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Simpson Manufacturing Co., Inc. - Quarter Report: 2005 June (Form 10-Q)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended:  June 30, 2005

 

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:  0-23804

 

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.)

 

 

 

4120 Dublin Boulevard, Suite 400, Dublin, CA 94568

(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 ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ý  No o

 

The number of shares of the Registrant’s Common Stock outstanding as of June 30, 2005: 48,018,254

 

In November 2004, the Company completed a 2-for-1 stock split effected in the form of a stock dividend of its common stock. All of the share and per share numbers have been adjusted to reflect this stock split.

 

 



 

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,

 

 

 

2005

 

2004

 

2004

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,137

 

$

34,438

 

$

30,917

 

Short-term investments

 

9,912

 

44,610

 

17,032

 

Trade accounts receivable, net

 

140,977

 

122,318

 

89,807

 

Inventories

 

179,568

 

130,853

 

192,879

 

Deferred income taxes

 

10,104

 

8,328

 

8,809

 

Other current assets

 

4,269

 

4,191

 

7,667

 

Total current assets

 

397,967

 

344,738

 

347,111

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

144,385

 

115,767

 

137,609

 

Goodwill

 

42,339

 

23,321

 

44,379

 

Equity method investment

 

168

 

 

 

Other noncurrent assets

 

16,596

 

7,369

 

16,038

 

Total assets

 

$

601,455

 

$

491,195

 

$

545,137

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Line of credit and current portion of long-term debt

 

$

1,212

 

$

813

 

$

579

 

Trade accounts payable

 

36,770

 

33,593

 

32,031

 

Accrued liabilities

 

26,456

 

21,986

 

27,780

 

Income taxes payable

 

7,845

 

1,184

 

 

Accrued profit sharing trust contributions

 

4,539

 

3,483

 

7,039

 

Accrued cash profit sharing and commissions

 

15,757

 

13,209

 

8,210

 

Accrued workers’ compensation

 

2,724

 

2,474

 

2,761

 

Total current liabilities

 

95,303

 

76,742

 

78,400

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

1,932

 

2,483

 

2,397

 

Other long-term liabilities

 

1,413

 

1,165

 

1,415

 

Total liabilities

 

98,648

 

80,390

 

82,212

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, at par value

 

480

 

500

 

479

 

Additional paid-in capital

 

84,919

 

68,708

 

79,877

 

Retained earnings

 

409,576

 

392,852

 

369,154

 

Accumulated other comprehensive income

 

7,832

 

6,294

 

13,415

 

Treasury stock

 

 

(57,549

)

 

Total stockholders’ equity

 

502,807

 

410,805

 

462,925

 

Total liabilities and stockholders’ equity

 

$

601,455

 

$

491,195

 

$

545,137

 

 

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,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

224,334

 

$

181,835

 

$

408,550

 

$

341,751

 

Cost of sales

 

135,537

 

107,385

 

255,236

 

202,722

 

Gross profit

 

88,797

 

74,450

 

153,314

 

139,029

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling

 

15,501

 

15,338

 

31,379

 

28,383

 

General and administrative

 

27,411

 

23,490

 

49,616

 

45,716

 

 

 

42,912

 

38,828

 

80,995

 

74,099

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

45,885

 

35,622

 

72,319

 

64,930

 

 

 

 

 

 

 

 

 

 

 

Income in equity method investment, before tax

 

95

 

 

168

 

 

Interest income (expense), net

 

131

 

(164

)

223

 

108

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

46,111

 

35,458

 

72,710

 

65,038

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

17,273

 

13,643

 

27,488

 

25,274

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

28,838

 

$

21,815

 

$

45,222

 

$

39,764

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

 

 

 

 

 

 

 

 

 

Basic

 

$

0.60

 

$

0.45

 

$

0.94

 

$

0.82

 

Diluted

 

$

0.60

 

$

0.45

 

$

0.93

 

$

0.81

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.05

 

$

0.05

 

$

0.10

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

Number of shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

48,005

 

48,025

 

47,990

 

48,285

 

Diluted

 

48,447

 

48,870

 

48,476

 

49,106

 

 

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

 

3



 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the six months ended June 30, 2004 and 2005 and December 31, 2004

(In thousands except per share amounts, unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury

 

 

 

 

 

Shares

 

Par Value

 

Capital

 

Earnings

 

Income

 

Stock

 

Total

 

Balance, January 1, 2004

 

48,511

 

$

498

 

$

63,335

 

$

357,916

 

$

7,983

 

$

(29,427

)

$

400,305

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

39,764

 

 

 

39,764

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gains or losses on available-for-sale investments

 

 

 

 

 

(71

)

 

(71

)

Translation adjustment

 

 

 

 

 

(1,618

)

 

(1,618

)

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

38,075

 

Options exercised

 

157

 

2

 

1,513

 

 

 

 

1,515

 

Stock compensation expense

 

 

 

2,379

 

 

 

 

2,379

 

Tax benefit of options exercised

 

 

 

1,044

 

 

 

 

1,044

 

Repurchase of common stock

 

(1,037

)

 

 

 

 

(28,122

)

(28,122

)

Cash dividends declared on Common stock ($0.10 per share)

 

 

 

 

(4,828

)

 

 

(4,828

)

Common stock issued at $25.43 per share

 

17

 

 

437

 

 

 

 

437

 

Balance, June 30, 2004

 

47,648

 

500

 

68,708

 

392,852

 

6,294

 

(57,549

)

410,805

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

41,744

 

 

 

41,744

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gains or losses on available-for-sale investments

 

 

 

 

 

9

 

 

9

 

Translation adjustment

 

 

 

 

 

7,112

 

 

7,112

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

48,865

 

Options exercised

 

236

 

2

 

2,257

 

 

 

 

2,259

 

Stock compensation expense

 

 

 

2,071

 

 

 

 

2,071

 

Tax benefit of options exercised

 

 

 

1,842

 

 

 

 

1,842

 

Repurchase of common stock

 

(114

)

 

 

 

 

(3,152

)

(3,152

)

Retirement of treasury stock

 

 

(24

)

 

(60,677

)

 

60,701

 

 

Cash dividends declared on Common stock ($0.10 per share)

 

 

 

 

(4,765

)

 

 

(4,765

)

2-for-1 stock split effected in the form of a stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued $31.40 per share for acquisition

 

159

 

1

 

4,999

 

 

 

 

5,000

 

Balance, December 31, 2004

 

47,929

 

479

 

79,877

 

369,154

 

13,415

 

 

462,925

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

45,222

 

 

 

45,222

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gains or losses on available-for-sale investments

 

 

 

 

 

26

 

 

26

 

Translation adjustment

 

 

 

 

 

(5,609

)

 

(5,609

)

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

39,639

 

Options exercised

 

69

 

1

 

877

 

 

 

 

878

 

Stock compensation expense

 

 

 

3,010

 

 

 

 

3,010

 

Tax benefit of options exercised

 

 

 

449

 

 

 

 

449

 

Cash dividends declared on Common stock ($0.10 per share)

 

 

 

 

(4,800

)

 

 

(4,800

)

Common stock issued at $34.30 per share

 

20

 

 

706

 

 

 

 

706

 

Balance, June 30, 2005

 

48,018

 

$

480

 

$

84,919

 

$

409,576

 

$

7,832

 

$

 

$

502,807

 

 

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

 

4



 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

 

 

Six Months

 

 

 

Ended June 30,

 

 

 

2005

 

2004

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

45,222

 

$

39,764

 

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

 

 

 

 

 

Gain on sale of capital equipment

 

(98

)

(162

)

Depreciation and amortization

 

12,608

 

9,680

 

Deferred income taxes

 

(2,906

)

(1,396

)

Noncash compensation related to stock plans

 

3,210

 

2,795

 

Income in equity method investment

 

(168

)

 

Tax benefit of options exercised

 

449

 

1,044

 

Provision for obsolete inventory

 

874

 

1,080

 

Provision for doubtful accounts

 

(83

)

(92

)

Changes in operating assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

Trade accounts receivable

 

(52,666

)

(56,359

)

Inventories

 

10,331

 

(26,179

)

Trade accounts payable

 

3,740

 

9,449

 

Income taxes payable

 

12,998

 

2,777

 

Accrued profit sharing trust contributions

 

(2,443

)

(2,521

)

Accrued cash profit sharing and commissions

 

7,557

 

5,754

 

Other current assets

 

(1,759

)

(2,030

)

Accrued liabilities

 

(16

)

4,090

 

Other long-term liabilities

 

21

 

645

 

Accrued workers’ compensation

 

(36

)

50

 

Other noncurrent assets

 

12

 

251

 

Net cash provided by (used in) operating activities

 

36,847

 

(11,360

)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Capital expenditures

 

(17,791

)

(17,022

)

Asset acquisitions, net of cash acquired

 

 

(575

)

Proceeds from sale of capital equipment

 

219

 

164

 

Purchases of available-for-sale investments

 

 

(40,238

)

Maturities of available-for-sale investments

 

3,400

 

4,500

 

Sales of available-for-sale investments

 

3,500

 

35,795

 

Net cash used in investing activities

 

(10,672

)

(17,376

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Line of credit borrowings

 

712

 

1,880

 

Repayment of debt and line of credit borrowings

 

(280

)

(4,736

)

Repurchase of common stock

 

 

(28,122

)

Issuance of Company’s common stock

 

878

 

1,515

 

Dividends paid

 

(4,797

)

(2,428

)

Net cash used by financing activities

 

(3,487

)

(31,891

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(468

)

(71

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

22,220

 

(60,698

)

Cash and cash equivalents at beginning of period

 

30,917

 

95,136

 

Cash and cash equivalents at end of period

 

$

53,137

 

$

34,438

 

 

 

 

 

 

 

Noncash capital expenditures

 

$

1,684

 

$

1,665

 

Dividends declared but not paid

 

$

2,402

 

$

2,400

 

Issuance of Company’s common stock for compensation

 

$

706

 

$

437

 

 

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

 

5



 

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. Investments in less than 50% owned affiliates are generally 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 have been condensed or omitted. These interim statements should be read in conjunction with the consolidated financial statements and the notes thereto included in Simpson Manufacturing Co., Inc.’s (the “Company’s”) 2004 Annual Report on Form 10-K (the “2004 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 accounting principles generally accepted in the United States of America. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America. The Company’s quarterly results may be subject to fluctuations. 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 allowances, 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 and 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. If the actual costs of sales returns, allowances, and discounts were to exceed the recorded estimated allowance, the Company’s sales would be adversely affected. Accrued sales returns have not been material and have been within management’s expectations. Service sales, representing aftermarket repair and maintenance and engineering activities, though significantly less than 1% of net sales and not material to the financial statements, are recognized as the services are completed.

 

Treasury Stock

 

The Company records treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Upon retirement, the resulting gains or losses are credited or charged to retained earnings.

 

Net Income Per Common Share

 

Basic net income per common share is computed based upon 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.

 

6



 

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

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

June 30, 2005

 

June 30, 2004

 

(In thousands; per-

 

 

 

 

 

Per

 

 

 

 

 

Per

 

share amounts in dollars)

 

Income

 

Shares

 

Share

 

Income

 

Shares

 

Share

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

28,838

 

48,005

 

$

0.60

 

$

21,815

 

48,025

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

442

 

 

 

845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

28,838

 

48,447

 

$

0.60

 

$

21,815

 

48,870

 

$

0.45

 

 

 

 

Six Months Ended

 

Six Months Ended

 

 

 

June 30, 2005

 

June 30, 2004

 

 

 

 

 

 

 

Per

 

 

 

 

 

Per

 

 

 

Income

 

Shares

 

Share

 

Income

 

Shares

 

Share

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

45,222

 

47,990

 

$

0.94

 

$

39,764

 

48,285

 

$

0.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

486

 

(0.01

)

 

821

 

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

45,222

 

48,476

 

$

0.93

 

$

39,764

 

49,106

 

$

0.81

 

 

For the three and six months ended June 30, 2005, 382 and 195 shares attributable to outstanding stock options, respectively, were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

 

Accounting for Stock-Based Compensation

 

The Company maintains two stock option plans under which the Company may grant incentive stock options and non-qualified stock options to employees, consultants and non-employee directors. Stock options have been granted with exercise prices at or above the fair market value on the date of grant. Options vest and expire according to terms established at the grant date.

 

As of January 1, 2003, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” and SFAS No. 123, “Accounting for Stock Based Compensation,” and used the prospective method of applying SFAS No. 123 for the transition. For stock options that have been granted prior to January 1, 2003, the Company will continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, because the grant price equaled or exceeded the market price on the date of grant for options issued by the Company, no compensation expense has been recognized for stock options granted prior to January 1, 2003. For the three months ended June 30, 2005 and 2004, the Company has recognized after-tax stock option expense of approximately $0.9 million and $0.6 million, respectively. For the six months ended June 30, 2005 and 2004, the Company has recognized after-tax stock option expense of approximately $1.9 million and $1.5 million, respectively. These amounts are reflected in general and administrative expenses.

 

7



 

Had compensation cost for the Company’s stock options for all grants been recognized based upon the estimated fair value on the grant date under the fair value methodology prescribed by SFAS No. 123, as amended by SFAS No. 148, the Company’s net income and earnings per share would have been as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In thousands; per-share amounts in dollars)

 

2005

 

2004

 

2005

 

2004

 

Net income, as reported

 

$

28,838

 

$

21,815

 

$

45,222

 

$

39,764

 

Add: Stock-based employee compensation expense included in reported net income, net of related tax effects

 

894

 

639

 

1,872

 

1,454

 

Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards granted prior to January 1, 2003, net of related tax effects

 

901

 

652

 

1,887

 

1,479

 

Net income, pro forma

 

$

28,831

 

$

21,802

 

$

45,207

 

$

39,739

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

Basic, as reported

 

$

0.60

 

$

0.45

 

$

0.94

 

$

0.82

 

Basic, pro forma

 

0.60

 

0.45

 

0.94

 

0.82

 

 

 

 

 

 

 

 

 

 

 

Diluted, as reported

 

0.60

 

0.45

 

0.93

 

0.81

 

Diluted, pro forma

 

0.60

 

0.45

 

0.93

 

0.81

 

 

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

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share Based Payment (Revised 2004),” which revised SFAS No. 123 to require companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted. While the Company currently accounts for stock options on a fair value basis, additional changes will be required such as those affecting cash flow presentation. SFAS No. 123R will be adopted in the first quarter of 2006 and management has not determined all of the effects on the Company’s financial statements or the transition method that will be used.

 

Under the 1994 Stock Option plan, the Company allows for full vesting upon retirement if the employee becomes “retirement eligible” by reaching age sixty. Currently, stock-based employee compensation expense is recorded over the nominal vesting period and if a retirement eligible employee retires before the end of the vesting period, the Company records any unrecognized compensation cost at the date of retirement (the “nominal vesting period approach”). The nominal vesting period is four years of service subsequent to the grant date. The “non-substantive vesting period approach” specifies that awards, in substance, become vested when the employee’s retention of the award is no longer contingent on providing service. Under this approach, the unrecorded compensation cost is expensed when that condition is met even if the employee continues providing service to the Company. This would be the case for existing grants when an employee becomes retirement eligible as well as when a retirement eligible employee is granted an award. Upon adoption of SFAS No. 123R in the first quarter of 2006, the Company will adopt the non-substantive vesting period approach for new grants that have retirement eligibility provisions. The after-tax effect on net income of applying the nominal vesting period approach versus the non-substantive vesting period approach is as follows (in thousands):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Stock-based compensation expense:

 

 

 

 

 

 

 

 

 

Nominal vesting period approach

 

$

894

 

$

639

 

$

1,872

 

$

1,454

 

Non-substantive vesting period approach

 

846

 

576

 

2,109

 

1,887

 

Effect on net income

 

$

48

 

$

63

 

$

(237

)

$

(433

)

 

8



 

Recently Issued Accounting Standards

 

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion 20 and FASB Statement No. 3.” This Statement will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. In the absence of explicit transition requirements specific to the newly adopted accounting principle, it establishes, unless not practicable, retrospective application as the required method for reporting a change in accounting principle. Management has not determined the effect, if any, on the Company’s financial statements for its fiscal year ending December 31, 2006.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the 2005 presentation with no effect on net income or retained earnings as previously reported. These reclassifications were primarily in relation to the presentation of deferred taxes and non-cash compensation in the statement of cash flows.

 

2.                                       Trade Accounts Receivable, net

 

Trade accounts receivable consist of the following (in thousands):

 

 

 

At June 30,

 

At December 31,

 

 

 

2005

 

2004

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts receivable

 

$

145,749

 

$

125,921

 

$

93,515

 

Allowance for doubtful accounts

 

(2,268

)

(1,790

)

(2,397

)

Allowance for sales discounts and returns

 

(2,504

)

(1,813

)

(1,311

)

 

 

$

140,977

 

$

122,318

 

$

89,807

 

 

3.                                       Inventories

 

The components of inventories consist of the following (in thousands):

 

 

 

At June 30,

 

At December 31,

 

 

 

2005

 

2004

 

2004

 

 

 

 

 

 

 

 

 

Raw materials

 

$

68,295

 

$

57,992

 

$

91,910

 

In-process products

 

22,870

 

16,037

 

22,235

 

Finished products

 

88,403

 

56,824

 

78,734

 

 

 

$

179,568

 

$

130,853

 

$

192,879

 

 

9



 

4.                                       Property, Plant and Equipment, net

 

Property, plant and equipment, net consists of the following (in thousands):

 

 

 

At June 30,

 

At December 31,

 

 

 

2005

 

2004

 

2004

 

 

 

 

 

 

 

 

 

Land

 

$

14,711

 

$

13,855

 

$

13,871

 

Buildings and site improvements

 

84,344

 

65,478

 

67,215

 

Leasehold improvements

 

5,938

 

5,917

 

6,838

 

Machinery and equipment

 

152,608

 

131,024

 

147,442

 

 

 

257,601

 

216,274

 

235,366

 

Less accumulated depreciation and amortization

 

(129,660

)

(113,549

)

(121,610

)

 

 

127,941

 

102,725

 

113,756

 

Capital projects in progress

 

16,444

 

13,042

 

23,853

 

 

 

$

144,385

 

$

115,767

 

$

137,609

 

 

Gains or losses on disposal of capital equipment are reported in the general and administrative expenses in the consolidated statements of operations.

 

5.                                       Investments

 

Equity Method Investment

 

The Company has a 35% investment in Keymark Enterprises, LLC (“Keymark”), for which it accounts using the equity method. Keymark develops software that assists in the design and engineering of residential structures. The Company’s relationship with Keymark includes the specification of its products in the Keymark software. The Company has no obligation to make any additional future capital contributions, nor does it intend to provide additional funding to Keymark. In 2001, after several quarters of losses, the Company concluded that the carrying value of its investment in Keymark exceeded its fair value and therefore wrote down the value of its investment to zero. After three consecutive quarters of profitability in 2004, however, the Company began recording its share of Keymark’s 2005 profits, and as of June 30, 2005, the carrying value of this investment (in thousands) was $168.

 

Available-for-Sale Investments

 

The Company’s investments in debt securities are classified as either cash and cash equivalents or available-for-sale investments. As of June 30, 2005 and 2004, and December 31, 2004, the Company’s investments were as follows (in thousands):

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

At June 30, 2005

 

 

 

 

 

 

 

 

 

Debt investments

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

9,944

 

$

 

$

32

 

$

9,912

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2004

 

 

 

 

 

 

 

 

 

Debt investments

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

44,677

 

$

3

 

$

70

 

$

44,610

 

Commercial paper

 

5,007

 

 

 

5,007

 

Total debt investments

 

$

49,684

 

$

3

 

$

70

 

$

49,617

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2004

 

 

 

 

 

 

 

 

 

Debt investments

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

17,090

 

$

 

$

58

 

$

17,032

 

 

10



 

Of the total estimated fair value of debt securities (in thousands), $5,007 was classified as cash and cash equivalents as of June 30, 2004, and $9,912, $44,610, and $17,032 were classified as short-term investments as of June 30, 2005 and 2004, and December 31, 2004, respectively.

 

As of June 30, 2005, contractual maturities of the Company’s available-for-sale investments were as follows (in thousands):

 

 

 

 

 

Estimated

 

 

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Amounts maturing in less than 1 year

 

$

9,944

 

$

9,912

 

 

6.                                       Debt

 

Outstanding debt at June 30, 2005 and 2004, and December 31, 2004, and the available credit at June 30, 2005, consisted of the following (in thousands):

 

 

 

Available

 

Debt Outstanding

 

 

 

Credit at

 

at

 

at

 

 

 

June 30,

 

June 30,

 

December 31,

 

 

 

2005

 

2005

 

2004

 

2004

 

 

 

 

 

 

 

 

 

 

 

Revolving line of credit, interest at bank’s reference rate less 0.50% (at June 30, 2005, the bank’s reference rate less 0.50% was 5.75%), expires November 2006

 

$

13,800

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Revolving term commitment, interest at bank’s prime rate less 0.50% (at June 30, 2005, the bank’s prime rate less 0.50% was 5.75%), expires June 2006

 

9,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving line of credit, interest at the bank’s base rate plus 2% (at June 30, 2005, the bank’s base rate plus 2% was 6.75%), expires September 2005

 

1,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving lines of credit, interest rates between 2.8442% and 4.50%, expirations between June 2005 and August 2005

 

4,442

 

663

 

268

 

 

 

 

 

 

 

 

 

 

 

 

Term loan, interest at LIBOR plus 1.375% (at June 30, 2005, LIBOR plus 1.375% was 4.565%), matures June 2008

 

 

900

 

1,200

 

1,050

 

 

 

 

 

 

 

 

 

 

 

Term loans, interest rates between 2.94% and 5.60%, expirations between 2005 and 2018

 

 

1,581

 

1,828

 

1,926

 

 

 

28,691

 

3,144

 

3,296

 

2,976

 

Less line of credit and current portion of long-term debt

 

 

 

(1,212

)

(813

)

(579

)

Long-term debt, net of current portion

 

 

 

$

1,932

 

$

2,483

 

$

2,397

 

Available credit

 

$

28,691

 

 

 

 

 

 

 

 

11



 

7.                                       Commitments and Contingencies

 

Note 9 to the consolidated financial statements in the Company’s 2004 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, however, is subject to inherent uncertainty and it is possible that such resolution could have a material adverse effect on the Company’s financial condition, cash flows or 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 matters will have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

 

Corrosion, hydrogen enbrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, environmental conditions or other factors can contribute to failure of fasteners, connectors, and tools. On occasion, some of the fasteners 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 website (see www.strongtie.com/info). Based on test results to date, the Company believes that, generally, if its products are appropriately selected and installed in accordance with the Company’s guidance, they may be reliably used in appropriate applications.

 

8.                                       Segment Information

 

The Company is organized into two primary segments. The segments are defined by types of products manufactured, marketed and distributed to the Company’s customers. The two product segments are connector products and venting products. These segments are differentiated in several ways, including the types of materials used, the production process, the distribution channels used and the applications in which the products are used. 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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Net Sales

 

 

 

 

 

 

 

 

 

Connector products

 

$

205,748

 

$

162,144

 

$

372,741

 

$

304,654

 

Venting products

 

18,586

 

19,691

 

35,809

 

37,097

 

Total

 

$

224,334

 

$

181,835

 

$

408,550

 

$

341,751

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

 

 

 

 

 

 

 

 

Connector products

 

$

43,743

 

$

33,275

 

$

70,660

 

$

61,813

 

Venting products

 

801

 

1,962

 

863

 

3,603

 

Administrative and all other

 

1,341

 

385

 

796

 

(486

)

Total

 

$

45,885

 

$

35,622

 

$

72,319

 

$

64,930

 

 

 

 

 

 

 

 

At

 

 

 

At June 30,

 

December 31,

 

 

 

2005

 

2004

 

2004

 

Total Assets

 

 

 

 

 

 

 

Connector products

 

$

455,300

 

$

343,989

 

$

427,418

 

Venting products

 

72,193

 

57,155

 

56,188

 

Administrative and all other

 

73,962

 

90,051

 

61,531

 

Total

 

$

601,455

 

$

491,195

 

$

545,137

 

 

12



 

Cash collected by the Company’s subsidiaries is routinely transferred into the Company’s cash management accounts and, therefore, has been included in the total assets of the segment entitled “Administrative and all other.” Cash and cash equivalent and short-term investment balances (in thousands) in the “Administrative and all other” segment were approximately $62,324, $77,622, and $47,023, as of June 30, 2005 and 2004, and December 31, 2004, respectively.

 

9.                                       Subsequent Events

 

In July 2005, the Company’s Board of Directors declared a cash dividend of $0.05 per share, totaling approximately $2.4 million. The record date for the cash dividend is October 6, 2005, and it will be paid on October 26, 2005.

 

In July 2005, the Company entered into an agreement to purchase a building in Vacaville, California, from a related party for $5.7 million. The building is 125,000 square feet and is currently being leased by the Company’s subsidiary, Simpson Dura-Vent. The transaction is subject to satisfactory completion of the Company’s due diligence and satisfaction of other customary conditions and is expected to close in January 2008.

 

In August 2005, the Company completed the purchase of a facility in Pleasanton, California, for $9.3 million, which it plans to use as its administrative offices and its engineering laboratory.

 

In August 2005, the Company entered into an agreement to sell one of its buildings in San Leandro, California, for $4.0 million. If the sale is consummated, the Company expects to realize a gain on the sale of this facility of approximately $1.9 million. The building is approximately 48,000 square feet and is currently being used by the Company’s subsidiary, Simpson Strong-Tie Company Inc., primarily for its engineering laboratory. Subject to the buyers’ completion of their due diligence and satisfaction of other customary conditions, the transaction is expected to close in late 2005. The Company intends to relocate the engineering laboratory to its recently acquired facility in Pleasanton, California.

 

13



 

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

 

Certain matters discussed below are forward-looking statements that involve risks and uncertainties, certain of which are discussed in this report and in other reports filed by the Company with the Securities and Exchange Commission. Actual results might differ materially from results suggested by any forward-looking statements in this report.

 

The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three and six months ended June 30, 2005 and 2004. The following should be read in conjunction with the interim Condensed Consolidated Financial Statements and related Notes appearing elsewhere herein.

 

In November 2004, the Company completed a 2-for-1 stock split effected in the form of a stock dividend of its common stock. All of the share and per share numbers have been adjusted to reflect this stock split.

 

Results of Operations for the Three Months Ended June 30, 2005, Compared
with the Three Months Ended June 30, 2004

 

Net sales increased 23.4% to $224.3 million in the second quarter of 2005 as compared to net sales of $181.8 million for the second quarter of 2004. Net income increased 32.2% to $28.8 million for the second quarter of 2005 as compared to net income of $21.8 million for the second quarter of 2004. Diluted net income per common share was $0.60 for the second quarter of 2005 as compared to $0.45 for the second quarter of 2004.

 

In the second quarter of 2005, sales growth occurred throughout North America and Europe. The growth in the United States was strongest in the southern, western (excluding California) and midwestern regions. Sales in California increased relative to the first quarter of 2005 when heavy rains, particularly in southern California, slowed construction activity. Simpson Strong-Tie’s second quarter sales increased 26.9% over the same quarter last year, while Simpson Dura-Vent’s sales decreased 5.6%. Lumber dealers and home centers were the fastest growing Simpson Strong-Tie sales channels. The sales increase was broad based across most of Simpson Strong-Tie’s major product lines. Sales of the Quik Drive product line, acquired in the fourth quarter of 2004, contributed significantly to the increase. Anchor systems, seismic and high wind products and engineered wood products had the highest percentage growth rates in sales. Sales of Simpson Strong-Tie’s Strong-Wall product line, with a substantial share of its sales in California, increased somewhat as compared to the second quarter of 2004. Sales of Simpson Dura-Vent’s products decreased, with the exception of its pellet vent products, which increased slightly, compared to the second quarter of 2004.

 

Income from operations increased 28.8% from $35.6 million in the second quarter of 2004 to $45.9 million in the second quarter of 2005, while gross margins decreased from 40.9% in the second quarter of 2004 to 39.6% in the second quarter of 2005. This decrease in gross margins was primarily due to increased material costs, mainly steel, which increased at a faster rate than the sales price increases that the Company put in place during 2004 and early 2005. The material cost increase was partially offset by improved absorption of the Company’s fixed overhead costs, primarily due to the increased sales volume. The Company’s raw material inventory continued to decrease, by 25.7% from balances as of December 31, 2004, while its in-process and finished goods inventory increased by 10.2% over the first half although it declined slightly in the second quarter.

 

Selling expenses increased 1.1% from $15.3 million in the second quarter of 2004 to $15.5 million in the second quarter of 2005. While the increase was small, it was driven primarily by a $0.6 million increase in costs associated with the addition of sales and marketing personnel, including those associated with the acquisition of the assets of Quik Drive, U.S.A., Inc. and Quik Drive Canada, Inc. and 100% of the equity of Quik Drive Australia Pty. Limited (collectively “Quik Drive”), partially offset by a $0.5 million decrease in advertising and promotional expenses. General and administrative expenses increased 16.7% from $23.5 million in the second quarter of 2004 to $27.4 million in the second quarter of 2005. The increase was primarily due to an increase in cash profit sharing of $2.5 million, as a result of increased operating profit, and increased costs associated with the addition of administrative personnel of $0.8 million and an increase in amortization of intangible assets of $0.4 million. The increases in personnel costs and amortization were primarily associated with the Quik Drive acquisition. In addition, stock compensation costs were higher by $0.3 million. Partially offsetting the increases were decreases in legal expenses of $0.5 million and favorable bad debt experience in the current quarter of $0.3 million. The tax rate was 37.5% in the second quarter of 2005, down from 38.5% in the second quarter of 2004. The decrease was primarily due to lower taxable income as a result of the new manufacturing deduction for qualified production activity income under the American Jobs Creation Act of 2004.

 

14



 

Results of Operations for the Six Months Ended June 30, 2005, Compared
with the Six Months Ended June 30, 2004

 

Net sales increased 19.5% to $408.5 million in the first half of 2005 as compared to net sales of $341.8 million for the first half of 2004. Net income increased 13.7% to $45.2 million for the first half of 2005 as compared to net income of $39.8 million for the first half of 2004. Diluted net income per common share was $0.93 for the first half of 2005 as compared to $0.81 for the first half of 2004.

 

In the first half of 2005, sales growth occurred throughout Europe and North America. The growth in the United States was strongest in the southern and western regions, excluding California. Simpson Strong-Tie’s first half sales increased 22.3% over the same period last year, while Simpson Dura-Vent’s sales decreased 3.5%. Lumber dealers and home centers were the fastest growing Simpson Strong-Tie sales channels. The sales increase was broad based across most of Simpson Strong-Tie’s major product lines. Sales of Quik Drive products contributed significantly to the increase. Anchor systems, seismic and high wind products and engineered wood products had the highest percentage growth rates in sales. Sales of Simpson Strong-Tie’s Strong-Wall product line, with a substantial share of its sales in California, were down significantly from the first half of 2004 primarily due to the slow sales in the first quarter of 2005. Sales of Simpson Dura-Vent’s products decreased, with the exception of its pellet vent products with increased slightly, compared to the first half of 2004.

 

Income from operations increased 11.4% from $64.9 million in the first half of 2004 to $72.3 million in the first half of 2005 while gross margins decreased from 40.7% in the first half of 2004 to 37.5% in the first half of 2005. This decrease was primarily due to increased material costs but was offset slightly by improved absorption of the Company’s fixed overhead costs, primarily due to the increased sales volume.

 

Selling expenses increased 10.6% from $28.4 million in the first half of 2004 to $31.4 million in the first half of 2005, primarily due to increased costs associated with the addition of sales and marketing personnel, including $2.0 million associated with the acquisition of Quik Drive. General and administrative expenses increased 8.5% from $45.7 million in the first half of 2004 to $49.6 million in the first half of 2005. The increase was primarily due to increased costs associated with the addition of administrative personnel of $1.4 million and an increase in amortization of intangible assets of $0.9 million. The increases in personnel costs and amortization were primarily associated with the Quik Drive acquisition. In addition, stock compensation costs increased by $0.5 million and cash profit sharing increased by $0.3 million, as a result of increased operating profit. The tax rate was 37.8% in the first half of 2005, down from 38.9% in the first half of 2004. The decrease was primarily due to lower taxable income as a result of the new manufacturing deduction for qualified production activity income under the American Jobs Creation Act of 2004.

 

Liquidity and Sources of Capital

 

As of June 30, 2005, working capital was $302.7 million as compared to $268.0 million at June 30, 2004, and $268.7 million at December 31, 2004. The increase in working capital from December 31, 2004, was primarily due to an increase in the Company’s trade accounts receivable of $51.2 million. Net accounts receivable increased 57.0% from December 31, 2004, primarily due to the increase in sales. In addition, cash and cash equivalents increased by $22.2 million, or 71.9%, from December 31, 2004. Offsetting this increase in working capital was a shift from prepaid income taxes to income taxes payable totaling approximately $13.0 million, decreases in total inventories and short-term investments of $13.3 million and $7.1 million, respectively, and increases in accrued cash profit sharing and commissions of $7.5 million, primarily as a result of higher operating income, and net trade accounts payable of $4.7 million. The balance of the change in working capital was due to the fluctuation of various other asset and liability accounts. The working capital change and changes in noncurrent assets and liabilities, combined with net income and noncash expenses, including depreciation, amortization, stock-based compensation charges and provisions for obsolete inventory and doubtful accounts, totaling approximately $61.8 million, resulted in net cash provided by operating activities of $36.8 million. As of June 30, 2005, the Company had unused credit facilities available of $28.7 million.

 

The Company used $10.7 million in its investing activities. Approximately $17.8 million was used for capital expenditures, primarily for facilities in Columbus, Ohio, and Pleasanton, California, as well as for machinery and equipment for its facilities in, McKinney, Texas, San Leandro and Vacaville, California, and Vicksburg, Mississippi. This was offset by the redemptions and maturities of available-for-sale securities of $3.5 and $3.4 million, respectively. The Company expects its total capital spending to be approximately $60.0 million for 2005.

 

15



 

In May 2005, the Company completed the purchase, for $4.1 million, of the facility that it previously leased from a related party in Columbus, Ohio, and has commenced construction on an expansion facility in Columbus adjacent to that property. The cost of the expansion is expected to total $14.6 million. In August 2005, the Company completed the purchase of the property in Pleasanton, California, for $9.3 million, which it plans to use as its administrative offices and its engineering laboratory. The Company anticipates additional expenditures of $2.5 million to $3.0 million to prepare the facility for use. The Company expects to move in to the new building and vacate its leased property in Dublin, California, in mid-2006. The Company has not finalized its plans at this time, but anticipates a one-time charge to income on moving out in 2006 for the fair value of the remaining lease payments at the Dublin property, which it estimates will total approximately $1.8 million. In July 2005, the Company entered into an agreement to purchase a building in Vacaville, California, from a related party for $5.7 million. The building is 125,000 square feet and is currently being leased by the Company’s subsidiary, Simpson Dura-Vent. Subject to satisfactory completion of the Company’s due diligence and other customary conditions, the transaction is expected to close in January 2008. The transaction was unanimously approved by the independent members of the Company’s Board of Directors. In August 2005, the Company entered into an agreement to sell one of its buildings in San Leandro, California, for $4.0 million. If the sale is consummated, the Company expects to realize a gain on the sale of this facility of approximately $1.9 million. The building is approximately 48,000 square feet and is currently being used by the Company’s subsidiary, Simpson Strong-Tie Company Inc., primarily for its engineering laboratory. Subject to the buyers’ completion of their due diligence and satisfaction of other customary conditions, the transaction is expected to close in late 2005. The Company intends to relocate the engineering laboratory to its recently acquired facility in Pleasanton, California.

 

The Company vacated and has listed its original McKinney, Texas, facility for sale but cannot estimate when it will be sold or the proceeds of such a sale. The Company has performed an analysis of the valuation of this property and does not believe that the asset is impaired at this time, although, conditions may change in the future.

 

The Company’s financing activities used net cash of $3.5 million. Cash provided by financing activities were primarily from borrowings on the Company’s credit lines of its European subsidiaries of $0.7 million and the issuance of the Company’s stock through its stock option plan of $0.9 million. Uses of cash for financing activities were primarily from the payments of cash dividends totaling $4.8 million in January and April 2005, which were declared in September 2004 and January 2005, respectively. In July 2005, the Company’s Board of Directors declared a cash dividend of $0.05 per share. The record date for the cash dividend is October 6, 2005, and it will be paid on October 26, 2005.

 

The Company believes that cash generated by operations and borrowings available under its existing credit agreements will be sufficient for the Company’s working capital needs and planned capital expenditures over the next twelve months. Depending on the Company’s future growth and possible acquisitions, it may become necessary to secure additional sources of financing.

 

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. The Company’s main raw material, however, is steel and increases in steel prices may adversely affect the Company’s gross margins if it cannot recover the higher costs through price increases.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

The Company’s short-term investments consisted of debt securities of approximately $9.9 million as of June 30, 2005. These securities, like all fixed income instruments, are subject to interest rate risk and will vary in value as market interest rates fluctuate. If market interest rates were to increase immediately and uniformly by 10% from levels as of June 30, 2005, the decline in the fair value of the investments would not have a material effect on the Company’s financial position as of June 30, 2005, or results of operations for the three or six months then ended.

 

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 where the Company has operations, the change in net income would not be material to its operations taken as a whole. The translation adjustment resulted in a reduction in accumulated other comprehensive income of $3.0 million and $5.6 million in the three and six months ended June 30, 2005, respectively, primarily due to the effect of the strengthening of the U.S. dollar in relation to European and Canadian currencies.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures. As of June 30, 2005, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was performed under the supervision and with the participation of the Company’s 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 Company’s disclosure controls and procedures were effective as of that date.

 

Changes in Internal Control over Financial Reporting. During the three months ended June 30, 2005, the Company made no changes to its internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

 

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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. The resolution of claims and litigation, however, is subject to inherent uncertainty and it is possible that such resolution could have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

In December 2004, the Board of Directors authorized the Company to repurchase up to $50.0 million of the Company’s common stock. This replaces the $50.0 million repurchase authorization from December 2003. The authorization will remain in effect through the end of 2005. There were no purchases by the Company during the second quarter of 2005.

 

Dividends are determined by the Company’s Board of Directors, based on the Company’s earnings, cash flow, financial condition and other factors deemed relevant by the Board of Directors. In addition, existing loan agreements require the Company to maintain tangible net worth of $250.0 million plus 50% of net profit after taxes for each fiscal year. This requirement may limit the amount that the Company may pay out as dividends on the common stock. As of June 30, 2005, the Company had $174.3 million available for the payment of dividends under these loan agreements.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Submission of Matters to a Vote of Security Holders.

 

The Annual Meeting of Shareholders (“Annual Meeting”) was held on May 3, 2005. The following three nominees were elected as directors by the votes indicated:

 

 

 

Total Votes

 

Total Votes

 

 

 

 

 

for Each

 

Withheld from

 

Term

 

Name

 

Director

 

Each Director

 

Expires*

 

 

 

 

 

 

 

 

 

Earl F. Cheit

 

43,533,942

 

1,147,798

 

2008

 

Thomas J Fitzmyers

 

43,759,754

 

921,986

 

2008

 

Barry Lawson Williams

 

43,810,651

 

871,089

 

2008

 

 


* The term expires on the date of the Annual Meeting in the year indicated.

 

The terms as directors of Jennifer A. Chatman, Stephen B. Lamson, Peter N. Louras, Jr., Robin G. MacGillivray, and Barclay Simpson continued after the meeting.

 

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The following proposals were also adopted at the Annual Meeting by the vote indicated:

 

 

 

 

 

 

 

 

 

Broker

 

Proposal

 

For

 

Against

 

Abstain

 

Non-Vote

 

 

 

 

 

 

 

 

 

 

 

To amend the Company’s Certificate of Incorporation to increase the number of shares of Common Stock authorized for issuance from 80,000,000 shares to 160,000,000 shares

 

42,039,952

 

2,606,959

 

34,829

 

 

 

 

 

 

 

 

 

 

 

 

To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company for 2005

 

43,599,137

 

1,044,547

 

38,056

 

 

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

3(i).                Certificate of Amendment of Certificate of Incorporation

10.1.            First Amendment to Purchase and Sale Agreement, dated May 13, 2005, between Las Positas LLC and Simpson Manufacturing Co., Inc.

31.                     Rule 13a-14(a)/15d-14(a) Certifications.

32.                     Section 1350 Certifications.

 

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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:

August 9, 2005

 

 

By

/s/Michael J. Herbert

 

 

 

 

Michael J. Herbert

 

 

 

 

Chief Financial Officer

 

 

 

 

(principal accounting and financial officer)

 

 

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