Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
At
June 30,
2016
and
2017
, and December 31,
2016
(In thousands except per-share amounts, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
Treasury
|
|
|
|
Shares
|
|
Par Value
|
|
Capital
|
|
Earnings
|
|
Income (Loss)
|
|
Stock
|
|
Total
|
Balance at January 1, 2016
|
48,184
|
|
|
$
|
481
|
|
|
$
|
238,212
|
|
|
$
|
639,707
|
|
|
$
|
(28,576
|
)
|
|
$
|
—
|
|
|
$
|
849,824
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
42,544
|
|
|
—
|
|
|
—
|
|
|
42,544
|
|
Translation adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,011
|
|
|
—
|
|
|
5,011
|
|
Options exercised
|
86
|
|
|
1
|
|
|
2,524
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,525
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
5,951
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,951
|
|
Tax benefit of options exercised
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
Shares issued from release of Restricted Stock Units
|
215
|
|
|
2
|
|
|
(3,975
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,973
|
)
|
Repurchase of common stock
|
(106
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,502
|
)
|
|
(3,502
|
)
|
Cash dividends declared on common stock, $0.34 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,438
|
)
|
|
—
|
|
|
—
|
|
|
(16,438
|
)
|
Common stock issued at $32.45 per share for stock bonus
|
10
|
|
|
—
|
|
|
315
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
315
|
|
Balance at June 30, 2016
|
48,389
|
|
|
484
|
|
|
243,046
|
|
|
665,813
|
|
|
(23,565
|
)
|
|
(3,502
|
)
|
|
882,276
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
47,190
|
|
|
—
|
|
|
|
|
|
47,190
|
|
Translation adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,931
|
)
|
|
—
|
|
|
(8,931
|
)
|
Pension adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(474
|
)
|
|
—
|
|
|
(474
|
)
|
Options exercised
|
184
|
|
|
2
|
|
|
5,449
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,451
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
7,235
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,235
|
|
Tax benefit of options exercised
|
—
|
|
|
—
|
|
|
232
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
232
|
|
Shares issued from release of Restricted Stock Units
|
2
|
|
|
—
|
|
|
(45
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(45
|
)
|
Repurchase of common stock
|
(1,138
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50,000
|
)
|
|
(50,000
|
)
|
Retirement of common stock
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(53,489
|
)
|
|
—
|
|
|
53,502
|
|
|
—
|
|
Cash dividends declared on common stock, $0.36 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,092
|
)
|
|
—
|
|
|
—
|
|
|
(17,092
|
)
|
Balance at December 31, 2016
|
47,437
|
|
|
473
|
|
|
255,917
|
|
|
642,422
|
|
|
(32,970
|
)
|
|
—
|
|
|
865,842
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
51,335
|
|
|
—
|
|
|
—
|
|
|
51,335
|
|
Translation adjustment, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,949
|
|
|
—
|
|
|
13,949
|
|
Options exercised
|
44
|
|
|
—
|
|
|
1,297
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,297
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
10,337
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,337
|
|
Shares issued from release of Restricted Stock Units
|
208
|
|
|
2
|
|
|
(5,157
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,155
|
)
|
Repurchase of common stock
|
(425
|
)
|
|
—
|
|
|
(2,456
|
)
|
|
—
|
|
|
—
|
|
|
(17,544
|
)
|
|
(20,000
|
)
|
Cash dividends declared on common stock, $0.39 per share
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,606
|
)
|
|
—
|
|
|
—
|
|
|
(18,606
|
)
|
Common stock issued at $44.26 per share for stock bonus
|
9
|
|
|
—
|
|
|
412
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
412
|
|
Balance at June 30, 2017
|
47,273
|
|
|
$
|
475
|
|
|
$
|
260,350
|
|
|
$
|
675,151
|
|
|
$
|
(19,021
|
)
|
|
$
|
(17,544
|
)
|
|
$
|
899,411
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements
6
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
June 30,
|
|
2017
|
|
2016
|
Cash flows from operating activities
|
|
|
|
|
|
Net income
|
$
|
51,335
|
|
|
$
|
42,544
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Gain on sale of assets
|
—
|
|
|
(682
|
)
|
Depreciation and amortization
|
16,395
|
|
|
14,878
|
|
Write-off of software development project
|
—
|
|
|
153
|
|
Loss in equity method investment, before tax
|
41
|
|
|
—
|
|
Gain on bargain purchase of a business
|
(8,388
|
)
|
|
—
|
|
Deferred income taxes
|
1,183
|
|
|
1,512
|
|
Noncash compensation related to stock plans
|
11,185
|
|
|
6,323
|
|
Excess tax benefit of options exercised and restricted stock units vested
|
—
|
|
|
(41
|
)
|
Recovery of doubtful accounts
|
(25
|
)
|
|
(171
|
)
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
Trade accounts receivable
|
(52,132
|
)
|
|
(39,030
|
)
|
Inventories
|
(16,403
|
)
|
|
(22,043
|
)
|
Trade accounts payable
|
2,816
|
|
|
6,203
|
|
Income taxes payable
|
(2,454
|
)
|
|
8,187
|
|
Accrued profit sharing trust contributions
|
(2,408
|
)
|
|
(2,102
|
)
|
Accrued cash profit sharing and commissions
|
3,635
|
|
|
7,105
|
|
Other current assets
|
(255
|
)
|
|
(849
|
)
|
Accrued liabilities
|
2,739
|
|
|
(148
|
)
|
Long-term liabilities
|
875
|
|
|
(3,423
|
)
|
Accrued workers’ compensation
|
221
|
|
|
(439
|
)
|
Other noncurrent assets
|
(633
|
)
|
|
3,739
|
|
Net cash provided by operating activities
|
7,727
|
|
|
21,716
|
|
Cash flows from investing activities
|
|
|
|
|
|
Capital expenditures
|
(32,288
|
)
|
|
(17,549
|
)
|
Asset acquisitions, net of cash acquired
|
(26,289
|
)
|
|
—
|
|
Proceeds from sale of property and equipment
|
86
|
|
|
1,198
|
|
Net cash used in investing activities
|
(58,491
|
)
|
|
(16,351
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
Deferred and contingent consideration paid for asset acquisition
|
(205
|
)
|
|
(27
|
)
|
Repurchase of common stock
|
(20,000
|
)
|
|
(3,502
|
)
|
Capital lease borrowings
|
2,135
|
|
|
—
|
|
Repayment of debt and line of credit borrowings
|
(133
|
)
|
|
—
|
|
Issuance of common stock
|
1,297
|
|
|
2,525
|
|
Excess tax benefit of options exercised and restricted stock units vested
|
—
|
|
|
41
|
|
Dividends paid
|
(17,116
|
)
|
|
(15,442
|
)
|
Cash paid on behalf of employees for shares withheld
|
(5,155
|
)
|
|
(3,973
|
)
|
Net cash used in financing activities
|
(39,177
|
)
|
|
(20,378
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
4,354
|
|
|
2,525
|
|
Net decrease in cash and cash equivalents
|
(85,587
|
)
|
|
(12,488
|
)
|
Cash and cash equivalents at beginning of period
|
226,537
|
|
|
258,825
|
|
Cash and cash equivalents at end of period
|
$
|
140,950
|
|
|
$
|
246,337
|
|
Noncash activity during the period
|
|
|
|
|
|
Noncash capital expenditures
|
$
|
3,938
|
|
|
$
|
1,017
|
|
Dividends declared but not paid
|
$
|
9,927
|
|
|
$
|
8,712
|
|
Contingent consideration for acquisition
|
1,000
|
|
|
—
|
|
Issuance of Company’s common stock for compensation
|
$
|
412
|
|
|
$
|
315
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements
7
Simpson Manufacturing Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries (collectively, the “Company”). There were no investments in affiliates that would render such affiliates to be considered variable interest entities. All significant intercompany transactions have been eliminated.
Interim Period Reporting
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These interim statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
.
The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial information set forth therein, in accordance with GAAP. The year-end condensed consolidated balance sheet data provided herein were derived from audited financial statements, but do not include all disclosures required by GAAP. The Company’s quarterly results fluctuate. As a result, the Company believes the results of operations for this interim period presented are not indicative of the results to be expected for any future periods.
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, and title is transferred and revenue is recognized when the products are shipped to customers. When the Company sells F.O.B. destination point, title is transferred and the Company recognizes revenue on delivery or customer acceptance, depending on terms of the sales agreement. Service sales, representing after-market repair and maintenance, engineering activities and software license sales and services, though less than
1.0%
net sales and not material to the condensed consolidated financial statements, are recognized as the services are completed or the software products and services are delivered. If actual costs of sales returns, incentives and discounts were to significantly exceed the recorded estimated allowance, the Company’s sales would be adversely affected.
Net Earnings Per Common Share
Basic earnings per common share are computed based on the weighted-average number of common shares outstanding. Potentially dilutive securities, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.
The following is a reconciliation of basic earnings per common share to diluted earnings per share for the
three months and six
months ended
June 30,
2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in thousands, except per share amounts)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income available to common stockholders
|
$
|
28,214
|
|
|
$
|
26,201
|
|
|
$
|
51,335
|
|
|
$
|
42,544
|
|
Basic weighted-average shares outstanding
|
47,634
|
|
|
48,399
|
|
|
47,634
|
|
|
48,353
|
|
Dilutive effect of potential common stock equivalents — stock options and restricted stock units
|
286
|
|
|
206
|
|
|
288
|
|
|
180
|
|
Diluted weighted-average shares outstanding
|
47,920
|
|
|
48,605
|
|
|
47,922
|
|
|
48,533
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.59
|
|
|
$
|
0.54
|
|
|
$
|
1.08
|
|
|
$
|
0.88
|
|
Diluted
|
$
|
0.59
|
|
|
$
|
0.54
|
|
|
$
|
1.07
|
|
|
$
|
0.88
|
|
Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
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 originally adopted on April 26, 2011 and was subsequently 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 were not affected by the adoption of the 2011 Plan and continued 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 stock options under each of the 1994 Plan and the 1995 Plan once every year. Stock 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
. Stock options granted under the 1995 Plan typically fully vest 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 ("RSUs"), although the Company currently intends to award primarily performance-based and/or time-based RSUs and to a lesser extent, if at all, non-qualified stock options (see "Note 9 Stock-Based Incentive Plans") to its employees. The Company currently intends to grant RSUs that vest on the date of grant to its independent directors. 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 may be issued under the 2011 Plan, including shares already issued pursuant to prior awards and 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 adjustments, the following limits shall apply with respect to any awards under the 2011 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 represents the Company’s stock-based compensation activity for the
three months and six
months ended
June 30,
2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Stock-based compensation expense recognized in operating expenses
|
$
|
2,986
|
|
|
$
|
3,373
|
|
|
$
|
10,572
|
|
|
$
|
5,853
|
|
Less: Tax benefit of stock-based compensation expense in provision for income taxes
|
1,079
|
|
|
1,204
|
|
|
3,870
|
|
|
2,122
|
|
Stock-based compensation expense, net of tax
|
$
|
1,907
|
|
|
$
|
2,169
|
|
|
$
|
6,702
|
|
|
$
|
3,731
|
|
Fair value of shares vested
|
$
|
2,687
|
|
|
$
|
3,601
|
|
|
$
|
10,337
|
|
|
$
|
5,951
|
|
Proceeds to the Company from the exercise of stock-based compensation
|
$
|
983
|
|
|
$
|
1,512
|
|
|
$
|
1,297
|
|
|
$
|
2,525
|
|
Tax effect from the exercise of stock-based compensation, including shortfall tax benefits
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
19
|
|
The Company allocates stock-based compensation expenses among cost of sales, research and development and other engineering expense, selling expense, or general and administrative expense based on the job functions performed by the employees to whom the stock-based compensation is awarded. The assumptions used to calculate the fair value of stock-based compensation are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience. Stock-based compensation capitalized in inventory was
$0.2 million
and
$0.5 million
as of
June 30, 2017
and
2016
, respectively.
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; and 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 and
June 30,
2017, the Company’s investments consisted of only money market funds, and as of June 30, 2016, 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 balances of the Company's primary financial instruments at the dates indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
At December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2016
|
United States Treasury securities and money market funds
|
$
|
3,438
|
|
|
$
|
35,043
|
|
|
$
|
2,832
|
|
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. As of June 30, 2017, we estimated the fair value of the contingent consideration related to the acquisition of CG Visions, Inc. ("CG Visions"), an Indiana company, to be
$1.0 million
, using a customized Monte Carlo model under the Option Pricing method based on the probability calculation of attaining projected sales.
Income Taxes
The Company uses an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in each interim period. The following table presents the Company’s effective tax rates and income tax expense for the
three months and six
months ended
June 30,
2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands, except percentages)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Effective tax rate
|
37.2
|
%
|
|
35.8
|
%
|
|
32.2
|
%
|
|
36.7
|
%
|
Provision for income taxes
|
$
|
16,712
|
|
|
$
|
14,640
|
|
|
$
|
24,392
|
|
|
$
|
24,703
|
|
For the six months ended June 30, 2017, the Company's effective income tax rate decreased to
32.2%
from
36.7%
. The decrease was primarily due to a nonrecurring gain on a bargain purchase related to the Gbo Fastening Systems acquisition (see "Gain on Bargain Purchase" below), which was not taxable, and the adoption of FASB Accounting Standards Update No. 2016-09 in January 1, 2017 (see "Recently Adopted Accounting Standards" below), which recognizes the excess tax benefits of stock-based awards as a reduction to income tax expense instead of the previous methodology which recorded the benefit on the balance sheets as a component of stockholders' equity.
Acquisitions
Under the business combinations topic of the FASB ASC 805, the Company accounts for acquisitions as business combinations and ascribes acquisition-date fair values to the acquired assets and assumed liabilities. Provisional fair value measurements are made at the time of the acquisitions. Adjustments to those measurements may be made in subsequent periods, up to
one
year from the acquisition date, as information necessary to complete the analysis is obtained. Fair value of intangible assets are generally based on Level 3 inputs.
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
, noncurrent assets of
$5.0 million
, current liabilities of
$0.7 million
and noncurrent deferred income tax liabilities of
$1.0 million
. Included in noncurrent 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.
In January 2017, the Company acquired CG Visions for up to approximately
$20.8 million
subject to specified holdback provisions and post-closing adjustments. 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 are expected to complement and support the Company's sales in North America. The Company's provisional measurement of assets acquired and liabilities assumed included other current assets of
$0.5 million
, noncurrent assets of
$20.4 million
, current liabilities of
$0.07 million
and contingent consideration of
$1.1 million
. Included in noncurrent assets was goodwill of
$10.1 million
, which was assigned to the North America segment, and intangible assets of
$10.3 million
, both of which are not subject to tax-deductible amortization. The estimated weighted-average amortization period for the intangible assets is
7
years.
In January 2017, the Company acquired Gbo Fastening Systems AB ("Gbo Fastening Systems"), a Sweden limited company, for approximately
$10.2 million
. Gbo Fastening Systems manufactures and sells a complete line of CE-marked structural fasteners as well as fastener dimensioning software for wood construction applications, currently sold mostly in northern and eastern Europe, which are expected to complement the Company's line of wood construction products in Europe.
The results of operations of businesses acquired in 2016 through 2017 were included in the Company’s condensed consolidated results of operations since the date of the applicable acquisition. Such businesses are not material to the Company on an individual or aggregate basis, and accordingly, pro forma results of operations are not presented.
Gain on Bargain Purchase
The Company recorded a preliminary nontaxable bargain purchase gain of
$8.4 million
, which was included in the condensed consolidated statements of operations. This nonrecurring bargain purchase gain represents an estimate of the excess fair value of the net assets acquired over the consideration exchanged as of the acquisition date. The fair value measurement and recognition of the assets acquired and liabilities assumed were based on preliminary purchase price allocation and pro forma data for future periods, without speculating as to the seller's motivation. The Company concluded that the valuation procedures and resulting measures, including when repeated, appropriately reflect consideration of all available information as of the acquisition date.
The following table represents the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date of the Gbo Fastening Systems acquisition:
|
|
|
|
|
|
(In thousands)
|
|
Assets
*
|
|
|
Cash and cash equivalents
|
$
|
3,956
|
|
|
Accounts receivable
|
4,914
|
|
|
Inventory
|
13,063
|
|
|
Other current assets
|
760
|
|
|
Property, plant, equipment and noncurrent assets
|
5,744
|
|
|
|
28,437
|
|
Liabilities
|
|
|
Accounts payable
|
4,500
|
|
|
Other current liabilities
|
5,381
|
|
|
|
9,881
|
|
|
|
|
Total net assets
|
18,556
|
|
|
Gain on bargain purchase of a business, net of tax
|
(8,388
|
)
|
|
Total purchase price
|
$
|
10,168
|
|
*
|
Intangible assets acquired were determined to have little to no value, thus were not recognized.
|
The Company believes it is possible that during the preliminary measurement period or after the final purchase price allocation is determined, the fair value measurement of acquired assets or liabilities could change, which could affect the estimated
$8.4 million
provisional gain.
Recently Adopted Accounting Standards
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718),
Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09")
,
which amends existing guidance related to accounting for employee share-based payments affecting the income tax consequences of awards, classification of awards as equity or liabilities, and classification on 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, with early adoption permitted. On January 1, 2017, the Company adopted ASU 2016-09.
This new guidance requires all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement and classified as an operating activity in the statement of cash flows. The Company prospectively adopted this guidance with the tax impact of a
$1.1 million
tax benefit recognized in the consolidated income statements and classified it as an operating activity in the consolidated statement of cash flows. The guidance also requires a policy election either to estimate the
number of awards that are expected to vest or to account for forfeitures whenever they occur. The Company did not change its policy for calculating accrual compensation costs by estimating the number of awards that are expected to vest. Therefore, when the Company adopted this guidance, there was no recognized cumulative effect adjustment to retained earnings. In addition, this guidance requires cash paid by an employer, when directly withholding shares for tax withholding purposes, to be classified in the statement of cash flows as a financing activity, which differs from the Company's previous method of classification of such cash payments as an operating activity. Accordingly, the Company applied this provision retrospectively and for the six months ended June 30, 2017 and 2016 and reclassified
$5.2 million
and
$4.0 million
, respectively, from operating activities to financing activities in the condensed consolidated statements of cash flows.
In March 2016, the FASB issued Accounting Standards Update No. 2016-07,
Simplifying the Transition to the Equity Method of Accountin
g ("ASU 2016-07"), which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. The amendments in ASU 2016-07 are effective for public companies for fiscal years beginning after December 15, 2016, including interim periods therein, with early adoption permitted. The new standard should be applied prospectively for investments that qualify for the equity method of accounting after the effective date. On January 1, 2017, the Company prospectively adopted ASU 2016-07. Adoption of ASU 2016-07 has had no material effect on the Company's consolidated financial statements and footnote disclosures.
In January 2017, the FASB issued Accounting Standards Updated No. 2017-01, Business Combinations (Topic 805):
Clarifying the Definition of a Business
("ASU 2017-01"), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The new guidance clarifies that a business must also include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606, Revenue from Contracts with Customers. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted. On January 1, 2017, the Company prospectively adopted ASU 2017-01. Adoption of ASU 2017-01 has had no material effect on the Company's consolidated financial statements and footnote disclosures.
All other issued and effective accounting standards during 2017 were determined to be not relevant or material to the Company.
Recently Issued Accounting Standards Not Yet Adopted
Other than the following, there have been no new developments to those recently issued accounting standards disclosed in the Company’s 2016 Annual Report on Form 10-K.
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 ASU 2014-09 provides a revenue recognition five-step model to be applied to all revenue contracts with customers. In 2016, the FASB issued final amendments to ASU 2014-09 to clarify the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for licenses of intellectual property. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 and 2016 final amendments are effective for annual and interim periods beginning after December 15, 2017. The Company expects to adopt the new standard on January 1, 2018. The Company is still evaluating its method of adoption (full retrospective or modified retrospective), which depends in part upon the completion of the overall assessment on the impact this guidance has on our revenue arrangements. Our assessment is expected to be completed during the third quarter of 2017.
We are in the process of completing our contracts review and have applied the five-step model specified by the new guidance. The five-step model includes: (1) determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied.
Based on our preliminary review, while we do not expect this change to have a material impact on net sales based on current information and subject to future events and circumstances, we believe that ASU 2014-09's broad definition of variable consideration may require the Company to estimate and record certain variable payments resulting from rebates and other pricing allowances earlier than it currently does in order to properly identify the performance obligations and recognize the transaction price at the contract inception. The Company has not yet completed the process of quantifying the effects of any changes that will result from
adoption. The Company is also identifying and preparing to implement changes to our accounting policies and practices, business processes, systems and controls to support the new revenue recognition and disclosure requirements.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740),
Intra-Entity Transfers of Assets Other Than Inventory
("ASU 2016-16"), which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory when the transfer occurs. Current guidance requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized. The amendment is to be applied using a modified retrospective approach. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Based on current information and subject to future events and circumstances, the Company does not know whether ASU 2016-16 will have a material impact on its financial statements upon adoption.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment
("ASU 2017-04"), which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge or Step 2 of the goodwill impairment analysis. Instead, an impairment charge will be recorded based on the excess of a reporting unit's carrying amount over its fair value using Step 1 of the goodwill impairment analysis. The standard is required to be adopted for annual and interim impairment tests performed after December 15, 2019. The amendment is to be applied prospectively. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. Based on current information and subject to future events and circumstances, the Company does not know whether ASU 2017-04 will have a material impact on its financial statements upon adoption.
2. Trade Accounts Receivable, Net
Trade accounts receivable at the dates indicated consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
At December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2016
|
Trade accounts receivable
|
$
|
178,241
|
|
|
$
|
149,400
|
|
|
$
|
116,368
|
|
Allowance for doubtful accounts
|
(1,096
|
)
|
|
(972
|
)
|
|
(895
|
)
|
Allowance for sales discounts and returns
|
(4,814
|
)
|
|
(3,512
|
)
|
|
(3,050
|
)
|
|
$
|
172,331
|
|
|
$
|
144,916
|
|
|
$
|
112,423
|
|
3. Inventories
Inventories at the dates indicated consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
At December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2016
|
Raw materials
|
$
|
101,102
|
|
|
$
|
86,886
|
|
|
$
|
86,524
|
|
In-process products
|
28,098
|
|
|
24,406
|
|
|
20,902
|
|
Finished products
|
136,093
|
|
|
106,872
|
|
|
124,848
|
|
|
$
|
265,293
|
|
|
$
|
218,164
|
|
|
$
|
232,274
|
|
4. Property, Plant and Equipment, Net
Property, plant and equipment, net, at the dates indicated consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
At December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2016
|
Land
|
$
|
32,686
|
|
|
$
|
30,165
|
|
|
$
|
32,127
|
|
Buildings and site improvements
|
201,723
|
|
|
172,279
|
|
|
183,882
|
|
Leasehold improvements
|
5,605
|
|
|
5,667
|
|
|
5,550
|
|
Machinery, equipment, and software
|
272,072
|
|
|
240,564
|
|
|
248,861
|
|
|
512,086
|
|
|
448,675
|
|
|
470,420
|
|
Less accumulated depreciation and amortization
|
(288,287
|
)
|
|
(268,096
|
)
|
|
(273,302
|
)
|
|
223,799
|
|
|
180,579
|
|
|
197,118
|
|
Capital projects in progress
|
37,563
|
|
|
38,812
|
|
|
35,692
|
|
|
$
|
261,362
|
|
|
$
|
219,391
|
|
|
$
|
232,810
|
|
5. Goodwill and Intangible Assets, Net
Goodwill at the dates indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
At December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2016
|
North America
|
$
|
95,659
|
|
|
$
|
86,035
|
|
|
$
|
85,488
|
|
Europe
|
40,036
|
|
|
37,537
|
|
|
37,616
|
|
Asia/Pacific
|
1,465
|
|
|
1,421
|
|
|
1,375
|
|
Total
|
$
|
137,160
|
|
|
$
|
124,993
|
|
|
$
|
124,479
|
|
Intangible assets, net, at the dates indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2017
|
|
Gross
|
|
|
|
Net
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
(in thousands)
|
Amount
|
|
Amortization
|
|
Amount
|
North America
|
$
|
33,863
|
|
|
$
|
(15,786
|
)
|
|
$
|
18,077
|
|
Europe
|
28,714
|
|
|
(15,987
|
)
|
|
12,727
|
|
Total
|
$
|
62,577
|
|
|
$
|
(31,773
|
)
|
|
$
|
30,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2016
|
|
Gross
|
|
|
|
Net
|
(in thousands)
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Carrying
Amount
|
North America
|
$
|
27,490
|
|
|
$
|
(16,546
|
)
|
|
$
|
10,944
|
|
Europe
|
29,827
|
|
|
(15,859
|
)
|
|
13,968
|
|
Total
|
$
|
57,317
|
|
|
$
|
(32,405
|
)
|
|
$
|
24,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
Gross
|
|
|
|
Net
|
(in thousands)
|
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Carrying
Amount
|
North America
|
$
|
23,562
|
|
|
$
|
(13,811
|
)
|
|
$
|
9,751
|
|
Europe
|
27,880
|
|
|
(14,767
|
)
|
|
13,113
|
|
Total
|
$
|
51,442
|
|
|
$
|
(28,578
|
)
|
|
$
|
22,864
|
|
Intangible assets consist of definite-lived and indefinite-lived assets. Definite-lived intangible assets include customer relationships, patents, unpatented technology and non-compete agreements. Amortization expense for definite-lived intangible assets during the three months ended
June 30, 2017
and
2016
, totaled
$1.7 million
and
$1.5 million
, respectively; and during the
six
months ended
June 30, 2017
and
2016
, totaled
$3.2 million
and
$3.0 million
, respectively. During the second quarter of 2016, an approximate
$1.5 million
in-process research and development asset was transferred to definite-lived intangible assets from indefinite-lived intangible assets, which is being amortized on a straight-line basis over the asset's useful life. Indefinite-lived intangible asset, consisting of a trade name, totaled
$0.6 million
at
June 30, 2017
.
At
June 30, 2017
, estimated future amortization of definite-lived intangible assets was as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Remaining six months of 2017
|
$
|
3,144
|
|
2018
|
5,435
|
|
2019
|
5,200
|
|
2020
|
5,170
|
|
2021
|
4,690
|
|
2022
|
2,773
|
|
Thereafter
|
3,776
|
|
|
$
|
30,188
|
|
The changes in the carrying amount of goodwill and intangible assets for the
six
months ended
June 30, 2017
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
|
(in thousands)
|
Goodwill
|
|
Assets
|
Balance at December 31, 2016
|
$
|
124,479
|
|
|
$
|
22,864
|
|
Acquisitions
|
10,066
|
|
|
10,301
|
|
Amortization
|
—
|
|
|
(3,195
|
)
|
Foreign exchange
|
2,615
|
|
|
834
|
|
Balance at June 30, 2017
|
$
|
137,160
|
|
|
$
|
30,804
|
|
6. Investments
On 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 has no obligation to make any additional capital contributions to Ruby Sketch.
For the
three months and six
months ended
June 30, 2017
, the Company recorded an equity loss of
$12 thousand
and
$41 thousand
, respectively, with respect to its Ruby Sketch investment. However, the investment increased
$95 thousand
due to the foreign currency translation, primarily related to the weakening Australian dollar against United States dollar, resulting in a
$2.6 million
balance as of
June 30, 2017
.
7. Debt
Credit Facilities
The Company has revolving lines of credit with various banks in the United States and Europe. Total available credit at
June 30, 2017
, was
$304.0 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 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 will expire on July 23, 2021. Amounts borrowed under this credit facility 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 U.S. 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
June 30, 2017
, the LIBOR Rate was
1.17%
), 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 facility, 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 to the agent under the credit facility. The Company’s unused borrowing capacity under other revolving credit lines and a term note totaled
$4.0 million
at
June 30, 2017
. The other revolving credit lines and the term note charge interest ranging from
0.47%
to
8.25%
, currently have maturity dates from July 2017 to December 2017. The Company had
no
outstanding debt balance as of
June 30, 2017
and 2016, and December 31,
2016
, respectively. The Company was in compliance with its financial covenants at
June 30, 2017
.
Capital Lease Obligation
In March 2017, the Company leased office equipment from Cisco Systems Capital Corporation for four years, with lease payments totaling approximately
$2.3 million
through May 2021. At the inception of the lease, the Company evaluated the agreement and determined it to be a capital lease. Accordingly, the leased equipment was capitalized and a liability of
$2.2 million
was recorded. The terms of the lease considered in such evaluation included the transfer of ownership of the equipment to the Company at the end of the lease, a bargain purchase option, the exercise of which can be reasonably assured, and the sum of present value of lease payments, and the leased equipment's residual value amounting to substantially all of its fair value at the end of the lease.
As of
June 30, 2017
, the current portion of the outstanding liability for the leased equipment was approximately
$0.5 million
and the long-term portion was approximately
$1.5 million
.
8. Commitments and Contingencies
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 the date of this Quarterly Report on Form 10-Q, the Company is not a party to any legal proceedings, 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 claimed 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 (collectively "Horton 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.
If claims are asserted against the Company in the
Vitale
case, it will vigorously defend any such claims, whether brought by the plaintiff homeowners, or third party claims by Horton Homes. 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
Vitale
case may be covered by its insurance policies.
Given the 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.
9. Stock-Based Incentive Plans
The Company currently 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 Basis of Presentation —
Accounting for Stock-Based Compensation”
). Generally, participants of the 2011 Plan have been granted stock-based awards, only if the applicable Company-wide and/or profit-center operating goals, or strategic goals, established by the Compensation and Leadership Development Committee (the "Committee") of the Company's Board of Directors ("the Board") at the beginning of the year, were met. In 2017, some of the grants made will vest only if Company-wide and/or profit-center operating goals established by the Committee at the beginning of the year are met.
The Company granted restricted stock units (“RSUs”) under the 2011 Plan in 2015, 2016 and 2017. 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 Company's common stock on the day of the grant or the immediately preceding the trading 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 the time-based RSUs granted to our named executive officers and certain members of our senior management in 2017 and prior generally lapse on the date of the award and each of the first, second and third anniversaries of the date of the award. The restrictions on the time-based RSUs granted in 2017 generally lapse on the first, second, third and fourth anniversaries of the date of the award. The restrictions on the performance-based RSUs granted to our named executive officers and certain members of the Company’s senior management in 2017 and prior, in addition to their time-based RSUs, generally lapse following a performance period set for the RSUs on the date of the award, and shares of our common stock underlying such awards are subject to performance-based adjustment before becoming vested. In addition, the restrictions on the time- and performance-based RSUs granted to our employees in 2017 generally lapse on the first, second, third and fourth anniversaries of the date of the award, provided that the applicable performance goals are achieved within the year of grant. Generally, performance-based awards (including time- and performance-based awards) granted under the 2011 Plan may vest following the end of the performance periods only if the applicable performance goals are achieved within such periods.
Under the 2011 Plan, or the applicable grant agreement, the vesting of RSUs granted thereunder may accelerate in four situations: (1) retirement after meeting certain age and/or service tenure conditions, (2) death, (3) disability, and (4) certain situations linked to a change in our control or our sale of assets. In case of early vesting of performance-based awards in any one of the four situations, shares of the underlying stock that could eventually vest in favor of the officer will be prorated based on the early-vesting date and the date when the applicable vesting period is scheduled to expire.
On February 4, 2017,
606,299
RSUs were awarded to the Company's employees, including officers, at an estimated fair value of
$43.42
per share, based on the closing price on February 4, 2017. On May 16, 2017,
10,066
RSUs were awarded to each of the Company's seven independent directors at an estimated value of
$41.52
per share based on the closing price of shares of the Company's common stock on May 15, 2017, which RSUs vested fully on the date of the grant.
The following table summarizes changes to the Company’s unvested RSUs for the
six
months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average Price
|
|
Aggregate
Intrinsic
Value *
|
Unvested Restricted Stock Units (RSUs)
|
(in thousands)
|
|
|
(in thousands)
|
Outstanding at January 1, 2017
|
615
|
|
|
$
|
31.81
|
|
|
26,915
|
|
Awarded
|
616
|
|
|
|
|
|
|
|
Vested
|
(327
|
)
|
|
|
|
|
|
|
Forfeited
|
(20
|
)
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
884
|
|
|
$
|
36.95
|
|
|
$
|
38,645
|
|
Outstanding and expected to vest at June 30, 2017
|
861
|
|
|
$
|
36.91
|
|
|
$
|
37,643
|
|
|
|
*
|
The intrinsic value is calculated using the closing price per share of
$43.71
of the underlying Company's common stock as reported by the New York Stock Exchange on
June 30, 2017
.
|
The total intrinsic value of RSUs vested during the
six
-month periods ended
June 30, 2017
and
2016
, was
$11.3 million
and
$10.7 million
, respectively, based on the market value on the award date.
No
stock options were granted in
2016
or in the first
six
months of
2017
.
The following table summarizes the changes to the Company’s outstanding non-qualified stock options for the
six
months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise Price
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic
Value *
|
Non-Qualified Stock Options
|
|
(in thousands)
|
|
|
|
(in years)
|
|
(in thousands)
|
Outstanding at January 1, 2017
|
|
251
|
|
|
$
|
29.66
|
|
|
1.1
|
|
3,558
|
|
Exercised
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at June 30, 2017
|
|
207
|
|
|
$
|
29.66
|
|
|
0.6
|
|
$
|
2,913
|
|
|
|
*
|
The intrinsic value represents the amount, if any, by which the fair market value of the underlying Company's common stock exceeds the exercise price of the stock option, using the closing price per share of
$43.71
such stock as reported by the New York Stock Exchange on
June 30, 2017
.
|
The total intrinsic value of stock options exercised was
$0.5 million
and
$0.7 million
during
six
-month periods ended
June 30, 2017
and
2016
, respectively.
As of
June 30, 2017
, there was
$17.8 million
unrecognized cost related to unvested stock-based compensation arrangements under the 2011 Plan for awards made through February 2017. The portion of this cost related to RSUs awarded through May 2017 (as discussed above) is expected to be recognized over a weighted-average period of
2.4
years.
10. Segment Information
The Company is organized into
three
reportable 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 United States and Canada; the Europe segment, comprising continental Europe and the United Kingdom; and the Asia/Pacific segment, which the Company believes is not significant to its overall performance, comprising the Company’s operations in China, Hong Kong, the South Pacific and the Middle East. China and Hong Kong operations are
manufacturing and administrative support locations, respectively. These three reportable segments are similar in several ways, including the types of materials, the production processes, the distribution channels and the product applications.
The Company’s measure of profit or loss for its reportable segments is income (loss) from operations. The reconciling amount between consolidated income before tax and consolidated income from operations is interest expense, which is primarily attributed to the "Administrative and all other" segment.
The following tables illustrate certain measurements used by management to assess the performance as of or for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
215,739
|
|
|
$
|
197,284
|
|
|
$
|
399,510
|
|
|
$
|
371,738
|
|
Europe
|
45,234
|
|
|
30,820
|
|
|
79,615
|
|
|
54,518
|
|
Asia/Pacific
|
2,029
|
|
|
1,869
|
|
|
3,744
|
|
|
3,240
|
|
Total
|
$
|
263,002
|
|
|
$
|
229,973
|
|
|
$
|
482,869
|
|
|
$
|
429,496
|
|
Sales to Other Segments*
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
928
|
|
|
$
|
761
|
|
|
$
|
1,778
|
|
|
$
|
1,262
|
|
Europe
|
102
|
|
|
89
|
|
|
249
|
|
|
181
|
|
Asia/Pacific
|
5,620
|
|
|
6,548
|
|
|
10,569
|
|
|
11,729
|
|
Total
|
$
|
6,650
|
|
|
$
|
7,398
|
|
|
$
|
12,596
|
|
|
$
|
13,172
|
|
Income (Loss) from Operations
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
$
|
42,011
|
|
|
$
|
40,116
|
|
|
$
|
68,778
|
|
|
$
|
70,568
|
|
Europe
|
4,138
|
|
|
1,899
|
|
|
2,304
|
|
|
281
|
|
Asia/Pacific
|
71
|
|
|
852
|
|
|
(124
|
)
|
|
1,007
|
|
Administrative and all other
|
(1,083
|
)
|
|
(1,943
|
)
|
|
(3,190
|
)
|
|
(4,291
|
)
|
Total
|
$
|
45,137
|
|
|
$
|
40,924
|
|
|
$
|
67,768
|
|
|
$
|
67,565
|
|
* The sales to other segments are eliminated in consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
|
|
At June 30,
|
|
December 31,
|
(in thousands)
|
2017
|
|
2016
|
|
2016
|
Total Assets
|
|
|
|
|
|
|
|
|
North America
|
$
|
915,661
|
|
|
$
|
799,429
|
|
|
$
|
853,826
|
|
Europe
|
205,614
|
|
|
173,273
|
|
|
165,121
|
|
Asia/Pacific
|
25,006
|
|
|
26,797
|
|
|
25,118
|
|
Administrative and all other
|
(104,804
|
)
|
|
40
|
|
|
(64,091
|
)
|
Total
|
$
|
1,041,477
|
|
|
$
|
999,539
|
|
|
$
|
979,974
|
|
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 and all other.” Cash and cash equivalent balances in the “Administrative and all other” segment were
$69.8 million
,
$164.7 million
, and
$137.4 million
, as of
June 30, 2017
and
2016
, and December 31,
2016
, respectively. Total "Administrative and all other" assets are net of inter-segment due to and from accounts eliminated in consolidation.
While the Company manages its business by geographic segment, presented as additional information, the following table illustrates the distribution of the Company’s net sales by product group for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
Wood construction products
|
$
|
224,013
|
|
|
$
|
196,734
|
|
|
$
|
414,890
|
|
|
$
|
368,512
|
|
Concrete construction products
|
38,917
|
|
|
33,239
|
|
|
67,734
|
|
|
60,983
|
|
Other
|
72
|
|
|
—
|
|
|
245
|
|
|
1
|
|
Total
|
$
|
263,002
|
|
|
$
|
229,973
|
|
|
$
|
482,869
|
|
|
$
|
429,496
|
|
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, chemicals, mechanical anchors, carbide drill bits, powder actuated tools and fiber reinforcing materials and are used for restoration, protection or strengthening concrete, masonry and steel construction in residential, industrial, commercial and infrastructure construction.
11. Subsequent Events
Dividend Declaration
In July 2017, the Board declared a quarterly cash dividend of
$0.21
per share, estimated to be
$9.9 million
in total, to be paid on
October 26, 2017
, to stockholders of record on
October 5, 2017
.
Stock Repurchase Program
In keeping with its strategy to return
50%
of cash flows from operations to stockholders, on August 1, 2017, the Board increased and extended by
$150 million
its previous
$125 million
share repurchase authorization, which was originally a
$50 million
authorization. Pursuant to the updated authorization, the Company may repurchase from January 1, 2016 to December 31, 2018, up to
$275 million
of the Company’s common stock. For additional information about the updated authorization, see the Company's Current Report on Form 8-K dated August 1, 2017.
Sales of Gbo Poland and Gbo Romania
In July 2017, the Company entered into an agreement to sell all of the outstanding shares of Gbo Fastening Sp Z.o.o. (“Gbo Poland”) and Gbo Fastening Systems S.r.l. (“Gbo Romania”) for
$9.6 million
, which transaction is subject to standard closing conditions and post-closing adjustments, such as foreign currency translation. The sale of Gbo Poland and Gbo Romania is expected to close by early fourth quarter of 2017.