Simpson Manufacturing Co., Inc. - Quarter Report: 2008 March (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:  March 31, 2008
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from                        to

 

Commission file number: 1-13429

 

Simpson Manufacturing Co., Inc.

(Exact name of registrant as specified in its charter)

 

 

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

(Address of principal executive offices)

 

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

 

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

 

Yes x  No o

 

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

 

Large accelerated filer	x		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o

 

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

 

Yes o  No x

 

The number of shares of the Registrant’s common stock outstanding as of March 31, 2008: 48,586,554

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 

		March 31,						December 31,
		2008			2007			2007
ASSETS
Current assets
Cash and cash equivalents		$	164,381		$	149,310		$	186,142
Trade accounts receivable, net		107,634			126,577			88,340
Inventories		227,855			208,797			218,342
Deferred income taxes		11,236			11,042			11,623
Assets held for sale		9,677			—			9,677
Other current assets		8,825			8,003			8,753
Total current assets		529,608			503,729			522,877
Property, plant and equipment, net		195,319			206,442			198,117
Goodwill		57,845			44,617			57,418
Intangible assets		22,142			9,123			23,239
Other noncurrent assets		18,513			12,445			16,028
Total assets		$	823,427		$	776,356		$	817,679
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Line of credit and current portion of long-term debt		$	3,390		$	2,691		$	1,029
Trade accounts payable		34,745			35,863			27,226
Accrued liabilities		30,357			34,239			39,188
Income taxes payable		1,639			5,994			—
Accrued profit sharing trust contributions		2,411			10,309			8,651
Accrued cash profit sharing and commissions		4,665			8,345			4,129
Accrued workers’ compensation		4,116			3,712			4,116
Total current liabilities		81,323			101,153			84,339
Long-term debt, net of current portion		—			337			—
Other long-term liabilities		12,144			8,775			9,940
Total liabilities		93,467			110,265			94,279
Commitments and contingencies (Note 7)
Stockholders’ equity
Common stock, at par value		486			484			485
Additional paid-in capital		127,573			118,590			126,119
Retained earnings		574,988			534,597			571,499
Accumulated other comprehensive income		26,913			12,420			25,297
Total stockholders’ equity		729,960			666,091			723,400
Total liabilities and stockholders’ equity		$	823,427		$	776,356		$	817,679

 

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
		March 31,
		2008			2007
Net sales		$	167,656		$	193,155
Cost of sales		111,398			121,533
Gross profit		56,258			71,622
Operating expenses:
Research and development and other engineering		5,103			5,260
Selling		19,807			18,154
General and administrative		17,874			21,638
		42,784			45,052
Income from operations		13,474			26,570
Loss on equity method investment, before tax		—			(33		)
Interest income, net		1,128			1,374
Income before income taxes		14,602			27,911
Provision for income taxes		6,250			10,621
Net income		$	8,352		$	17,290
Net income per common share
Basic		$	0.17		$	0.36
Diluted		$	0.17		$	0.35
Cash dividends declared per common share		$	0.10		$	0.10
Number of shares outstanding
Basic		48,574			48,414
Diluted		48,931			48,886

 

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 three months ended March 31, 2007 and 2008 and the nine months ended December 31, 2007

(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, 2007		48,412		$	484		$	114,535		$	526,346		$	11,494		$	—		$	652,859
Comprehensive income:
Net income		—		—			—			17,290			—			—			17,290
Other comprehensive income:
Translation adjustment, net of tax of $17		—		—			—			—			926			—			926
Comprehensive income		—																	18,216
Options exercised		110		1			1,917			—			—			—			1,918
Stock compensation		—		—			1,468			—			—			—			1,468
Tax benefit of options exercised		—		—			363			—			—			—			363
Cash dividends declared on Common stock ($0.10 per share)		—		—			—			(4,849		)	—			—			(4,849		)
Common stock issued at $31.65 per share		10		—			307			—			—			—			307
Repurchase of common stock		(122	)	—			—			—			—			(4,191		)	(4,191		)
Retirement of common stock		—		(1		)	—			(4,190		)	—			4,191			—
Balance, March 31, 2007		48,410		484			118,590			534,597			12,420			—			666,091
Comprehensive income:
Net income		—		—			—			51,452			—			—			51,452
Other comprehensive income:
Translation adjustment, net of tax of $44		—		—			—			—			12,877			—			12,877
Comprehensive income																			64,329
Options exercised		142		1			2,913			—			—			—			2,914
Stock compensation		—		—			4,425			—			—			—			4,425
Tax benefit of options exercised		—		—			191			—			—			—			191
Cash dividends declared on common stock ($0.30 per share)		—		—			—			(14,550		)	—			—			(14,550		)
Balance, December 31, 2007		48,552		485			126,119			571,499			25,297			—			723,400
Comprehensive income:
Net income		—		—			—			8,352			—			—			8,352
Other comprehensive income:
Translation adjustment, net of tax of $17		—		—			—			—			1,616			—			1,616
Comprehensive income																			9,968
Options exercised		26		1			507			—			—			—			508
Stock compensation		—		—			765			—			—			—			765
Tax benefit of options exercised		—		—			(65		)	—			—			—			(65		)
Cash dividends declared on Common stock ($0.10 per share)		—		—			—			(4,863		)	—			—			(4,863		)
Common stock issued at $26.59 per share		9		—			247			—			—			—			247
Balance, March 31, 2008		48,587		$	486		$	127,573		$	574,988		$	26,913		$	—		$	729,960

 

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)

 

		Three Months
		Ended March 31,
		2008			2007
Cash flows from operating activities
Net income		$	8,352		$	17,290
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on sale of assets		2			(6		)
Depreciation and amortization		7,420			7,078
Deferred income taxes		172			(507		)
Noncash compensation related to stock plans		936			1,677
Loss in equity method investment		—			33
Excess tax benefit of options exercised		(25		)	(431		)
Provision for (recovery of) doubtful accounts		(727		)	271
Changes in operating assets and liabilities, net of effects of acquisitions:
Trade accounts receivable		(17,788		)	(30,629		)
Inventories		(8,514		)	9,069
Trade accounts payable		2,069			11,396
Income taxes payable		3,043			8,504
Accrued profit sharing trust contributions		(6,228		)	1,687
Accrued cash profit sharing and commissions		512			528
Other current assets		(2,650		)	(3,471		)
Accrued liabilities		(4,196		)	(3,735		)
Other long-term liabilities		1,474			(1,714		)
Other noncurrent assets		(415		)	1,737
Net cash provided by (used in) operating activities		(16,563		)	18,777
Cash flows from investing activities
Capital expenditures		(2,849		)	(14,164		)
Proceeds from sale of capital assets		19			20
Asset acquisitions		—			(327		)
Net cash used in investing activities		(2,830		)	(14,471		)
Cash flows from financing activities
Line of credit borrowings		2,206			2,347
Repayment of debt and line of credit borrowings		—			(2		)
Repurchase of common stock		—			(4,191		)
Issuance of common stock		508			1,918
Excess tax benefit of options exercised		25			431
Dividends paid		(4,857		)	(3,875		)
Net cash used in financing activities		(2,118		)	(3,372		)
Effect of exchange rate changes on cash		(250		)	77
Net increase (decrease) in cash and cash equivalents		(21,761		)	1,011
Cash and cash equivalents at beginning of period		186,142			148,299
Cash and cash equivalents at end of period		$	164,381		$	149,310
Noncash activity during the period
Noncash capital expenditures		$	161		$	1,438
Dividends declared but not paid		$	4,863		$	4,849
Issuance of Company’s common stock for compensation		$	247		$	307
Noncash asset acquisition		$	—		$	608

 

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 (the “Company”). Investments in 50% or less owned affiliates are accounted for using either cost or the equity method. All significant intercompany transactions have been eliminated.

 

Interim Period Reporting

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America 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 2007 Annual Report on Form 10-K (the “2007 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.

 

Allowance for Doubtful Accounts

 

The Company assesses the collectibility of specific customer accounts that would be considered doubtful based upon the customer’s financial condition, payment history, credit rating and other factors that the Company considers relevant, or accounts that the Company assigns for collection. The Company reserves for the portion of those outstanding balances that the Company believes it is not likely to collect based on historical collection experience. The Company also reserves 100% of the amount that it deems potentially uncollectible due to a customer’s bankruptcy or deteriorating financial condition. If the financial condition of the Company’s customers were to deteriorate, resulting in inability to make payments, additional allowances may be required.

 

6

 

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.

 

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

 

		Three Months Ended,								Three Months Ended,
		March 31, 2008								March 31, 2007
(in thousands, except							Per								Per
per-share amounts)		Income			Shares		Share			Income			Shares		Share
Basic EPS
Income available to common stockholders		$	8,352		48,574		$	0.17		$	17,290		48,414		$	0.36
Effect of Dilutive Securities
Stock options		—			357		—			—			472		(0.01		)
Diluted EPS
Income available to common stockholders		$	8,352		48,931		$	0.17		$	17,290		48,886		$	0.35

 

Anti-dilutive shares attributable to outstanding stock options were excluded from the calculation of diluted net income per share. For both the three months ended March 31, 2008 and 2007, 1.1 million shares subject to stock options were anti-dilutive.

 

Accounting for Stock-Based Compensation

 

The Company maintains two stock option plans under which it may grant incentive stock options and non-qualified stock options, although the Company has granted only non-qualified stock options under these plans. The Simpson Manufacturing Co., Inc. 1994 Stock Option Plan (the “1994 Plan”) is principally for the 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 April and February 2008 and February 2007 under the 1994 Plan equaled the closing market price per share of the Company’s Common Stock as reported by the New York Stock Exchange for the day preceding the date that the Company’s Board of Directors approved the grant. 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 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.

 

7

 

 

The following table represents the Company’s stock option activity for the three months ended March 31, 2008 and 2007:

 

		Three Months Ended
		March 31,
(in thousands)		2008			2007
Stock option expense recognized in operating expenses		$	900		$	1,545
Tax benefit of stock option expense in provision for income taxes		355			589
Stock option expense, net of tax		$	545		$	956
Fair value of shares vested		$	765		$	1,468
Proceeds to the Company from the exercise of stock options		$	508		$	1,918
Tax benefit from exercise of stock options		$	(65	)	$	363

 

		At March 31,
		2008			2007
Stock option cost capitalized in inventory		$	117		$	188

 

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.

 

In April 2008, the Company’s Board of Directors approved the grant of stock options on an additional 14 thousand shares at an exercise price of $25.74.

 

Fair Value of Financial Instruments

 

Statement of Financial Accounting Standards (“SFAS”) No. 157 establishes a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The Company only has Treasury Instruments and money market funds aggregating $63.4 million, which are maintained in cash equivalents and are carried at fair value, approximating cost, based upon Level 1 inputs.

 

Recently Issued Accounting Standards

 

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires

 

8

 

expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users of the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) applies to all transactions or other events in which the Company obtains control of one or more businesses, including combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009, except that resolution of certain tax contingencies and adjustments to valuation allowances related to business combinations, which previously were adjusted to goodwill, will be adjusted to income tax expense for all such adjustments after January 1, 2009, regardless of the date of the original business combination. Management has not yet determined the effect, if any, on the Company’s financial statements for its fiscal year ending December 31, 2009.

 

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51.” SFAS No. 160 requires reporting entities to present noncontrolling (minority) interests as equity (as opposed to a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS No. 160 applies prospectively as of January 1, 2009, except for the presentation and disclosure requirements, which will be applied retrospectively for all periods presented. Management has not yet determined the effect, if any, on the Company’s financial statements for its fiscal year ending December 31, 2009.

 

In September 2006, the FASB finalized SFAS No. 157 which became effective January 1, 2008, except as amended by FASB Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 157-1 and FSP FAS 157-2. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements, but does not require any new fair value measurements. The provisions of SFAS No. 157 were applied prospectively to fair value measurements and disclosures for financial assets and financial liabilities recognized or disclosed at fair value in the financial statements on at least an annual basis beginning in the first quarter of 2008. The adoption of this statement did not have a material effect on the interim condensed consolidated financial statements for fair value measurements made during the first quarter of 2008. While the Company does not expect the adoption of this statement to have a material effect on its interim condensed consolidated financial statements in subsequent reporting periods, the Company continues to monitor any additional implementation guidance that is issued that addresses the fair value measurements for financial and nonfinancial assets and nonfinancial liabilities not disclosed at fair value in the financial statements on at least an annual basis.

 

In February 2008, the FASB issued FSP FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions,” and FSP FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, “Fair Value Measurements.” FSP FAS 157-2

delays the effective date of SFAS No. 157 from 2008 to 2009 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

 

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. The Company did not make any fair value elections in connection with its adoption of the provisions of SFAS No. 159 for financial assets and financial liabilities during the quarter ended March 31, 2008.

 

9

 

2.                                       Trade Accounts Receivable, net

 

Trade accounts receivable consist of the following:

 

		At March 31,						At December 31,
(in thousands)		2008			2007			2007
Trade accounts receivable		$	112,019		$	131,380		$	92,879
Allowance for doubtful accounts		(1,968		)	(2,502		)	(2,724		)
Allowance for sales discounts and returns		(2,417		)	(2,301		)	(1,815		)
		$	107,634		$	126,577		$	88,340

 

3.                                       Inventories

 

Inventories consist of the following:

 

		At March 31,						At December 31,
(in thousands)		2008			2007			2007
Raw materials		$	85,756		$	81,753		$	82,164
In-process products		25,592			20,778			23,674
Finished products		116,507			106,266			112,504
		$	227,855		$	208,797		$	218,342

 

4.                                       Property, Plant and Equipment, net

 

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

 

		At March 31,						At December 31,
(in thousands)		2008			2007			2007
Land		$	19,783		$	23,838		$	19,820
Buildings and site improvements		131,907			121,006			131,166
Leasehold improvements		4,005			2,832			4,054
Machinery and equipment		214,232			190,308			213,188
		369,927			337,984			368,228
Less accumulated depreciation and amortization		(182,262		)	(161,607		)	(175,893		)
		187,665			176,377			192,335
Capital projects in progress		7,654			30,065			5,782
		$	195,319		$	206,442		$	198,117

 

The Company’s vacant facilities in San Leandro, California, and in McKinney, Texas, have been classified as assets held for sale as of March 31, 2008. Both facilities are associated with the connector segment. The sale of the McKinney facility was completed in April 2008 for $1.8 million.

 

In September 2007, an environmental analysis of the San Leandro property indicated that the property had contamination related to spilled fuel that would require an estimated $0.3 million to remediate. The clean-up is expected to be completed in late 2008. The Company expects to sell the property after the remediation is completed.

 

10

 

5.                                       Investments

 

Equity Method Investment

 

The Company has a 35% equity interest in Keymark Enterprises, LLC (“Keymark”), for which the Company 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 to Keymark.

 

6.                                       Debt

 

Outstanding debt at March 31, 2008 and 2007, and December 31, 2007, and the available lines of credit at March 31, 2008, consisted of the following:

 

		Available			Debt Outstanding
		Credit at			at						at
		March 31,			March 31,						December 31,
(dollar amounts in thousands)		2008			2008			2007			2007
Revolving line of credit, interest at LIBOR plus 0.27% (at March 31, 2008, LIBOR plus 0.27% was 2.98%), matures October 2012, commitment fees payable at the annual rate of 0.08% on the unused portion of the facility		$	200,000		$	—		$	—		$	—
Revolving line of credit, interest at the bank’s base rate plus 2% (at March 31, 2008, the bank’s base rate plus 2% was 7.25%), expires October 2008		496			—			—			—
Revolving lines of credit, interest rates between 4.88% and 6.01%		2,698			3,390			2,363			1,029
Term loan, interest at LIBOR plus 1.375% repaid June 2007		—			—			450			—
Term loans, interest rates between 4.00% and 5.00%, repaid May 2007		—			—			215			—
		203,194			3,390			3,028			1,029
Less line of credit and current portion of long-term debt					(3,390		)	(2,691		)	(1,029		)
Long-term debt, net of current portion					$	—		$	337		$	—
Available credit		$	203,194

 

7.                                       Commitments and Contingencies

 

Note 9 to the consolidated financial statements in the 2007 Annual Report provides information concerning commitments and contingencies. From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. The resolution of claims and litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows and results of operations.

 

The Company’s policy with regard to environmental liabilities is to accrue for future environmental assessments and remediation costs when information becomes available that indicates that it is probable that the Company is liable for any related claims and assessments and the amount of the liability is reasonably estimable. The Company does not believe that these matters will have a material adverse effect on the Company’s financial condition, cash flows

 

11

 

or results of operations. In September 2007, the Company accrued $0.3 million related to clean-up and regulatory costs associated with its San Leandro, California, facility (see Note 4).

 

Corrosion, hydrogen enbrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, environmental conditions or other factors can contribute to failure of fasteners, connectors and tools. On occasion, some of the fasteners and connectors that the Company sells have failed, although the Company has not incurred any material liability resulting from those failures. The Company attempts to avoid such failures by establishing and monitoring appropriate product specifications, manufacturing quality control procedures, inspection procedures and information on appropriate installation methods and conditions. The Company subjects its products to extensive testing, with results and conclusions published in Company catalogues and on its websites. Based on test results to date, the Company believes that, generally, if its products are appropriately selected, installed and used in accordance with the Company’s guidance, they may be reliably used in appropriate applications.

 

8.                                       Stock Option Plans

 

The Company currently has two stock option plans (see Note 1 – Accounting for Stock-Based Compensation). Participants are granted stock options only if the applicable company-wide or profit-center operating goals, or both, established by the Compensation Committee of the Board of Directors at the beginning of the year, are met.

 

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

 

Black-Scholes option pricing model assumptions for options granted in 2008 and 2007 are as follows:

 

Number						Risk											Weighted
Of Options						Free											Average
Granted				Grant		Interest		Dividend		Expected							Fair
(in thousands)				Date		Rate		Yield		Life		Volatility		Exercise Price			Value
1994 Plan
14				04/23/08		3.15	%	1.55	%	6.0 years		27.1	%	$	25.74		$	6.92
40				02/13/08		2.90	%	1.68	%	6.0 years		27.1	%	$	23.78		$	6.16
123				02/02/07		4.84	%	1.19	%	5.9 years		29.0	%	$	33.62		$	11.11

 

12