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: March 31, 2010
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-13429
Simpson Manufacturing Co., Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
94-3196943 |
(State or other jurisdiction of incorporation |
|
(I.R.S. Employer |
or organization) |
|
Identification No.) |
5956 W. Las Positas Blvd., Pleasanton, CA 94588
(Address of principal executive offices)
(Registrants telephone number, including area code): (925) 560-9000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the registrants common stock outstanding as of March 31, 2010: 49,391,387
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, unaudited)
|
|
March 31, |
|
December 31, |
|
|||||
|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|||
ASSETS |
|
|
|
|
|
|
|
|||
Current assets |
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
202,843 |
|
$ |
158,208 |
|
$ |
250,381 |
|
Trade accounts receivable, net |
|
93,030 |
|
79,383 |
|
77,317 |
|
|||
Inventories |
|
180,684 |
|
225,568 |
|
163,754 |
|
|||
Deferred income taxes |
|
13,657 |
|
13,672 |
|
13,970 |
|
|||
Assets held for sale |
|
7,887 |
|
8,387 |
|
7,887 |
|
|||
Other current assets |
|
13,054 |
|
13,236 |
|
16,766 |
|
|||
Total current assets |
|
511,155 |
|
498,454 |
|
530,075 |
|
|||
|
|
|
|
|
|
|
|
|||
Property, plant and equipment, net |
|
200,975 |
|
191,412 |
|
187,814 |
|
|||
Goodwill |
|
79,608 |
|
69,160 |
|
81,626 |
|
|||
Intangible assets, net |
|
26,889 |
|
22,137 |
|
28,852 |
|
|||
Equity method investment |
|
604 |
|
21 |
|
748 |
|
|||
Other noncurrent assets |
|
16,722 |
|
18,225 |
|
14,690 |
|
|||
Total assets |
|
$ |
835,953 |
|
$ |
799,409 |
|
$ |
843,805 |
|
|
|
|
|
|
|
|
|
|||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|||
Current liabilities |
|
|
|
|
|
|
|
|||
Line of credit |
|
$ |
|
|
$ |
821 |
|
$ |
|
|
Trade accounts payable |
|
25,606 |
|
22,232 |
|
28,462 |
|
|||
Accrued liabilities |
|
29,548 |
|
28,873 |
|
29,209 |
|
|||
Accrued profit sharing trust contributions |
|
1,858 |
|
1,973 |
|
7,018 |
|
|||
Accrued cash profit sharing and commissions |
|
3,508 |
|
1,353 |
|
2,427 |
|
|||
Accrued workers compensation |
|
4,374 |
|
4,299 |
|
4,352 |
|
|||
Total current liabilities |
|
64,894 |
|
59,551 |
|
71,468 |
|
|||
|
|
|
|
|
|
|
|
|||
Long-term liabilities |
|
8,924 |
|
9,289 |
|
8,553 |
|
|||
Total liabilities |
|
73,818 |
|
68,840 |
|
80,021 |
|
|||
|
|
|
|
|
|
|
|
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Commitments and contingencies (Note 8) |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|||
Stockholders equity |
|
|
|
|
|
|
|
|||
Common stock, at par value |
|
493 |
|
490 |
|
493 |
|
|||
Additional paid-in capital |
|
146,711 |
|
137,503 |
|
146,036 |
|
|||
Retained earnings |
|
602,754 |
|
592,644 |
|
598,493 |
|
|||
Accumulated other comprehensive income (loss) |
|
12,177 |
|
(68 |
) |
18,762 |
|
|||
Total stockholders equity |
|
762,135 |
|
730,569 |
|
763,784 |
|
|||
Total liabilities and stockholders equity |
|
$ |
835,953 |
|
$ |
799,409 |
|
$ |
843,805 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands except per-share amounts, unaudited)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Net sales |
|
$ |
133,900 |
|
$ |
119,323 |
|
Cost of sales |
|
78,465 |
|
88,610 |
|
||
Gross profit |
|
55,435 |
|
30,713 |
|
||
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
||
Research and development and other engineering |
|
5,051 |
|
4,864 |
|
||
Selling |
|
16,193 |
|
16,025 |
|
||
General and administrative |
|
18,145 |
|
20,162 |
|
||
|
|
39,389 |
|
41,051 |
|
||
|
|
|
|
|
|
||
Income (loss) from operations |
|
16,046 |
|
(10,338 |
) |
||
|
|
|
|
|
|
||
Loss on equity method investment, before tax |
|
(144 |
) |
(193 |
) |
||
Interest income, net |
|
10 |
|
102 |
|
||
|
|
|
|
|
|
||
Income (loss) before income taxes |
|
15,912 |
|
(10,429 |
) |
||
|
|
|
|
|
|
||
Provision for (benefit from) income taxes |
|
6,713 |
|
(2,020 |
) |
||
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
9,199 |
|
$ |
(8,409 |
) |
|
|
|
|
|
|
||
Net income (loss) per common share |
|
|
|
|
|
||
Basic |
|
$ |
0.19 |
|
$ |
(0.17 |
) |
Diluted |
|
$ |
0.19 |
|
$ |
(0.17 |
) |
|
|
|
|
|
|
||
Weighted average number of shares outstanding |
|
|
|
|
|
||
Basic |
|
49,388 |
|
48,987 |
|
||
Diluted |
|
49,520 |
|
48,987 |
|
||
|
|
|
|
|
|
||
Cash dividends declared per common share |
|
$ |
0.10 |
|
$ |
0.10 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders Equity
for the three months ended March 31, 2009 and 2010, and nine months ended December 31, 2009
(In thousands except per-share amounts, unaudited)
|
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|
|
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|
|
|
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Accumulated |
|
|
|
|||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
|||||
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
|
|||||||
|
|
Shares |
|
Par Value |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Total |
|
|||||
Balance, January 1, 2009 |
|
48,971 |
|
$ |
490 |
|
$ |
136,867 |
|
$ |
605,950 |
|
$ |
5,719 |
|
$ |
749,026 |
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss |
|
|
|
|
|
|
|
(8,409 |
) |
|
|
(8,409 |
) |
|||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Translation adjustment, net of tax of ($9) |
|
|
|
|
|
|
|
|
|
(5,787 |
) |
(5,787 |
) |
|||||
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
(14,196 |
) |
|||||
Stock options exercised |
|
8 |
|
|
|
128 |
|
|
|
|
|
128 |
|
|||||
Stock compensation |
|
|
|
|
|
393 |
|
|
|
|
|
393 |
|
|||||
Tax benefit of options exercised |
|
|
|
|
|
(185 |
) |
|
|
|
|
(185 |
) |
|||||
Cash dividends declared on common stock ($0.10 per share) |
|
|
|
|
|
|
|
(4,897 |
) |
|
|
(4,897 |
) |
|||||
Common stock issued at $27.76 per share for stock bonus |
|
10 |
|
|
|
300 |
|
|
|
|
|
300 |
|
|||||
Balance, March 31, 2009 |
|
48,989 |
|
490 |
|
137,503 |
|
592,644 |
|
(68 |
) |
730,569 |
|
|||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
|
|
|
|
|
|
|
20,626 |
|
|
|
20,626 |
|
|||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Translation adjustment, net of tax of ($28) |
|
|
|
|
|
|
|
|
|
18,830 |
|
18,830 |
|
|||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
39,456 |
|
|||||
Stock options exercised |
|
388 |
|
3 |
|
7,496 |
|
|
|
|
|
7,499 |
|
|||||
Stock compensation |
|
|
|
|
|
1,297 |
|
|
|
|
|
1,297 |
|
|||||
Tax benefit of options exercised |
|
|
|
|
|
(260 |
) |
|
|
|
|
(260 |
) |
|||||
Cash dividends declared on common stock, $0.30 per share |
|
|
|
|
|
|
|
(14,777 |
) |
|
|
(14,777 |
) |
|||||
Balance, December 31, 2009 |
|
49,377 |
|
493 |
|
146,036 |
|
598,493 |
|
18,762 |
|
763,784 |
|
|||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
|
|
|
|
|
|
|
9,199 |
|
|
|
9,199 |
|
|||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Translation adjustment, net of tax of $3 |
|
|
|
|
|
|
|
|
|
(6,585 |
) |
(6,585 |
) |
|||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
2,614 |
|
|||||
Stock options exercised |
|
4 |
|
|
|
92 |
|
|
|
|
|
92 |
|
|||||
Stock compensation |
|
|
|
|
|
382 |
|
|
|
|
|
382 |
|
|||||
Tax benefit of options exercised |
|
|
|
|
|
(76 |
) |
|
|
|
|
(76 |
) |
|||||
Cash dividends declared on common stock, $0.10 per share |
|
|
|
|
|
|
|
(4,938 |
) |
|
|
(4,938 |
) |
|||||
Common stock issued at $26.89 per share for stock bonus |
|
10 |
|
|
|
277 |
|
|
|
|
|
277 |
|
|||||
Balance, March 31, 2010 |
|
49,391 |
|
$ |
493 |
|
$ |
146,711 |
|
$ |
602,754 |
|
$ |
12,177 |
|
$ |
762,135 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
Three Months |
|
||||
|
|
Ended March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Cash flows from operating activities |
|
|
|
|
|
||
Net income (loss) |
|
$ |
9,199 |
|
$ |
(8,409 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
(Gain) loss on sale of assets |
|
389 |
|
(111 |
) |
||
Depreciation and amortization |
|
6,276 |
|
6,848 |
|
||
Deferred income taxes |
|
225 |
|
(1,497 |
) |
||
Noncash compensation related to stock plans |
|
469 |
|
557 |
|
||
Loss in equity method investment |
|
144 |
|
193 |
|
||
Excess tax benefit of options exercised |
|
|
|
(8 |
) |
||
Provision for (recovery of) doubtful accounts |
|
(406 |
) |
1,760 |
|
||
Provision for obsolete inventory |
|
477 |
|
1,018 |
|
||
Changes in operating assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
||
Trade accounts receivable |
|
(16,286 |
) |
(5,946 |
) |
||
Inventories |
|
(18,922 |
) |
23,381 |
|
||
Trade accounts payable |
|
(2,194 |
) |
835 |
|
||
Income taxes payable |
|
5,341 |
|
(2,965 |
) |
||
Accrued profit sharing trust contributions |
|
(5,165 |
) |
(7,556 |
) |
||
Accrued cash profit sharing and commissions |
|
1,126 |
|
(880 |
) |
||
Other current assets |
|
(1,339 |
) |
(2,374 |
) |
||
Accrued liabilities |
|
936 |
|
(4,428 |
) |
||
Long-term liabilities |
|
108 |
|
1 |
|
||
Accrued workers compensation |
|
21 |
|
13 |
|
||
Other noncurrent assets |
|
95 |
|
99 |
|
||
Net cash provided by (used in) operating activities |
|
(19,506 |
) |
531 |
|
||
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
||
Capital expenditures |
|
(20,293 |
) |
(5,895 |
) |
||
Proceeds from sale of capital assets |
|
46 |
|
41 |
|
||
Asset acquisitions, net of cash acquired |
|
|
|
(1,655 |
) |
||
Loans made to related parties |
|
(1,798 |
) |
|
|
||
Loans repaid by related parties |
|
50 |
|
|
|
||
Net cash used in investing activities |
|
(21,995 |
) |
(7,509 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities |
|
|
|
|
|
||
Line of credit borrowings |
|
|
|
817 |
|
||
Issuance of common stock |
|
92 |
|
128 |
|
||
Excess tax benefit of options exercised |
|
|
|
8 |
|
||
Dividends paid |
|
(4,939 |
) |
(4,898 |
) |
||
Net cash used in financing activities |
|
(4,847 |
) |
(3,945 |
) |
||
|
|
|
|
|
|
||
Effect of exchange rate changes on cash |
|
(1,190 |
) |
(1,619 |
) |
||
|
|
|
|
|
|
||
Net decrease in cash and cash equivalents |
|
(47,538 |
) |
(12,542 |
) |
||
Cash and cash equivalents at beginning of period |
|
250,381 |
|
170,750 |
|
||
Cash and cash equivalents at end of period |
|
$ |
202,843 |
|
$ |
158,208 |
|
|
|
|
|
|
|
||
Noncash activity during the period |
|
|
|
|
|
||
Noncash capital expenditures |
|
$ |
|
|
$ |
180 |
|
Dividends declared but not paid |
|
$ |
4,938 |
|
$ |
4,897 |
|
Issuance of Companys common stock for compensation |
|
$ |
277 |
|
$ |
300 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries (the Company). Investments in 50% or less owned affiliates are accounted for using either cost or the equity method. All significant intercompany transactions have been eliminated.
Interim Period Reporting
The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. These interim statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the 2009 Annual Report).
The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial information set forth therein, in accordance with GAAP. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP. The Companys quarterly results fluctuate. As a result, the Company believes the results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete, net of applicable provision for discounts, returns and incentives, whether actual or estimated, based on the Companys experience. This generally occurs when products are shipped to the customer in accordance with the sales agreement or purchase order, ownership and risk of loss pass to the customer, collectibility is reasonably assured and pricing is fixed or determinable. The Companys general shipping terms are F.O.B. shipping point, where title is transferred and revenue is recognized when the products are shipped to customers. When the Company sells F.O.B. destination point, title is transferred and the Company recognizes revenue on delivery or customer acceptance, depending on terms of the sales agreement. Service sales, representing after-market repair and maintenance, engineering activities and software license sales and service, though significantly less than 1% of net sales and not material to the consolidated financial statements, are recognized as the services are completed or the software products and services are delivered. If actual costs of sales returns, incentives and discounts were to significantly exceed the recorded estimated allowance, the Companys sales would be adversely affected.
Net Income (Loss) Per Common Share
Basic net income (loss) 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.
The following is a reconciliation of basic earnings per share (EPS) to diluted EPS:
(in thousands, except
per-share amounts)
|
|
Three Months Ended, |
|
Three Months Ended, |
|
||||||||||||
|
|
March 31, 2010 |
|
March 31, 2009 |
|
||||||||||||
|
|
Income |
|
|
|
Per |
|
Income |
|
|
|
Per |
|
||||
|
|
(Loss) |
|
Shares |
|
Share |
|
(Loss) |
|
Shares |
|
Share |
|
||||
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) available to common stockholders |
|
$ |
9,199 |
|
49,388 |
|
$ |
0.19 |
|
$ |
(8,409 |
) |
48,987 |
|
$ |
(0.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income (loss) available to common stockholders |
|
$ |
9,199 |
|
49,520 |
|
$ |
0.19 |
|
$ |
(8,409 |
) |
48,987 |
|
$ |
(0.17 |
) |
Anti-dilutive shares attributable to outstanding stock options were excluded from the calculation of diluted net income per share. All potentially dilutive securities were excluded from the diluted loss per share calculation for the three months ended March 31, 2009, because the effect of their inclusion would be antidilutive, or would decrease the reported loss per share. For both the three months ended March 31, 2010 and 2009, 1.1 million shares subject to stock options were anti-dilutive.
Accounting for Stock-Based Compensation
The Company maintains two stock option plans under which it may grant incentive stock options and non-qualified stock options, although the Company has granted only non-qualified stock options under these plans. The Simpson Manufacturing Co., Inc. 1994 Stock Option Plan (the 1994 Plan) is principally for the Companys employees, and the Simpson Manufacturing Co., Inc. 1995 Independent Director Stock Option Plan (the 1995 Plan) is for its independent directors. The Company generally grants options under each of the 1994 Plan and the 1995 Plan once each year. The exercise price per share of each option granted in February 2010 and February 2009 under the 1994 Plan equaled the closing market price per share of the Companys common stock as reported by the New York Stock Exchange on the day preceding the day that the Compensation Committee of the Companys Board of Directors met to approve the grant of the options. The exercise price per share under each option granted under the 1995 Plan is at the fair market value on the date specified in the 1995 Plan. Options vest and expire according to terms established at the grant date. There were no options granted under the 1995 Plan in 2010 or 2009.
Under the 1994 Plan, no more than 16 million shares of the Companys common stock may be sold (including shares already sold) pursuant to all options granted under the 1994 Plan. Under the 1995 Plan, no more than 320 thousand shares of common stock may be sold (including shares already sold) pursuant to all options granted under the 1995 Plan. Shares of common stock issued on exercise of stock options under both of the plans are registered under the Securities Act of 1933. Options granted under the 1994 Plan typically vest evenly over the requisite service period of four years and have a term of seven years. The vesting of options granted under the 1994 Plan will be accelerated if the grantee ceases to be employed by the Company after reaching age 60 or if there is a change in control of the Company. Options granted under the 1995 Plan are fully vested on the date of grant.
The following table represents the Companys stock option activity for the three months ended March 31, 2010 and 2009:
(in thousands)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
|
|
|
|
|
|
||
Stock option expense recognized in operating expenses |
|
$ |
366 |
|
$ |
448 |
|
Tax benefit of stock option expense in provision for (benefit from) income taxes |
|
110 |
|
148 |
|
||
Stock option expense, net of tax |
|
$ |
256 |
|
$ |
300 |
|
Fair value of shares vested |
|
$ |
382 |
|
$ |
393 |
|
Proceeds to the Company from the exercise of stock options |
|
$ |
92 |
|
$ |
128 |
|
Tax benefit from exercise of stock options, including windfall (shortfall) tax benefits, net |
|
$ |
(76 |
) |
$ |
(185 |
) |
|
|
At March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Stock option cost capitalized in inventory |
|
$ |
61 |
|
$ |
46 |
|
The amounts included in cost of sales, research and development and other engineering, selling, or general and administrative expense depend on the job functions performed by the employees to whom the stock options were granted.
The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Companys experience.
Fair Value of Financial Instruments
As of March 31, 2010, the Companys investments consisted of only United States Treasury securities and money market funds aggregating $127.5 million, which are maintained in cash equivalents and are carried at cost, approximating fair value, based on Level 1 inputs. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities, as defined in the Fair Value Measurements and Disclosures topic of the Financial Accounting Standards Board (FASB) Accounting Standards CodificationTM (ASC).
Income Taxes
In general, the Company is required to use an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in an interim period. The income tax expense for the first quarters of both 2010 and 2009, however, has been computed based on those quarters as discrete periods due to the uncertainty regarding the Companys ability to reliably estimate pre-tax income for the remainder of those years, primarily as a result of the continued uncertainty in the construction markets in which the Company operates. The effective tax rate was 42.2% in the first quarter of 2010, which resulted in income tax expense of $6.7 million. The effective tax rate was 19.4% in the first quarter of 2009, which, as a result of the loss before taxes in the first quarter of 2009, resulted in income tax benefit of $2.0 million.
Recently Issued Accounting Standards
In May 2009, the FASB issued guidance codified in the Subsequent Events topic of the FASB ASC, which establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. In February 2010, the FASB amended this guidance to remove the requirement for companies that file or furnish financial statements with the Securities and Exchange Commission to disclose the date through which subsequent events have been evaluated.
2. Trade Accounts Receivable, Net
Trade accounts receivable consist of the following:
(in thousands)
|
|
At March 31, |
|
At December 31, |
|
|||||
|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|||
Trade accounts receivable |
|
$ |
100,051 |
|
$ |
87,154 |
|
$ |
83,892 |
|
Allowance for doubtful accounts |
|
(4,198 |
) |
(5,924 |
) |
(4,667 |
) |
|||
Allowance for sales discounts and returns |
|
(2,823 |
) |
(1,847 |
) |
(1,908 |
) |
|||
|
|
$ |
93,030 |
|
$ |
79,383 |
|
$ |
77,317 |
|
3. Inventories
Inventories consist of the following:
(in thousands)
|
|
At March 31, |
|
At December 31, |
|
|||||
|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|||
Raw materials |
|
$ |
75,953 |
|
$ |
86,411 |
|
$ |
61,408 |
|
In-process products |
|
20,267 |
|
24,890 |
|
21,113 |
|
|||
Finished products |
|
84,464 |
|
114,267 |
|
81,233 |
|
|||
|
|
$ |
180,684 |
|
$ |
225,568 |
|
$ |
163,754 |
|
4. Property, Plant and Equipment, Net
Property, plant and equipment, net, consist of the following:
(in thousands)
|
|
At March 31, |
|
At December 31, |
|
|||||
|
|
2010 |
|
2009 |
|
2009 |
|
|||
|
|
|
|
|
|
|
|
|||
Land |
|
$ |
23,543 |
|
$ |
22,654 |
|
$ |
23,729 |
|
Buildings and site improvements |
|
147,446 |
|
137,589 |
|
148,381 |
|
|||
Leasehold improvements |
|
3,819 |
|
4,261 |
|
3,893 |
|
|||
Machinery and equipment |
|
225,594 |
|
219,372 |
|
226,436 |
|
|||
|
|
400,402 |
|
383,876 |
|
402,439 |
|
|||
Less accumulated depreciation and amortization |
|
(220,303 |
) |
(197,788 |
) |
(216,157 |
) |
|||
|
|
180,099 |
|
186,088 |
|
186,282 |
|
|||
Capital projects in progress |
|
20,876 |
|
5,324 |
|
1,532 |
|
|||
|
|
$ |
200,975 |
|
$ |
191,412 |
|
$ |
187,814 |
|
The Companys vacant facility in San Leandro, California, remained classified as an asset held for sale as of March 31, 2010, consistent with the classification at December 31, 2009, and is being actively marketed. The Company, in March 2010, acquired a facility in San Bernadino, California, for $19.2 million, in which it will consolidate its owned manufacturing and warehouse facilities in Brea, California, and its former leased warehouse in Ontario, California. The Company intends to sell the Brea facilities. These facilities are associated with the connector segment.
5. Investments
Equity Method Investment
At March 31, 2010, the Company had a 40.6% equity interest in Keymark Enterprises, LLC (Keymark), for which the Company accounts using the equity method. Keymark develops software that assists in designing and engineering residential structures. The Companys relationship with Keymark includes the specification of the
Companys products in the Keymark software. The Company has no obligation to make any additional capital contributions to Keymark.
6. Goodwill and Intangible Assets, Net
Goodwill by segment was as follows:
(in thousands)
|
|
At March 31, |
|
At December 31, |
|
|||||
|
|
2010 |
|
2009 |
|
2009 |
|
|||
Connector products |
|
$ |
75,173 |
|
$ |
64,749 |
|
$ |
77,191 |
|
Venting products |
|
4,435 |
|
4,411 |
|
4,435 |
|
|||
Total |
|
$ |
79,608 |
|
$ |
69,160 |
|
$ |
81,626 |
|
Intangible assets, net, by segment were as follows:
(in thousands)
|
|
At March 31, 2010 |
|
|||||||
|
|
Gross |
|
|
|
Net |
|
|||
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
|||
|
|
Amount |
|
Amortization |
|
Amount |
|
|||
Connector products |
|
$ |
36,410 |
|
$ |
(11,366 |
) |
$ |
25,044 |
|
Venting products |
|
3,291 |
|
(1,446 |
) |
1,845 |
|
|||
Total |
|
$ |
39,701 |
|
$ |
(12,812 |
) |
$ |
26,889 |
|
|
|
At March 31, 2009 |
|
|||||||
|
|
Gross |
|
|
|
Net |
|
|||
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
|||
|
|
Amount |
|
Amortization |
|
Amount |
|
|||
Connector products |
|
$ |
32,546 |
|
$ |
(12,789 |
) |
$ |
19,757 |
|
Venting products |
|
2,962 |
|
(582 |
) |
2,380 |
|
|||
Total |
|
$ |
35,508 |
|
$ |
(13,371 |
) |
$ |
22,137 |
|
|
|
At December 31, 2009 |
|
|||||||
|
|
Gross |
|
|
|
Net |
|
|||
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
|||
|
|
Amount |
|
Amortization |
|
Amount |
|
|||
Connector products |
|
$ |
37,987 |
|
$ |
(11,182 |
) |
$ |
26,805 |
|
Venting products |
|
3,291 |
|
(1,244 |
) |
2,047 |
|
|||
Total |
|
$ |
41,278 |
|
$ |
(12,426 |
) |
$ |
28,852 |
|
Intangible assets consist primarily of customer relationships, patents, unpatented technology and non-compete agreements. Amortization expense for intangible assets during the three months ended March 31, 2010 and 2009, was $1.3 million and $1.2 million, respectively.
At March 31, 2010, estimated future amortization of intangible assets was as follows:
(in thousands)
Final nine months of 2010 |
|
$ |
3,716 |
|
2011 |
|
4,907 |
|
|
2012 |
|
4,023 |
|
|
2013 |
|
3,085 |
|
|
2014 |
|
2,849 |
|
|
2015 |
|
2,111 |
|
|
Thereafter |
|
6,198 |
|
|
|
|
$ |
26,889 |
|
The changes in the carrying amount of goodwill and intangible assets from December 31, 2009, to March 31, 2010, were as follows:
(in thousands)
|
|
|
|
Intangible |
|
||
|
|
Goodwill |
|
Assets |
|
||
|
|
|
|
|
|
||
Balance at December 31, 2009 |
|
$ |
81,626 |
|
$ |
28,852 |
|
Amortization |
|
|
|
(1,276 |
) |
||
Foreign exchange |
|
(2,018 |
) |
(687 |
) |
||
Balance at March 31, 2010 |
|
$ |
79,608 |
|
$ |
26,889 |
|
7. Debt
Outstanding debt at March 31, 2010 and 2009, and December 31, 2009, and the available lines of credit at March 31, 2010, consisted of the following:
(dollar amounts in thousands)
|
|
Available |
|
Debt Outstanding |
|
||||||||
|
|
Credit at |
|
at |
|
at |
|
||||||
|
|
March 31, |
|
March 31, |
|
December 31, |
|
||||||
|
|
2010 |
|
2010 |
|
2009 |
|
2009 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revolving line of credit, interest at LIBOR plus 0.27% (at March 31, 2010, LIBOR plus 0.27% was 0.52%), expires October 2012, commitment fees payable at the annual rate of 0.08% on the unused portion of the facility |
|
$ |
200,000 |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving line of credit, interest at the banks base rate plus 3% (at March 31, 2010, the banks base rate plus 3% was 3.50%), expires December 2010 |
|
379 |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revolving lines of credit, interest rates between 1.14% and 3.13% |
|
4,293 |
|
|
|
821 |
|
|
|
||||
Line of credit |
|
|
|
$ |
|
|
$ |
821 |
|
$ |
|
|
|
Available credit |
|
$ |
204,672 |
|
|
|
|
|
|
|
8. Commitments and Contingencies
Note 9 to the consolidated financial statements in the 2009 Annual Report provides information concerning commitments and contingencies. From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. The resolution of claims and litigation is subject to inherent uncertainty and could have a material adverse effect on the Companys financial condition, cash flows and results of operations.
The Companys policy with regard to environmental liabilities is to accrue for future environmental assessments and remediation costs when information becomes available that indicates that it is probable that the Company is liable for any related claims and assessments and the amount of the liability is reasonably estimable. The Company does not believe that these matters will have a material adverse effect on the Companys financial condition, cash flows or results of operations.
Corrosion, hydrogen enbrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, environmental conditions or other factors can contribute to failure of fasteners, connectors, tools and venting products. On occasion, some of the fasteners and connectors that the Company sells have failed, although the Company has not incurred any material liability resulting from those failures. The Company attempts to avoid such failures by establishing and monitoring appropriate product specifications, manufacturing quality control procedures, inspection procedures and information on appropriate installation methods and conditions. The Company subjects its products to extensive testing, with results and conclusions published in Company catalogues and on its websites. Based on test results to date, the Company believes that, generally, if its products are appropriately selected, installed and used in accordance with the Companys guidance, they may be reliably used in appropriate applications.
Four lawsuits (the Hawaii 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 (Hawaii Case 1); Ke Noho Kai Development, LLC v. Simpson Strong-Tie Company, Inc., and Honolulu Wood Treating Co., LTD., Hawaii Case No. 09-1-1491-06 SSM (Hawaii 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 (Hawaii 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 (Hawaii Case 4). Hawaii Case 1 was filed on November 18, 2009. Hawaii Cases 2 and 3 were originally filed on June 30, 2009. Hawaii Case 4 was filed on August 19, 2009. The Hawaii Cases all relate to alleged premature corrosion of the Companys strap tie holdown products installed in buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii, allegedly causing property damage. Hawaii Case 1 is a putative class action brought by the owners of allegedly affected Ocean Pointe houses. Hawaii 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. Hawaii Case 2 is an action by the builders and developers of Ocean Pointe against the Company, claiming that either the Companys strap tie holdowns are defective in design or manufacture or the Company failed to provide adequate warnings regarding the products susceptibility to corrosion in certain environments. Hawaii Case 3 is a subrogation action brought by the insurance company for the builders and developers against the Company claiming the insurance company expended funds to correct problems allegedly caused by the Companys products. Hawaii Case 4, like Hawaii Case 1, is a putative class action brought by owners of allegedly affected Ocean Pointe homes. In Hawaii 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 Hawaii Cases alleges a specific amount of damages sought, although each of the Hawaii Cases seeks compensatory damages, and Hawaii Case 1 seeks punitive damages. The Company is currently investigating the facts underlying the claims asserted in the Hawaii Cases, including, among other things, the cause of the alleged corrosion; the severity of any problems shown to exist; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if needed. At this time, the likelihood that the Company will be found liable for any property damage allegedly suffered and the extent of such liability, if any, are unknown. Based on facts currently known to the Company, the Company believes that all or part of the claims alleged in the Hawaii Cases may be covered by its insurance policies. The Company intends to defend itself vigorously in connection with the Hawaii Cases.
9. Stock Option Plans
The Company currently has two stock option plans (see Note 1 Basis of Presentation Accounting for Stock-Based Compensation). Participants are granted stock options only if the applicable Company-wide or profit-center operating goals, or both, established by the Compensation Committee of the Board of Directors at the beginning of the year, are met.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility is based on historical volatilities of the Companys common stock measured monthly over a term that is equivalent to the expected life of the option. The expected term of options granted is estimated based on the Companys prior exercise experience and future expectations of the exercise and termination behavior of the grantees. The risk-free rate is based on the yield of United States Treasury zero-coupon bonds with maturities comparable to the expected life in effect at the time of grant. The dividend yield is based on the expected dividend yield on the grant date.
Black-Scholes option pricing model assumptions for options granted in 2010 and 2009 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
148 |
|
|
02/02/10 |
|
2.93 |
% |
1.62 |
% |
6.5 years |
|
36.0 |
% |
$ |
24.75 |
|
$ |
8.46 |
|
24 |
|
|
02/23/09 |
|
2.08 |
% |
2.48 |
% |
6.5 years |
|
30.9 |
% |
$ |
16.10 |
|
$ |
4.06 |
|
29 |
|
|
02/04/09 |
|
2.17 |
% |
1.88 |
% |
6.5 years |
|
30.9 |
% |
$ |
21.25 |
|
$ |
5.86 |
|
No options were granted under the 1995 Plan in 2010 or 2009.
The following table summarizes the Companys stock option activity for the three months ended March 31, 2010:
|
|
|
|
|
|
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, 2010 |
|
1,792 |
|
$ |
31.31 |
|
|
|
|
|
|
Granted |
|
148 |
|
24.75 |
|
|
|
|
|
||
Exercised |
|
(4 |
) |
25.43 |
|
|
|
|
|
||
Forfeited |
|
(14 |
) |
35.91 |
|
|
|
|
|
||
Outstanding at March 31, 2010 |
|
1,922 |
|
$ |
30.78 |
|
2.3 |
|
$ |
2,862 |
|
Outstanding and expected to vest at March 31, 2010 |
|
1,911 |
|
$ |
30.82 |
|
2.3 |
|
$ |
2,810 |
|
Exercisable at March 31, 2010 |
|
1,678 |
|
$ |
31.64 |
|
1.7 |
|
$ |
1,980 |
|
* The intrinsic value represents the amount, if any, by which the fair market value of the underlying common stock exceeds the exercise price of the option, using the closing price per share of $27.76 as reported by the New York Stock Exchange on March 31, 2010.
The total intrinsic value of options exercised during the three months ended March 31, 2010 and 2009, was $11 thousand and $60 thousand, respectively.
A summary of the status of unvested options as of March 31, 2010, and changes during the three months ended March 31, 2010, are presented below:
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
Shares |
|
Grant-Date |
|
|
Unvested Options |
|
(in thousands) |
|
Fair Value |
|
|
|
|
|
|
|
|
|
Unvested at January 1, 2010 |
|
140 |
|
$ |
8.57 |
|
Granted |
|
148 |
|
8.46 |
|
|
Vested |
|
(44 |
) |
11.45 |
|
|
Unvested at March 31, 2010 |
|
244 |
|
$ |
7.98 |
|
As of March 31, 2010, $1.4 million of total unrecognized compensation cost was related to unvested share-based compensation arrangements under the 1994 Plan. This cost is expected to be recognized over a weighted-average period of 3.0 years. Options granted under the 1995 Plan are fully vested and are expensed on the date of grant.
10. Segment Information
The Company is organized into two primary operating segments. The segments are defined by types of products manufactured, marketed and distributed to the Companys customers. The two product segments are connector products and venting products. These segments are differentiated in several ways, including the types of materials, the production processes, the distribution channels and the product applications. Transactions between the two segments were immaterial for each of the periods presented.
The following table illustrates certain measurements used by management to assess the performance of the segments described above as of or for the following periods:
(in thousands)
|
|
Three Months Ended |
|
||||
|
|
March 31, |
|
||||
|
|
2010 |
|
2009 |
|
||
Net Sales |
|
|
|
|
|
||
Connector products |
|
$ |
123,820 |
|
$ |
109,144 |
|
Venting products |
|
10,080 |
|
10,179 |
|
||
Total |
|
$ |
133,900 |
|
$ |
119,323 |
|
|
|
|
|
|
|
||
Income (Loss) from Operations |
|
|
|
|
|
||
Connector products |
|
$ |
18,194 |
|
$ |
(7,088 |
) |
Venting products |
|
(1,299 |
) |
(3,260 |
) |
||
Administrative and all other |
|
(849 |
) |
10 |
|
||
Total |
|
$ |
16,046 |
|
$ |
(10,338 |
) |
(in thousands)
|
|
|
|
|
|
At |
|
|||
|
|
At March 31, |
|
December 31, |
|
|||||
|
|
2010 |
|
2009 |
|
2009 |
|
|||
Total Assets |
|
|
|
|
|
|
|
|||
Connector products |
|
$ |
668,427 |
|
$ |
596,575 |
|
$ |
650,796 |
|
Venting products |
|
69,526 |
|
72,804 |
|
71,587 |
|
|||
Administrative and all other |
|
98,000 |
|
130,030 |
|
121,422 |
|
|||
Total |
|
$ |
835,953 |
|
$ |
799,409 |
|
$ |
843,805 |
|
Cash collected by the Companys subsidiaries is routinely transferred into the Companys cash management accounts and, therefore, has been included in the total assets of Administrative and all other. Cash and cash equivalent balances in the Administrative and all other segment were $160.6 million, $107.2 million, and $205.1 million, as of March 31, 2010 and 2009, and December 31, 2009, respectively.
11. Subsequent Events
In April 2010, the Companys Board of Directors declared a cash dividend of $0.10 per share, estimated at $4.9 million, to be paid on July 29, 2010, to stockholders of record on July 8, 2010.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This document contains forward-looking statements, based on numerous assumptions and subject to risks and uncertainties. Although the Company believes that the forward-looking statements are reasonable, it does not and cannot give any assurance that its beliefs and expectations will prove to be correct. Many factors could significantly affect the Companys operations and cause the Companys actual results to be substantially different from the Companys expectations. See Part II, Item 1A - Risk Factors. Actual results might differ materially from results suggested by any forward-looking statements in this report. The Company does not have an obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events or otherwise.
The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three months ended March 31, 2010 and 2009. 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 March 31, 2010, Compared
with the Three Months Ended March 31, 2009
Net sales increased 12.2% to $133.9 million in the first quarter of 2010 from $119.3 million in the first quarter of 2009. The Company had net income of $9.2 million for the first quarter of 2010 compared to a net loss of $8.4 million for the first quarter of 2009. Diluted net income per common share was $0.19 for the first quarter of 2010 compared to a diluted net loss per common share of $0.17 for the first quarter of 2009.
In the first quarter of 2010, sales increased throughout North America and Europe. The growth in the United States was strongest in the midwestern, western (excluding California) and northeastern regions, while sales in California and the southeastern states were flat as compared to the first quarter of 2009. Sales in Asia, although relatively small, have increased as Simpson Strong-Tie has recently expanded its presence in the region. Simpson Strong-Ties first quarter sales increased 13.4% from the same quarter last year, while Simpson Dura-Vents sales were down slightly. Simpson Strong-Ties sales to dealer distributors and home centers increased as homebuilding and general economic conditions compared favorably to the first quarter of 2009. Sales increased across most of Simpson Strong-Ties major product lines, including those used in new home construction. Sales of Simpson Dura-Vents product lines were mixed, with decreases in sales of chimney products, pellet vents and special gas vent products, mostly offset by increases in sales of gas vent, Direct-Vent and relining products.
Income from operations increased from a loss of $10.3 million in the first quarter of 2009 to income of $16.0 million in the first quarter of 2010. Gross margins increased from 25.7% in the first quarter of 2009 to 41.4% in the first quarter of 2010. The increase in gross margins was primarily due to increased absorption of fixed overhead, as a result of higher production volumes, as well as lower manufacturing costs, including lower cost of material, labor and distribution. Steel prices have increased from their recent low levels experienced in mid-2009 as demand has returned to the steel markets. The Company expects steel prices to increase further in 2010 as demand continues to return to the market. The Companys inventories increased 10.3% from $163.8 million at December 31, 2009, to $180.7 million at March 31, 2010, primarily due to purchases of raw materials.
General and administrative expense decreased 10.0% from $20.2 million in the first quarter of 2009 to $18.1 million in the first quarter of 2010. The decrease was primarily the result of lower bad debt expense of $2.2 million, decreased legal and professional service expenses of $0.8 million and various other items. This decrease was partly offset by an increase in cash profit sharing of $0.8 million and higher administrative personnel expenses of $0.9 million, including those related to the Aginco acquisition in April 2009. The effective tax rate was 42.2% in the first quarter of 2010, as compared to 19.4% in the first quarter of 2009. As a result of the loss before taxes in the first quarter of 2009, the lower effective tax rate resulted in a smaller benefit than if the Company had a higher effective tax rate. The effective tax rate in the first quarter of 2010 is higher than the statutory rate primarily due to the valuation allowances taken on foreign losses and differences between the U.S. statutory tax rate and local tax rates in countries where the Company operates. In general, the Company is required to use an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in an interim period. The income tax expense for the three month periods ended March 31, 2010 and 2009, however, have been computed based on those periods as discrete periods due to the uncertainty regarding the Companys ability to reliably estimate pre-tax income for the remainder of each year. The Company cannot reliably estimate pre-tax income for the remainder of 2010 or for the full year, primarily due to the continued uncertainty in the construction markets in which the Company operates.
Connector Products Simpson Strong-Tie
Simpson Strong-Ties net sales increased 13.4% to $123.8 million in the first quarter of 2010 from $109.1 million in the first quarter of 2009. Simpson Strong-Tie accounted for 92.5% of the Companys total net sales in the first quarter of 2010, up from 91.5% in the first quarter of 2009. The increase in net sales at Simpson Strong-Tie resulted primarily from an increase in sales volume, although average prices decreased 6.0% as compared to the first quarter of 2009. In the first quarter of 2010, sales increased throughout North America and Europe. The growth in the United States was strongest in the midwestern, western (excluding California) and northeastern regions, while sales in California and the southeastern states were flat as compared to the first quarter of 2009. Sales in Asia, although relatively small, have increased as Simpson Strong-Tie has recently expanded its presence in the region. Simpson Strong-Ties sales to dealer distributors and home centers increased as homebuilding and general economic conditions compared favorably to the first quarter of 2009. Sales increased across most of Simpson Strong-Ties major product lines, including those used in new home construction.
Simpson Strong-Ties income from operations increased to $18.2 million in the first quarter of 2010 from a loss of $7.1 million in the first quarter of 2009. Gross margin increased to 43.5% in the first quarter of 2010 from 28.1% in the first quarter of 2009. This increase was primarily due to increased absorption of fixed overhead, as a result of higher production volumes, and cost-cutting measures, as well as lower manufacturing costs, including lower costs of material, labor and distribution.
Simpson Strong-Ties general and administrative expense decreased 13.4% from $18.5 million in the first quarter of 2009 to $16.1 million in the first quarter of 2010, primarily due to a $2.1 million decrease in bad debt expense, and a $0.7 million decrease in administrative personnel expenses, related in part to cost-cutting measures. These decreases were partly offset by an increase of $0.4 million in cash profit sharing, due to increased operating profits.
For its European operations, Simpson Strong-Tie recorded a loss from operations of $1.8 million in the first quarter of 2010 compared to a loss from operations of $4.2 million in the first quarter of 2009.
Venting Products Simpson Dura-Vent
Simpson Dura-Vents net sales decreased 1.0% from $10.2 million in the first quarter of 2009 to $10.1 million in the first quarter of 2010. Simpson Dura-Vent accounted for 7.5% of the Companys total net sales in the first quarter of 2010, a decrease from 8.5% in the first quarter of 2009. The decrease in net sales at Simpson Dura-Vent resulted primarily from a decrease in sales volume, as average prices were flat as compared to the first quarter of 2009. In the first quarter of 2010, sales of Simpson Dura-Vents product lines were mixed, with decreases in sales of chimney products, pellet vents and special gas vent products, mostly offset by increases in sales of gas vent, Direct-Vent and relining products.
Simpson Dura-Vents loss from operations decreased from $3.3 million in the first quarter of 2009 to $1.3 million in the first quarter of 2010. Gross margin increased to 15.8% in the first quarter of 2010 from 0.9% in the first quarter of 2009, primarily due to lower costs of material, labor and distribution, slightly offset by higher fixed overhead costs.
Simpson Dura-Vents general and administrative expense decreased 24.6% from $1.7 million in the first quarter of 2009 to $1.3 million in the first quarter of 2010, which was primarily due to an overall reduction in departmental spending.
Critical Accounting Policies and Estimates
The Company did not make any significant changes to its critical accounting policies and estimates during the three months ended March 31, 2010, from those disclosed in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009. See Note 1, Basis of Presentation Recently Issued Accounting Standards, to the Companys Condensed Consolidated Financial Statements appearing elsewhere in this report regarding recently issued accounting standards.
Liquidity and Sources of Capital
As of March 31, 2010, working capital was $446.3 million as compared to $438.9 million at March 31, 2009, and $458.6 million at December 31, 2009. The decrease in working capital from December 31, 2009, was primarily due to a $47.5 million decrease in cash and cash equivalents, a $3.7 million decrease in other current assets, and a $1.1 million increase in accrued cash profit sharing and commissions. Partly offsetting these decreases to working capital were increases in inventories and net trade accounts receivable of $16.9 million and $15.7 million, respectively, and decreases in accrued profit sharing trust contributions and trade accounts payable of $5.2 million and $2.9 million, respectively. Net trade accounts receivable increased 20.3% from December 31, 2009, as a result of increased sales in the latter part of the first quarter of 2010 compared to the latter part of the fourth quarter of 2009. Raw material inventories increased 23.7% from December 31, 2009, and in-progress and finished goods inventories increased 2.3% over the same period. The balance of the change in working capital was due to the fluctuation of various other asset and liability accounts, none of which was individually material. The working capital change and changes in noncurrent assets and liabilities, combined with net income of $9.2 million and noncash expenses, primarily depreciation, amortization and stock-based compensation charges totaling $6.7 million, resulted in net cash used by operating activities of $19.5 million. As of March 31, 2010, the Company had unused credit facilities available of $204.7 million.
The Company used $22.0 million in its investing activities, primarily for the acquisition, in March 2010, of a manufacturing and distribution facility in San Bernadino, California, for $19.2 million. The Company will consolidate its owned manufacturing and warehouse facilities in Brea, California, and its former leased warehouse in Ontario, California, into the new facility. The Company intends to sell the Brea facilities. The relocation is planned to be completed in 2011. In January 2010, the Company also used $1.8 million to make a new loan and adjust an existing loan to related parties. These loans, to entities related to Keymark, bear interest at an annual rate of 5.5%, payable monthly, and the principal amounts will be due and payable in February 2013, or earlier if Keymark is sold. These loans are backed by real property deeds of trust. The Company estimates that its full-year capital spending will total $28 million in 2010.
The Company has classified its vacant facility in San Leandro, California, as an asset held for sale and is actively marketing the facility.
The Companys financing activities used net cash of $4.8 million. The payment of cash dividends in the amount of $4.9 million was the primary use of cash. Cash was provided from the issuance of the Companys common stock through the exercise of stock options totaling $0.1 million. In April 2010, the Companys Board of Directors declared a cash dividend of $0.10 per share, estimated at $4.9 million, to be paid on July 29, 2010, to stockholders of record on July 8, 2010.
The Company believes that cash generated by operations and borrowings available under its credit facility will be sufficient for the Companys working capital needs and planned capital expenditures for the next 12 months. Depending, however, on the Companys future growth and possible acquisitions, it may become necessary to secure additional sources of financing, which may not be available on reasonable terms, or at all.
The Company believes that the effect of inflation on the Company has not been material in recent years, as general inflation rates have remained relatively low. Because, however, the Companys main raw material is steel, increases in steel prices may adversely affect the Companys gross margins if it cannot recover the higher costs through price increases.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has foreign exchange rate risk in its international operations, primarily Europe and Canada, and through purchases from foreign vendors. The Company does not currently hedge this risk. If the exchange rate were to change by 10% in any one country or currency where the Company has operations, the change in net income would not be material to the Companys operations as a whole. The translation adjustment resulted in a decrease in accumulated other comprehensive income of $6.6 million for the three months ended March 31, 2010, primarily due to the effect of the strengthening of the United States dollar in relation to most European currencies partly offset by the weakening of the United States dollar in relation to the Canadian currency.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures. As of March 31, 2010, an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures was performed under the supervision and with the participation of the Companys management, including the chief executive officer (CEO) and the chief financial officer (CFO). Based on that evaluation, the CEO and the CFO concluded that the Companys disclosure controls and procedures were effective as of that date, at the reasonable assurance level, in ensuring that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and in seasonably alerting them to material information required to be included in this report.
The Companys management, including the CEO and the CFO, does not expect that the Companys disclosure controls and procedures or the Companys internal control over financial reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the facts that there are resource constraints and that the benefits of controls must be considered relative to their costs. The inherent limitations in an internal control system include the realities that judgments can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is also based in part on assumptions about the likelihood of future events, and there can be only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential events and conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Control over Financial Reporting. During the three months ended March 31, 2010, the Company made no changes to its internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business.
Four lawsuits (the Hawaii 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 (Hawaii Case 1); Ke Noho Kai Development, LLC v. Simpson Strong-Tie Company, Inc., and Honolulu Wood Treating Co., LTD., Hawaii Case No. 09-1-1491-06 SSM (Hawaii 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 (Hawaii 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 (Hawaii Case 4). Hawaii Case 1 was filed on November 18, 2009. Hawaii Cases 2 and 3 were originally filed on June 30, 2009. Hawaii Case 4 was filed on August 19, 2009. The Hawaii Cases all relate to alleged premature corrosion of the Companys strap tie holdown products installed in buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii, allegedly causing property damage. Hawaii Case 1 is a putative class action brought by the owners of allegedly affected Ocean Pointe houses. Hawaii 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. Hawaii Case 2 is an action by the builders and developers of Ocean Pointe against the Company, claiming that either the Companys strap tie holdowns are defective in design or manufacture or the Company failed to provide adequate warnings regarding the products susceptibility to corrosion in certain environments. Hawaii Case 3 is a subrogation action brought by the insurance company for the builders and developers against the Company claiming the insurance company expended funds to correct problems allegedly caused by the Companys products. Hawaii Case 4, like Hawaii Case 1, is a putative class action brought by owners of allegedly affected Ocean Pointe homes. In Hawaii 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 Hawaii Cases alleges a specific amount of damages sought, although each of the Hawaii
Cases seeks compensatory damages, and Hawaii Case 1 seeks punitive damages. The Company is currently investigating the facts underlying the claims asserted in the Hawaii Cases, including, among other things, the cause of the alleged corrosion; the severity of any problems shown to exist; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if needed. At this time, the likelihood that the Company will be found liable for any property damage allegedly suffered and the extent of such liability, if any, are unknown. Based on facts currently known to the Company, the Company believes that all or part of the claims alleged in the Hawaii Cases may be covered by its insurance policies. The Company intends to defend itself vigorously in connection with the Hawaii Cases.
The Company is not engaged in any other legal proceedings as of the date hereof, which the Company expects individually or in the aggregate to have a material adverse effect on the Companys financial condition, cash flows or results of operations. The resolution of claims and litigation, however, is subject to inherent uncertainty and could have a material adverse effect on the Companys financial condition, cash flows or results of operations.
Item 1A. Risk Factors
We are affected by risks specific to us, as well as risks that affect all businesses operating in global markets. Some of the significant factors that could materially adversely affect our business, financial condition and operating results appear in Item 1A. Risk Factors of our most recent Annual Report on Form 10-K (available at www.simpsonmfg.com/docs/10K-2009.pdf or www.sec.gov).
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In December 2009, the Board of Directors authorized the Company to repurchase up to $50.0 million of the Companys common stock. This replaced the $50.0 million repurchase authorization from December 2008. The authorization will remain in effect through the end of 2010. The Company did not repurchase any of its common stock in the first three months of 2010.
Item 6. Exhibits.
The following exhibits are either incorporated by reference into this report or filed with this report, as indicated below.
3.1 Certificate of Incorporation of Simpson Manufacturing Co., Inc., as amended, is incorporated by reference to Exhibit 3.1 of its Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
3.2 Bylaws of Simpson Manufacturing Co., Inc., as amended through August 1, 2008, are incorporated by reference to Exhibit 3.2 of its Current Report on Form 8-K dated August 4, 2008.
4.1 Amended Rights Agreement dated as of June 15, 2009, between Simpson Manufacturing Co., Inc. and Computershare Trust Company, N.A., which includes as Exhibit B the form of Rights Certificate, is incorporated by reference to Exhibit 4.1 of Simpson Manufacturing Co., Inc.s Registration Statement on Form 8-A/A dated June 15, 2009.
4.2 Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock of Simpson Manufacturing Co., Inc., dated July 30, 1999, is incorporated by reference to Exhibit 4.2 of its Registration Statement on Form 8-A dated August 4, 1999.
10.1 Simpson Manufacturing Co., Inc. 1994 Stock Option Plan, as amended through February 13, 2008, is incorporated by reference to Exhibit 10.1 of Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.
10.2 Simpson Manufacturing Co., Inc. 1995 Independent Director Stock Option Plan, as amended through November 18, 2004, is incorporated by reference to Exhibit 10.2 of Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.
10.3 Simpson Manufacturing Co., Inc. Executive Officer Cash Profit Sharing Plan, as amended through February 25, 2008, is incorporated by reference to Exhibit 10.3 of Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.
10.4 Credit Agreement dated as of October 10, 2007, among Simpson Manufacturing Co., Inc. as Borrower, the Lenders party thereto, Wells Fargo Bank as Agent, and Simpson Dura-Vent Company, Inc., Simpson Strong Tie Company Inc., and Simpson Strong-Tie International, Inc. as Guarantors, is incorporated by reference to Exhibit 10.1 of Simpson Manufacturing Co., Inc.s Current Report on Form 8-K dated October 15, 2007.
10.5 Form of Indemnification Agreement between Simpson Manufacturing Co., Inc. and its directors and executive officers, as well as the officers of Simpson Strong-Tie Company Inc. and Simpson Dura-Vent Company, Inc., is incorporated by reference to Exhibit 10.2 of Simpson Manufacturing Co., Inc.s Annual Report on Form 10-K for the year ended December 31, 2004.
10.6 Compensation of Named Executive Officers of Simpson Manufacturing Co., Inc. is incorporated by reference to Exhibit 10 of Simpson Manufacturing Co., Inc.s Current Report on Form 8-K dated October 2, 2009.
10.7 Compensation of Named Executive Officers is incorporated by reference to Exhibit 10 of Simpson Manufacturing Co., Inc.s Current Report on Form 8-K dated December 18, 2009.
31. Rule 13a-14(a)/15d-14(a) Certifications are filed herewith.
32. Section 1350 Certifications are filed herewith.
99.1 Simpson Manufacturing Co., Inc. 1994 Employee Stock Bonus Plan, as amended through November 18, 2004, is incorporated by reference to Exhibit 99.1 of Simpson Manufacturing Co., Inc.s Annual Report on Form 10-K for the year ended December 31, 2007.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Simpson Manufacturing Co., Inc. |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
|
|
DATE: |
May 7, 2010 |
|
By |
/s/Karen Colonias |
|
|
|
Karen Colonias |
|
|
|
|
Chief Financial Officer |
|
|
|
|
(principal accounting and financial officer) |
|