Simpson Manufacturing Co., Inc. - Quarter Report: 2010 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, 2010

 

OR

 

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

 

For the transition period from                   to                   

 

Commission file number: 1-13429

 

Simpson Manufacturing Co., Inc.

(Exact name of registrant as specified in its charter)

 

 

 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

 

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

 

 

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, 2010: 49,391,387

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 

		March 31,						December 31,
		2010			2009			2009
ASSETS
Current assets
Cash and cash equivalents		$	202,843		$	158,208		$	250,381
Trade accounts receivable, net		93,030			79,383			77,317
Inventories		180,684			225,568			163,754
Deferred income taxes		13,657			13,672			13,970
Assets held for sale		7,887			8,387			7,887
Other current assets		13,054			13,236			16,766
Total current assets		511,155			498,454			530,075
Property, plant and equipment, net		200,975			191,412			187,814
Goodwill		79,608			69,160			81,626
Intangible assets, net		26,889			22,137			28,852
Equity method investment		604			21			748
Other noncurrent assets		16,722			18,225			14,690
Total assets		$	835,953		$	799,409		$	843,805
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Line of credit		$	—		$	821		$	—
Trade accounts payable		25,606			22,232			28,462
Accrued liabilities		29,548			28,873			29,209
Accrued profit sharing trust contributions		1,858			1,973			7,018
Accrued cash profit sharing and commissions		3,508			1,353			2,427
Accrued workers’ compensation		4,374			4,299			4,352
Total current liabilities		64,894			59,551			71,468
Long-term liabilities		8,924			9,289			8,553
Total liabilities		73,818			68,840			80,021
Commitments and contingencies (Note 8)
Stockholders’ equity
Common stock, at par value		493			490			493
Additional paid-in capital		146,711			137,503			146,036
Retained earnings		602,754			592,644			598,493
Accumulated other comprehensive income (loss)		12,177			(68		)	18,762
Total stockholders’ equity		762,135			730,569			763,784
Total liabilities and stockholders’ equity		$	835,953		$	799,409		$	843,805

 

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

 

2

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands except per-share amounts, unaudited)

 

		Three Months Ended
		March 31,
		2010			2009
Net sales		$	133,900		$	119,323
Cost of sales		78,465			88,610
Gross profit		55,435			30,713
Operating expenses:
Research and development and other engineering		5,051			4,864
Selling		16,193			16,025
General and administrative		18,145			20,162
		39,389			41,051
Income (loss) from operations		16,046			(10,338		)
Loss on equity method investment, before tax		(144		)	(193		)
Interest income, net		10			102
Income (loss) before income taxes		15,912			(10,429		)
Provision for (benefit from) income taxes		6,713			(2,020		)
Net income (loss)		$	9,199		$	(8,409	)
Net income (loss) per common share
Basic		$	0.19		$	(0.17	)
Diluted		$	0.19		$	(0.17	)
Weighted average number of shares outstanding
Basic		49,388			48,987
Diluted		49,520			48,987
Cash dividends declared per common share		$	0.10		$	0.10

 

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

 

3

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the three months ended March 31, 2009 and 2010, and nine months ended December 31, 2009

(In thousands except per-share amounts, unaudited)

 

													Accumulated
							Additional						Other
		Common Stock					Paid-in			Retained			Comprehensive
		Shares		Par Value			Capital			Earnings			Income (Loss)			Total
Balance, January 1, 2009		48,971		$	490		$	136,867		$	605,950		$	5,719		$	749,026
Comprehensive loss:
Net loss		—		—			—			(8,409		)	—			(8,409		)
Other comprehensive income:
Translation adjustment, net of tax of ($9)		—		—			—			—			(5,787		)	(5,787		)
Comprehensive loss																(14,196		)
Stock options exercised		8		—			128			—			—			128
Stock compensation		—		—			393			—			—			393
Tax benefit of options exercised		—		—			(185		)	—			—			(185		)
Cash dividends declared on common stock ($0.10 per share)		—		—			—			(4,897		)	—			(4,897		)
Common stock issued at $27.76 per share for stock bonus		10		—			300			—			—			300
Balance, March 31, 2009		48,989		490			137,503			592,644			(68		)	730,569
Comprehensive income:
Net income		—		—			—			20,626			—			20,626
Other comprehensive income:
Translation adjustment, net of tax of ($28)		—		—			—			—			18,830			18,830
Comprehensive income																39,456
Stock options exercised		388		3			7,496			—			—			7,499
Stock compensation		—		—			1,297			—			—			1,297
Tax benefit of options exercised		—		—			(260		)	—			—			(260		)
Cash dividends declared on common stock, $0.30 per share		—		—			—			(14,777		)	—			(14,777		)
Balance, December 31, 2009		49,377		493			146,036			598,493			18,762			763,784
Comprehensive income:
Net income		—		—			—			9,199			—			9,199
Other comprehensive income:
Translation adjustment, net of tax of $3		—		—			—			—			(6,585		)	(6,585		)
Comprehensive income																2,614
Stock options exercised		4		—			92			—			—			92
Stock compensation		—		—			382			—			—			382
Tax benefit of options exercised		—		—			(76		)	—			—			(76		)
Cash dividends declared on common stock, $0.10 per share		—		—			—			(4,938		)	—			(4,938		)
Common stock issued at $26.89 per share for stock bonus		10		—			277			—			—			277
Balance, March 31, 2010		49,391		$	493		$	146,711		$	602,754		$	12,177		$	762,135

 

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

 

4

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

		Three Months
		Ended March 31,
		2010			2009
Cash flows from operating activities
Net income (loss)		$	9,199		$	(8,409	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Gain) loss on sale of assets		389			(111		)
Depreciation and amortization		6,276			6,848
Deferred income taxes		225			(1,497		)
Noncash compensation related to stock plans		469			557
Loss in equity method investment		144			193
Excess tax benefit of options exercised		—			(8		)
Provision for (recovery of) doubtful accounts		(406		)	1,760
Provision for obsolete inventory		477			1,018
Changes in operating assets and liabilities, net of effects of acquisitions:
Trade accounts receivable		(16,286		)	(5,946		)
Inventories		(18,922		)	23,381
Trade accounts payable		(2,194		)	835
Income taxes payable		5,341			(2,965		)
Accrued profit sharing trust contributions		(5,165		)	(7,556		)
Accrued cash profit sharing and commissions		1,126			(880		)
Other current assets		(1,339		)	(2,374		)
Accrued liabilities		936			(4,428		)
Long-term liabilities		108			1
Accrued workers’ compensation		21			13
Other noncurrent assets		95			99
Net cash provided by (used in) operating activities		(19,506		)	531
Cash flows from investing activities
Capital expenditures		(20,293		)	(5,895		)
Proceeds from sale of capital assets		46			41
Asset acquisitions, net of cash acquired		—			(1,655		)
Loans made to related parties		(1,798		)	—
Loans repaid by related parties		50			—
Net cash used in investing activities		(21,995		)	(7,509		)
Cash flows from financing activities
Line of credit borrowings		—			817
Issuance of common stock		92			128
Excess tax benefit of options exercised		—			8
Dividends paid		(4,939		)	(4,898		)
Net cash used in financing activities		(4,847		)	(3,945		)
Effect of exchange rate changes on cash		(1,190		)	(1,619		)
Net decrease in cash and cash equivalents		(47,538		)	(12,542		)
Cash and cash equivalents at beginning of period		250,381			170,750
Cash and cash equivalents at end of period		$	202,843		$	158,208
Noncash activity during the period
Noncash capital expenditures		$	—		$	180
Dividends declared but not paid		$	4,938		$	4,897
Issuance of Company’s common stock for compensation		$	277		$	300

 

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 (“GAAP”) have been condensed or omitted. These interim statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (the “2009 Annual Report”).

 

The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial information set forth therein, in accordance with GAAP. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP. The 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 after-market repair and maintenance, engineering activities and software license sales and service, though significantly less than 1% of net sales and not material to the consolidated financial statements, are recognized as the services are completed or the software products and services are delivered. If actual costs of sales returns, incentives and discounts were to significantly exceed the recorded estimated allowance, the Company’s sales would be adversely affected.

 

Net Income (Loss) Per Common Share

 

Basic net income (loss) per common share is computed based on the weighted average number of common shares outstanding. Potentially dilutive securities, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.

 

6

 

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

 

(in thousands, except

per-share amounts)

 

		Three Months Ended,								Three Months Ended,
		March 31, 2010								March 31, 2009
		Income					Per			Income					Per
		(Loss)			Shares		Share			(Loss)			Shares		Share
Basic EPS
Income (loss) available to common stockholders		$	9,199		49,388		$	0.19		$	(8,409	)	48,987		$	(0.17	)
Effect of Dilutive Securities
Stock options		—			132		—			—			—		—
Diluted EPS
Income (loss) available to common stockholders		$	9,199		49,520		$	0.19		$	(8,409	)	48,987		$	(0.17	)

 

Anti-dilutive shares attributable to outstanding stock options were excluded from the calculation of diluted net income per share. All potentially dilutive securities were excluded from the diluted loss per share calculation for the three months ended March 31, 2009, because the effect of their inclusion would be antidilutive, or would decrease the reported loss per share. For both the three months ended March 31, 2010 and 2009, 1.1 million shares subject to stock options were anti-dilutive.

 

Accounting for Stock-Based Compensation

 

The Company maintains two stock option plans under which it may grant incentive stock options and non-qualified stock options, although the Company has granted only non-qualified stock options under these plans. The Simpson Manufacturing Co., Inc. 1994 Stock Option Plan (the “1994 Plan”) is principally for the 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 of each option granted in February 2010 and February 2009 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 on the day preceding the day that the Compensation Committee of the Company’s Board of Directors met to approve the grant of the options. The exercise price per share under each option granted under the 1995 Plan is at the fair market value on the date specified in the 1995 Plan. Options vest and expire according to terms established at the grant date. There were no options granted under the 1995 Plan in 2010 or 2009.

 

Under the 1994 Plan, no more than 16 million shares of the 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. Shares of common stock issued on exercise of stock options under both of the plans are registered under the Securities Act of 1933. Options granted under the 1994 Plan typically vest evenly over the requisite service period of four years and have a term of seven years. The vesting of options granted under the 1994 Plan will be accelerated if the grantee ceases to be employed by the Company after reaching age 60 or if there is a change in control of the Company. Options granted under the 1995 Plan are fully vested on the date of grant.

 

7

 

The following table represents the Company’s stock option activity for the three months ended March 31, 2010 and 2009:

 

(in thousands)

 

		Three Months Ended
		March 31,
		2010			2009
Stock option expense recognized in operating expenses		$	366		$	448
Tax benefit of stock option expense in provision for (benefit from) income taxes		110			148
Stock option expense, net of tax		$	256		$	300
Fair value of shares vested		$	382		$	393
Proceeds to the Company from the exercise of stock options		$	92		$	128
Tax benefit from exercise of stock options, including windfall (shortfall) tax benefits, net		$	(76	)	$	(185	)

 

		At March 31,
		2010			2009
Stock option cost capitalized in inventory		$	61		$	46

 

The amounts included in cost of sales, research and development and other engineering, selling, or general and administrative expense depend on the job functions performed by the employees to whom the stock options were granted.

 

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

 

Fair Value of Financial Instruments

 

As of March 31, 2010, the Company’s investments consisted of only United States Treasury securities and money market funds aggregating $127.5 million, which are maintained in cash equivalents and are carried at cost, approximating fair value, based on Level 1 inputs. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities, as defined in the “Fair Value Measurements and Disclosures” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“ASC”).

 

Income Taxes

 

In general, the Company is required to use an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in an interim period. The income tax expense for the first quarters of both 2010 and 2009, however, has been computed based on those quarters as discrete periods due to the uncertainty regarding the Company’s ability to reliably estimate pre-tax income for the remainder of those years, primarily as a result of the continued uncertainty in the construction markets in which the Company operates. The effective tax rate was 42.2% in the first quarter of 2010, which resulted in income tax expense of $6.7 million. The effective tax rate was 19.4% in the first quarter of 2009, which, as a result of the loss before taxes in the first quarter of 2009, resulted in income tax benefit of $2.0 million.

 

Recently Issued Accounting Standards

 

In May 2009, the FASB issued guidance codified in the “Subsequent Events” topic of the FASB ASC, which establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. In February 2010, the FASB amended this guidance to remove the requirement for companies that file or furnish financial statements with the Securities and Exchange Commission to disclose the date through which subsequent events have been evaluated.

 

8

 

2.                                       Trade Accounts Receivable, Net

 

Trade accounts receivable consist of the following:

 

(in thousands)

 

		At March 31,						At December 31,
		2010			2009			2009
Trade accounts receivable		$	100,051		$	87,154		$	83,892
Allowance for doubtful accounts		(4,198		)	(5,924		)	(4,667		)
Allowance for sales discounts and returns		(2,823		)	(1,847		)	(1,908		)
		$	93,030		$	79,383		$	77,317

 

3.                                       Inventories

 

Inventories consist of the following:

 

(in thousands)

 

		At March 31,						At December 31,
		2010			2009			2009
Raw materials		$	75,953		$	86,411		$	61,408
In-process products		20,267			24,890			21,113
Finished products		84,464			114,267			81,233
		$	180,684		$	225,568		$	163,754

 

4.                                       Property, Plant and Equipment, Net

 

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

 

(in thousands)

 

		At March 31,						At December 31,
		2010			2009			2009
Land		$	23,543		$	22,654		$	23,729
Buildings and site improvements		147,446			137,589			148,381
Leasehold improvements		3,819			4,261			3,893
Machinery and equipment		225,594			219,372			226,436
		400,402			383,876			402,439
Less accumulated depreciation and amortization		(220,303		)	(197,788		)	(216,157		)
		180,099			186,088			186,282
Capital projects in progress		20,876			5,324			1,532
		$	200,975		$	191,412		$	187,814

 

The Company’s vacant facility in San Leandro, California, remained classified as an asset held for sale as of March 31, 2010, consistent with the classification at December 31, 2009, and is being actively marketed. The Company, in March 2010, acquired a facility in San Bernadino, California, for $19.2 million, in which it will consolidate its owned manufacturing and warehouse facilities in Brea, California, and its former leased warehouse in Ontario, California. The Company intends to sell the Brea facilities. These facilities are associated with the connector segment.

 

5.                                       Investments

 

Equity Method Investment

 

At March 31, 2010, the Company had a 40.6% equity interest in Keymark Enterprises, LLC (“Keymark”), for which the Company accounts using the equity method. Keymark develops software that assists in designing and engineering residential structures. The Company’s relationship with Keymark includes the specification of the

 

9

 

Company’s products in the Keymark software. The Company has no obligation to make any additional capital contributions to Keymark.

 

6.                                       Goodwill and Intangible Assets, Net

 

Goodwill by segment was as follows:

 

(in thousands)

 

		At March 31,						At December 31,
		2010			2009			2009
Connector products		$	75,173		$	64,749		$	77,191
Venting products		4,435			4,411			4,435
Total		$	79,608		$	69,160		$	81,626

 

Intangible assets, net, by segment were as follows:

 

(in thousands)

 

		At March 31, 2010
		Gross						Net
		Carrying			Accumulated			Carrying
		Amount			Amortization			Amount
Connector products		$	36,410		$	(11,366	)	$	25,044
Venting products		3,291			(1,446		)	1,845
Total		$	39,701		$	(12,812	)	$	26,889

 

		At March 31, 2009
		Gross						Net
		Carrying			Accumulated			Carrying
		Amount			Amortization			Amount
Connector products		$	32,546		$	(12,789	)	$	19,757
Venting products		2,962			(582		)	2,380
Total		$	35,508		$	(13,371	)	$	22,137

 

		At December 31, 2009
		Gross						Net
		Carrying			Accumulated			Carrying
		Amount			Amortization			Amount
Connector products		$	37,987		$	(11,182	)	$	26,805
Venting products		3,291			(1,244		)	2,047
Total		$	41,278		$	(12,426	)	$	28,852

 

Intangible assets consist primarily of customer relationships, patents, unpatented technology and non-compete agreements. Amortization expense for intangible assets during the three months ended March 31, 2010 and 2009, was $1.3 million and $1.2 million, respectively.

 

10

 

At March 31, 2010, estimated future amortization of intangible assets was as follows:

 

(in thousands)

 

Final nine months of 2010		$	3,716
2011		4,907
2012		4,023
2013		3,085
2014		2,849
2015		2,111
Thereafter		6,198
		$	26,889

 

The changes in the carrying amount of goodwill and intangible assets from December 31, 2009, to March 31, 2010, were as follows:

 

(in thousands)

 

					Intangible
		Goodwill			Assets
Balance at December 31, 2009		$	81,626		$	28,852
Amortization		—			(1,276		)
Foreign exchange		(2,018		)	(687		)
Balance at March 31, 2010		$	79,608		$	26,889

 

7.                                       Debt

 

Outstanding debt at March 31, 2010 and 2009, and December 31, 2009, and the available lines of credit at March 31, 2010, consisted of the following:

 

(dollar amounts in thousands)

 

		Available			Debt Outstanding
		Credit at			at						at
		March 31,			March 31,						December 31,
		2010			2010			2009			2009
Revolving line of credit, interest at LIBOR plus 0.27% (at March 31, 2010, LIBOR plus 0.27% was 0.52%), expires October 2012, commitment fees payable at the annual rate of 0.08% on the unused portion of the facility		$	200,000		$	—		$	—		$	—
Revolving line of credit, interest at the bank’s base rate plus 3% (at March 31, 2010, the bank’s base rate plus 3% was 3.50%), expires December 2010		379			—			—			—
Revolving lines of credit, interest rates between 1.14% and 3.13%		4,293			—			821			—
Line of credit					$	—		$	821		$	—
Available credit		$	204,672

 

8.                                       Commitments and Contingencies

 

Note 9 to the consolidated financial statements in the 2009 Annual Report provides information concerning commitments and contingencies. From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. The resolution of claims and litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows and results of operations.

 

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