Notes to Consolidated Financial Statements
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1.
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Operations and Summary of Significant Accounting Policies
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Nature of Operations
Simpson Manufacturing Co., Inc., through its subsidiary Simpson Strong-Tie Company Inc. and its other subsidiaries (collectively, the “Company”), designs, engineers and is a leading manufacturer of wood construction products, including connectors, truss plates, fastening systems, fasteners and shearwalls, and concrete construction products, including adhesives, specialty chemicals, mechanical anchors, powder actuated tools and fiber reinforcing materials. The Company markets its products to the residential construction, industrial, commercial and infrastructure construction, remodeling and do-it-yourself markets.
The Company operates exclusively in the building products industry. The Company’s products are sold primarily in the United States, Canada, Europe, the South Pacific and in Asia up until 2015 when the Company closed the sales offices there. Revenues have some geographic market concentration in the United States. A portion of the Company’s business is therefore dependent on economic activity within the North America segment. The Company is dependent on the availability of steel, its primary raw material.
Out-of-Period Adjustment
In the first quarter of 2014, the Company recorded an out-of-period adjustment, which increased gross profit, income from operations and net income in total by
$2.3 million
,
$2.0 million
and
$1.3 million
, respectively. The adjustment resulted from an over-statement of prior periods' workers compensation expense, net of cash profit sharing expense, and was not material to the current period's or any prior period's financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries. Investments in
50%
or less owned entities are accounted for using either cost or the equity method. The Company consolidates all variable interest entities ("VIEs") where it is the primary beneficiary. There were no VIEs as of
December 31, 2016
or
2015
. All significant intercompany transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, as amended from time to time ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete, net of applicable provision for discounts, returns and incentives, whether actual or estimated based on the Company’s 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, collectability is reasonably assured and pricing is fixed or determinable. The Company’s 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, software license sales and service and lease income, 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 allowances, the Company’s sales would be adversely affected.
Sales Incentive and Advertising Allowances
The Company records estimated reductions to revenues for sales incentives, primarily rebates for volume discounts, and allowances for co-operative advertising.
Allowances for Sales Discounts
The Company records estimated reductions to revenues for discounts taken on early payment of invoices by its customers.
Cash Equivalents
The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase to be cash equivalents.
Allowance for Doubtful Accounts
The Company assesses the collectability of specific customer accounts that would be considered doubtful based on the customer’s financial condition, payment history, credit rating and other factors that the Company considers relevant, or accounts that the Company assigns for collection. The Company reserves for the portion of those outstanding balances that the Company believes it is not likely to collect based on historical collection experience. The Company also reserves
100%
of the amounts that it deems uncollectable due to a customer’s deteriorating financial condition or bankruptcy. If the financial condition of the Company’s customers were to deteriorate, resulting in probable inability to make payments, additional allowances may be required.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. Cost includes all costs incurred in bringing each product to its present location and condition, as follows:
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•
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Raw materials and purchased finished goods for resale — principally valued at cost determined on a weighted average basis; and
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•
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In-process products and finished goods — cost of direct materials and labor plus attributable overhead based on a normal level of activity.
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The Company applies net realizable value and obsolescence to the gross value of the inventory. The Company estimates net realizable value based on estimated selling price less further costs to completion and disposal. The Company impairs slow-moving products by comparing inventories on hand to projected demand. If on-hand supply of a product exceeds projected demand or if the Company believes the product is no longer marketable, the product is considered obsolete inventory. The Company revalues obsolete inventory to its net realizable value. The Company has consistently applied this methodology. The Company believes that this approach is prudent and makes suitable impairments for slow-moving and obsolete inventory. When impairments are established, a new cost basis of the inventory is created. Unexpected change in market demand, building codes or buyer preferences could reduce the rate of inventory turnover and require the Company to recognize more obsolete inventory.
Warranties and recalls
The Company provides product warranties for specific product lines and records estimated recall expenses in the period in which the recall occurs, none of which has been material to the Consolidated Financial Statements. In a limited number of circumstances, the Company may also agree to indemnify customers against legal claims made against those customers by the end users of the Company’s products. Historically, payments made by the Company, if any, under such agreements have not had a material effect on the Company’s consolidated results of operations, cash flows or financial position
Fair Value of Financial Instruments
The “Fair Value Measurements and Disclosures” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
™
(“ASC”) establishes a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
As of
December 31, 2016
, the Company’s investments consisted of only money market funds, and as of December 31, 2015, its investments consisted of only United States Treasury securities and money market funds, which are the Company’s primary financial instruments, maintained in cash equivalents and carried at cost, approximating fair value, based on Level 1 inputs. The balance of the Company’s primary financial instruments was as follows:
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(in thousands)
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At December 31,
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2016
|
2015
|
United States Treasury securities and money market funds
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$
|
2,832
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$
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76,047
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The carrying amounts of trade accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. The fair value of the Company’s contingent consideration related to acquisitions is classified as Level 3 within the fair value hierarchy as it is based on unobserved inputs and assumptions. In 2014, the fair value of the contingent consideration related to the acquisition of Bierbach GmbH & Co. KG ("Bierbach"), a Germany company, was decreased from
$0.8 million
to
$0.2 million
as a result of not retaining Bierbach's historical customers and increased competition.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Major renewals and betterments are capitalized. Maintenance and repairs are expensed on a current basis. When assets are sold or retired, their costs and accumulated depreciation are removed from the accounts, and the resulting gains or losses are reflected in the accompanying Consolidated Statements of Operations.
The “Intangibles—Goodwill and Other” topic of the FASB ASC provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company capitalizes qualified external costs and internal costs related to the purchase and implementation of software projects used for business operations and engineering design activities. Capitalized software costs primarily include purchased software and external consulting fees. Capitalized software projects are amortized over the estimated useful lives of the software.
Depreciation and Amortization
Depreciation of software, machinery and equipment is provided using accelerated methods over the following estimated useful lives:
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Software
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3 to 5 years
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Machinery and equipment
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3 to 10 years
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Buildings and site improvements are depreciated using the straight-line method over their estimated useful lives, which range from
15
to
45
years. Leasehold improvements are amortized using the straight-line method over the shorter of the expected life or the remaining term of the lease. Amortization of purchased intangible assets with finite useful lives is computed using the straight-line method over the estimated useful lives of the assets.
In-Process Research and Development Assets
In-process research and development (“IPR&D”) assets represent capitalized incomplete research projects that the Company acquired through business combinations. Such assets are initially measured at their acquisition-date fair values and are required to be classified as indefinite-lived assets until the successful completion of the associated research and development efforts. During the development period after the date of acquisition, these assets will not be amortized until the research and development projects are completed and the resulting assets are ready for their intended use. The Company performs an impairment test annually and more frequently if events or changes in circumstances indicate it that is more likely than not that the asset is impaired. On successful completion of the research and development project the Company makes a determination about the then-remaining useful life and begins amortization. As of December 31, 2016, the Company had
no
IPR&D assets.
Cost of Sales
The types of costs included in cost of sales include material, labor, factory and tooling overhead, shipping, and freight costs. Major components of these expenses are material costs, such as steel, packaging and cartons, personnel costs, and facility costs, such as rent, depreciation and utilities, related to the production and distribution of the Company’s products. Inbound freight charges,
purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and other costs of the Company’s distribution network are also included in cost of sales.
Tool and Die Costs
Tool and die costs are included in product costs in the year incurred.
Shipping and Handling Fees and Costs
The Company’s general shipping terms are F.O.B. shipping point. Shipping and handling fees and costs are included in revenues and product costs, as appropriate, in the year incurred.
Product and Software Research and Development Costs
Product research and development costs, which are included in operating expenses and are charged against income as incurred, were
$9.9 million
,
$10.3 million
and
$11.2 million
in
2016
,
2015
and
2014
, respectively. The types of costs included as product research and development expenses are typically related to salaries and benefits, professional fees and supplies. In
2016
,
2015
and
2014
, the Company incurred software development expenses related to its expansion into the plated truss market and some of the software development costs were capitalized. See "Note 5 — Property, Plant and Equipment." The Company amortizes acquired patents over their remaining lives and performs periodic reviews for impairment. The cost of internally developed patents is expensed as incurred.
Selling Costs
Selling costs include expenses associated with selling, merchandising and marketing the Company’s products. Major components of these expenses are personnel, sales commissions, facility costs such as rent, depreciation and utilities, professional services, information technology costs, sales promotion, advertising, literature and trade shows.
Advertising Costs
Advertising costs are included in selling expenses, are expensed when the advertising occurs, and were
$7.1 million
,
$6.4 million
and
$7.3 million
in
2016
,
2015
, and
2014
, respectively.
General and Administrative Costs
General and administrative costs include personnel, information technology related costs, facility costs such as rent, depreciation and utilities, professional services, amortization of intangibles and bad debt charges.
Income Taxes
Income taxes are calculated using an asset and liability approach. The provision for income taxes includes federal, state and foreign taxes currently payable and deferred taxes, due to temporary differences between the financial statement and tax bases of assets and liabilities. In addition, future tax benefits are recognized to the extent that realization of such benefits is more likely than not.
Sales Taxes
The Company presents taxes collected and remitted to governmental authorities on a net basis in the accompanying Consolidated Statements of Operations.
Foreign Currency Translation
The local currency is the functional currency of most of the Company’s operations in Europe, Canada, Asia, Australia, New Zealand and South Africa. Assets and liabilities denominated in foreign currencies are translated using the exchange rate on the balance sheet date. Revenues and expenses are translated using average exchange rates prevailing during the year. The translation adjustment resulting from this process is shown separately as a component of stockholders’ equity. Foreign currency transaction gains or losses are included in general and administrative expenses.
Sales Office Closing
The Company substantially completed the liquidation of its Asia sales offices as of December 31, 2015, and does not expect to recognize significant additional costs in future periods related to this event. Accordingly, the Company reclassified
$0.2 million
of its accumulated other comprehensive income, related to foreign exchange losses from its Asia sales offices, to its consolidated statement of operations. This amount is classified as a loss on disposal of assets and was recorded in the Asia/Pacific segment.
The following table provides a rollforward of the liability balance for such expenses, as well as other non-employee costs associated with the Asia sales office closing, as of
December 31, 2016
:
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(in thousands)
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Operating Leases Obligation
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Employee Severance Obligation
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Other Associated Costs
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Total
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Balance at January 1, 2016
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$
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—
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$
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301
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$
|
352
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$
|
653
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Charges
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406
|
|
|
441
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|
|
98
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|
|
945
|
|
Cash payments
|
(406
|
)
|
|
(742
|
)
|
|
(413
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)
|
|
(1,561
|
)
|
Balance at December 31, 2016
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$
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—
|
|
|
$
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—
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|
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$
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37
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|
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$
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37
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|
For the year ended
December 31, 2016
, the Company had recorded employee severance obligation expenses of
$0.4 million
and made corresponding payments totaling
$0.7 million
. In addition, during 2016, the Company incurred operating leases charges of
$0.4 million
and made corresponding payments for the closed sales offices.
Common Stock
Subject to the rights of holders of any preferred stock that may be issued in the future, holders of common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s Board of Directors out of legally available funds, and in the event of liquidation, dissolution or winding-up of the Company, to share ratably in all assets available for distribution. The holders of common stock have no preemptive or conversion rights. Subject to the rights of any preferred stock that may be issued in the future, the holders of common stock are entitled to
one
vote per share on any matter submitted to a vote of the stockholders, except that, subject to compliance with pre-meeting notice and other conditions pursuant to the Company’s Bylaws, stockholders currently may cumulate their votes in an election of directors, and each stockholder may give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares held by such stockholder or may distribute such stockholder’s votes on the same principle among as many candidates as such stockholder thinks fit. A director in an uncontested election is elected if the votes cast “for” such director’s election exceed the votes cast “against” such director’s election, except that, if a stockholder properly nominates a candidate for election to the Board of Directors, the candidates with the highest number of affirmative votes (up to the number of directors to be elected) are elected. There are no redemption or sinking fund provisions applicable to the common stock.
In 1999, the Company declared a dividend distribution of
one
right per share of our common stock to purchase Series A Participating preferred stock (each, a "Right," or collectively, the "Rights"). Pursuant to the Amended and Restated Rights Agreement dated as of June 15, 2009 (the "Rights Agreement"), by and between the Company and Computershare Trust Company, N.A,, a federally chartered trust company, as rights agent, the Rights would be exercisable, unless redeemed earlier by the Company, if a person or group acquired, or obtained the right to acquire,
15%
or more of the outstanding shares of common stock or commenced a tender or exchange offer that would result in it acquiring
15%
or more of the outstanding shares of common stock, either event occurring without the prior consent of the Company. The amount of Series A Participating preferred stock that the holder of a Right was entitled to receive and the purchase price payable on exercise of a Right were both subject to adjustment. Any person or group that would acquire
15%
or more of the outstanding shares of common stock without the prior consent of the Company would not be entitled to this purchase. Any stockholder who held
25%
or more of the Company’s common stock when the Rights were originally distributed would not be treated as having acquired
15%
or more of the outstanding shares unless such stockholder’s ownership would be increased to more than
40%
of the outstanding shares.
Under the Rights Agreement, the Rights were scheduled to expire June 14, 2019 and might be redeemed by the Company at
one
cent per Right prior to their scheduled expiration. The Rights did not have voting or dividend rights and, until they become exercisable, had no dilutive effect on the earnings of the Company. One million shares of the Company’s preferred stock have been designated Series A Participating preferred stock and reserved for issuance on exercise of the Rights.
No event has made the Rights exercisable. On October 25, 2016, the Company's Board of Directors voted to terminate the Rights Agreement. On November 9, 2016, the Company entered into an amendment (the “Rights Agreement First Amendment”) to the
Rights Agreement. The Rights Agreement First Amendment amended the definition of “Final Expiration Date” under the Rights Agreement to mean “November 9, 2016.” Accordingly, the Rights Agreement First Amendment accelerated the final expiration of the Rights from June 14, 2019, to November 9, 2016.
Preferred Stock
The Board has the authority to issue the authorized and unissued preferred stock in
one
or more series with such designations, rights and preferences as may be determined from time to time by the Board. Accordingly, the Board is empowered, without stockholder approval, to issue preferred stock with dividend, redemption, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Company’s common stock.
Stock Repurchase Program
The Company announced a stock repurchase program in 2015.
In 2015, the Company's Board of Directors authorized the Company to repurchase up to
$50.0 million
of the Company's common stock through December 31, 2015. For the fiscal year ended
December 31, 2015
, the Company purchased a total of
1,338,894
shares of its common stock, which included the
689,184
shares pursuant to the September 2015
$25 million
accelerated share repurchase program ("2015 ASR Agreement") that the Company entered into with Wells Fargo Bank, National Association ("Wells Fargo"). As of December 31, 2015, the terms of the 2015 ASR Agreement were completed. The Company paid Wells Fargo
$25 million
and Wells Fargo delivered to the Company
689,184
shares of the Company’s common stock, which had an average share price of
$36.27
per share. At an average price of
$35.21
, the Company spent approximately
$47.1 million
on the
1,338,894
shares repurchased during the twelve months ended
December 31, 2015
. All shares repurchased during 2015 were retired.
At its meeting in August 2016, the Company’s Board of Directors authorized the Company to repurchase up to
$125.0
million of the Company’s common stock. This authorization increased and extended the
$50.0 million
repurchase authorization from February 2016 and will remain in effect through December 31, 2017. For the fiscal year ended
December 31, 2016
, the Company purchased a total of
1,244,003
shares of its common stock, which included the
1,137,656
shares pursuant to the August 2016
$50 million
accelerated share repurchase program ("2016 ASR Agreement") that the Company entered into with Wells Fargo. As of December 31, 2016, the terms of the 2016 ASR Agreement were completed. The Company paid Wells Fargo
$50 million
and Wells Fargo delivered to the Company
1,137,656
shares of the Company’s common stock, which had an average share price of
$43.95
per share. At an average price of
$43.01
, the Company spent approximately
$53.5 million
on the
1,244,003
shares repurchased during the twelve months ended
December 31, 2016
. All shares repurchased during 2016 were retired.
See the "Consolidated Statements of Stockholders’ Equity."
Net Income per Common Share
Basic net income per common share is computed based on the weighted average number of common shares outstanding. Potentially dilutive shares, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.
The following shows a reconciliation of basic earnings per share (“EPS”) to diluted EPS:
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Fiscal Year Ended December 31,
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(in thousands, except per-share amounts)
|
2016
|
|
2015
|
|
2014
|
Net income available to common stockholders
|
$
|
89,734
|
|
|
$
|
67,888
|
|
|
$
|
63,531
|
|
|
|
|
|
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Basic weighted average shares outstanding
|
48,084
|
|
|
48,952
|
|
|
48,977
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|
Dilutive effect of potential common stock equivalents
|
211
|
|
|
229
|
|
|
217
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|
Diluted weighted average shares outstanding
|
48,295
|
|
|
49,181
|
|
|
49,194
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|
Net earnings per share:
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Basic
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$
|
1.87
|
|
|
$
|
1.39
|
|
|
$
|
1.30
|
|
Diluted
|
$
|
1.86
|
|
|
$
|
1.38
|
|
|
$
|
1.29
|
|
Potentially dilutive securities excluded from earnings per diluted share because their
|
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effect is anti-dilutive
|
—
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|
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—
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|
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—
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|
Anti-dilutive shares attributable to outstanding stock options were excluded from the calculation of diluted net income per share.
The potential tax benefits derived from the amount of the average stock price for the period in excess of the grant date fair value of stock options, known as the windfall tax benefit, is added to the proceeds of stock option exercises under the treasury stock method for computing the amount of dilutive securities used to determine the outstanding shares for the calculation of diluted earnings per share.
Comprehensive Income or Loss
Comprehensive income is defined as net income plus other comprehensive income or loss. Other comprehensive income or loss consists of changes in cumulative translation adjustments and changes in unamortized pension adjustments recorded directly in accumulated other comprehensive income within stockholders’ equity. The following shows the components of accumulated other comprehensive income or loss as of
December 31, 2016
and
2015
, respectively:
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|
|
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|
|
|
|
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Foreign Currency Translation
|
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Pension Benefit
|
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Total
|
(in thousands)
|
|
|
Balance, January 1, 2014
|
$
|
18,283
|
|
|
$
|
(197
|
)
|
|
$
|
18,086
|
|
Other comprehensive income before reclassification net of tax benefit (expense) of ($63) and $67, respectively
|
(24,896
|
)
|
|
(370
|
)
|
|
(25,266
|
)
|
Balance, December 31, 2014
|
(6,613
|
)
|
|
(567
|
)
|
|
(7,180
|
)
|
Other comprehensive loss net of tax benefit (expense) of ($57) and $82, respectively
|
(20,708
|
)
|
|
(457
|
)
|
|
(21,165
|
)
|
Amounts reclassified from accumulative other comprehensive income, net of $0 tax
|
(231
|
)
|
|
—
|
|
|
(231
|
)
|
Balance, December 31, 2015
|
(27,552
|
)
|
|
(1,024
|
)
|
|
(28,576
|
)
|
Other comprehensive loss net of tax benefit (expense) of ($222) and $87, respectively
|
(3,920
|
)
|
|
(474
|
)
|
|
(4,394
|
)
|
Amounts reclassified from accumulative other comprehensive income, net of $0 tax
|
—
|
|
|
—
|
|
|
—
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|
Balance, December 31, 2016
|
$
|
(31,472
|
)
|
|
$
|
(1,498
|
)
|
|
$
|
(32,970
|
)
|
The
2015
translation adjustment of
$0.2 million
in cumulative currency translation adjustments was related to the liquidation of the Asia sales offices. This amount is classified as a net loss on disposal of assets in the accompanying Consolidated Statements of Operations.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash in banks, short-term investments in money market funds and trade accounts receivable. The Company maintains its cash in demand deposit and money market accounts held primarily at
fifteen
banks.
Accounting for Stock-Based Compensation
The Company currently maintains an equity incentive plan, the Simpson Manufacturing Co., Inc. Amended and Restated 2011 Incentive Plan (the “2011 Plan”), which was adopted on April 26, 2011 and amended and restated on April 21, 2015. The 2011 Plan amended and restated in their entirety, and incorporated and superseded, both the Simpson Manufacturing Co., Inc. 1994 Stock Option Plan (the “1994 Plan”), which was principally for the Company’s employees, and the Simpson Manufacturing Co., Inc. 1995 Independent Director Stock Option Plan (the “1995 Plan”), which was for its independent directors. Awards previously granted under the 1994 Plan or the 1995 Plan will not be affected by the adoption of the 2011 Plan and will continue to be governed by the 1994 Plan or the 1995 Plan, respectively.
Under the 1994 Plan and the 1995 Plan, the Company could grant incentive stock options and non-qualified stock options, although the Company granted only non-qualified stock options thereunder. The Company generally granted options under each of the 1994 Plan and the 1995 Plan once each year. Options vest and expire according to terms established at the grant date. Stock options granted under the 1994 Plan typically vested evenly over the requisite service period of
four
years and have a term of
seven
years. Options granted under the 1995 Plan were fully vested on the date of grant. Shares of common stock issued on exercise of stock options under the 1994 Plan and the 1995 Plan are registered under the Securities Act of 1933, as amended (the "Securities Act").
Under the 2011 Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock and restricted stock units, although the Company currently intends to award primarily performance-based and/or time-based restricted stock units ("RSUs") and to a lesser extent, if at all, non-qualified stock options. The Company does not currently intend to award incentive stock options or restricted stock. Under the 2011 Plan, no more than
16.3 million
shares of the Company’s common stock in aggregate (including shares already issued pursuant to prior awards) may be issued under the 2011 Plan, including shares reserved for issuance on exercise of options previously granted under the 1994 Plan and the 1995 Plan. Shares of common stock to be issued pursuant to the 2011 Plan are registered under the Securities Act.
Subject to certain adjustment, the following limits shall apply with respect to any awards under the Plan that are intended to qualify for the performance-based exception from the tax deductibility limitations of section 162(m) of the U.S. Internal Revenue Code of 1986, as amended from time to time: (i) the maximum aggregate number of shares of the Company’s common stock that may be subject to stock options granted in any calendar year to any one participant shall be
150,000
shares; and (ii) the maximum aggregate number of shares of the Company’s common stock issuable or deliverable under RSUs granted in any calendar year to any one participant shall be
100,000
shares.
The following table shows the Company’s stock-based compensation activity:
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Fiscal Years Ended December 31,
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(in thousands)
|
2016
|
|
2015
|
|
2014
|
Stock-based compensation expense recognized in operating expenses
|
$
|
13,113
|
|
|
$
|
11,212
|
|
|
$
|
12,299
|
|
Tax benefit of stock-based compensation expense in provision for income taxes
|
4,757
|
|
|
3,987
|
|
|
4,384
|
|
Stock-based compensation expense, net of tax
|
$
|
8,356
|
|
|
$
|
7,225
|
|
|
$
|
7,915
|
|
Fair value of shares vested
|
$
|
13,186
|
|
|
$
|
10,997
|
|
|
$
|
12,354
|
|
Proceeds to the Company from the exercise of stock-based compensation
|
$
|
7,976
|
|
|
$
|
9,720
|
|
|
$
|
4,582
|
|
Tax benefit from exercise of stock-based compensation, including shortfall tax benefits
|
$
|
(251
|
)
|
|
$
|
(318
|
)
|
|
$
|
(268
|
)
|
The stock-based compensation expense included in cost of sales, research and development and engineering expense, selling expense, or general and administrative expense depends on the job functions performed by the employees to whom the stock options were granted, or the restricted stock units were awarded.
The following table shows the expense related to the Company's stock-based compensation capitalized in inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At The Fiscal Year Ended December 31,
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
Stock-based compensation cost capitalized in inventory
|
$
|
434
|
|
|
$
|
368
|
|
|
$
|
559
|
|
The assumptions used to calculate the fair value of options or restricted stock units are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience. See "Note 13 — Stock-Based Compensation."
Goodwill Impairment Testing
The Company tests goodwill for impairment at the reporting unit level on an annual basis (in the fourth quarter for the Company). The Company also reviews goodwill for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or disposition or relocation of a significant portion of a reporting unit.
The reporting unit level is generally one level below the operating segment and is at the country level except for the United States, Denmark, Australia, and S&P Clever reporting units.
The Company has determined that the United States reporting unit includes
four
components: Northwest United States, Southwest United States, Northeast United States and Southeast United States (collectively, the “U.S. Components”). The Company aggregates the U.S. Components into a single reporting unit because management concluded that they are economically similar and that the goodwill is recoverable from the U.S. Components working in concert. The U.S. Components are economically similar because of a number of factors, including, selling similar products to shared customers and sharing assets and services such as intellectual property, manufacturing assets for certain products, research and development projects, manufacturing processes, management of inventory excesses and shortages and administrative services. These activities are managed centrally at the U.S. Components level and costs are allocated among the
four
U.S. Components.
The Company determined that the Australia reporting unit includes
four
components: Australia, New Zealand, South Africa and United Arab Emirates (collectively, the “AU Components”). The Company aggregates the AU Components into a single reporting unit because management concluded that they are economically similar and that the goodwill is recoverable from the AU Components working in concert. The AU Components are economically similar because of a number of factors, including that New Zealand, South Africa and United Arab Emirates operate as extensions of their Australian parent company selling similar products and sharing assets and services such as intellectual property, manufacturing assets for certain products, management of inventory excesses and shortages and administrative services. These activities are managed centrally at the AU Components level and costs are allocated among the AU Components.
The Company has determined that the S&P Clever reporting unit includes
eight
components: S&P Switzerland, S&P Poland, S&P Austria, S&P The Netherlands, S&P Portugal, S&P Germany, S&P France and S&P Nordic (collectively, the "S&P Components”). The Company aggregates the S&P Components into a single reporting unit because management concluded that they are economically similar and that the goodwill is recoverable from the S&P Components working in concert. The S&P Components are economically similar because of a number of factors, including sharing assets and services such as intellectual property, manufacturing assets for certain products, research and development projects, manufacturing processes, management of inventory excesses and shortages and administrative services. These activities are managed centrally at the S&P Components level and costs are allocated among the S&P Components.
For certain reporting units, the Company may first assess qualitative factors related to the goodwill of the reporting unit to determine whether it is necessary to perform a two-step impairment test. If the Company judges that it is more likely than not that the fair value of the reporting unit is greater than the carrying amount of the reporting unit, including goodwill, no further testing is required. If the Company judges that it is more likely than not that the fair value of the reporting unit is less than the carrying amount of the reporting unit, including goodwill, management will perform a two-step impairment test on goodwill. In the first step ("Step 1"), the Company compares the fair value of the reporting unit to its carrying value. The fair value calculation uses the income approach (discounted cash flow method) and the market approach, equally weighted. If the Company judges that the carrying value of the net assets assigned to the reporting unit, including goodwill, exceeds the fair value of the reporting unit, a second step of the impairment test must be performed to determine the implied fair value of the reporting unit’s goodwill. If the Company judges that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, the Company would record an impairment charge equal to the difference between the implied fair value of the goodwill and the carrying value.
Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is a judgment involving significant estimates and assumptions. These estimates and assumptions include revenue growth rates, operating margins and working capital requirements used to calculate projected future cash flows, risk-adjusted discount rates, selected multiples, control premiums and future economic and market conditions (Level 3 fair value inputs). The Company bases its fair value estimates on assumptions that it believes to be reasonable, but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
Assumptions about a reporting unit’s operating performance in the first year of the discounted cash flow model used to determine whether or not the goodwill related to that reporting unit is impaired are derived from the Company’s budget. The fair value model considers such factors as macro-economic conditions, revenue and expense forecasts, product line changes, material, labor and overhead costs, tax rates, working capital levels and competitive environment. Future estimates, however derived, are inherently uncertain but the Company believes that this is the most appropriate source on which to base its fair value calculation.
The Company uses these parameters only to provide a basis for the determination of whether or not the goodwill related to a reporting unit is impaired. No inference whatsoever should be drawn from these parameters about the Company’s future financial performance and they should not be taken as projections or guidance of any kind.
The
2016
,
2015
and
2014
annual testing of goodwill for impairment did not result in impairment charges. The impairment charge taken in the third quarter of 2014 was associated with assets in the Germany reporting unit acquired from Bierbach in 2013. The factors that led to the third quarter impairment were a failure to retain Bierbach's historical customers and increased competition, which led to the reduction in the contingent consideration liability related to the Bierbach acquisition and resulted in management performing an impairment test to evaluate the recoverability of the Germany reporting unit's goodwill. The test resulted in the impairment of all of the reporting unit’s goodwill in the amount of
$0.5 million
. In connection with the impairment of the goodwill, the Company also reviewed associated long-lived assets in Germany, such as property and equipment and intangible assets, for recoverability by comparing the projected undiscounted net cash flows associated with those assets to their carrying values. No impairment of long-lived assets was required as a result of that review during the third quarter of 2014.
The annual changes in the carrying amount of goodwill, by segment, as of
December 31, 2015
and
2016
, were as follows, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
North
America
|
|
Europe
|
|
Asia
Pacific
|
|
Total
|
Balance as of January 1, 2015:
|
|
|
|
|
|
|
|
Goodwill
|
$
|
95,192
|
|
|
$
|
51,202
|
|
|
$
|
1,567
|
|
|
$
|
147,961
|
|
Accumulated impairment losses
|
(10,666
|
)
|
|
(13,414
|
)
|
|
—
|
|
|
(24,080
|
)
|
|
84,526
|
|
|
37,788
|
|
|
1,567
|
|
|
123,881
|
|
Goodwill acquired
|
1,860
|
|
|
210
|
|
|
—
|
|
|
2,070
|
|
Foreign exchange
|
(552
|
)
|
|
(1,278
|
)
|
|
(171
|
)
|
|
(2,001
|
)
|
Balance as of December 31, 2015:
|
|
|
|
|
|
|
0
|
|
Goodwill
|
96,500
|
|
|
50,135
|
|
|
1,396
|
|
|
148,031
|
|
Accumulated impairment losses
|
(10,666
|
)
|
|
(13,415
|
)
|
|
—
|
|
|
(24,081
|
)
|
|
85,834
|
|
|
36,720
|
|
|
1,396
|
|
|
123,950
|
|
Goodwill acquired
|
—
|
|
|
1,848
|
|
|
—
|
|
|
1,848
|
|
Foreign exchange
|
93
|
|
|
(952
|
)
|
|
(21
|
)
|
|
(880
|
)
|
Reclassifications
(1)
|
(439
|
)
|
|
—
|
|
|
—
|
|
|
(439
|
)
|
Balance as of December 31, 2016:
|
|
|
|
|
|
|
0
|
|
Goodwill
|
96,154
|
|
|
51,031
|
|
|
1,375
|
|
|
148,560
|
|
Accumulated impairment losses
|
(10,666
|
)
|
|
(13,415
|
)
|
|
—
|
|
|
(24,081
|
)
|
|
$
|
85,488
|
|
|
$
|
37,616
|
|
|
$
|
1,375
|
|
|
$
|
124,479
|
|
(1)
Reclassifications in 2016 of
$0.2 million
in patents,
$0.1 million
in non-compete agreements,
$46 thousand
in customer relationships and other assets, with a corresponding
$0.4 million
decrease in goodwill related to the EBTY acquisition.
Amortizable Intangible Assets
The total gross carrying amount and accumulated amortization of intangible assets, most of which are or will be, subject to amortization at
December 31, 2016
, were
$51.4 million
and
$28.6 million
, respectively. The aggregate amount of amortization expense of intangible assets for the years ended
December 31, 2016
,
2015
and
2014
was
$6.0 million
,
$6.1 million
and
$7.2 million
, respectively.
The annual changes in the carrying amounts of patents, unpatented technologies, customer relationships and non-compete agreements and other intangible assets subject to amortization as of
December 31, 2015
, and
2016
were as follows, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Patents
|
|
|
Balance at January 1, 2015
|
$
|
1,758
|
|
|
$
|
(1,577
|
)
|
|
$
|
181
|
|
Acquisition
|
1,062
|
|
|
—
|
|
|
$
|
1,062
|
|
Amortization
|
—
|
|
|
(102
|
)
|
|
(102
|
)
|
Foreign exchange
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
Removal of fully amortized assets
|
(1,300
|
)
|
|
1,300
|
|
|
—
|
|
Balance, at December 31, 2015
|
1,513
|
|
|
(379
|
)
|
|
1,134
|
|
Amortization
|
—
|
|
|
(149
|
)
|
|
(149
|
)
|
Reclassifications
(1)
|
212
|
|
|
—
|
|
|
212
|
|
Foreign exchange
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
Balance at December 31, 2016
|
$
|
1,718
|
|
|
$
|
(528
|
)
|
|
$
|
1,190
|
|
(1)
Reclassifications in 2016 of
$0.2 million
in patents,
$0.1 million
in non-compete agreements,
$46 thousand
in customer relationships and other assets, with a corresponding
$0.4 million
decrease in goodwill related to the EBTY acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Unpatented Technology
|
|
|
Balance at January 1, 2015
|
$
|
22,797
|
|
|
$
|
(7,665
|
)
|
|
$
|
15,132
|
|
Amortization
|
—
|
|
|
(2,061
|
)
|
|
(2,061
|
)
|
Foreign exchange
|
(123
|
)
|
|
—
|
|
|
(123
|
)
|
Removal of fully amortized assets
|
(1,070
|
)
|
|
1,070
|
|
|
—
|
|
Balance, at December 31, 2015
|
21,604
|
|
|
(8,656
|
)
|
|
12,948
|
|
Amortization
|
—
|
|
|
(2,058
|
)
|
|
(2,058
|
)
|
Reclassifications
(2)
|
1,512
|
|
|
—
|
|
|
1,512
|
|
Foreign exchange
|
(243
|
)
|
|
$
|
—
|
|
|
(243
|
)
|
Removal of fully amortized assets
|
(1,711
|
)
|
|
1,711
|
|
|
—
|
|
Balance at December 31, 2016
|
$
|
21,162
|
|
|
$
|
(9,003
|
)
|
|
$
|
12,159
|
|
(2)
Reclassifications in 2016 of
$1.5 million
in unpatented technology for completed IPR&D, with a corresponding reduction in indefinite-lived IPR&D intangibles.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Non-Compete Agreements,
Trademarks and Other
|
|
|
|
|
Balance at January 1, 2015
|
$
|
10,839
|
|
|
(5,374
|
)
|
|
5,465
|
|
Acquisition
|
25
|
|
|
—
|
|
|
25
|
|
Amortization
|
—
|
|
|
(2,039
|
)
|
|
(2,039
|
)
|
Foreign exchange
|
(76
|
)
|
|
—
|
|
|
(76
|
)
|
Removal of fully amortized assets
|
(210
|
)
|
|
210
|
|
|
—
|
|
Balance, at December 31, 2015
|
10,578
|
|
|
(7,203
|
)
|
|
3,375
|
|
Acquisition
|
1,212
|
|
|
—
|
|
|
1,212
|
|
Amortization
|
—
|
|
|
(2,040
|
)
|
|
(2,040
|
)
|
Reclassifications
(1)
|
119
|
|
|
—
|
|
|
119
|
|
Foreign exchange
|
(39
|
)
|
|
—
|
|
|
(39
|
)
|
Removal of fully amortized asset
|
(5,143
|
)
|
|
5,143
|
|
|
—
|
|
Balance at December 31, 2016
|
$
|
6,727
|
|
|
$
|
(4,100
|
)
|
|
$
|
2,627
|
|
(1)
Reclassifications in 2016 of
$0.2 million
in patents,
$0.1 million
in non-compete agreements,
$46 thousand
in customer relationships and other assets, with a corresponding
$0.4 million
decrease in goodwill related to the EBTY acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Customer Relationships
|
|
|
Balance at January 1, 2015
|
$
|
21,346
|
|
|
(11,671
|
)
|
|
9,675
|
|
Acquisition
|
474
|
|
|
—
|
|
|
474
|
|
Amortization
|
—
|
|
|
(1,881
|
)
|
|
(1,881
|
)
|
Foreign exchange
|
(178
|
)
|
|
—
|
|
|
(178
|
)
|
Removal of fully amortized assets
|
(400
|
)
|
|
400
|
|
|
—
|
|
Balance, at December 31, 2015
|
21,242
|
|
|
(13,152
|
)
|
|
8,090
|
|
Amortization
|
—
|
|
|
(1,793
|
)
|
|
(1,793
|
)
|
Reclassifications
(1)
|
46
|
|
|
—
|
|
|
46
|
|
Foreign exchange
|
(71
|
)
|
|
—
|
|
|
(71
|
)
|
Balance at December 31, 2016
|
$
|
21,217
|
|
|
$
|
(14,945
|
)
|
|
$
|
6,272
|
|
(1)
Reclassifications in 2016 of
$0.2 million
to patents,
$0.1 million
in non-compete agreements,
$46 thousand
in customer relationships and other assets, with a corresponding
$0.4 million
decrease in goodwill related to the EBTY acquisition.
At
December 31, 2016
, estimated future amortization of intangible assets was as follows:
(in thousands)
|
|
|
|
|
2017
|
$
|
4,728
|
|
2018
|
3,526
|
|
2019
|
3,447
|
|
2020
|
3,416
|
|
2021
|
2,937
|
|
Thereafter
|
4,194
|
|
|
$
|
22,248
|
|
Indefinite-Lived Intangible Assets
The annual changes in the carrying amounts of indefinite-lived trade name and IPR&D assets not subject to amortization as of
December 31, 2015
and
2016
, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Net
Carrying
|
Indefinite-Lived Intangibles
|
Trade Name
|
|
IPR&D
|
|
Amount
|
Balance, at January 1, 2015
|
$
|
616
|
|
|
$
|
1,518
|
|
|
$
|
2,134
|
|
Reclassifications
|
—
|
|
|
—
|
|
|
—
|
|
Foreign exchange
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Balance, at December 31, 2015
|
616
|
|
|
1,512
|
|
|
2,128
|
|
Reclassifications
(2)
|
—
|
|
|
(1,512
|
)
|
|
(1,512
|
)
|
Foreign exchange
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2016
|
$
|
616
|
|
|
$
|
—
|
|
|
$
|
616
|
|
(2)
Reclassifications in 2016 of
$1.5 million
to unpatented technology for completed IPR&D, with a corresponding reduction in indefinite-lived IPR&D intangibles.
Amortizable and indefinite-lived assets, net, by segment, as of
December 31,
2015
and
2016
, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
(in thousands)
|
|
|
Total Intangible Assets
|
|
|
North America
|
$
|
27,475
|
|
|
$
|
(14,941
|
)
|
|
$
|
12,534
|
|
Europe
|
29,590
|
|
|
(14,449
|
)
|
|
15,141
|
|
Total
|
$
|
57,065
|
|
|
$
|
(29,390
|
)
|
|
$
|
27,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
(in thousands)
|
|
|
Total Intangible Assets
|
|
|
North America
|
$
|
23,562
|
|
|
$
|
(13,811
|
)
|
|
$
|
9,751
|
|
Europe
|
27,880
|
|
|
(14,767
|
)
|
|
13,113
|
|
Total
|
$
|
51,442
|
|
|
$
|
(28,578
|
)
|
|
$
|
22,864
|
|
Recently Adopted Accounting Standards
In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (Topic 205-40),
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
(“ASU 2014-15”). ASU 2014-15 requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable as of the evaluation date when determining whether substantial doubt about an entity’s ability to continue as a going concern exists. Under ASU 2014-5, the emergence of substantial doubt about a company’s ability to continue as a going concern is the trigger for providing footnote disclosure. Therefore, for each annual and interim reporting period, management should evaluate whether there are conditions that give rise to substantial doubt within one year from the financial statement issuance date. During the fourth quarter of 2016, the Company adopted ASU 2014-15 and applied the guidance prospectively. Adoption of ASU 2014-15 has had no material effect on the Company’s consolidated financial statements and footnote disclosures.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, (Topic 330),
Simplifying the Measurement of Inventory
(“ASU 2015-11”). The objective is to reduce the complexity related to inventory subsequent measurement and disclosure requirements. ASU 2015-11 amendments do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments more closely align with the measurement of inventory in International Financial Reporting Standards. ASU 2015-11 will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. During the first quarter of 2016, the Company elected to adopt ASU 2015-11 ahead of its required effective date and applied the guidance prospectively. Early adoption of ASU 2015-11 has had no material effect on the Company's consolidated financial statements and footnote disclosures.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740),
Balance Sheet Classification of Deferred Taxes
("ASU 2015-17"). The objective is to simplify the presentation of deferred income taxes; the amendments require that deferred tax assets and liabilities be classified as noncurrent in a classified consolidated balance sheets. ASU 2015-17 will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The amendment may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. During the first quarter of 2016, the Company elected to adopt ASU 2015-17 ahead of its required effective date and applied the guidance prospectively with no change to prior period's amounts disclosed in our consolidated balance sheets and related notes to the consolidated financial statements.
Early adoption of ASU 2015-17, in the first quarter of 2016, resulted in the Company offsetting all of its deferred income tax assets and liabilities, as of January 1, 2016, by taxing jurisdiction and classifying those balances as noncurrent. The result was a
$4.1 million
increase in "Other noncurrent assets," from
$6.7 million
to
$10.8 million
, and a
$12.1 million
decrease in "Deferred income tax and other long-term liabilities," from
$16.5 million
to
$4.4 million
.
Recently Issued Accounting Standards Not Yet Adopted
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
("ASU 2014-09"). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under GAAP. The amendments provide a revenue recognition five-step model to be applied to all revenue contracts with customers. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for licenses of intellectual property. The standard is effective for annual and interim periods beginning after December 15, 2017. The Company expects to adopt the new standard effective January 1, 2018. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company is currently in the process of determining its method of adoption, which depends in part upon the completion of the analysis on the impact this guidance has on the Company's revenue arrangements. The Company expects to complete its analysis of the impact of the updated revenue-recognition guidance on the Company's revenue arrangements by October of 2017. The Company’s approach includes performing a detailed review of key contracts representative of the Company’s products. In addition, comparing historical accounting policies and practices to the new standard on the Company’s revenue arrangements. Based on current information and subject to future events and circumstances, the Company does not know whether the new revenue recognition standard will have a material impact on its financial statements upon adoption.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, (Topic 842),
Leases
(“ASU 2016-02”).
ASU 2016-02 core requirement is to recognize the assets and liabilities that arise from leases including those leases classified as operating leases. The amendments require a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The lessor accounting application is largely unchanged from that applied previously under GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this Update is permitted for all entities. Based on current information and subject to future events and circumstances, the Company does not know whether the new operating lease standard will have a material impact on its financial statements upon adoption.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (Topic 718), Compensation - Stock Compensation:
Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”). The amendments simplify several aspects of the accounting for employee share-based payment transactions including accounting for income taxes, forfeitures, statutory tax withholding requirements, and classification in the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Based on current information and subject to future events and circumstances, the Company does not believe the improved stock compensation standard will have a material impact on its financial statements upon adoption.
In December 2015, the Company purchased all of the business assets including intellectual property from Blue Heron Enterprises, LLC, and Fox Chase Enterprises, LLC (collectively, "EBTY"), both New Jersey limited liability companies, for
$3.4 million
in cash. EBTY manufactured and sold hidden deck clips and products and systems using a patented design. EBTY's patented design for hidden deck clips and products and systems will complement the Company's line of hidden clips and fastener systems. The Company's measurement of assets acquired included goodwill of
$2.0 million
, which was assigned to the North America segment, and intangible assets of
$1.1 million
, both of which are subject to tax-deductible amortization. Net assets consisting of inventory and equipment accounted for the balance of the purchase price. The weighted-average amortization period for the intangible assets is
7
years.
In August 2016, the Company purchased all of the outstanding shares of Multi Services Dêcoupe S.A. ("MS Decoupe"), a Belgium public limited company, for
$6.9 million
. MS Decoupe primarily manufactures and distributes wood construction, plastic and metal labeling products in Belgium and the Netherlands, including distributing the Company's products manufactured at the Company's production facility in France. With this acquisition, the Company could potentially offer the Belgium market a wider-range of its products, shorten delivery lead times, and expand the Company's sales presence into the Netherlands market. The Company's provisional measurement of assets acquired and liabilities assumed included cash and cash equivalents of
$1.5 million
, other current assets of
$2.1 million
, non-current assets of
$5.0 million
, current liabilities of
$0.7 million
and non-current deferred
income tax liabilities of
$1.0 million
. Included in non-current assets was goodwill of
$1.9 million
, which was assigned to the Europe segment, and intangible assets of
$1.2 million
, both of which are not subject to tax-deductible amortization. The estimated weighted-average amortization period for the intangible assets is
7
years.
Under the business combinations topic of the FASB ASC 805, the Company accounted for these acquisitions as business combinations and ascribed acquisition-date fair values to the acquired assets and assumed liabilities. Fair value of intangible assets was based on Level 3 inputs.
The results of operations of the businesses acquired in 2014 through 2016 are included in the Company’s consolidated results of operations since the date of the acquisition. They were not material to the Company on an individual or aggregate basis, and accordingly, pro forma results of operations have not been presented.
See “Note 15 — Subsequent Events” for the Company’s acquisitions that took place following December 31, 2016.
|
|
3.
|
Trade Accounts Receivable, net
|
Trade accounts receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2016
|
|
2015
|
Trade accounts receivable
|
$
|
116,368
|
|
|
$
|
109,859
|
|
Allowance for doubtful accounts
|
(895
|
)
|
|
(1,142
|
)
|
Allowance for sales discounts
|
(3,050
|
)
|
|
(2,706
|
)
|
|
$
|
112,423
|
|
|
$
|
106,011
|
|
The Company sells products on credit and generally does not require collateral.
The components of inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2016
|
|
2015
|
Raw materials
|
$
|
86,524
|
|
|
$
|
75,950
|
|
In-process products
|
20,902
|
|
|
18,828
|
|
Finished products
|
124,848
|
|
|
100,979
|
|
|
$
|
232,274
|
|
|
$
|
195,757
|
|
|
|
5.
|
Property, Plant and Equipment, net
|
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2016
|
|
2015
|
Land
|
$
|
32,127
|
|
|
$
|
28,698
|
|
Buildings and site improvements
|
183,882
|
|
|
171,890
|
|
Leasehold improvements
|
5,550
|
|
|
5,560
|
|
Machinery and equipment
|
248,861
|
|
|
232,560
|
|
|
470,420
|
|
|
438,708
|
|
Less accumulated depreciation and amortization
|
(273,302
|
)
|
|
(257,115
|
)
|
|
197,118
|
|
|
181,593
|
|
Capital projects in progress
|
35,692
|
|
|
32,123
|
|
|
$
|
232,810
|
|
|
$
|
213,716
|
|
Included in property, plant and equipment at
December 31, 2016
and
2015
, are fully depreciated assets with an original cost of
$166.7 million
and
$156.7 million
, respectively. These fully depreciated assets are still in use in the Company’s operations.
The Company capitalizes certain development costs associated with internal use software, including external direct costs of materials and services and payroll costs for employees devoting time to a software project. As of
December 31, 2016
and
2015
, depreciable capitalized software development costs were
$4.6 million
and
$1.6 million
, respectively, and included in capital projects in progress at
December 31, 2016
and
2015
, were software in development costs of
$13.5 million
and
$12.2 million
, respectively. Costs incurred during the preliminary project stage, as well as costs for maintenance and training, are expensed as incurred.
Depreciation expense was
$21.6 million
for the year ended
December 31, 2016
and
$20.4 million
for both of the years ended December 31,
2015
and
2014
.
In December 2015, the Company purchased for
$12.6 million
a manufacturing facility in West Chicago for the purposes of combining the operations of its two leased chemical facilities into one owned facility. During 2016, the Company incurred
$7.3 million
in improvement costs to build out of the new facility. In 2016, the Company approved the expansion of the McKinney facility, which it estimates will cost
$17.0 million
to
$19.0 million
.
6. Investments
At December 23, 2016, the Company acquired a
25.0%
equity interest in Ruby Sketch Pty Ltd. (“Ruby Sketch”), an Australian proprietary limited company, for
$2.5 million
, for which the Company accounts for its ownership interest using the equity accounting method. Ruby Sketch develops software that assists in designing residential structures, primarily used in Australia and potentially for the North America market. The Company’s future relationship with Ruby Sketch also could potentially include the specification of the Company’s products in the Ruby Sketch software. The Company has no obligation to make any additional capital contributions to Ruby Sketch.
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2016
|
|
2015
|
Sales incentive and advertising accruals
|
$
|
25,761
|
|
|
$
|
22,235
|
|
Vacation liability
|
7,432
|
|
|
7,001
|
|
Dividend payable
|
8,535
|
|
|
7,716
|
|
Labor related liabilities
|
8,431
|
|
|
7,720
|
|
Other
|
10,318
|
|
|
10,089
|
|
|
$
|
60,477
|
|
|
$
|
54,761
|
|
The Company has revolving lines of credit with various banks in the United States and Europe. Total available credit at
December 31, 2016
was
$303.8 million
, including revolving credit lines and an irrevocable standby letter of credit in support of various insurance deductibles.
The Company’s primary credit facility is a revolving line of credit with
$300.0 million
in available credit. On July 25, 2016, the Company entered into a second amendment (the "Amendment") to the credit facility. For additional information about the Amendment, see the Company's Current Report on Form 8-K dated July 28, 2016. As amended, this credit facility expires on July 23, 2021. Amounts borrowed under this credit facility will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of United States dollars appearing on Reuters LIBOR1screen page (the “LIBOR Rate”), adjusted for any reserve requirement in effect, plus a spread of
0.60%
to
1.45%
, determined quarterly based on the Company’s leverage ratio (at
December 31, 2016
, the LIBOR Rate was
0.72%
), or (b) a
base rate
, plus a spread of
0.00%
to
0.45%
, determined quarterly based on the Company’s leverage ratio. The base rate is defined in a manner such that it will not be less than the LIBOR Rate. The Company will pay fees for standby letters of credit at an annual rate equal to the applicable spread described above, and will pay market-based fees for commercial letters of credit. The Company is required to pay an annual facility fee of
0.15%
to
0.30%
of the available commitments under the credit agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The Company was also required to pay customary fees as specified in a separate fee agreement between the Company and Wells Fargo Bank, National Association, in its capacity as the Administrative Agent under the credit facility.
In addition to the $300.0 million credit facility, the Company’s borrowing capacity under other revolving credit lines totaled
$3.8 million
at
December 31, 2016
. The other revolving credit lines charge interest ranging from
0.48%
to
7.75%
and have maturity dates from March 2017 to December 2017. The Company had
no
outstanding balance on any of its revolving credit lines at
December 31, 2016
and 2015, respectively.
The Company and its subsidiaries are required to comply with various affirmative and negative covenants. The covenants include provisions that would limit the availability of funds as a result of a material adverse change to the Company’s financial position or results of operations. The Company was in compliance with its financial covenants under the loan agreement as of
December 31, 2016
.
The Company incurs interest costs, which include interest, maintenance fees and bank charges. The amount of costs incurred, capitalized, and expensed for the years ended
December 31, 2016
,
2015
and
2014
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Interest costs incurred
|
$
|
1,167
|
|
|
$
|
1,133
|
|
|
$
|
953
|
|
Less: Interest capitalized
|
(20
|
)
|
|
(136
|
)
|
|
(98
|
)
|
Interest expense
|
$
|
1,147
|
|
|
$
|
997
|
|
|
$
|
855
|
|
|
|
9.
|
Commitments and Contingencies
|
Leases
Certain properties occupied by the Company are leased. The leases expire at various dates through 2026 and generally require the Company to assume the obligations for insurance, property taxes and maintenance of the facilities.
Rental expense for
2016
,
2015
and
2014
with respect to all leased property was approximately
$5.9 million
,
$6.6 million
and
$6.9 million
, respectively.
At
December 31, 2016
, minimum rental commitments under all non-cancelable leases were as follows:
(in thousands)
|
|
|
|
|
2017
|
$
|
5,857
|
|
2018
|
4,539
|
|
2019
|
3,335
|
|
2020
|
2,738
|
|
2021
|
1,822
|
|
Thereafter
|
2,966
|
|
Total
|
$
|
21,257
|
|
Some of these minimum rental commitments contain renewal options and provide for periodic rental adjustments based on changes in the consumer price index or current market rental rates. Other rental commitments provide options to cancel early without penalty. Future minimum rental payments, under the earliest cancellation options, are included in minimum rental commitments in the table above.
Other Contractual Obligations
Purchase obligations consist of commitments primarily related to the acquisition, construction or expansion of facilities and equipment, consulting agreements, and minimum purchase quantities of certain raw materials. The Company is not a party to any long-term supply contracts with respect to the purchase of raw materials or finished goods. Debt interest obligations include annual facility fees on the Company’s primary line-of-credit facility. Interest on line-of-credit facilities was estimated based on historical borrowings and repayment patterns.
At
December 31, 2016
, other contractual obligations were as follows:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
Debt Interest Obligations
|
|
Purchase Obligations
|
|
Total
|
2017
|
$
|
450
|
|
|
$
|
33,222
|
|
|
$
|
33,672
|
|
2018
|
450
|
|
|
847
|
|
|
1,297
|
|
2019
|
450
|
|
|
104
|
|
|
554
|
|
2020
|
450
|
|
|
96
|
|
|
546
|
|
2021
|
250
|
|
|
96
|
|
|
346
|
|
Thereafter
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
2,050
|
|
|
$
|
34,365
|
|
|
$
|
36,415
|
|
Employee Relations
Approximately
20%
of the Company’s employees are represented by labor unions and are covered by collective bargaining agreements. The Company’s facility in Stockton, California, is also a union facility with two collective bargaining agreements, which also cover tool and die craftsmen and maintenance workers and sheetmetal workers, respectively. These two contracts will expire in July and September 2019, respectively. The Company’s facility in San Bernardino County, California, has
two
of the
Company's collective bargaining agreements,
one
with tool and die craftsmen and maintenance workers, and the other with sheetmetal workers. These
two
contracts expire in February 2017 and June 2018, respectively. The Company expects to agree with the San Bernardino tool and die craftsmen and maintenance workers union to extend the existing labor union contract that expires in February 2017, while the parties are negotiating a new agreement. The Company has not begun negotiations to extend the sheetmetal workers union labor contract that expires in June 2018. The Company believes that, even if new agreements are not reached before the existing labor union contracts expire, it is not likely to have a material adverse effect on the Company’s ability to provide products to customers or on the Company’s profitability.
Environmental
The Company’s 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 any such matters will have a material adverse effect on the Company’s financial condition, cash flows or results of operations.
Litigation
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. Corrosion, hydrogen enbrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, manufacturing defects, labeling defects, product formula defects, inaccurate chemical mixes, adulteration, environmental conditions, or other factors can contribute to failure of fasteners, connectors, anchors, adhesives, specialty chemicals, such as fiber reinforced polymers, and tool products. In addition, inaccuracies may occur in product information, descriptions and instructions found in catalogs, packaging, data sheets, and the Company’s website.
As of February 28, 2017, the Company is not a party to any legal proceedings, other than ordinary routine litigation incidental to the Company’s business, which the Company expects individually or in the aggregate to have a material adverse effect on the Company’s financial condition, cash flows or results of operations. Nonetheless, the resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows or results of operations.
Potential Third-Party Claims
Nishimura v. Gentry Homes, Ltd.,
Civil No. 11-1-1522-07, was filed in the Hawaii First Circuit court on July 20, 2011. The
Nishimura
case involves claims by homeowners at a Honolulu development, Ewa by Gentry, related to alleged corrosion of strap-tie holdowns and mud-sill anchor products supplied by the Company. Ewa by Gentry consists of approximately
2,400
homes.
The Company is not currently a party to the
Nishimura
case. The plaintiff homeowners originally sued the developer Gentry Homes, Ltd. (“Gentry”) as well as the Company. In 2012 and 2013, the Hawaii First Circuit granted the Company’s motions to dismiss and for summary judgment, resulting in the dismissal of all of the plaintiff homeowners’ claims against the Company, and the Company is not currently a party to the proceedings. The dismissed claims against the Company remain subject to potential appeal by the plaintiffs. Further, Gentry may in the future seek to sue the Company for indemnity or contribution if Gentry is ultimately found liable for any loss suffered by the plaintiff homeowners.
The Company initially understood from Gentry there were no significant damages claims related to Ewa by Gentry development. In May 2015, the plaintiff homeowners filed a second amended complaint to name a new representative plaintiff because the original representative plaintiffs had not suffered damage. In August 2016, Gentry advised the Company for the first time that other plaintiff homeowners had documented serious corrosion of mudsill anchors and strap-tie holdowns in a substantial number of homes. The plaintiff homeowners and Gentry are currently proceeding in arbitration and the Hawaii state court lawsuit has been stayed pending the conclusion of arbitration. Gentry has not asserted any third party claim against the Company, but has reserved the right to seek to do so.
In the
Nishimura
case and in the arbitration, the plaintiff homeowners seek damages according to proof. At this time, the Company cannot reasonably ascertain the likelihood that Gentry will be found responsible for substantial damages to the homeowners; whether, if so, Gentry would proceed against the Company; whether any legal theory against the Company might be viable, or the extent of the liability the Company might face if Gentry were to proceed against it.
The Company admits no liability in connection with the
Nishimura
case. It will vigorously defend any claims, whether appeal by the plaintiff homeowners, or third party claims by Gentry. Based on facts currently known to the Company and subject to future
events and circumstances, the Company believes that all or part of any claims that any party might seek to allege against it related to the Nishimura case may be covered by its insurance policies.
Charles Vitale, et al. v. D.R. Horton, Inc. and D.R. Horton-Schuler Homes, LLC
, Civil No. 15-1-1347-07, a putative class action lawsuit, was filed in the Hawaii First Circuit on July 13, 2015, in which homeowner plaintiffs allege that all homes built by D.R Horton/D.R. Horton-Schuler Homes in the State of Hawaii have strap-tie holdowns that are suffering premature corrosion. The complaint alleges that various manufacturers make strap-tie holdowns that suffer from such corrosion, but does not identify the Company’s products specifically. The Company is not currently a party to the
Vitale
lawsuit, but the lawsuit in the future could potentially involve the Company’s strap-tie holdowns.
Given the preliminary nature and the complexities involved in the
Nishimura
and
Vitale
proceedings, the Company is unable to estimate reasonably a likelihood of possible loss or range of possible loss until the Company knows, among other factors, (i) whether it will be named in the lawsuit by any party; (ii) the specific claims and the legal theories on which they are based (iii) what claims, if any, will survive dispositive motion practice, (iv) the extent of the claims, including the size of any potential class, particularly as damages are not specified or are indeterminate, (v) how the discovery process will affect the litigation, (vi) the settlement posture of the other parties to the litigation, (vii) the extent to which the Company’s insurance policies will cover the claims or any part thereof, if at all, (viii) whether class treatment is appropriate; and (ix) any other factors that may have a material effect on the litigation.
While it is not feasible to predict the outcome of proceedings, to which the Company is not currently a party, or reasonably estimate a possible loss or range of possible loss for the Company related to such matters, in the opinion of the Company, either the likelihood of loss from such proceedings is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s financial position, results of operations or cash flows either individually or in the aggregate. Nonetheless, the resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows or results of operations.
The provision for income taxes from operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
$
|
39,649
|
|
|
$
|
29,684
|
|
|
$
|
25,178
|
|
State
|
7,053
|
|
|
5,001
|
|
|
4,391
|
|
Foreign
|
3,333
|
|
|
3,568
|
|
|
4,041
|
|
Deferred
|
0
|
|
|
|
|
|
|
|
Federal
|
260
|
|
|
2,390
|
|
|
2,264
|
|
State
|
13
|
|
|
753
|
|
|
142
|
|
Foreign
|
(1,142
|
)
|
|
(605
|
)
|
|
(225
|
)
|
|
$
|
49,166
|
|
|
$
|
40,791
|
|
|
$
|
35,791
|
|
Income and loss from operations before income taxes for the years ended
December 31, 2016
,
2015
, and
2014
, respectively, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
131,827
|
|
|
$
|
106,381
|
|
|
$
|
90,142
|
|
Foreign
|
7,073
|
|
|
2,298
|
|
|
9,180
|
|
|
$
|
138,900
|
|
|
$
|
108,679
|
|
|
$
|
99,322
|
|
Reconciliations between the statutory federal income tax rates and the Company’s effective income tax rates as a percentage of income before income taxes for its operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
Federal tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
3.4
|
%
|
|
3.3
|
%
|
|
3.0
|
%
|
Tax benefit of domestic manufacturing deduction
|
(2.5
|
)%
|
|
(2.3
|
)%
|
|
(2.4
|
)%
|
Change in valuation allowance
|
(0.1
|
)%
|
|
1.3
|
%
|
|
1.5
|
%
|
Difference between United States statutory and foreign local tax rates
|
(0.3
|
)%
|
|
0.2
|
%
|
|
(0.4
|
)%
|
Change in uncertain tax position
|
(0.2
|
)%
|
|
0.3
|
%
|
|
(0.8
|
)%
|
Other
|
0.1
|
%
|
|
(0.3
|
)%
|
|
0.1
|
%
|
Effective income tax rate
|
35.4
|
%
|
|
37.5
|
%
|
|
36.0
|
%
|
The tax effects of the significant temporary differences that constitute the deferred tax assets and liabilities at
December 31, 2016
and
2015
, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands)
|
2016
|
|
2015
|
Deferred asset taxes
|
|
|
|
|
|
State tax
|
$
|
2,518
|
|
|
$
|
1,762
|
|
Workers’ compensation
|
1,381
|
|
|
1,777
|
|
Health claims
|
755
|
|
|
746
|
|
Vacation liability
|
1,485
|
|
|
1,410
|
|
Allowance for doubtful accounts
|
123
|
|
|
205
|
|
Inventories
|
6,833
|
|
|
6,112
|
|
Sales incentive and advertising allowances
|
1,126
|
|
|
963
|
|
Acquisition costs
|
528
|
|
|
—
|
|
Unrealized foreign exchange gain or loss
|
678
|
|
|
247
|
|
Stock-based compensation
|
5,550
|
|
|
5,629
|
|
Foreign tax credit carryforwards
|
1,288
|
|
|
1,345
|
|
Uncertain tax positions’ unrecognized tax benefits
|
104
|
|
|
134
|
|
Foreign tax loss carry forward
|
6,841
|
|
|
7,082
|
|
Other
|
1,259
|
|
|
1,433
|
|
|
$
|
30,469
|
|
|
$
|
28,845
|
|
Less valuation allowances
|
(6,868
|
)
|
|
(7,576
|
)
|
|
23,601
|
|
|
21,269
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
Depreciation
|
$
|
(6,138
|
)
|
|
$
|
(5,265
|
)
|
Goodwill and other intangibles amortization
|
(14,126
|
)
|
|
(11,835
|
)
|
Tax effect on cumulative translation adjustment
|
(667
|
)
|
|
(974
|
)
|
Other
|
(744
|
)
|
|
(1,023
|
)
|
|
(21,675
|
)
|
|
(19,097
|
)
|
|
|
|
|
Total Deferred tax
|
$
|
1,926
|
|
|
$
|
2,172
|
|
Prospective adoption of ASU 2015-17, in the first quarter of 2016, resulted in the Company offsetting all of its deferred income
tax assets and liabilities, as of January 1, 2016, by taxing jurisdiction and classifying those balances as noncurrent. The result was
$4.1 million
being classified as "Other noncurrent assets," and a
$1.9 million
being classified as "Deferred income tax and other long-term liabilities." The offsetting of all of the Company's deferred income tax assets and liabilities as of December 31, 2016, by taxing jurisdiction, resulted in
$4.3 million
being classified as "Other noncurrent assets" and
$2.4 million
being classified as "Deferred income tax and other long-term liabilities."
At
December 31, 2016
, the Company had
$30.8 million
of pre-tax loss carryforwards in various foreign taxing jurisdictions, which includes approximately
$4.3 million
that were generated by the Company’s Beijing and Thailand subsidiaries that are in the process of liquidating. Tax loss carryforwards of
$1.5 million
,
$1.2 million
,
$1.7 million
,
$1.5 million
,
$0.3 million
,
$92 thousand
and
$0.3 million
will expire in 2017, 2018, 2019, 2020, 2021, 2022, and 2023 respectively, if not used. The remaining tax losses can be carried forward indefinitely.
At
December 31, 2016
, and
2015
, the Company had deferred tax valuation allowances of
$6.9 million
and
$7.6 million
, respectively. The valuation allowance decreased
$0.7 million
and
$0.8 million
for the years ended
December 31, 2016
and
2015
, respectively.
The Company does not provide for federal income taxes on the undistributed earnings of its international subsidiaries because such earnings are reinvested and, in the Company’s opinion, will continue to be reinvested indefinitely. At
December 31, 2016
,
2015
and
2014
, the Company had not provided for federal income taxes on undistributed earnings of
$57.7 million
,
$51.6 million
and
$45.6 million
, respectively, from its international subsidiaries. Should these earnings be distributed in the form of dividends or otherwise, the Company would be subject to both United States income taxes and withholding taxes in various international jurisdictions. These taxes may be partially offset by United States foreign tax credits. Determination of the related amount of unrecognized deferred United States income taxes is not practicable because of the complexities associated with this hypothetical calculation. United States federal income taxes are provided on the earnings of the Company’s foreign branches, which are included in the United States federal income tax return.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits in
2016
,
2015
and
2014
, respectively, was as follows, including foreign translation amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Unrecognized Tax Benefits
|
2016
|
|
2015
|
|
2014
|
Balance at January 1
|
$
|
1,107
|
|
|
$
|
1,307
|
|
|
$
|
3,456
|
|
Additions based on tax positions related to prior years
|
204
|
|
|
310
|
|
|
7
|
|
Reductions based on tax positions related to prior years
|
—
|
|
|
(514
|
)
|
|
(1,146
|
)
|
Additions for tax positions of the current year
|
155
|
|
|
191
|
|
|
165
|
|
|
—
|
|
|
—
|
|
|
(680
|
)
|
Lapse of statute of limitations
|
(347
|
)
|
|
(187
|
)
|
|
(495
|
)
|
Balance at December 31
|
$
|
1,119
|
|
|
$
|
1,107
|
|
|
$
|
1,307
|
|
There are
no
tax positions included in the balance of unrecognized tax benefits at
December 31, 2016
and
2014
. A tax position of
$0.2 million
is included at December 31, 2015, which, if recognized, would reduce the effective tax rate.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense, which is a continuation of the Company’s historical accounting policy. During the years ended
December 31, 2016
,
2015
and
2014
, accrued interest decreased by
$61 thousand
,
$30 thousand
and
$0.2 million
, respectively, as a result of the reversal of accrued interest associated with the lapses of statutes of limitations. The Company had accrued
$0.2 million
for each of the fiscal years ended
2016
,
2015
and
2014
, for the potential payment of interest, before income tax benefits.
At
December 31, 2016
, the Company remained subject to United States federal income tax examinations for the tax years 2013 through
2016
. In addition, the Company remained subject to state, local and foreign income tax examinations primarily for the tax years 2011 through
2016
.
The Company has
five
defined contribution retirement plans covering substantially all salaried employees and nonunion hourly employees. On January 1, 2015, the Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan for Salaried Employees was amended, restated and superseded by the Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan (the “Restated Plan”), and the Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan for Hourly Employees was merged with and incorporated into the Restated Plan. The Restated Plan, covering United States employees, provides for quarterly contributions, limited to
3%
of
the employees quarterly eligible compensation, that does not require Board approval and for annual contributions in amounts that the Board authorizes, subject to certain limitations, but in no event are total contributions more than the amounts permitted under the Internal Revenue Code as deductible expense. The other
four
plans, covering the Company’s European and Canadian employees, require the Company to make contributions ranging from
3%
to
15%
of the employees’ compensation. The total cost for these retirement plans for the years ended
December 31, 2016
,
2015
and
2014
, was
$10.1 million
,
$9.5 million
and
$8.0 million
, respectively.
The Company also contributes to various industry-wide, union-sponsored pension funds for hourly employees who are union members and a statutorily required pension fund for employees in Switzerland. Payments to these funds aggregated
$3.1 million
,
$2.5 million
and
$2.3 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Settlement of Pension Withdrawal Liability
Under the Company's collective bargaining arrangement with the tool and die craftsman and maintenance union, the Company has been contributing to a defined-benefit pension plan. In 2014, the Company and the union formally notified the defined-benefit pension plan administrator of their intent to withdraw from the plan. In the third quarter of 2014, the plan administrator responded by issuing a demand letter informing the Company that the annual withdrawal liability payment to be made by the Company was
$145,400
and the payments were to be made in perpetuity.
Due to the amount and duration of payments, the Company was required to calculate and record a pension expense and liability based on the annual payments in perpetuity. At December 31, 2014, the Company discounted the payment estimate using a discount rate of
4.5%
, which approximates the credit-adjusted risk-free rate for the Company and recorded a long-term liability of
$3.3 million
with a corresponding defined-benefit expense in cost of sales. On a quarterly basis, the Company re-evaluated the number of years that payments are required and the discount rate used to calculate the long-term liability and adjusted it as facts and circumstances changed. All adjustments to the long-term liability were charged to cost of sales in the accompanying Consolidated Statements of Operations. Because of the funding status of the plan, the annual withdrawal liability payments were recorded as interest expense on the long-term liability.
In September of 2015, the defined-benefit pension plan trustees and the Company agreed to settle this long-term pension withdrawal liability, which at the time had a
$3.0
million balance, for
$2.0
million. As a result of the settlement, the Company reduced the long-term pension withdrawal liability by
$1.0
million with a corresponding defined benefit expense reduction in cost of sales. The
$2.0
million long-term pension withdrawal liability was fully paid as of September 30, 2015.
|
|
12.
|
Related Party Transactions
|
In March 2013, the Company extended its lease on a property in Addison, Illinois, which is co-owned by Gerald Hagel, a vice president of Simpson Strong-Tie Company Inc. since March 2007. The extension was for an additional
five
years through 2018. The Company paid
$0.3 million
in 2016 to lease the property from Mr. Hagel and his wife, Susan Hagel, a former employee of Simpson Strong-Tie Company Inc.
In 2016, the Company paid Tacit Knowledge, Inc. ("Tacit Knowledge"), a consultant on a software implementation project,
$1.9 million
for its services. The project started in 2015 and is expected to be continuing in 2017. Chris Andrasick, the Company's Director James S. Andrasick’s son, co-founded Tacit Knowledge in 2002. Tacit Knowledge was sold to Newgistics, Inc. ("Newgistics") in 2013. Chris Andrasick was hired by Newgistics in 2013, as its Chief Strategy and Innovation Officer for Digital Commerce, but has had no financial interest in Tacit Knowledge since the 2013 acquisition, other than in his role as an officer of Newgistics. The payments that the Company made to Tacit Knowledge in 2016 were less than
0.5%
of Newgistics' consolidated gross revenues for the fiscal year ended December 31, 2016.
In 2016, Karen Colonias, the Company’s Chief Executive Officer, was named as a director of Reliance Steel & Aluminum Co. (“Reliance”). Reliance, through its subsidiaries, has been a provider of steel processing and handling services for the Company for several years. In 2016, the Company paid Reliance
$0.7 million
for its services. The relationship between the Company and Reliance is expected to be continuing in 2017.
|
|
13.
|
Stock-Based Compensation
|
The Company has
one
stock-based incentive plan, the 2011 Plan, which incorporates and supersedes its
two
previous plans except for awards previously granted under the two plans (see "Note 1 —
Accounting for Stock-Based Compensation
). Generally,
participants of the 2011 Plan are granted stock-based awards, and among which the performance-based awards may vest, only if the applicable Company-wide or profit-center operating goals, or both, or strategic goals, established by the Compensation and Leadership Development Committee (the "Committee") of the Board of Directors at the beginning of the year, are met.
The Company granted restricted stock units (“RSUs”) under the 2011 Plan in 2014, 2015 or 2016. The fair value of each restricted stock unit award is estimated on the measurement date as determined in accordance with GAAP and is based on the closing market price of the underlying stock on the day preceding the measurement date. The fair value excludes the present value of the dividends that the RSUs do not participate in. The RSUs may be time-based, performance-based or time- and performance-based. The restrictions on one quarter of the time-based RSUs generally lapse on the date of the award and each of the first, second and third anniversaries of the date of the award (the “Vesting Schedule”). The restrictions on the performance-based RSUs, which are made to the Company’s named executive officers and certain members of the Company’s senior management in addition to their time-based RSUs, generally lapse following a period set for the RSUs on the date of the award, and shares of the Company’s common stock underlying such awards are subject to performance-based adjustment before becoming vested. In addition, some of the time-based RSUs made to the Company’s employees require the underlying shares to be subject to performance-based adjustment before such awards may vest according to the Vesting Schedule.
On February 4, 2017,
616,679
RSUs were awarded to the Company's employees, including officers, at an estimated value of
$43.75
per share, based on the closing price on February 14, 2017. On April 20, 2016,
1,800
RSUs were awarded to each of the Company’s six non-employee directors at an estimated value of
$38.00
per share based on the closing price on April 19, 2016. There were no restrictions on the non-employee directors’ RSUs granted on April 20, 2016.
The following table summarizes the Company’s unvested restricted stock unit activity for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-
Average
Price
|
|
Aggregate
Intrinsic
Value *
(in thousands)
|
Unvested Restricted Stock Units (RSUs)
|
|
|
Outstanding at January 1, 2016
|
527
|
|
|
$
|
31.56
|
|
|
$
|
17,994
|
|
Awarded
|
442
|
|
|
31.98
|
|
|
|
|
Vested
|
(343
|
)
|
|
31.64
|
|
|
|
|
Forfeited
|
(11
|
)
|
|
32.02
|
|
|
|
|
Outstanding at December 31, 2016
|
615
|
|
|
$
|
31.81
|
|
|
$
|
26,915
|
|
Outstanding and expected to vest at December 31, 2016
|
601
|
|
|
$
|
31.81
|
|
|
$
|
26,282
|
|
* The intrinsic value is calculated using the closing price per share of
$43.75
, as reported by the New York Stock Exchange on
December 31, 2016
.
The total intrinsic value of RSUs vested during the years ended
December 31, 2016
,
2015
and
2014
was
$10.8 million
,
$10.3 million
and
$9.1 million
respectively, based on the market value on the award date.
No
stock options were granted under the 2011 Plan in
2014
,
2015
or
2016
.
The following table summarizes the Company’s stock option activity for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value*
(in thousands)
|
Non-Qualified Stock Options
|
|
|
|
Outstanding at January 1, 2016
|
523
|
|
|
$
|
29.55
|
|
|
2.1
|
|
$
|
2,406
|
|
Exercised
|
(271
|
)
|
|
$
|
29.48
|
|
|
|
|
|
|
Forfeited
|
(1
|
)
|
|
$
|
21.25
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2016
|
251
|
|
|
$
|
29.66
|
|
|
1.1
|
|
$
|
3,538
|
|
* The intrinsic value represents the amount by which the fair market value of the underlying common stock exceeds the exercise price of the option, and is calculated using the closing price per share of
$43.75
, as reported by the New York Stock Exchange on
December 31, 2016
.
The total intrinsic value of stock options exercised during each of the three years ended
December 31, 2016
,
2015
and
2014
, was
$3.1 million
,
$2.4 million
and
$0.8 million
, respectively.
As of January 1, 2015, there were
99 thousand
unvested stock options with a weighted average grant-date fair value of
$10.33
per share. These stock options vested in the first quarter of 2015 and, as of
December 31, 2016
, the Company had
no
unvested stock options.
As of
December 31, 2016
, there was
$24.8 million
total unrecognized compensation cost related to unvested stock-based compensation arrangements under the 2011 Plan for awards made through February 2016 and those expected to be made through February 2017. The portion of this cost related to RSUs awarded through February 2016 is expected to be recognized over a weighted-average period of
1.7
years
.
The Company also maintains an employee stock bonus plan (the "Stock Bonus Plan"), which was adopted in 1994, amended on December 7, 2015, and approved by the Company's stockholders on April 20, 2016, whereby it awards shares of the Company's common stock to employees, who do not otherwise participate in any of the Company’s stock-based incentive plans and meet minimum service requirements as determined by the Committee. The number of shares awarded, as well as the period of service, is determined by the Committee. The Company committed to issuing
12 thousand
shares for
2016
(
3 thousand
of which are expected to be settled in cash for the Company's foreign employees) and issued
10 thousand
and
16 thousand
shares for
2015
and
2014
, respectively, which resulted in pre-tax compensation charges of
$0.8 million
,
$0.7 million
and
$0.9 million
for each of the years ended
December 31, 2016
,
2015
and
2014
, respectively. These employees are also awarded cash bonuses, which are included in these charges, to compensate for their income taxes payable as a result of the stock bonuses. Shares have generally been issued under the Stock Bonus Plan following the year in which the respective employee reached his or her
ten
th anniversary of employment with the Company.
The Company is organized into
three
reporting segments. The segments are defined by the regions where the Company’s products are manufactured, marketed and distributed to the Company’s customers. The three regional segments are the North America segment (comprising primarily the Company's operations in the United States and Canada), the Europe segment and the Asia/Pacific segment (comprising the Company’s operations in Asia, the South Pacific, South Africa and the Middle East). These segments are similar in several ways, including the types of materials used, the production processes, the distribution channels and the product applications.
The Administrative & All Other column primarily includes expenses such as self-insured workers compensation claims for employees of the Company’s venting business, which was sold in 2010, stock-based compensation for certain members of management, interest expense, foreign exchange gains or losses and income tax expense, as well as revenues and expenses related to real estate activities, such as rental income and depreciation expense on the Company’s property in Vacaville, California, which the Company has leased to a third party for a
10
-year term expiring in August 2020.
The following table shows certain measurements used by management to assess the performance of the segments described above as of
December 31, 2016
,
2015
and
2014
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
North
America
|
|
Europe
|
|
Asia/
Pacific
|
|
Administrative
& All Other
|
|
Total
|
2016
|
|
|
|
|
Net sales
|
$
|
742,021
|
|
|
$
|
111,274
|
|
|
$
|
7,366
|
|
|
$
|
—
|
|
|
$
|
860,661
|
|
Sales to other segments *
|
2,512
|
|
|
570
|
|
|
28,690
|
|
|
—
|
|
|
31,772
|
|
Income (loss) from operations
|
137,311
|
|
|
895
|
|
|
2,140
|
|
|
(869
|
)
|
|
139,477
|
|
Depreciation and amortization
|
19,433
|
|
|
5,809
|
|
|
1,208
|
|
|
1,477
|
|
|
27,927
|
|
Significant non-cash charges
|
9,124
|
|
|
1,052
|
|
|
113
|
|
|
3,657
|
|
|
13,946
|
|
Provision for income taxes
|
45,547
|
|
|
1,428
|
|
|
721
|
|
|
1,470
|
|
|
49,166
|
|
Capital expenditures and business acquisitions, net of
cash acquired
|
37,652
|
|
|
8,461
|
|
|
1,250
|
|
|
—
|
|
|
47,363
|
|
Total assets
|
853,826
|
|
|
165,121
|
|
|
25,118
|
|
|
(64,091
|
)
|
|
979,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
North
America
|
|
Europe
|
|
Asia/
Pacific
|
|
Administrative
& All Other
|
|
Total
|
2015
|
|
|
|
|
Net sales
|
$
|
676,618
|
|
|
$
|
108,068
|
|
|
$
|
9,373
|
|
|
$
|
—
|
|
|
$
|
794,059
|
|
Sales to other segments *
|
2,857
|
|
|
931
|
|
|
20,496
|
|
|
—
|
|
|
24,284
|
|
Income (loss) from operations
|
109,446
|
|
|
3,795
|
|
|
(3,445
|
)
|
|
(775
|
)
|
|
109,021
|
|
Depreciation and amortization
|
17,812
|
|
|
5,773
|
|
|
1,785
|
|
|
1,451
|
|
|
26,821
|
|
Significant non-cash charges
|
8,221
|
|
|
1,251
|
|
|
131
|
|
|
2,355
|
|
|
11,958
|
|
Provision for income taxes
|
36,999
|
|
|
1,692
|
|
|
581
|
|
|
1,519
|
|
|
40,791
|
|
Capital expenditures and asset acquisitions, net of
cash acquired
|
33,336
|
|
|
4,177
|
|
|
825
|
|
|
27
|
|
|
38,365
|
|
Total assets
|
748,241
|
|
|
168,305
|
|
|
24,366
|
|
|
20,397
|
|
|
961,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
North
America
|
|
Europe
|
|
Asia/
Pacific
|
|
Administrative
& All Other
|
|
Total
|
2014
|
|
|
|
|
Net sales
|
$
|
613,843
|
|
|
$
|
123,177
|
|
|
$
|
15,128
|
|
|
$
|
—
|
|
|
$
|
752,148
|
|
Sales to other segments *
|
4,134
|
|
|
1,170
|
|
|
17,933
|
|
|
—
|
|
|
23,237
|
|
Income (loss) from operations
|
94,888
|
|
|
5,005
|
|
|
(1,566
|
)
|
|
949
|
|
|
99,276
|
|
Depreciation and amortization
|
18,129
|
|
|
6,755
|
|
|
1,554
|
|
|
1,480
|
|
|
27,918
|
|
Impairment of long-lived asset
|
—
|
|
|
530
|
|
|
—
|
|
|
—
|
|
|
530
|
|
Significant non-cash charges
|
9,722
|
|
|
1,164
|
|
|
203
|
|
|
2,101
|
|
|
13,190
|
|
Provision for (benefit from) income taxes
|
30,287
|
|
|
2,437
|
|
|
882
|
|
|
2,185
|
|
|
35,791
|
|
Capital expenditures and asset acquisitions, net of
cash acquired
|
20,160
|
|
|
2,977
|
|
|
798
|
|
|
—
|
|
|
23,935
|
|
Total assets
|
679,844
|
|
|
180,005
|
|
|
29,552
|
|
|
83,664
|
|
|
973,065
|
|
* Sales to other segments are eliminated on consolidation.
Cash collected by the Company’s United States subsidiaries is routinely transferred into the Company’s cash management accounts, and therefore has been included in the total assets of “Administrative & All Other.” Cash and short-term investment balances in “Administrative & All Other” were
$137.4 million
,
$164.1 million
and
$167.4 million
as of
December 31, 2016
,
2015
and
2014
, respectively. As of
December 31, 2016
, the Company had
$87.2 million
, or
38.5%
, of its cash and cash equivalents held outside the United States in accounts belonging to the Company’s various foreign operating entities. The majority of this balance is held in foreign currencies and could be subject to additional taxation if it were repatriated to the United States. The Company currently has no plans to repatriate cash and cash equivalents held outside the United States as the Company expects to use such funds for future international growth and acquisitions.
The significant non-cash charges comprise compensation related to the awards under the Company's stock-based incentive plans and the Company's employee stock bonus plan. The Company’s measure of profit or loss for its reportable segments is income (loss) from operations. The reconciling amounts between consolidated income before tax and consolidated income from operations are net interest income, which is primarily attributed to “Administrative & All Other.”
The following table shows the geographic distribution of the Company’s net sales and long-lived assets as of
December 31, 2016
,
2015
and
2014
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
(in thousands)
|
Net
Sales
|
|
Long-Lived
Assets
|
|
Net
Sales
|
|
Long-Lived
Assets
|
|
Net
Sales
|
|
Long-Lived
Assets
|
United States
|
$
|
702,071
|
|
|
$
|
192,787
|
|
|
$
|
639,443
|
|
|
$
|
171,367
|
|
|
$
|
572,112
|
|
|
$
|
158,161
|
|
Canada
|
38,269
|
|
|
4,473
|
|
|
36,122
|
|
|
4,275
|
|
|
40,996
|
|
|
5,195
|
|
Denmark
|
15,728
|
|
|
1,249
|
|
|
14,987
|
|
|
1,381
|
|
|
15,121
|
|
|
1,518
|
|
United Kingdom
|
20,905
|
|
|
1,183
|
|
|
22,924
|
|
|
1,357
|
|
|
24,893
|
|
|
1,377
|
|
France
|
33,062
|
|
|
8,349
|
|
|
31,147
|
|
|
8,621
|
|
|
37,312
|
|
|
8,145
|
|
Germany
|
20,751
|
|
|
12,582
|
|
|
19,974
|
|
|
13,358
|
|
|
27,202
|
|
|
15,379
|
|
Switzerland
|
6,549
|
|
|
8,469
|
|
|
5,538
|
|
|
9,071
|
|
|
4,960
|
|
|
9,506
|
|
Poland
|
6,633
|
|
|
1,830
|
|
|
6,417
|
|
|
893
|
|
|
7,491
|
|
|
1,071
|
|
The Netherlands
|
4,909
|
|
|
21
|
|
|
4,773
|
|
|
15
|
|
|
4,539
|
|
|
30
|
|
Belgium
|
1,286
|
|
|
1,798
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
China/Hong Kong
|
151
|
|
|
6,881
|
|
|
4,097
|
|
|
7,510
|
|
|
9,646
|
|
|
8,966
|
|
Australia
|
4,741
|
|
|
239
|
|
|
3,121
|
|
|
274
|
|
|
3,245
|
|
|
267
|
|
New Zealand
|
2,474
|
|
|
163
|
|
|
2,154
|
|
|
142
|
|
|
2,237
|
|
|
82
|
|
Chile
|
1,572
|
|
|
56
|
|
|
902
|
|
|
91
|
|
|
573
|
|
|
149
|
|
Other countries
|
1,560
|
|
|
590
|
|
|
2,460
|
|
|
731
|
|
|
1,821
|
|
|
929
|
|
|
$
|
860,661
|
|
|
$
|
240,670
|
|
|
$
|
794,059
|
|
|
$
|
219,086
|
|
|
$
|
752,148
|
|
|
$
|
210,775
|
|
Net sales and long-lived assets, net of intangible assets, are attributable to the country where the sales or manufacturing operations are located.
Wood construction products include connectors, truss plates, fastening systems, fasteners and pre-fabricated shearwalls and are used for connecting and strengthening wood-based construction primarily in the residential construction market. Concrete construction products include adhesives, specialty chemicals, mechanical anchors, carbide drill bits, powder actuated tools and reinforcing fiber materials and are used for restoration, protection or strengthening concrete, masonry and steel construction in residential, industrial, commercial and infrastructure construction. The following table show the distribution of the Company’s net sales by product for the years ended
December 31, 2016
,
2015
and
2014
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
Wood Construction
|
$
|
732,414
|
|
|
$
|
674,274
|
|
|
$
|
636,003
|
|
Concrete Construction
|
128,247
|
|
|
119,481
|
|
|
115,921
|
|
Other
|
—
|
|
|
304
|
|
|
224
|
|
Total
|
$
|
860,661
|
|
|
$
|
794,059
|
|
|
$
|
752,148
|
|
No customer accounted for as much as 10% of net sales for the years ended
December 31, 2016
,
2015
and
2014
.
Dividend Declaration
At its meeting on
January 30, 2017
, the Company’s Board of Directors declared a cash dividend of
$0.18
per share of our common stock, estimated to be
$8.6 million
in total. The record date for the dividend will be
April 6, 2017
, and it will be paid on
April 27, 2017
.
Acquisition of Gbo Fastening Systems AB
On
January 3, 2017
, the Company acquired Gbo Fastening Systems AB ("Gbo Fastening Systems"), a Sweden limited company, for approximately
$10.2 million
. Gbo Fastening Systems manufacturers and sells a complete line of CE-marked structural fasteners, unique fastener dimensioning software for wood construction applications currently sold mostly in northern and eastern Europe, which is expected to complement the Company's line of wood construction products in Europe.
Acquisition of CG Visions, Inc.
On
January 9, 2017
, the Company acquired CG Visions, Inc. ("CG Visions"), an Indiana company, for up to approximately
$21.5 million
, including an earn-out of
$2.15 million
, which is subject to meeting sales targets, and subject to specified holdback provisions and post-closing adjustment. CG Visions provides scalable technologies and services in building information modeling ("BIM") technologies, estimation tools and software solutions to a number of the top 100 mid-sized to large builders in the United States, which will complement and support the Company's sales in North America.
Both acquisition transactions will be recorded as business combinations in accordance with the business acquisition method. Because the transactions were so recent, the Company is in the process of evaluating the information required to determine the preliminary purchase allocation for each acquisition.
|
|
16.
|
Selected Quarterly Financial Data (Unaudited)
|
The following table sets forth selected quarterly financial data for each of the quarters in
2016
and
2015
, respectively:
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
200,192
|
|
|
$
|
230,974
|
|
|
$
|
229,973
|
|
|
$
|
199,523
|
|
|
$
|
184,764
|
|
|
$
|
216,139
|
|
|
$
|
216,665
|
|
|
$
|
176,491
|
|
Cost of sales
|
105,226
|
|
|
117,499
|
|
|
118,486
|
|
|
107,000
|
|
|
102,002
|
|
|
115,798
|
|
|
118,347
|
|
|
98,993
|
|
Gross profit
|
94,966
|
|
|
113,475
|
|
|
111,487
|
|
|
92,523
|
|
|
82,762
|
|
|
100,341
|
|
|
98,318
|
|
|
77,498
|
|
Research and development and other engineering
|
12,441
|
|
|
10,932
|
|
|
11,452
|
|
|
11,423
|
|
|
11,548
|
|
|
13,935
|
|
|
10,517
|
|
|
10,197
|
|
Selling
|
24,030
|
|
|
24,304
|
|
|
24,822
|
|
|
25,187
|
|
|
22,508
|
|
|
22,535
|
|
|
23,013
|
|
|
22,607
|
|
General and administrative
|
32,376
|
|
|
32,543
|
|
|
34,945
|
|
|
29,298
|
|
|
26,553
|
|
|
28,648
|
|
|
29,794
|
|
|
28,433
|
|
Impairment of goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on sale of assets
|
(17
|
)
|
|
(81
|
)
|
|
(656
|
)
|
|
(26
|
)
|
|
(332
|
)
|
|
(26
|
)
|
|
(15
|
)
|
|
(16
|
)
|
Income from operations
|
26,136
|
|
|
45,777
|
|
|
40,924
|
|
|
26,641
|
|
|
22,485
|
|
|
35,249
|
|
|
35,009
|
|
|
16,277
|
|
Interest expense, net
|
(177
|
)
|
|
(82
|
)
|
|
(83
|
)
|
|
(235
|
)
|
|
(77
|
)
|
|
(175
|
)
|
|
(54
|
)
|
|
(35
|
)
|
Income before income taxes
|
25,959
|
|
|
45,695
|
|
|
40,841
|
|
|
26,406
|
|
|
22,408
|
|
|
35,074
|
|
|
34,955
|
|
|
16,242
|
|
Provision for
income taxes
|
8,565
|
|
|
15,898
|
|
|
14,640
|
|
|
10,063
|
|
|
7,675
|
|
|
13,479
|
|
|
13,446
|
|
|
6,191
|
|
Net income
|
$
|
17,394
|
|
|
$
|
29,797
|
|
|
$
|
26,201
|
|
|
$
|
16,343
|
|
|
$
|
14,733
|
|
|
$
|
21,595
|
|
|
$
|
21,509
|
|
|
$
|
10,051
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.37
|
|
|
$
|
0.62
|
|
|
$
|
0.54
|
|
|
$
|
0.34
|
|
|
$
|
0.30
|
|
|
$
|
0.44
|
|
|
$
|
0.44
|
|
|
$
|
0.20
|
|
Diluted
|
0.36
|
|
|
0.62
|
|
|
0.54
|
|
|
0.34
|
|
|
0.30
|
|
|
0.44
|
|
|
0.43
|
|
|
0.20
|
|
Cash dividends declared per
common share
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.14
|
|
Basic and diluted income per common share for each of the quarters presented above is based on the respective weighted average numbers of common and dilutive potential common shares outstanding for each quarter, and the sum of the quarters may not necessarily be equal to the full year basic and diluted net income per common share amounts
.