Manufacturing Co., Inc. 1994 Employee
Stock Bonus Plan, as amended through November 18, 2004, is incorporated by
reference to Exhibit 99.1 of Simpson Manufacturing Co., Inc.s Annual
Report on Form 10-K for the year ended December 31, 2007.
26
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
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Simpson Manufacturing Co., Inc.
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(Registrant)
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DATE:
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August 7,
2009
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By
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/s/Karen
Colonias
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Karen Colonias
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Chief Financial Officer
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(principal accounting and financial officer)
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27
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