Simpson Manufacturing Co., Inc. - Quarter Report: 2013 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, 2013

 

OR

 

 

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 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.

 

 

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, 2013:   48,392,515

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 

		September 30,						December 31,
		2013			2012			2012
ASSETS
Current assets
Cash and cash equivalents		$	215,764		$	187,471		$	175,553
Trade accounts receivable, net		118,895			108,425			82,812
Inventories		187,255			172,021			204,124
Deferred income taxes		12,330			12,302			11,473
Assets held for sale		—			—			593
Other current assets		12,519			11,890			23,499
Total current assets		546,763			492,109			498,054
Property, plant and equipment, net		209,641			211,132			213,452
Goodwill		130,270			128,812			121,981
Intangible assets, net		36,955			40,075			50,598
Other noncurrent assets		10,547			6,868			6,237
Total assets		$	934,176		$	878,996		$	890,322
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Line of credit and notes payable		$	956		$	193		$	178
Trade accounts payable		33,450			24,225			37,117
Accrued liabilities		47,268			44,807			44,923
Income taxes payable		—			1,007			—
Accrued profit sharing trust contributions		4,573			4,003			5,191
Accrued cash profit sharing and commissions		12,471			8,911			3,414
Accrued workers’ compensation		5,195			4,880			4,692
Total current liabilities		103,913			88,026			95,515
Long-term liabilities		7,803			4,810			5,239
Total liabilities		111,716			92,836			100,754
Commitments and contingencies (Note 7)
Stockholders’ equity
Common stock, at par value		487			482			483
Additional paid-in capital		194,721			178,962			184,677
Retained earnings		623,529			598,533			592,309
Treasury stock		(9,825		)	—			—
Accumulated other comprehensive income		13,548			8,183			12,099
Total stockholders’ equity		822,460			786,160			789,568
Total liabilities and stockholders’ equity		$	934,176		$	878,996		$	890,322

 

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						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Net sales		$	195,877		$	172,113		$	546,008		$	512,550
Cost of sales		105,724			96,390			301,461			284,276
Gross profit		90,153			75,723			244,547			228,274
Operating expenses:
Research and development and other engineering		9,226			8,916			27,018			27,156
Selling		20,630			20,941			63,654			61,255
General and administrative		28,781			23,843			83,666			77,174
Loss on sale of assets		631			33			634			42
		59,268			53,733			174,972			165,627
Income from operations		30,885			21,990			69,575			62,647
Interest income (expense), net		(9		)	55			32			177
Income before taxes		30,876			22,045			69,607			62,824
Provision for income taxes		10,870			9,069			26,304			26,788
Net income		$	20,006		$	12,976		$	43,303		$	36,036
Earnings per common share:
Basic		$	0.41		$	0.27		$	0.89		$	0.75
Diluted		$	0.41		$	0.27		$	0.89		$	0.74
Number of shares outstanding
Basic		48,377			48,346			48,482			48,322
Diluted		48,551			48,390			48,603			48,385
Cash dividends declared per common share		$	0.125		$	0.125		$	0.250		$	0.375

 

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

 

3

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

 (In thousands, unaudited)

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Net income		$	20,006		$	12,976		$	43,303		$	36,036
Other comprehensive income
Translation adjustment, net of tax benefit (expense) of $82, $28, ($2) and $31, respectively		8,264			4,125			1,449			1,400
Comprehensive income		$	28,270		$	17,101		$	44,752		$	37,436

 

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

 

4

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the nine months ended September 30, 2012 and 2013, and for the three months ended December 31, 2012

(In thousands except per-share amounts, unaudited)

 

													Accumulated
							Additional						Other
		Common Stock					Paid-in			Retained			Comprehensive			Treasury
		Shares		Par Value			Capital			Earnings			Income (Loss)			Stock			Total
Balance, January 1, 2012		48,163		$	481		$	170,483		$	580,616		$	6,783		$	—		$	758,363
Net income		—		—			—			36,036			—			—			36,036
Translation adjustment, net of tax		—		—			—			—			1,400			—			1,400
Stock options exercised		90		1			2,183			—			—			—			2,184
Stock-based compensation		—		—			7,048			—			—			—			7,048
Tax effect of options exercised		—		—			(60		)	—			—			—			(60		)
Shares issued from release of Restricted Stock Units		62		—			(1,110		)	—			—			—			(1,110		)
Cash dividends declared on common stock, $0.375 per share		—		—			—			(18,119		)	—			—			(18,119		)
Common stock issued at $33.71 per share for stock bonus		12		—			418			—			—			—			418
Balance, September 30, 2012		48,327		482			178,962			598,533			8,183			—			786,160
Net income		—		—			—			5,882			—						5,882
Translation adjustment, net of tax		—		—			—			—			4,159			—			4,159
Pension adjustment, net of tax		—		—			—			—			(243		)	—			(243		)
Stock options exercised		95		1			2,740			—			—			—			2,741
Stock-based compensation		—		—			3,147			—			—			—			3,147
Tax effect of options exercised		—		—			(173		)	—			—			—			(173		)
Shares issued from release of Restricted Stock Units		—		—			1			—			—			—			1
Cash dividends declared on common stock, $0.25 per share		—		—			—			(12,106		)	—			—			(12,106		)
Balance, December 31, 2012		48,422		483			184,677			592,309			12,099			—			789,568
Net income		—		—			—			43,303			—			—			43,303
Translation adjustment, net of tax		—		—			—			—			1,449			—			1,449
Stock options exercised		194		2			5,331			—			—			—			5,333
Stock-based compensation		—		—			8,656			—			—			—			8,656
Tax effect of options exercised		—		—			(2,187		)	—			—			—			(2,187		)
Shares issued from release of Restricted Stock Units		111		2			(2,074		)	—			—			—			(2,072		)
Repurchase of common stock		(342	)	—			—			—			—			(9,825		)	(9,825		)
Cash dividends declared on common stock, $0.25 per share		—		—			—			(12,083		)	—			—			(12,083		)
Common stock issued at $33.81 per share for stock bonus		9		—			318			—			—			—			318
Balance, September 30, 2013		48,394		$	487		$	194,721		$	623,529		$	13,548		$	(9,825	)	$	822,460

 

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

 

5

 

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

		Nine Months
		Ended September 30,
		2013			2012
Cash flows from operating activities
Net income		$	43,303		$	36,036
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on sale of assets		634			42
Depreciation and amortization		21,631			20,744
Impairment loss on assets		1,025			461
Deferred income taxes		2,336			(500		)
Noncash compensation related to stock plans		9,106			7,364
Excess tax benefit of options exercised		(42		)	(99		)
Provision for doubtful accounts		342			470
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable		(36,296		)	(28,630		)
Inventories		17,643			14,067
Trade accounts payable		(4,543		)	(381		)
Income taxes payable		9,372			3,731
Accrued profit sharing trust contributions		(606		)	(488		)
Accrued cash profit sharing and commissions		9,053			5,458
Other current assets		(1,218		)	3,686
Accrued liabilities		(112		)	(791		)
Long-term liabilities		(1,563		)	(1,159		)
Accrued workers’ compensation		503			(595		)
Other noncurrent assets		1,352			(2,723		)
Net cash provided by operating activities		71,920			56,693
Cash flows from investing activities
Capital expenditures		(12,949		)	(16,128		)
Asset acquisitions, net of cash acquired		(5,300		)	(56,003		)
Proceeds from sale of property and equipment		1,823			6,937
Loan repayment by related parties		625			1,698
Net cash used in investing activities		(15,801		)	(63,496		)
Cash flows from financing activities
Repurchase of common stock		(9,825		)	—
Debt and line of credit borrowings		1,378			2,156
Repayment of debt and line of credit borrowings		(609		)	(5,655		)
Debt issuance costs		—			(1,408		)
Issuance of common stock		5,333			2,184
Excess tax benefit of options exercised		42			99
Dividends paid		(12,081		)	(18,099		)
Net cash used in financing activities		(15,762		)	(20,723		)
Effect of exchange rate changes on cash and cash equivalents		(146		)	1,180
Net increase (decrease) in cash and cash equivalents		40,211			(26,346		)
Cash and cash equivalents at beginning of period		175,553			213,817
Cash and cash equivalents at end of period		$	215,764		$	187,471
Noncash activity during the period
Noncash capital expenditures		$	670		$	520
Dividends declared but not paid		6,015			6,040
Issuance of Company’s common stock for compensation		318			418
Non-cash contingent consideration		—			786

 

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

 

6

 

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, 2012 (the “2012 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, collectability 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, software license sales and services and lease income, 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 Earnings Per Common Share

 

Basic earnings 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.

 

7

 

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

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(in thousands, except per share amounts)		2013			2012			2013			2012
Net income available to common stockholders		$	20,006		$	12,976		$	43,303		$	36,036
Basic weighted-average shares outstanding		48,377			48,346			48,482			48,322
Dilutive effect of potential common stock equivalents — stock options		174			44			121			63
Diluted weighted-average shares outstanding		48,551			48,390			48,603			48,385
Earnings per common share:
Basic		$	0.41		$	0.27		$	0.89		$	0.75
Diluted		0.41			0.27			0.89			0.74
Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive		—			1,709			—			1,714

 

Accounting for Stock-Based Compensation

 

With the approval of the Company’s stockholders on April 26, 2011, the Company adopted the Simpson Manufacturing Co., Inc. 2011 Incentive Plan (the “2011 Plan”). The 2011 Plan amended and restated in their entirety, and incorporated and superseded, both the Simpson Manufacturing Co., Inc. 1994 Stock Option Plan (the “1994 Plan”), which was principally for the Company’s employees, and the Simpson Manufacturing Co., Inc. 1995 Independent Director Stock Option Plan (the “1995 Plan”), which was for its independent directors. Options previously granted under the 1994 Plan or the 1995 Plan were not affected by the adoption of the 2011 Plan and continue to be governed by the 1994 Plan or the 1995 Plan, respectively.

 

Under the 1994 Plan, the Company could grant incentive stock options and non-qualified stock options. The Company, however, granted only non-qualified stock options under both the 1994 Plan and the 1995 Plan. The Company generally granted options under each of the 1994 Plan and the 1995 Plan once each year. The exercise price per share of each option granted 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 and Leadership Development 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 was 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. 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 were fully vested on the date of grant. Shares of common stock issued on exercise of stock options under the 1994 Plan and the 1995 Plan are registered under the Securities Act of 1933.

 

Under the 2011 Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock and restricted stock units, although the Company currently intends to award primarily restricted stock units and to a lesser extent, if at all, non-qualified stock options. The Company does not currently intend to award incentive stock options or restricted stock. Under the 2011 Plan, no more than 16.3 million shares of the Company’s common stock may be issued (including shares already issued) pursuant to all awards under the 2011 Plan, including on exercise of options previously granted under the 1994 Plan and the 1995 Plan. Shares of common stock to be issued pursuant to the 2011 Plan are registered under the Securities Act of 1933.

 

8

 

The following table represents the Company’s stock option and restricted stock unit activity for the three and nine months ended September 30, 2013 and 2012:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(in thousands)		2013			2012			2013			2012
Stock-based compensation expense recognized in operating expenses		$	2,959		$	1,966		$	8,644		$	7,086
Tax benefit of stock-based compensation expense in provision for income taxes		1,087			691			3,031			2,462
Stock-based compensation expense, net of tax		$	1,872		$	1,275		$	5,613		$	4,624
Fair value of shares vested		$	3,007		$	2,043		$	8,656		$	7,048
Proceeds to the Company from the exercise of stock-based compensation		$	4,557		$	201		$	5,333		$	2,184
Tax effect from exercise of stock-based compensation, including shortfall tax benefits		$	(337	)	$	(4	)	$	(2,187	)	$	(60	)

 

		At September 30,
		2013			2012
Stock-based compensation cost capitalized in inventory		$	426		$	354

 

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 and restricted stock units were awarded.

 

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

 

Fair Value of Financial Instruments

 

The “Fair Value Measurements and Disclosures” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“ASC”) 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 the Company’s 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.

 

9

 

The Company’s investments consisted of only United States Treasury securities and money market funds, which are the Company’s primary financial instruments, maintained in cash equivalents and carried at cost, approximating fair value, based on Level 1 inputs. The balance of the Company’s primary financial instruments was as follows:

 

		At September 30,						At December 31,
(in thousands)		2013			2012			2012
Financial instruments		$	87,381		$	85,237		$	76,130

 

The carrying amounts of trade accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. The fair value of the Company’s line of credit is classified as Level 2 within the fair value hierarchy and is calculated based on borrowings with similar maturities, current remaining average life to maturity and current market conditions.

 

Income Taxes

 

The Company uses an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in each interim period. The effective tax rate decrease from the third quarter of 2012 to the third quarter of 2013 was primarily due to reduced valuation allowances taken on lower third quarter 2013 operating losses in the Europe and Asia/Pacific segments. The effective tax rate decrease from the first nine months of 2012 to the first nine months of 2013 was primarily due to $2.3 million in non-deductible acquisition costs recorded in 2012.

 

The following table presents the Company’s effective tax rates and income tax expense for the three and nine months ended September 30, 2013 and 2012:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
(in thousands, except percentage amounts)		2013			2012			2013			2012
Effective tax rate		35.2		%	41.1		%	37.8		%	42.6		%
Provision for income taxes		$	10,870		$	9,069		$	26,304		$	26,788

 

Acquisitions

 

In January 2012, the Company purchased all of the shares of S&P Clever, for $58.1 million, subject to post-closing adjustments. S&P Clever manufactures and sells engineered materials to repair, strengthen and restore concrete, masonry and asphalt and has operations in Switzerland, Germany, Portugal, Poland, The Netherlands and Austria. Payments under the purchase agreement included cash payments of $57.5 million and contingent consideration of $0.6 million payable over a three-year period if sales goals are met. As a result of the acquisition, the Company has increased its presence in the infrastructure, commercial and industrial construction markets in Europe. The Company’s measurement of assets acquired and liabilities assumed included cash and cash equivalents of $6.8 million, other current assets of $10.8 million, non-current assets of $53.4 million, current liabilities of $12.6 million and non-current liabilities of $0.2 million. Included in non-current assets is goodwill of $19.3 million, which was assigned to the Europe segment and is not deductible for tax purposes, intangible assets of $15.7 million, the amortization of which is not deductible for tax purposes and long-lived intangibles of $4.8 million related to in-progress product development, which will be amortized when the Company markets the product for sale. The weighted-average amortization period for the intangible assets is 9.8 years.

 

In March 2012, the Company purchased substantially all of the assets of CarbonWrap Solutions, L.L.C. (“CarbonWrap”) for $5.5 million, subject to post-closing adjustments. CarbonWrap develops fiber-reinforced polymer products primarily for infrastructure and transportation projects. Payments under the purchase agreement totaled $5.3 million in cash and contingent consideration of $0.2 million paid on resolution of specified post-closing contingencies to the principal officer of CarbonWrap, who is now employed by the Company. The Company’s measurement of assets acquired included goodwill of $3.5 million, which was assigned to the North America segment and is deductible for tax purposes, and intangible assets of $1.7 million, which is subject to tax-deductible amortization. Net tangible assets consisting of accounts receivable, inventory, equipment and prepaid expenses accounted for the balance of the purchase price. The weighted-average amortization period for the intangible assets is 15.6 years.

 

10

 

In December 2012, the Company completed a transaction with Keymark Enterprises LLC (“Keymark”). In 2011, the Company had purchased various software assets from Keymark and had engaged Keymark to perform certain software development for the Company, for which the Company had agreed to compensate Keymark at rates equal to a multiple of Keymark’s costs. In the 2012 transaction, the Company paid Keymark $9.1 million, hired thirty-nine Keymark employees to perform the development work that Keymark had previously been engaged to perform and purchased from Keymark various assets needed for that work. This transaction also included termination of the 2011 software development agreement and the Company will be entitled to certain software license revenue that was previously received by Keymark. The Company’s December 2012 provisional measurement of the assets acquired included intangibles of $8.9 million. The provisional measurement of the assets acquired was corrected in the third quarter to include goodwill of $5.9 million and intangibles of $3.0 million, both of which are subject to tax-deductible amortization. Equipment and prepaid expenses accounted for the balance of the purchase price, which was assigned to the North American segment.

 

In February 2013, the Company purchased certain assets relating to the TJ® ShearBrace (“ShearBrace”) product line of Weyerhaeuser NR Company (“Weyerhaeuser”) for $5.3 million in cash, subject to post-closing adjustments. The ShearBrace is a line of pre-fabricated shearwalls that complements the Company’s Strong-Wall shearwall, and is sold throughout North America. The Company’s provisional measurement of assets acquired included goodwill of $2.6 million that has been assigned to the North America segment, and intangible assets of $1.9 million, both of which are subject to tax-deductible amortization. Net tangible assets consisting of inventory and equipment accounted for the balance of the purchase price.

 

Under the business combinations topic of the FASB ASC, the Company accounted for these acquisitions as business combinations and ascribed acquisition-date fair values to the acquired assets and assumed liabilities. Provisional fair value measurements were made in the fourth quarter of 2012 for acquired Keymark assets and in the first quarter of 2013 for acquired ShearBrace assets. Adjustments to those measurements may be made in subsequent periods, up to one year from the acquisition date, as information necessary to complete the analysis is obtained. Fair value of intangible assets was based on Level 3 inputs. The Company expects the measurement process for each acquisition to be finalized within a year of its acquisition date.

 

Pro-forma financial information is not presented as it would not be materially different from the information presented in the Condensed Consolidated Statements of Operations.

 

Out-of-Period Adjustments

 

In the third quarter of 2013, the Company recorded $0.7 million net of tax in out-of-period adjustments, which had the effect of increasing net income by $0.7 million in Q3 2013. The adjustments related to the Keymark acquisition and capitalization of software development costs. The effect of these out-of-period adjustments on previously reported periods was that net income was understated for the three months ended March 31, 2013, and the three and six months ended June 30, 2013, by $0.4 million, $0.3 million and $0.7 million, respectively. The correction of these errors in the third quarter of 2013 is not material to the current period or any prior period. 

 

Recently Adopted Accounting Standards

 

In February 2013, the FASB issued an amendment to the comprehensive income guidance requiring reporting of the effect of significant reclassifications out of other comprehensive income on the respective lines in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional information about these amounts. This amendment is effective for fiscal years beginning after December 15, 2012, and interim periods within those years. The implementation of this amended accounting guidance did not have a material effect on the Company’s consolidated financial position and results of operations.

 

In July 2013, the FASB issued an amendment to the income taxes guidance that applies to all entities. It is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits. Additionally, the amendment intends to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position relating to net operating loss carryforwards, similar tax losses, or tax credit carryforwards. The Company’s early adoption and implementation of this amended accounting guidance did not have a material effect on the Company’s consolidated financial position and results of operations.

 

11

 

Recently Issued Accounting Standards

 

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants and the Securities and Exchange Commission did not or is not expected to have a material effect on the Company’s consolidated financial statements.

 

2.                                      Trade Accounts Receivable, Net

 

Trade accounts receivable consisted of the following:

 

		At September 30,						At December 31,
(in thousands)		2013			2012			2012
Trade accounts receivable		$	122,328		$	111,726		$	85,732
Allowance for doubtful accounts		(1,384		)	(1,514		)	(1,288		)
Allowance for sales discounts and returns		(2,049		)	(1,787		)	(1,632		)
		$	118,895		$	108,425		$	82,812

 

3.                                      Inventories

 

Inventories consisted of the following:

 

		At September 30,						At December 31,
(in thousands)		2013			2012			2012
Raw materials		$	75,032		$	66,508		$	95,959
In-process products		18,070			19,225			16,878
Finished products		94,153			86,288			91,287
		$	187,255		$	172,021		$	204,124

 

4.                                      Property, Plant and Equipment, Net

 

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

 

		At September 30,						At December 31,
(in thousands)		2013			2012			2012
Land		$	29,283		$	32,282		$	32,068
Buildings and site improvements		177,484			170,761			174,187
Leasehold improvements		5,068			5,047			4,747
Machinery, equipment, and software		221,459			212,918			214,222
		433,294			421,008			425,224
Less accumulated depreciation and amortization		(232,958		)	(215,562		)	(217,868		)
		200,336			205,446			207,356
Capital projects in progress		9,305			5,686			6,096
		$	209,641		$	211,132		$	213,452

 

In July 2013, the vacant facility in Hungen, Germany, was sold for its approximate carrying cost. In the first quarter of 2013, the Company concluded that the carrying value of its Ireland facility, associated with the Europe segment, exceeded its net estimated realizable value, and therefore recorded an impairment charge, within general and administrative expenses, of $1.0 million, equal to the amount by which carrying value exceeded net estimated realizable value. In September 2013, the facility in Ireland was sold at an additional loss of $0.7 million. See note 10.

 

12

 

In the third quarter of 2013, the Company determined that $1.6 million in development costs incurred during 2013 met the criteria for capitalization as internally developed, internal-use software, resulting in an immaterial adjustment in each of the first and second quarters of 2013. The Company will depreciate the capitalized software costs over three years.

 

5.                                      Goodwill and Intangible Assets, Net

 

Goodwill was as follows:

 

		At September 30,						At December 31,
(in thousands)		2013			2012			2012
North America		$	87,104		$	77,630		$	78,739
Europe		41,388			49,238			41,263
Asia/Pacific		1,778			1,944			1,979
Total		$	130,270		$	128,812		$	121,981

 

Intangible assets, net, were as follows:

 

		At September 30, 2013
		Gross						Net
		Carrying			Accumulated			Carrying
(in thousands)		Amount			Amortization			Amount
North America		$	33,975		$	(15,032	)	$	18,943
Europe		27,285			(9,273		)	18,012
Total		$	61,260		$	(24,305	)	$	36,955

 

		At September 30, 2012
		Gross						Net
		Carrying			Accumulated			Carrying
		Amount			Amortization			Amount
North America		$	35,620		$	(16,278	)	$	19,342
Europe		28,064			(7,331		)	20,733
Total		$	63,684		$	(23,609	)	$	40,075

 

		At December 31, 2012
		Gross						Net
		Carrying			Accumulated			Carrying
		Amount			Amortization			Amount
North America		$	37,992		$	(12,012	)	$	25,980
Europe		31,701			(7,083		)	24,618
Total		$	69,693		$	(19,095	)	$	50,598

 

Intangible assets consist primarily of customer relationships, patents, unpatented technology and non-compete agreements. Amortization expense for intangible assets during the three months ended September 30, 2013 and 2012, totaled $1.2 million and $1.7 million, respectively, and during the nine months ended September 30, 2013 and 2012, totaled $5.2 million and $5.4 million, respectively.

 

13