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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: September 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 ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareSSDNew 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 filerý  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 November 2, 2020: 43,421,469.



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)
 
 September 30,December 31,
 202020192019
ASSETS   
Current assets   
Cash and cash equivalents$311,465 $194,061 $230,210 
Trade accounts receivable, net226,447 180,898 139,364 
Inventories260,054 242,730 251,907 
Other current assets22,439 17,565 19,426 
Total current assets820,405 635,254 640,907 
Property, plant and equipment, net246,472 250,950 249,012 
Operating lease right-of-use assets41,453 34,463 35,436 
Goodwill133,734 131,191 131,879 
Equity investment 2,475 2,485 2,480 
Intangible assets, net20,964 21,816 25,071 
Other noncurrent assets12,362 10,149 10,581 
Total assets$1,277,865 $1,086,308 $1,095,366 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities   
Trade accounts payable$42,271 $40,861 $33,351 
Accrued liabilities and other current liabilities148,890 125,006 125,556 
      Total current liabilities191,161 165,867 158,907 
   Operating lease liabilities33,354 27,256 27,930 
Long term debt, net of current portion75,000   
  Deferred income tax and other long-term liabilities17,550 16,238 16,572 
Total liabilities317,065 209,361 203,409 
Commitments and contingencies (see Note 12)
Stockholders’ equity   
Common stock, at par value444 446 442 
Additional paid-in capital281,134 278,898 280,216 
Retained earnings772,851 649,053 645,507 
Treasury stock(72,058)(21,437)(9,379)
Accumulated other comprehensive loss(21,571)(30,013)(24,829)
Total stockholders’ equity960,800 876,947 891,957 
Total liabilities and stockholders’ equity$1,277,865 $1,086,308 $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 EndedNine Months Ended
September 30,September 30,
 2020201920202019
Net sales$364,304 $309,932 $974,048 $874,029 
Cost of sales191,061 172,288 521,339 491,952 
Gross profit173,243 137,644 452,709 382,077 
Operating expenses:
Research and development and other engineering12,287 11,972 37,860 35,287 
Selling29,396 27,672 84,757 84,471 
General and administrative40,289 37,047 117,396 117,941 
Total operating expenses81,972 76,691 240,013 237,699 
Net gain on disposal of assets(72)(14)(209)(265)
Income from operations91,343 60,967 212,905 144,643 
Interest expense, net and other(518)(1,778)(3,202)(2,394)
Income before taxes90,825 59,189 209,703 142,249 
Provision for income taxes23,768 15,503 52,341 36,324 
Net income$67,057 $43,686 $157,362 $105,925 
Other comprehensive income
Translation adjustment6,238 5,797 3,170 5,825 
   Unamortized pension adjustments28 (362)88 (462)
        Comprehensive net income$73,323 $49,121 $160,620 $111,288 
Net income per common share:  
Basic$1.54 $0.98 $3.60 $2.37 
Diluted$1.54 $0.97 $3.59 $2.35 
Number of shares outstanding  
Basic43,474 44,477 43,683 44,673 
Diluted43,683 44,814 43,873 44,995 
Cash dividends declared per common share$0.23 $0.23 $0.69 $0.68 
 
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)

Three Months Ended September 30, 2020 and 2019 (unaudited)

 Common StockAdditional Paid-inRetainedAccumulated Other ComprehensiveTreasury 
 SharesPar ValueCapitalEarningsIncome (Loss)StockTotal
Balance at June 30, 202043,473 $444 $277,625 $716,038 $(27,837)$(72,058)$894,212 
Net income— — — 67,057 — — 67,057 
Translation adjustment, net of tax— — — — 6,238 — 6,238 
Pension adjustment and other,
net of tax
— — — — 28 — 28 
Stock-based compensation— — 3,651 — — — 3,651 
Shares issued from release of Restricted Stock Units3 — (162)— — — (162)
Cash dividends declared on common stock, $0.23 per share— — — (10,244)— — (10,244)
Common stock issued at $99.63 per share for stock bonus— $— 20— — — 20 
Balance at September 30, 202043,476 $444 $281,134 $772,851 $(21,571)$(72,058)$960,800 
Balance at June 30, 201944,675 $446 $277,024 $615,529 $(24,578)$ $868,421 
Net income— — — 43,686 — — 43,686 
Translation adjustment and other,
net of tax
— — — — (5,797)— (5,797)
Pension adjustment, net of tax— — — — 362 — 362 
Stock-based compensation— — 1,880 — — — 1,880 
Shares issued from release of Restricted Stock Units1 — (6)— — — (6)
Repurchase of common stock(349)— — — (21,437)(21,437)
Cash dividends declared on common stock, $0.23 per share— — — (10,162)— — (10,162)
Balance, at September 30, 201944,327 $446 $278,898 $649,053 $(30,013)$(21,437)$876,947 















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)

Nine Months Ended September 30, 2020 and 2019 (unaudited)

 Common StockAdditional Paid-inRetainedAccumulated Other ComprehensiveTreasury 
 SharesPar ValueCapitalEarningsIncome (Loss)StockTotal
Balance at December 31, 201944,209 $442 $280,216 $645,507 $(24,829)$(9,379)$891,957 
Net income— — — 157,362 — — 157,362 
Translation adjustment, net of tax— — — — 3,170 — 3,170 
Pension adjustment and other,
net of tax
— — — — 88 — 88 
Stock-based compensation— — 8,481 — — — 8,481 
Shares issued from release of Restricted Stock Units165 2 (7,905)— — — (7,903)
Repurchase of common stock(902)— — — — (62,679)(62,679)
Cash dividends declared on common stock, $0.69 per share— — — (30,018)— — (30,018)
Common stock issued at $81.30 per share for stock bonus4 — 342 — — — 342 
Balance at September 30, 202043,476 $444 $281,134 $772,851 $(21,571)$(72,058)$960,800 
Balance at December 31, 201844,998 $453 $276,504 $628,207 $(24,650)$(25,000)$855,514 
Net income— — — 105,925 — — 105,925 
Translation adjustment, net of tax— — — — (5,825)— (5,825)
Pension adjustment and other,
net of tax
— — — — 462 — 462 
Stock-based compensation— — 8,007 — — — 8,007 
Shares issued from release of Restricted Stock Units178 2 (5,905)— — — (5,903)
Repurchase of common stock(854)— — — — (51,437)(51,437)
Retirement of treasury stock— (9)— (54,991)— 55,000  
Cash dividends declared on common stock, $0.68 per share— — (30,088)— — (30,088)
Common stock issued at $54.31 per share for stock bonus5 — 292 — — — 292 
Balance, at September 30, 201944,327 $446 $278,898 $649,053 $(30,013)$(21,437)$876,947 









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)
Nine Months Ended
September 30,
 20202019
Cash flows from operating activities  
Net income$157,362 $105,925 
Adjustments to reconcile net income to net cash provided by operating activities:  
Gain on sale of assets and other(204)(263)
Depreciation and amortization30,088 29,044 
Noncash lease expense6,246 5,278 
Deferred income taxes and other long-term liabilities1,852 2,262 
Noncash compensation related to stock plans9,459 8,699 
Provision of doubtful accounts23 435 
Changes in operating assets and liabilities:  
Trade accounts receivable(87,170)(36,385)
Inventories(7,199)31,163 
Trade accounts payable7,825 8,130 
Other current assets(618)(3,197)
Accrued liabilities and other current liabilities21,762 3,452 
Other noncurrent assets and liabilities(9,808)(5,308)
Net cash provided by operating activities129,618 149,235 
Cash flows from investing activities  
Capital expenditures(20,879)(24,495)
Asset acquisitions, net of cash acquired(1,425)(3,529)
Proceeds from sale of property and equipment750 2,498 
Net cash used in investing activities(21,554)(25,526)
Cash flows from financing activities  
Repurchase of common stock(62,679)(51,437)
Proceeds from lines of credit 164,330 13,308 
Repayments of lines of credit and capital leases(89,347)(14,335)
Debt issuance costs
(712) 
Dividends paid(30,164)(30,002)
Cash paid on behalf of employees for shares withheld(7,581)(5,905)
Net cash used by in financing activities(26,153)(88,371)
Effect of exchange rate changes on cash and cash equivalents(656)(1,457)
Net increase in cash and cash equivalents81,255 33,881 
Cash and cash equivalents at beginning of period230,210 160,180 
Cash and cash equivalents at end of period$311,465 $194,061 
Noncash activity during the period  
Noncash capital expenditures$778 $194 
Dividends declared but not paid10,000 10,162 
Issuance of Company’s common stock for compensation342 292 
The accompanying notes are an integral part of these condensed consolidated financial statements
8



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 or as the services are completed. 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.




9



Net Income Per Common Share
 
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. 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.

Derivative Instruments - Foreign Currency Contracts

The Company transacts business in various foreign countries and may therefore be exposed to foreign currency exchange rate risk. The Company has established risk management programs to protect against volatility in the value of non-functional future cash flows caused by changes in foreign currency exchange rates and tries to maintain a partial or fully hedged position for certain transaction exposures when management considers appropriate. The Company enters into short-term foreign currency derivatives contracts, namely forward contracts, to hedge only those currency exposures associated with cash flows denominated in non-functional currencies. Gains and losses on the Company's derivative contracts are designed to offset losses and gains on the transactions hedged, and accordingly, generally do not subject the Company to risk of significant accounting losses. The Company hedges committed exposures and does not engage in speculative transactions. The credit risk of these derivative contracts is minimized since the contracts are with a large financial institution and accordingly, fair value adjustments related to the credit risk of the counterparty financial institution are not material.

The Company sources certain materials for its concrete products from a wholly owned subsidiary in China, and as a result is exposed to variability in cash outflows associated with changes in the foreign exchange rate between the United States Dollar
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and the Chinese Yuan (CNY). As of September 30, 2020, the aggregate notional amount of the Company's outstanding foreign currency derivative contracts was to buy CNY 70.3 million by selling $10.1 million throughout fiscal 2021. These forward contracts are accounted for as cash flow hedges under the accounting standards, and fair value is included in other current assets or other current liabilities, as applicable, in the condensed consolidated balance sheets. Net deferred gains and losses on these contracts relating to changes in fair value are included in accumulated other comprehensive loss, a component of shareholders' equity in the condensed consolidated balance sheets, and are reclassified into the line item in the condensed consolidated statement of income in the which the hedged items are recorded in the same period the hedged item affects earnings. Changes in fair value of any forward contracts that are determined to be ineffective are immediately reclassified from other comprehensive income ("OCI") into earnings.

The fair value of these foreign currency forward contracts, calculated based on Level 1 inputs, was not material as of September 30, 2020, and amounts deferred in OCI are expected to be recognized as a component of cost of sales in the consolidated statement of operations primarily during 2021. There were no amounts recognized due to ineffectiveness during the three and nine-months ended September 30, 2020

Cash and Cash Equivalents

The Company classifies other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. As of September 30, 2020 and 2019, the Company’s investments consisted mainly of United States Treasury securities and money market funds, included in cash equivalents 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 September 30, 2020 and 2019 was $46.4 million and $0.1 million, respectively.

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 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 groups 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 third 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 nine months ended September 30, 2020 and 2019, respectively.

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Concrete Construction Products Revenue. Concrete construction products represented 14% and 16% of total net sales in the nine months ended September 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 September 30, 2020, the Company had no contract assets or contract liabilities from contracts with customers.

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 nine months ended September 30, 2020 and 2019, respectively:
 
Three Months Ended 
 
September 30,
Nine Months Ended 
 
September 30,
(in thousands, except per share amounts)2020201920202019
Net income available to common stockholders$67,057 $43,686 $157,362 $105,925 
Basic weighted-average shares outstanding43,474 44,477 43,683 44,673 
Dilutive effect of potential common stock equivalents — restricted stock units209 337 190 322 
Diluted weighted-average shares outstanding43,683 44,814 43,873 44,995 
Net income per common share:    
Basic$1.54 $0.98 $3.60 $2.37 
Diluted$1.54 $0.97 $3.59 $2.35 


4.    Stockholders' Equity

Share Repurchases

During the nine months ended September 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 September 30, 2020,
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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).

As of September 30, 2020, the Company held 1,020,328 shares of its common stock as treasury shares.

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 $4.0 million and $2.1 million for the three months ended September 30, 2020 and 2019, respectively, and $9.5 million and $8.7 million for the nine months ended September 30, 2020 and 2019, respectively.

During the nine months ended September 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 performance-based and/or time-based. Certain 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.

As of September 30, 2020, the Company's aggregate unamortized stock compensation expense was approximately $14.4 million, is expected to be recognized in expense over a weighted-average period of 2.3 years.


6.    Trade Accounts Receivable, Net
 
Trade accounts receivable at the dates indicated consisted of the following: 
 At September 30,At December 31,
(in thousands)
202020192019
Trade accounts receivable
$231,559 $186,219 $144,729 
Allowance for doubtful accounts
(2,032)(1,434)(1,935)
Allowance for sales discounts and returns
(3,080)(3,887)(3,430)
 $226,447 $180,898 $139,364 
 

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7.    Inventories
 
Inventories at the dates indicated consisted of the following: 
 At September 30,At December 31,
(in thousands)
202020192019
Raw materials
$100,198 $91,088 $95,575 
In-process products
21,533 24,554 23,672 
Finished products
138,323 127,088 132,660 
 $260,054 $242,730 $251,907 


8.    Property, Plant and Equipment, Net
 
Property, plant and equipment, net, at the dates indicated consisted of the following: 
 At September 30,At December 31,
(in thousands)
202020192019
Land
$28,287 $29,132 $28,092 
Buildings and site improvements
201,020 197,075 195,210 
Leasehold improvements
5,699 4,909 4,911 
Machinery, equipment, and software
363,187 345,861 351,379 
 598,193 576,977 579,592 
Less accumulated depreciation and amortization
(369,655)(339,920)(346,594)
 228,538 237,057 232,998 
Capital projects in progress
17,934 13,893 16,014 
 $246,472 $250,950 $249,012 


9.    Goodwill and Intangible Assets, Net
 
Goodwill at the dates indicated was as follows: 
 At September 30,At December 31,
(in thousands)
202020192019
North America
$96,161 $96,192 $96,244 
Europe
36,215 33,710 34,300 
Asia/Pacific
1,358 1,289 1,335 
Total
$133,734 $131,191 $131,879 
 
Intangible assets, net, at the dates indicated were as follows: 
 At September 30, 2020
 Gross Net
 CarryingAccumulatedCarrying
(in thousands)
AmountAmortizationAmount
North America
$33,755 $(21,761)$11,994 
Europe
25,930 (16,960)8,970 
Total
$59,685 $(38,721)$20,964 
 
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 At September 30, 2019
 Gross Net
(in thousands)
Carrying
Amount
Accumulated
Amortization
Carrying
Amount
North America
$31,305 $(18,461)$12,844 
Europe
23,351 (14,379)8,972 
   Total$54,656 $(32,840)$21,816 
 
 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 $1.7 million and $1.4 million for the three months ended September 30, 2020 and 2019, respectively, and was $4.5 million and $4.1 million for the nine months ended September 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 September 30, 2020.

At September 30, 2020, the estimated future amortization of definite-lived intangible assets was as follows: 
(in thousands) 
Remaining three months of 2020$1,508 
20215,542 
20223,483 
20232,662 
20241,710 
20251,462 
Thereafter3,981 
$20,348 
 
The changes in the carrying amount of goodwill and intangible assets for the nine months ended September 30, 2020, were as follows: 
  Intangible
(in thousands)GoodwillAssets
Balance at December 31, 2019$131,879 $25,071 
Amortization— (4,538)
Foreign exchange1,855 431 
Balance at September 30, 2020$133,734 $20,964 






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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 September 30, 2020, 2019 and December 31, 2019, condensed consolidated statements of earnings, and condensed consolidated statements of cash flows as of the three months and nine months ended September 30, 2020 and 2019:
Condensed Consolidated Balance Sheets Line ItemSeptember 30,December 31,
(in thousands)202020192019
Operating leases
Assets
Operating leasesOperating lease right-of-use assets$41,453 $34,463 $35,436 
Liabilities
Operating - currentAccrued expenses and other current liabilities$8,443 $7,037 $7,392 
Operating - noncurrent Operating lease liabilities33,354 27,256 27,930 
Total operating lease liabilities$41,797 $34,293 $35,322 
Finance leases
Assets
Property and equipment, grossProperty, plant and equipment, net$3,569 $3,569 $3,569 
Accumulated amortizationProperty, plant and equipment, net(3,036)(2,578)(2,739)
Property and equipment, netProperty, plant and equipment, net$533 $991 $830 
Liabilities
Other current liabilitiesAccrued expenses and other current liabilities$771 $1,116 $1,125 
Other long-term liabilitiesDeferred income tax and other long-term liabilities 764 386 
   Total finance lease liabilities$771 $1,880 $1,511 











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The components of lease expense were as follows:
Condensed Consolidated Statements of Operations Line ItemThree Months Ended September 30,Nine Months Ended September 30,
(in thousands)2020201920202019
Operating lease costGeneral administrative expenses and
cost of sales
$2,736 $2,379 $7,708 $6,784 
Finance lease cost:
   Amortization of right-of-use
assets
General administrative expenses$218 $218 $654 $654 
   Interest on lease liabilitiesInterest expense, net7 16 28 54 
Total finance lease$225 $234 $682 $708 

Other information

Supplemental cash flow information related to leases as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2020201920202019
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows for operating leases$2,611 $2,324 $7,395 $6,604 
   Finance cash flows for finance leases290 290 870 870 
Operating right-of-use assets obtained in exchange for lease
obligations during the current period
7,155 1,616 14,312 3,704 
The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2020:
(in thousands)Finance LeasesOperating Leases
Remaining three months of 2020$290 $2,632 
2021489 10,147 
2022 7,933 
2023 5,867 
2024 4,834 
Thereafter 18,926 
Total lease payments779 50,339 
Less: Present value discount(8)(8,542)
     Total lease liabilities$771 $41,797 









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The following table summarizes the Company's lease terms and discount rates as of September 30, 2020 and 2019:
Weighted-average remaining lease terms (in years):20202019
Operating leases7.036.72
Finance leases0.711.68
Weighted-average discount rate:
Operating leases5.30 %5.37 %
Finance leases3.27 %3.23 %


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; and subsequently paid down $75.0 million during the third quarter of 2020. "Refer to Note 14 Subsequent Event." As of September 30, 2020, the Company's total available credit was $227.5 million under this Credit Facility and other revolving credit lines.

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 $303.9 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 September 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,
18


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. 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: 
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Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2020201920202019
Net Sales    
North America$316,902 $265,505 $852,759 $746,009 
Europe44,766 42,219