Simpson Manufacturing Co., Inc. - Quarter Report: 2007 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

For the quarterly period ended:   September 30, 2007

 

OR

 

 

                          For the transition period from                             to                           

 

Commission file number:   0-23804

 

 

 

 

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

 

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes    x

No    o

 

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

 

 

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes    o

No    x

 

        The number of shares of the Registrant’s common stock outstanding as of September 30, 2007:  48,528,803

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 

 

 

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

 

 

 

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Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands except per-share amounts, unaudited)

 

 

 

 

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

 

 

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Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the nine months ended September 30, 2006 and 2007 and three months ended December 31, 2006

(In thousands except per-share amounts, unaudited)

 

		Common Stock					Additional Paid-in			Retained			Accumulated Other Comprehensive			Treasury
		Shares		Par Value			Capital			Earnings			Income			Stock			Total
Balance, January 1, 2006		48,322		$	483		$	94,398		$	456,474		$	6,774		$	—		$	558,129
Comprehensive income:
Net income		—		—			—			83,816			—			—			83,816
Other comprehensive income:
Translation adjustment, net of tax of $129		—		—			—			—			4,526			—			4,526
Comprehensive income																—			88,342
Options exercised		343		4			5,431			—			—			—			5,435
Stock compensation		—		—			5,681			—			—			—			5,681
Tax benefit of options exercised		—		—			2,294			—			—			—			2,294
Cash dividends declared on Common stock ($0.24 per share)		—		—			—			(11,577		)	—			—			(11,577		)
Common stock issued at $36.35 per share		6		—			229			—			—			—			229
Repurchase of common stock		(500	)	—			—			—			—			(17,166		)	(17,166		)
Retirement of common stock		—		(5		)	—			(17,161		)	—			17,166			—
Balance, September 30, 2006		48,171		482			108,033			511,552			11,300			—			631,367
Comprehensive income:
Net income		—		—			—			18,680			—			—			18,680
Other comprehensive income:
Translation adjustment, net of tax of $135		—		—			—			—			194			—			194
Comprehensive income																			18,874
Options exercised		241		2			3,510			—			—			—			3,512
Stock compensation		—		—			1,937			—			—			—			1,937
Tax benefit of options exercised		—		—			1,055			—			—			—			1,055
Cash dividends declared on common stock ($0.08 per share)		—		—			—			(3,870		)	—			—			(3,870		)
Balance, December 31, 2006		48,412		484			114,535			526,362			11,494			—			652,875
Cumulative effect due to adoption of FIN 48		—		—			—			(16		)	—			—			(16		)
Balance, January 1, 2007		48,412		484			114,535			526,346			11,494			—			652,859
Comprehensive income:
Net income		—		—			—			68,255			—			—			68,255
Other comprehensive income:
Translation adjustment, net of tax of $156		—		—			—			—			11,579			—			11,579
Comprehensive income																			79,834
Options exercised		230		2			4,426			—			—			—			4,428
Stock compensation		—		—			4,275			—			—			—			4,275
Tax benefit of options exercised		—		—			545			—			—			—			545
Repurchase of common stock		(123	)	—			—			—			—			(4,191		)	(4,191		)
Retirement of common stock		—		(1		)	—			(4,190		)	—			4,191			—
Cash dividends declared on Common stock ($0.30 per share)		—		—			—			(14,543		)	—			—			(14,543		)
Common stock issued at $31.65 per share		10		—			307			—			—			—			307
Balance, September 30, 2007		48,529		$	485		$	124,088		$	575,868		$	23,073		$	—		$	723,514

 

 

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

 

 

 

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Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

		Nine Months
		Ended September 30,
		2007			2006
Cash flows from operating activities
Net income		$	68,255		$	83,816
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on sale of assets		(654		)	110
Depreciation and amortization		21,616			19,100
Impairment of long-lived assets		465			—
Deferred income taxes		(3,033		)	(2,610		)
Noncash compensation related to stock plans		4,614			5,708
Loss in equity method investment		33			130
Excess tax benefit of options exercised		(690		)	(2,048		)
Provision for doubtful accounts		182			188
Provision for obsolete inventory		2,966			277
Minority interest		—			166
Changes in operating assets and liabilities, net of effects of acquisitions:
Trade accounts receivable		(24,590		)	(30,153		)
Inventories		3,930			(46,604		)
Trade accounts payable		13,808			6,430
Income taxes payable		2,309			4,843
Accrued profit sharing trust contributions		(1,838		)	(1,053		)
Accrued cash profit sharing and commissions		1,856			1,969
Other current assets		(2,046		)	(1,672		)
Accrued liabilities		5,350			1,893
Other long-term liabilities		(808		)	410
Accrued workers’ compensation		(264		)	50
Other noncurrent assets		(3,775		)	(9		)
Net cash provided by operating activities		87,686			40,941
Cash flows from investing activities
Capital expenditures		(30,108		)	(36,934		)
Acquisition of minority interest		—			(9,135		)
Proceeds from sale of capital assets		3,132			79
Distributions from equity investments		—			114
Asset acquisitions		(42,354		)	—
Net cash used in investing activities		(69,330		)	(45,876		)
Cash flows from financing activities
Line of credit borrowings		6,756			712
Repayment of debt and line of credit borrowings		(6,687		)	(1,413		)
Repurchase of common stock		(4,191		)	(17,166		)
Issuance of common stock		4,428			5,435
Excess tax benefit of options exercised		690			2,048
Dividends paid		(13,562		)	(11,591		)
Net cash used in financing activities		(12,566		)	(21,975		)
Effect of exchange rate changes on cash		2,839			312
Net increase (decrease) in cash and cash equivalents		8,629			(26,598		)
Cash and cash equivalents at beginning of period		148,299			131,203
Cash and cash equivalents at end of period		$	156,928		$	104,605
Noncash activity during the period
Noncash capital expenditures		$	1,001		$	3,425
Dividends declared but not paid		$	4,854		3,820
Issuance of Company’s common stock for compensation		$	307		$	229
Noncash asset acquisition		$	6,058		$	—

 

 

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

 

 

 

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Simpson Manufacturing Co., Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

1.             Basis of Presentation

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries (the “Company”). Investments in 50% or less owned affiliates are 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 the Company’s 2006 Annual Report on Form 10-K (the “2006 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 fluctuate. As a result, the Company believes the results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period.

 

Revenue Recognition

 

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

 

Net Income Per Common Share

 

Basic net income 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.

 

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

 

(in thousands, except		Three Months Ended,													Three Months Ended,
per-share amounts)		September 30, 2007													September 30, 2006
							Per													Per
		Income			Shares		Share								Income			Shares		Share
Basic EPS
Income available to common stockholders		$	22,647		48,500		$			0.47					$	27,090		48,120		$	0.56
Effect of Dilutive Securities
Stock options		—			479		(0.01					)			—			467		—
Diluted EPS
Income available to common stockholders		$	22,647		48,979		$				0.46				$	27,090		48,587		$	0.56
		Nine Months Ended,													Nine Months Ended,
		September 30, 2007													September 30, 2006
							Per													Per
		Income			Shares		Share								Income			Shares		Share
Basic EPS
Income available to common stockholders		$	68,255		48,449		$		1.41						$	83,816		48,295		$	1.74
Effect of Dilutive Securities
Stock options		—			474		(0.01					)			—			640		(0.03		)
Diluted EPS
Income available to common stockholders		$	68,255		48,923		$	1.40							$	83,816		48,935		$	1.71

 

 

Anti-dilutive shares attributable to outstanding stock options were excluded from the calculation of diluted net income per share. For the three and nine months ended September 30, 2007 and 2006, 1.1 million and 1.0 million shares subject to stock options were anti-dilutive, respectively.

 

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 Company’s 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 under each option granted in February 2007 and January 2006 under the 1994 Plan equaled or exceeded the closing market price per share of the Company’s Common Stock as reported by the New York Stock Exchange for the date when the Company first publicly announced its financial results for 2006 and 2005, respectively. 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.

 

Under the 1994 Plan, no more than 16 million shares of the Company’s 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. 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

 

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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 Company’s stock option activity for the three and nine months ended September 30, 2007 and 2006:

 

(in thousands)		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007			2006					2007			2006
Stock option expense recognized in operating expenses		$	1,385		$	1,887				$	4,347		$		5,442
Tax benefit of stock option expense in provision for income taxes		534			692					1,647			2,063
Stock option expense, net of tax		$	851		$	1,195				$	2,700		$		3,379
Fair value of shares vested		$	1,402		$	1,846				$	4,275		$		5,681
Proceeds to the Company from the exercise of stock options		$	1,501		$	869				$	4,428		$		5,435
Tax benefit from exercise of stock options		$	161		$	289				$	545		$	2,294
		At September 30,
		2007			2006
Stock option cost capitalized in inventory		$	192		$	239

           

The amounts included in cost of sales, research and development and other engineering, selling, or general and administrative expenses depend on the job functions performed by the employees to whom the stock options were granted. Shares of common stock issued on exercise of stock options under the plans are registered under the Securities Act of 1933.

 

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.

 

Income Taxes

 

On January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”).  FIN 48 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

 

As a result of the adoption of FIN 48, the Company recognized an adjustment to its January 1, 2007, opening retained earnings balance in the amount of $16 thousand.

 

At January 1, 2007, the Company had $7.5 million in unrecognized tax benefits, of which $1.8 million, if recognized, would favorably affect the effective tax rate. At September 30, 2007, the Company does not believe it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

 

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