UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2013
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)
Delaware |
|
94-3196943 |
(State or other jurisdiction of incorporation |
|
(I.R.S. Employer |
or organization) |
|
Identification No.) |
5956 W. Las Positas Blvd., Pleasanton, CA 94588
(Address of principal executive offices)
(Registrants 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.
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 registrants common stock outstanding as of June 30, 2013: 48,569,132
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, unaudited)
|
|
June 30, |
|
December 31, |
| |||||
|
|
2013 |
|
2012 |
|
2012 |
| |||
|
|
|
|
|
|
|
| |||
ASSETS |
|
|
|
|
|
|
| |||
Current assets |
|
|
|
|
|
|
| |||
Cash and cash equivalents |
|
$ |
165,275 |
|
$ |
162,719 |
|
$ |
175,553 |
|
Trade accounts receivable, net |
|
126,888 |
|
120,119 |
|
82,812 |
| |||
Inventories |
|
196,247 |
|
185,217 |
|
204,124 |
| |||
Deferred income taxes |
|
12,874 |
|
12,124 |
|
11,473 |
| |||
Assets held for sale |
|
586 |
|
|
|
593 |
| |||
Other current assets |
|
8,465 |
|
14,516 |
|
23,499 |
| |||
Total current assets |
|
510,335 |
|
494,695 |
|
498,054 |
| |||
|
|
|
|
|
|
|
| |||
Property, plant and equipment, net |
|
209,544 |
|
208,685 |
|
213,452 |
| |||
Goodwill |
|
122,678 |
|
127,983 |
|
121,981 |
| |||
Intangible assets, net |
|
43,346 |
|
41,529 |
|
50,598 |
| |||
Other noncurrent assets |
|
11,082 |
|
6,013 |
|
6,237 |
| |||
Total assets |
|
$ |
896,985 |
|
$ |
878,905 |
|
$ |
890,322 |
|
|
|
|
|
|
|
|
| |||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
| |||
Current liabilities |
|
|
|
|
|
|
| |||
Line of credit and notes payable |
|
$ |
1,201 |
|
$ |
4,837 |
|
$ |
178 |
|
Trade accounts payable |
|
29,579 |
|
34,740 |
|
37,117 |
| |||
Accrued liabilities |
|
44,619 |
|
41,491 |
|
44,923 |
| |||
Income taxes payable |
|
|
|
1,396 |
|
|
| |||
Accrued profit sharing trust contributions |
|
3,229 |
|
2,393 |
|
5,191 |
| |||
Accrued cash profit sharing and commissions |
|
12,010 |
|
10,307 |
|
3,414 |
| |||
Accrued workers compensation |
|
5,095 |
|
4,861 |
|
4,692 |
| |||
Total current liabilities |
|
95,733 |
|
100,025 |
|
95,515 |
| |||
|
|
|
|
|
|
|
| |||
Long-term liabilities |
|
8,221 |
|
5,936 |
|
5,239 |
| |||
Total liabilities |
|
103,954 |
|
105,961 |
|
100,754 |
| |||
|
|
|
|
|
|
|
| |||
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Stockholders equity |
|
|
|
|
|
|
| |||
Common stock, at par value |
|
485 |
|
482 |
|
483 |
| |||
Additional paid-in capital |
|
187,549 |
|
176,809 |
|
184,677 |
| |||
Retained earnings |
|
609,538 |
|
591,595 |
|
592,309 |
| |||
Treasury stock |
|
(9,825 |
) |
|
|
|
| |||
Accumulated other comprehensive income |
|
5,284 |
|
4,058 |
|
12,099 |
| |||
Total stockholders equity |
|
793,031 |
|
772,944 |
|
789,568 |
| |||
Total liabilities and stockholders equity |
|
$ |
896,985 |
|
$ |
878,905 |
|
$ |
890,322 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands except per-share amounts, unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Net sales |
|
$ |
195,596 |
|
$ |
181,703 |
|
$ |
350,130 |
|
$ |
340,437 |
|
Cost of sales |
|
106,176 |
|
98,557 |
|
195,736 |
|
187,886 |
| ||||
Gross profit |
|
89,420 |
|
83,146 |
|
154,394 |
|
152,551 |
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Research and development and other engineering |
|
9,484 |
|
9,043 |
|
17,792 |
|
18,240 |
| ||||
Selling |
|
21,652 |
|
19,881 |
|
43,024 |
|
40,314 |
| ||||
General and administrative |
|
28,595 |
|
27,087 |
|
54,884 |
|
53,331 |
| ||||
Loss (gain) on sale of assets |
|
11 |
|
(13 |
) |
3 |
|
10 |
| ||||
|
|
59,742 |
|
55,998 |
|
115,703 |
|
111,895 |
| ||||
Income from operations |
|
29,678 |
|
27,148 |
|
38,691 |
|
40,656 |
| ||||
Interest income, net |
|
1 |
|
58 |
|
40 |
|
123 |
| ||||
Income before taxes |
|
29,679 |
|
27,206 |
|
38,731 |
|
40,779 |
| ||||
Provision for income taxes |
|
11,177 |
|
11,347 |
|
15,434 |
|
17,719 |
| ||||
Net income |
|
$ |
18,502 |
|
$ |
15,859 |
|
$ |
23,297 |
|
$ |
23,060 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per common share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.38 |
|
$ |
0.33 |
|
$ |
0.48 |
|
$ |
0.48 |
|
Diluted |
|
$ |
0.38 |
|
$ |
0.33 |
|
$ |
0.48 |
|
$ |
0.48 |
|
|
|
|
|
|
|
|
|
|
| ||||
Number of shares outstanding |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
48,529 |
|
48,340 |
|
48,532 |
|
48,307 |
| ||||
Diluted |
|
48,628 |
|
48,419 |
|
48,627 |
|
48,378 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash dividends declared per common share |
|
$ |
0.125 |
|
$ |
0.125 |
|
$ |
0.125 |
|
$ |
0.25 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands, unaudited)
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
18,502 |
|
$ |
15,859 |
|
$ |
23,297 |
|
$ |
23,060 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
| ||||
Translation adjustment, net of tax benefit (expense) of $0, ($20), ($84) and $3, respectively |
|
(999 |
) |
(9,951 |
) |
(6,815 |
) |
(2,725 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive income |
|
$ |
17,503 |
|
$ |
5,908 |
|
$ |
16,482 |
|
$ |
20,335 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders Equity
for the six-month periods ended June 30, 2012 and 2013 and for the six 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 |
|
|
|
|
|
|
|
23,060 |
|
|
|
|
|
23,060 |
| ||||||
Translation adjustment, net of tax |
|
|
|
|
|
|
|
|
|
(2,725 |
) |
|
|
(2,725 |
) | ||||||
Stock options exercised |
|
82 |
|
1 |
|
1,982 |
|
|
|
|
|
|
|
1,983 |
| ||||||
Stock-based compensation |
|
|
|
|
|
5,005 |
|
|
|
|
|
|
|
5,005 |
| ||||||
Tax effect of options exercised |
|
|
|
|
|
(56 |
) |
|
|
|
|
|
|
(56 |
) | ||||||
Shares issued from release of Restricted Stock Units |
|
61 |
|
|
|
(1,023 |
) |
|
|
|
|
|
|
(1,023 |
) | ||||||
Cash dividends declared on common stock, $0.25 per share |
|
|
|
|
|
|
|
(12,081 |
) |
|
|
|
|
(12,081 |
) | ||||||
Common stock issued at $33.71 per share for stock bonus |
|
12 |
|
|
|
418 |
|
|
|
|
|
|
|
418 |
| ||||||
Balance, June 30, 2012 |
|
48,318 |
|
482 |
|
176,809 |
|
591,595 |
|
4,058 |
|
|
|
772,944 |
| ||||||
Net income |
|
|
|
|
|
|
|
18,858 |
|
|
|
|
|
18,858 |
| ||||||
Translation adjustment, net of tax |
|
|
|
|
|
|
|
|
|
8,284 |
|
|
|
8,284 |
| ||||||
Pension adjustment, net of tax |
|
|
|
|
|
|
|
|
|
(243 |
) |
|
|
(243 |
) | ||||||
Stock options exercised |
|
103 |
|
1 |
|
2,941 |
|
|
|
|
|
|
|
2,942 |
| ||||||
Stock-based compensation |
|
|
|
|
|
5,190 |
|
|
|
|
|
|
|
5,190 |
| ||||||
Tax effect of options exercised |
|
|
|
|
|
(177 |
) |
|
|
|
|
|
|
(177 |
) | ||||||
Shares issued from release of Restricted Stock Units |
|
1 |
|
|
|
(86 |
) |
|
|
|
|
|
|
(86 |
) | ||||||
Cash dividends declared on common stock, $0.375 per share |
|
|
|
|
|
|
|
(18,144 |
) |
|
|
|
|
(18,144 |
) | ||||||
Balance, December 31, 2012 |
|
48,422 |
|
483 |
|
184,677 |
|
592,309 |
|
12,099 |
|
|
|
789,568 |
| ||||||
Net income |
|
|
|
|
|
|
|
23,297 |
|
|
|
|
|
23,297 |
| ||||||
Translation adjustment, net of tax |
|
|
|
|
|
|
|
|
|
(6,815 |
) |
|
|
(6,815 |
) | ||||||
Stock options exercised |
|
31 |
|
1 |
|
775 |
|
|
|
|
|
|
|
776 |
| ||||||
Stock-based compensation |
|
|
|
|
|
5,649 |
|
|
|
|
|
|
|
5,649 |
| ||||||
Tax effect of options exercised |
|
|
|
|
|
(1,850 |
) |
|
|
|
|
|
|
(1,850 |
) | ||||||
Shares issued from release of Restricted Stock Units |
|
107 |
|
1 |
|
(2,020 |
) |
|
|
|
|
|
|
(2,019 |
) | ||||||
Repurchase of common stock |
|
(342 |
) |
|
|
|
|
|
|
|
|
(9,825 |
) |
(9,825 |
) | ||||||
Cash dividends declared on common stock, $0.125 per share |
|
|
|
|
|
|
|
(6,068 |
) |
|
|
|
|
(6,068 |
) | ||||||
Common stock issued at $33.81 per share for stock bonus |
|
9 |
|
|
|
318 |
|
|
|
|
|
|
|
318 |
| ||||||
Balance, June 30, 2013 |
|
48,227 |
|
$ |
485 |
|
$ |
187,549 |
|
$ |
609,538 |
|
$ |
5,284 |
|
$ |
(9,825 |
) |
$ |
793,031 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
Six Months |
| ||||
|
|
Ended June 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net income |
|
$ |
23,297 |
|
$ |
23,060 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Loss on sale of assets |
|
3 |
|
10 |
| ||
Depreciation and amortization |
|
14,777 |
|
13,813 |
| ||
Impairment loss on assets |
|
1,025 |
|
461 |
| ||
Deferred income taxes |
|
1,281 |
|
(681 |
) | ||
Noncash compensation related to stock plans |
|
6,001 |
|
5,300 |
| ||
Excess tax benefit of options exercised |
|
(11 |
) |
(99 |
) | ||
Provision for doubtful accounts |
|
9 |
|
225 |
| ||
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
| ||
Trade accounts receivable |
|
(45,345 |
) |
(40,837 |
) | ||
Inventories |
|
7,168 |
|
(47 |
) | ||
Trade accounts payable |
|
(7,021 |
) |
10,694 |
| ||
Income taxes payable |
|
11,859 |
|
4,462 |
| ||
Accrued profit sharing trust contributions |
|
(1,944 |
) |
(2,085 |
) | ||
Accrued cash profit sharing and commissions |
|
8,624 |
|
6,873 |
| ||
Other current assets |
|
185 |
|
3,537 |
| ||
Accrued liabilities |
|
(1,502 |
) |
(4,775 |
) | ||
Long-term liabilities |
|
(477 |
) |
(250 |
) | ||
Accrued workers compensation |
|
403 |
|
(613 |
) | ||
Other noncurrent assets |
|
578 |
|
(2,168 |
) | ||
Net cash provided by operating activities |
|
18,910 |
|
16,880 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities |
|
|
|
|
| ||
Capital expenditures |
|
(8,095 |
) |
(9,629 |
) | ||
Asset acquisitions, net of cash acquired |
|
(5,300 |
) |
(56,044 |
) | ||
Proceeds from sale of property and equipment |
|
110 |
|
6,958 |
| ||
Loan repayment by related parties |
|
625 |
|
|
| ||
Net cash used in investing activities |
|
(12,660 |
) |
(58,715 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
|
|
| ||
Repurchase of common stock |
|
(9,825 |
) |
|
| ||
Debt and line of credit borrowings |
|
1,129 |
|
2,146 |
| ||
Repayment of debt and line of credit borrowings |
|
(86 |
) |
(954 |
) | ||
Debt issuance costs |
|
|
|
(25 |
) | ||
Issuance of common stock |
|
776 |
|
1,983 |
| ||
Excess tax benefit of options exercised |
|
11 |
|
99 |
| ||
Dividends paid |
|
(6,053 |
) |
(12,059 |
) | ||
Net cash used in financing activities |
|
(14,048 |
) |
(8,810 |
) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
|
(2,480 |
) |
(453 |
) | ||
|
|
|
|
|
| ||
Net decrease in cash and cash equivalents |
|
(10,278 |
) |
(51,098 |
) | ||
Cash and cash equivalents at beginning of period |
|
175,553 |
|
213,817 |
| ||
Cash and cash equivalents at end of period |
|
$ |
165,275 |
|
$ |
162,719 |
|
|
|
|
|
|
| ||
Noncash activity during the period |
|
|
|
|
| ||
Noncash capital expenditures |
|
$ |
63 |
|
$ |
258 |
|
Dividends declared but not paid |
|
6,068 |
|
6,044 |
| ||
Issuance of Companys common stock for compensation |
|
318 |
|
418 |
| ||
Non-cash contingent consideration |
|
|
|
786 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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.
The following is a reconciliation of basic earnings per share (EPS) to diluted EPS:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
(in thousands, except per share amounts) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Net income available to common stockholders |
|
$ |
18,502 |
|
$ |
15,859 |
|
$ |
23,297 |
|
$ |
23,060 |
|
Basic weighted average shares outstanding |
|
48,529 |
|
48,340 |
|
48,532 |
|
48,307 |
| ||||
Dilutive effect of potential common stock equivalents stock options |
|
99 |
|
79 |
|
95 |
|
71 |
| ||||
Diluted weighted average shares outstanding |
|
48,628 |
|
48,419 |
|
48,627 |
|
48,378 |
| ||||
Earnings per common share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.38 |
|
$ |
0.33 |
|
$ |
0.48 |
|
$ |
0.48 |
|
Diluted |
|
0.38 |
|
0.33 |
|
0.48 |
|
0.48 |
| ||||
Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive |
|
|
|
1,711 |
|
|
|
1,711 |
|
Accounting for Stock-Based Compensation
With the approval of the Companys 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 Companys 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 will not be affected by the adoption of the 2011 Plan and will 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 Companys 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 Companys 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 Companys common stock may be issued (including shares already sold) 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.
The following table represents the Companys stock option and restricted stock unit activity for the three and six months ended June 30, 2013 and 2012:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
(in thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Stock-based compensation expense recognized in operating expenses |
|
$ |
2,807 |
|
$ |
2,052 |
|
$ |
5,686 |
|
$ |
5,120 |
|
Tax benefit of stock-based compensation expense in provision for income taxes |
|
896 |
|
705 |
|
1,944 |
|
1,771 |
| ||||
Stock-based compensation expense, net of tax |
|
$ |
1,911 |
|
$ |
1,347 |
|
$ |
3,742 |
|
$ |
3,349 |
|
Fair value of shares vested |
|
$ |
2,836 |
|
$ |
1,895 |
|
$ |
5,649 |
|
$ |
5,005 |
|
Proceeds to the Company from the exercise of stock-based compensation |
|
$ |
280 |
|
$ |
225 |
|
$ |
776 |
|
$ |
1,983 |
|
Tax effect from exercise of stock-based compensation, including shortfall tax benefits |
|
$ |
(7 |
) |
$ |
(54 |
) |
$ |
(1,850 |
) |
$ |
(56 |
) |
|
|
At June 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
Stock-based compensation cost capitalized in inventory |
|
$ |
384 |
|
$ |
229 |
|
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 Companys 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 Companys assumptions used to measure assets and liabilities at fair value. A financial assets or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The Companys investments consisted of only United States Treasury securities and money market funds, which are the Companys primary financial instruments, maintained in cash equivalents and carried at cost, approximating fair value, based on Level 1 inputs. The balance of the Companys primary financial instruments was as follows:
|
|
At June 30, |
|
At December 31, |
| |||||
(in thousands) |
|
2013 |
|
2012 |
|
2012 |
| |||
Financial instruments |
|
$ |
60,725 |
|
$ |
51,283 |
|
$ |
76,130 |
|
The carrying amounts of trade receivables, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. The fair value of the Companys 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 second quarter of 2012 to the second quarter of 2013 was primarily due to reduced valuation allowances taken on lower second quarter 2013 operating losses in the Europe and Asia/Pacific segments. The effective tax rate decrease from the first half of 2012 to the first half of 2013 was primarily due to $2.3 million in non-deductible acquisition costs recorded in 2012.
The following table presents the Companys effective tax rates and income tax expense for the three and six months ended June 30, 2013 and 2012:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
(in thousands, except percentage amounts) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Effective tax rate |
|
37.7 |
% |
41.7 |
% |
39.8 |
% |
43.5 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
11,177 |
|
$ |
11,347 |
|
$ |
15,434 |
|
$ |
17,719 |
|
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 Companys 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 Companys 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.
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 will complement the Companys Strong-Wall shearwall, and is sold throughout North America. The Companys 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 first quarter of 2013 for acquired assets and assumed liabilities. 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.
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 Companys consolidated financial position and results of operations.
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 Companys consolidated financial statements.
2. Trade Accounts Receivable, Net
Trade accounts receivable consisted of the following:
|
|
At June 30, |
|
At December 31, |
| |||||
(in thousands) |
|
2013 |
|
2012 |
|
2012 |
| |||
Trade accounts receivable |
|
$ |
130,612 |
|
$ |
123,531 |
|
$ |
85,732 |
|
Allowance for doubtful accounts |
|
(1,141 |
) |
(1,343 |
) |
(1,288 |
) | |||
Allowance for sales discounts and returns |
|
(2,583 |
) |
(2,069 |
) |
(1,632 |
) | |||
|
|
$ |
126,888 |
|
$ |
120,119 |
|
$ |
82,812 |
|
3. Inventories
Inventories consisted of the following:
|
|
At June 30, |
|
At December 31, |
| |||||
(in thousands) |
|
2013 |
|
2012 |
|
2012 |
| |||
Raw materials |
|
$ |
85,490 |
|
$ |
75,580 |
|
$ |
95,959 |
|
In-process products |
|
18,759 |
|
21,594 |
|
16,878 |
| |||
Finished products |
|
91,998 |
|
88,043 |
|
91,287 |
| |||
|
|
$ |
196,247 |
|
$ |
185,217 |
|
$ |
204,124 |
|
4. Property, Plant and Equipment, Net
Property, plant and equipment, net, consisted of the following:
|
|
At June 30, |
|
At December 31, |
| |||||
(in thousands) |
|
2013 |
|
2012 |
|
2012 |
| |||
Land |
|
$ |
30,390 |
|
$ |
32,100 |
|
$ |
32,068 |
|
Buildings and site improvements |
|
174,771 |
|
166,767 |
|
174,187 |
| |||
Leasehold improvements |
|
4,996 |
|
4,852 |
|
4,747 |
| |||
Machinery and equipment |
|
216,154 |
|
210,560 |
|
214,222 |
| |||
|
|
426,311 |
|
414,279 |
|
425,224 |
| |||
Less accumulated depreciation and amortization |
|
(226,202 |
) |
(210,431 |
) |
(217,868 |
) | |||
|
|
200,109 |
|
203,848 |
|
207,356 |
| |||
Capital projects in progress |
|
9,435 |
|
4,837 |
|
6,096 |
| |||
|
|
$ |
209,544 |
|
$ |
208,685 |
|
$ |
213,452 |
|
The Companys vacant facility in Hungen, Germany, remained classified as an asset held for sale as of June 30, 2013, consistent with the classification at December 31, 2012. 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 exceeds net estimated realizable value. See note 10.
Determining the fair value of the Ireland facility is a judgment involving estimates and assumptions. These estimates and assumptions include lease rates, operating costs and inflation factors used to calculate projected future cash flows and future economic and market conditions (Level 3 fair value inputs). The Company bases its fair value estimates on assumptions that it believes to be reasonable, but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates.
5. Goodwill and Intangible Assets, Net
Goodwill was as follows:
|
|
At June 30, |
|
At December 31, |
| |||||
(in thousands) |
|
2013 |
|
2012 |
|
2012 |
| |||
North America |
|
$ |
81,080 |
|
$ |
77,501 |
|
$ |
78,739 |
|
Europe |
|
39,853 |
|
48,529 |
|
41,263 |
| |||
Asia/Pacific |
|
1,745 |
|
1,953 |
|
1,979 |
| |||
Total |
|
$ |
122,678 |
|
$ |
127,983 |
|
$ |
121,981 |
|
Intangible assets, net, were as follows:
|
|
At June 30, 2013 |
| |||||||
|
|
Gross |
|
|
|
Net |
| |||
|
|
Carrying |
|
Accumulated |
|
Carrying |
| |||
(in thousands) |
|
Amount |
|
Amortization |
|
Amount |
| |||
North America |
|
$ |
39,908 |
|
$ |
(14,591 |
) |
$ |
25,317 |
|
Europe |
|
26,546 |
|
(8,517 |
) |
18,029 |
| |||
Total |
|
$ |
66,454 |
|
$ |
(23,108 |
) |
$ |
43,346 |
|
|
|
At June 30, 2012 |
| |||||||
|
|
Gross |
|
|
|
Net |
| |||
|
|
Carrying |
|
Accumulated |
|
Carrying |
| |||
|
|
Amount |
|
Amortization |
|
Amount |
| |||
North America |
|
$ |
35,581 |
|
$ |
(15,350 |
) |
$ |
20,231 |
|
Europe |
|
27,832 |
|
(6,534 |
) |
21,298 |
| |||
Total |
|
$ |
63,413 |
|
$ |
(21,884 |
) |
$ |
41,529 |
|
|
|
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-month periods ended June 30, 2013 and 2012, totaled $2.0 million and $1.9 million, respectively, and during the six months ended June 30, 2013 and 2012, totaled $4.0 million and $3.7 million, respectively.
At June 30, 2013, estimated future amortization of intangible assets was as follows:
(in thousands) |
|
|
| |
Remaining six months of 2013 |
|
$ |
4,120 |
|
2014 |
|
8,064 |
| |
2015 |
|
7,158 |
| |
2016 |
|
6,881 |
| |
2017 |
|
4,965 |
| |
2018 |
|
2,886 |
| |
Thereafter |
|
9,272 |
| |
|
|
$ |
43,346 |
|
The changes in the carrying amount of goodwill and intangible assets for the six months ended June 30, 2013, were as follows:
|
|
|
|
Intangible |
| ||
(in thousands) |
|
Goodwill |
|
Assets |
| ||
Balance at December 31, 2012 |
|
$ |
121,981 |
|
$ |
50,598 |
|
Acquisitions |
|
2,606 |
|
1,869 |
| ||
Reclassifications* |
|
(696 |
) |
(4,369 |
) | ||
Amortization |
|
|
|
(4,013 |
) | ||
Foreign exchange |
|
(1,213 |
) |
(739 |
) | ||
Balance at June 30, 2013 |
|
$ |
122,678 |
|
$ |
43,346 |
|
* Measurement period adjustments related to finalizing accounting for acquisitions, primarily due to $4.8 million in long-lived intangible assets related to S&P Clever in-progress development projects reclassified from intangible assets to other non-current assets.
6. Debt
The Company has revolving lines of credit with various banks in the United States and Europe. Total available credit at June 30, 2013, was $307.5 million, including revolving credit lines and an irrevocable standby letter of credit in support of various insurance deductibles.
The Companys primary credit facility is a revolving line of credit with $300.0 million in available credit. This credit facility will expire in July 2017. Amounts borrowed under this credit facility will bear interest at an annual rate equal to either, at the Companys option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on Reuters LIBOR01screen page (the LIBOR Rate), adjusted for any reserve requirement in effect, plus a spread of 0.60% to 1.45%, determined quarterly based on the Companys leverage ratio (at June 30, 2013, the LIBOR Rate was 0.19%), or (b) a base rate, plus a spread of 0.00% to 0.45%, determined quarterly based on the Companys leverage ratio. The base rate is defined in a manner such that it will not be less than the LIBOR Rate. The Company will pay fees for standby letters of credit at an annual rate equal to the LIBOR Rate plus the applicable spread described above, and will pay market-based fees for commercial letters of credit. The Company is required to pay an annual facility fee of 0.15% to 0.30% of the available commitments under the credit agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Companys leverage ratio. The Company was also required to pay customary fees as specified in a separate fee agreement between the Company and Wells Fargo Bank, National Association, in its capacity as the Agent under the credit agreement.
The Companys borrowing capacity under other revolving credit lines and a term note totaled $8.7 million at June 30, 2013. The other revolving credit lines and term note charge interest ranging from 1.018% to 11.515%, have maturity dates from August 2013 to September 2020, and had outstanding balances totaling $1.2 million at June 30, 2013. The Company had outstanding balances of $4.8 million and $0.2 million on June 30, 2012 and December 31, 2012, respectively. The Company was in compliance with its financial covenants at June 30, 2013.
7. Commitments and Contingencies
Note 9 to the consolidated financial statements in the 2012 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 Companys financial condition, cash flows and results of operations.
Pending Claims
Four lawsuits (the Cases) have been filed against the Company in the Hawaii First Circuit Court: Alvarez v. Haseko Homes, Inc. and Simpson Manufacturing, Inc., Civil No. 09-1-2697-11 (Case 1); Ke Noho Kai Development, LLC v. Simpson Strong-Tie Company, Inc., and Honolulu Wood Treating Co., LTD., Case No. 09-1-1491-06 SSM (Case 2); North American Specialty Ins. Co. v. Simpson Strong-Tie Company, Inc. and K.C. Metal Products, Inc., Case No. 09-1-1490-06 VSM (Case 3); and Charles et al. v. Haseko Homes, Inc. et al. and Third Party Plaintiffs Haseko Homes, Inc. et al. v. Simpson Strong-Tie Company, Inc., et al., Civil No. 09-1-1932-08 (Case 4). Case 1 was filed on November 18, 2009. Cases 2 and 3 were originally filed on June 30, 2009. Case 4 was filed on August 19, 2009. The Cases all relate to alleged premature corrosion of the Companys strap tie holdown products installed in buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii, allegedly causing property damage. Case 1 is a putative class action brought by the owners of allegedly affected Ocean Pointe houses. Case 1 was originally filed as Kai et al. v. Haseko Homes, Inc., Haseko Construction, Inc. and Simpson Manufacturing, Inc., Case No. 09-1-1476, but was voluntarily dismissed and then re-filed with a new representative plaintiff. Case 2 is an action by the builders and developers of Ocean Pointe against the Company, claiming that either the Companys strap tie holdowns are defective in design or manufacture or the Company failed to provide adequate warnings regarding the products susceptibility to corrosion in certain environments. Case 3 is a subrogation action brought by the insurance company for the builders and developers against the Company claiming the insurance company expended funds to correct problems allegedly caused by the Companys products. Case 4 is a putative class action brought, like Case 1, by owners of allegedly affected Ocean Pointe homes. In Case 4, Haseko Homes, Inc. (Haseko), the developer of the Ocean Pointe development, brought a third party complaint against the Company alleging that any damages for which Haseko may be liable are actually the fault of the Company. Similarly, Hasekos sub-contractors on the Ocean Pointe development brought cross-claims against the Company seeking indemnity and contribution for any amounts for which they may ultimately be found liable. None of the Cases alleges a specific amount of damages sought, although each of the Cases seeks compensatory damages, and Case 1 seeks punitive damages. Cases 1 and 4 have been consolidated. In December 2012, the Court granted the Company summary judgment on the claims asserted by the plaintiff homeowners in Cases 1 and 4, and on the third party complaint and cross-claims asserted by Haseko and the sub-contractors, respectively, in Case 4. In April 2013, the Court granted Haseko and the sub-contractors motion for leave to amend their cross-claims to allege a claim for
negligent misrepresentation. The Company continues to investigate the facts underlying the claims asserted in the Cases, including, among other things, the cause of the alleged corrosion; the severity of any problems shown to exist; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if needed. At this time, the likelihood that the Company will be found liable under any legal theory and the extent of such liability, if any, are unknown. Management believes the Cases may not be resolved for an extended period. The Company intends to defend itself vigorously in connection with the Cases.
Based on facts currently known to the Company, the Company believes that all or part of the claims alleged in the Cases may be covered by its insurance policies. On April 19, 2011, an action was filed in the United States District Court for the District of Hawaii, National Union Fire Insurance Company of Pittsburgh, PA v. Simpson Manufacturing Company, Inc., et al., Civil No. 11-00254 ACK. In this action, Plaintiff National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union), which issued certain Commercial General Liability insurance policies to the Company, seeks declaratory relief in the Cases with respect to its obligations to defend or indemnify the Company, Simpson Strong-Tie Company Inc., and a vendor of the Companys strap tie holdown products. By Order dated November 7, 2011, all proceedings in the National Union action have been stayed. If the stay is lifted and the National Union action is not dismissed, the Company intends vigorously to defend all claims advanced by National Union.
On April 12, 2011, Firemans Fund Insurance Company (Firemans Fund), another of the Companys general liability insurers, sued Hartford Fire Insurance Company (Hartford), a third insurance company from whom the Company purchased general liability insurance, in the United States District Court for the Northern District of California, Firemans Fund Insurance Company v. Hartford Fire Insurance Company, Civil No. 11 1789 SBA (the Firemans Fund action). The Company has intervened in the Firemans Fund action and has moved to stay all proceedings in that action as well, pending resolution of the underlying Ocean Pointe Cases.
On November 21, 2011, the Company commenced a lawsuit against National Union, Firemans Fund, Hartford and others in the Superior Court of the State of California in and for the City and County of San Francisco (the San Francisco coverage action). In the San Francisco coverage action, the Company alleges generally that the separate pendency of the National Union action and the Firemans Fund action presents a risk of inconsistent adjudications; that the San Francisco Superior Court has jurisdiction over all of the parties and should exercise jurisdiction at the appropriate time to resolve any and all disputes that have arisen or may in the future arise among the Company and its liability insurers; and that the San Francisco coverage action should also be stayed pending resolution of the underlying Ocean Pointe Cases. The San Francisco coverage action has been ordered stayed pending resolution of the Cases.
Nishimura v. Gentry Homes, Ltd; Simpson Manufacturing Co., Inc.; and Simpson Strong-Tie Company, Inc., Civil no. 11-1-1522-07, was filed in the Circuit Court of the First Circuit of Hawaii on July 20, 2011. The Nishimura case alleges premature corrosion of the Companys strap tie holdown products in a housing development at Ewa Beach in Honolulu, Hawaii. The case is a putative class action brought by owners of allegedly affected homes. The Complaint alleges that the Companys strap products and mudsill anchors are insufficiently corrosion resistant and/or fail to comply with Honolulus building code. In February 2012, the Court dismissed three of the five claims the plaintiffs had asserted against the Company. The Company is currently investigating the allegations of the complaint, including, among other things: the existence and extent of the alleged corrosion, if any; the building code provisions alleged to be applicable and, if applicable, whether the products complied; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if any are needed. At this time, the likelihood that the Company will be found liable for any damage allegedly suffered and the extent of such liability, if any, are unknown. The Company denies any liability of any kind and intends to defend itself vigorously in this case.
With respect to these legal proceedings, individually and in the aggregate, the Company has not yet been able to determine whether an unfavorable outcome is probable or reasonably possible and has not been able to reasonably estimate the amount or range of any possible loss. As a result, no amounts have been accrued or disclosed in the accompanying consolidated financial statements with respect to these legal proceedings.
The Company is not engaged in any other legal proceedings as of the date hereof, which the Company expects individually or in the aggregate to have a material adverse effect on the Companys financial condition, cash flows or results of operations. The resolution of claims and litigation is subject to inherent uncertainty and could have a material adverse effect on the Companys financial condition, cash flows or results of operations.
Other
The Companys 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 environmental matters will have a material adverse effect on the Companys financial condition, cash flows or results of operations.
Corrosion, hydrogen enbrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, manufacturing defects, environmental conditions or other factors can contribute to failure of fasteners, connectors, tools, anchors, adhesives and tool products. On occasion, some of the products 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 Companys guidance, they may be reliably used in appropriate applications.
8. Stock-Based Incentive Plans
The Company currently has one stock-based incentive plan, which incorporates and supersedes its two previous plans (see Note 1 Basis of Presentation Accounting for Stock-Based Compensation). Participants are granted stock-based awards only if the applicable Company-wide or profit-center operating goals, or both, established by the Compensation and Leadership Development Committee of the Board of Directors at the beginning of the year, are met. Certain participants may have additional goals based on strategic initiatives of the Company.
The fair value of each restricted stock unit award is estimated on the date of the award based on the closing market price of the underlying stock on the day preceding the date of the award. On February 6, 2013, 359,371 restricted stock units were awarded, including 9,975 awarded to the Companys directors who are not employees, at an estimated value of $31.96 per share, based on the closing price on February 5, 2013. The restrictions on these awards generally lapse one quarter on the date of the award and one quarter on each of the first, second and third anniversaries of the date of the award.
The following table summarizes the Companys unvested restricted stock unit activity for the six months ended June 30, 2013:
|
|
|
|
|
|
Aggregate |
| ||
|
|
|
|
Weighted- |
|
Intrinsic |
| ||
|
|
Shares |
|
Average |
|
Value * |
| ||
Unvested Restricted Stock Units (RSUs) |
|
(in thousands) |
|
Price |
|
(in thousands) |
| ||
|
|
|
|
|
|
|
| ||
Outstanding at January 1, 2013 |
|
264 |
|
$ |
33.23 |
|
|
| |
Awarded |
|
359 |
|
|
|
|
| ||
Vested |
|
(169 |
) |
|
|
|
| ||
Forfeited |
|
(1 |
) |
|
|
|
| ||
Outstanding at June 30, 2013 |
|
453 |
|
$ |
32.45 |
|
$ |
13,339 |
|
Outstanding and expected to vest at June 30, 2013 |
|
442 |
|
$ |
32.45 |
|
$ |
12,993 |
|
* The intrinsic value is calculated using the closing price per share of $29.42 as reported by the New York Stock Exchange on June 28, 2013.
Based on the market value on the award date, the total intrinsic value of vested restricted stock units during the six-month periods ended June 30, 2013 and 2012, was $5.5 million and $3.1 million, respectively.
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility was based on historical volatilities of the Companys common stock measured monthly over a term that is equivalent to the expected life of the stock option. The expected term of each stock option was estimated based on the Companys prior exercise experience and future expectations of the exercise and termination behavior of the grantees. The risk-free rate was 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 was based on the expected dividend yield on the grant date.
No stock options were granted in 2012 or the first half of 2013. The following table summarizes the Companys stock option activity for the six months ended June 30, 2013:
|
|
|
|
|
|
Weighted- |
|
|
| ||
|
|
|
|
Weighted- |
|
Average |
|
Aggregate |
| ||
|
|
|
|
Average |
|
Remaining |
|
Intrinsic |
| ||
|
|
Shares |
|
Exercise |
|
Contractual |
|
Value * |
| ||
Non-Qualified Stock Options |
|
(in thousands) |
|
Price |
|
Life (in years) |
|
(in thousands) |
| ||
|
|
|
|
|
|
|
|
|
| ||
Outstanding at January 1, 2013 |
|
1,907 |
|
$ |
31.58 |
|
|
|
|
| |
Exercised |
|
(30 |
) |
25.34 |
|
|
|
|
| ||
Forfeited |
|
(374 |
) |
40.65 |
|
|
|
|
| ||
Outstanding at June 30, 2013 |
|
1,503 |
|
$ |
29.45 |
|
|
|
$ |
717 |
|
Outstanding and expected to vest at June 30, 2013 |
|
1,478 |
|
$ |
29.44 |
|
4.2 |
|
$ |
713 |
|
Exercisable at June 30, 2013 |
|
890 |
|
$ |
29.40 |
|
3.9 |
|
$ |
631 |
|
* The intrinsic value represents the amount, if any, by which the fair market value of the underlying common stock exceeds the exercise price of the stock option, using the closing price per share of $29.42 as reported by the New York Stock Exchange on June 28, 2013.
The total intrinsic value of stock options exercised during the six-month periods ended June 30, 2013 and 2012, was $0.2 million and $0.7 million, respectively.
A summary of the status of unvested stock options as of June 30, 2013, and changes during the six months ended June 30, 2013, are presented below:
|
|
|
|
Weighted- |
| |
|
|
|
|
Average |
| |
|
|
Shares |
|
Grant-Date |
| |
Unvested Stock Options |
|
(in thousands) |
|
Fair Value |
| |
|
|
|
|
|
| |
Unvested at January 1, 2013 |
|
826 |
|
$ |
10.25 |
|
Vested |
|
(212 |
) |
10.17 |
| |
Forfeited |
|
(1 |
) |
10.33 |
| |
Unvested at June 30, 2013 |
|
613 |
|
$ |
10.27 |
|
As of June 30, 2013, $12.8 million of total unrecognized compensation cost was related to unvested stock-based compensation arrangements under the 2011 Incentive Plan. The portions of this cost related to stock options, and restricted stock units awarded through January 2013, are expected to be recognized over a weighted-average period of 2.0 years.
9. Segment Information
The Company is organized into three reportable segments. The segments are defined by the regions where the Companys products are manufactured, marketed and distributed to the Companys customers. The three regional segments are the North America segment, comprising primarily the United States and Canada, the Europe segment, and the Asia/Pacific segment, comprising the Companys operations in China, Hong Kong, the South Pacific and the Middle East. These segments are similar in several ways, including the types of materials, the production processes, the distribution channels and the product applications.
The Companys measure of profit or loss for its reportable segments is income (loss) from operations. The reconciling amounts between consolidated income before tax and consolidated income from operations are net interest income, which is primarily attributed to Administrative and All Other.
The following table illustrates certain measurements used by management to assess the performance as of or for the following periods:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
(in thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Net Sales |
|
|
|
|
|
|
|
|
| ||||
North America |
|
$ |
159,757 |
|
$ |
144,532 |
|
$ |
287,493 |
|
$ |
272,500 |
|
Europe |
|
32,099 |
|
34,120 |
|
56,016 |
|
62,356 |
| ||||
Asia/Pacific |
|
3,502 |
|
2,735 |
|
6,147 |
|
5,107 |
| ||||
Administrative and all other |
|
238 |
|
316 |
|
474 |
|
474 |
| ||||
Total |
|
$ |
195,596 |
|
$ |
181,703 |
|
$ |
350,130 |
|
$ |
340,437 |
|
|
|
|
|
|
|
|
|
|
| ||||
Sales to Other Segments* |
|
|
|
|
|
|
|
|
| ||||
North America |
|
$ |
1,170 |
|
$ |
1,442 |
|
$ |
1,931 |
|
$ |
2,814 |
|
Europe |
|
394 |
|
19 |
|
674 |
|
153 |
| ||||
Asia/Pacific |
|
4,875 |
|
4,573 |
|
9,011 |
|
8,297 |
| ||||
Total |
|
$ |
6,439 |
|
$ |
6,034 |
|
$ |
11,616 |
|
$ |
11,264 |
|
|
|
|
|
|
|
|
|
|
| ||||
Income (Loss) from Operations |
|
|
|
|
|
|
|
|
| ||||
North America |
|
$ |
29,665 |
|
$ |
26,583 |
|
$ |
44,924 |
|
$ |
44,456 |
|
Europe |
|
2,241 |
|
2,088 |
|
(1,939 |
) |
(284 |
) | ||||
Asia/Pacific |
|
(46 |
) |
(163 |
) |
(1,229 |
) |
(817 |
) | ||||
Administrative and all other |
|
(2,182 |
) |
(1,360 |
) |
(3,065 |
) |
(2,699 |
) | ||||
Total |
|
$ |
29,678 |
|
$ |
27,148 |
|
$ |
38,691 |
|
$ |
40,656 |
|
* The sales to other segments are eliminated in consolidation.
|
|
|
|
|
|
At |
| |||
|
|
At June 30, |
|
December 31, |
| |||||
(in thousands) |
|
2013 |
|
2012 |
|
2012 |
| |||
Total Assets |
|
|
|
|
|
|
| |||
North America |
|
$ |
603,981 |
|
$ |
557,502 |
|
$ |
583,501 |
|
Europe |
|
188,563 |
|
204,864 |
|
194,000 |
| |||
Asia/Pacific |
|
32,408 |
|
31,734 |
|
30,455 |
| |||
Administrative and all other |
|
72,033 |
|
84,805 |
|
82,366 |
| |||
Total |
|
$ |
896,985 |
|
$ |
878,905 |
|
$ |
890,322 |
|
Cash collected by the Companys United States subsidiaries is routinely transferred into the Companys cash management accounts and, therefore, has been included in the total assets of Administrative and all other. Cash and cash equivalent balances in the Administrative and all other segment were $86.8 million, $82.6 million, and $91.9 million, as of June 30, 2013 and 2012, and December 31, 2012, respectively.
The following table illustrates how the Companys net sales are distributed by product group for the following periods:
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
| ||||||||
(in thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
Wood Construction |
|
$ |
165,869 |
|
$ |
154,810 |
|
$ |
298,666 |
|
$ |
292,589 |
|
Concrete Construction |
|
29,421 |
|
26,488 |
|
50,856 |
|
47,230 |
| ||||
Other |
|
306 |
|
405 |
|
608 |
|
618 |
| ||||
Total |
|
$ |
195,596 |
|
$ |
181,703 |
|
$ |
350,130 |
|
$ |
340,437 |
|
Wood construction products include connectors, truss plates, fastening systems, fasteners and pre-fabricated shearwalls and are used for connecting and strengthening wood-based construction primarily in the residential construction market. Concrete construction products include adhesives, chemicals, mechanical anchors, carbide drill bits, powder actuated tools and fiber reinforcing materials and are used for restoration, protection or strengthening concrete, masonry and steel construction in residential, industrial, commercial and infrastructure construction.
10. Plant Closure
In September 2012, the Company decided to discontinue manufacturing heavy-duty mechanical anchors made in its facility in Ireland, which were sold mainly in Europe, to focus on selling light-duty and medium-duty anchors and fastener products in conjunction with its connector products. In December 2012, the Company ceased producing and selling heavy-duty mechanical anchors and terminated employees in Europe, primarily in Ireland and Germany, who were manufacturing, selling or supporting the product line. In July 2013, the Company concluded all remaining closing activities associated with the terminated product line, including transferring remaining inventories and certain fixed assets to its other operating locations, and began preparing the site for lease or sale. All costs associated with the closure are reported in the Europe segment.
At December 31, 2012, the long-lived assets of the Ireland facility had a net book value of $2.8 million, including land and building with a net book value of $2.7 million. Due to an adverse real estate market, the Company has decided to pursue leasing the facility until the market value of the facility recovers sufficiently. 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 exceeds net estimated realizable value. Remaining equipment with a net book value of $0.1 million was sold to outside parties, transferred to other branches within the Company or scrapped. See note 4.
In 2012, the Company recorded employee severance obligations of $3.0 million, of which $2.4 million was paid in 2012, and $0.6 million was accrued at December 31, 2012. In the first half of 2013, severance payments of $77 thousand were made and severance charges of $36 thousand were reversed due to the decision to retain an employee. No additional severance obligations were recorded in 2013. The remaining balance of $0.4 million to be paid in 2013 represents the statutory and discretionary amounts due to employees that were or will be involuntarily terminated. The Company does not expect to record additional severance expense in 2013.
Closure liabilities are recognized when a transaction or event has occurred that leaves little or no discretion to avoid future settlement of the liability. The Company estimates that closure costs will total $0.7 million, all of which will be allocated to operating expenses. As of December 31, 2012, the Company had recorded $0.3 million in plant closure expenses, of which $0.2 million was paid in 2012 and $0.1 million is to be paid in 2013. In the first half of 2013, the Company had recorded $35 thousand in plant closure costs and paid $125 thousand in accrued plant closure costs, with $18 thousand to be paid during the remainder of 2013. The Company estimates additional closure costs of $0.4 million will be incurred and paid in 2013.
11. Subsequent Events
In July 2013, the Companys Board of Directors declared a cash dividend of $0.125 per share, estimated to total $6.0 million, to be paid on October 24, 2013, to stockholders of record on October 3, 2013.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
This document contains forward-looking statements, based on numerous assumptions and subject to risks and uncertainties. Although the Company believes that the forward-looking statements are reasonable, it does not and cannot give any assurance that its beliefs and expectations will prove to be correct. Many factors could significantly affect the Companys operations and cause the Companys actual results to be substantially different from the Companys expectations. See Part II, Item 1A - Risk Factors. Actual results might differ materially from results suggested by any forward-looking statements in this report. The Company does not have an obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events or otherwise.
The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three months and six months ended June 30, 2013. The following should be read in conjunction with the interim Condensed Consolidated Financial Statements and related Notes appearing elsewhere herein.
Overview
The Company designs, manufactures and sells building construction products that are of high quality and performance, easy to use and cost-effective for customers. It operates in three business segments determined by geographic region: North America, Europe and Asia/Pacific. The Companys stated goals are to strengthen its core wood construction products, expand its global footprint to be less dependent on housing starts in the United States and continue to invest in its strategic initiatives, such as an expanded offering of concrete construction products, particularly specialty chemicals, and wood construction products, particularly truss plate and software offerings.
The North America segment sells both wood and concrete construction products. With the Companys ongoing investment in its integrated component systems offering and the acquisition of Keymarks software development team and Weyerhaeusers line of shearwalls, the Company continues to expand product lines that complement its core wood construction product group.
The Europe segment also sells both wood and concrete construction products and until recently sold primarily wood construction products. In September 2012, the Company decided to discontinue manufacturing and selling heavy-duty mechanical anchors in Europe to focus on other concrete construction products, such as its light-duty and medium-duty anchors, chemical-based products and carbon-fiber-based products. Closing the heavy-duty mechanical anchor business will save the segment an estimated $0.9 million in operating losses per quarter, excluding closing costs. Based on current conditions, the Company estimates the Europe segment will either break-even or report a small operating profit for the year 2013.
The Asia/Pacific segment sells both wood and concrete construction products in nearly equal amounts. With the expansion of product lines that repair, protect and strengthen concrete, brick, mortar or asphalt construction, the Company hopes to increase concrete construction product sales in the Asia/Pacific segment. Based on current conditions, the Company estimates the Asia/Pacific segment will report an operating loss for the year 2013.
The Admin & All Other column includes expenses such as self-insured workers compensation claims, if any, for certain members of management, stock compensation for certain members of management, interest expense, foreign exchange gains or losses and income tax expense. It also includes revenues and expenses related to real estate activities, such as rental income and depreciation expense on the Companys facility in Vacaville, California, which the Company has leased to a third party for a term expiring in August 2020.
Housing starts have increased recently, and the Company has begun to benefit from that increase. Unlike lumber or other products that have a more direct correlation to starts, however, the Companys products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. The Companys products are used in a sequential process that follows the construction process. Residential and commercial construction begins with the foundation, followed by the wall and the roof systems, and the installation of the Companys products flow into a project or a house according to those schedules. Foundation product sales could be considered a leading indicator for the Company. Year-to-date sales through June 2013 of these products increased in the low double digits compared to the same period in 2012.
The Companys sales also tend to be seasonal, with operating results varying from quarter to quarter. With some exceptions, the Companys sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of the year, as customers purchase construction materials in the late spring and summer months for the construction season. In addition, weather conditions, such as extended cold or wet weather, which affect and sometimes delay installation of some of the Companys products, could negatively affect the Companys results of operations. Political and economic events can also affect the Companys sales and profitability.
Results of Operations for the Three Months Ended June 30, 2013, Compared with the Three Months Ended June 30, 2012
Net sales increased 7.6% to $195.6 million in the second quarter of 2013 from $181.7 million in the second quarter of 2012. The Company had net income of $18.5 million for the second quarter of 2013 compared to net income of $15.9 million for the second quarter of 2012. Diluted net income per common share was $0.38 for the second quarter of 2013 compared to diluted net income of $0.33 per common share for the second quarter of 2012. Income from operations increased 9.3% to $29.7 million in the second quarter of 2013 from $27.1 million in the second quarter of 2012. The following table illustrates the differences in the Companys operating results in the three months ended June 30, 2013, from the three months ended June 30, 2012, and the increases or decreases for each category by segment.
|
|
Three |
|
|
|
|
|
|
|
|
|
Three |
| ||||||
|
|
Months |
|
|
|
|
|
|
|
|
|
Months |
| ||||||
|
|
Ended |
|
Increase (Decrease) in Operating Segment |
|
Ended |
| ||||||||||||
|
|
June 30, |
|
North |
|
|
|
Asia/ |
|
Admin & |
|
June 30, |
| ||||||
(in thousands) |
|
2012 |
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
2013 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net sales |
|
$ |
181,703 |
|
$ |
15,225 |
|
$ |
(2,021 |
) |
$ |
768 |
|
$ |
(79 |
) |
$ |
195,596 |
|
Cost of sales |
|
98,557 |
|
8,896 |
|
(1,876 |
) |
226 |
|
373 |
|
106,176 |
| ||||||
Gross profit |
|
83,146 |
|
6,329 |
|
(145 |
) |
542 |
|
(452 |
) |
89,420 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Research and development and other engineering expense |
|
9,043 |
|
280 |
|
(96 |
) |
257 |
|
|
|
9,484 |
| ||||||
Selling expense |
|
19,881 |
|
1,658 |
|
(85 |
) |
194 |
|
4 |
|
21,652 |
| ||||||
General and administrative expense |
|
27,087 |
|
1,300 |
|
(127 |
) |
(30 |
) |
365 |
|
28,595 |
| ||||||
Loss (gain) on sale of assets |
|
(13 |
) |
10 |
|
11 |
|
3 |
|
|
|
11 |
| ||||||
Income from operations |
|
27,148 |
|
3,081 |
|
152 |
|
118 |
|
(821 |
) |
29,678 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest income, net |
|
58 |
|
36 |
|
27 |
|
(13 |
) |
(107 |
) |
1 |
| ||||||
Income before income taxes |
|
27,206 |
|
3,117 |
|
179 |
|
105 |
|
(928 |
) |
29,679 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Provision for income taxes |
|
11,347 |
|
1,151 |
|
(17 |
) |
(91 |
) |
(1,213 |
) |
11,177 |
| ||||||
Net income |
|
$ |
15,859 |
|
$ |
1,966 |
|
$ |
196 |
|
$ |
196 |
|
$ |
285 |
|
$ |
18,502 |
|
Net sales
The following table represents net sales by segment for the three-month periods ended June 30, 2012 and 2013:
|
|
North |
|
|
|
Asia/ |
|
Admin & |
|
|
| |||||
(in thousands) |
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
Total |
| |||||
Three months ended: |
|
|
|
|
|
|
|
|
|
|
| |||||
June 30, 2012 |
|
$ |
144,532 |
|
$ |
34,120 |
|
$ |
2,735 |
|
$ |
316 |
|
$ |
181,703 |
|
June 30, 2013 |
|
159,757 |
|
32,099 |
|
3,503 |
|
237 |
|
195,596 |
| |||||
Increase (decrease) |
|
15,225 |
|
(2,021 |
) |
768 |
|
(79 |
) |
13,893 |
| |||||
Percentage increase (decrease) |
|
10.5 |
% |
(5.9 |
)% |
28.1 |
% |
(25.0 |
)% |
7.6 |
% | |||||
The following table represents segment net sales as percentages of total net sales for three-month periods ended June 30, 2012 and 2013:
|
|
North |
|
|
|
Asia/ |
|
Admin & |
|
|
|
|
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total 2012 net sales |
|
79.5 |
% |
18.8 |
% |
1.5 |
% |
0.2 |
% |
100.0 |
% |
Percentage of total 2013 net sales |
|
81.7 |
% |
16.4 |
% |
1.8 |
% |
0.1 |
% |
100.0 |
% |
The increase in the Companys second quarter 2013 net sales was primarily due to increased sales in North America, which were affected by improved economic conditions, including a greater number of housing starts compared to the second quarter of 2012. Net sales were affected negatively by economic conditions in Europe, reduced home center sales and lower selling prices in regions of the United States, Canada and Europe.
· Segment net sales:
· North America net sales increased 10.5% in the second quarter of 2013, compared to the second quarter of 2012. Net sales in the United States increased in all regions over the same period in 2012, despite the loss of some home center business and price reductions of 3% on average. Canada net sales decreased slightly over the same period in 2012 due to lower sales volumes and lower selling prices.
· Europe net sales decreased 5.9% in the second quarter of 2013, compared to the second quarter of 2012, with approximately half of the decrease due to exiting the heavy-duty mechanical anchor business. The regions economic conditions, extended winter conditions and price decreases also contributed to the lower net sales. Effects due to foreign currency translation were not significant.
· Consolidated net sales channels and product groups:
· Net sales to contractor distributors, dealer distributers and lumber dealers increased in the second quarter of 2013, compared to the second quarter of 2012, while net sales to home centers decreased, partly as a result of the loss of Lowes Companies, Inc. (Lowes) as a customer in the second quarter of 2012. Lowes accounted for $5.3 million in net sales in the second quarter of 2012.
· Excluding Lowes, net sales to home centers increased 6% in the second quarter of 2013 compared to the second quarter of 2012, while net sales to the Companys largest customer increased 10% over the same period.
· Wood construction product sales, including connectors, truss plates, fastening systems, fasteners and shearwalls, represented 85% of total Company sales in the second quarter of each of 2013 and 2012.
· Concrete construction product sales, including adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 15% of total Company sales in the second quarter of each of 2013 and 2012.
Gross profit
The following table represents gross profit by segment for the three-month periods ended June 30, 2012 and 2013:
|
|
North |
|
|
|
Asia/ |
|
Admin & |
|
|
| |||||
(in thousands) |
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
Total |
| |||||
Three months ended: |
|
|
|
|
|
|
|
|
|
|
| |||||
June 30, 2012 |
|
$ |
69,707 |
|
$ |
12,729 |
|
$ |
339 |
|
$ |
371 |
|
$ |
83,146 |
|
June 30, 2013 |
|
76,036 |
|
12,584 |
|
881 |
|
(81 |
) |
89,420 |
| |||||
Increase (decrease) |
|
6,329 |
|
(145 |
) |
542 |
|
(452 |
) |
6,274 |
| |||||
Percentage increase (decrease) |
|
9.1 |
% |
(1.1 |
)% |
159 |
% |
NM |
|
7.5 |
% | |||||
The following table represents gross profit as a percentage of sales by segment for the three-month periods ended June 30, 2012 and 2013:
|
|
North |
|
|
|
Asia/ |
|
Admin & |
|
|
|
|
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 gross profit percentage |
|
48.2 |
% |
37.3 |
% |
12.4 |
% |
NM |
|
45.8 |
% |
2013 gross profit percentage |
|
47.6 |
% |
39.2 |
% |
25.2 |
% |
NM |
|
45.7 |
% |
Gross profit increased to $89.4 million in the second quarter of 2013 from $83.1 million in the second quarter of 2012. Gross profit as a percentage of net sales decreased slightly from 45.8% in the second quarter of 2012 to 45.7% in the second quarter of 2013.
· North America Gross profit margin decreased from 48.2% in the second quarter of 2012 to 47.6% in the second quarter of 2013, as a result of competitive price pressure, higher factory overhead and higher distribution costs, as a percentage of sales, partly offset by lower material costs as a percentage of sales. Concrete construction product sales, which have a lower gross margin than wood construction product sales, increased to 13% of North America sales in the second quarter of 2013 from 12% over the same period in 2012 and negatively affected the gross profit margin.
· Europe Gross profit margin increased to 39.2% in the second quarter of 2013 from 37.3% in the second quarter of 2012, as a result of decreased material, labor and factory overhead costs (due to higher production volumes) and distribution costs, as a percentage of sales. Exiting the heavy-duty mechanical anchor business also contributed to the increased gross profit margin. Concrete construction product sales, which have a lower gross margin than wood construction product sales, decreased from 22% of Europe sales in the second quarter of 2012 to 20% in the second quarter of 2013, and positively affected the gross profit margin.
· Product mix The gross profit margin differential between wood construction products and concrete construction products decreased from 13% in the second quarter of 2012 to 9% in the second quarter of 2013, primarily due to reduced concrete construction product costs, including material and factory overhead costs, partly offset by higher distribution costs.
· Steel prices Steel prices increased slightly during the second quarter in the United States market. The Company expects steel prices to continue to increase during the third quarter of 2013 if demand increases as expected.
Research and development and engineering expenses
Research and development and engineering expenses increased 4.9% to $9.5 million in the second quarter of 2013 from $9.0 million in the second quarter of 2012, primarily due to the Company replacing Keymark, an outside software development firm contracted by the Company during 2012, with an in-house software development team at the beginning of 2013.
· North America Research and development and engineering expenses increased $0.3 million, primarily due to $2.0 million in 2013 in-house software development costs, comprising mostly personnel costs, compared to $1.7 million in 2012, which was mostly contracted software development fees. The increase in in-house software development costs for the second quarter of 2013 was primarily due to the hiring of additional programmers and contracted services.
Selling expenses
Selling expenses increased 8.9% to $21.7 million in the second quarter of 2013 from $19.9 million in the second quarter of 2012, primarily due to increases of $0.7 million in personnel costs, $0.4 million in cash profit sharing, and $0.2 million in each of stock-based compensation, professional and legal fees and promotional expenses.
· North America Selling expenses increased $1.7 million, primarily due to increases of $0.5 million in personnel costs, mostly from additional sales representatives in support of new businesses acquired in 2011 and 2012 and increased pay rates, $0.3 million in cash profit sharing costs due to increased profits, and $0.2 million in each of stock-based compensation and professional and legal fees.
General and administrative expenses
General and administrative expenses increased 5.6% to $28.6 million in the second quarter of 2013 from $27.1 million in the second quarter of 2012, primarily due to increases of $0.9 million in personnel costs, $0.8 million in cash profit sharing and $0.6 million in stock-based compensation, partly offset by decreases of $0.5 million in professional and legal fees and $0.2 million in communication and computer expense and a reduction of $0.2 million in losses from foreign currency translations.
· North America General and administrative expenses increased $1.3 million, primarily due to increases of $1.0 million in personnel costs due to the addition of administrative and information technology staff and pay rate increases instituted in January 2013 and $0.7 million in cash profit sharing due to increased profits, partly offset by decreases of $0.2 million in bad debt expense and $0.2 million in communication and computer expense.
· Europe General and administrative expenses decreased slightly by $0.1 million, primarily due to reduced losses from foreign currency translations of $0.2 million and various other increases, mostly offset by increased stock-based compensation of $0.4 million.
· Admin & All Other General and administrative expenses increased $0.4 million, primarily due to increases in personnel costs, cash profit sharing and stock-based compensation, partly offset by a decrease of $0.6 million in legal and professional fees.
Income taxes
The effective income tax rate decreased from 41.7% in the second quarter of 2012 to 37.7% in the second quarter of 2013, due to reduced operating losses in the second quarter 2013 in the Europe and Asia/Pacific segments, for which a valuation allowance was recorded.
Results of Operations for the Six Months Ended June 30, 2013, Compared with the Six Months Ended June 30, 2012
Net sales increased 2.8% to $350.1 million in the first half of 2013 from $340.4 million in the first half of 2012. The Company had net income of $23.3 million in the first half of 2013 compared to net income of $23.1 million in the first half of 2012. Diluted net income per common share was $0.48 in the first half of 2013 and in the first half of 2012. Income from operations decreased 4.8% from $40.7 million in the first half of 2012 to $38.7 million in the first half of 2013. The following table illustrates the differences in the Companys operating results in the six months ended June 30, 2013, from the six months ended June 30, 2012, and the increases or decreases for each category by segment.
|
|
Six |
|
|
|
|
|
|
|
|
|
Six |
| ||||||
|
|
Months |
|
|
|
|
|
|
|
|
|
Months |
| ||||||
|
|
Ended |
|
Increase (Decrease) in Operating Segment |
|
Ended |
| ||||||||||||
|
|
June 30, |
|
North |
|
|
|
Asia/ |
|
Admin & |
|
June 30, |
| ||||||
(in thousands) |
|
2012 |
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
2013 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net sales |
|
$ |
340,437 |
|
$ |
14,994 |
|
$ |
(6,340 |
) |
$ |
1,039 |
|
$ |
|
|
$ |
350,130 |
|
Cost of sales |
|
187,886 |
|
11,399 |
|
(4,372 |
) |
462 |
|
361 |
|
195,736 |
| ||||||
Gross profit |
|
152,551 |
|
3,595 |
|
(1,968 |
) |
577 |
|
(361 |
) |
154,394 |
| ||||||
Research and development and other engineering expense |
|
18,240 |
|
(186 |
) |
(485 |
) |
223 |
|
|
|
17,792 |
| ||||||
Selling expense |
|
40,314 |
|
2,821 |
|
(515 |
) |
433 |
|
(29 |
) |
43,024 |
| ||||||
General and administrative expense |
|
53,331 |
|
499 |
|
710 |
|
339 |
|
5 |
|
54,884 |
| ||||||
Loss on sale of assets |
|
10 |
|
21 |
|
(22 |
) |
(6 |
) |
|
|
3 |
| ||||||
Income from operations |
|
40,656 |
|
440 |
|
(1,656 |
) |
(412 |
) |
(337 |
) |
38,691 |
| ||||||
Interest income, net |
|
123 |
|
23 |
|
92 |
|
(2 |
) |
(196 |
) |
40 |
| ||||||
Income before income taxes |
|
40,779 |
|
463 |
|
(1,564 |
) |
(414 |
) |
(533 |
) |
38,731 |
| ||||||
Provision for income taxes |
|
17,719 |
|
(1,436 |
) |
(72 |
) |
(83 |
) |
(694 |
) |
15,434 |
| ||||||
Net income |
|
$ |
23,060 |
|
$ |
1,899 |
|
$ |
(1,492 |
) |
$ |
(331 |
) |
$ |
161 |
|
$ |
23,297 |
|
Net sales
The following table represents net sales by segment for the six-month periods ended June 30, 2012 and 2013:
|
|
North |
|
|
|
Asia/ |
|
Admin & |
|
|
| |||||
(in thousands) |
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
Total |
| |||||
Six months ended: |
|
|
|
|
|
|
|
|
|
|
| |||||
June 30, 2012 |
|
$ |
272,500 |
|
$ |
62,356 |
|
$ |
5,107 |
|
$ |
474 |
|
$ |
340,437 |
|
June 30, 2013 |
|
287,494 |
|
56,016 |
|
6,146 |
|
474 |
|
350,130 |
| |||||
Increase (decrease) |
|
14,994 |
|
(6,340 |
) |
1,039 |
|
|
|
9,693 |
| |||||
Percentage increase (decrease) |
|
5.5 |
% |
(10.2 |
)% |
20.4 |
% |
0.0 |
% |
2.8 |
% | |||||
The following table represents segment net sales as percentages of total net sales for the six-month periods ended June 30, 2012 and 2013:
|
|
North |
|
|
|
Asia/ |
|
Admin & |
|
|
|
|
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total 2012 net sales |
|
80.1 |
% |
18.3 |
% |
1.5 |
% |
0.1 |
% |
100.0 |
% |
Percentage of total 2013 net sales |
|
82.1 |
% |
16.0 |
% |
1.8 |
% |
0.1 |
% |
100.0 |
% |
The increase in net sales was primarily due to increased sales in North America, which were positively affected by improved economic conditions, including a greater number of housing starts compared to the first half of 2012, despite reduced home center sales and lower selling prices.
· Segment net sales:
· North America net sales were up 5.5% in the first half of 2013, compared to the first half of 2012. Sales in the United States increased over the same period in 2012, despite reduced home center sales and lower selling prices of 3% on average. Canada net sales decreased slightly over the same period in 2012 due to lower sales volumes and lower selling prices.
· Europe net sales decreased 10.2% in the first half of 2013, compared to the first half of 2012, primarily due to exiting the heavy-duty mechanical anchor business, the regions economic conditions, lower sales volumes and lower selling prices. Based on current information, the Company does not expect the regions economic conditions to improve during the second half of 2013, which will continue to negatively affect net sales. Effects due to foreign currency translation were not significant.
· Consolidated net sales channels and product groups:
· Net sales to contractor distributors, dealer distributors and lumber dealers increased in the first half of 2013, compared to the first half of 2012, while net sales to home centers decreased, partly as a result of the loss of Lowes as a customer in the second quarter of 2012. Lowes accounted for $11.7 million in net sales in the first half of 2012.
· Excluding Lowes, net sales to home centers decreased 2% in the first half of 2013, compared to the same period in 2012, while net sales to the Companys largest customer increased 1% over the same period.
· Wood construction product sales represented 85% of total Company sales in the first half of 2013, down from 86% in the first half of 2012.
· Concrete construction product sales increased as a percentage of total sales to 15% in the first half of 2013, from 14% in the first half of 2012.
Gross profit
The following table represents gross profit by segment for the six-month periods ended June 30, 2012 and 2013:
|
|
North |
|
|
|
Asia/ |
|
Admin & |
|
|
| |||||
(in thousands) |
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
Total |
| |||||
Six months ended: |
|
|
|
|
|
|
|
|
|
|
| |||||
June 30, 2012 |
|
$ |
129,533 |
|
$ |
21,854 |
|
$ |
749 |
|
$ |
415 |
|
$ |
152,551 |
|
June 30, 2013 |
|
133,128 |
|
19,886 |
|
1,326 |
|
54 |
|
154,394 |
| |||||
Increase (decrease) |
|
3,595 |
|
(1,968 |
) |
577 |
|
(361 |
) |
1,843 |
| |||||
Percentage increase (decrease) |
|
2.8 |
% |
(9.0 |
)% |
77.3 |
% |
NM |
|
1.2 |
% | |||||
The following table represents gross profit as a percentage of sales by segment for the six-month periods ended June 30, 2012 and 2013:
|
|
North |
|
|
|
Asia/ |
|
Admin & |
|
|
|
|
|
America |
|
Europe |
|
Pacific |
|
All Other |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 gross profit percentage |
|
47.5 |
% |
35.0 |
% |
14.7 |
% |
NM |
|
44.8 |
% |
2013 gross profit percentage |
|
46.3 |
% |
35.5 |
% |
21.6 |
% |
NM |
|
44.1 |
% |
Gross profit increased to $154.4 million in the first half of 2013 from $152.6 million in the first half of 2012. Gross profit as a percentage of net sales decreased from 44.8% in the first half of 2012 to 44.1% in the first half of 2013.
Based on current information, the Company estimates that its 2013 full-year gross profit margin will be 42% to 43%.
· North America Gross profit margin decreased from 47.5% in the first half of 2012 to 46.3% in the first half of 2013, as a result of competitive price pressure, higher factory overhead and higher distribution costs as a percentage of sales. Concrete construction product sales, which have a lower gross margin than wood construction product sales, increased to 13% of North America sales in the first half of 2013 from 12% in the first half of 2012, and negatively affected the gross profit margin.
· Europe Gross profit margin increased to 35.5% in the first half of 2013 from 35.0% in the first half of 2012, as a result of lower material, labor, distribution, and factory overhead costs as a percentage of sales, partly due to exiting the heavy-duty mechanical anchor business.
· Product mix The gross profit margin differential between wood construction products and concrete construction products decreased from 16% in the first half of 2012 to 11% in the first half of 2013, primarily due to reduced concrete construction product costs, including material and labor costs as well as savings from exiting the heavy-duty mechanical anchor business, partly offset by higher factory overhead and distribution costs.
Research and development and engineering expenses
Research and development and engineering expenses decreased 2.5% from $18.2 million in the first half of 2012 to $17.8 million in the first half of 2013, primarily due to the Company replacing Keymark, an outside software development firm contracted by the Company during 2012, with an in-house software development team at the beginning of 2013, partly offset by increased personnel costs of $3.7 million.
· North America Research and development and engineering expenses decreased $0.2 million, primarily due to decreases in professional fees of $4.1 million in 2012, which included contracted software development expenses of $3.0 million paid mostly to Keymark, compared to $3.4 million in 2013 in-house software development costs, comprising mostly personnel costs and contracted services.
· North America The pace of spending on software development accelerated by $0.5 million in the second quarter of 2013 over the first quarter of 2013. Based on current information, the Company estimates the pace of spending to continue at the higher rate in the second half of 2013.
· Europe Research and development and engineering expenses decreased $0.5 million, primarily due to a decrease of $0.6 million in professional fees.
Selling expenses
Selling expenses increased 6.7% to $43.0 million in the first half of 2013 from $40.3 million in the first half of 2012, primarily due to increases of $1.2 million in personnel costs, $0.6 million in promotional costs, $0.4 million in stock-based compensation, $0.2 million in professional fees and $0.2 million in cash profit sharing.
· North America Selling expenses increased $2.8 million, primarily due to increases of $1.2 million in personnel costs (mostly from additional sales representatives in support of new businesses acquired in 2011 and 2012 and increased pay rates), $0.6 million in promotional costs, $0.4 million in stock-based compensation and $0.2 million in professional fees.
General and administrative expenses
General and administrative expenses increased 2.9% to $54.9 million in the first half of 2013 from $53.3 million in the first half of 2012, primarily due to increases of $0.8 million in personnel cost, $0.6 million in impairment expenses and $0.5 million in facility expenses, as well as a $0.5 million increase in net losses from foreign currency translations and a $0.4 million reduction in intangible amortization expense. These changes were partly offset by a $1.2 million decrease in legal and professional fees.
· North America General and administrative expenses increased $0.5 million, primarily due to increases of $1.3 million in personnel costs due to the addition of administrative and information technology staff and pay rate increases instituted in January 2013 and $0.5 million in intangible amortization expense due to recent acquisitions, partly offset by decreases of $0.5 million in impairment costs and $0.4 million in legal and professional fees and various other decreases in expenses.
· Europe General and administrative expenses increased $0.7 million, primarily due to a $1.0 million impairment associated with the Companys real estate in Ireland and a $0.5 million reduction in gains from foreign currency translations, partly offset by a $0.6 million decrease in personnel costs.
Income taxes
The effective income tax rate decreased from 43.5% in the first half of 2012 to 39.8% in the first half of 2013 primarily due to $2.3 million in non-deductible acquisition costs recorded in 2012. Based on current information and subject to future events and circumstances, the Company estimates that its 2013 effective tax rate will be 40% to 42%.
Liquidity and Sources of Capital
As of June 30, 2013, working capital was $414.6 million as compared to $394.7 million at June 30, 2012, and $402.5 million at December 31, 2012. The increase in working capital from December 31, 2012, was primarily due to increases of $44.1 million in net trade accounts receivable and $1.4 million in deferred income taxes, and decreases of $7.5 million in trade accounts payable, and $2.0 million in accrued profit sharing trust contributions. The increase in net trade accounts receivable was primarily due to seasonal increases in net sales during the second quarter of 2013 compared to the fourth quarter of 2012. The decrease in trade accounts payable was primarily due to decreased material purchases in the second quarter of 2013 compared to the fourth quarter of 2012. The decrease in accrued profit sharing trust was due to the 2012 contribution paid in the first quarter of 2013. The increases in working capital from December 31, 2012, was partly offset by decreases of $15.0 million in other current assets, $10.3 million in cash and cash equivalents, and $7.9 million in inventories, and increases of $8.6 million in accrued cash profit sharing, and $1.0 million in line of credit and notes payable. The decrease in other current assets was primarily due to the decrease in income taxes receivable, while the decrease in cash and cash equivalents was primarily due to payments of $9.8 million to repurchase Company common stock in the second quarter of 2013. Raw material inventories decreased 10.9% as compared to December 31, 2012, while in-process and finished goods inventories increased 2.4% over the same period. The increase in accrued cash profit sharing was due to higher operating profits in the second quarter of 2013, compared to the fourth quarter of 2012. The increase in line of credit and notes payable was primarily from borrowing for working capital in Europe. The working capital change and changes in noncurrent assets and liabilities, combined with net income of $23.3 million and noncash expenses, primarily charges for depreciation, amortization, stock-based compensation and impairment of assets totaling $21.8 million, resulted in net cash provided by operating activities of $18.9 million. As of June 30, 2013, the Company had unused credit available of $307.5 million, including a $300.0 million credit facility.
The Companys investing activities used cash of $12.7 million, including $8.1 million in capital expenditures and $5.3 million for the recent North America acquisition of the ShearBrace product line from Weyerhaeuser, partly offset by a Keymark-related entitys repayment of loan of $0.6 million and proceeds from the sale of property and equipment of $0.1 million. The Companys 2012 investing activities included the acquisitions of S&P Clever and CarbonWrap, which used cash of $56.0 million. The Companys capital expenditures were primarily to increase manufacturing capacity in North America and to improve information technology support systems. The Company estimates that its full-year capital spending will be $29.0 million to $30 million in 2013.
The Companys financing activities used net cash of $14.0 million, including $9.8 million for the repurchase of common stock and $6.1 million in dividend payments, partly offset by $1.1 million cash provided by borrowings on credit facilities, primarily for working capital in Europe, and $0.8 million from the issuance of common stock on the exercise of stock options. In July 2013, the Companys Board of Directors declared a cash dividend of $0.125 per share, estimated to total $6.0 million, to be paid on October 24, 2013, to stockholders of record on October 3, 2013. The Companys Board of Directors has authorized up to $50.0 million, of which $40.2 million remained at June 30, 2013, for the repurchase of common stock in 2013.
The Company believes that cash generated by operations and borrowings available under its credit facility will be sufficient for the Companys working capital needs and planned capital expenditures for the next 12 months. Depending, however, on the Companys future growth and possible acquisitions, it may become necessary to secure additional sources of financing, which may not be available on reasonable terms, or at all. The $300.0 million unsecured credit agreement will expire in July 2017.
A significant portion of the cash and cash equivalents held by the Company is in foreign currencies. Cash and cash equivalents of $78.7 million held in foreign countries could be subject to additional taxation if it were repatriated to the United States. The Company has no plans to repatriate cash and cash equivalents held outside the United States, as it is expected to be used to fund future international growth and acquisitions.
The Company believes that the effect of inflation on the Company has not been material in recent years, as general inflation rates have remained relatively low. Because, however, the Companys main raw material is steel, increases in steel prices may adversely affect the Companys gross margins if it cannot recover the higher costs through price increases.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has foreign exchange rate risk in its international operations, primarily Europe and Canada, and through purchases from foreign vendors. The Company does not currently hedge this risk. If the exchange rate were to change by 10% in any one country or currency where the Company has operations, the change in net income would not be material to the Companys operations as a whole. The translation adjustment resulted in decreases in accumulated other comprehensive income of $1.0 million and $6.8 million for the three and six months ended June 30, 2013, respectively. The translation adjustment in the second quarter of 2013 was primarily due to the effect of a strengthening United States dollar in relation to the Canadian, Australian and New Zealand dollars, partly offset by a weakening of the United States dollar in relation to the Chinese Yuan and most European currencies. The translation adjustment in the first half of 2013 was primarily due to the effect of a strengthening United States dollar in relation to most currencies, partly offset by a weakening of the United States dollar in relation to the Chinese Yuan.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures. As of June 30, 2013, an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures was performed under the supervision and with the participation of the Companys management, including the chief executive officer (CEO) and the chief financial officer (CFO). Based on that evaluation, the CEO and the CFO concluded that the Companys disclosure controls and procedures were effective at the reasonable assurance level as of that date and that the Companys disclosure controls and procedures at that date were designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms, including ensuring that information required to be disclosed by the Company in such reports is accumulated and communicated to the Companys management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosures.
The Companys management, including the CEO and the CFO, does not, however, expect that the Companys disclosure controls and procedures or the Companys internal control over financial reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the facts that there are resource constraints and that the benefits of controls must be considered relative to their costs. The inherent limitations in an internal control system include the realities that judgments can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of internal control is also based in part on assumptions about the likelihood of future events, and there can be only reasonable, not absolute, assurance that any design will succeed in achieving its stated goals under all potential events and conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Control over Financial Reporting. During the three months ended June 30, 2013, the Company made no changes to its internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business.
Four lawsuits (the Cases) have been filed against the Company in the Hawaii First Circuit Court: Alvarez v. Haseko Homes, Inc. and Simpson Manufacturing, Inc., Civil No. 09-1-2697-11 (Case 1); Ke Noho Kai Development, LLC v. Simpson Strong-Tie Company, Inc., and Honolulu Wood Treating Co., LTD., Case No. 09-1-1491-06 SSM (Case 2); North American Specialty Ins. Co. v. Simpson Strong-Tie Company, Inc. and K.C. Metal Products, Inc., Case No. 09-1-1490-06 VSM (Case 3); and Charles et al. v. Haseko Homes, Inc. et al. and Third Party Plaintiffs Haseko Homes, Inc. et al. v. Simpson Strong-Tie Company, Inc., et al., Civil No. 09-1-1932-08 (Case 4). Case 1 was filed on November 18, 2009. Cases 2 and 3 were originally filed on June 30, 2009. Case 4 was filed on August 19, 2009. The Cases all relate to alleged premature corrosion of the Companys strap tie holdown products installed in buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii, allegedly causing property damage. Case 1 is a putative class action brought by the owners of allegedly affected Ocean Pointe houses. Case 1 was originally filed as Kai et al. v. Haseko Homes, Inc., Haseko Construction, Inc. and Simpson Manufacturing, Inc., Case No. 09-1-1476, but was voluntarily dismissed and then re-filed with a new representative plaintiff. Case 2 is an action by the builders and developers of Ocean Pointe against the Company, claiming that either the Companys strap tie holdowns are defective in design or manufacture or the Company failed to provide adequate warnings regarding the products susceptibility to corrosion in certain environments. Case 3 is a subrogation action brought by the insurance company for the builders and developers against the Company claiming the insurance company expended funds to correct problems allegedly caused by the Companys products. Case 4 is a putative class action brought, like Case 1, by owners of allegedly affected Ocean Pointe homes. In Case 4, Haseko Homes, Inc. (Haseko), the developer of the Ocean Pointe development, brought a third party complaint against the Company alleging that any damages for which Haseko may be liable are actually the fault of the Company. Similarly, Hasekos sub-contractors on the Ocean Pointe development brought cross-claims against the Company seeking indemnity and contribution for any amounts for which they may ultimately be found liable. None of the Cases alleges a specific amount of damages sought, although each of the Cases seeks compensatory damages, and Case 1 seeks punitive damages. Cases 1 and 4 have been consolidated. In December 2012, the Court granted the Company summary judgment on the claims asserted by the plaintiff homeowners in Cases 1 and 4, and on the third party complaint and cross-claims asserted by Haseko and the sub-contractors, respectively, in Case 4. In April 2013, the Court granted Haseko and the sub-contractors motion for leave to amend their cross-claims to allege a claim for negligent misrepresentation. The Company continues to investigate the facts underlying the claims asserted in the Cases, including, among other things, the cause of the alleged corrosion; the severity of any problems shown to exist; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if needed. At this time, the likelihood that the Company will be found liable under any legal theory, and the extent of such liability, if any, are unknown. Management believes the Cases may not be resolved for an extended period. The Company intends to defend itself vigorously in connection with the Cases.
Based on facts currently known to the Company, the Company believes that all or part of the claims alleged in the Cases may be covered by its insurance policies. On April 19, 2011, an action was filed in the United States District Court for the District of Hawaii, National Union Fire Insurance Company of Pittsburgh, PA v. Simpson Manufacturing Company, Inc., et al., Civil No. 11-00254 ACK. In this action, Plaintiff National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union), which issued certain Commercial General Liability insurance policies to the Company, seeks declaratory relief in the Cases with respect to its obligations to defend or indemnify the Company, Simpson Strong-Tie Company Inc., and a vendor of the Companys strap tie holdown products. By Order dated November 7, 2011, all proceedings in the National Union action have been stayed. If the stay is lifted and the National Union action is not dismissed, the Company intends vigorously to defend all claims advanced by National Union.
On April 12, 2011, Firemans Fund Insurance Company (Firemans Fund), another of the Companys general liability insurers, sued Hartford Fire Insurance Company (Hartford), a third insurance company from whom the Company purchased general liability insurance, in the United States District Court for the Northern District of California, Firemans Fund Insurance Company v. Hartford Fire Insurance Company, Civil No. 11 1789 SBA (the Firemans Fund action). The Company has intervened in the Firemans Fund action and has moved to stay all proceedings in that action as well, pending resolution of the underlying Ocean Pointe Cases.
On November 21, 2011, the Company commenced a lawsuit against National Union, Firemans Fund, Hartford and others in the Superior Court of the State of California in and for the City and County of San Francisco (the San Francisco coverage action). In the San Francisco coverage action, the Company alleges generally that the separate pendency of the National Union action and the Firemans Fund action presents a risk of inconsistent adjudications; that the San Francisco Superior Court has jurisdiction over all of the parties and should exercise jurisdiction at the
appropriate time to resolve any and all disputes that have arisen or may in the future arise among the Company and its liability insurers; and that the San Francisco coverage action should also be stayed pending resolution of the underlying Ocean Pointe Cases. The San Francisco coverage action has been ordered stayed pending resolution of the Cases.
Nishimura v. Gentry Homes, Ltd; Simpson Manufacturing Co., Inc.; and Simpson Strong-Tie Company, Inc., Civil no. 11-1-1522-07, was filed in the Circuit Court of the First Circuit of Hawaii on July 20, 2011. The Nishimura case alleges premature corrosion of the Companys strap tie holdown products in a housing development at Ewa Beach in Honolulu, Hawaii. The case is a putative class action brought by owners of allegedly affected homes. The Complaint alleges that the Companys strap products and mudsill anchors are insufficiently corrosion resistant and/or fail to comply with Honolulus building code. In February 2012, the Court dismissed three of the five claims the plaintiffs had asserted against the Company. The Company is currently investigating the allegations of the complaint, including, among other things: the existence and extent of the alleged corrosion, if any; the building code provisions alleged to be applicable and, if applicable, whether the products complied; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if any are needed. At this time, the likelihood that the Company will be found liable for any damage allegedly suffered and the extent of such liability, if any, are unknown. The Company denies any liability of any kind and intends to defend itself vigorously in this case.
Item 1A. Risk Factors
We are affected by risks specific to us, as well as risks that generally affect businesses operating in global markets. Some of the significant factors that could materially adversely affect our business, financial condition and operating results appear in Item 1A. Risk Factors of our most recent Annual Report on Form 10-K (available at www.simpsonmfg.com/docs/10K-2012.pdf or www.sec.gov).
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In February 2013, the Board of Directors authorized the Company to repurchase up to $50.0 million of the Companys common stock. This replaced the $50.0 million repurchase authorization from January 2012. The authorization will remain in effect through the end of 2013. The following table presents the monthly repurchases by the Company during the three months ended June 30, 2013:
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(d) |
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(c) |
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Approximate |
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(a) |
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Total Number |
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Dollar Value of |
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Total |
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(b) |
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of Shares Purchased |
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Shares that May Yet |
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Number of |
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Average |
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as Part of Publicly |
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Be Purchased under |
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Shares |
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Price Paid |
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Announced Plans |
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the Plans or |
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Period |
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Purchased |
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per Share |
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or Programs |
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Programs |
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May 2013 |
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5,200 |
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$ |
29.01 |
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5,200 |
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$ |
49.8 million |
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June 2013 |
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337,100 |
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$ |
28.70 |
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337,100 |
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$ |
40.2 million |
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Total |
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342,300 |
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Item 6. Exhibits.
The following exhibits are either incorporated by reference into this report or filed with this report, as indicated below.
3.1 |
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Certificate of Incorporation of Simpson Manufacturing Co., Inc., as amended, is incorporated by reference to Exhibit 3.1 of its Quarterly Report on Form 10-Q for the quarter ended September 30, 2007. |
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3.2 |
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Bylaws of Simpson Manufacturing Co., Inc., as amended through December 13, 2010, are incorporated by reference to Exhibit 3.2 of its Current Report on Form 8-K dated December 16, 2010. |
4.1 |
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Amended Rights Agreement dated as of June 15, 2009, between Simpson Manufacturing Co., Inc. and Computershare Trust Company, N.A., which includes as Exhibit B the form of Rights Certificate, is incorporated by reference to Exhibit 4.1 of Simpson Manufacturing Co., Inc.s Registration Statement on Form 8-A/A dated June 15, 2009. |
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4.2 |
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Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock of Simpson Manufacturing Co., Inc., dated July 30, 1999, is incorporated by reference to Exhibit 4.2 of its Registration Statement on Form 8-A dated August 4, 1999. |
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4.3 |
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Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan for Salaried Employees is incorporated by reference to Exhibit 4.3 of Simpson Manufacturing Co., Inc.s Registration Statement on Form S-8, File Number 333-173811, dated April 29, 2011. |
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4.4 |
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Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan for Hourly Employees is incorporated by reference to Exhibit 4.4 of Simpson Manufacturing Co., Inc.s Registration Statement on Form S-8, File Number 333-173811, dated April 29, 2011. |
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10.1 |
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Simpson Manufacturing Co., Inc. 1994 Stock Option Plan, as amended through February 13, 2008, is incorporated by reference to Exhibit 10.1 of Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
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10.2 |
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Simpson Manufacturing Co., Inc. 1995 Independent Director Stock Option Plan, as amended through November 18, 2004, is incorporated by reference to Exhibit 10.2 of Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
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10.3 |
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Simpson Manufacturing Co., Inc. Executive Officer Cash Profit Sharing Plan, as amended through February 25, 2008, is incorporated by reference to Exhibit 10.3 of Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008. |
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10.4 |
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Credit Agreement, dated as of July 27, 2012, among Simpson Manufacturing Co., Inc. as Borrower, the Lenders party thereto, Wells Fargo Bank, National Association, in its separate capacities as Swing Line Lender and L/C issuer and as Administrative Agent, and Simpson Strong-Tie Company Inc., and Simpson Strong-Tie International, Inc. as Guarantors, is incorporated by reference to Exhibit 10.1 of Simpson Manufacturing Co., Inc.s Current Report on Form 8-K dated August 1, 2012. |
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10.5 |
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Form of Indemnification Agreement between Simpson Manufacturing Co., Inc. and its directors and executive officers, as well as the officers of Simpson Strong-Tie Company Inc., is incorporated by reference to Exhibit 10.2 of Simpson Manufacturing Co., Inc.s Annual Report on Form 10-K for the year ended December 31, 2004. |
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10.6 |
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Compensation of Named Executive Officers is incorporated by reference to Exhibit 10 of Simpson Manufacturing Co., Inc.s Current Report on Form 8-K dated December 10, 2012, as amended on Form 8-K/A dated January 31, 2013. |
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10.7 |
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Compensation of Named Executive Officers is incorporated by reference to Simpson Manufacturing Co., Inc.s Schedule 14A Proxy Statement dated March 8, 2013. |
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10.8 |
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Simpson Manufacturing Co., Inc. 2011 Incentive Plan is incorporated by reference to Exhibit A of Simpson Manufacturing Co., Inc.s Schedule 14A Proxy Statement dated March 9, 2012. |
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10.9 |
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Share Purchase Agreement dated as of October 26, 2011, between Josef Scherer and Yvonne Scherer, owners of S&P Clever Reinforcement Company AG and S&P Reinforcement International AG, both companies incorporated under the laws of Switzerland, on the one hand, and Simpson Manufacturing Co., Inc., on the other hand, is incorporated by reference to Exhibit 10.9 of Simpson Manufacturing Co., Inc.s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011. |
10.10 |
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Asset Purchase Agreement dated as of December 16, 2011, by and between Automatic Stamping, LLC, a North Carolina limited liability company, Automatic Stamping Auxiliary Services, LLC, a North Carolina limited liability company, and William H. Black, Jr., on the one hand, and Simpson Strong-Tie Company Inc., a California corporation, on the other hand, is incorporated by reference to Exhibit 10.10 of Simpson Manufacturing Co., Inc.s Annual Report on Form 10-K for the year ended December 31, 2011. |
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10.11 |
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Separation agreement dated as of July 3, 2013, between Michael J. Herbert, Vice President of Simpson Manufacturing Co., Inc., on the one hand, and Simpson Manufacturing Co., Inc., on the other hand, is filed herewith. |
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31. |
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Rule 13a-14(a)/15d-14(a) Certifications are filed herewith. |
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32. |
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Section 1350 Certifications are filed herewith. |
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99.1 |
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Simpson Manufacturing Co., Inc. 1994 Employee Stock Bonus Plan, as amended through November 18, 2004, is incorporated by reference to Exhibit 99.1 of Simpson Manufacturing Co., Inc.s Annual Report on Form 10-K for the year ended December 31, 2007. |
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101 |
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Financial statements from the quarterly report on Form 10-Q of Simpson Manufacturing Co., Inc. for the quarter ended June 30, 2013, formatted in XBRL, are filed herewith and include: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Stockholders Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Simpson Manufacturing Co., Inc. | ||
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(Registrant) | |||
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DATE: |
August 7, 2013 |
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By |
/s/Brian J. Magstadt |
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Brian J. Magstadt | |||
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Chief Financial Officer | |||
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(principal accounting and financial officer) | |||
Exhibit 10.11
CONFIDENTIAL SEPARATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
It is hereby agreed by and between you, Michael J. Herbert, and all of your heirs, executors, administrators, attorneys, and assigns, (collectively, you), and Simpson Manufacturing Co., Inc. and all of its subsidiaries, affiliated companies, predecessors, successors, and assigns, and all of its and their predecessors, successors and assigns (collectively, the Company), as follows:
1. Separation of Employment. You acknowledge that your employment with the Company has ended effective August 1, 2013 (Separation Date). You are to perform no further duties, functions or services for the Company after the Separation Date.
2. Payment of Moneys Owed. The Company has paid you all wages or salary earned, including any accrued, but unused, vacation pay and your Cash Profit Sharing (CPS) payment for the second quarter of 2013, through the Separation Date. You will receive a prorated CPS payment for July 2013 in October 2013 pursuant to the Companys usual timing for payment of CPS. You are entitled to these payments regardless of whether you sign this Agreement. Your group health benefits will continue through August 31, 2013, but your accrual of, and eligibility for, vacation, sick leave, holiday pay, and any other employee benefits and privileges will cease as of the Separation Date. When your group health benefits end, you will be eligible to elect COBRA continuation coverage. You will be furnished a COBRA notice with information about the coverage and how to elect it.
3. Reimbursement of Business Expenses. The Company agrees to reimburse you for necessary business expenses incurred by you in the course and scope of your employment with the Company on or before the Separation Date which are supported by appropriate documentation, subject to approval by the Company and any defenses provided by law. You agree to submit any claim for reimbursement of such business expenses to the Company within 15 days of the Separation Date.
4. Consideration. As consideration for your promises in this Agreement, including the general release of claims, if you sign and do not revoke this Agreement as set forth in Paragraph 14, the Company will provide you with the following:
(a) Incentive paid to obtain Release. Incentive paid to obtain Release in the gross amount of $168,750 (an amount equal to 7.5 months of your base salary), less deductions required by law (the Incentive paid to obtain Release Payment).. This Incentive paid to obtain Release will be paid out in a lump sum within ten days after you sign this Agreement and comply with the requirements of Paragraph 4 (e) and Paragraph 7, provided you do not revoke or otherwise violate this Agreement.
(b) Restricted Stock Units and Stock Options. Immediate vesting of all Restricted Stock and Stock Options. Distribution or payment of any amount of the restricted stock unit awards will be payable no later than March 15, 2014.
(c) COBRA Reimbursement. Provided you timely elect to continue your health coverage under COBRA, the Company will reimburse you for your COBRA payments (grossed up for tax purposes) until the earlier of: (a) August 31, 2014 or (b) the date upon which you and/or your eligible dependents become covered under similar plans or are otherwise ineligible for continued group coverage under COBRA. Any such COBRA reimbursements shall be made by the Company to you consistent with the Companys
normal expense reimbursement policy, but in no event more than 30 days after substantiation of COBRA expenses is received by the Company, and provided that you submit documentation to the Company substantiating your payments for COBRA coverage within 30 days of the date each such expense is incurred.
(d) Outplacement Assistance. Up to six (6) months of outplacement services for you to be determined and paid for directly by the Company.
(e) Laptop and Phone. You may retain your Company i-phone and laptop computer, provided you bring both pieces of equipment into the Company for data removal by the Companys IT department. All other Company-owned equipment in your possession must be returned.
5. Acknowledgment of Consideration. You acknowledge that the payments described in Paragraph 4, above, represent amounts above and beyond those to which you would be entitled if you did not enter this Agreement.
6. Non-Solicitation of Employees. For a period of one year from the Separation Date, you shall not directly or indirectly, either on your own account or for any person, firm, partnership, corporation, limited liability company, or other entity: (i) solicit (either directly or indirectly ) any employee of Company that was employed by Company during your employment with Company to leave his or her employment with Company; or (ii) induce or attempt to induce any such employee to breach his or her agreement(s) with Company. You expressly acknowledge that this provision is enforceable and necessary to protect Companys trade secrets.
7. Confidential Information/Company Property. You agree and acknowledge that during the course of your employment with the Company, you had access and were privy to information, documents and/or materials relating to the Company that are of a confidential and/or proprietary nature or which constitute or contain privileged information, or matters subject to an attorney client privilege or which are related work product, the disclosure of which will cause irreparable harm to the Company. As part of this Agreement, you agree to return such information which is in your possession or which has been given to others, and that you will not discuss or disclose to any person or entity any trade secret, confidential and/or proprietary information, or matters subject to an attorney-client privilege or which are related work product, without the express permission of the Company. You also agree to immediately return to the Company all other Company property and equipment in your possession except for your iphone and laptop computer, subject to the condition set forth in Paragraph 4(e). You acknowledge that you will not be entitled to any payment under Paragraph 4 until you have returned all such Company property and equipment to the Company.
8. Confidentiality. Until the Company files this Agreement with its Form 10-Q in August 2013, you agree that you will not at any time communicate to anyone, including any former, present or future employee of the Company, the fact or the terms of this Agreement, except to your immediate family, legal counsel, accountant, or financial advisor, or as required by law and as necessary for compliance purposes. If, prior to this time, you do disclose this information to your immediate family, attorney, or tax advisor, then you will inform them that they also must keep this information confidential. This confidentiality provision shall be null and void after the Company files this Agreement with its Form 10-Q in October 2013.
9. Nondisparagement. You will not make, authorize, or invite/induce any statement to the media or others that could disparage or defame the Companys good name or reputation.
10. Full and General Release. In consideration for the payments provided for in Paragraph 4, you unconditionally release and forever discharge Simpson Manufacturing Co., Inc., and any affiliate or subsidiary of Simpson Manufacturing Co., Inc. (all of whom are hereinafter referred to as the Releasees), from any and all claims, demands, actions, suits, causes of action, obligations, damages and liabilities of whatever kind or nature, based on any act, omission, event, occurrence, or nonoccurrence from the beginning of time to the date of execution of this Agreement, including, but not limited to, claims that arise out of or in any way relate to my employment or separation from employment with Simpson Manufacturing Co., Inc.. You acknowledge and agree that this general release includes, but is not limited to, any claims for wages, overtime, vacation, sick or holiday pay, premiums, and penalties, 401k vesting, profit sharing, co-payments for memorial counseling, travel or other business expenses, or any benefits under the Employee Retirement Income Security Act of 1974, as amended, claims of breach of implied or express employment contracts or covenants, defamation, wrongful termination, public policy violations, emotional distress and related matters, claims of discrimination or harassment under federal, state or local laws, and claims based on any federal, state or other governmental statute, regulation or ordinance, including, but not limited to, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Americans With Disabilities Act, the ADA Amendments Act, the Ledbetter Fair Pay Act, the Family and Medical Leave Act, and the Texas Labor Code, and any amendments to the foregoing. You expressly understand that among the various rights and claims being waived by you in this Agreement are those arising under the Age Discrimination in Employment Act (ADEA), as amended. Excluded from this Release are any claims or rights which cannot be waived by law.
11. Covenant Not to Sue. A covenant not to sue is a legal term which means you promise not to file a lawsuit in court. It is different from the General Release of claims contained in Paragraph 10 above. Besides waiving and releasing the claims covered by Paragraph 10 above, you represent and warrant that you have not filed, and agree that you will not file, or cause to be filed, any judicial complaint or lawsuit involving any claims you have released in Paragraph 10, and you agree to withdraw any judicial complaints or lawsuits you have filed, or that were filed on your behalf, prior to the effective date of this Agreement. You agree and acknowledge that if you sue the Company or any other Releasee in violation of this Agreement, then you shall pay all legal expenses, including reasonable attorneys fees, incurred by any Releasee in defending against your suit. Alternatively, if you sue the Company in violation of this Agreement, you may, at the Companys option, be required to return all monies paid to you pursuant to this Agreement, except for $100 In that event, the Company shall be excused from making any further payments otherwise owed to you under Paragraph 4 of this Agreement.
12. Exclusions. Excluded from your release and covenant not to sue are (a) any right or claim that arises after the date you sign this Agreement, (b) any right that this Agreement creates or recognizes, and (c) any right that lawfully cannot be waived, such as the right to file, assist with, or participate in a charge of discrimination with an administrative agency; you do waive, though, any monetary recovery as to any such charge filed by you or anyone else.
13. Release of Unknown Claims. For the purpose of implementing a full and complete release, you expressly acknowledge and agree that this Agreement resolves all legal claims you may have against the Company and the Releasees as of the date of this Agreement, including but not limited
to claims that you did not know or suspect to exist in your favor at the time of the effective date of this Agreement.
14. Voluntary Agreement. You are hereby advised in writing to consult an attorney about this Agreement. You sign knowingly and voluntarily, with an intent to bind you and your heirs, representatives, and assigns, for the benefit of each Releasee. You have twenty-one (21) days within which to decide whether to sign this Agreement, although you may sign this Agreement at any time within the twenty-one (21) day period. You will have an additional seven (7) days after you sign to change your mind and revoke the Agreement, by delivering, within seven (7) days after you sign it, a written notice of revocation to Karen Colonias To be effective, your written notice of revocation must be received by Karen Colonias within the seven-day revocation period. You are owed nothing under this Agreement if you revoke it.
15. No Representations; Entire Agreement. You acknowledge that no promise or inducement has been offered to you, except as expressly stated above, and you are relying upon none. This Agreement represents the entire agreement between you and the Company regarding the subject matter covered herein and supersedes any other written or oral understandings pertaining to the subject matter of this Agreement. It may not be amended, modified or superseded except by a written agreement signed by both you and the Company. No oral statement by any employee of the Company shall modify or otherwise affect the terms and provisions of this Agreement.
16. Certifications. By signing this Agreement, you certify that you: (i) have been paid in full for all hours worked, including overtime; (ii) have no accrued but unused vacation due to you; and (iii) have not suffered any on-the-job injury for which you have not already filed a claim.
17. Binding Agreement. This Agreement shall be binding upon you and your heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of Releasees and each of them, and to their heirs, administrators, representatives, executors, successors, and assigns.
18. Severability. Should any provision of this Agreement be declared or be determined by any court to be illegal or invalid, the validity of the remaining parts, terms, or provisions shall not be affected, and said illegal or invalid part, term, or provision shall be deemed not to be part of this Agreement.
19. Non-Admission of Liability. This Agreement does not constitute an admission that the Company or any other Releasee has violated any law, rule, regulation, contractual right or any other duty or obligation.
20. Governing Law. This Agreement is made and entered into in the State of Texas and shall in all respects be interpreted, enforced, and governed under the law of that state. The language of all parts in this Agreement shall be construed as a whole, according to fair meaning, and not strictly for or against any party.
Exhibit 31
Simpson Manufacturing Co., Inc. and Subsidiaries
Rule 13a-14(a)/15d-14(a) Certifications
I, Karen Colonias, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Simpson Manufacturing Co., Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
DATE: |
August 7, 2013 |
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By |
/s/Karen Colonias |
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Karen Colonias | |||
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Chief Executive Officer |
Simpson Manufacturing Co., Inc. and Subsidiaries
Rule 13a-14(a)/15d-14(a) Certifications
I, Brian J. Magstadt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Simpson Manufacturing Co., Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
DATE: |
August 7, 2013 |
|
By |
/s/Brian J. Magstadt |
|
Brian J. Magstadt | |||
|
Chief Financial Officer |
Exhibit 32
Simpson Manufacturing Co., Inc. and Subsidiaries
Section 1350 Certifications
The undersigned, Karen Colonias and Brian J. Magstadt, being the duly elected and acting Chief Executive Officer and Chief Financial Officer, respectively, of Simpson Manufacturing Co., Inc., a Delaware corporation (the Company), hereby certify that the quarterly report of the Company on Form 10-Q for the quarterly period ended June 30, 2013, fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended, and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: |
August 7, 2013 |
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/s/ Karen Colonias |
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Karen Colonias | ||
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Chief Executive Officer | ||
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/s/ Brian J. Magstadt | ||
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Brian J. Magstadt | ||
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Chief Financial Officer |
A signed original of this written statement required by Section 1350 of Chapter 63 of Title 18 of the United States Code has been provided to Simpson Manufacturing Co., Inc. and will be retained by Simpson Manufacturing Co., Inc. and furnished to the Securities and Exchange Commission or its staff on request.
Segment Information
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Jun. 30, 2013
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Segment Information | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | 9. Segment Information
The Company is organized into three reportable segments. The segments are defined by the regions where the Company’s products are manufactured, marketed and distributed to the Company’s customers. The three regional segments are the North America segment, comprising primarily the United States and Canada, the Europe segment, and the Asia/Pacific segment, comprising the Company’s operations in China, Hong Kong, the South Pacific and the Middle East. These segments are similar in several ways, including the types of materials, the production processes, the distribution channels and the product applications.
The Company’s measure of profit or loss for its reportable segments is income (loss) from operations. The reconciling amounts between consolidated income before tax and consolidated income from operations are net interest income, which is primarily attributed to Administrative and All Other.
The following table illustrates certain measurements used by management to assess the performance as of or for the following periods:
* The sales to other segments are eliminated in consolidation.
Cash collected by the Company’s United States subsidiaries is routinely transferred into the Company’s cash management accounts and, therefore, has been included in the total assets of “Administrative and all other.” Cash and cash equivalent balances in the “Administrative and all other” segment were $86.8 million, $82.6 million, and $91.9 million, as of June 30, 2013 and 2012, and December 31, 2012, respectively.
The following table illustrates how the Company’s net sales are distributed by product group for the following periods:
Wood construction products include connectors, truss plates, fastening systems, fasteners and pre-fabricated shearwalls and are used for connecting and strengthening wood-based construction primarily in the residential construction market. Concrete construction products include adhesives, chemicals, mechanical anchors, carbide drill bits, powder actuated tools and fiber reinforcing materials and are used for restoration, protection or strengthening concrete, masonry and steel construction in residential, industrial, commercial and infrastructure construction. |
Condensed Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Condensed Consolidated Statements of Comprehensive Income | ||||
Net income | $ 18,502 | $ 15,859 | $ 23,297 | $ 23,060 |
Other comprehensive loss | ||||
Translation adjustment, net of tax benefit (expense) of $0, ($20), ($84) and $3, respectively | (999) | (9,951) | (6,815) | (2,725) |
Comprehensive income | $ 17,503 | $ 5,908 | $ 16,482 | $ 20,335 |
Trade Accounts Receivable, Net
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Jun. 30, 2013
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Trade Accounts Receivable, Net | 2. Trade Accounts Receivable, Net
Trade accounts receivable consisted of the following:
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Property, Plant and Equipment, Net (Tables)
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Jun. 30, 2013
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Schedule of property, plant and equipment |
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Plant Closure
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6 Months Ended |
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Jun. 30, 2013
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Plant Closure | |
Plant Closure | 10. Plant Closure
In September 2012, the Company decided to discontinue manufacturing heavy-duty mechanical anchors made in its facility in Ireland, which were sold mainly in Europe, to focus on selling light-duty and medium-duty anchors and fastener products in conjunction with its connector products. In December 2012, the Company ceased producing and selling heavy-duty mechanical anchors and terminated employees in Europe, primarily in Ireland and Germany, who were manufacturing, selling or supporting the product line. In July 2013, the Company concluded all remaining closing activities associated with the terminated product line, including transferring remaining inventories and certain fixed assets to its other operating locations, and began preparing the site for lease or sale. All costs associated with the closure are reported in the Europe segment.
At December 31, 2012, the long-lived assets of the Ireland facility had a net book value of $2.8 million, including land and building with a net book value of $2.7 million. Due to an adverse real estate market, the Company has decided to pursue leasing the facility until the market value of the facility recovers sufficiently. 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 exceeds net estimated realizable value. Remaining equipment with a net book value of $0.1 million was sold to outside parties, transferred to other branches within the Company or scrapped. See note 4.
In 2012, the Company recorded employee severance obligations of $3.0 million, of which $2.4 million was paid in 2012, and $0.6 million was accrued at December 31, 2012. In the first half of 2013, severance payments of $77 thousand were made and severance charges of $36 thousand were reversed due to the decision to retain an employee. No additional severance obligations were recorded in 2013. The remaining balance of $0.4 million to be paid in 2013 represents the statutory and discretionary amounts due to employees that were or will be involuntarily terminated. The Company does not expect to record additional severance expense in 2013.
Closure liabilities are recognized when a transaction or event has occurred that leaves little or no discretion to avoid future settlement of the liability. The Company estimates that closure costs will total $0.7 million, all of which will be allocated to operating expenses. As of December 31, 2012, the Company had recorded $0.3 million in plant closure expenses, of which $0.2 million was paid in 2012 and $0.1 million is to be paid in 2013. In the first half of 2013, the Company had recorded $35 thousand in plant closure costs and paid $125 thousand in accrued plant closure costs, with $18 thousand to be paid during the remainder of 2013. The Company estimates additional closure costs of $0.4 million will be incurred and paid in 2013. |
Segment Information (Tables)
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Segment Information | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance of reportable segments |
* The sales to other segments are eliminated in consolidation.
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Schedule of net sales distributed by product group |
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Stock-Based Incentive Plans (Tables)
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Jun. 30, 2013
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Stock-Based Incentive Plans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of unvested restricted stock unit activity |
* The intrinsic value is calculated using the closing price per share of $29.42 as reported by the New York Stock Exchange on June 28, 2013. |
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Summary of stock option activity |
* The intrinsic value represents the amount, if any, by which the fair market value of the underlying common stock exceeds the exercise price of the stock option, using the closing price per share of $29.42 as reported by the New York Stock Exchange on June 28, 2013. |
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Summary of unvested stock options activity |
|
Property, Plant and Equipment, Net (Details) (USD $)
|
3 Months Ended | ||||||||||||||||
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Jun. 30, 2013
|
Dec. 31, 2012
|
Jun. 30, 2012
|
Mar. 31, 2013
Facility closing
|
Dec. 31, 2012
Facility closing
|
Jun. 30, 2013
Land
|
Dec. 31, 2012
Land
|
Jun. 30, 2012
Land
|
Jun. 30, 2013
Buildings and site improvements
|
Dec. 31, 2012
Buildings and site improvements
|
Jun. 30, 2012
Buildings and site improvements
|
Jun. 30, 2013
Leasehold improvements
|
Dec. 31, 2012
Leasehold improvements
|
Jun. 30, 2012
Leasehold improvements
|
Jun. 30, 2013
Machinery and equipment
|
Dec. 31, 2012
Machinery and equipment
|
Jun. 30, 2012
Machinery and equipment
|
|
Property, Plant and Equipment | |||||||||||||||||
Property, plant and equipment, gross | $ 426,311,000 | $ 425,224,000 | $ 414,279,000 | $ 30,390,000 | $ 32,068,000 | $ 32,100,000 | $ 174,771,000 | $ 174,187,000 | $ 166,767,000 | $ 4,996,000 | $ 4,747,000 | $ 4,852,000 | $ 216,154,000 | $ 214,222,000 | $ 210,560,000 | ||
Accumulated depreciation and amortization | (226,202,000) | (217,868,000) | (210,431,000) | ||||||||||||||
Property, plant and equipment excluding capital projects in progress, net | 200,109,000 | 207,356,000 | 203,848,000 | ||||||||||||||
Capital projects in progress | 9,435,000 | 6,096,000 | 4,837,000 | ||||||||||||||
Property, plant and equipment, net | 209,544,000 | 213,452,000 | 208,685,000 | 2,800,000 | |||||||||||||
Impairment loss on assets held and in use | $ 1,000,000 |
Basis of Presentation (Details 4) (USD $)
In Millions, unless otherwise specified |
6 Months Ended | 1 Months Ended | 1 Months Ended | ||||
---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Feb. 28, 2013
ShearBrace
|
Feb. 28, 2013
ShearBrace
North America
|
Jan. 31, 2012
S&P Clever
|
Jan. 31, 2012
S&P Clever
Europe
|
Mar. 31, 2012
CarbonWrap Solutions, L.L.C
|
Mar. 31, 2012
CarbonWrap Solutions, L.L.C
North America
|
|
Acquisitions | |||||||
Purchase price | $ 58.1 | $ 5.5 | |||||
Cash paid for acquisition | 5.3 | 57.5 | 5.3 | ||||
Contingent consideration payable | 0.6 | 0.2 | |||||
Maximum period for payment of contingent consideration | 3 years | ||||||
Cash and cash equivalent | 6.8 | ||||||
Other current assets | 10.8 | ||||||
Non-current assets | 53.4 | ||||||
Current liabilities | 12.6 | ||||||
Non-current liabilities | 0.2 | ||||||
Goodwill | 2.6 | 19.3 | 3.5 | ||||
Intangible assets | 1.9 | 15.7 | 1.7 | ||||
Long-lived intangibles related to in-progress product development | $ 4.8 | ||||||
Weighted-average amortization period | 9 years 9 months 18 days | 15 years 7 months 5 days | |||||
Maximum period for payment for adjustments to provisional fair value measurements | 1 year |
Plant Closure (Details) (USD $)
|
3 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Dec. 31, 2012
|
Jun. 30, 2012
|
Mar. 31, 2013
Facility closing
|
Jun. 30, 2013
Facility closing
|
Dec. 31, 2012
Facility closing
|
Dec. 31, 2012
Facility closing
Land and building
|
Jun. 30, 2013
Facility closing
Operating expenses
|
|
Plant Closure | ||||||||
Net book value of the long-lived assets, including land, building and equipment | $ 209,544,000 | $ 213,452,000 | $ 208,685,000 | $ 2,800,000 | $ 2,700,000 | |||
Impairment loss on assets held and in use | 1,000,000 | |||||||
Net book value of remaining equipments to be sold, transferred or scrapped | 586,000 | 593,000 | 100,000 | |||||
Severance costs | 0 | 3,000,000 | ||||||
Severance costs paid | 77,000 | 2,400,000 | ||||||
Severance costs reversed | 36,000 | |||||||
Severance costs accrued | 600,000 | |||||||
Severance costs to be paid in 2013 | 400,000 | |||||||
Estimated closure costs | 400,000 | 700,000 | ||||||
Plant closure expenses | 35,000 | 300,000 | ||||||
Plant closure expenses paid | 125,000 | 200,000 | ||||||
Plant closure expenses to be paid in 2013 | $ 18,000 | $ 100,000 |
Goodwill and Intangible Assets, Net (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Goodwill and Intangible Assets, Net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of goodwill, by segment |
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Schedule of net intangible assets, by segment |
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Schedule of estimated future amortization of intangible assets |
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Changes in the carrying amount of goodwill and intangible assets |
* Measurement period adjustments related to finalizing accounting for acquisitions, primarily due to $4.8 million in long-lived intangible assets related to S&P Clever in-progress development projects reclassified from intangible assets to other non-current assets. |
Inventories
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Inventories | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | 3. Inventories
Inventories consisted of the following:
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Basis of Presentation
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Basis of Presentation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | 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.
The following is a reconciliation of basic earnings per share (“EPS”) to diluted EPS:
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 will not be affected by the adoption of the 2011 Plan and will 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 sold) 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.
The following table represents the Company’s stock option and restricted stock unit activity for the three and six months ended June 30, 2013 and 2012:
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.
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:
The carrying amounts of trade receivables, 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 second quarter of 2012 to the second quarter of 2013 was primarily due to reduced valuation allowances taken on lower second quarter 2013 operating losses in the Europe and Asia/Pacific segments. The effective tax rate decrease from the first half of 2012 to the first half 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 six months ended June 30, 2013 and 2012:
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.
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 will complement 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 first quarter of 2013 for acquired assets and assumed liabilities. 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.
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.
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. |
Segment Information (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
segment
|
Jun. 30, 2012
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|
Segment Information | ||||||
Number of reportable segments | 3 | |||||
Segment Information | ||||||
Net sales | $ 195,596 | $ 181,703 | $ 350,130 | $ 340,437 | ||
Sales to Other Segments | 6,439 | 6,034 | 11,616 | 11,264 | ||
Income (loss) from operations | 29,678 | 27,148 | 38,691 | 40,656 | ||
Total Assets | 896,985 | 878,905 | 896,985 | 878,905 | 890,322 | |
Cash and short-term investments | 165,275 | 162,719 | 165,275 | 162,719 | 175,553 | 213,817 |
North America
|
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Segment Information | ||||||
Net sales | 159,757 | 144,532 | 287,493 | 272,500 | ||
Sales to Other Segments | 1,170 | 1,442 | 1,931 | 2,814 | ||
Income (loss) from operations | 29,665 | 26,583 | 44,924 | 44,456 | ||
Total Assets | 603,981 | 557,502 | 603,981 | 557,502 | 583,501 | |
Europe
|
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Segment Information | ||||||
Net sales | 32,099 | 34,120 | 56,016 | 62,356 | ||
Sales to Other Segments | 394 | 19 | 674 | 153 | ||
Income (loss) from operations | 2,241 | 2,088 | (1,939) | (284) | ||
Total Assets | 188,563 | 204,864 | 188,563 | 204,864 | 194,000 | |
Asia/Pacific
|
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Segment Information | ||||||
Net sales | 3,502 | 2,735 | 6,147 | 5,107 | ||
Sales to Other Segments | 4,875 | 4,573 | 9,011 | 8,297 | ||
Income (loss) from operations | (46) | (163) | (1,229) | (817) | ||
Total Assets | 32,408 | 31,734 | 32,408 | 31,734 | 30,455 | |
Administrative and all other
|
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Segment Information | ||||||
Net sales | 238 | 316 | 474 | 474 | ||
Income (loss) from operations | (2,182) | (1,360) | (3,065) | (2,699) | ||
Total Assets | 72,033 | 84,805 | 72,033 | 84,805 | 82,366 | |
Cash and short-term investments | $ 86,800 | $ 82,600 | $ 86,800 | $ 82,600 | $ 91,900 |
Basis of Presentation (Details)
|
6 Months Ended |
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Jun. 30, 2013
|
|
Basis of Presentation | |
High end of the range of the required percentage voting interest held to account for investments with the equity method of accounting | 50.00% |
Maximum
|
|
Revenue Recognition | |
Service sales as a percentage of net sales | 1.00% |
Trade Accounts Receivable, Net (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
Jun. 30, 2012
|
---|---|---|---|
Trade Accounts Receivable, Net | |||
Trade accounts receivable | $ 130,612 | $ 85,732 | $ 123,531 |
Allowance for doubtful accounts | (1,141) | (1,288) | (1,343) |
Allowance for sales discounts and returns | (2,583) | (1,632) | (2,069) |
Trade accounts receivable, net | $ 126,888 | $ 82,812 | $ 120,119 |
Goodwill and Intangible Assets, Net (Details 3) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Changes in the carrying amount of goodwill | ||||
Balance at the beginning of the period | $ 121,981 | |||
Acquisitions | 2,606 | |||
Reclassifications | (696) | |||
Foreign exchange | (1,213) | |||
Balance at the end of the period | 122,678 | 127,983 | 122,678 | 127,983 |
Changes in the carrying amount of intangible assets | ||||
Balance at the beginning of the period | 50,598 | |||
Acquisitions | 1,869 | 1,869 | ||
Reclassifications | (4,369) | |||
Amortization | (2,000) | (1,900) | (4,013) | (3,700) |
Foreign exchange | (739) | |||
Balance at the end of the period | $ 43,346 | $ 41,529 | $ 43,346 | $ 41,529 |