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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2007
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)

 

 

 

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.

Large accelerated filer  x              Accelerated filer  o              Non-accelerated filer  o

 

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

The number of shares of the Registrant’s common stock outstanding as of June 30, 2007:      48,455,528

 

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,
		2007			2006			2006
ASSETS
Current assets
Cash and cash equivalents		$	177,166		$	94,021		$	148,299
Trade accounts receivable, net		145,388			154,682			95,991
Inventories		210,253			218,271			217,608
Deferred income taxes		12,092			11,578			11,216
Assets held for sale		9,671			—			—
Other current assets		6,730			6,115			6,224
Total current assets		561,300			484,667			479,338
Property, plant and equipment, net		199,249			180,569			197,180
Goodwill		45,917			43,985			44,337
Equity method investment		59			—			33
Other noncurrent assets		22,333			15,317			14,446
Total assets		$	828,858		$	724,538		$	735,334
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Line of credit and current portion of long-term debt		$	5,942		$	503		$	327
Trade accounts payable		47,791			51,651			22,909
Accrued liabilities		38,558			35,676			36,874
Income taxes payable		8,542			5,922			—
Accrued profit sharing trust contributions		4,724			4,359			8,616
Accrued cash profit sharing and commissions		14,014			16,830			7,817
Accrued workers’ compensation		3,448			3,312			3,712
Total current liabilities		123,019			118,253			80,255
Long-term debt, net of current portion		—			491			338
Other long-term liabilities		9,483			1,514			1,866
Total liabilities		132,502			120,258			82,459
Commitments and contingencies (Note 7)
Stockholders’ equity
Common stock, at par value		485			481			484
Additional paid-in capital		121,025			105,029			114,535
Retained earnings		558,075			488,283			526,362
Accumulated other comprehensive income		16,771			10,487			11,494
Total stockholders’ equity		696,356			604,280			652,875
Total liabilities and stockholders’ equity		$	828,858		$	724,538		$	735,334

 

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)

		Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
Net sales		$	231,288		$	241,232		$	424,442		$	456,890
Cost of sales		137,925			139,717			259,457			269,456
Gross profit		93,363			101,515			164,985			187,434
Operating expenses (income):
Research and development and other engineering		5,463			5,747			10,723			10,806
Selling		20,053			18,693			38,207			36,151
General and administrative		24,332			26,559			45,975			49,675
Loss (gain) on sale of assets		(86		)	115			(92		)	113
		49,762			51,114			94,813			96,745
Income from operations		43,601			50,401			70,172			90,689
Income (loss) in equity method investment, before tax		59			15			26			(129		)
Interest income, net		1,424			891			2,797			1,779
Income before income taxes		45,084			51,307			72,995			92,339
Provision for income taxes		16,767			19,658			27,387			35,446
Minority interest		—			75			—			166
Net income		$	28,317		$	31,574		$	45,608		$	56,727
Net income per common share
Basic		$	0.58		$	0.65		$	0.94		$	1.17
Diluted		$	0.58		$	0.64		$	0.93		$	1.15
Cash dividends declared per common share		$	0.10		$	0.08		$	0.20		$	0.16
Number of shares outstanding
Basic		48,432			48,383			48,424			48,417
Diluted		48,902			49,082			48,894			49,145

 

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 six months ended June 30, 2006 and 2007 and December 31, 2006
(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, 2006		48,322		$	483		$	94,398		$	456,474		$	6,774		$	—		$	558,129
Comprehensive income:
Net income		—		—			—			56,727			—			—			56,727
Other comprehensive income:
Translation adjustment, net of tax of $57		—		—			—			—			3,713			—			3,713
Comprehensive income																—			60,440
Options exercised		280		3			4,562			—			—			—			4,565
Stock compensation		—		—			3,835			—			—			—			3,835
Tax benefit of options exercised		—		—			2,005			—			—			—			2,005
Cash dividends declared on Common stock ($0.16 per share)		—		—			—			(7,757		)	—			—			(7,757		)
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, June 30, 2006		48,108		481			105,029			488,283			10,487			—			604,280
Comprehensive income:
Net income		—		—			—			45,769			—			—			45,769
Other comprehensive income:
Translation adjustment, net of tax of $207		—		—			—			—			1,007			—			1,007
Comprehensive income																			46,776
Options exercised		304		3			4,379			—			—			—			4,382
Stock compensation		—		—			3,783			—			—			—			3,783
Tax benefit of options exercised		—		—			1,344			—			—			—			1,344
Cash dividends declared on common stock ($0.16 per share)		—		—			—			(7,690		)	—			—			(7,690		)
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		—		—			—			45,608			—			—			45,608
Other comprehensive income:
Translation adjustment, net of tax of $83		—		—			—			—			5,277			—			5,277
Comprehensive income																			50,885
Options exercised		157		2			2,926			—			—			—			2,928
Stock compensation		—		—			2,873			—			—			—			2,873
Tax benefit of options exercised		—		—			384			—			—			—			384
Repurchase of common stock		(123	)	—			—			—			—			(4,191		)	(4,191		)
Retirement of common stock		—		(1		)	—			(4,190		)	—			4,191			—
Cash dividends declared on Common stock ($0.20 per share)		—		—			—			(9,689		)	—			—			(9,689		)
Common stock issued at $31.65 per share		10		—			307			—			—			—			307
Balance, June 30, 2007		48,456		$	485		$	121,025		$	558,075		$	16,771		$	—		$	696,356

 

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)

		Six Months Ended June 30,
		2007			2006
Cash flows from operating activities
Net income		$	45,608		$	56,727
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on sale of assets		(92		)	113
Depreciation and amortization		14,883			12,826
Deferred income taxes		(2,550		)	(2,150		)
Noncash compensation related to stock plans		3,164			3,765
Loss (income) in equity method investment		(26		)	129
Excess tax benefit of options exercised		(500		)	(1,841		)
Provision for doubtful accounts		369			79
Provision for obsolete inventory		1,022			—
Minority interest		—			166
Changes in operating assets and liabilities, net of effects of acquisitions:
Trade accounts receivable		(48,761		)	(52,044		)
Inventories		7,899			(35,234		)
Trade accounts payable		24,543			19,056
Income taxes payable		11,044			10,562
Accrued profit sharing trust contributions		(3,939		)	(3,384		)
Accrued cash profit sharing and commissions		6,174			6,589
Other current assets		(2,413		)	(2,733		)
Accrued liabilities		518			210
Other long-term liabilities		(946		)	211
Accrued workers’ compensation		(264		)	50
Other noncurrent assets		1,429			47
Net cash provided by operating activities		57,162			13,144
Cash flows from investing activities
Capital expenditures		(25,178		)	(22,560		)
Acquisition of minority interest		—			(9,135		)
Proceeds from sale of capital assets		544			32
Distributions from equity investments		—			114
Asset acquisitions		(331		)	—
Net cash used in investing activities		(24,965		)	(31,549		)
Cash flows from financing activities
Line of credit borrowings		5,859			709
Repayment of debt and line of credit borrowings		(668		)	(1,232		)
Repurchase of common stock		(4,191		)	(17,166		)
Issuance of common stock		2,928			4,565
Excess tax benefit of options exercised		500			1,841
Dividends paid		(8,716		)	(7,742		)
Net cash used in financing activities		(4,288		)	(19,025		)
Effect of exchange rate changes on cash		958			248
Net increase (decrease) in cash and cash equivalents		28,867			(37,182		)
Cash and cash equivalents at beginning of period		148,299			131,203
Cash and cash equivalents at end of period		$	177,166		$	94,021
Noncash activity during the period
Noncash capital expenditures		$	108		$	2,487
Dividends declared but not paid		$	4,840		3,887
Issuance of Company’s common stock for compensation		$	307		$	229
Noncash asset acquisition		$	608		$	—

 

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:

		Three Months Ended, June 30, 2007								Three Months Ended, June 30, 2006
(in thousands, except per-share amounts)		Income			Shares		Per Share			Income			Shares		Per Share
Basic EPS
Income available to common stockholders		$	28,317		48,432		$	0.58		$	31,574		48,383		$	0.65
Effect of Dilutive Securities
Stock options		—			470		—			—			699		(0.01		)
Diluted EPS
Income available to common stockholders		$	28,317		48,902		$	0.58		$	31,574		49,082		$	0.64

 

		Six Months Ended,								Six Months Ended,
		June 30, 2007								June 30, 2006
							Per								Per
		Income			Shares		Share			Income			Shares		Share
Basic EPS
Income available to common stockholders		$	45,608		48,424		$	0.94		$	56,727		48,417		$	1.17
Effect of Dilutive Securities
Stock options		—			470		(0.01		)	—			728		(0.02		)
Diluted EPS
Income available to common stockholders		$	45,608		48,894		$	0.93		$	56,727		49,145		$	1.15

 

Anti-dilutive shares attributable to outstanding stock options were excluded from the calculation of diluted net income per share. For the three and six months ended June 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 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 six months ended June 30, 2007 and 2006:

 

 

 

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 June 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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The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense, which is a continuation of the Company’s historical accounting policy. At January 1, 2007, the Company had accrued $1.0 million for the potential payment of interest, before income tax benefits.

There were no material changes to any of these amounts during the first six months of 2007.

At January 1, 2007, the Company was subject to U.S. federal income tax examinations for the tax years 2003 through 2006. In addition, the Company was subject to state, local and foreign income tax examinations primarily for the tax years 2002 through 2006.

Presentation of Taxes Collected and Remitted to Governmental Authorities

During 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-3, “How Taxes Collected and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” The Company presents taxes collected and remitted to governmental authorities on a net basis in the accompanying condensed consolidated statements of operations.

Recently Issued Accounting Standards

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management has not yet determined the effect, if any, on the Company’s financial statements for its fiscal year ending December 31, 2008, or the fiscal quarters within that year. SFAS No. 157 will be applied prospectively as of January 1, 2008.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 allows entities to choose to elect, at specified dates, to measure eligible financial instruments at fair value. Entities must report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize up-front costs and fees related to those items in earnings as incurred and not deferred. SFAS No. 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for companies that have also elected to apply the provisions of SFAS No. 157. Companies are prohibited from retrospectively applying SFAS No. 159 unless they choose to early adopt both SFAS No. 157 and SFAS No. 159.  SFAS No. 159 also applies to eligible items existing at November 15, 2007 (or early adoption date). The Company has not elected to early adopt SFAS No. 157 and SFAS No. 159. Management has not yet determined the effect, if any, on the Company’s financial statements for its fiscal year ending December 31, 2008.

2.             Trade Accounts Receivable, net

Trade accounts receivable consist of the following:

 

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3.             Inventories

Inventories consist of the following:

 

4.             Property, Plant and Equipment, net

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

 

The Company has classified its facility in San Leandro, California, and its vacant warehouse in McKinney, Texas, as assets held for sale and has entered into agreements to sell these facilities. The Company believes that the sales of these facilities will be completed in the third quarter of 2007 for total proceeds of $16.2 million. These facilities, associated with the connector segment, have a combined carrying amount of $9.7 million at June 30, 2007.

5.             Investments

Equity Method Investment

The Company has a 35% equity interest 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 the Company’s 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.

 

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