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: September 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
|
|
Smaller
reporting company
o
|
(Do
not check if a smaller reporting company)
|
|
|
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 September 30,
2009: 49,302,460
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Balance
Sheets
(In thousands, unaudited)
|
|
September 30,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
220,139
|
|
$
|
163,857
|
|
$
|
170,750
|
|
Trade accounts receivable, net
|
|
108,005
|
|
125,875
|
|
76,005
|
|
Inventories
|
|
178,237
|
|
251,647
|
|
251,878
|
|
Deferred income taxes
|
|
13,888
|
|
11,745
|
|
11,995
|
|
Assets held for sale
|
|
7,887
|
|
8,429
|
|
8,387
|
|
Other current assets
|
|
10,899
|
|
7,191
|
|
8,582
|
|
Total current assets
|
|
539,055
|
|
568,744
|
|
527,597
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
191,326
|
|
195,062
|
|
193,318
|
|
Goodwill
|
|
81,289
|
|
75,799
|
|
68,619
|
|
Intangible assets, net
|
|
31,885
|
|
22,376
|
|
23,453
|
|
Equity method investment
|
|
|
|
|
|
214
|
|
Other noncurrent assets
|
|
13,614
|
|
16,720
|
|
16,999
|
|
Total assets
|
|
$
|
857,169
|
|
$
|
878,701
|
|
$
|
830,200
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
29
|
|
$
|
629
|
|
$
|
26
|
|
Trade accounts payable
|
|
29,638
|
|
46,113
|
|
21,675
|
|
Accrued liabilities
|
|
31,654
|
|
39,835
|
|
34,102
|
|
Income taxes payable
|
|
1,189
|
|
3,593
|
|
|
|
Accrued profit sharing trust contributions
|
|
5,436
|
|
7,603
|
|
9,541
|
|
Accrued cash profit sharing and commissions
|
|
5,620
|
|
10,313
|
|
2,264
|
|
Accrued workers compensation
|
|
4,276
|
|
4,116
|
|
4,286
|
|
Total current liabilities
|
|
77,842
|
|
112,202
|
|
71,894
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
9,019
|
|
10,607
|
|
9,280
|
|
Total liabilities
|
|
86,861
|
|
122,809
|
|
81,174
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
Common stock, at par value
|
|
493
|
|
486
|
|
490
|
|
Additional paid-in capital
|
|
144,199
|
|
130,032
|
|
136,867
|
|
Retained earnings
|
|
606,251
|
|
609,010
|
|
605,950
|
|
Accumulated other comprehensive income
|
|
19,365
|
|
16,364
|
|
5,719
|
|
Total stockholders equity
|
|
770,308
|
|
755,892
|
|
749,026
|
|
Total
liabilities and stockholders equity
|
|
$
|
857,169
|
|
$
|
878,701
|
|
$
|
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
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2008
|
|
2009
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
167,200
|
|
$
|
219,823
|
|
$
|
452,446
|
|
$
|
606,742
|
|
Cost of sales
|
|
106,299
|
|
130,143
|
|
299,594
|
|
376,939
|
|
Gross profit
|
|
60,901
|
|
89,680
|
|
152,852
|
|
229,803
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development and other engineering
|
|
4,971
|
|
5,662
|
|
14,997
|
|
16,375
|
|
Selling
|
|
15,563
|
|
21,323
|
|
48,440
|
|
63,264
|
|
General and administrative
|
|
19,351
|
|
25,514
|
|
59,828
|
|
67,155
|
|
|
|
39,885
|
|
52,499
|
|
123,265
|
|
146,794
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
21,016
|
|
37,181
|
|
29,587
|
|
83,009
|
|
|
|
|
|
|
|
|
|
|
|
Loss in equity method investment, before tax
|
|
|
|
|
|
(214
|
)
|
|
|
Interest income, net
|
|
|
|
579
|
|
64
|
|
2,213
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
21,016
|
|
37,760
|
|
29,437
|
|
85,222
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
8,258
|
|
14,398
|
|
14,405
|
|
33,126
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,758
|
|
$
|
23,362
|
|
$
|
15,032
|
|
$
|
52,096
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
$
|
0.48
|
|
$
|
0.31
|
|
$
|
1.07
|
|
Diluted
|
|
$
|
0.26
|
|
$
|
0.48
|
|
$
|
0.31
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
$
|
0.10
|
|
$
|
0.10
|
|
$
|
0.30
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
|
49,195
|
|
48,612
|
|
49,066
|
|
48,593
|
|
Diluted
|
|
49,355
|
|
48,946
|
|
49,185
|
|
48,939
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed
Consolidated Statements of
Stockholders Equity
for the
nine months ended September 30, 2008 and 2009, and three months ended 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
|
|
|
|
|
|
|
|
52,096
|
|
|
|
52,096
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net
of tax of $(317)
|
|
|
|
|
|
|
|
|
|
(8,933
|
)
|
(8,933
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
43,163
|
|
Stock options exercised
|
|
75
|
|
1
|
|
1,380
|
|
|
|
|
|
1,381
|
|
Stock compensation
|
|
|
|
|
|
2,309
|
|
|
|
|
|
2,309
|
|
Tax benefit of options exercised
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
(23
|
)
|
Cash dividends declared on common stock, $0.30 per
share
|
|
|
|
|
|
|
|
(14,585
|
)
|
|
|
(14,585
|
)
|
Common stock issued at $26.59
per share for stock bonus
|
|
9
|
|
|
|
247
|
|
|
|
|
|
247
|
|
Balance, September 30, 2008
|
|
48,636
|
|
486
|
|
130,032
|
|
609,010
|
|
16,364
|
|
755,892
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
1,838
|
|
|
|
1,838
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net
of tax of $395
|
|
|
|
|
|
|
|
|
|
(10,645
|
)
|
(10,645
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
(8,807
|
)
|
Stock options exercised
|
|
335
|
|
4
|
|
5,496
|
|
|
|
|
|
5,500
|
|
Stock compensation
|
|
|
|
|
|
940
|
|
|
|
|
|
940
|
|
Tax benefit of options exercised
|
|
|
|
|
|
399
|
|
|
|
|
|
399
|
|
Cash dividends declared on
common stock, $0.10 per
share
|
|
|
|
|
|
|
|
(4,898
|
)
|
|
|
(4,898
|
)
|
Balance, December 31, 2008
|
|
48,971
|
|
490
|
|
136,867
|
|
605,950
|
|
5,719
|
|
749,026
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
15,032
|
|
|
|
15,032
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment, net
of tax of ($33)
|
|
|
|
|
|
|
|
|
|
13,646
|
|
13,646
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
28,678
|
|
Stock options exercised
|
|
321
|
|
3
|
|
6,351
|
|
|
|
|
|
6,354
|
|
Stock compensation
|
|
|
|
|
|
1,176
|
|
|
|
|
|
1,176
|
|
Tax benefit of options exercised
|
|
|
|
|
|
(495
|
)
|
|
|
|
|
(495
|
)
|
Cash dividends declared on
common stock, $0.30 per
share
|
|
|
|
|
|
|
|
(14,731
|
)
|
|
|
(14,731
|
)
|
Common stock issued at $27.76
per share for stock bonus
|
|
10
|
|
|
|
300
|
|
|
|
|
|
300
|
|
Balance, September 30, 2009
|
|
49,302
|
|
$
|
493
|
|
$
|
144,199
|
|
$
|
606,251
|
|
$
|
19,365
|
|
$
|
770,308
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
Simpson Manufacturing Co., Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
Nine Months
|
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
Cash flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
15,032
|
|
$
|
52,096
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
(Gain)
loss on sale of assets
|
|
236
|
|
(58
|
)
|
Depreciation
and amortization
|
|
22,093
|
|
22,634
|
|
Deferred
income taxes
|
|
(1,597
|
)
|
(505
|
)
|
Noncash
compensation related to stock plans
|
|
1,554
|
|
2,715
|
|
Loss
in equity method investment
|
|
214
|
|
|
|
Excess
tax benefit of options exercised
|
|
(283
|
)
|
(118
|
)
|
Provision
for doubtful accounts
|
|
456
|
|
7
|
|
Provision
for obsolete inventory
|
|
788
|
|
|
|
Changes
in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Trade
accounts receivable
|
|
(27,552
|
)
|
(36,078
|
)
|
Inventories
|
|
77,883
|
|
(27,616
|
)
|
Trade
accounts payable
|
|
6,182
|
|
15,679
|
|
Income
taxes payable
|
|
2,929
|
|
6,206
|
|
Accrued
profit sharing trust contributions
|
|
(4,178
|
)
|
(991
|
)
|
Accrued
cash profit sharing and commissions
|
|
3,279
|
|
6,223
|
|
Other
current assets
|
|
(4,628
|
)
|
(858
|
)
|
Accrued
liabilities
|
|
(4,345
|
)
|
(454
|
)
|
Other
long-term liabilities
|
|
2,529
|
|
631
|
|
Accrued
workers compensation
|
|
(11
|
)
|
|
|
Other
noncurrent assets
|
|
(1,844
|
)
|
(2,931
|
)
|
Net
cash provided by operating activities
|
|
88,737
|
|
36,582
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Capital
expenditures
|
|
(12,452
|
)
|
(10,326
|
)
|
Proceeds
from sale of capital assets
|
|
930
|
|
2,674
|
|
Asset
acquisitions, net of cash acquired
|
|
(23,670
|
)
|
(34,028
|
)
|
Net cash
used in investing activities
|
|
(35,192
|
)
|
(41,680
|
)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Line
of credit borrowings
|
|
1,527
|
|
3,695
|
|
Repayment
of debt and line of credit borrowings
|
|
(1,527
|
)
|
(4,101
|
)
|
Issuance
of common stock
|
|
6,354
|
|
1,381
|
|
Excess
tax benefit of options exercised
|
|
283
|
|
118
|
|
Dividends
paid
|
|
(14,702
|
)
|
(14,576
|
)
|
Net
cash used in financing activities
|
|
(8,065
|
)
|
(13,483
|
)
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
3,909
|
|
(3,704
|
)
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
49,389
|
|
(22,285
|
)
|
Cash
and cash equivalents at beginning of period
|
|
170,750
|
|
186,142
|
|
Cash
and cash equivalents at end of period
|
|
$
|
220,139
|
|
$
|
163,857
|
|
|
|
|
|
|
|
Noncash activity during the period
|
|
|
|
|
|
Noncash
capital expenditures
|
|
$
|
|
|
$
|
135
|
|
Dividends
declared but not paid
|
|
$
|
4,919
|
|
$
|
4,863
|
|
Issuance
of Companys common stock for compensation
|
|
$
|
300
|
|
$
|
247
|
|
Noncash
asset acquisition
|
|
$
|
|
|
$
|
1,457
|
|
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 November 6, 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,
|
|
|
|
September 30, 2009
|
|
September 30, 2008
|
|
(in thousands, except
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
per-share amounts)
|
|
Income
|
|
Share
|
|
Shares
|
|
Income
|
|
Shares
|
|
Share
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
12,758
|
|
49,195
|
|
$
|
0.26
|
|
$
|
23,362
|
|
48,612
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
160
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
12,758
|
|
49,355
|
|
$
|
0.26
|
|
$
|
23,362
|
|
48,946
|
|
$
|
0.48
|
|
|
|
Nine Months Ended,
|
|
Nine Months Ended,
|
|
|
|
September 30, 2009
|
|
September 30, 2008
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
Share
|
|
Shares
|
|
Income
|
|
Share
|
|
Shares
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
15,032
|
|
49,066
|
|
$
|
0.31
|
|
$
|
52,096
|
|
48,593
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
119
|
|
|
|
|
|
346
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
15,032
|
|
49,185
|
|
$
|
0.31
|
|
$
|
52,096
|
|
48,939
|
|
$
|
1.06
|
|
Anti-dilutive
shares attributable to outstanding stock options were excluded from the
calculation of diluted net income per share. For the three months ended September 30,
2009 and 2008, 0.9 million shares and 1.0 million shares, respectively, subject
to stock options were anti-dilutive. For the nine months ended September 30,
2009 and 2008, 1.0 million shares and 1.1 million shares, respectively, 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 nine months
ended September 30, 2009 and 2008:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(in thousands)
|
|
2008
|
|
2009
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense recognized in operating
expenses
|
|
$
|
386
|
|
$
|
772
|
|
$
|
1,231
|
|
$
|
2,473
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit of stock option expense in provision for
income taxes
|
|
131
|
|
305
|
|
413
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
Stock option expense, net of tax
|
|
$
|
255
|
|
$
|
467
|
|
$
|
818
|
|
$
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares vested
|
|
$
|
385
|
|
$
|
769
|
|
$
|
1,176
|
|
$
|
2,309
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds to the Company from the exercise of stock
options
|
|
$
|
5,228
|
|
$
|
640
|
|
$
|
6,354
|
|
$
|
1,381
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit from exercise of stock options,
including windfall (shortfall) tax benefits
|
|
$
|
(251
|
)
|
$
|
159
|
|
$
|
(495
|
)
|
$
|
272
|
|
|
|
|
|
|
|
At September 30,
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Stock option cost capitalized in inventory
|
|
|
|
|
|
$
|
46
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2009, the Companys
investments consisted of only United States Treasury securities and money
market funds aggregating $114.0 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 the Fair Value Measurements and
Disclosures topic of the Financial Accounting Standards Board (FASB)
Accounting Standards Codification
TM
(ASC).
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 three 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 effective tax rate was 39.3% in the
third quarter of 2009 which resulted in income tax expense of $8.3 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 nine months ended September 30, 2008, was
calculated using estimated annual effective tax rates.
8
Acquisitions
Effective January 1,
2009, the Company adopted the revised business combinations guidance codified
as the Business Combinations topic of the FASB ASC. This revised guidance
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. The revised business combination guidance 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. This guidance 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
guidance 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 guidance.
In January 2009, the
Companys subsidiary, Simpson Strong-Tie Company Inc., 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. 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 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.
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
FASB issued new guidance to the Business Combinations topic of the FASB ASC,
which applies to all assets and liabilities assumed in a business combination
that would be within the scope of the Contingencies topic of the FASB ASC, if
not acquired in a business combination, except for assets or liabilities
arising from contingencies that are subject to specific guidance in the Business
Combinations topic of the FASB ASC. 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
9
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. This new guidance became effective for the Company for business
combinations for which the acquisition date was on or after January 1,
2009, and has not and is not currently expected to have a material effect on
the Companys consolidated financial statements.
In May 2009, the
FASB issued guidance codified in the Subsequent Events topic of the FASB ASC,
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. The subsequent events
guidance 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 guidance
codified as the Generally Accepted Accounting Principles topic of the FASB
ASC. The ASC is the sole source of authoritative GAAP for companies that are
registered under section 12 of the Securities Exchange Act of 1934. This
guidance was effective for financial statements issued for interim and annual
periods ending after September 15, 2009.
The ASC superseded all then-existing non-SEC
accounting and reporting standards, and all other non-grandfathered non-SEC
accounting literature not included in the ASC became non-authoritative.
This guidance only required a
change in disclosure and did not affect the Companys consolidated financial
statements.
In June 2009, the
FASB issued a new standard, not yet codified in the FASB ASC, amending the
accounting and disclosure requirements for the consolidation of variable
interest entities. This
standard 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. This standard 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. It is effective for fiscal years beginning
after November 15, 2009. The Company will adopt this accounting
standard on January 1, 2010, and has not yet determined the effect, if
any, on its consolidated financial statements.
2. Trade Accounts Receivable, Net
Trade accounts receivable
consist of the following:
|
|
At September 30,
|
|
At December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$
|
114,942
|
|
$
|
130,919
|
|
$
|
81,929
|
|
Allowance for doubtful accounts
|
|
(4,759
|
)
|
(2,222
|
)
|
(4,368
|
)
|
Allowance for sales discounts and returns
|
|
(2,178
|
)
|
(2,822
|
)
|
(1,556
|
)
|
|
|
$
|
108,005
|
|
$
|
125,875
|
|
$
|
76,005
|
|
10
3. Inventories
Inventories consist of
the following:
|
|
At
September 30
,
|
|
At
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
61,387
|
|
$
|
96,021
|
|
$
|
92,638
|
|
In-process products
|
|
22,546
|
|
29,246
|
|
26,371
|
|
Finished products
|
|
94,304
|
|
126,380
|
|
132,869
|
|
|
|
$
|
178,237
|
|
$
|
251,647
|
|
$
|
251,878
|
|
4. Property, Plant and Equipment, Net
Property, plant and
equipment, net, consist of the following:
|
|
At
September 30
,
|
|
At
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
23,709
|
|
$
|
22,856
|
|
$
|
23,989
|
|
Buildings and site improvements
|
|
141,233
|
|
132,525
|
|
135,992
|
|
Leasehold improvements
|
|
3,859
|
|
4,440
|
|
4,287
|
|
Machinery and equipment
|
|
227,204
|
|
220,448
|
|
219,641
|
|
|
|
396,005
|
|
380,269
|
|
383,909
|
|
Less accumulated depreciation and amortization
|
|
(211,944
|
)
|
(192,430
|
)
|
(193,639
|
)
|
|
|
184,061
|
|
187,839
|
|
190,270
|
|
Capital projects in progress
|
|
7,265
|
|
7,223
|
|
3,048
|
|
|
|
$
|
191,326
|
|
$
|
195,062
|
|
$
|
193,318
|
|
The Companys vacant facility in San Leandro,
California, remained classified as an asset held for sale as of September 30,
2009, consistent with the classification at December 31, 2008. This
facility is associated with the connector segment.
5. Investments
Equity Method Investment
At September 30,
2009, the Company had 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. In October 2009, the Company
obtained an additional 5.6% equity interest in Keymark, bringing its total
equity interest to 40.6%. See Note 11.
6. Goodwill and Intangible Assets, Net
Goodwill by segment was
as follows:
|
|
At September 30,
|
|
At December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
Connector
products
|
|
$
|
76,854
|
|
$
|
68,239
|
|
$
|
64,205
|
|
Venting
products
|
|
4,435
|
|
7,560
|
|
4,414
|
|
Total
|
|
$
|
81,289
|
|
$
|
75,799
|
|
$
|
68,619
|
|
11
Intangible assets,
net, by segment was as follows:
|
|
At September 30, 2009
|
|
|
|
Gross
|
|
|
|
Net
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
(in thousands)
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Connector
products
|
|
$
|
45,352
|
|
$
|
15,715
|
|
$
|
29,637
|
|
Venting
products
|
|
3,291
|
|
1,043
|
|
2,248
|
|
Total
|
|
$
|
48,643
|
|
$
|
16,758
|
|
$
|
31,885
|
|
|
|
At September 30, 2008
|
|
|
|
Gross
|
|
|
|
Net
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Connector
products
|
|
$
|
34,533
|
|
$
|
12,157
|
|
$
|
22,376
|
|
Venting
products
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,533
|
|
$
|
12,157
|
|
$
|
22,376
|
|
|
|
At December 31, 2008
|
|
|
|
Gross
|
|
|
|
Net
|
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Connector
products
|
|
$
|
32,669
|
|
$
|
11,780
|
|
$
|
20,889
|
|
Venting
products
|
|
2,962
|
|
398
|
|
2,564
|
|
Total
|
|
$
|
35,631
|
|
$
|
12,178
|
|
$
|
23,453
|
|
Intangible assets
consist primarily of customer relationships, patents, unpatented technology and
non-compete agreements. Amortization expense for intangible assets during the
three months ended September 30, 2009 and 2008, was $1.6 million and $1.2
million, respectively, and during the nine months ended September 30, 2009
and 2008, was $4.9 million and $3.5 million, respectively.
At September 30,
2009, estimated future amortization of intangible assets was as follows:
(in thousands)
|
|
|
|
|
|
|
|
Final three
months of 2009
|
|
$
|
1,386
|
|
2010
|
|
4,708
|
|
2011
|
|
4,670
|
|
2012
|
|
3,795
|
|
2013
|
|
2,855
|
|
2014
|
|
2,729
|
|
Thereafter
|
|
11,742
|
|
|
|
$
|
31,885
|
|
12
The changes in the
carrying amount of goodwill and intangible assets from December 31, 2008,
to September 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
|
|
|
|
(4,870
|
)
|
Reclassifications
|
|
(4,144
|
)
|
3,891
|
|
Adjustments
due to recognition of deferred tax assets
|
|
3,706
|
|
|
|
Foreign
exchange
|
|
2,899
|
|
918
|
|
Balance
at September 30, 2009
|
|
$
|
81,289
|
|
$
|
31,885
|
|
7. Debt
Outstanding debt at September 30,
2009 and 2008, and December 31, 2008, and the available lines of credit at
September 30, 2009, consisted of the following:
|
|
Available
|
|
Debt Outstanding
|
|
|
|
Credit at
|
|
at
|
|
at
|
|
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
|
(dollar amounts in thousands)
|
|
2009
|
|
2009
|
|
2008
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
line of credit, interest at LIBOR plus 0.27% (at September 30, 2009,
LIBOR plus 0.27% was 0.51%), 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
September 30, 2009, the banks base rate plus 3% was 3.50%), expires
December 2009
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
lines of credit, interest rates between 1.16% and 3.51%
|
|
4,660
|
|
29
|
|
629
|
|
26
|
|
Line
of credit
|
|
|
|
$
|
29
|
|
$
|
629
|
|
$
|
26
|
|
Available
credit
|
|
$
|
205,063
|
|
|
|
|
|
|
|
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. The Company has completed its environmental remediation at its San
Leandro, California, facility.
13
Corrosion, hydrogen
enbrittlement, cracking, material hardness, wood pressure-treating chemicals,
misinstallations, misuse, design and assembly flaws, 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.
Three lawsuits (the Cases)
have been filed against the Company in the Hawaii First Circuit Court:
Kai et al. v. Haseko Homes, Inc.,
Haseko Construction, Inc. and Simpson Manufacturing, Inc.
,
Case No. 09-1-1476 RAT (Case 1);
Ke Noho Development, LLC
v. Simpson Strong-Tie Company, Inc.
,
and Honolulu
Wood Treating Co., LTD.
, Case No. 09-1-1491-06 SSM (Case 2);
and
North American Specialty Ins. Co. v. Simpson
Strong-Tie Company. Inc. and K.C. Metal Products, Inc.
, Case No. 09-1-1490-06
VSM (Case 3). Case 1 was filed on June 26,
2009. Cases 2 and 3 were filed on June 30,
2009. The Cases all relate to alleged
premature corrosion of the Companys strap tie holdown products installed in
buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii,
allegedly causing property damage. Case
1 is a putative class action brought by the owners of allegedly affected Ocean
Pointe houses. Case 1 appears to have
been voluntarily dismissed, although the Company has been informed that Case 1
will be re-filed. Case 1 has not been
served on the Company. Case 2 is an
action by the builders and developers of Ocean Pointe against the Company,
claiming that either the Companys strap tie holdowns are defective in design
or manufacture or the Company failed to provide adequate warnings regarding the
products susceptibility to corrosion in certain environments. Case 2 has not been served on the
Company. Case 3 is a subrogation action
brought by the insurance company for the builders and developers against the
Company claiming the insurance company expended funds to correct problems
allegedly caused by the Companys products.
Case 3 is the only Case that has been served on the Company. None of the Cases alleges a specific amount
of damages sought, although each of the Cases seeks compensatory damages, and
Case 1 seeks punitive damages. The Company
is currently investigating the facts underlying the claims asserted in the
Cases, including, among other things, the cause of the alleged corrosion; the
severity of any problems shown to exist; the buildings affected; the
responsibility of the general contractor, various subcontractors and other
construction professionals for the alleged damages; the amount, if any, of
damages suffered; and the costs of repair, if needed. At this time, the likelihood that the Company
will be found liable for any property damage allegedly suffered and the extent
of such liability, if any, are unknown.
Based on facts currently known to the Company, the Company believes that
all or part of the claims alleged in the Cases may be covered by its insurance
policies. The Company intends to defend
itself vigorously in connection with the Cases.
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.
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.
14
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 nine months ended September 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
|
|
(321
|
)
|
19.79
|
|
|
|
|
|
Forfeited
|
|
(108
|
)
|
36.46
|
|
|
|
|
|
Outstanding at
September 30, 2009
|
|
1,874
|
|
$
|
30.70
|
|
2.3
|
|
$
|
1,075
|
|
Outstanding and
expected to vest at September 30, 2009
|
|
1,865
|
|
$
|
30.72
|
|
2.3
|
|
$
|
1,050
|
|
Exercisable at
September 30, 2009
|
|
1,699
|
|
$
|
30.80
|
|
2.1
|
|
$
|
746
|
|
* 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 $25.26 as
reported by the New York Stock Exchange on September 30, 2009.
The total intrinsic value of options exercised during the
nine months ended September 30, 2009 and 2008, was $2.3 million and $0.7
million, respectively.
15
A
summary of the status of unvested options as of September 30, 2009, and
changes during the nine months ended September 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
|
|
(131
|
)
|
12.05
|
|
Forfeited
|
|
(5
|
)
|
13.24
|
|
Unvested at
September 30, 2009
|
|
175
|
|
$
|
9.22
|
|
As of
September 30, 2009, $1.4 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 1.1 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
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(in thousands)
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
150,085
|
|
$
|
192,450
|
|
$
|
411,426
|
|
$
|
552,332
|
|
Venting
products
|
|
17,115
|
|
27,373
|
|
41,020
|
|
54,410
|
|
Total
|
|
$
|
167,200
|
|
$
|
219,823
|
|
$
|
452,446
|
|
$
|
606,742
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
20,783
|
|
$
|
35,310
|
|
$
|
34,363
|
|
$
|
88,241
|
|
Venting
products
|
|
597
|
|
1,777
|
|
(3,674
|
)
|
(3,861
|
)
|
Administrative
and all other
|
|
(364
|
)
|
94
|
|
(1,102
|
)
|
(1,371
|
)
|
Total
|
|
$
|
21,016
|
|
$
|
37,181
|
|
$
|
29,587
|
|
$
|
83,009
|
|
|
|
|
|
|
|
At
|
|
|
|
At
September 30,
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
2008
|
|
2008
|
|
Total Assets
|
|
|
|
|
|
|
|
Connector
products
|
|
$
|
660,220
|
|
$
|
646,677
|
|
$
|
612,733
|
|
Venting
products
|
|
72,742
|
|
79,121
|
|
77,218
|
|
Administrative
and all other
|
|
124,207
|
|
152,903
|
|
140,249
|
|
Total
|
|
$
|
857,169
|
|
$
|
878,701
|
|
$
|
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
$170.6 million, $135.6 million, and $136.2 million, as of September 30,
2009 and 2008, and December 31, 2008, respectively.
16
11. Subsequent Events
In October 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 January 28, 2010,
to stockholders of record on January 7, 2010.
In October 2009, the
Company obtained an additional 5.6% equity interest in Keymark as a result of
non-payment from Keymarks other owner under terms of a loan and pledge
agreement the Company made with the other owner in October 2008. The
Companys total equity interest in Keymark is now 40.6%.
17
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
This
document contains forward-looking statements, based on numerous assumptions and
subject to risks and uncertainties. Although the Company believes that the
forward-looking statements are reasonable, it does not and cannot give any
assurance that its beliefs and expectations will prove to be correct. Many
factors could significantly affect the Companys operations and cause the
Companys actual results to be substantially different from the Companys
expectations. See Part II, Item 1A -
Risk
Factors.
Actual results might differ materially from results
suggested by any forward-looking statements in this report.
The Company does not
have an obligation to publicly update any forward-looking statements, whether
as a result of the receipt of new information, the occurrence of future events
or otherwise.
The following is a discussion and
analysis of the consolidated financial condition and results of operations for
the Company for the three and nine months ended September 30, 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
September 30, 2009, Compared with the Three Months Ended
September 30, 2008
Net sales decreased 23.9% from $219.8
million in the third quarter of 2008 to $167.2 million in the third quarter of
2009. Net income decreased 45.4% from $23.4 million in the third quarter of
2008 to $12.8 million in the third quarter of 2009. Diluted net income per
common share was $0.26 in the third quarter of 2009 compared to diluted net
income per common share of $0.48 in the third quarter of 2008.
In the third quarter of 2009, sales
declined throughout the United States. 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 up primarily due to the acquisition of
Agence Internationale Commerciale et Industrielle, S.A.S. (Aginco) in April 2009.
Simpson Strong-Ties third quarter sales decreased 22.0% from the same quarter
last year, while Simpson Dura-Vents sales decreased 37.5%. Simpson Strong-Ties
sales to contractor distributors and dealer distributors decreased
significantly as home-building activity, and general economic conditions,
remained weak. Sales to home centers also decreased. Sales decreased across all
of Simpson Strong-Ties major product lines, particularly those used in new
home construction. Simpson Dura-Vents sales decreased across most of its
product lines, with the exception of special gas vent products, which were up
slightly.
Income from operations decreased
43.5% from $37.2 million in the third quarter of 2008 to $21.0 million in the
third quarter of 2009. Gross margins decreased from 40.8% in the third quarter
of 2008 to 36.4% in the third 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 and prices again started to rise in the third quarter of 2009.
The Company expects steel prices to continue to increase as demand returns to
the market. Through the first nine months of 2009, inventories decreased 29.2%
from $251.9 million at December 31, 2008, to $178.2 million at September 30,
2009.
Research and development expense
decreased 12.2% from $5.7 million in the third quarter of 2008 to $5.0 million
in the third quarter of 2009, primarily due to a $0.4 million decrease in
personnel expenses. Selling expense decreased 27.0% from $21.3 million in the
third quarter of 2008 to $15.6 million in the third quarter of 2009, which
resulted primarily from a $3.6 million decrease in expenses associated with
sales and marketing personnel, most of which was related to cost-cutting
measures, a $1.1 million decrease in promotional expenditures and a $0.6
million decrease in commissions paid to selling agents. General and
administrative expense decreased 24.2% from $25.5 million in the third quarter
of 2008 to $19.4 million in the third quarter of 2009. This decrease resulted
from several factors, including a $1.8 million decrease in administrative
personnel expenses, related in part to cost-cutting measures, a $1.7 million
decrease in cash profit sharing, a $1.6 million decrease in legal and
professional service expenses and a $0.9 million decrease in the provision for
bad debt, partly offset by a $0.5 million increase in amortization of
intangible assets, primarily related to the acquisition of Aginco. Interest
income decreased primarily due to lower interest rates. The effective tax rate
was 39.3% in the third quarter of 2009, up from 38.1% in the third 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 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 September 30,
2009, however, has been computed based on the three months ended September 30,
18
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 September 30,
2008, was calculated using estimated annual effective tax rates.
Connector
Products Simpson Strong-Tie
Simpson Strong-Ties net
sales decreased 22.0% from $192.4 million in the third quarter of 2008 to
$150.1 million in the third quarter of 2009.
Simpson Strong-Tie accounted for
89.8% of the Companys total net sales in the third quarter of 2009, up from
87.5% in the third 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 3.0% as compared to the third quarter of 2008. In the third
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 increased, primarily due to the acquisition
of Aginco in April 2009. Simpson Strong-Ties sales to contractor
distributors and dealer distributors decreased significantly as home-building
activity, and general economic conditions, remained weak. Sales to home centers
also decreased. 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 41.1% from $35.3 million in the
third quarter of 2008 to $20.8 million in the third quarter of 2009. Gross
margin
decreased from
43.7% in the third quarter of 2008 to
38.1% in the third 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 13.1% from $5.3 million in the third
quarter of 2008 to $4.6 million in the third quarter of 2009. This decrease was
primarily due to a $0.4 million decrease in personnel expenses and a $0.2
million decrease in professional service fees. Simpson Strong-Ties selling expense decreased 26.1% from $19.2
million in the third quarter of 2008 to
$14.2 million in the third quarter of 2009,
which resulted primarily from a $3.5
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. Simpson Strong-Ties general and administrative
expense decreased 27.3% from $24.2 million in the third quarter of 2008 to
$17.6 million in the third quarter of 2009, which was primarily due to a $2.4
million decrease in cash profit sharing, a $1.7 million decrease in
administrative personnel expenses, a $1.3 million decrease in professional
service fees and a $1.0 million decrease in bad debt expense, partly offset by
an increase of $0.3 million in amortization of intangible assets, primarily
related to the businesses acquired since June 2008.
For its European and United Kingdom
operations,
Simpson Strong-Tie recorded
income from operations of $0.5 million in the third quarter of 2009 compared to
income from operations of $1.4 million in the third 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 decreased 37.5% from $27.4 million in the third quarter of 2008 to $17.1
million in the third quarter of 2009. Simpson Dura-Vent accounted for 10.2% of the Companys total net sales in the third
quarter of 2009, a decrease from 12.5% in the third quarter of 2008. The
decrease in net sales at Simpson Dura-Vent resulted primarily from a decrease in sales volume, although average prices increased 2.5% as compared to the
third quarter of 2008. In the third
quarter of 2009, Simpson Dura-Vents sales decreased throughout the
United States, resulting from the weakness
in new home construction, with the exception of the southeast where
sales were flat. Simpson Dura-Vents
sales decreased across most of its product lines, with the exception of special
gas vent products, which were up slightly.
Simpson
Dura-Vents income from operations decreased 66.4% from $1.8 million in the
third quarter of 2008 to $0.6 million in the third quarter of 2009. Gross
margin
increased to
21.7% in the third quarter of 2009 from 20.6% in the third quarter of 2008, primarily due to lower fixed overhead
costs, partly offset by higher costs of material and labor.
19
Simpson Dura-Vents
selling expense decreased 35.5% from $2.1 million in the third quarter of 2008
to $1.4 million in the third quarter of 2009, which was primarily due to a $0.6
million decrease in expenses associated with agent commissions due to lower
sales.
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 Nine Months Ended September 30,
2009, Compared with the Nine Months Ended September 30, 2008
Net sales decreased 25.4% from $606.7
million in the first nine months of 2008 to $452.4 million in the first nine
months of 2009. Net income decreased 71.1% from $52.1 million in the first nine
months of 2008 to $15.0 million in the first nine months of 2009. Diluted net
income per common share was $0.31 in the first nine months of 2009 compared to
diluted net income per common share of $1.06 in the first nine months of 2008.
In the first nine months 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 in Europe, the United Kingdom and Canada. Simpson
Strong-Ties sales for the first nine months of the year decreased 25.5% from
the same period last year, while Simpson Dura-Vents sales decreased 24.6%.
Simpson Strong-Ties sales to contractor distributors and dealer distributors
decreased as a result of the weakness in the U.S. housing market. Sales to home
centers also decreased. 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, hearth and pellet vent product
lines decreased, while sales of special gas vent and relining products
increased, primarily as a result of the acquisition of ProTech in June 2008.
Income from operations decreased
64.4% from $83.0 million in the first nine months of 2008 to $29.6 million in
the first nine months of 2009. Gross margins decreased from 37.9% in the first
nine months of 2008 to 33.8% in the first nine months 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 8.4% from $16.4 million in the first nine months of 2008 to $15.0
million in the first nine months of 2009, primarily due to a $0.7 million
decrease in professional service fees and a $0.6 million decrease in personnel
expenses. Selling expense decreased 23.4% from $63.3 million in the first nine
months of 2008 to $48.4 million in the first nine months of 2009, which
resulted primarily from an $8.6 million decrease in expenses associated with
sales and marketing personnel, most of which was related to cost-cutting
measures, a $4.0 million decrease in promotional expenditures and a $1.0
million decrease in commissions paid to selling agents. General and
administrative expense decreased 10.9% from $67.2 million in the first nine
months of 2008 to $59.8 million in the first nine months of 2009, which
resulted primarily from a $6.1 million decrease in cash profit sharing, a $1.7
million decrease in administrative personnel expenses, related in part to
cost-cutting measures, and a $1.5 million decrease in legal and professional
service expenses, partly offset by a $1.3 million increase in bad debt charges,
most of which was recorded in the first quarter of 2009, and a $1.5 million
increase in amortization of intangible assets, primarily related to the
businesses acquired since June 2008. Interest income decreased from $2.2
million in the first nine months of 2008 to $64 thousand in the first nine
months of 2009, primarily due to lower interest rates. The effective tax rate
was 48.9% in the first nine months of 2009, up from 38.9% in the first nine
months 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 nine months of 2009,
however, has been computed based on the first three quarters of 2009 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 effective tax rate was 39.3% in the third quarter of 2009,
which resulted in income tax expense of $8.3 million. The Company cannot
reliably estimate pre-tax income for the remainder of
20
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 nine months ended September 30,
2008, was calculated using estimated annual effective tax rates.
Connector
Products Simpson Strong-Tie
Simpson Strong-Ties net
sales decreased 25.5% from $552.3 million in the first nine months of 2008 to
$411.4 million in the first nine months of 2009. Simpson Strong-Tie accounted
for 90.9% of the Companys total net sales in the first nine months of 2009, a
slight decrease from 91.0% in the first nine months 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 13.7% from the first nine months of 2008. In the first
nine months 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 to contractor
distributors and dealer distributors decreased as a result of the weakness in
the U.S. housing market. Sales to home centers also decreased. 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 61.1% from $88.2 million in the
first nine months of 2008 to $34.4 million in the first nine months of 2009.
Gross margin
decreased
from 40.6% in the first nine months of 2008
to 35.7% in the first nine months 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 expense decreased 9.9% from $15.5 million in the first
nine months of 2008 to $14.0 million in the first nine months of 2009,
primarily due to a $0.7 million decrease in professional services and a $0.7
million decrease in personnel expenses. Simpson
Strong-Ties selling expense decreased 23.6% from $58.0 million in the first nine months of 2008 to $44.3
million in the first nine months of 2009,
which resulted primarily from a $8.4 million decrease in expenses associated
with sales and marketing personnel, most of which was related to cost-cutting
measures, a $3.9 million decrease in promotional expenditures and a $0.6
million decrease in professional services. Simpson Strong-Ties general and
administrative expense decreased 13.3% from $62.6 million in the first nine
months of 2008 to $54.3 million in the first nine months of 2009, primarily due
to a $6.1 million decrease in cash profit sharing that resulted from lower
operating income, a $2.6 million decrease in administrative personnel expenses,
a $1.3 million decrease in legal and professional fees and a $0.8 million
decrease in information technology expenditures, partly offset by a $1.2
million increase in the provision for bad debt, a $1.1 million increase in home
office administrative allocations, and a $0.9 million increase in intangible
asset amortization expense, primarily related to the acquisition of Aginco.
For its European and United Kingdom
operations,
Simpson Strong-Tie recorded
losses from operations of $5.1 million in the first nine months of 2009
compared to income from operations of $3.0 million in the first nine months 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 24.6% from $54.4 million in the first nine months of 2008 to $41.0
million in the first nine months of 2009. Simpson Dura-Vent accounted for 9.1%
of the Companys total net sales in the first nine months of 2009, a slight
increase from 9.0% in the first nine months 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 an increase in average prices of
5.3% from the first nine months of 2008. In the first nine months of 2009,
Simpson Dura-Vents sales decreased throughout the United States, with the
largest decreases in California and the western and northeastern regions,
resulting from the weakness in new home construction. These decreases were
offset slightly by increases in the southeastern region. Sales of Simpson
Dura-Vents Direct-Vent and gas vent, hearth and pellet vent product lines
decreased, while sales of special gas vent and relining products increased,
primarily as a result of the acquisition of ProTech in June 2008.
21
Simpson
Dura-Vents loss from operations decreased slightly from $3.9 million in the
first nine months of 2008 to $3.7 million in the first nine months of 2009.
Gross margin
increased
to 14.6% in the first nine months of 2009 from 10.3% in the first nine months of 2008,
primarily due to lower fixed overhead and labor costs, offset slightly by
higher material costs.
Simpson Dura-Vents
research and development expense increased 20.7% to $1.0 million in the first
nine months of 2009 from $0.8 million in the first nine months 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
20.9% from $5.2 million in the first nine
months of 2008 to $4.1 million in the first nine months of 2009. This decrease resulted primarily from a
$0.8 million decrease in agent commissions, a $0.2 million decrease in expenses
associated with sales and marketing personnel and a $0.1 million decrease in
promotional expenditures. Simpson Dura-Vents general and administrative expense
increased 33.5% to $4.5 million in the first nine months of 2009 from $3.4
million in the first nine months of 2008, primarily due to a $0.2 million
increase in expenses associated with administrative personnel, including those
at businesses acquired in 2008, and a $0.6 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 nine months 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 nine months ended September 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 appearing elsewhere in this report regarding recently
issued accounting standards.
Liquidity and Sources of Capital
As of September 30, 2009, working capital was
$461.2 million as compared to $456.5 million at September 30, 2008, and
$455.7 million at December 31, 2008. The increase in working capital from December 31,
2008, was primarily due to a $49.4 million increase in cash and cash
equivalents, a $32.0 million increase in net trade accounts receivable, a $4.1
million decrease in accrued profit sharing trust contributions and a $2.4
million decrease in other accrued liabilities. Net trade accounts receivable
increased 42.1% from December 31, 2008, as a result of increased sales in
the latter part of the third quarter of 2009 compared to the latter part of the
fourth quarter of 2008. Partly offsetting the increases in working capital were
a $73.6 million decrease in inventories, an $8.0 million increase in trade
accounts payable, a $3.4 million increase in accrued cash profit sharing and
commissions and a $1.2 million increase in income taxes payable. Raw material
inventories decreased 33.7% from December 31, 2008, and in-progress and
finished goods inventories decreased 26.6% over the same period. The decrease
in inventories resulted primarily from decreased raw material purchases. 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 $15.0 million and noncash expenses, primarily
depreciation, amortization and stock-based compensation charges totaling $23.6
million, resulted in net cash provided by operating activities of $88.7
million. As of September 30, 2009, the Company had unused credit facilities
available of $205.1 million.
In January 2009, the
Companys subsidiary, Simpson Strong-Tie Company Inc., 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
22
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.
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 $35.2 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 $14.5 million in 2009.
The Company has
classified its vacant facility in San Leandro, California, as an asset held for
sale. The Company has completed its environmental remediation at this facility.
The Companys financing
activities used net cash of $8.1 million. The payment of cash dividends in the
amount of $14.7 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 $6.4 million. In October 2009,
the Companys Board of Directors declared a cash dividend of $0.10 per share,
estimated at $4.9 million, to be paid on January 28, 2010, to stockholders
of record on January 7, 2010.
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 or currency 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 $7.1 million and $13.6 million for the three and nine
months ended September 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 September 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 periods 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.
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
23
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
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 September 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.
24
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.
Three lawsuits (the Cases)
have been filed against the Company in the Hawaii First Circuit Court:
Kai et al. v. Haseko Homes, Inc.,
Haseko Construction, Inc. and Simpson Manufacturing, Inc.
,
Case No. 09-1-1476 RAT (Case 1);
Ke Noho Development, LLC
v. Simpson Strong-Tie Company, Inc.
,
and Honolulu
Wood Treating Co., LTD.
, Case No. 09-1-1491-06 SSM (Case 2);
and
North American Specialty Ins. Co. v. Simpson
Strong-Tie Company. Inc. and K.C. Metal Products, Inc.
, Case No. 09-1-1490-06
VSM (Case 3). Case 1 was filed on June 26,
2009. Cases 2 and 3 were filed on June 30,
2009. The Cases all relate to alleged
premature corrosion of the Companys strap tie holdown products installed in
buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii,
allegedly causing property damage. Case
1 is a putative class action brought by the owners of allegedly affected Ocean
Pointe houses. Case 1 appears to have
been voluntarily dismissed, although the Company has been informed that Case 1
will be re-filed. Case 1 has not been
served on the Company. Case 2 is an
action by the builders and developers of Ocean Pointe against the Company,
claiming that either the Companys strap tie holdowns are defective in design
or manufacture or the Company failed to provide adequate warnings regarding the
products susceptibility to corrosion in certain environments. Case 2 has not been served on the
Company. Case 3 is a subrogation action
brought by the insurance company for the builders and developers against the
Company claiming the insurance company expended funds to correct problems
allegedly caused by the Companys products.
Case 3 is the only Case that has been served on the Company. None of the Cases alleges a specific amount
of damages sought, although each of the Cases seeks compensatory damages, and
Case 1 seeks punitive damages. The
Company is currently investigating the facts underlying the claims asserted in
the Cases, including, among other things, the cause of the alleged corrosion;
the severity of any problems shown to exist; the buildings affected; the
responsibility of the general contractor, various subcontractors and other
construction professionals for the alleged damages; the amount, if any, of
damages suffered; and the costs of repair, if needed. At this time, the likelihood that the Company
will be found liable for any property damage allegedly suffered and the extent
of such liability, if any, are unknown.
Based on facts currently known to the Company, the Company believes that
all or part of the claims alleged in the Cases may be covered by its insurance
policies. The Company intends to defend
itself vigorously in connection with the Cases.
The Company is not
engaged in any other 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, however, is subject to inherent
uncertainty and could have a material adverse effect on the Companys financial
condition, cash flows or results of operations.
Item 1A.
Risk Factors
We are affected by risks
specific to us, as well as risks that affect all businesses operating in
global markets. Some of the significant factors that could materially adversely
affect our business, financial condition and operating results appear in Item
1A. 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 factors titled Impairment
charges on goodwill or other intangible assets would adversely affect our
financial position and results of operations and
We are
subject to international tax laws that could affect our financial results,
and have added an additional risk
factor, 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
25
$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
expect, we may need to take further charges for impairment, which we are not
now able to estimate, but which may be substantial.
We are subject to U.S. and international tax laws that
could affect our financial results.
We conduct international operations through our subsidiaries. Tax laws affecting international operations
are complex and subject to change. Our
income tax liabilities in the different countries where we operate depend in
part on internal settlement prices and administrative charges among us and our
subsidiaries. These arrangements require
us to make judgments with which tax authorities may disagree. Tax authorities may impose additional
tariffs, duties, taxes, penalties and interest on us. For example, we manufacture steel products in
foreign countries for importation into the U.S. and other countries, and
government agencies may impose substantial prospective or retroactive tariffs
on such products. Transactions that we
have arranged in light of current tax rules could have material and
adverse consequences if tax rules change, and changes in tax rules or
imposition of any new or increased tariffs, duties and taxes could materially
and adversely affect our sales, profits and financial condition.
Contracts
that we file as exhibits to our public reports contain recitals,
representations and warranties that may not be factually correct.
Any recital,
representation, warranty or other statement of purported fact in any contract,
agreement or similar instrument that we file as an exhibit to this or any other
report 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 when we file the instrument
as an exhibit to any of our reports. The
parties to such instruments did not intend such statements to establish or
confirm 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 our reports. In addition,
such statements may have been qualified by schedules and other disclosures that
we have not filed with (or incorporated by reference into) this or any other
report or document. In reviewing any of
our reports, you should rely on the text of the report, which we believed was
complete and correct in all material respects when we filed the report. You should not assume that any statement of
purported fact in any such instrument is accurate or complete, because such an
assumption could result in misapprehension of the facts and circumstances.
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 nine months of 2009.
Item 6.
Exhibits.
The following exhibits
are either incorporated by reference into this report or filed with this
report, as indicated below.
3.1
Certificate of Incorporation of Simpson Manufacturing
Co., Inc., as amended, is incorporated by reference to Exhibit 3.1 of
its Quarterly Report on Form 10-Q for the quarter ended September 30,
2007.
3.2
Bylaws of Simpson Manufacturing Co., Inc., 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.
26
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.
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
Compensation of Named Executive Officers of Simpson Manufacturing Co., Inc.
is
incorporated by
reference to Exhibit 10 of Simpson Manufacturing Co., Inc.s Current
Report on Form 8-K dated October 2, 2009.
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.
27
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
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Simpson Manufacturing Co., Inc.
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(Registrant)
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DATE:
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November 6,
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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