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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: June 30, 2020
 
OR 
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, including zip code) 
(925) 560-9000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share
SSD
New York Stock Exchange
 
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 ý  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
  Yes ý  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
ý
 
 
Accelerated filer
 
 
 
 
 
 
 
 
Non-accelerated filer
 
 
Smaller reporting company
 
Emerging growth company
 
 
 

 
 




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ý
Securities registered pursuant to Section 12(b) of the Act:
 
The number of shares of the registrant’s common stock outstanding as of August 3, 2020: 43,474,745.




Simpson Manufacturing Co., Inc. and Subsidiaries

TABLE OF CONTENTS

Part I - Financial Information

Item 1 - Financial Statements
 
 
 
Page No.
 
 
 
 
 
Part II - Other Information





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,
 
2020
 
2019
 
2019
ASSETS
 

 
 

 
 

Current assets
 

 
 

 
 

Cash and cash equivalents
$
315,448

 
$
141,731

 
$
230,210

Trade accounts receivable, net
233,867

 
191,282

 
139,364

Inventories
265,365

 
266,142

 
251,907

Other current assets
20,222

 
14,795

 
19,426

Total current assets
834,902

 
613,950

 
640,907

 
 
 
 
 
 
Property, plant and equipment, net
247,119

 
252,710

 
249,012

Operating lease right-of-use assets
36,930

 
35,111

 
35,436

Goodwill
132,335

 
132,312

 
131,879

Equity investment
2,483

 
2,498

 
2,480

Intangible assets, net
22,139

 
22,991

 
25,071

Other noncurrent assets
8,595

 
10,346

 
10,581

Total assets
$
1,284,503

 
$
1,069,918

 
$
1,095,366

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 
 

Current liabilities
 

 
 

 
 

Trade accounts payable
$
49,149

 
$
39,241

 
$
33,351

Accrued liabilities and other current liabilities
144,265

 
118,000

 
125,556

      Total current liabilities
193,414

 
157,241

 
158,907

   Operating lease liabilities
28,893

 
28,164

 
27,930

Long term debt, net of current portion
150,000

 

 

  Deferred income tax and other long-term liabilities
17,984

 
16,092

 
16,572

Total liabilities
390,291

 
201,497

 
203,409

Commitments and contingencies (see Note 12)


 


 


Stockholders’ equity
 

 
 

 
 

Common stock, at par value
444

 
446

 
442

Additional paid-in capital
277,625

 
277,024

 
280,216

Retained earnings
716,038

 
615,929

 
645,507

Treasury stock
(72,058
)
 

 
(9,379
)
Accumulated other comprehensive loss
(27,837
)
 
(24,978
)
 
(24,829
)
Total stockholders’ equity
894,212

 
868,421

 
891,957

Total liabilities and stockholders’ equity
$
1,284,503

 
$
1,069,918

 
$
1,095,366



The accompanying notes are an integral part of these condensed consolidated financial statements
4


Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Income
(In thousands except per-share amounts, unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2020
 
2019
 
2020
 
2019
Net sales
$
326,076

 
$
304,853

 
$
609,744

 
$
564,097

Cost of sales
176,276

 
170,674

 
330,278

 
319,664

Gross profit
149,800

 
134,179

 
279,466

 
244,433

Operating expenses:
 
 
 
 
 
 
 
Research and development and other engineering
12,191

 
11,055

 
25,573

 
23,316

Selling
26,834

 
28,687

 
55,361

 
56,799

General and administrative
38,636

 
41,345

 
77,107

 
80,893

Total operating expenses
77,661

 
81,087

 
158,041

 
161,008

Net gain on disposal of assets
(73
)
 
(561
)
 
(137
)
 
(251
)
Income from operations
72,212

 
53,653

 
121,562

 
83,676

Interest income (expense), net and other
(151
)
 
147

 
(2,684
)
 
(616
)
Income before taxes
72,061

 
53,800

 
118,878

 
83,060

Provision for income taxes
18,582

 
14,223

 
28,573

 
20,821

Net income
$
53,479

 
$
39,577

 
$
90,305

 
$
62,239

Other comprehensive income
 
 
 
 
 
 
 
Translation adjustment
4,525

 
1,363

 
(3,069
)
 
28

   Unamortized pension adjustments
(213
)
 
(100
)
 
61

 
(100
)
        Comprehensive net income
$
57,791

 
$
40,840

 
$
87,297

 
$
62,167

 
 
 
 
 
 
 
 
Net income per common share:
 

 
 

 
 
 
 
Basic
$
1.23

 
$
0.89

 
$
2.06

 
$
1.39

Diluted
$
1.22

 
$
0.88

 
$
2.05

 
$
1.38

 
 
 
 
 
 
 
 
Number of shares outstanding
 

 
 

 
 
 
 
Basic
43,471

 
44,671

 
43,787

 
44,772

Diluted
43,663

 
44,972

 
43,980

 
45,089

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.23

 
$
0.23

 
$
0.46

 
$
0.45

 

The accompanying notes are an integral part of these condensed consolidated financial statements
5


Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands except per-share data)

Six Months Ended June 30, 2020 and 2019 (unaudited)

 
 
 
Additional
 
Accumulated
Other
 
 
 
Common Stock
Paid-in
Retained
Comprehensive
Treasury
 
 
Shares
Par Value
Capital
Earnings
Income (Loss)
Stock
Total
Balance at December 31, 2019
44,209

442

280,216

645,507

(24,829
)
(9,379
)
891,957

Net income



90,305



90,305

Translation adjustment, net of tax




(3,069
)

(3,069
)
Pension adjustment, net of tax




61


61

Stock-based compensation


4,830




4,830

Shares issued from release of Restricted Stock Units
162

2

(7,743
)



(7,741
)
Repurchase of common stock
(902
)




(62,679
)
(62,679
)
Cash dividends declared on common stock, $0.46 per share



(19,774
)


(19,774
)
Common stock issued at $80.38 per share for stock bonus
4


322




322

Balance at June 30, 2020
43,473

$
444

$
277,625

$
716,038

$
(27,837
)
$
(72,058
)
$
894,212

 
 
 
 
 
 
 
 
Balance at December 31, 2018
44,998

453

276,504

628,207

(24,650
)
(25,000
)
855,514

Net income



62,239



62,239

Translation adjustment, net of tax




(28
)

(28
)
Pension adjustment, net of tax




100


100

Stock-based compensation


6,127




6,127

Shares issued from release of Restricted Stock Units
177

2

(5,899
)



(5,897
)
Repurchase of common stock
(505
)




(30,000
)
(30,000
)
Retirement of treasury stock

(9
)

(54,991
)

55,000


Cash dividends declared on common stock, $0.45 per share


 
(19,926
)


(19,926
)
Common stock issued at $54.31 per share for stock bonus
5


292




292

Balance, at June 30, 2019
44,675

446

277,024

615,529

(24,578
)

868,421


















The accompanying notes are an integral part of these condensed consolidated financial statements
6


Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands except per-share data)

Three Months Ended June 30, 2020 and 2019 (unaudited)
 
 
 
Additional
 
Accumulated
Other
 
 
 
Common Stock
Paid-in
Retained
Comprehensive
Treasury
 
 
Shares
Par Value
Capital
Earnings
Income (Loss)
Stock
Total
Balance at March 31, 2020
43,464

444

272,872

672,485

(32,149
)
(72,058
)
841,594

Net income
 
 
 
53,479

 
 
53,479

Translation adjustment, net of tax
 
 
 
 
4,525

 
4,525

Pension adjustment, net of tax
 
 
 
 
(213
)
 
(213
)
Stock-based compensation
 
 
4,797

 
 
 
4,797

Shares issued from release of Restricted Stock Units
9

 
(44
)
 
 
 
(44
)
Cash dividends declared on common stock, $0.23 per share
 
 
 
(9,926
)
 
 
(9,926
)
Balance at June 30, 2020
43,473

$
444

$
277,625

$
716,038

$
(27,837
)
$
(72,058
)
$
894,212

 
 
 
 
 
 
 
 
Balance at March 31, 2019
44,662

455

274,836

641,168

(26,041
)
(55,000
)
835,418

Net income
 
 
 
39,577

 
 
39,577

Translation adjustment, net of tax
 
 
 
 
1,363

 
1,363

Pension adjustment, net of tax
 
 
 
 
100

 
100

Stock-based compensation
 
 
2,224

 
 
 
2,224

Shares issued from release of Restricted Stock Units
13

 
(36
)
 
 
 
(36
)
Retirement of treasury stock
 
(9
)
 
(54,991
)
 
55,000


Cash dividends declared on common stock, $0.23 per share
 
 
 
(10,225
)
 
 
(10,225
)
Balance, at June 30, 2019
44,675

446

277,024

615,529

(24,578
)

868,421



The accompanying notes are an integral part of these condensed consolidated financial statements
7


Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)

 
Six Months Ended
 
June 30,
 
2020
 
2019
Cash flows from operating activities
 

 
 

Net income
90,305

 
62,239

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Gain on sale of assets and other
(147
)
 
(262
)
Depreciation and amortization
19,739

 
19,515

Noncash lease expense
4,025

 
3,243

Deferred income taxes
1,973

 
1,911

Noncash compensation related to stock plans
5,428

 
6,600

Provision (benefit) of doubtful accounts
(35
)
 
98

Changes in operating assets and liabilities:
 

 
 

Trade accounts receivable
(95,875
)
 
(45,078
)
Inventories
(14,377
)
 
9,708

Trade accounts payable
15,268

 
4,318

Other current assets
(4,529
)
 
(1,269
)
Accrued liabilities and other current liabilities
22,923

 
(3,852
)
Other noncurrent assets and liabilities
(1,932
)
 
(3,590
)
Net cash provided by operating activities
42,766

 
53,581

Cash flows from investing activities
 

 
 

Capital expenditures
(14,083
)
 
(15,259
)
Asset acquisitions, net of cash acquired

 
(3,492
)
Proceeds from sale of property and equipment
639

 
2,493

Net cash used in investing activities
(13,444
)

(16,258
)
Cash flows from financing activities
 

 
 

Repurchase of common stock
(62,679
)
 
(30,000
)
Proceeds from line of credit
159,412

 
10,742

Repayments of line of credit and capital leases
(10,387
)
 
(10,726
)
Debt issuance costs

(712
)
 

Dividends paid
(20,158
)
 
(19,726
)
Cash paid on behalf of employees for shares withheld
(7,743
)
 
(5,899
)
Net cash provided by (used) in financing activities
57,733

 
(55,609
)
Effect of exchange rate changes on cash and cash equivalents
(1,817
)
 
(163
)
Net increase (decrease) in cash and cash equivalents
85,238

 
(18,449
)
Cash and cash equivalents at beginning of period
230,210

 
160,180

Cash and cash equivalents at end of period
$
315,448

 
$
141,731

Noncash activity during the period
 

 
 

Noncash capital expenditures
$
1,308

 
$
1,636

Dividends declared but not paid
9,989

 
10,284

Issuance of Company’s common stock for compensation
322

 
292

 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements
8


Simpson Manufacturing Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)



1.    Basis of Presentation
 
Principles of Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries (collectively, the “Company”). Investments in 50% or less owned entities are accounted for using either cost or the equity method. All significant intercompany transactions have been eliminated.

Use of Estimates
 
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation under GAAP. Uncertainty created by the COVID-19 pandemic will likely impact our operations, customers, and various areas of risk. We assessed certain accounting matters that require the use of estimates and assumptions in context with the known and projected future impacts of COVID-19. The Company's actual results could differ materially from those estimates.

Interim Reporting Period
 
The accompanying unaudited quarterly 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 GAAP have been condensed or omitted. These interim statements should be read in conjunction with the audited 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, 2019 (the “2019 Form 10-K”).
 
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. Certain prior period amounts in the condensed consolidated financial statements and the accompanying notes have been reclassified to conform to the current period’s presentation. The year-end condensed consolidated balance sheet data provided herein were derived from audited financial statements included in the 2019 Form 10-K, 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 this interim period presented are not indicative of the results to be expected for any future periods.

Revenue Recognition
 
Generally, the Company’s revenue contract with a customer exists when goods are shipped, and services (if any) are rendered; and its related invoice is generated. The duration of the contract does not extend beyond the promised goods or services already transferred. The transaction price of each distinct promised product or service specified in the invoice is based on its relative standalone selling price. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer at a point in time. The Company’s shipping terms provide the primary indicator of the transfer of control. The Company’s general shipping terms are F.O.B. shipping point, where title and risk and rewards of ownership transfer at the point when the products leave the Company’s warehouse. The Company recognizes revenue based on the consideration specified in the invoice with a customer, less any sales incentives, discounts, and amounts collected on behalf of third parties (i.e., governmental tax authorities). Based on historical experience with the customer, the customer's purchasing pattern and its significant experience selling products, the Company concluded that a significant reversal in the cumulative amount of revenue recognized will not occur when the uncertainty (if any) is resolved (that is, when the total amount of purchases is known). Refer to Note 2 for additional information.





Net Income Per Common Share

9


 
The Company calculates net income per common share based on the weighted-average number of the Company's common stock outstanding during the period. Potentially dilutive securities are included in the diluted per-share calculations using the treasury stock method for all periods when the effect is dilutive.
 
Accounting for Leases

The Company has operating and finance leases for certain facilities, equipment, autos and data centers. As an accounting policy for short-term leases, the Company elected to not recognize the right-of-use asset and liability, if, at the commencement date, the lease (1) has a term of 12 months or less and (2) does not include renewal and purchase options that the Company is reasonably certain to exercise. Monthly payments on short-term leases are recognized on the straight-line basis over the full lease term.

Accounting for Stock-Based Compensation
 
The Company recognizes stock-based expense related to restricted stock unit awards on a straight-line basis, net of estimated forfeitures, over the requisite service period of the awards, which is generally a vesting term of four years. Stock-based expense related to performance share grants are measured based on the grant date fair value and expensed on a graded basis over the service periods of the awards, which is generally a performance period of three years. The performance conditions are based on the Company's achievement of revenue growth and return on invested capital over the performance period, and are evaluated for the probability of vesting at each reporting period end with changes in expected results recognized as an adjustment to expense. The assumptions used to calculate the fair value of options or restricted stock units are evaluated and revised, as necessary, to reflect market conditions and the Company's expectations.

Fair Value of Financial Instruments
 
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified under a three-tier fair valuation hierarchy based on the observability of the inputs available in the market: 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; and Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
 
As of June 30, 2020 and 2019, the Company’s investments included in cash equivalents consisted of only money market funds, which are the Company’s primary financial instruments and carried at cost, approximating fair value, based on Level 1 inputs. The balance of the Company’s primary financial instruments as of June 30, 2020 and 2019 was $76.9 million and $0.2 million, respectively. The carrying amounts of trade accounts receivable, accounts payable, accrued liabilities and other current liabilities approximate fair value due to the short-term nature of these instruments. The fair value of the Company’s contingent consideration related to acquisitions and equity investment are classified as Level 3 within the fair value hierarchy as it is based on unobserved inputs such as management estimates and entity-specific assumptions and is evaluated on an ongoing basis. The Company does not carry its long-term debt at fair value in its condensed consolidated balance sheets.

Income Taxes

The Company uses an estimated annual tax rate to measure the tax benefit or tax expense recognized in each interim period.

Accounting Standards - Recently Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 amendments provide guidance on accounting for current expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. The required measurement methodology is based on an expected loss model that includes historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 eliminates the probable incurred loss recognition in current GAAP. The Company adopted ASU 2016-13 prospectively on January 1, 2020. Historically, the Company's actual credit losses have not been material. The Company's financial assets in the scope of ASU 2016-13 mainly consist

10


of short-term trade receivables. In estimating expected credit loss, we are using the aging method, such as pooling receivables based on the levels of delinquency and applying historical loss rates, adjusted for current conditions and reasonable and supportable forecasts, to each pool. The Company will regularly reassess the customer group by using its best judgment when considering changes in customers' credit ratings, customers' historical payments and loss experience, current market and economic conditions, and the Company's expectations of future market and economic conditions. Adoption of ASU 2016-13 had no material effect on the Company's consolidated financial statements and footnote disclosures.

All other issued and effective accounting standards during the second quarter of 2020 were determined to be not relevant or material to the Company.


2.    Revenue from Contracts with Customers

Disaggregated revenue

The Company disaggregates net sales into the following major product groups as described in the footnote for segment information included in these interim financial statements under Note 13.

Wood Construction Products Revenue. Wood construction products represented 86% and 84% of total net sales in the six months ended June 30, 2020 and 2019, respectively.

Concrete Construction Products Revenue. Concrete construction products represented 14% and 16% of total net sales in the six months ended June 30, 2020 and 2019, respectively.

Customer acceptance criteria. Generally, there are no customer acceptance criteria included in the Company's standard sales agreement with customers. When an arrangement with the customer does not meet the criteria to be accounted for as a revenue contract under the standard, the Company recognizes revenue in the amount of nonrefundable consideration received when the Company has transferred control of the goods or services and has stopped transferring (and has no obligation to transfer) additional goods or services. The Company offers certain customers discounts for paying invoices ahead of the due date, which are generally between 30 to 60 days after the issue date.

Other revenue. Service sales, representing after-market repair and maintenance, engineering activities and software license sales and services were less than 1.0% of net sales and recognized as the services are completed or by transferring control over a product to a customer at a point in time. Services may be sold separately or in bundled packages. The typical contract length for a service is generally less than one year. For bundled packages, the Company accounts for individual services separately when they are distinct within the context of the contract. A distinct service is separately identifiable from other items in the bundled package if a customer can benefit from the service on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the services.

Reconciliation of contract balances

Contract assets are the rights to consideration in exchange for goods or services that the Company has transferred to a customer when that right is conditional on something other than the passage of time. Contract liabilities are recorded for any services billed to customers and not yet recognizable if the contract period has commenced or for the amount collected from customers in advance of the contract period commencing. As of June 30, 2020, the Company had no contract assets or contract liabilities from contracts with customers.


11


3.    Net Income Per Share

The following table reconciles basic net income per share of the Company's common stock to diluted net income per share for the three and six months ended June 30, 2020 and 2019, respectively:
 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
(in thousands, except per share amounts)
2020
 
2019
 
2020
 
2019
Net income available to common stockholders
$
53,479

 
$
39,577

 
$
90,305

 
$
62,239

Basic weighted-average shares outstanding
43,471

 
44,671

 
43,787

 
44,772

Dilutive effect of potential common stock equivalents — restricted stock units
192

 
301

 
193

 
317

Diluted weighted-average shares outstanding
43,663

 
44,972

 
43,980

 
45,089

Net income per common share:
 

 
 

 
 

 
 

Basic
$
1.23

 
$
0.89

 
$
2.06

 
$
1.39

Diluted
$
1.22

 
$
0.88

 
$
2.05

 
$
1.38




4.    Stockholders' Equity

Share Repurchases

During the six months ended June 30, 2020, the Company repurchased 902,340 shares of the Company's common stock in the open market at an average price of $69.46 per share, for a total of $62.7 million. As of June 30, 2020, approximately $37.3 million remains available for repurchase under the previously announced $100.0 million share repurchase authorization (which expires at the end of 2020).


5.    Stock-Based Compensation
 
The Company allocates stock-based compensation expense related to equity plans for employees and non-employee directors among the cost of sales, research and development and other engineering expense, selling expense, or general and administrative expense based on the job functions performed by the employees to whom the stock-based compensation is awarded. The Company recognized stock-based compensation expense related to its equity plans for employees of $5.2 million and $2.5 million for the three months ended June 30, 2020 and 2019, respectively, and $5.4 million and $6.6 million for the six months ended June 30, 2020 and 2019, respectively.

During the six months ended June 30, 2020, the Company granted 166,951 restricted stock units ("RSUs") to the Company's employees, including officers at an estimated weighted average fair value of $74.91 per share based on the closing price (adjusted for the present value of dividends) of the Company's common stock on the grant date. The RSUs granted to the Company's employees may be time-based and performance-based. Certain of the performance-based RSUs are granted to officers and key employees, where the number of performance-based awards to be issued is based on the achievement of certain Company performance criteria established in the RSU agreement over a cumulative three-year period. These awards cliff vest after three years. In addition, these same officers and key employees also receive time-based RSUs, which vest pursuant to a three-year graded vesting schedule. Time-based RSUs that are granted to the Company's employees excluding officers and certain key employees, vest ratably over the four year vesting-term of the award.

The Company’s seven non-employee directors are entitled to receive approximately $690 thousand in equity compensation annually. The number of shares ultimately granted are based on the average closing share price for the Company over the 60 day period prior to approval of the award in April of each year. In April 2020, the Company granted 9,239 shares of common stock to the Company's non-employee directors, based on the average closing price of $74.66 per share. The Company recognized expense on these shares at an estimated fair value of $58.72 per share based on the closing price of the Company's common stock on the grant date, for a total expense of $543 thousand.


12


As of June 30, 2020, the Company's aggregate unamortized stock compensation expense was approximately $14.2 million, is expected to be recognized in expense over a weighted-average period of 2.6 years.


6.    Trade Accounts Receivable, Net
 
Trade accounts receivable at the dates indicated consisted of the following: 
 
At June 30,
 
At December 31,
(in thousands)
2020
 
2019
 
2019
Trade accounts receivable
$
239,220

 
$
195,767

 
$
144,729

Allowance for doubtful accounts
(2,007
)
 
(1,279
)
 
(1,935
)
Allowance for sales discounts and returns
(3,346
)
 
(3,206
)
 
(3,430
)
 
$
233,867

 
$
191,282

 
$
139,364


 

7.    Inventories
 
Inventories at the dates indicated consisted of the following: 
 
At June 30,
 
At December 31,
(in thousands)
2020
 
2019
 
2019
Raw materials
$
110,883

 
$
102,901

 
$
95,575

In-process products
18,661

 
25,145

 
23,672

Finished products
135,821

 
138,096

 
132,660

 
$
265,365

 
$
266,142

 
$
251,907




8.    Property, Plant and Equipment, Net
 
Property, plant and equipment, net, at the dates indicated consisted of the following: 

 
At June 30,
 
At December 31,
(in thousands)
2020
 
2019
 
2019
Land
$
28,068

 
$
29,343

 
$
28,092

Buildings and site improvements
200,205

 
198,129

 
195,210

Leasehold improvements
5,817

 
5,016

 
4,911

Machinery, equipment, and software
359,997

 
339,885

 
351,379

 
594,087

 
572,373

 
579,592

Less accumulated depreciation and amortization
(360,719
)
 
(334,293
)
 
(346,594
)
 
233,368

 
238,080

 
232,998

Capital projects in progress
13,751

 
14,630

 
16,014

 
$
247,119

 
$
252,710

 
$
249,012





13


9.    Goodwill and Intangible Assets, Net
 
Goodwill at the dates indicated was as follows: 
 
At June 30,
 
At December 31,
(in thousands)
2020
 
2019
 
2019
North America
$
96,099

 
$
96,546

 
$
96,244

Europe
34,929

 
34,426

 
34,300

Asia/Pacific
1,307

 
1,340

 
1,335

Total
$
132,335

 
$
132,312

 
$
131,879


 
Intangible assets, net, at the dates indicated were as follows: 
 
At June 30, 2020
 
Gross
 
 
 
Net
 
Carrying
 
Accumulated
 
Carrying
(in thousands)
Amount
 
Amortization
 
Amount
North America
$
33,755

 
$
(20,898
)
 
$
12,857

Europe
25,582

 
(16,300
)
 
9,282

Total
$
59,337

 
$
(37,198
)
 
$
22,139

 
 
At June 30, 2019
 
Gross
 
 
 
Net
(in thousands)
Carrying
Amount
 
Accumulated
Amortization
 
Carrying
Amount
North America
$
30,824

 
$
(17,586
)
 
$
13,238

Europe
23,599

 
(13,846
)
 
9,753

Total
$
54,423

 
$
(31,432
)
 
$
22,991

 
 
At December 31, 2019
 
Gross
 
 
 
Net
(in thousands)
Carrying
Amount
 
Accumulated
Amortization
 
Carrying
Amount
North America
$
33,756

 
$
(19,173
)
 
$
14,583

Europe
25,500

 
(15,012
)
 
10,488

Total
$
59,256

 
$
(34,185
)
 
$
25,071


 
Intangible assets consist of definite-lived and indefinite-lived assets. Definite-lived intangible assets include customer relationships, patents, unpatented technology, and non-compete agreements. Amortization expense of definite-lived intangible assets was $1.6 million and $1.3 million for the three months ended June 30, 2020 and 2019, respectively, and was $3.0 million and $2.7 million for the six months ended June 30, 2020 and 2019, respectively. The weighted-average amortization period for all amortizable intangibles on a combined basis is 5.5 years.

The only indefinite-lived intangible asset, consisting of a trade name, totaled $0.6 million at June 30, 2020.


14


At June 30, 2020, the estimated future amortization of definite-lived intangible assets was as follows: 
(in thousands)
 
 
 
Remaining six months of 2020
$
2,971

2021
5,430

2022
3,442

2023
2,621

2024
1,671

2025
1,425

Thereafter
3,963

 
$
21,523


 
The changes in the carrying amount of goodwill and intangible assets for the six months ended June 30, 2020, were as follows: 
 
 
 
Intangible
(in thousands)
Goodwill
 
Assets
Balance at December 31, 2019
$
131,879

 
$
25,071

Amortization

 
(3,013
)
Foreign exchange
456

 
81

Balance at June 30, 2020
$
132,335

 
$
22,139




10.    Leases

Operating Lease and Finance Obligations

The Company has operating leases for certain facilities, equipment and autos. The existing operating leases expire at various dates through 2024, some of which include options to extend the leases for up to 5 years. The Company measured the lease liability at the present value of the lease payments to be made over the lease term. The lease payments are discounted using the Company's incremental borrowing rate. The Company measured the right-of-use assets ("ROU") assets at the amount at which the lease liability is recognized plus initial direct costs incurred or prepayment amounts. The ROU assets are amortized on a straight-line basis over the lease term.

Finance Lease Obligations

The Company has finance leases for data centers and certain office equipment, which was recorded in fixed assets as capital lease obligations. These finance lease obligations are included in current liabilities and other long-term liabilities in the accompanying consolidated balance sheets. The interest rates for these two capital leases are 2.89% and 3.50%, respectively, and the two leases will mature in May 2021 and July 2021, respectively.

The following table provides a summary of leases included on the condensed consolidated balance sheets June 30, 2020, 2019 and December 31, 2019, condensed consolidated statements of earnings, and condensed consolidated statements of cash flows as of three month and six month ended June 30, 2020 and 2019:

15


 
Condensed Consolidated Balance Sheets Line Item
June 30,
June 30,
December 31,
(in thousands)
 
2020
2019
2019
Operating leases
 
 
 
 
Assets
 
 
 
 
Operating leases
Operating lease right-of-use assets
$
36,930

$
35,111

$
35,436

Liabilities
 
 
 
 
Operating - current
Accrued expenses and other current liabilities
$
8,099

$
6,647

$
7,392

Operating - noncurrent
Operating lease liabilities
28,893

28,164

27,930

Total operating lease liabilities
 
$
36,992

$
34,811

$
35,322

 
 
 
 
 
Finance leases
 
 
 
 
Assets
 
 
 
 
Property and equipment, gross
Property, plant and equipment, net
$
3,569

$
3,569

$
3,569

Accumulated amortization
Property, plant and equipment, net
(2,953
)
(2,417
)
(2,739
)
Property and equipment, net
Property, plant and equipment, net
$
616

$
1,152

$
830

Liabilities
 
 
 
 
Other current liabilities
Accrued expenses and other current liabilities
$
998

$
1,107

$
1,125

Other long-term liabilities
Deferred income tax and other long-term liabilities

1,047

386

   Total finance lease liabilities
 
$
998

$
2,154

$
1,511



The components of lease expense were as follows:
 
Condensed Consolidated Statements of Operations Line Item
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
 
2020
 
2019
2020
 
2019
Operating lease cost
General administrative expenses and
     cost of sales
$
2,625

 
$
2,272

$
5,051

 
$
4,426

 
 
 
 
 
 
 
 
Finance lease cost:
 
 
 
 
 
 
 
   Amortization of right-of-use assets
General administrative expenses
$
218

 
$
218

$
436

 
$
436

   Interest on lease liabilities
Interest expense, net
9

 
18

21

 
38

Total finance lease
 
$
227

 
$
236

$
457

 
$
474



Other information

Supplemental cash flow information related to leases as follows:
 
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2020
 
2019
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
 
 
   Operating cash flows for operating leases
$
2,506

 
$
2,214

$
4,857

 
$
4,305

   Finance cash flows for finance leases
290

 
290

580

 
580

 
 
 
 
 
 
 
Operating right-of-use assets obtained in exchange for lease
     obligations during the current period
4,510

 
1,718

7,112

 
2,211



16





The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2020:
(in thousands)
Finance Leases
 
Operating Leases
Remaining six months of 2020
$
580

 
$
5,112

2021
433

 
9,191

2022

 
7,108

2023

 
5,088

2024

 
3,956

Thereafter

 
13,740

Total lease payments
1,013

 
44,195

Less: Present value discount
15

 
7,203

     Total lease liabilities
$
998

 
$
36,992



The following table summarizes the Company's lease terms and discount rates as of June 30, 2020 and 2019:
Weighted-average remaining lease terms (in years):
2020
 
2019
Operating leases
6.59

 
6.92

Finance leases
0.95

 
1.93

Weighted-average discount rate:
 
 
 
Operating leases
5.36
%
 
5.37
%
Finance leases
3.25
%
 
3.22
%



11.    Debt

In May 2020, the Company entered into a third amendment to the unsecured credit agreement dated July 27, 2012 with Wells Fargo Bank, National Association, and certain other institutional lenders that provides for a $300.0 million unsecured revolving credit facility (“Credit Facility”). The Amendment extends the term of the Credit Agreement from July 23, 2021, to July 23, 2022 The Company is required to pay an annual facility fee of 0.20 to 0.35 percent on the available commitments under the Credit Agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The fee is included within other expense in the Company's condensed consolidated statement of operations.
 
Amounts borrowed under the Credit Agreement will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars as published by the ICE Benchmark Administration Limited, a United Kingdom company, or a comparable or successor quoting service approved by the Agent (the “LIBOR Rate”), adjusted for any reserve requirement in effect, plus a spread of from 0.80 to 1.65 percent, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 0.20 to 0.65 percent, as determined on a quarterly basis based on the Company’s leverage ratio. In no event shall the LIBOR Rate be less than 0.25 percent. 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 in the preceding clause (a), and will pay market-based fees for commercial letters of credit. The spread applicable to a particular LIBOR Rate loan or base rate loan depends on the consolidated leverage ratio of the Company and its subsidiaries at the time the loan is made. Loans outstanding under the Credit Agreement may be prepaid at any time without penalty except for LIBOR Rate breakage costs and expenses.

In March 2020, the Company elected to draw down $150.0 million from the Credit Facility to increase its cash position and preserve financial flexibility in light of current uncertainty resulting from the COVID-19 outbreak. Total available credit as of June 30, 2020, was $153.6 million, including the Credit Facility and other revolving credit lines.


17


In addition to the Credit Facility, certain of the Company’s domestic subsidiaries are guarantors for a credit agreement between certain of its foreign subsidiaries and institutional lenders. Together, these credit facilities provide the Company with a total of $303.8 million in revolving credit lines and an irrevocable standby letter of credit in support of various insurance deductibles.”

The Company was in compliance with its financial covenants at June 30, 2020.


12.    Commitments and Contingencies

Environmental

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

Litigation and Potential Claims

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. Corrosion, hydrogen embrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, manufacturing defects, labeling defects, product formula defects, inaccurate chemical mixes, adulteration, environmental conditions, or other factors can contribute to failure of fasteners, connectors, anchors, adhesives, specialty chemicals, such as fiber reinforced polymers, and tool products. In addition, inaccuracies may occur in product information, descriptions and instructions found in catalogs, packaging, data sheets, and the Company’s website.

The resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

Gentry Homes, Ltd. v. Simpson Strong-Tie Company Inc., et al., Case No. 17-cv-00566, was filed in a federal district court in Hawaii against Simpson Strong-Tie Company Inc. and the Company on November 20, 2017. The Gentry case is a product of a previous state court class action, Nishimura v. Gentry Homes, Ltd., et al., Civil No. 11-1-1522-07, which is now closed. The Nishimura case concerned alleged corrosion of the Company’s galvanized “hurricane straps” and mudsill anchor products used in a residential project in Ewa by Gentry, Honolulu, Hawaii. In the Nishimura case, the plaintiff homeowners and the developer, Gentry Homes, Ltd. (“Gentry”), arbitrated their dispute and agreed on a settlement in the amount of approximately $90 million. In the subsequent Gentry case, Gentry alleges breach of warranty and negligent misrepresentation by the Company related to its “hurricane strap” and mudsill anchor products, and demands general, special, and consequential damages from the Company in an amount to be proven at trial. Gentry also seeks pre-judgment and post-judgment interest, attorneys’ fees and costs, and other relief. The Company admits no liability and will vigorously defend the claims brought against it. At this time, the Company cannot reasonably ascertain the likelihood that it will be found responsible for substantial damages to Gentry. Based on the facts currently known, and subject to future events and circumstances, the Company believes that all or part of the claims brought against it in the Gentry case may be covered by its insurance policies.

Given the nature and the complexities involved in the Gentry proceeding, the Company is unable to estimate reasonably the likelihood of possible loss or a range of possible loss until the Company knows, among other factors, (i) the specific claims brought against the Company and the legal theories on which they are based; (ii) what claims, if any, might be dismissed without trial; (iii) how the discovery process will affect the litigation; (iv) the settlement posture of the other parties to the litigation; (v) the damages to be proven at trial, particularly if the damages are not specified or are indeterminate; (vi) the extent to which the Company’s insurance policies will cover the claims or any part thereof, if at all; and (vii) any other factors that may have a material effect on the proceeding.


13.    Segment Information
 
The Company is organized into three reportable segments, which 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, comprising continental Europe and the United Kingdom; and the Asia/Pacific segment, comprising the Company’s operations in China, Hong Kong, the South Pacific and the Middle East.

18


The Company's China and Hong Kong operations are manufacturing and administrative support locations, respectively. These three reportable segments are similar in several ways, including the types of materials used in production, production processes, distribution channels and product applications. The Company’s measure of profit or loss for its reportable segments is income (loss) from operations.

The following tables illustrate certain measurements used by management to assess the performance of its reportable segments as of or for the following periods: 
 
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2020
2019
2020
2019
Net Sales
 

 

 

 

North America
$
286,807

$
259,073

$
535,857

$
480,504

Europe
37,379

43,648

70,111

79,428

Asia/Pacific
1,890

2,132

3,776

4,165

Total
$
326,076

$
304,853

$
609,744

$
564,097

Sales to Other Segments*
 

 

 

 

North America
$
671

$
466

$
1,311

$
807

Europe
1,308

631

2,562

1,089

Asia/Pacific
5,664

7,276

10,477

13,672

Total
$
7,643

$
8,373

$
14,350

$
15,568

Income (Loss) from Operations
 

 

 

 

North America
$
72,196

$
49,838

$
125,757

$
82,652

Europe
2,696

4,643

1,026

4,259

Asia/Pacific
(75
)
186

(679
)
(355
)
Administrative and all other
(2,605
)
(1,014
)
(4,542
)
(2,880
)
Total
$
72,212

$
53,653

$
121,562

$
83,676

            
*    Sales to other segments are eliminated in consolidation.
 
 
 
At
 
At June 30,
December 31,
(in thousands)
2020
2019
2019
Total Assets
 

 

 

North America
$
1,382,051

$
1,194,318

$
1,269,545

Europe
169,757

173,791

169,785

Asia/Pacific
27,957

27,453

30,055

Administrative and all other
(295,262
)
(