UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:  June 30, 2012

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to              

 

Commission file number:  1-13429

 

Simpson Manufacturing Co., Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

94-3196943

(State or other jurisdiction of incorporation

 

(I.R.S. Employer

or organization)

 

Identification No.)

 

5956 W. Las Positas Blvd., Pleasanton, CA 94588

(Address of principal executive offices)

 

(Registrant’s telephone number, including area code):  (925) 560-9000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

The number of shares of the registrant’s common stock outstanding as of June 30, 2012:  48,318,180

 

 

 



 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

2011

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

162,719

 

$

262,013

 

$

213,817

 

Trade accounts receivable, net

 

120,119

 

117,975

 

76,420

 

Inventories

 

185,217

 

166,934

 

180,129

 

Deferred income taxes

 

12,124

 

10,884

 

11,774

 

Assets held for sale

 

 

6,792

 

6,793

 

Other current assets

 

14,516

 

8,813

 

13,131

 

Total current assets

 

494,695

 

573,411

 

502,064

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

208,685

 

183,698

 

195,716

 

Goodwill

 

127,983

 

72,111

 

99,849

 

Intangible assets, net

 

41,529

 

22,051

 

27,856

 

Equity method investment

 

 

839

 

 

Other noncurrent assets

 

6,013

 

12,465

 

10,602

 

Total assets

 

$

878,905

 

$

864,575

 

$

836,087

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Line of credit and notes payable

 

$

4,837

 

$

 

$

 

Trade accounts payable

 

34,740

 

32,060

 

22,034

 

Accrued liabilities

 

41,491

 

36,067

 

36,156

 

Income taxes payable

 

1,396

 

3,054

 

 

Accrued profit sharing trust contributions

 

2,393

 

2,997

 

4,477

 

Accrued cash profit sharing and commissions

 

10,307

 

13,036

 

3,446

 

Accrued workers’ compensation

 

4,861

 

5,663

 

5,474

 

Total current liabilities

 

100,025

 

92,877

 

71,587

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

5,936

 

7,246

 

6,137

 

Total liabilities

 

105,961

 

100,123

 

77,724

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, at par value

 

482

 

482

 

481

 

Additional paid-in capital

 

176,809

 

167,862

 

170,483

 

Retained earnings

 

591,595

 

571,229

 

580,616

 

Accumulated other comprehensive income

 

4,058

 

24,879

 

6,783

 

Total stockholders’ equity

 

772,944

 

764,452

 

758,363

 

Total liabilities and stockholders’ equity

 

$

878,905

 

$

864,575

 

$

836,087

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2



 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands except per-share amounts, unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net sales

 

$

181,703

 

$

177,812

 

$

340,437

 

$

310,348

 

Cost of sales

 

98,557

 

94,313

 

187,886

 

169,900

 

Gross profit

 

83,146

 

83,499

 

152,551

 

140,448

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development and other engineering

 

9,043

 

6,945

 

18,240

 

12,939

 

Selling

 

19,881

 

19,819

 

40,314

 

36,895

 

General and administrative

 

27,087

 

25,454

 

53,331

 

47,076

 

Loss (gain) on sale of assets

 

(13

)

73

 

10

 

48

 

 

 

55,998

 

52,291

 

111,895

 

96,958

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

27,148

 

31,208

 

40,656

 

43,490

 

 

 

 

 

 

 

 

 

 

 

Loss in equity method investment, before tax

 

 

(69

)

 

(82

)

Interest income, net

 

58

 

108

 

123

 

179

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

27,206

 

31,247

 

40,779

 

43,587

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

11,347

 

11,754

 

17,719

 

17,016

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

15,859

 

$

19,493

 

$

23,060

 

$

26,571

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

$

0.39

 

$

0.48

 

$

0.53

 

Diluted

 

$

0.33

 

$

0.39

 

$

0.48

 

$

0.53

 

 

 

 

 

 

 

 

 

 

 

Number of shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

48,340

 

49,404

 

48,307

 

49,753

 

Diluted

 

48,419

 

49,456

 

48,378

 

49,809

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.125

 

$

0.125

 

$

0.25

 

$

0.25

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3



 

Simpson Manufacturing Co., Inc. and Subsidiaries

Statements of Comprehensive Income

(In thousands, unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

15,859

 

$

19,493

 

$

23,060

 

$

26,571

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

Translation adjustment, net of tax benefit (expense) of ($20), $2, $3 and $1, respectively

 

(9,951

)

3,395

 

(2,725

)

10,252

 

 

 

(9,951

)

3,395

 

(2,725

)

10,252

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

5,908

 

$

22,888

 

$

20,335

 

$

36,823

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4



 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the six months ended June 30, 2011 and 2012 and December 31, 2011

(In thousands except per-share amounts, unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury

 

 

 

 

 

Shares

 

Par Value

 

Capital

 

Earnings

 

Income (Loss)

 

Stock

 

Total

 

Balance, January 1, 2011

 

50,096

 

$

500

 

$

165,425

 

$

607,241

 

$

14,627

 

 

$

787,793

 

Net income

 

 

 

 

26,571

 

 

 

26,571

 

Translation adjustment, net of tax of $1

 

 

 

 

 

10,252

 

 

10,252

 

Stock options exercised

 

6

 

 

154

 

 

 

 

154

 

Stock compensation

 

 

 

2,118

 

 

 

 

2,118

 

Tax effect of options exercised

 

 

 

(39

)

 

 

 

(39

)

Repurchase of common stock

 

(1,828

)

 

 

 

 

(50,075

)

(50,075

)

Retirement of common stock

 

 

(18

)

 

(50,057

)

 

50,075

 

 

Cash dividends declared on common stock, $0.25 per share

 

 

 

 

(12,526

)

 

 

(12,526

)

Common stock issued at $30.91 per share for stock bonus

 

7

 

 

204

 

 

 

 

204

 

Balance, June 30, 2011

 

48,281

 

482

 

167,862

 

571,229

 

24,879

 

 

764,452

 

Net income

 

 

 

 

24,329

 

 

 

24,329

 

Translation adjustment, net of tax of ($2)

 

 

 

 

 

(18,096

)

 

(18,096

)

Stock options exercised

 

2

 

 

60

 

 

 

 

60

 

Stock compensation

 

 

 

4,076

 

 

 

 

4,076

 

Tax effect of options exercised

 

 

 

(1,515

)

 

 

 

(1,515

)

Repurchase of common stock

 

(120

)

 

 

 

 

(3,133

)

(3,133

)

Retirement of common stock

 

 

(1

)

 

(3,132

)

 

3,133

 

 

Cash dividends declared on common stock, $0.25 per share

 

 

 

 

(11,810

)

 

 

(11,810

)

Balance, December 31, 2011

 

48,163

 

481

 

170,483

 

580,616

 

6,783

 

 

758,363

 

Net income

 

 

 

 

23,060

 

 

 

23,060

 

Translation adjustment, net of tax of $3

 

 

 

 

 

(2,725

)

 

(2,725

)

Stock options exercised

 

82

 

1

 

1,982

 

 

 

 

1,983

 

Stock compensation

 

 

 

5,005

 

 

 

 

5,005

 

Tax effect of options exercised

 

 

 

(56

)

 

 

 

(56

)

Shares issued from release of Restricted Stock Units

 

61

 

 

(1,023

)

 

 

 

(1,023

)

Cash dividends declared on common stock, $0.25 per share

 

 

 

 

(12,081

)

 

 

(12,081

)

Common stock issued at $33.71 per share for stock bonus

 

12

 

 

418

 

 

 

 

418

 

Balance, June 30, 2012

 

48,318

 

$

482

 

$

176,809

 

$

591,595

 

$

4,058

 

$

 

$

772,944

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5



 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

 

 

Six Months

 

 

 

Ended June 30,

 

 

 

2012

 

2011

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

23,060

 

$

26,571

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Loss on sale of assets

 

10

 

48

 

Depreciation and amortization

 

13,813

 

10,055

 

Impairment loss on assets held for sale

 

461

 

1,094

 

Deferred income taxes

 

(681

)

(1,026

)

Noncash compensation related to stock plans

 

5,300

 

2,377

 

Loss in equity method investment

 

 

82

 

Excess tax benefit of options exercised

 

(99

)

4

 

Provision for doubtful accounts

 

225

 

179

 

Accrued interest earned from related party

 

 

(58

)

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

Trade accounts receivable

 

(40,837

)

(48,234

)

Inventories

 

(47

)

(12,404

)

Trade accounts payable

 

10,694

 

(2,386

)

Income taxes payable

 

4,462

 

7,890

 

Accrued profit sharing trust contributions

 

(2,085

)

(2,611

)

Accrued cash profit sharing and commissions

 

6,873

 

10,160

 

Other current assets

 

3,537

 

410

 

Accrued liabilities

 

(4,775

)

3,215

 

Long-term liabilities

 

(250

)

(42

)

Accrued workers’ compensation

 

(613

)

979

 

Other noncurrent assets

 

(2,168

)

352

 

Net cash provided by (used in) operating activities

 

16,880

 

(3,345

)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Capital expenditures

 

(9,629

)

(14,095

)

Asset acquisitions, net of cash acquired

 

(56,044

)

 

Proceeds from sale of property and equipment

 

6,958

 

3,156

 

Loans repaid by related parties

 

 

26

 

Net cash used in investing activities

 

(58,715

)

(10,913

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Repurchase of common stock

 

 

(50,075

)

Debt and line of credit borrowings

 

2,146

 

 

Repayment of debt and line of credit borrowings

 

(954

)

 

Debt issuance costs

 

(25

)

 

Issuance of common stock

 

1,983

 

154

 

Excess tax benefit of options exercised

 

99

 

(4

)

Dividends paid

 

(12,059

)

(11,274

)

Net cash used in financing activities

 

(8,810

)

(61,199

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(453

)

2,421

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(51,098

)

(73,036

)

Cash and cash equivalents at beginning of period

 

213,817

 

335,049

 

Cash and cash equivalents at end of period

 

$

162,719

 

$

262,013

 

 

 

 

 

 

 

Noncash activity during the period

 

 

 

 

 

Noncash capital expenditures

 

$

258

 

$

1,587

 

Dividends declared but not paid

 

6,044

 

6,263

 

Issuance of Company’s common stock for compensation

 

418

 

204

 

Non-cash contingent consideration

 

786

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6



 

Simpson Manufacturing Co., Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.                                       Basis of Presentation

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries (the “Company”). Investments in 50% or less owned affiliates are accounted for using either cost or the equity method. All significant intercompany transactions have been eliminated.

 

Interim Period Reporting

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These interim statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “2011 Annual Report”).

 

The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial information set forth therein, in accordance with GAAP. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP. The Company’s quarterly results fluctuate. As a result, the Company believes the results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period.

 

Revenue Recognition

 

The Company recognizes revenue when the earnings process is complete, net of applicable provision for discounts, returns and incentives, whether actual or estimated, based on the Company’s experience. This generally occurs when products are shipped to the customer in accordance with the sales agreement or purchase order, ownership and risk of loss pass to the customer, collectibility is reasonably assured and pricing is fixed or determinable. The Company’s general shipping terms are F.O.B. shipping point, where title is transferred and revenue is recognized when the products are shipped to customers. When the Company sells F.O.B. destination point, title is transferred and the Company recognizes revenue on delivery or customer acceptance, depending on terms of the sales agreement. Service sales, representing after-market repair and maintenance, engineering activities, software license sales and services and lease income, though significantly less than 1% of net sales and not material to the consolidated financial statements, are recognized as the services are completed or the software products and services are delivered. If actual costs of sales returns, incentives and discounts were to significantly exceed the recorded estimated allowance, the Company’s sales would be adversely affected.

 

Net Earnings Per Common Share

 

Basic earnings per common share is computed based on the weighted average number of common shares outstanding. Potentially dilutive securities, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.

 

7



 

The following is a reconciliation of basic earnings per share (“EPS”) to diluted EPS:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in thousands, except per share amounts)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

15,859

 

$

19,493

 

$

23,060

 

$

26,571

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

48,340

 

49,404

 

48,307

 

49,753

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of potential common stock equivalents — stock options

 

79

 

52

 

71

 

56

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

48,419

 

49,456

 

48,378

 

49,809

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

$

0.39

 

$

0.48

 

$

0.53

 

Diluted

 

0.33

 

0.39

 

0.48

 

0.53

 

 

 

 

 

 

 

 

 

 

 

Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive

 

1,711

 

1,743

 

1,711

 

1,743

 

 

Accounting for Stock-Based Compensation

 

With the approval of the Company’s stockholders on April 26, 2011, the Company adopted the Simpson Manufacturing Co., Inc. 2011 Incentive Plan (the “2011 Plan”). The 2011 Plan amended and restated in their entirety, and incorporated and superseded, both the Simpson Manufacturing Co., Inc. 1994 Stock Option Plan (the “1994 Plan”), which was principally for the Company’s employees, and the Simpson Manufacturing Co., Inc. 1995 Independent Director Stock Option Plan (the “1995 Plan”), which was for its independent directors. Options previously granted under the 1994 Plan or the 1995 Plan will not be affected by the adoption of the 2011 Plan and will continue to be governed by the 1994 Plan or the 1995 Plan, respectively.

 

Under the 1994 Plan, the Company could grant incentive stock options and non-qualified stock options. The Company has, however, granted only non-qualified stock options under both the 1994 Plan and the 1995 Plan. The Company generally granted options under each of the 1994 Plan and the 1995 Plan once each year. The exercise price per share of each option granted in February 2011 under the 1994 Plan equaled the closing market price per share of the Company’s common stock as reported by the New York Stock Exchange on the day preceding the day that the Compensation and Leadership Development Committee of the Company’s Board of Directors met to approve the grant of the options. The exercise price per share under each option granted under the 1995 Plan was at the fair market value on the date specified in the 1995 Plan. Options vest and expire according to terms established at the grant date. Options granted under the 1994 Plan typically vest evenly over the requisite service period of four years and have a term of seven years. The vesting of options granted under the 1994 Plan will be accelerated if the grantee ceases to be employed by the Company after reaching age 60 or if there is a change in control of the Company. Options granted under the 1995 Plan were fully vested on the date of grant. Shares of common stock issued on exercise of stock options under the 1994 Plan and the 1995 Plan are registered under the Securities Act of 1933.

 

Under the 2011 Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock and restricted stock units, although the Company currently intends to award primarily restricted stock units and to a lesser extent, if at all, non-qualified stock options. The Company does not currently intend to award incentive stock options or restricted stock. Under the 2011 Plan, no more than 16.3 million shares of the Company’s common stock may be issued (including shares already sold) pursuant to all awards under the 2011 Plan, including on exercise of options previously granted under the 1994 Plan and the 1995 Plan. Shares of common stock to be issued pursuant to the 2011 Plan are registered under the Securities Act of 1933.

 

8



 

The following table represents the Company’s stock option and restricted stock unit activity for the three and six months ended June 30, 2012 and 2011:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in thousands)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense recognized in operating expenses

 

$

2,052

 

$

845

 

$

5,120

 

$

2,293

 

 

 

 

 

 

 

 

 

 

 

Tax benefit of stock-based compensation expense in provision for income taxes

 

705

 

297

 

1,771

 

818

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense, net of tax

 

$

1,347

 

$

548

 

$

3,349

 

$

1,475

 

 

 

 

 

 

 

 

 

 

 

Fair value of shares vested

 

$

1,895

 

$

837

 

$

5,005

 

$

2,118

 

 

 

 

 

 

 

 

 

 

 

Proceeds to the Company from the exercise of stock-based compensation

 

$

225

 

$

 

$

1,983

 

$

154

 

 

 

 

 

 

 

 

 

 

 

Tax effect from exercise of stock-based compensation, including shortfall tax benefits

 

$

(54

)

$

 

$

(56

)

$

(39

)

 

 

 

At June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Stock-based compensation cost capitalized in inventory

 

$

229

 

$

108

 

 

The amounts included in cost of sales, research and development and other engineering, selling, or general and administrative expense depend on the job functions performed by the employees to whom the stock options and restricted stock units were awarded.

 

The assumptions used to calculate the fair value of options or restricted stock units granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.

 

Fair Value of Financial Instruments

 

The “Fair Value Measurements and Disclosures” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“ASC”) establishes a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

As of June 30, 2012, the Company’s investments consisted of only United States Treasury securities and money market funds aggregating $51.3 million, which are the primary financial instruments, maintained in cash equivalents and carried at cost, approximating fair value, based on Level 1 inputs. All other financial assets and financial liabilities, including lines of credit, accounts receivable, accounts payable and accrued liabilities, are carried at cost, approximating fair value, based on Level 3 inputs.

 

Income Taxes

 

The Company uses an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in each interim period.

 

9



 

The following table presents the Company’s effective tax rates and income tax expense for the three and six months ended June 30, 2012 and 2011:

 

 

 

Three Months Ended

 

Six Months Ended

 

(in thousands, except

 

June 30,

 

June 30,

 

percentage amounts)

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

41.7

%

37.6

%

43.5

%

39.0

%

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

$

11,347

 

$

11,754

 

$

17,719

 

$

17,016

 

 

Acquisitions

 

In January 2012, the Company purchased all of the shares of S&P Clever Reinforcement Company AG and S&P Clever International AG, both companies incorporated under the laws of Switzerland (collectively, “S&P Clever”), for $58.1 million, subject to post-closing adjustments. S&P Clever manufactures and sells engineered materials to repair, strengthen and restore concrete and masonry construction and has operations in Switzerland, Germany, Portugal, Poland, The Netherlands and Austria. Payments under the purchase agreement include cash payments of $57.5 million and contingent consideration of $0.6 million payable over a three-year period if sales goals are met. As a result of the acquisition, the Company has increased its presence in the infrastructure, commercial and industrial construction market in Europe. The Company’s provisional measurement of assets acquired and liabilities assumed included cash and cash equivalents of $6.8 million, other current assets of $9.9 million, non-current assets of $54.2 million, current liabilities of $12.6 million and non-current liabilities of $0.2 million. Included in non-current assets is goodwill of $26.1 million, which was assigned to the European segment and is not deductible for tax purposes, and intangible assets of $15.0 million, which is deductible for tax purposes.

 

In March 2012, the Company purchased substantially all of the assets of CarbonWrap Solutions, L.L.C. (“CarbonWrap”) for $5.5 million, subject to post-closing adjustments. CarbonWrap develops fiber-reinforced polymer products primarily for infrastructure and transportation projects. Payments under the purchase agreement totaled $5.3 million in cash and contingent consideration of $0.2 million to be paid on resolution of specified post-closing contingencies to the principal officer of CarbonWrap, who is now employed by the Company. Goodwill of $3.6 million was assigned to the North American segment and is deductible for tax purposes.  Intangible assets were valued at $1.6 million and are subject to tax-deductible amortization.  Net tangible assets consisting of accounts receivable, inventory, equipment and prepaid expenses accounted for the balance of the purchase price.

 

Under the business combinations topic of the FASB ASC, the Company accounted for these acquisitions as business combinations and ascribed acquisition-date fair values to the acquired assets and assumed liabilities. Provisional fair value measurements were made in the first quarter of 2012 for acquired assets and assumed liabilities. Adjustments to those measurements may be made in subsequent periods, up to one year from the acquisition date, as information necessary to complete the analysis is obtained. Fair value of intangible assets was based on Level 3 inputs. The Company expects the measurement process for each acquisition to be finalized within a year of its date.

 

Pro-forma financial information is not presented as it would not be materially different from the information presented in the Condensed Consolidated Statements of Operations.

 

Recently Adopted Accounting Standards

 

Effective January 1, 2012, the Company adopted the guidance codified in the “Comprehensive Income” topic of the FASB ASC, amending the comprehensive income guidance to eliminate the option to present components of other comprehensive income as part of the statement of stockholders’ equity. This amendment requires that all non-owner changes in stockholders’ equity be presented in a single continuous statement or in two separate but consecutive statements. The Company has chosen to present comprehensive income in two separate consecutive statements. The implementation of this amended accounting guidance did not have a material effect on the Company’s consolidated financial position and results of operations.

 

10



 

Recently Issued Accounting Standards

 

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants and the Securities and Exchange Commission did not or is not expected to have a material effect on the Company’s consolidated financial statements.

 

2.                                       Trade Accounts Receivable, Net

 

Trade accounts receivable consisted of the following:

 

 

 

At June 30,

 

At December 31,

 

(in thousands)

 

2012

 

2011

 

2011

 

 

 

 

 

 

 

 

 

Trade accounts receivable

 

$

123,531

 

$

121,414

 

$

78,642

 

Allowance for doubtful accounts

 

(1,343

)

(1,500

)

(991

)

Allowance for sales discounts and returns

 

(2,069

)

(1,939

)

(1,231

)

 

 

$

120,119

 

$

117,975

 

$

76,420

 

 

3.                                       Inventories

 

Inventories consisted of the following:

 

 

 

At June 30,

 

At December 31,

 

(in thousands)

 

2012

 

2011

 

2011

 

 

 

 

 

 

 

 

 

Raw materials

 

$

75,580

 

$

66,016

 

$

77,364

 

In-process products

 

21,594

 

19,885

 

21,357

 

Finished products

 

88,043

 

81,033

 

81,408

 

 

 

$

185,217

 

$

166,934

 

$

180,129

 

 

4.                                       Property, Plant and Equipment, Net

 

Property, plant and equipment, net, consisted of the following:

 

 

 

At June 30,

 

At December 31,

 

(in thousands)

 

2012

 

2011

 

2011

 

 

 

 

 

 

 

 

 

Land

 

$

32,100

 

$

29,459

 

$

28,996

 

Buildings and site improvements

 

166,767

 

155,251

 

153,597

 

Leasehold improvements

 

4,852

 

3,737

 

3,820

 

Machinery and equipment

 

210,560

 

190,202

 

208,292

 

 

 

414,279

 

378,649

 

394,705

 

Less accumulated depreciation and amortization

 

(210,431

)

(198,461

)

(201,540

)

 

 

203,848

 

180,188

 

193,165

 

Capital projects in progress

 

4,837

 

3,510

 

2,551

 

 

 

$

208,685

 

$

183,698

 

$

195,716

 

 

11



 

5.                                       Goodwill and Intangible Assets, Net

 

Goodwill was as follows:

 

 

 

At June 30,

 

At December 31,

 

(in thousands)

 

2012

 

2011

 

2011

 

North America

 

$

77,501

 

$

41,887

 

$

73,901

 

Europe

 

48,529

 

28,179

 

24,000

 

Asia/Pacific

 

1,953

 

2,045

 

1,948

 

Total

 

$

127,983

 

$

72,111

 

$

99,849

 

 

Intangible assets, net, were as follows:

 

 

 

At June 30, 2012

 

 

 

Gross

 

 

 

Net

 

 

 

Carrying

 

Accumulated

 

Carrying

 

(in thousands)

 

Amount

 

Amortization

 

Amount

 

North America

 

$

35,581

 

$

(15,350

)

$

20,231

 

Europe

 

27,832

 

(6,534

)

21,298

 

Total

 

$

63,413

 

$

(21,884

)

$

41,529

 

 

 

 

At June 30, 2011

 

 

 

Gross

 

 

 

Net

 

 

 

Carrying

 

Accumulated

 

Carrying

 

 

 

Amount

 

Amortization

 

Amount

 

North America

 

$

24,022

 

$

(12,094

)

$

11,928

 

Europe

 

15,344

 

(5,221

)

10,123

 

Total

 

$

39,366

 

$

(17,315

)

$

22,051

 

 

 

 

At December 31, 2011

 

 

 

Gross

 

 

 

Net

 

 

 

Carrying

 

Accumulated

 

Carrying

 

 

 

Amount

 

Amortization

 

Amount

 

North America

 

$

32,912

 

$

(13,288

)

$

19,624

 

Europe

 

13,114

 

(4,882

)

8,232

 

Total

 

$

46,026

 

$

(18,170

)

$

27,856

 

 

Intangible assets consist primarily of customer relationships, patents, unpatented technology and non-compete agreements. Amortization expense for intangible assets during the three months ended June 30, 2012 and 2011, totaled $1.9 million and $1.1 million, respectively, and during the six months ended June 30, 2012 and 2011, totaled $3.7 million and $2.2 million, respectively.

 

At June 30, 2012, estimated future amortization of intangible assets was as follows:

 

(in thousands)

 

 

 

Final six months of 2012

 

$

3,358

 

2013

 

6,590

 

2014

 

6,380

 

2015

 

5,621

 

2016

 

5,568

 

2017

 

3,800

 

Thereafter

 

10,212

 

 

 

$

41,529

 

 

12



 

The changes in the carrying amount of goodwill and intangible assets for the six months ended June 30, 2012, were as follows:

 

 

 

 

 

Intangible

 

(in thousands)

 

Goodwill

 

Assets

 

 

 

 

 

 

 

Balance at December 31, 2011

 

$

99,849

 

$

27,856

 

Acquisitions

 

29,607

 

17,667

 

Amortization

 

 

(3,714

)

Foreign exchange

 

(1,473

)

(280

)

Balance at June 30, 2012

 

$

127,983

 

$

41,529

 

 

6.                                       Debt

 

The Company has revolving lines of credit with various banks in the United States and Europe. Total available credit at June 30, 2012, was $206.3 million, including revolving credit lines and an irrevocable standby letter of credit in support of various insurance deductibles. The Company’s primary credit facility, a revolving line of credit with $200.0 million in available credit, charges interest at LIBOR plus 0.27% (at June 30, 2012, LIBOR plus 0.27% was 0.52%), expires in October 2012, and has commitment fees payable at the annual rate of 0.08% on the unused portion of the facility. The borrowing capacity of other revolving credit lines and a term note totaled $10.8 million at June 30, 2012. The other revolving credit lines and term note charge interest ranging from 1.5% to 7.25% have maturity dates from December 2012 to September 2020 and total outstanding balances of $4.8 million at June 30, 2012. There were no outstanding balances due on June 30, 2011, and December 31, 2011. The Company was in compliance with its financial covenants at June 30, 2012.

 

On July 27, 2012, the Company entered into an unsecured credit agreement with a syndicate of banks providing for a revolving credit facility of $300.0 million and terminated the $200.0 million revolving line of credit. See Note 10.

 

7.                                       Commitments and Contingencies

 

Note 9 to the consolidated financial statements in the 2011 Annual Report provides information concerning commitments and contingencies.  From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business.  The resolution of claims and litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows and results of operations.

 

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 these environmental matters will have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

 

Corrosion, hydrogen embrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, manufacturing defects, environmental conditions or other factors can contribute to failure of fasteners, connectors, tools, anchors, adhesives and other products.  On occasion, some of the fasteners and connectors that the Company sells have failed, although the Company has not incurred any material liability resulting from those failures.  The Company attempts to avoid such failures by establishing and monitoring appropriate product specifications, manufacturing quality control procedures, inspection procedures and information on appropriate installation methods and conditions.  The Company subjects its products to extensive testing, with results and conclusions published in Company catalogues and on its websites.

 

13



 

Pending Claims

 

Four lawsuits (the “Cases”) have been filed against the Company in the Hawaii First Circuit Court: Alvarez v. Haseko Homes, Inc. and Simpson Manufacturing, Inc., Civil No. 09-1-2697-11 (“Case 1”); Ke Noho Kai Development, LLC v. Simpson Strong-Tie Company, Inc., and Honolulu Wood Treating Co., LTD., Case No. 09-1-1491-06 SSM (“Case 2”); North American Specialty Ins. Co. v. Simpson Strong-Tie Company, Inc. and K.C. Metal Products, Inc., Case No. 09-1-1490-06 VSM (“Case 3”); and Charles et al. v. Haseko Homes, Inc. et al. and Third Party Plaintiffs Haseko Homes, Inc. et al. v. Simpson Strong-Tie Company, Inc., et al., Civil No. 09-1-1932-08 (“Case 4”).  Case 1 was filed on November 18, 2009.  Cases 2 and 3 were originally filed on June 30, 2009.  Case 4 was filed on August 19, 2009.  The Cases all relate to alleged premature corrosion of the Company’s strap tie holdown products installed in buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii, allegedly causing property damage.  Case 1 is a putative class action brought by the owners of allegedly affected Ocean Pointe houses.  Case 1 was originally filed as Kai et al. v. Haseko Homes, Inc., Haseko Construction, Inc. and Simpson Manufacturing, Inc., Case No. 09-1-1476, but was voluntarily dismissed and then re-filed with a new representative plaintiff.  Case 2 is an action by the builders and developers of Ocean Pointe against the Company, claiming that either the Company’s strap tie holdowns are defective in design or manufacture or the Company failed to provide adequate warnings regarding the products’ susceptibility to corrosion in certain environments.  Case 3 is a subrogation action brought by the insurance company for the builders and developers against the Company claiming the insurance company expended funds to correct problems allegedly caused by the Company’s products.  Case 4 is a putative class action brought, like Case 1, by owners of allegedly affected Ocean Pointe homes.  In Case 4, Haseko Homes, Inc. (“Haseko”), the developer of the Ocean Pointe development, has brought a third party complaint against the Company alleging that any damages for which Haseko may be liable are actually the fault of the Company.  None of the Cases alleges a specific amount of damages sought, although each of the Cases seeks compensatory damages, and Case 1 seeks punitive damages. Cases 1 and 4 have been consolidated. The Company is currently investigating the facts underlying the claims asserted in the Cases, including, among other things, the cause of the alleged corrosion; the severity of any problems shown to exist; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if needed.  At this time, the likelihood that the Company will be found liable for any property damage allegedly suffered and the extent of such liability, if any, are unknown.  Management believes the Cases may not be resolved for an extended period.  The Company intends to defend itself vigorously in connection with the Cases.

 

Based on facts currently known to the Company, the Company believes that all or part of the claims alleged in the Cases may be covered by its insurance policies.  On April 19, 2011, an action was filed in the United States District Court for the District of Hawaii, National Union Fire Insurance Company of Pittsburgh, PA v. Simpson Manufacturing Company, Inc., et al., Civil No. 11-00254 ACK.  In this action, Plaintiff National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), which issued certain Commercial General Liability insurance policies to the Company, seeks declaratory relief in the Cases with respect to its obligations to defend or indemnify the Company, Simpson Strong-Tie Company Inc., and a vendor of the Company’s strap tie holdown products.  By Order dated November 7, 2011, all proceedings in the National Union action have been stayed.  If the stay is lifted and the National Union action is not dismissed, the Company intends vigorously to defend all claims advanced by National Union.

 

On April 12, 2011, Fireman’s Fund Insurance Company (“Fireman’s Fund”), another of the Company’s general liability insurers, sued Hartford Fire Insurance Company (“Hartford”), a third insurance company from whom the Company purchased general liability insurance, in the United States District Court for the Northern District of California, Fireman’s Fund Insurance Company v. Hartford Fire Insurance Company, Civil No. 11 1789 SBA (the “Fireman’s Fund action”).  The Company has intervened in the Fireman’s Fund action and has moved to stay all proceedings in that action as well, pending resolution of the underlying Ocean Pointe Cases.

 

On November 21, 2011, the Company commenced a lawsuit against National Union, Fireman’s Fund, Hartford and others in the Superior Court of the State of California in and for the City and County of San Francisco (the “San Francisco coverage action”).  In the San Francisco coverage action, the Company alleges generally that the separate pendency of the National Union action and the Fireman’s Fund action presents a risk of inconsistent adjudications; that the San Francisco Superior Court has jurisdiction over all of the parties and should exercise jurisdiction at the appropriate time to resolve any and all disputes that have arisen or may in the future arise among the Company and its liability insurers; and that the San Francisco coverage action should also be stayed pending resolution of the underlying Ocean Pointe Cases.  The Company intends to move for such a stay if necessary.

 

Nishimura v. Gentry Homes, Ltd; Simpson Manufacturing Co., Inc.; and Simpson Strong-Tie Company, Inc., Civil no. 11-1-1522-07, was filed in the Circuit Court of the First Circuit of Hawaii on July 20, 2011.  The case alleges premature corrosion of the Company’s strap tie holdown products in a housing development at Ewa Beach in Honolulu, Hawaii.  The case is a putative class action brought by owners of allegedly affected homes.

 

14



 

The Complaint alleges that the Company’s strap products and mudsill anchors are insufficiently corrosion resistant and/or fail to comply with Honolulu’s building code.  The Company is currently investigating the claims asserted in the complaint, including, among other things: the existence and extent of the alleged corrosion, if any; the building code provisions alleged to be applicable and, if applicable, whether the products complied; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if any are needed.  At this time, the likelihood that the Company will be found liable for any damage allegedly suffered and the extent of such liability, if any, are unknown.  The Company denies any liability of any kind and intends to defend itself vigorously in this case.

 

8.                                       Stock-Based Incentive Plans

 

The Company currently has one stock-based incentive plan, which incorporates and supersedes its two previous plans (see Note 1 “Basis of Presentation — Accounting for Stock-Based Compensation”). Participants are granted stock-based awards only if the applicable Company-wide or profit-center operating goals, or both, established by the Compensation and Leadership Development Committee of the Board of Directors at the beginning of the year, are met. Certain participants may have additional goals based on strategic initiatives of the Company.

 

The fair value of each restricted stock unit award is estimated on the date of the award based on the closing market price of the underlying stock on the day preceding the date of the award. On January 30, 2012, 361,061 restricted stock units were awarded, including 8,550 awarded to the Company’s independent directors, at an estimated value of $33.23 per share, based on the closing price on January 27, 2012. The restrictions on these awards generally lapse one quarter on the date of the award and one quarter on each of the first, second and third anniversaries of the date of the award.

 

The following table summarizes the Company’s unvested restricted stock unit activity for the six months ended June 30, 2012:

 

 

 

 

 

 

 

Aggregate

 

 

 

 

 

Weighted-

 

Intrinsic

 

 

 

Shares

 

Average

 

Value *

 

Unvested Restricted Stock Units (RSUs)

 

(in thousands)

 

Price

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2012

 

 

$

 

 

 

Awarded

 

361

 

33.23

 

 

 

Vested

 

(93

)

33.23

 

 

 

Forfeited

 

(1

)

33.23

 

 

 

Outstanding at June 30, 2012

 

267

 

$

33.23

 

$

7,867

 

Outstanding and expected to vest at June 30, 2012

 

259

 

$

33.23

 

$

7,634

 

 


*  The intrinsic value is calculated using the closing price per share of $29.51 as reported by the New York Stock Exchange on June 29, 2012.

 

The total intrinsic value of restricted stock units vested during the six months ended June 30, 2012, was $3.1 million, based on the market value on the award date.

 

The fair value of each stock option award was estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility is based on historical volatilities of the Company’s common stock measured monthly over a term that is equivalent to the expected life of the award. The expected term of each award is estimated based on the Company’s prior exercise experience and future expectations of the exercise and termination behavior of the grantees. The risk-free rate is based on the yield of United States Treasury zero-coupon bonds with maturities comparable to the expected life in effect at the time of grant. The dividend yield is based on the expected dividend yield on the grant date.

 

No stock options were granted in 2012.

 

15



 

Black-Scholes option pricing model assumptions for stock options granted in 2011 are as follows:

 

 

Number

 

 

 

Risk-

 

 

 

 

 

 

 

 

 

Weighted

 

of Options

 

 

 

Free

 

 

 

 

 

 

 

 

 

Average

 

Granted

 

Grant

 

Interest

 

Dividend

 

Expected

 

 

 

 

 

Fair

 

(in thousands)

 

Date

 

Rate

 

Yield

 

Life

 

Volatility

 

Exercise Price

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1994 Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,362

 

 

02/03/11

 

2.62

%

1.75

%

6.2 years

 

39.0

%

$29.66 to $32.63

 

$

10.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1995 Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

 

02/15/11

 

2.92

%

1.76

%

6.6 years

 

38.0

%

$29.58

 

$

10.49

 

 

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2012:

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

Weighted-

 

Average

 

Aggregate

 

 

 

 

 

Average

 

Remaining

 

Intrinsic

 

 

 

Shares

 

Exercise

 

Contractual

 

Value *

 

Non-Qualified Stock Options

 

(in thousands)

 

Price

 

Life (in years)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2012

 

2,134

 

$

31.15

 

 

 

 

 

Exercised

 

(82

)

24.12

 

 

 

 

 

Forfeited

 

(24

)

35.97

 

 

 

 

 

Outstanding at June 30, 2012

 

2,028

 

$

31.38

 

4.3

 

$

1,041

 

Outstanding and expected to vest at June 30, 2012

 

1,985

 

$

31.43

 

4.3

 

$

1,024

 

Exercisable at June 30, 2012

 

1,027

 

$

33.44

 

3.2

 

$

655

 

 


*  The intrinsic value represents the amount, if any, by which the fair market value of the underlying common stock exceeds the exercise price of the stock option, using the closing price per share of $29.51 as reported by the New York Stock Exchange on June 29, 2012.

 

The total intrinsic value of stock options exercised during the six months ended June 30, 2012 and 2011, was $0.7 million and $40 thousand, respectively.

 

A summary of the status of unvested stock options as of June 30, 2012, and changes during the six months ended June 30, 2012, are presented below:

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Shares

 

Grant-Date

 

Unvested Stock Options

 

(in thousands)

 

Fair Value

 

 

 

 

 

 

 

Unvested at January 1, 2012

 

1,242

 

$

10.11

 

Vested

 

(238

)

9.84

 

Forfeited

 

(3

)

10.33

 

Unvested at June 30, 2012

 

1,001

 

$

10.17

 

 

As of June 30, 2012, $22.0 million of total unrecognized compensation cost was related to unvested stock-based compensation arrangements under the 2011 Incentive Plan. The portions of this cost related to stock options, and restricted stock units awarded through January 2012, are expected to be recognized over a weighted-average period of 2.6 years.

 

16



 

9.                                       Segment Information

 

The Company is organized into three reportable segments. The segments are defined by the regions where the Company’s products are manufactured, marketed and distributed to the Company’s customers. The three regional segments are the North American segment, comprising primarily the United States and Canada, the European segment, and the Asia/Pacific segment, comprising the Company’s operations in China, Hong Kong, the South Pacific and the Middle East. These segments are similar in several ways, including the types of materials, the production processes, the distribution channels and the product applications.

 

The following table illustrates certain measurements used by management to assess the performance as of or for the following periods:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in thousands)

 

2012

 

2011

 

2012

 

2011

 

Net Sales

 

 

 

 

 

 

 

 

 

North America

 

$

144,532

 

$

139,112

 

$

272,500

 

$

243,734

 

Europe

 

34,120

 

35,648

 

62,356

 

61,446

 

Asia/Pacific

 

2,735

 

2,815

 

5,107

 

4,692

 

Administrative and all other

 

316

 

237

 

474

 

476

 

Total

 

$

181,703

 

$

177,812

 

$

340,437

 

$

310,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales to Other Segments*

 

 

 

 

 

 

 

 

 

North America

 

$

1,442

 

$

1,490

 

$

2,814

 

$

2,812

 

Europe

 

19

 

169

 

153

 

250

 

Asia/Pacific

 

4,573

 

2,044

 

8,297

 

4,155

 

Total

 

$

6,034

 

$

3,703

 

$

11,264

 

$

7,217

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) from Operations

 

 

 

 

 

 

 

 

 

North America

 

$

26,583

 

$

30,793

 

$

44,456

 

$

45,843

 

Europe

 

2,088

 

2,650

 

(284

)

1,196

 

Asia/Pacific

 

(163

)

(552

)

(817

)

(1,265

)

Administrative and all other

 

(1,360

)

(1,683

)

(2,699

)

(2,284

)

Total

 

$

27,148

 

$

31,208

 

$

40,656

 

$

43,490

 

 


* The sales to other segments are eliminated on consolidation.

 

 

 

 

 

At

 

 

 

At June 30,

 

December 31,

 

(in thousands)

 

2012

 

2011

 

2011

 

Total Assets

 

 

 

 

 

 

 

North America

 

$

557,502

 

$

595,842

 

$

540,082

 

Europe

 

204,864

 

140,572

 

180,016

 

Asia/Pacific

 

31,734

 

25,461

 

29,306

 

Administrative and all other

 

84,805

 

102,700

 

86,683

 

Total

 

$

878,905

 

$

864,575

 

$

836,087

 

 

Cash collected by the Company’s United States subsidiaries is routinely transferred into the Company’s cash management accounts and, therefore, has been included in the total assets of “Administrative and all other.” Cash and cash equivalent balances in the “Administrative and all other” segment were $82.6 million, $191.5 million, and $68.5 million, as of June 30, 2012 and 2011, and December 31, 2011, respectively.

 

10.                                 Subsequent Events

 

In July 2012, the Company’s Board of Directors declared a cash dividend of $0.125 per share, estimated to total $6.0 million, to be paid on October 25, 2012, to stockholders of record on October 4, 2012.

 

On July 27, 2012, the Company entered into an unsecured credit agreement with a syndicate of banks providing for a 5-year revolving credit facility of $300.0 million. The Company has the ability to increase the amount available under the credit agreement by an additional $200.0 million, to a maximum of $500.0 million, by obtaining additional commitments from existing lenders or new lenders and satisfying certain other conditions. The Company is required to pay an annual facility fee of 0.15% to 0.30% on the available commitments under the credit agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. Amounts borrowed under the credit agreement will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on Reuters LIBOR01screen page (the “LIBOR Rate”), adjusted for any reserve requirement in effect, plus a spread of from 0.60% to 1.45%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 0.00% to 0.45%, as determined on a quarterly basis based on the Company’s leverage ratio. The base rate is defined in a manner such that it will not be less than the LIBOR Rate.  The Company will pay fees for standby letters of credit at an annual rate equal to the LIBOR Rate plus the applicable spreads described above, and will pay market-based fees for commercial letters of credit. Loans outstanding under the credit agreement may be prepaid at any time without penalty except for LIBOR Rate breakage costs and expenses.  The Company is also required to pay customary fees as specified in a separate fee agreement between the Company and Wells Fargo Bank, National Association (“Wells Fargo”), in its capacity as the agent under the credit agreement.

 

In connection with the closing of the new credit agreement, the Company terminated its existing credit agreement dated October 10, 2007, among the Company, the lenders party thereto, Wells Fargo as agent, and Simpson Strong-Tie Company Inc., and Simpson Strong-Tie International, Inc., as guarantors thereunder.

 

17



 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This document contains forward-looking statements, based on numerous assumptions and subject to risks and uncertainties. Although the Company believes that the forward-looking statements are reasonable, it does not and cannot give any assurance that its beliefs and expectations will prove to be correct. Many factors could significantly affect the Company’s operations and cause the Company’s actual results to be substantially different from the Company’s expectations. See “Part II, Item 1A - Risk Factors.Actual results might differ materially from results suggested by any forward-looking statements in this report. The Company does not have an obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events or otherwise.

 

The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three months and six months ended June 30, 2012. The following should be read in conjunction with the interim Condensed Consolidated Financial Statements and related Notes appearing elsewhere herein.

 

Results of Operations for the Three Months Ended June 30, 2012, Compared with the Three Months Ended June 30, 2011

 

Income from operations decreased 13.0% from $31.2 million in the second quarter of 2011 to $27.1 million in the second quarter of 2012. The following table illustrates the differences in the Company’s operating results in the three months ended June 30, 2012, from the three months ended June 30, 2011, and the increases or decreases for each category by segment.

 

 

 

Three

 

 

 

 

 

 

 

 

 

Three

 

 

 

Months

 

 

 

 

 

 

 

 

 

Months

 

 

 

Ended

 

Increase (Decrease) in Operating Segment

 

Ended

 

 

 

June 30,

 

North

 

 

 

Asia/

 

Admin &

 

June 30,

 

(in thousands)

 

2011

 

America

 

Europe

 

Pacific

 

All Other

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

177,812

 

$

5,420

 

$

(1,528

)

$

(80

)

$

79

 

$

181,703

 

Cost of sales

 

94,313

 

7,498

 

(2,681

)

(4

)

(569

)

98,557

 

Gross profit

 

83,499

 

(2,078

)

1,153

 

(76

)

648

 

83,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development and other engineering expense

 

6,945

 

2,249

 

(42

)

(109

)

 

9,043

 

Selling expense

 

19,819

 

122

 

(305

)

237

 

8

 

19,881

 

General and administrative expense

 

25,454

 

(241

)

2,155

 

(598

)

317

 

27,087

 

Loss (gain) on sale of assets

 

73

 

2

 

(94

)

6

 

 

(13

)

Income from operations

 

31,208

 

(4,210

)

(561

)

388

 

323

 

27,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss in equity method investment, before tax

 

(69

)

69

 

 

 

 

 

Interest income, net

 

108

 

(91

)

8

 

24

 

9

 

58

 

Income before income taxes

 

31,247

 

(4,232

)

(553

)

412

 

332

 

27,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

11,754

 

(1,262

)

(348

)

223

 

980

 

11,347

 

Net income

 

$

19,493

 

$

(2,970

)

$

(205

)

$

189

 

$

(648

)

$

15,859

 

 

The following table represents net sales by segment for the three months ended June 30, 2011 and 2012:

 

 

 

North

 

 

&nb