Notes to Consolidated Financial Statements
1.Operations and Summary of Significant Accounting Policies
Nature of Operations
Simpson Manufacturing Co., Inc., through Simpson Strong-Tie Company Inc. and its other subsidiaries (collectively, the “Company”), focuses on designing, manufacturing, and marketing systems and products to make buildings and structures safe and secure. 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 U.S., Canada, Europe and Pacific Rim. A significant portion of the Company’s business is dependent on economic activity within the North America segment. The Company's business is also dependent on the availability of steel, its primary raw material.
Principles of Consolidation
The accompanying 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. All significant intercompany transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("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. Management believes that these consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation under GAAP.
Cash Equivalents
The Company classifies investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. As of December 31, 2022, and 2021, the value of these investments was $125.1 million and $26.4 million, respectively, consisting of U.S. Treasury securities and money market funds. The value of the investments is based on cost, which approximates fair value based on Level 1 inputs.
Current Estimated Credit Loss - Allowance for doubtful accounts
The Company maintains an allowance for doubtful accounts receivable for estimated future expected credit losses resulting from customers' failure to make payments on its accounts receivable. The Company determines the estimate of the allowance for doubtful accounts receivable by considering several factors, including (1) specific information on the financial condition and the current creditworthiness of customers, (2) credit rating, (3) payment history and historical experience, (4) aging of the accounts receivable, and (5) reasonable and supportable forecasts about collectability. The Company also reserves 100% of the amounts deemed uncollectible due to a customer's deteriorating financial condition or bankruptcy.
Every quarter, the Company evaluates the customer group using the accounts receivable aging report and its best judgment when considering changes in customers' credit ratings, level of delinquency, customers' historical payments and loss experience, current market and economic conditions, and expectations of future market and economic conditions.
The changes in the allowance for doubtful accounts receivable for the year ended December 31, 2022 are outlined in the table below:
| | | | | | | | | | | | | | |
| Balance as of | | | Balance as of |
(in thousands) | December 31, 2021 | Expense (Deductions), net | Write-Offs1 | December 31, 2022 |
| | | | |
Allowance for Doubtful Accounts | $ | 1,933 | | $ | 1,663 | | $ | 356 | | $ | 3,240 | |
1Amount is net of recoveries and the effect of foreign currency fluctuations for the year ended December 31, 2022
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 on demand deposit and in money market accounts held in 31 banks, and at times these cash and investments may be in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC). However, we have not experienced any losses on these accounts.
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:
•Raw materials and purchased finished goods for resale — principally valued at a cost determined on a weighted average basis; and
•In-process products and finished goods — the cost of direct materials and labor plus attributable overhead based on a normal level of activity.
The Company applies net realizable value and makes estimates for obsolescence to the gross value of the inventory. Estimated net realizable value is 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 the 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 and has consistently applied this methodology. When impairments are established, a new cost basis for the inventory is created. An unexpected change in market demand, building codes or buyer preferences could reduce the rate of inventory turnover and require the recognition of more obsolete inventory.
Other Current Assets
Other current assets, which are less than 5% of current assets, consist primarily of prepaid expenses, derivative assets-current, and other miscellaneous assets.
Warranties and recalls
The Company provides product warranties for specific product lines and records estimated 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 its consolidated statement of operations, cash flows or financial position.
Equity Investments
The Company accounts for investments and ownership interests under equity method accounting when it has the ability to exercise significant influence but does not have a controlling financial interest. The Company records its interest in the net earnings of its equity method investees, along with adjustments for unrealized profits or losses within earnings or loss from equity interests in the consolidated statement of operations. The investment is reviewed for impairment whenever factors indicate the carrying amount might not be recoverable and the decrease in value, if any, is recognized in the period the impairment occurs in the consolidated statement of operations.
Fair Value of Financial Instruments
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified under a three-tier fair valuation hierarchy based on the observability of the inputs available in the market: 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. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The carrying amounts of trade accounts receivable, accounts payable, accrued liabilities and other current liabilities approximate fair value due to the short-term nature of these instruments. The fair values of the interest rate and foreign currency contracts are classified as Level 2 within the fair value hierarchy. The fair values of the Company’s contingent consideration related to acquisitions and equity investments are classified as Level 3 within the fair value hierarchy, as these amounts are based on unobserved inputs such as management estimates and entity-specific assumptions and are evaluated on an
ongoing basis.
The following tables summarize the financial assets and financial liabilities measured at fair value for the Company as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
(in millions) | Level 1 | Level 2 | Level 3 | | Level 1 |
Cash equivalents (1) | $ | 125.1 | | $ | — | | $ | — | | | $ | 26.4 | |
Term loan due 2027 (2) | — | | 433.1 | | — | | | — | |
Revolver due 2027 (2) | — | | 150.0 | | — | | | — | |
Derivative instruments - assets (3) | — | | 43.9 | | — | | | — | |
Derivative instruments - liabilities (3) | — | | 8.0 | | — | | | — | |
Contingent considerations | — | | — | | 6.5 | | | — | |
(1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market with relatively short maturities, are reported on the consolidated balance sheet as of December 31, 2022 and 2021 as a component of "Cash and cash equivalents".
(2) The carrying amounts of our term loan and revolver approximate fair value as of December 31, 2022 based upon their terms and conditions as disclosed in Note 14 in comparison to debt instruments with similar terms and conditions available on the same date.
(3) Derivatives for interest rate, foreign exchange and forward swap contracts are discussed in Note 9.
Derivative Instruments
The Company uses derivative instruments as a risk management tool to mitigate the potential impact of certain market risks. Foreign currency and interest rate risk are the primary market risks the Company manages through the use of derivative instruments, which are accounted for as cash flow hedges or net investment hedges under the accounting standards and carried at fair value as other current or noncurrent assets or as other current or other long-term liabilities in the consolidated balance sheets. Assets and liabilities with the legal right of offset are not offset in the consolidated balance sheets. Net deferred gains and losses related to changes in fair value of cash flow hedges are included in accumulated other comprehensive income/loss ("OCI"), a component of stockholders' equity in the consolidated balance sheets; and are reclassified into the line item in the consolidated statement of operations in which the hedged items are recorded in the same period the hedged item affects earnings. The effective portion of gains and losses attributable to net investment hedges is recorded net of tax to OCI to offset the change in the carrying value of the net investment being hedged. Recognition in earnings of amounts previously recorded to OCI are limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged
foreign operation. Changes in fair value of any derivatives that are determined to be ineffective are immediately reclassified from OCI into earnings.
Business Combinations and Asset Acquisitions
Business combinations are accounted for under the acquisition method in accordance with ASC 805, Business Combinations. The acquisition method requires identifiable assets acquired and liabilities assumed and any noncontrolling interest in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill.
Acquisitions that do not meet the definition of a business under the ASC are accounted for as an acquisition of assets, whereby all of the cost of the individual assets acquired and liabilities assumed, including certain transactions costs, are allocated on a relative fair value basis. Accordingly, goodwill is never recognized in an asset acquisition.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Major renewals and betterments are capitalized while maintenance and repairs are expensed as incurred. 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 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, internal costs and external consulting fees. Capitalized software projects are amortized over the estimated useful lives of the software.
Depreciation and Amortization
Software, including amounts capitalized for internally developed software is amortized on a straight-line basis over an estimated useful life of three to five years. Machinery and equipment is depreciated using accelerated methods over an estimated useful life of three to ten years. 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. Purchased intangible assets with finite useful lives are amortized using the straight-line method over the estimated useful lives of the assets. The weighted-average amortization period for all amortizable intangibles on a combined basis is 9.1 years.
Preferred Stock
The Company’s Board of Directors has the authority to issue 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 of Directors. Accordingly, the Board of Directors 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.
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 dividends, if any, as may be declared from time to time by the 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. 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 common stock.
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, changes in unamortized pension adjustments and changes in the fair value of derivative instruments classified as cash flow hedge instruments, all of which are recorded directly in accumulated other comprehensive income within stockholders’ equity.
Foreign Currency Translation
The local currency is the functional currency for all of the Company’s operations in Europe, Canada, Asia, Australia and New Zealand. 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 presented below operating income.
Revenue Recognition
Generally, the Company's revenue contract with a customer exists when (1) the goods are shipped, services are rendered, and the related invoice is generated, (2) the duration of the contract does not extend beyond the promised goods or services already transferred and (3) the transaction price of each distinct promised product or service specified in the invoice is based on its relative stated standalone selling price. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer at a point in time. Our shipping terms provide the primary indicator of the transfer of control. The Company's general shipping terms are Incoterm C.P.T. (F.O.B. shipping point), where the title, and risk and rewards of ownership transfer at the point when the products are no longer on the Company's premises. Other Incoterms are allowed as exceptions depending on the product or service being sold and the nature of the sale. The Company recognizes revenue based on the consideration specified in the invoice with a customer, excluding any sales incentives, discounts, and amounts collected on behalf of third parties (i.e., governmental tax authorities). Based on historical experience with the customer, the customer's purchasing pattern, and its significant experience selling products, the Company concluded that a significant reversal in the cumulative amount of revenue recognized would not occur when the uncertainty (if any) is resolved (that is, when the total amount of purchases is known). Refer to Note 2 for additional information.
The Company presents taxes collected and remitted to governmental authorities on a net basis in the consolidated statements of operations.
Cost of Sales
Cost of sales includes material, labor, factory and tooling overhead, shipping, and freight costs. Major components of these expenses are steel and other materials, 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.
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 $15.7 million, $12.3 million and $10.1 million in 2022, 2021 and 2020, respectively. Product research and development expenses include all related personnel costs including salary, benefits, retirement, stock-based compensation costs, as well as computer and software costs, professional fees, supplies, tools and maintenance costs. In 2022, 2021 and 2020, the Company incurred software development expenses related to its ongoing expansion into the plated truss market and some of the software development costs were capitalized. See "Note 8 — 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 and were $12.6 million, $8.4 million and $8.2 million in 2022, 2021, and 2020, 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.
Accounting for Leases
The Company has operating and finance leases for certain facilities, equipment, autos and data centers. As an accounting policy for short-term leases, the Company elected to not recognize a right-of-use asset ("ROU asset") and liability if, at the commencement date, the lease (1) has a term of 12 months or less and (2) does not include renewal and purchase options that the Company is reasonably certain to exercise. Monthly payments on short-term leases are recognized on a straight-line basis over the full lease term.
Accounting for Stock-Based Compensation
The Company recognizes stock-based compensation expense related to the estimated fair value of restricted stock awards on a straight-line basis, net of estimated forfeitures, over the requisite service period of the awards, which is generally the vesting term of three or four years. Stock-based compensation related to performance share grants are measured based on grant date fair value and expensed on a graded basis over the service period of the awards, which is generally a performance period of three years. The performance conditions are based on the Company's achievement of revenue growth and return on invested capital over the performance period and are evaluated for the probability of vesting at the end of each reporting period with changes in expected results recognized as an adjustment to expense. The assumptions used to calculate the fair value of restricted stock grants are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.
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. This method gives consideration to the future tax consequences of the deferred income tax items and immediately recognizes changes in income tax laws in the year of enactment.
Net Income per Share
Basic net income per common share is computed based on the weighted average number of common shares outstanding. Potentially dilutive shares are included in the diluted per-share calculations using the treasury stock method for all periods when the effect of their inclusion is dilutive.
Accounting Standards Not Yet Adopted
Newly issued and effective accounting standards during 2022 were determined to be not relevant or material to the Company.
2.Revenue from Contracts with Customers
Disaggregated revenue
The Company disaggregates net sales into the following major product groups as described in its segment information included in these financial statements under Note 19.
Wood Construction Products Revenue. Wood construction products represented approximately 87%, 87%, and 85% of total net sales in the years ended December 31, 2022, 2021, and 2020 respectively.
Concrete Construction Products Revenue. Concrete construction products represented approximately 13%, 13%, and 15% of total net sales in the years ended December 31, 2022, 2021 and 2020, respectively.
Customer acceptance criteria. Generally, there are no customer acceptance criteria included in the Company’s standard sales agreement with customers. When an arrangement with the customer does not meet the criteria to be accounted for as a revenue contract under the standard, the Company recognizes revenue in the amount of nonrefundable consideration received when the Company has transferred control of the goods or services and has stopped transferring (and has no obligation to transfer) additional goods or services. The Company offers certain customers discounts for paying invoices ahead of the due date, which are generally 30 to 60 days after the issue date.
Other revenue. Service sales, representing after-market repair and maintenance, engineering activities and software license sales and services were less than 0.1% of net sales for 2022, 2021 and 2020 and recognized as the services are completed or by transferring control over a product to a customer at a point in time. Services may be sold separately or in bundled packages. The typical contract length for services is generally less than one year. For bundled packages, the Company accounts for individual services separately when they are distinct within the context of the contract. A distinct service is separately identifiable from other items in the bundled package if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate services in a bundle based on their stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the services.
Reconciliation of contract balances
Contract assets are the right to receive consideration in exchange for goods or services that the Company has transferred to a customer when that right is conditional on something other than the passage of time. Contract liabilities are recorded for any services billed to customers and not yet recognizable if the contract period has commenced or for the amount collected from customers in advance of the contract period commencing. As of December 31, 2022 and 2021, the Company had no material contract assets or contract liabilities from contracts with customers.
Other accounting considerations
Volume discounts. Volume discounts are accounted for as variable consideration because the transaction price is uncertain until the customer completes or fails to purchase the specified volume of purchases (consideration is contingent on a future outcome - occurrence or nonoccurrence). In addition, the Company applies the volume rebate or discount retrospectively, because the final price of each product or services sold depends on the customer's total purchases subject to the rebate program. Estimated rebates are deducted from revenues based on the gross transaction price and historical experience with the customer.
Rights of return and other allowances. Rights of return create variability in the transaction price. The Company accounts for returned product during the return period as a refund to customer and not a performance obligation. The estimated allowance for returns is based on historical percentage of returns and allowance from prior periods and the customer's historical purchasing pattern. This estimate is deducted from revenues based on the gross transaction price.
Principal versus Agent. The Company considered the principal versus agent guidance of the new revenue recognition standard and concluded that the Company is the principal in a third-party transaction. The Company manufactures its products and has control over the transfer of its products to Dealer Distributors, Contract Distributors, and end customers.
Costs to obtain or fulfill a contract. Costs incurred to obtain a contract are immaterial. Commission cost is not an incremental cost directly related to obtaining a contract.
Shipping costs. The Company recognizes shipping and handling activities that occur after the customer has obtained control of goods as a fulfillment cost rather than as an additional promised service. Therefore, the Company recognizes revenue and accrues shipping and handling costs when the control of goods transfers to the customer upon shipment.
Advertising costs. Cooperative advertising and partnership discounts are consideration payable to a customer and not payment in exchange for a distinct product or service at fair value. Estimated cooperative advertising and partnership discounts are reductions of the transaction price.
3. Acquisition
On April 1, 2022, the Company completed its acquisition of 100% of the outstanding equity interest of FIXCO Invest S.A.S. (together with its subsidiaries, "ETANCO") for total purchase consideration of $805.4 million, net of cash acquired (the "Acquisition"). The Acquisition was completed pursuant to the securities purchase agreement dated January 26, 2022, as amended (the “SPA”), by and among the Company, Fastco Investment, Fastco Financing, LRLUX and certain other security holders. The purchase price for the Acquisition was paid using cash on hand and borrowings in the amount of $250.0 million under the revolving credit facility and $450.0 million under the term loan facility. See Note 14 for further information on the Amended and Restated Credit Facility.
ETANCO is a manufacturer and distributor of fastener and fixing products headquartered in France and its primary product applications directly align with the addressable markets in which the Company operates. The Acquisition will allow the Company to enter into new commercial building markets such as façades, waterproofing, safety and solar, as well as grow its share of direct business sales in Europe.
ETANCO’s results of operations were included in the Company's consolidated financial statements from the April 1, 2022 acquisition date, and as such, only includes ETANCO's results of operations for the nine months ending December 31, 2022. ETANCO had net sales of $212.6 million and a net loss of $5.9 million for the nine months ended December 31, 2022, which includes costs related to fair-value adjustments for acquired inventory, amortization of acquired intangible assets, and expenses incurred for integration.
Purchase price allocation
The Acquisition was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”) which requires, among other things, assets acquired and liabilities assumed in a business combination be recorded at fair value as of the acquisition date with limited exceptions.
The allocation of the $824.4 million purchase price, including cash, to the estimated fair values of the tangible and intangible assets acquired and liabilities assumed is as follows:
| | | | | | | | | | |
(in thousands) | | | Amount | |
Cash and cash equivalents | | | $ | 19,010 | | |
Trade accounts receivable, net | | | 63,607 | | |
Inventory | | | 107,185 | | |
Other current assets | | | 4,491 | | |
Property and equipment, net | | | 89,695 | | |
Operating lease right-of-use assets | | | 5,361 | | |
Goodwill | | | 365,591 | | |
Intangible assets, net | | | 357,327 | | |
Other noncurrent assets | | | 2,881 | | |
Total assets | | | 1,015,148 | | |
Trade accounts payable | | | 46,457 | | |
Accrued liabilities and other current liabilities | | | 22,079 | | |
Operating lease liabilities | | | 5,176 | | |
Deferred income tax and other long-term liabilities | | | 117,031 | | |
Total purchase price | | | $ | 824,405 | | |
Trade accounts receivable, net
The gross amount of trade receivables acquired was approximately $67.4 million, of which $63.6 million is estimated to be recoverable based on ETANCO's historical trend for collections.
Inventory
Acquired inventory primarily consists of raw materials and finished goods consisting of building and construction materials products. The Company adjusted acquired finished goods higher by $14.3 million to estimated fair value based on expected selling prices less a reasonable amount for selling efforts. The fair value adjustment was fully recognized as a component of cost of sales over the inventory’s estimated turnover period during the nine months ended December 31, 2022.
Property and equipment, net
Acquired property and equipment includes land of $16.1 million, buildings and site improvements of $32.5 million, and machinery, equipment, and software of $41.1 million. The estimated fair value of property and equipment was determined primarily using market and/or or cost approach methodologies. The acquired fair value for buildings and site improvements will depreciate on a straight-line basis over the estimated useful lives of the assets for a period of up to sixteen years, and machinery, equipment and software will depreciate on an accelerated basis over an estimated useful life of three to ten years. Depreciation expense associated with the acquired property and equipment amounted to $5.4 million for the nine months ended December 31, 2022.
Goodwill
The excess of purchase price over the net assets acquired is recognized as goodwill and relates to the value that is expected from the acquired assembled workforce as well as the increased scale and synergies resulting from the integration of both businesses. The goodwill recognized from the Acquisition is not deductible for local income tax purposes. Goodwill has been allocated to components within the ETANCO reporting unit.
Intangible assets, net
The estimated fair value of intangible assets acquired was determined primarily using income approach methodologies. The preliminary values allocated to intangible assets and the useful lives are as follows:
| | | | | | | | | | |
(in thousands except useful lives) | | | Weighted-average useful life (in years) | Amount |
Customer relationships | | | 15 | $ | 248,398 | |
Trade names | | | Indefinite | 93,811 | |
Developed technology | | | 10 | 11,256 | |
Patents | | | 8 | 3,862 | |
| | | | $ | 357,327 | |
The acquired definite-lived intangible assets will be amortized on a straight-line basis over estimated useful lives, which approximates the pattern in which these assets are utilized. The Company recognized $13.0 million of amortization expense on these assets during the nine months ended December 31, 2022.
Deferred taxes
As a result of the increase in fair value of inventory, property and equipment, and intangible assets, deferred tax liabilities of $105.9 million were recognized, primarily due to intangible assets.
Acquisition and integration related costs
During the twelve months ended December 31, 2022, and December 31, 2021, the Company incurred acquisition and/or integration related expenses of $17.3 million, and $2.3 million, respectively. The fiscal 2022 amounts have been included in acquisition and integration related costs in the Company’s income from operations, while the 2021 amounts were included in
interest expense, net and other. These acquisition and integration related costs consisted of investment banking, legal, accounting, advisory, and consulting fees.
Unaudited pro forma results
The following unaudited pro forma combined financial information presents estimated results as if the Company acquired ETANCO on January 1, 2021. The unaudited pro forma financial information as presented below is for informational purposes only and does not purport to actually represent what the Company’s combined results of operations would have been had the Acquisition occurred on January 1, 2021, or what those results will be for any future periods.
The following unaudited pro forma consolidated financial information has been prepared using the acquisition method of accounting in accordance with U.S. GAAP:
| | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2022 | 2021 |
| | |
Net sales | $ | 2,195,271 | | $ | 1,884,654 | |
Net income | $ | 363,527 | | $ | 261,389 | |
| | |
Pro forma earnings per common share: | | |
Basic | $ | 8.47 | | $ | 6.03 | |
Diluted | $ | 8.44 | | $ | 6.00 | |
| | |
Weighted average shares outstanding: | | |
Basic | 42,925 | | 43,325 | |
Diluted | 43,047 | | 43,532 | |
| | |
The unaudited pro forma results above includes the following non-recurring charges to net income:
1) Acquisition and integration related costs of $17.3 million which were incurred during the twelve months ended December 31, 2022 were adjusted as if such costs were incurred during the twelve months ended December 31, 2021.
2) The $14.3 million amortization related to the fair value adjustment for inventory and recognized during the twelve months ended December 31, 2022, were adjusted as if incurred during the twelve months ended December 31, 2021.
3) Net income for ETANCO includes adjustments of $0.4 million and $3.2 million to conform ETANCO’s historical financial results prepared under French GAAP to U.S. GAAP for the twelve months ended December 31, 2022, and December 31, 2021, respectively. The U.S. GAAP adjustments are primarily related to share-based payments expense on awards that were settled prior to the Acquisition, and costs incurred and capitalized by ETANCO on its historical acquisitions.
4. Net Income per Share
The following shows a reconciliation of basic earnings per share (“EPS”) to diluted EPS:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
(in thousands, except per-share amounts) | 2022 | | 2021 | | 2020 |
Net income available to common stockholders | $ | 333,995 | | | $ | 266,447 | | | $ | 187,000 | |
| | | | | |
Basic weighted average shares outstanding | 42,925 | | | 43,325 | | | 43,709 | |
Dilutive effect of potential common stock equivalents | 122 | | | 207 | | | 132 | |
Diluted weighted average shares outstanding | 43,047 | | | 43,532 | | | 43,841 | |
Net earnings per share: | | | | | |
Basic | $ | 7.78 | | | $ | 6.15 | | | $ | 4.28 | |
Diluted | $ | 7.76 | | | $ | 6.12 | | | $ | 4.27 | |
5. Stockholders' Equity
Stock Repurchases
For the fiscal year ended December 31, 2022, the Company repurchased 811,330 shares of the Company’s common stock in the open market at an average price of $96.91 per share, for a total of $78.6 million under the previously announced $100.0 million share repurchase authorization (which expired at the end of 2022). On December 15, 2022, the Company’s Board of Directors authorized the Company to repurchase up to $100.0 million of the Company’s common stock from January 1, 2023 through December 31, 2023.
As of December 31, 2022, the Company retired a total of 811,330 of its common stock and therefore had zero shares of its common stock as treasury shares.
Comprehensive Income or Loss
The following shows the components of accumulated other comprehensive income or loss as of December 31, 2022, 2021, and 2020 respectively:
| | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation | Pension Benefit | | Cash Flow Hedge | Forward Foreign Currency | Total |
(in thousands) | |
Balance as of January 1, 2020 | $ | (22,080) | | $ | (2,749) | | | $ | — | | $ | — | | $ | (24,829) | |
Other comprehensive gain/(loss), net of tax effect | 14,172 | | (161) | | | — | | 390 | | 14,401 | |
Balance as of December 31, 2020 | (7,908) | | (2,910) | | | — | | 390 | | (10,428) | |
Other comprehensive gain/(loss), net of tax effect | (7,313) | | 404 | | | — | | 204 | | (6,705) | |
Amounts reclassified from accumulative other comprehensive income, net of $0 tax | — | | — | | | — | | (472) | | (472) | |
Balance at December 31, 2021 | (15,221) | | (2,506) | | | — | | 122 | | (17,605) | |
Other comprehensive gain/(loss), net of tax effect | (20,942) | | 2,065 | | | 42,740 | | 11,898 | | 35,761 | |
Amounts reclassified from accumulative other comprehensive income, net of $0 tax | 209 | | — | | | (18,987) | | (3,437) | | (22,215) | |
Balance at December 31, 2022 | $ | (35,954) | | $ | (441) | | | $ | 23,753 | | $ | 8,583 | | $ | (4,059) | |
6. Stock-Based Compensation
The Company currently maintains the Simpson Manufacturing Co., Inc. Amended and Restated 2011 Incentive Plan (the “2011 Plan”) as its only equity incentive plan. Under the 2011 Plan, no more than 16.3 million shares of the Company’s common stock in aggregate may be issued, including shares already issued pursuant to prior awards granted under the 2011 Plan. Shares of common stock underlying awards to be issued pursuant to the 2011 Plan are registered under the Securities Act. Under the 2011 Plan, the Company may grant restricted stock and restricted stock units. The Company currently intends to award only performance-based stock units ("PSUs") and/or time-based restricted stock units ("RSUs").
The following table shows the Company’s stock-based compensation activity:
| | | | | | | | | | | | | | | | | |
| Fiscal Years Ended December 31, |
(in thousands) | 2022 | | 2021 | | 2020 |
Stock-based compensation expense recognized | $ | 12,503 | | | $ | 15,036 | | | $ | 11,384 | |
Tax benefit of stock-based compensation expense in provision for income taxes | 3,133 | | | 3,787 | | | 2,859 | |
Stock-based compensation expense, net of tax | $ | 9,370 | | | $ | 11,249 | | | $ | 8,525 | |
Fair value of shares vested | $ | 25,565 | | | $ | 15,701 | | | $ | 21,921 | |
The Company allocates stock-based compensation expense amongst 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. Stock-based compensation capitalized in inventory was immaterial for all periods presented.
The following table summarizes the Company’s unvested restricted stock unit activity for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | |
| Shares (in thousands) | | Weighted- Average Price | | Aggregate Intrinsic Value * (in thousands) |
Unvested Restricted Stock Units (RSUs) | | |
Outstanding as of January 1, 2022 | 344 | | | $ | 81.33 | | | $ | 47,721 | |
Awarded | 186 | | | 119.60 | | | |
Vested | (219) | | | 65.45 | | | |
Forfeited | (9) | | | 99.29 | | | |
Outstanding as of December 31, 2022 | 302 | | | $ | 102.10 | | | $ | 26,745 | |
Outstanding and expected to vest at December 31, 2022 | 351 | | | $ | 97.86 | | | $ | 31,107 | |
* The intrinsic value for outstanding and expected to vest is calculated using the closing price per share of $88.66, as reported by the New York Stock Exchange on December 31, 2022.
During the year ended December 31, 2022, the Company granted 180 thousand RSUs and PSUs to the Company’s employees, including officers at an estimated weighted average fair value of $120.09 per share, based on the closing price (adjusted for certain market factors primarily the present value of dividends) of the Company’s common stock on the grant date. The RSUs and PSUs granted to the Company’s employees may be time-based, performance-based or time- and performance-based. Certain of the PSUs are granted to officers and key employees, where the number of performance-based awards to be issued is based on the achievement of certain Company performance criteria established in the award agreement over a cumulative three years period. These awards cliff vest after three years. In addition, these same officers and key employees also receive time-based RSUs, which vest pursuant to a three-year graded vesting schedule. Time- and performance based RSUs granted to the Company’s employees excluding officers and certain key employees, vest ratably over the four year life of the award and through 2019, required the underlying shares of the Company's common stock to be subject to a performance-based adjustment during the first year and starting in 2020, were time-based awards which vest ratable over the four-year life of the award.
The Company’s seven non-employee directors are entitled to receive approximately $704 thousand in equity compensation annually. The number of shares ultimately granted is based on the average closing share price for the Company over the 60 days period prior to approval of the award in the second quarter of each year. In May and June 2022, the Company granted 6 thousand shares of the Company's common stock to the non-employee directors, based on the average closing price of $105.50 per share and recognized total expense of $655 thousand.
The total intrinsic value of RSUs and PSUs vested during the years ended December 31, 2022, 2021 and 2020 was $25.6 million, $15.7 million and $21.9 million, respectively, based on the market value on the vest date.
As of December 31, 2022, the Company’s aggregate unamortized stock compensation expense was approximately $16.1 million, which is expected to be recognized over a weighted-average period of approximately 2.1 years.
Stock Bonus Plan
The Company also maintains the Simpson Manufacturing Co., Inc. 1994 Employee Stock Bonus Plan (the “Stock Bonus Plan”), whereby it awards shares of the Company’s common stock to employees, who do not otherwise participate in any of the Company’s equity-based incentive plans and meet minimum service requirements. Shares have generally been awarded under the Stock Bonus Plan following the year in which the respective employee reached his or her tenth, twentieth, thirtieth, fortieth or fiftieth anniversary of employment with the Company or any direct or indirect subsidiary thereof.
The Company awarded shares for service through 2022, 2021, and 2020 as shown below:
| | | | | | | | | | | |
| December 31, |
| 2022 | 2021 | 2020 |
Shares issued | 9,300 | | 6,900 | | 7,400 | |
Shares settled with cash (foreign employees) | 7,400 | | 6,500 | | 5,200 | |
Total award | 16,700 | | 13,400 | | 12,600 | |
As a result, we recorded pre-tax compensation charges of $1.5 million, $1.7 million, and $1.2 million for years ended December 31, 2022, 2021, and 2020, respectively. These charges include cash bonuses to compensate employees for income taxes payable as a result of the stock bonuses.
7. Trade Accounts Receivable, net
Trade accounts receivable consisted of the following:
| | | | | | | | | | | |
| As of December 31, |
(in thousands) | 2022 | | 2021 |
Trade accounts receivable | $ | 276,229 | | | $ | 237,312 | |
Allowance for doubtful accounts | (3,240) | | | (1,932) | |
Allowance for sales discounts | (3,865) | | | (4,359) | |
| $ | 269,124 | | | $ | 231,021 | |
8. Inventories
The components of inventories are as follows:
| | | | | | | | | | | |
| As of December 31, |
(in thousands) | 2022 | | 2021 |
Raw materials | $ | 187,149 | | | $ | 191,174 | |
In-process products | 55,171 | | | 30,309 | |
Finished products | 314,481 | | | 222,273 | |
| $ | 556,801 | | | $ | 443,756 | |
9. Derivative Instruments
The Company enters into derivative instrument agreements, including forward foreign currency exchange contracts, interest rate swaps, and cross currency swaps to manage risk in connection with changes in foreign currency and interest rates. The Company hedges committed exposures and does not engage in speculative transactions. The Company only enters into derivative instrument agreements with counterparties who have highly rated credit.
The Company produces certain of its concrete products from a wholly owned subsidiary in China, and as a result is exposed to variability in cash outflows associated with changes in the foreign exchange rate between the U.S. Dollar and the Chinese Yuan (CNY). In November 2022, the Company entered into a series of foreign currency derivative contracts that mature monthly between January 2023 and, December 2023 to buy CNY 102.4 million in the aggregate by selling a total of $14.8 million.
These forward contracts are accounted for as cash flow hedges under the accounting standards, and fair value is included in other current assets or other current liabilities, as applicable, in the consolidated balance sheet. Net deferred gains and losses on these contracts relating to changes in fair value are included in accumulated other OCI and are reclassified into cost of sales in the consolidated statements of operations in the which the hedged items are recorded in the same period the hedged item affects earnings. There were no amounts recognized for gains or losses on these contracts during the year ended December 31, 2022. Changes in fair value of any forward contracts that are determined to be ineffective are immediately reclassified from OCI into earnings. The amounts deferred in OCI are expected to be recognized as a component of cost of sales in the consolidated statements of operations during 2023 and 2024.
Beginning in March 2022, the Company entered into a forward foreign currency contract expiring in March 2029 to hedge its exposure to adverse foreign currency exchange rate movements for its operations in Europe and elected the spot method for designating this contract as a net investment hedge with the excluded forward point amortized to interest expense. During May 2022, the Company settled the March 2022 forward foreign currency contract for $3.9 million in cash, which included $0.4 million in recognized forward points, terminated the hedge accounting treatment and simultaneously entered into a new forward foreign currency contract expiring in March 2029 with the same notional amount at a new forward rate. The Company also elected the spot method for designating the May 2022 contract as a net investment hedge. The $3.5 million gain recognized on the March 2022 contract excluding recognized forward points is deferred in OCI and will remain in OCI until either the sale or substantially complete liquidation of the hedged subsidiaries.
Beginning in March 2022, the Company also converted a Euro-denominated ("EUR"), fixed rate obligation into a U.S. Dollar fixed rate obligation using a receive fixed, pay fixed cross currency swap, which was designated as a cash flow hedge. During May 2022, the Company settled the March 2022 cross currency swap for $22.4 million in cash, which was comprised of $21.3 million gain on the swap excluding accrued interest and $1.1 million of net interest income accrued according to the terms of the swap. The Company terminated the hedge accounting treatment and simultaneously entered into a new cross currency swap expiring in March 2029 with a lower notional amount for the US dollar denominated leg at a new US dollar interest rate. An amount of $28.3 million was reclassified out of OCI into earnings to offset the currency loss on the underlying security being hedged resulting in a net $7.0 million hedge accounting reserve balance within OCI, which is being amortized to interest expense in the consolidated statements of operations through the termination of the underlying hedged intercompany debt in March 2029.
In addition, the Company converted its domestic U.S. variable rate debt to fixed rate debt using a receive variable, pay fixed interest rate swap expiring March 2027. The interest rate swap contract is also designated as a cash flow hedge.
As of December 31, 2022, the aggregate notional amount of the Company's outstanding interest rate contracts, cross currency swap contracts, EUR forward contract and CNY forward contracts were $583.2 million, $454.1 million, $321.7 million and $14.8 million, respectively. As of December 31, 2021, there were no outstanding forward contracts on its Chinese Yuan denominated purchases.
Changes in fair value of any forward contracts that are determined to be ineffective are immediately reclassified from OCI into earnings. There were no amounts recognized due to ineffectiveness during the twelve months ended December 31, 2022.
The effects of fair value and cash flow hedge accounting on the consolidated statements of operations for the periods ended December 31, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
(in thousands) | Cost of sales | Interest expense, net | Other & foreign exchange loss, net | | Cost of sales |
Total amounts of income and expense line items presented in the Consolidated Statements of Operations in which the effects of fair value or cash flow hedges are recorded | $ | 1,174,794 | | $ | (7,594) | | $ | (3,408) | | | $ | 818,187 | |
The effects of fair value and cash flow hedging | | | | | |
| Gain or (loss) on cash flow hedging relationships | | | | | |
| | Interest contracts: | | | | | |
| | | Amount of gain or (loss) reclassified from OCI to earnings | | (1,012) | | | | |
| | Cross currency swap contract | | | | | |
| | | Amount of gain or (loss) reclassified from OCI to earnings | | 5,650 | | 14,349 | | | |
| | Forward contract | | | | | |
| | | Amount of gain or (loss) reclassified from OCI to earnings | 122 | | | | | 472 | |
The effects of derivative instruments on the consolidated statements of operations for the twelve months ended December 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | |
Cash Flow Hedging Relationships | Gain (Loss) Recognized in OCI | | Location of Gain (Loss) Reclassified from OCI into Earnings | Gain (Loss) Reclassified from OCI into Earnings |
| 2022 | 2021 | | | 2022 | 2021 |
Interest rate contracts | $ | 26,830 | | $ | — | | | Interest expense | $ | (1,012) | | $ | — | |
Cross currency contracts | 26,174 | | — | | | Interest expense | 5,650 | | — | |
| | | | FX gain (loss) | 14,349 | | — | |
Forward contracts | 231 | | 163 | | | Cost of goods sold | — | | 472 | |
Total | $ | 53,235 | | $ | 163 | | | | $ | 18,987 | | $ | 472 | |
For the twelve months ended December 31, 2022, gains on the net investment hedge of $13.0 million were included in OCI. For the twelve months ended December 31, 2022, gains excluded of $3.3 million, were reclassified from OCI to interest expense.
As of December 31, 2022, the aggregate fair values of the Company’s derivative instruments were comprised of assets totaling $43.9 million, and liabilities of $8.0 million on the consolidated balance sheets.
As of December 31, 2022, the Company expects it will reclassify net gains of approximately $20.2 million, currently recorded in AOCI, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.
10. Property, Plant and Equipment, net
Property, plant and equipment consisted of the following:
| | | | | | | | | | | |
| December 31, |
(in thousands) | 2022 | | 2021 |
Land | $ | 50,025 | | | $ | 28,175 | |
Buildings and site improvements | 233,123 | | | 202,393 | |
Leasehold improvements | 6,367 | | | 5,995 | |
Machinery and equipment | 472,907 | | | 399,079 | |
| 762,422 | | | 635,642 | |
Less accumulated depreciation and amortization | (432,392) | | | (402,246) | |
| 330,030 | | | 233,396 | |
Capital projects in progress | 31,525 | | | 26,473 | |
| $ | 361,555 | | | $ | 259,869 | |
Property, plant and equipment as of December 31, 2022, and 2021, includes fully depreciated assets with an original cost of $253.5 million and $234.0 million, respectively, which are still in use. The Company capitalizes certain development costs associated with internal use software, including the direct costs of services provided by third-party consultants and payroll for internal employees, both of which are performing development and implementation activities on a software project. As of December 31, 2022, and 2021, the Company had capitalized software development costs net of accumulated amortization of $33.3 million and $30.2 million, respectively, included in machinery and equipment and as of December 31, 2022, and 2021, $7.0 million and $4.8 million, respectively, was included in capital projects in progress.
Depreciation expense, including depreciation of equipment and amortization of internally developed software and software acquired through capital lease arrangements, was $43.4 million, $36.1 million, and $32.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.
11. Goodwill and Intangible Assets
Goodwill
The annual changes in the carrying amount of goodwill, by segment, as of December 31, 2021 and 2022, were as follows, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | North America | | Europe | | Asia Pacific | | Total |
Balance as of January 1, 2021 | $ | 96,311 | | | $ | 38,059 | | | $ | 1,474 | | | $ | 135,844 | |
Foreign exchange | (4) | | | (1,622) | | | (90) | | | (1,716) | |
| | | | | | | |
Reclassifications | — | | | (106) | | | — | | (106) | |
Balance as of December 31, 2021 | 96,307 | | | 36,331 | | | 1,384 | | | 134,022 | |
Goodwill acquired | 7,444 | | | 365,591 | | | — | | | 373,035 | |
Foreign exchange | (179) | | | (11,123) | | | (83) | | | (11,385) | |
| | | | | | | |
Reclassifications | — | | | — | | | — | | | — | |
Balance as of December 31, 2022 | $ | 103,572 | | | $ | 390,799 | | | $ | 1,301 | | | $ | 495,672 | |
Goodwill Impairment Testing
The Company tests goodwill for impairment at the reporting unit level on an annual basis (in the fourth quarter). Our goodwill balance is not amortized to expense, and we may assess qualitative factors and quantitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments
We assessed the qualitative factors related to the goodwill of the reporting units to determine whether it is necessary to perform an impairment test.
During fiscal year 2022, we revised our European reporting units due to the acquisition of ETANCO and changes to the management, product distribution and operations structure of our legacy European operations. Subsequent to this change, all European reporting units, including the S&P Clever reporting unit, but excluding ETANCO, were consolidated for reporting purposes into one overall Europe reporting unit. ETANCO will remain as its own reporting unit until it is fully integrated into our other European operations, and there are sufficient economic similarities between the ETANCO and European reporting units. A qualitative assessment was performed immediately preceding the reporting unit change and determined that it was not more likely than not that any impairment existed prior to the reporting unit change. For the Company’s remaining reporting units, the reporting unit level is generally one level below the operating segment, which is at the country level, except for the United States and Australia.
The Company determined that the U.S. reporting unit includes four components: Northwest United States, Southwest United States, Northeast United States and Southeast United States. The Australia reporting unit includes two components: Australia and New Zealand. For each of these reporting units, the Company aggregated the components because management concluded that they are economically similar and that the goodwill is recoverable from these components working in concert.
In 2021, the Company applied the ("Step 1") approach where the Company compares the fair value of the reporting unit to its carrying value. The fair value calculation uses both the income approach (discounted cash flow method) and the market approach, equally weighted. If the Company determines that the carrying value of the net assets assigned to the reporting unit, including goodwill, exceeds the fair value of the reporting unit, no further action is taken. If the Company determines that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, the Company will record an impairment charge equal to the difference between the implied fair value of the goodwill and the carrying value.
In 2022, we completed our annual impairment assessment by performing a qualitative assessment. For this qualitative assessment, we assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units as compared to the quantitative fair value measurement determined in the fourth quarter of 2021. Based on the qualitative assessment performed, the Company concluded that there was no evidence of events or circumstances that would indicate a material change from the Company’s prior year quantitative assessment by reporting unit and therefore, it was more likely than not that the estimated fair value of reporting units exceeded their respective carrying values.
The 2022 and 2021 annual testing of goodwill for impairment did not result in impairment charges. "See Item 7 - Critical Accounting Policies and Estimates -Goodwill and Other Intangible Assets".
Amortizable Intangible Assets
Intangible assets from acquired businesses or asset purchases are recognized at their estimated fair values on the date of acquisition and consist of patents, unpatented technology, non-compete agreements, trademarks, customer relationships and other intangible assets. Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from three to twenty-one years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. The Company performs an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be impaired.
The total gross carrying amount and accumulated amortization of definite-lived intangible assets as of December 31, 2022, was $427.0 million and $64.1 million, respectively. The aggregate amount of amortization expense of intangible assets for the years ended December 31, 2022, 2021 and 2020 was $17.4 million, $6.4 million and $6.1 million, respectively. The weighted-average remaining amortization period for all amortizable intangibles on a combined basis is 9.1 years as of December 31, 2022.
The annual changes in the carrying amounts of patents, unpatented technologies, customer relationships and non-compete agreements and other intangible assets subject to amortization for the years ended December 31, 2022 and 2021 were as follows: | | | | | | | | | | | | | | | | | |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Patents | | |
Balance as of January 1, 2021 | $ | 4,699 | | | $ | (934) | | | $ | 3,765 | |
Purchases | 6,074 | | | — | | | 6,074 | |
Amortization | — | | | (428) | | | (428) | |
| | | | | |
| | | | | |
| | | | | |
Balance as of December 31, 2021 | 10,773 | | | (1,362) | | | 9,411 | |
Purchases | 13,775 | | | (670) | | | 13,105 | |
Amortization | — | | | (771) | | | (771) | |
| | | | | |
| | | | | |
| | | | | |
Foreign exchange | (376) | | | — | | | (376) | |
Balance as of December 31, 2022 | $ | 24,172 | | | $ | (2,803) | | | $ | 21,369 | |
| | | | | | | | | | | | | | | | | |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Unpatented Technology | | |
Balance as of January 1, 2021 | $ | 22,104 | | | $ | (16,492) | | | $ | 5,612 | |
Amortization | — | | | (2,174) | | | (2,174) | |
| | | | | |
Reclassifications | 348 | | | — | | | 348 | |
Foreign exchange | (49) | | | — | | | (49) | |
| | | | | |
Balance as of December 31, 2021 | 22,403 | | | (18,666) | | | 3,737 | |
| | | | | |
Amortization | — | | | (793) | | | (793) | |
Reclassifications | (49) | | | — | | | (49) | |
Foreign exchange | 56 | | | — | | | 56 | |
| | | | | |
Balance as of December 31, 2022 | $ | 22,410 | | | $ | (19,459) | | | $ | 2,951 | |
| | | | | | | | | | | | | | | | | |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Non-Compete Agreements, Trademarks and Other | | |
| |
Balance as of January 1, 2021 | $ | 21,582 | | | $ | (7,724) | | | $ | 13,858 | |
| | | | | |
| | | | | |
Amortization | — | | | (2,631) | | | (2,631) | |
Foreign exchange | (148) | | | — | | | (148) | |
| | | | | |
| | | | | |
Balance as of December 31, 2021 | 21,434 | | | (10,355) | | | 11,079 | |
| | | | | |
| | | | | |
Purchases of intangible assets | 6,880 | | | (5) | | | 6,875 | |
Amortization | — | | | (2,572) | | | (2,572) | |
| | | | | |
Reclassifications | 149 | | | — | | | 149 | |
Foreign exchange | (162) | | | — | | | (162) | |
| | | | | |
Balance as of December 31, 2022 | $ | 28,301 | | | $ | (12,932) | | | $ | 15,369 | |
| | | | | | | | | | | | | | | | | |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer Relationships | | |
Balance as of January 1, 2021 | $ | 18,123 | | | $ | (15,175) | | | $ | 2,948 | |
| | | | | |
Disposal | (217) | | | — | | | (217) | |
Amortization | — | | | (1,186) | | | (1,186) | |
| | | | | |
Foreign exchange | (117) | | | — | | | (117) | |
| | | | | |
Balance as of December 31, 2021 | 17,789 | | | (16,361) | | | 1,428 | |
| | | | | |
Purchases of intangible assets | 249,767 | | | (12,223) | | | 237,544 | |
| | | | | |
Amortization | — | | | (386) | | | (386) | |
| | | | | |
Reclassifications | (151) | | | — | | | (151) | |
Foreign exchange | (6,946) | | | — | | | (6,946) | |
| | | | | |
Balance as of December 31, 2022 | $ | 260,459 | | | $ | (28,970) | | | $ | 231,489 | |
As of December 31, 2022, estimated future amortization of intangible assets was as follows:
(in thousands)
| | | | | |
2023 | $ | 20,957 | |
2024 | 20,012 | |
2025 | 19,782 | |
2026 | 19,259 | |
2027 | 18,953 | |
Thereafter | 172,215 | |
| $ | 271,178 | |
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets totaled $91.7 million as of December 31, 2022, including $91.1 million, net of an unfavorable foreign exchange impact of $2.7 million, attributable to trade names acquired in the ETANCO acquisition.
Definite-lived and indefinite-lived assets, net, by segment as of December 31, 2022, and 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
(in thousands) | | |
Total Intangible Assets | | |
North America | $ | 46,643 | | | $ | (26,346) | | | $ | 20,297 | |
Europe | 26,371 | | | (20,399) | | | 5,972 | |
Total | $ | 73,014 | | | $ | (46,745) | | | $ | 26,269 | |
| | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
(in thousands) | | |
Total Intangible Assets | | |
North America | $ | 53,498 | | | $ | (29,782) | | | $ | 23,716 | |
Europe | 373,538 | | | (34,337) | | | 339,201 | |
Total | $ | 427,036 | | | $ | (64,119) | | | $ | 362,917 | |
12. Leases
The Company has operating leases for certain facilities, equipment and automobiles. The existing operating leases expire at various dates through 2027, some of which include options to extend the leases for up to five years. The Company measured the lease liability at the present value of the lease payments to be made over the lease term. The lease payments are discounted using the Company's incremental borrowing rate. The Company measured the right-of-use ("ROU") assets at the amount at which the lease liability is recognized plus initial direct costs incurred or prepayment amounts. The ROU assets are amortized on a straight-line basis over the lease term.
The following table provides a summary of leases included on the consolidated balance sheets as of December 31, 2022, and 2021, and consolidated statements of operations, and consolidated statements of cash flows for the year ended December 31, 2022 and 2021:
| | | | | | | | | | | |
| Consolidated Balance Sheets Line Item | As of December 31, |
| | 2022 | 2021 |
(in thousands) | | | |
Operating leases | | | |
Assets | | | |
Operating leases | Operating lease right-of-use assets | $ | 57,652 | | $ | 45,438 | |
Liabilities | | | |
Operating-current | Accrued expenses and other current liabilities | $ | 11,544 | | $ | 8,769 | |
Operating-noncurrent | Operating lease liabilities | 46,882 | | 37,091 | |
Total operating lease liabilities | | $ | 58,426 | | $ | 45,860 | |
Finance leases | | | |
Assets | | | |
Property and equipment, gross | Property, plant and equipment, net | $ | 3,569 | | $ | 3,569 | |
Accumulated amortization | Property, plant and equipment, net | (3,569) | | (3,416) | |
Property and equipment, net | Property, plant and equipment, net | $ | — | | $ | 153 | |
| | | |
| | | |
| | | |
| | | |
The components of lease expense were as follows:
| | | | | | | | | | | | |
| Consolidated Statements of Operations Line Item | Years Ended December 31, | |
(in thousands) | | 2022 | 2021 | |
Operating lease cost | General administrative expenses and cost of sales | $ | 13,794 | | $ | 11,704 | | |
Finance lease cost: | | | | |
Amortization of right-of-use assets | General administrative expenses | $ | — | | $ | 324 | | |
Interest on lease liabilities | Interest expense, net | — | | 2 | | |
Total finance lease cost | | $ | — | | $ | 326 | | |
Other information
Supplemental cash flow information related to leases is as follows:
| | | | | | | | | |
| Years Ended December 31, | |
(in thousands) | 2022 | 2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases | $ | 13,355 | | $ | 11,443 | | |
Finance cash flows for finance leases | $ | — | | $ | 437 | | |
Operating right-of-use assets obtained in exchange for new lease liabilities | | | |
| | | |
Operating leases | $ | 19,587 | | $ | 11,530 | | |
The following is a schedule, by years, of maturities for lease liabilities as of December 31, 2022:
| | | | | |
(in thousands) | Operating Leases |
2023 | $ | 14,157 | |
2024 | 12,291 | |
2025 | 10,292 | |
2026 | 8,192 | |
2027 | 6,518 | |
Thereafter | 16,680 | |
Total lease payments | 68,129 | |
Less: Present value discount | (9,703) | |
Total lease liabilities | $ | 58,426 | |
The following table summarizes the Company’s lease terms and discount rates as of December 31, 2022:
| | | | | | | | | | |
| Years Ended December 31, | | |
| 2022 | 2021 | | |
Weighted-average remaining lease terms (in years): | | | | |
Operating leases | 6.10 | 6.88 | | |
| | | | |
Weighted-average discount rate: | | | | |
Operating leases | 4.68 | % | 5.22 | % | | |
| | | | |
13. Accrued Liabilities and Other Current Liabilities
Accrued liabilities and other current liabilities consisted of the following: | | | | | | | | | | | |
| As of December 31, |
(in thousands) | 2022 | | 2021 |
Labor related liabilities | $ | 63,451 | | | $ | 46,821 | |
Sales incentives & advertising allowances | 69,029 | | | 63,702 | |
Accrued cash profit sharing and commissions | 22,816 | | | 24,178 | |
Sales tax payable and other | 35,564 | | | 20,822 | |
Dividends payable | 11,170 | | | 10,806 | |
Accrued profit sharing trust contributions | 14,648 | | | 12,289 | |
Operating lease - current portion | 11,544 | | | 8,769 | |
| | | |
| $ | 228,222 | | | $ | 187,387 | |
14. Debt
On March 30, 2022, the Company entered into the Amended and Restated Credit Facility, which amends and restates the Company's previous Credit Agreement, dated July 27, 2012. The Amended and Restated Credit Facility provides for a 5-year $450.0 million revolving line of credit, which includes a letter of credit-sub-facility up to $50.0 million, and a 5-year term loan facility of $450.0 million. The Company borrowed $250.0 million, under the revolving credit facility and $450.0 million under the term loan facility to finance a portion of the purchase price for the acquisition of ETANCO. In addition, the Company incurred $6.8 million of debt issuance costs, which are classified in long-term debt on the consolidating balance sheet, that have been deferred and will amortize over the 5-year terms of the Amended and Restated Credit Facility. During 2022, the Company made principal payments of $100.0 million and $16.9 million of the Company's outstanding Revolving and Term Credit Facility, respectively.
The Company is required to pay an annual revolving credit facility fee of 0.10% to 0.25% per annum on the available commitments under the terms of the Amended and Restated Revolving Credit Facility, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s net leverage ratio. The fee is included within Interest expense, net and other in the Company's consolidated statements of operations.
Amounts borrowed under the Amended and Restated Credit Facility will bear interest from time to time at either the Base Rate, Spread Adjusted Daily Simple SOFR, Spread Adjusted Term SOFR, Adjusted Eurocurrency Rate or Daily Simple RFR, in each case, as calculated under and as in effect from time to time under the Amended and Restated Credit Facility, plus the Applicable Margin, as defined in the Amended and Restated Credit Facility. The Applicable Margin is determined based on the Company’s net leverage ratio, and ranges (i) from 0.00% to 0.75% per annum for amounts borrowed under the term loan facility that bear interest at Base Rate, (ii) from 0.75% to 1.75% per annum for amounts borrowed under the term loan facility that bear interest at Adjusted Eurocurrency Rate, Spread Adjusted Daily Simple SOFR or Spread Adjusted Term SOFR, (iii) from 0.00% to 0.50% per annum for amounts borrowed under the revolving credit facility that bear interest at Base Rate, (iv) from 0.68% to 1.53% per annum for amounts borrowed under the revolving credit facility that bear interest at Daily Simple RFR (solely to the extent denominated in pound sterling) and (v) from 0.65% to 1.50% per annum for amounts borrowed under the revolving credit facility that bear interest at Daily Simple RFR (other than loans denominated in pound sterling) or Adjusted Eurocurrency Rate. Loans outstanding under the Amended and Restated Credit Facility may be prepaid at any time without penalty except for customary breakage costs and expenses. Based on current principal payment expectations, the annual interest rate on the outstanding debt will be approximately 2.00% over the life of the debt including the effects of the interest rate swap and other derivatives noted above.
As of December 31, 2022, in addition to the Amended and Restated Credit Facility, certain of the Company’s domestic subsidiaries are guarantors for a credit agreement between certain of its foreign subsidiaries and institutional lenders. Together, all credit facilities provide the Company with a total of $304.4 million in available revolving credit lines and an irrevocable standby letter of credit in support of various insurance deductibles.
The Company has $583.2 million, excluding deferred financing costs, outstanding under the Amended and Restated Credit Facility, which is the estimated fair value as of December 31, 2022. There were no outstanding balances under the Amended and Restated Credit Facility as of December 31, 2021.
The following is a schedule, by years, of maturities for the remaining term loan facility as of December 31, 2022:
| | | | | | | |
(in thousands) | | | 5-Year Term Loan |
2023 | | | 22,500 | |
2024 | | | 22,500 | |
2025 | | | 22,500 | |
2026 | | | 22,500 | |
2027 | | | 343,125 | |
Total loan outstanding | | | $ | 433,125 | |
| | | |
The $150.0 million borrowed under the revolving credit facility is due on March 31, 2027.
The Company complied with its financial covenants under the Amended and Related Credit Facility as of December 31, 2022.
The Company incurs interest costs, which include interest net of the effect of cash flow hedges, maintenance fees and bank charges. The amount of costs incurred, capitalized, and expensed for the years ended December 31, 2022, 2021 and 2020, consisted of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2022 | | 2021 | | 2020 |
Interest costs, including benefits from cash flow and net investment hedges | $ | 9,685 | | | $ | 1,424 | | | $ | 2,796 | |
Less: Interest capitalized | (1,658) | | | (574) | | | (512) | |
Interest expense, including benefits from cash flow and net investment hedges | $ | 8,027 | | | $ | 850 | | | $ | 2,284 | |
15. Commitments and Contingencies
Purchase Obligations
In addition to the debt and lease obligations described elsewhere in the footnotes, the Company has certain purchase obligations in the ordinary course of business. These purchase obligations are primarily related to the acquisition, construction or expansion of facilities and equipment, 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. As of December 31, 2022, these purchase obligations were $148.2 million, of which $73.9 million is payable in 2023 and the remainder over the following three years. Debt interest obligations include annual facility fees on the Company’s primary line-of-credit facility in the amount of $42.2 million at December 31, 2022.
Employee Relations
As of December 31, 2022, approximately 9% of our employees are represented by labor unions and are covered by collective bargaining agreements in the U.S. The Company has two-facility locations with collective bargaining agreements covering tool and die craftsmen, maintenance workers, and sheet-metal workers. In Stockton, California, two union contracts will expire in September 2023 and June 2023, respectively. Also, the Company has two contracts in San Bernardino County, California that will expire in February 2025 and in June 2026, respectively. Based on current information and subject to future events and circumstances, the Company believes that, even if new agreements are not reached before the existing labor union contracts expire, it is not expected 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 and Potential Claims
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. Corrosion, hydrogen embrittlement, 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.
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.
16. Income Taxes
The provision for income taxes from operations consisted of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2022 | | 2021 | | 2020 |
Current | | | | | |
Federal | $ | 90,703 | | | $ | 65,861 | | | $ | 42,337 | |
State | 25,347 | | | 19,515 | | | 12,571 | |
Foreign | 12,544 | | | 7,641 | | | 4,478 | |
Deferred | | | | | 0 |
Federal | (5,806) | | | 802 | | | 2,330 | |
State | (801) | | | (169) | | | 598 | |
Foreign | (7,917) | | | (1,548) | | | 250 | |
| $ | 114,070 | | | $ | 92,102 | | | $ | 62,564 | |
Income and loss from operations before income taxes for the years ended December 31, 2022, 2021, and 2020, respectively, consisted of the following:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(in thousands) | 2022 | | 2021 | | 2020 |
Domestic | $ | 437,506 | | | $ | 336,085 | | | $ | 238,320 | |
Foreign | 10,559 | | | 22,464 | | | 11,244 | |
| $ | 448,065 | | | $ | 358,549 | | | $ | 249,564 | |
As of December 31, 2022, the Company had $36.1 million of net operating loss carryforwards in various foreign taxing jurisdictions. Most of the tax losses can be carried forward indefinitely.
As of December 31, 2022, and 2021, the Company has valuation allowances of $11.2 million and $12.0 million, respectively. The valuation allowance decreased by $0.8 million and increased by $0.7 million for the years ended December 31, 2022, and December 31, 2021, respectively. The decrease in the 2022 valuation allowances was primarily a result of exchange rate fluctuation. The increase in the 2021 valuation allowances was primarily the result of an impairment on a foreign equity investment.
As of December 31, 2022, the Company asserts that its accumulated undistributed earnings generated by our foreign subsidiaries are permanently reinvested and as such, has not recognized a US deferred tax liability on its investment in foreign subsidiaries. The Company will continue to assess its permanent reinvestment assertion on a quarterly basis.
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) | 2022 | | 2021 | | 2020 |
Federal tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
State taxes, net of federal benefit | 4.4 | % | | 4.3 | % | | 4.2 | % |
| | | | | |
| | | | | |
| | | | | |
Change in valuation allowance | — | % | | — | % | | 0.1 | % |
True-up of prior year tax returns to tax provision | — | % | | (0.1) | % | | (0.4) | % |
Difference between U.S. statutory and foreign local tax rates | 0.2 | % | | 0.4 | % | | 0.4 | % |
Change in uncertain tax position | — | % | | — | % | | — | % |
Other | (0.1) | % | | 0.1 | % | | (0.2) | % |
Effective income tax rate | 25.5 | % | | 25.7 | % | | 25.1 | % |
The tax effects of the significant temporary differences that constitute the deferred tax assets and liabilities as of December 31, 2022, and 2021, respectively, were as follows:
| | | | | | | | | | | |
| As of December 31, |
(in thousands) | 2022 | | 2021 |
Deferred asset taxes | | | |
State tax | $ | 1,857 | | | $ | 1,490 | |
Health claims | 2,877 | | | 1,351 | |
Inventories | 7,902 | | | 7,497 | |
Sales incentive and advertising allowances | 2,191 | | | 1,777 | |
Lease obligations | 14,827 | | | 11,562 | |
Stock-based compensation | 2,251 | | | 2,612 | |
Foreign tax credit carryforwards | 4,961 | | | 4,983 | |
Non-United States tax loss carry forward | 6,557 | | | 7,824 | |
Acquisition expense | 2,409 | | | 609 | |
Capitalized research & development expenditures | 6,671 | | | — | |
Other | 2,533 | | | 1,889 | |
Total deferred tax assets | $ | 55,036 | | | $ | 41,594 | |
Less valuation allowances | (11,180) | | | (11,992) | |
Total deferred asset taxes | $ | 43,856 | | | $ | 29,602 | |
Deferred tax liabilities | | | |
Depreciation | $ | (28,271) | | | $ | (14,999) | |
Goodwill and other intangibles amortization | (102,998) | | | (16,682) | |
Right of use assets | (14,635) | | | (11,453) | |
| | | |
Hedging OCI | (10,284) | | | — | |
Total deferred tax liabilities | (156,188) | | | (43,134) | |
Total Deferred tax asset/(liability) | $ | (112,332) | | | $ | (13,532) | |
A reconciliation of the beginning and ending amounts of unrecognized tax benefits in 2022, 2021 and 2020, respectively, were as follows, including foreign translation amounts:
| | | | | | | | | | | | | | | | | |
Reconciliation of Unrecognized Tax Benefits | 2022 | | 2021 | | 2020 |
Balance as of January 1 | $ | 944 | | | $ | 1,168 | | | $ | 1,706 | |
Additions based on tax positions related to prior years | 6,528 | | | 9 | | | 78 | |
Reductions based on tax positions related to prior years | (38) | | | (47) | | | (7) | |
Additions for tax positions of the current year | 73 | | | 3 | | | 48 | |
| | | | | |
Lapse of statute of limitations | (275) | | | (189) | | | (657) | |
Balance as of December 31 | $ | 7,232 | | | $ | 944 | | | $ | 1,168 | |
During 2022, the Company’s uncertain tax positions increased by $6.5 million, primarily due to positions for open years of which were assumed in the Company’s acquisition of ETANCO.
Tax positions of $0.2, $0.3, and $0.3 million are included in the balance of unrecognized tax benefits as of December 31, 2022, 2021, and 2020, respectively, which if recognized, would reduce the effective tax rate.
The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense in accordance with the Company’s historical accounting policy. During the years ended December 31, 2022, 2021 and 2020, accrued interest increased by $673 thousand, and decreased by $39 thousand and $108 thousand, respectively. The Company had accrued $0.9 million, $0.2 million and $0.3 million as of December 31, 2022, 2021 and 2020, respectively for the potential payment of interest and penalties before income tax benefits. The Company does not expect any material changes in unrecognized tax benefits within the next 12 months.
As of December 31, 2022, the Company remained subject to federal income tax examinations in the U.S. for the tax years 2019 through 2022. In addition, tax years 2017 through 2022 remain open to examination in states, local and foreign jurisdictions.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act “IRA”. The provisions include the new Corporate Alternative Minimum Tax "CAMT", an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, all effective for tax year 2023. The Company is not subject to the provisions of CAMT but will evaluate the impact, if any, of the other provisions under the IRA when they become effective in tax year 2023.
17. Retirement Plans
The Company has six defined contribution retirement plans covering substantially all salaried employees and nonunion hourly employees. The Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan (the "Plan") covers U.S. employees and provides for quarterly safe harbor contributions, limited to 3% of the employees' quarterly eligible compensation and for annual discretionary contributions, subject to certain limitations. The discretionary amounts for 2022, 2021 and 2020 were equal to 7% of qualifying salaries or wages of the covered employees. The other five defined contribution 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, 2022, 2021 and 2020, was $23.8 million, $20.7 million, and $17.7 million, respectively.
We participate in various multiemployer benefit plans that cover some of our employees who are represented by labor unions. We make periodic contributions to these plans in accordance with the terms of applicable collective bargaining agreements and laws but do not sponsor or administer these plans. We do not participate in any multiemployer benefit plans for which we consider our contributions to be individually significant. If we withdraw from participation in any of these plans, the applicable law would require us to fund our allocable share of the unfunded vested benefits, which is known as a withdrawal liability. As of December 31, 2022, we believe that there was no probable withdrawal liability under the multiemployer benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees.
Our total contribution to various industry-wide, union-sponsored pension funds and a statutorily required pension fund for employees in the U.S. and Europe were $5.4 million, $5.0 million and $5.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.
18. Related Party Transactions
During 2022, the Company identified certain purchases of goods and services from companies where the current and former Chief Executive Officers of the Company serves as a director on the respective company's board providing the goods or services. The amount of goods and services purchased by the Company pursuant to these arrangements was not material to the Company’s consolidated statements of operations and cash flows for the year ended December 31, 2022.
19. Segment Information
The Company is organized into three reporting segments 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 (comprised primarily of the Company’s operations in the U.S. and Canada), the Europe segment and the Asia/Pacific segment (comprised of the Company’s operations in Asia, the South Pacific, 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, 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.
The following table shows certain measurements used by management to assess the performance of the segments described above as of December 31, 2022, 2021 and 2020, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | North America | | Europe | | Asia/ Pacific | | Administrative & All Other | | Total |
2022 | | | | |
Net sales | $ | 1,701,041 | | | $ | 400,303 | | | $ | 14,743 | | | $ | — | | | $ | 2,116,087 | |
Sales to other segments * | 4,862 | | | 5,732 | | | 32,979 | | | — | | | 43,573 | |
Income from operations** | 485,899 | | | 11,121 | | | 723 | | | (38,676) | | | 459,067 | |
Depreciation and amortization | 36,003 | | | 22,594 | | | 1,730 | | | 563 | | | 60,890 | |
Significant non-cash charges | 7,504 | | | 1,099 | | | 510 | | | 5,868 | | | 14,981 | |
Provision for income taxes | 112,537 | | | 1,193 | | | 1,091 | | | (751) | | | 114,070 | |
Business acquisitions, net of cash acquired, capital expenditures, asset acquisition, and equity investments | 54,594 | | | 817,163 | | | 1,173 | | | 2,871 | | | 875,801 | |
Total assets | 1,393,968 | | | 675,634 | | | 34,599 | | | 399,770 | | | 2,503,971 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | North America | | Europe | | Asia/ Pacific | | Administrative & All Other | | Total |
2021 | | | | |
Net sales | $ | 1,362,941 | | | $ | 196,996 | | | $ | 13,280 | | | $ | — | | | $ | 1,573,217 | |
Sales to other segments * | 2,237 | | | 5,696 | | | 27,109 | | | — | | | 35,042 | |
Income from operations** | 359,140 | | | 14,160 | | | 1,193 | | | (6,700) | | | 367,793 | |
Depreciation and amortization | 33,950 | | | 6,172 | | | 1,844 | | | 511 | | | 42,477 | |
| | | | | | | | | |
Significant non-cash charges | 8,173 | | | 1,943 | | | 166 | | | 7,607 | | | 17,889 | |
Provision for income taxes | 87,962 | | | 3,826 | | | 241 | | | 73 | | | 92,102 | |
Capital expenditures, including purchases of intangible assets, | 45,817 | | | 2,403 | | | 603 | | | 988 | | | 49,811 | |
Total assets | 1,352,988 | | | 202,631 | | | 31,832 | | | (103,326) | | | 1,484,125 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | North America | | Europe | | Asia/ Pacific | | Administrative & All Other | | Total |
2020 | | | | |
Net sales | $ | 1,101,891 | | | $ | 156,713 | | | $ | 9,341 | | | $ | — | | | $ | 1,267,945 | |
Sales to other segments * | 2,554 | | | 5,576 | | | 25,320 | | | — | | | 33,450 | |
Income from operations** | 265,541 | | | 8,396 | | | 308 | | | (21,882) | | | 252,363 | |
Depreciation and amortization | 30,218 | | | 5,856 | | | 1,709 | | | 984 | | | 38,767 | |
| | | | | | | | | |
Significant non-cash charges | 6,929 | | | 1,226 | | | 376 | | | 4,975 | | | 13,506 | |
Provision for income taxes | 58,201 | | | 3,817 | | | 613 | | | (67) | | | 62,564 | |
Capital expenditures, including purchases of intangible assets, | 29,937 | | | 4,248 | | | 705 | | | 5,816 | | | 40,706 | |
Total assets | 1,001,168 | | | 198,647 | | | 32,754 | | | — | | | 1,232,569 | |
* Sales to other segments are eliminated in consolidation.
** Beginning in 2022, the Company changed its presentation of its North America and Administrative and all other segment's statement of operations to display allocated expenses and management fees as a separate item below income from operations. During 2021 and 2020, allocated expenses and management fees between the two segments were previously included in gross profit, operating expenses and in income from operations and been adjusted herein to conform to 2022 presentation. consolidated statements of operations, income before tax and net income for all periods presented below are not affected by the change of operations.
Cash collected by the Company’s U.S. subsidiaries is routinely transferred into the Company’s cash management accounts, and therefore is in the total assets of "Administrative & All Other." Cash and cash equivalent balances in "Administrative & All Other" were $222.5 million, $223.5 million and $199.8 million as of December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the Company had $77.9 million, or 25.9%, of its cash and cash equivalents held outside the U.S. 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 repatriated to the U.S.
The significant non-cash charges comprise compensation related to equity 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 (expense), net and other, foreign exchange gain (loss), certain legal and professional fees associated with the acquisition of ETANCO, refer to Note 3 "Acquisitions," and loss on disposal of a business. Interest income (expense) 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, 2022, 2021 and 2020, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
(in thousands) | Net Sales | | Long-Lived Assets | | Net Sales | | Long-Lived Assets | | Net Sales | | Long-Lived Assets |
United States | $ | 1,615,728 | | | $ | 273,407 | | | $ | 1,287,085 | | | $ | 228,623 | | | $ | 1,045,509 | | | $ | 215,082 | |
France | 170,904 | | | 90,296 | | | 50,445 | | | 5,988 | | | 40,672 | | | 7,095 | |
Canada | 81,036 | | | 2,571 | | | 70,401 | | | 2,861 | | | 52,889 | | | 3,059 | |
United Kingdom | 37,349 | | | 1,898 | | | 37,408 | | | 1,851 | | | 24,290 | | | 2,073 | |
Germany | 42,954 | | | 11,507 | | | 29,970 | | | 9,999 | | | 24,069 | | | 11,163 | |
Italy | 47,294 | | | 4,342 | | | — | | | — | | | — | | | — | |
Poland | 27,803 | | | 2,721 | | | 13,909 | | | 2,496 | | | 11,648 | | | 2,779 | |
Sweden | 16,156 | | | 2,369 | | | 17,003 | | | 2,664 | | | 15,241 | | | 2,986 | |
Denmark | 12,610 | | | 1,015 | | | 13,964 | | | 2,281 | | | 11,931 | | | 2,445 | |
Norway | 12,241 | | | — | | | 12,736 | | | — | | | 11,138 | | | — | |
| | | | | | | | | | | |
Australia | 9,468 | | | 245 | | | 8,120 | | | 201 | | | 5,749 | | | 134 | |
Belgium | 15,032 | | | 2,182 | | | 6,818 | | | 2,349 | | | 5,311 | | | 2,268 | |
Other countries | 27,512 | | | 11,496 | | | 25,358 | | | 15,249 | | | 19,498 | | | 18,246 | |
| $ | 2,116,087 | | | $ | 404,049 | | | $ | 1,573,217 | | | $ | 274,562 | | | $ | 1,267,945 | | | $ | 267,330 | |
Net sales and long-lived assets, excluding intangible assets, are attributable to the country where the sales or manufacturing operations are located.
The Company’s 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. Its 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 shows the distribution of the Company’s net sales by product for the years ended December 31, 2022, 2021 and 2020, respectively:
| | | | | | | | | | | | | | | | | |
(in thousands) | 2022 | | 2021 | | 2020 |
Wood Construction | $ | 1,831,580 | | | $ | 1,361,113 | | | $ | 1,082,877 | |
Concrete Construction | 282,205 | | | 210,780 | | | 184,631 | |
Other | 2,302 | | | 1,324 | | | 437 | |
Total | $ | 2,116,087 | | | $ | 1,573,217 | | | $ | 1,267,945 | |
No customers accounted for at least 10% of net sales for the years ended 2022, 2021 and 2020.
20. Subsequent Events
Effective January 1, 2023, Mike Olosky, the Company’s President and Chief Operating Officer ("COO") was promoted as the Company’s President and Chief Executive Officer ("CEO").
On January 24, 2023, the Company's Board of Directors (the (Board") declared a quarterly cash dividend of $0.26 per share of the Company's common stock, estimated to be $11.1 million in total. The record date for the dividend will be April 6, 2023, and will be paid on April 27, 2023.