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Simpson Manufacturing (SSD)

Filed: 5 Aug 21, 8:00pm

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, 2021
 
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
 
The number of shares of the registrant’s common stock outstanding as of August 3, 2021: 43,439,655 



Simpson Manufacturing Co., Inc. and Subsidiaries

TABLE OF CONTENTS

Part I - Financial 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,
 202120202020
ASSETS   
Current assets   
Cash and cash equivalents$305,796 $315,448 $274,639 
Trade accounts receivable, net249,931 233,867 165,128 
Inventories310,254 265,365 283,742 
Other current assets35,722 20,222 29,630 
Total current assets901,703 834,902 753,139 
Property, plant and equipment, net255,353 247,119 255,184 
Operating lease right-of-use assets43,374 36,930 45,792 
Goodwill134,121 132,335 135,844 
Intangible assets, net23,749 22,139 26,800 
Other noncurrent assets15,674 11,078 15,810 
Total assets$1,373,974 $1,284,503 $1,232,569 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities   
Trade accounts payable$60,268 $49,149 $48,271 
Accrued liabilities and other current liabilities172,186 144,265 145,790 
      Total current liabilities232,454 193,414 194,061 
   Operating lease liabilities34,087 28,893 37,199 
Long term debt, net of current portion150,000 
  Deferred income tax and other long-term liabilities20,528 17,984 20,366 
Total liabilities287,069 390,291 251,626 
Commitments and contingencies (see Note 13)000
Stockholders’ equity   
Common stock, at par value435 444 433 
Additional paid-in capital289,261 277,625 284,007 
Retained earnings822,497 716,038 720,441 
Treasury stock(13,510)(72,058)(13,510)
Accumulated other comprehensive loss(11,778)(27,837)(10,428)
Total stockholders’ equity1,086,905 894,212 980,943 
Total liabilities and stockholders’ equity$1,373,974 $1,284,503 $1,232,569 

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 EndedSix Months Ended
June 30,June 30,
 2021202020212020
Net sales$410,281 $326,076 $757,922 $609,744 
Cost of sales213,835 176,276 399,195 330,278 
Gross profit196,446 149,800 358,727 279,466 
Operating expenses:
Research and development and other engineering14,169 12,191 28,758 25,573 
Selling33,167 26,834 63,990 55,361 
General and administrative47,410 38,636 95,975 77,107 
Total operating expenses94,746 77,661 188,723 158,041 
Net gain on disposal of assets(28)(73)(108)(137)
Income from operations101,728 72,212 170,112 121,562 
Interest expense, net and other(2,636)(151)(4,413)(2,684)
Income before taxes99,092 72,061 165,699 118,878 
Provision for income taxes26,609 18,582 42,827 28,573 
Net income$72,483 $53,479 $122,872 $90,305 
Other comprehensive income
Translation adjustment7,505 4,525 (1,759)(3,069)
   Unamortized pension adjustments(102)(213)390 61 
   Unrealized gains (losses) on derivative instruments(7)19 
        Comprehensive net income$79,879 $57,791 $121,522 $87,297 
Net income per common share:  
Basic$1.67 $1.23 $2.83 $2.06 
Diluted$1.66 $1.22 $2.82 $2.05 
Number of shares outstanding  
Basic43,434 43,471 43,406 43,787 
Diluted43,641 43,663 43,620 43,980 
Cash dividends declared per common share$0.25 $0.23 $0.48 $0.46 
 
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 June 30, 2021 and 2020 (unaudited)

 Common StockAdditional Paid-inRetainedAccumulated Other ComprehensiveTreasury 
 SharesPar ValueCapitalEarningsIncome (Loss)StockTotal
Balance at March 31, 202143,430 $435 $285,896 $760,862 $(19,174)$(13,510)$1,014,509 
Net income— — — 72,483 — — 72,483 
Translation adjustment, net of tax— — — — 7,505��— 7,505 
Pension adjustment and other,
net of tax
— — — — (109)— (109)
Stock-based compensation— — 3,365 — — — 3,365 
Shares issued from release of Restricted Stock Units— — — 
Cash dividends declared on common stock, $0.25 per share— — — (10,848)— — (10,848)
Balance at June 30, 202143,437 $435 $289,261 $822,497 $(11,778)$(13,510)$1,086,905 
Balance at March 31, 202043,464 $444 $272,872 $672,485 $(32,149)$(72,058)$841,594 
Net income— — — 53,479 — — 53,479 
Translation adjustment and other,
net of tax
— — — — 4,525 — 4,525 
Pension adjustment and other,
net of tax
— — — — (213)— (213)
Stock-based compensation— — 4,797 — — — 4,797 
Shares issued from release of Restricted Stock Units(44)— — — (44)
Cash dividends declared on common stock, $0.23 per share— — — (9,926)— — (9,926)
Balance, at June 30, 202043,473 $444 $277,625 $716,038 $(27,837)$(72,058)$894,212 









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)

Six Months Ended June 30, 2021 and 2020 (unaudited)

 Common StockAdditional Paid-inRetainedAccumulated Other ComprehensiveTreasury 
 SharesPar ValueCapitalEarningsIncome (Loss)StockTotal
Balance at December 31, 202043,326 $433 $284,007 $720,441 $(10,428)$(13,510)$980,943 
Net income— — — 122,872 — — 122,872 
Translation adjustment, net of tax— — — — (1,759)— (1,759)
Pension adjustment and other,
net of tax
— — — — 409 — 409 
Stock-based compensation— — 9,826 — — — 9,826 
Shares issued from release of Restricted Stock Units104 (5,263)— — — (5,262)
Cash dividends declared on common stock, $0.48 per share— — — (20,816)— — (20,816)
Common stock issued at $93.45 per share for stock bonus691 — — — 692 
Balance at June 30, 202143,437 $435 $289,261 $822,497 $(11,778)$(13,510)$1,086,905 
Balance at December 31, 201944,209 $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 and other,
net of tax
— — — — 61 — 61 
Stock-based compensation— — 4,830 — — — 4,830 
Shares issued from release of Restricted Stock Units162 (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— 322 — — — 322 
Balance, at June 30, 202043,473 $444 $277,625 $716,038 $(27,837)$(72,058)$894,212 
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,
 20212020
Cash flows from operating activities  
Net income$122,872 $90,305 
Adjustments to reconcile net income to net cash provided by operating activities:  
Loss/(gain) on sale of assets and other118 (147)
Depreciation and amortization22,753 19,739 
Noncash lease expense4,914 4,025 
Loss in equity method investment, before tax2,653 
Deferred income taxes1,144 1,973 
Noncash compensation related to stock plans10,245 5,428 
Provision of doubtful accounts(377)(35)
Changes in operating assets and liabilities:  
Trade accounts receivable(84,702)(95,875)
Inventories(27,270)(14,377)
Trade accounts payable10,774 15,268 
Other current assets(14,802)(4,529)
Accrued liabilities and other current liabilities35,879 22,923 
Other noncurrent assets and liabilities(2,569)(1,932)
Net cash provided by operating activities81,632 42,766 
Cash flows from investing activities  
Capital expenditures(19,296)(14,083)
Asset acquisitions, net of cash acquired(218)
Equity method investments(6,829)
Proceeds from sale of property and equipment129 639 
Net cash used in investing activities(26,214)(13,444)
Cash flows from financing activities  
Repurchase of common stock(62,679)
Proceeds from lines of credit159,412 
Repayments of lines of credit and capital leases(384)(10,387)
Debt issuance costs(712)
Dividends paid(19,956)(20,158)
Cash paid on behalf of employees for shares withheld(5,263)(7,743)
Net cash provided by (used in) financing activities(25,603)57,733 
Effect of exchange rate changes on cash and cash equivalents1,342 (1,817)
Net increase in cash and cash equivalents31,157 85,238 
Cash and cash equivalents at beginning of period274,639 230,210 
Cash and cash equivalents at end of period$305,796 $315,448 
Noncash activity during the period  
Noncash capital expenditures$1,462 $1,308 
Dividends declared but not paid10,847 9,989 
Issuance of Company’s common stock for compensation692 322 
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. 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, 2020 (the “2020 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 2020 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 stated 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, excluding 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 shares 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 leases for certain facilities, equipment, and autos. 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 compensation expense related to the estimated fair value of restricted stock awards on a straight-line basis, net of estimated forfeitures, over the requisite service period of the awards, which is generally the vesting term of four years. Stock-based expense related to performance share grants are measured based on grant date fair value and expensed on a graded basis over the service period 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 restricted stock grants are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.

0Fair 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 fair value of foreign currency forward contracts, calculated based on Level 1 inputs, was not material as of June 30, 2021.

Derivative Instruments - Foreign Currency Contracts

The Company uses derivative instruments as a risk management tool to mitigate the potential impact of certain market risks. Foreign currency exchange rate risk is the primary market risk the Company manages through the use of derivative instruments, which are accounted for as cash flow hedges under the accounting standards and carried at fair value as other current assets or other current liabilities in the consolidated balance sheets. Net deferred gains and losses related to changes in fair value are included in accumulated other comprehensive loss, a component of shareholders' equity in the consolidated balance sheets, and are reclassified into the line item in the consolidated statement of income in which the hedged items are recorded in the same period the hedged item affects earnings. Changes in fair value of any derivatives that are determined to be ineffective are immediately reclassified from other comprehensive income into earnings. The cash flow impact of the Company's derivative instruments is primarily included in the consolidated statement of cash flows in net cash provided by operating activities. Refer to Note 8.


10


Cash and Cash Equivalents

The Company classifies investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. As of June 30, 2021 and 2020, the value of these investments were $57.1 million and $76.9 million, respectively, consisting of U.S. Treasury securities and money market funds. The value of the investments is based on cost, which approximates fair value based on Level 1 inputs.

Current Estimated Credit Loss - Allowance for doubtful accounts

The Company maintains an allowance for doubtful accounts receivable for estimated future expected credit losses resulting from customers' failure to make payments on its accounts receivable. The Company determines the estimate of the allowance for doubtful accounts receivable by considering several factors, including (1) specific information on the financial condition and the current creditworthiness of customers, (2) credit rating, (3) payment history and historical experience, (4) aging of the accounts receivable, and (5) reasonable and supportable forecasts about collectability. The Company also reserves 100% of the amounts deemed uncollectible due to a customer's deteriorating financial condition or bankruptcy.

Every quarter, the Company evaluates the customer group using the accounts receivable aging report and its best judgment when considering changes in customers' credit ratings, level of delinquency, customers' historical payments and loss experience, current market and economic conditions, and expectations of future market and economic conditions.

The changes in the allowance for doubtful accounts receivable for the year ended June 30, 2021 are outlined in the table below:
Balance atBalance at
(in thousands)December 31, 2020Expense (Deductions), net
Write-Offs1
June 30, 2021
Allowance for Doubtful Accounts$2,110 (377)287 $1,446 
1Amount is net of recoveries and the effect of foreign currency fluctuations for the year ended June 30, 2021.

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 Not Yet Adopted

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting in response to the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on December 31, 2021. The ASU allows the option to account for and present a modification that meets the scope of the standard as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination required under the relevant topic or subtopic. Entities are permitted to apply the amendments to all contracts, cash flow and net investment hedge relationships that exist as of March 12, 2020. The relief provided in this ASU is only available for a limited time, generally through December 31, 2022. The Company's primary credit facility is the $300 million revolving line of credit (the "Credit Facility") with Wells Fargo Bank, which matures on July 12, 2026. Borrowings under the Credit Facility bear interest using LIBOR plus an applicable margin. The Credit Facility currently includes a provision for the determination of a successor LIBOR rate or an alternative rate of interest.

On March 5, 2021, ICE Benchmark Administration, the administrator of the LIBOR and the Financial Conduct Authority, announced some USD LIBOR tenors (overnight, 1 month, 3 month, and 12 month) will continue to be published until June 30, 2023. We do not expect a material impact to our consolidated operating results, financial position or cash flow from the transition from LIBOR to alternative reference interest rates, but we will continue to monitor the impact of the transition until it is completed.

All issued and effective accounting standards during the second quarter of 2021 were determined to be not relevant or material to the Company.



11


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 14.

Wood Construction Products Revenue. Wood construction products represented 87% and 86% of total net sales in the six months ended June 30, 2021 and 2020, respectively.

Concrete Construction Products Revenue. Concrete construction products represented 13% and 14% of total net sales in the six months ended June 30, 2021 and 2020, 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, 2021, the Company had no contract assets or contract liabilities from contracts with customers.

12


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, 2021 and 2020, respectively:
 
Three Months Ended 
 
June 30,
Six Months Ended 
 
June 30,
(in thousands, except per share amounts)2021202020212020
Net income available to common stockholders$72,483 $53,479 $122,872 $90,305 
Basic weighted-average shares outstanding43,434 43,471 43,406 43,787 
Dilutive effect of potential common stock equivalents — restricted stock units207 192 214 193 
Diluted weighted-average shares outstanding43,641 43,663 43,620 43,980 
Net income per common share:    
Basic$1.67 $1.23 $2.83 $2.06 
Diluted$1.66 $1.22 $2.82 $2.05 


4.    Stockholders' Equity

Treasury Shares

As of June 30, 2021, the Company held 150,974 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 or non-employee directors to whom the stock-based compensation is awarded. The Company recognized stock-based compensation expense related to its equity plans for employees of $3.3 million and $5.2 million for the three months June 30, 2021 and 2020, respectively, and $9.8 million and $5.4 million for the six months ended June 30, 2021 and 2020.

During the six months ended June 30, 2021, the Company granted 133,717 restricted stock units ("RSUs") to the Company's employees, including officers at an estimated weighted average fair value of $100.93 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 the second quarter of each year. In May and June 2021, the Company granted 6,601 shares of the Company's common stock to the non-employee directors, based on the average closing price of $114.60 per share and recognized a total expense of $756 thousand.

As of June 30, 2021, the Company's aggregate unamortized stock compensation expense was approximately $21.3 million, which is expected to be recognized in expense over a weighted-average period of 2.5 years.


13


6.    Trade Accounts Receivable, Net
 
Trade accounts receivable at the dates indicated consisted of the following: 
 At June 30,At December 31,
(in thousands)202120202020
Trade accounts receivable$255,077 $239,220 $170,001 
Allowance for doubtful accounts(1,446)(2,007)(2,110)
Allowance for sales discounts and returns(3,700)(3,346)(2,763)
 $249,931 $233,867 $165,128 
 

7.    Inventories
 
Inventories at the dates indicated consisted of the following: 
 At June 30,At December 31,
(in thousands)202120202020
Raw materials$101,163 $110,883 $95,777 
In-process products24,117 18,661 21,803 
Finished products184,974 135,821 166,162 
 $310,254 $265,365 $283,742 

8. Derivative Instruments

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 U.S. Dollar and the Chinese Yuan (CNY). As of June 30, 2021, the aggregate notional amount of the Company's outstanding foreign currency derivative contracts was to buy CNY36.9 million by selling $5.4 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 consolidated balance sheet was $0.2 million.

Net deferred gains and losses on these contracts relating to changes in fair value are included in accumulated other comprehensive income or loss ("OCI"), a component of shareholders' equity in the consolidated balance sheets, and are reclassified into the line item in the consolidated statement of income in which the hedged items are recorded in the same period the hedged item affects earnings. For the six months ended June 30, 2021, gains on these contracts of $0.2 million was recognized, as a reduction of cost of sales. Changes in fair value of any forward contracts that are determined to be ineffective are immediately reclassified from OCI into earnings. The amounts deferred in OCI are expected to be recognized as a component of cost of sales in the consolidated statement of operations from 2021 to 2022. There were no amounts recognized due to ineffectiveness during the six months ended June 30, 2021.


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9.    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)202120202020
Land$28,373 $28,068 $28,553 
Buildings and site improvements202,573 200,205 203,421 
Leasehold improvements5,961 5,817 7,091 
Machinery, equipment, and software392,860 359,997 372,923 
 629,767 594,087 611,988 
Less accumulated depreciation and amortization(393,653)(360,719)(377,460)
 236,114 233,368 234,528 
Capital projects in progress19,239 13,751 20,656 
Total$255,353 $247,119 $255,184 


10.    Goodwill and Intangible Assets, Net
 
Goodwill at the dates indicated was as follows: 
 At June 30,At December 31,
(in thousands)202120202020
North America$96,393 $96,099 $96,311 
Europe36,296 34,929 38,059 
Asia/Pacific1,432 1,307 1,474 
Total$134,121 $132,335 $135,844 
 
Intangible assets, net, at the dates indicated were as follows: 
 At June 30, 2021
 Gross Net
 CarryingAccumulatedCarrying
(in thousands)AmountAmortizationAmount
North America$41,003 $(24,715)$16,288 
Europe26,499 (19,038)7,461 
Total$67,502 $(43,753)$23,749 
 
 At June 30, 2020
 Gross Net
(in thousands)Carrying
Amount
Accumulated
Amortization
Carrying
Amount
North America$33,755 $(20,898)$12,857 
Europe25,582 (16,300)9,282 
   Total$59,337 $(37,198)$22,139 
 
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 At December 31, 2020
 Gross Net
(in thousands)Carrying
Amount
Accumulated
Amortization
Carrying
Amount
North America$40,786 $(22,697)$18,089 
Europe26,341 (17,630)8,711 
Total$67,127 $(40,327)$26,800 
 
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 $1.6 million for the three months ended June 30, 2021 and 2020, respectively, and was $3.4 million and $3.0 million for the six months ended June 30, 2021 and 2020, respectively. The weighted-average amortization period for all amortizable intangibles on a combined basis is 6.4 years.

The only indefinite-lived intangible asset, consisting of a trade name, totaled $0.6 million at June 30, 2021.

At June 30, 2021, the estimated future amortization of definite-lived intangible assets was as follows: 
(in thousands) 
Remaining six months of 2021$3,157 
20224,339 
20233,514 
20242,462 
20252,233 
20261,492 
Thereafter5,936 
$23,133 
 
The changes in the carrying amount of goodwill and intangible assets for the six months ended June 30, 2021, were as follows: 
  Intangible
(in thousands)GoodwillAssets
Balance at December 31, 2020$135,844 $26,800 
Acquisitions— 218 
Reclassifications(106)348 
Amortization— (3,426)
Foreign exchange(1,617)(191)
Balance at June 30, 2021$134,121 $23,749 


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11.    Leases

Operating Lease Obligations

The Company has operating leases for certain facilities, equipment and autos. The existing operating leases expire at various dates through 2025, 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 ("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.

The following table provides a summary of leases included on the condensed consolidated balance sheets as of June 30, 2021 and 2020 and December 31, 2020, condensed consolidated statements of earnings and comprehensive income, and condensed consolidated statements of cash flows as of three and six months ended June 30, 2021 and 2020:
Condensed Consolidated Balance Sheets Line ItemJune 30,December 31,
(in thousands)202120202020
Operating leases
Assets
Operating leasesOperating lease right-of-use assets$43,374 $36,930 $45,792 
Liabilities
Operating - currentAccrued expenses and other current liabilities$9,777 $8,099 $9,143 
Operating - noncurrentOperating lease liabilities34,087 28,893 37,199 
Total operating lease liabilities$43,864 $36,992 $46,342 
Finance leases
Assets
Property and equipment, grossProperty, plant and equipment, net$3,569 $3,569 $3,569 
Accumulated amortizationProperty, plant and equipment, net(3,264)(2,953)(3,112)
Property and equipment, netProperty, plant and equipment, net$305 $616 $457 
Liabilities
Other current liabilitiesAccrued expenses and other current liabilities$48 $998 $384 
   Total finance lease liabilities$48 $998 $384 


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The components of lease expense were as follows:
Condensed Consolidated Statements of Earnings and Comprehensive Income Line ItemThree Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Operating lease costGeneral administrative expenses and
     cost of sales
$3,055 $2,625 $6,017 $5,051 
Finance lease cost:
   Amortization of right-of-use
        assets
General administrative expenses$107 $218 $214 $436 
   Interest on lease liabilitiesInterest expense, net21 
Total finance lease$108 $227 $216 $457 

Other information

Supplemental cash flow information related to leases as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows for operating leases$2,994 $2,506 $5,905 $4,857 
   Finance cash flows for finance leases146 290 292 580 
Operating right-of-use assets obtained in exchange for lease
     obligations during the current period
3,307 4,510 4,093 7,112 
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2021:
(in thousands)Finance LeasesOperating Leases
Remaining six months of 2021$48 $5,807 
202210,019 
20237,640 
20245,917 
20255,364 
Thereafter18,004 
Total lease payments48 52,751 
Less: Present value discount(8,887)
     Total lease liabilities$48 $43,864 


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The following table summarizes the Company's lease terms and discount rates as of June 30, 2021 and 2020:
Weighted-average remaining lease terms (in years):20212020
Operating leases6.916.59
Finance leases00.95
Weighted-average discount rate:
Operating leases5.28 %5.36 %
Finance leases3.50 %3.25 %


12.    Debt

As previously disclosed, the Credit Facility is the $300.0 million revolving line of credit with Wells Fargo Bank and is the Company's primary credit facility. 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 $304.0 million in revolving credit lines and an irrevocable standby letter of credit in support of various insurance deductibles. There were 0 outstanding balances as of June 30, 2021 and December 31, 2020, respectively.

The Company was in compliance with its financial covenants under the Credit Facility as of June 30, 2021.

13.    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. At this time, the Company and the plaintiffs have reached a settlement in principle and are currently negotiating a definitive written agreement memorializing the settlement. Should the parties be unable to reach an accord on terms of the written agreement, further negotiations may take place that could result in a different settlement, or the case may continue on to trial. Based on the facts currently known, and subject to future events and
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circumstances, the Company believes that all or part of the damages for the claims brought against it in the Gentry case may be covered by its insurance policies.


14.    Segment Information
 
The Company is organized into 3 reporting segments 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 (comprised primarily of the Company’s operations in the U.S. and Canada), the Europe segment and the Asia/Pacific segment (comprised of the Company’s operations in Asia, the South Pacific, and the Middle East). These segments are similar in several ways, including the types of materials used, the production processes, the distribution channels and the product applications.

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)2021202020212020
Net Sales    
North America$350,557 $286,807 $651,120 $535,857 
Europe56,438 37,379 100,734 70,111 
Asia/Pacific3,286 1,890 6,068 3,776 
Total$410,281 $326,076 $757,922 $609,744 
Sales to Other Segments*    
North America$221 $671 $917 $1,311 
Europe1,551 1,308 3,160 2,562 
Asia/Pacific5,465 5,664 13,993 10,477 
Total$7,237 $7,643 $18,070 $14,350 
Income (Loss) from Operations    
North America$95,123 $72,196 $164,533 $125,757 
Europe5,873 2,696 8,164 1,026 
Asia/Pacific203 (75)628 (679)
Administrative and all other529 (2,605)(3,213)(4,542)
Total$101,728 $72,212 $170,112 $121,562 
            
*    Sales to other segments are eliminated in consolidation.
   At
 At June 30,December 31,
(in thousands)202120202020
Total Assets   
North America$1,189,835 $1,382,051 $1,059,967 
Europe205,065 169,757 198,647 
Asia/Pacific31,774 27,957 32,754 
Administrative and all other(52,700)(295,262)(58,799)
Total$1,373,974 $1,284,503 $1,232,569 
 
Cash collected by the Company’s United States subsidiaries is routinely transferred into the Company’s cash management accounts and, therefore, has been included in the total assets of “Administrative and all other.” Cash and cash equivalent balances in the “Administrative and all other” segment were $238.3 million, $261.8 million, and $199.8 million, as of June 30, 2021 and 2020, and December 31, 2020, respectively. Total "Administrative and all other" assets are net of inter-segment due to and from accounts eliminated in consolidation.

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While the Company manages its business by geographic segment, the following table illustrates the distribution of the Company’s net sales by product group as additional information for the following periods:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2021202020212020
Wood construction products$355,787 $280,724 $657,365 $523,244 
Concrete construction products54,305 45,304 99,828 86,316 
Other189 48 729 184 
Total$410,281 $326,076 $757,922 $609,744 

Wood construction products include connectors, truss plates, fastening systems, fasteners and pre-fabricated shearwalls, and are used for connecting and strengthening wood-based construction primarily in the residential construction market. Concrete construction products include adhesives, chemicals, mechanical anchors, carbide drill bits, powder actuated tools and fiber reinforcing materials, and are used for restoration, protection or strengthening concrete, masonry and steel construction in residential, industrial, commercial and infrastructure construction.

15.    Subsequent Events

Dividend declared

On July 14, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share, estimated to be $10.8 million in total. The dividend will be payable on October 28, 2021, to the Company's stockholders of record on October 7, 2021.

Credit Agreement

In July 2021, the Company entered into a fourth amendment to the Credit Facility that extended the term of the Credit Facility from July 23, 2022, to July 12, 2026.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Each of the terms the “Company,” “we,” “our,” “us” and similar terms used herein refer collectively to Simpson Manufacturing Co., Inc., a Delaware corporation and its wholly-owned subsidiaries, including Simpson Strong-Tie Company Inc., unless otherwise stated. The Company regularly uses its website to post information regarding its business and governance. The Company encourages investors to use http://www.simpsonmfg.com as a source of information about the Company. The information on our website is not incorporated to reference or other material we file with or furnish to the Securities and Exchange Commission, except in explicitly noted or as required by law.

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s consolidated financial condition and results of operations. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto included in this report.

“Strong-Tie” and our other trademarks appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements generally can be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “target,” “continue,” “predict,” “project,” “change,” “result,” “future,” “will,” “could,” “can,” “may,” “likely,” “potentially,” or similar expressions that concern our strategy, plans, expectations or intentions. Forward-looking statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, business outlook, priorities, expectations and intentions, expectations for sales growth, comparable sales, earnings and performance, stockholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, our strategic initiatives, including the impact of these initiatives on our strategic and operational plans and financial results, and any statement of an assumption underlying any of the foregoing and other statements that are not historical facts. Although we believe that the expectations, opinions, projections and comments reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and we can give no assurance that such statements will prove to be correct. Actual results may differ materially from those expressed or implied in such statements.

Forward-looking statements are subject to inherent uncertainties, risks and other factors that are difficult to predict and could cause our actual results to vary in material respects from what we have expressed or implied by these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those expressed in our forward looking statements include, among others, those discussed under Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2020 Form 10-K. Additional risks include: the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; the impact of pandemics, epidemics or other public health emergencies, such as the recent outbreak of coronavirus disease 2019 (COVID-19); volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and existing credit facilities; restrictions on our business and financial covenants under our bank credit agreement; and reliance on employees subject to collective bargaining agreements.

We caution that you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and factors that may affect our business.

Overview
 
We design, manufacture and sell building construction products that are of high quality and performance, easy to use and cost-effective for customers. We operate in three business segments determined by geographic region: North America, Europe and Asia/Pacific.
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At our March 23, 2021 analyst and investor day, we unveiled several key growth initiatives that we believe will help us continue our track record of above market revenue growth through a combination of organic and inorganic opportunities. Our organic opportunities are focused on expansion into new markets within our core competencies of wood and concrete products. These growth initiatives will focus on the original equipment manufacturers, repair and remodel or do-it-yourself, mass timber, concrete and structural steel markets.

In order to grow in these markets, we aspire to be among the leaders in engineered load-rated construction building products and systems and customer-facing technology while leveraging our engineering expertise, deep-rooted relationships with top builders, engineers, contractors, code officials and distributors, along with our ongoing commitment to testing, research and innovation. Importantly, we currently have existing products, testing results, distribution and manufacturing capabilities for five targeted areas for growth. Although these initiatives are all currently in different stages of development our successful growth in these areas will ultimately be a function of expanding our sales and/or marketing functions to promote our products to different end users and distribution channels, expanding our customer base, and potentially introducing new products in the future.

Also during the March analyst and investor day, we highlighted our Five-year Ambitions, which are as follows:

1.Strengthen our values-based culture;
2.Be the business partner of choice;
3.Strive to be an innovative leader in our product categories;
4.Continue above market growth relative to the U.S. housing starts;
5.Remain within the top quartile of our proxy peers for operating income margins; and
6.Remain in the top quartile of our proxy peers for return on invested capital.

As with our growth initiatives, we expect to make periodic updates related to material developments with our Five-year Ambitions.

A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and has spread around the world, including to the United States. In March 2020, the World Health Organization declared COVID-19 a worldwide pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. As of June 30, 2021, the effects of and responses to the pandemic continue to have a significant impact on worldwide economic activity and on macroeconomic conditions. Vaccines are available in various countries and distribution of the vaccine also varies by country and in the U.S. by state. The duration and severity of the effects of the pandemic are still unknown and cannot be predicted with any certainty. Notwithstanding the Company's continued efforts to promote the health and safety of our employees, suppliers and customers, as the COVID-19 pandemic continues, health concern risks remain. It also remains unclear how various national, state, and local governments will react if the distribution of vaccines is slower than expected or new variants of the virus become more prevalent.

In response to the pandemic, government authorities in the countries and states where we operate have issued various and differing shelter in place and stay at home orders, social distancing guidelines, mask mandates and other measures in response to the COVID-19 pandemic. In many of those locations our operations are classified as an "essential business" and we continue to operate our business in compliance with applicable state and local laws and are observing recommended CDC guidelines to minimize the risk of spreading the COVID-19 virus. We have undertaken numerous steps and instituted additional precautions to protect our employees, suppliers and customers, as their safety and well-being is one of our top priorities, and to comply with health and safety guidelines. These steps and precautions include enhanced deep cleaning, staggered shifts, temperature checking, use of face masks, practicing social distancing and limiting non-employees at our locations, amongst other safety related policies and procedures. Although vaccines are available where we operate, health concern risks remain and it is possible the COVID-19 pandemic could further impact our operations and the operations of our suppliers and vendors particularly in light of variant strains of COVID-19 that may cause a resumption of high levels of infection and hospitalization.

The Company’s management team continues to monitor and manage its ability to operate effectively and, to date, the Company has not experienced any significant disruptions within its supply chain. Our supply chain partners have been very supportive and continue to do their part to ensure that service levels to our customers remain strong and, to date, we have not experienced any supply-chain disruptions and continued to meet our customers’ needs despite the challenges presented by the pandemic. We will continue to communicate with our supply chain partners to identify and mitigate risk and to manage inventory levels.

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In response to the COVID-19 pandemic the Company proactively took measures to maintain and preserve its strong financial position and flexibility. The Company's Crisis Management Team, which includes members of senior management, meets regularly to review and assess the status of the Company's operations and the health and safety of its employees.

The Company’s business, financial condition and results of operations depends significantly on the level of U.S. housing starts and residential construction activity. Though single-family housing starts increased significantly from prior-year's level, we believe there is uncertainty that demand will increase in the short-term due to a number of supply-chain factors affecting new home completion. With recent sales price increases, we believe net sales will likely increase in future periods even if demand does not decrease. However, increased selling prices are expected to be offset by increasing material costs, sourcing logistics complications and a tight labor market, which could negatively affect operating margins for the remainder of 2021.

Since June 2020, inventory pounds in North America, which is the bulk of our inventory, decreased 23% while the weighted average cost per pound of total on hand increased approximately 49%. Over the next 12 to 18 months, steel cost increases are expected to result in lowering operating margins by 300 to 400 basis points from 2021.

Management continues to monitor the impact of the global situation on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce.

Factors Affecting Our Results of Operations

Unlike lumber or other products that have a more direct correlation to U.S. housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. Our products are generally used in a sequential process that follows the construction process. Residential and commercial construction begins with the foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules.

Our sales also tend to be seasonal, with operating results varying from quarter to quarter. With some exceptions, our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year, as our customers tend to purchase construction materials in the late spring and summer months for the construction season. Weather conditions, such as extended cold or wet weather, which affect and sometimes delay installation of some of our products, could negatively affect our results of operations. Political, economic events such as tariffs and the possibility of additional tariffs on imported raw materials or finished goods or such as labor disputes can also have an effect on our gross and operating profits as well as the amount of inventory on-hand. Our operations can also be affected by a volatile steel market. Changes in raw material cost could negatively affect our gross profit and operating margins depending on the timing of raw material purchases or how much sales prices can be increased to offset higher raw material costs.

Our operations also expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic.

ERP Integration

In July 2016, our Board of Directors approved a plan to replace our current in-house enterprise resource planning (“ERP”) and externally sourced accounting platforms with a fully integrated ERP platform from SAP America, Inc. (“SAP”) in multiple phases by location at all facilities plus our headquarters, with a focus on configuring, instead of customizing, the standard SAP modules.

We went live with our first wave of the SAP implementation project in February of 2018, and completed implementation at our North America operations in 2021. We expect to complete the company-wide SAP implementation during 2022. While we believe the SAP implementation will be beneficial to the Company over time, annual operating expenses have and are expected to continue to increase through 2024 as a result of the SAP implementation, primarily due to increases in training costs and the depreciation of previously capitalized costs.

Business Segment Information

Historically our North America segment has generated more revenues from wood construction products compared to concrete construction products. Our wood construction product net sales increased 23.2% for the quarter ended June 30, 2021 compared to June 30, 2020, primarily due to higher product prices. Our concrete construction product net sales increased 15.2% for the quarter ended June 30, 2021 compared to June 30, 2020, primarily due to higher product prices. Operating profits increased due
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to higher sales and gross margins, partly offset by higher operating expenses primarily for personnel costs and professional fees. If current economic conditions continue and factoring in recently announced sales price increases, we believe North America operating margins could be higher in 2021 compared to 2020. However, increased steel costs, product sourcing complications and a tight labor market will likely result in lower operating margins in the second half of 2021.

Our Europe segment also generates more revenues from wood construction products than concrete construction products. Europe net sales increased for the quarter ended June 30, 2021 compared to June 30, 2020, primarily due to higher sales volumes in local currency and were positively affected by approximately $5.3 million in foreign currency translation related to Europe's currencies strengthening against the United States dollar. Wood construction product sales increased 53.7% for the quarter ended June 30, 2021 compared to June 30, 2020. Concrete construction product sales are mostly project based, and net sales increased 40.6% for the quarter ended June 30, 2021 compared to June 30, 2020. Gross margins increased, mostly due to lower labor, factory, warehouse and shipping costs, partly offset by higher material costs. Operating expenses increased, primarily due to increased personnel costs. If current economic conditions continue and factoring in recently announced sales price increases, we believe Europe operating margins could be higher in 2021 compared to 2020. However, increased steel costs and product sourcing complications could offset increased sales, negatively affecting operating margins towards the end of 2021 through 2022.

Our Asia/Pacific segment has generated revenues from both wood and concrete construction products. We believe that the Asia/Pacific segment is not significant to our overall performance.

Business Outlook

On July 26, 2021, the Company provided a full-year outlook. The Company updated its full year outlook, primarily reflecting actual results of the second quarter, as well as improved visibility on the pandemic-related restrictions and the impact of those restrictions on the Company’s operations. Based on current business trends and conditions, the Company's outlook for the full fiscal year ending December 31, 2021 is as follows:

Operating margin is estimated to be in the range of 19.5% to 21.0%.

The effective tax rate is estimated to be in the range of 25.0% to 26.0%, including both federal and state income tax rates.

Capital expenditures are estimated to be in the range of $55 million to $60 million.


Results of Operations for the Three Months Ended June 30, 2021, Compared with the Three Months Ended June 30, 2020
 
Unless otherwise stated, the below results, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the three months ended June 30, 2021, against the results of operations for the three months ended June 30, 2020. Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended June 30, 2020 and the three months ended June 30, 2021.

Second Quarter 2021 Consolidated Financial Highlights

The following table illustrates the differences in our operating results for the three months ended June 30, 2021, from the three months ended June 30, 2020, and the increases or decreases for each category by segment:
 
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Three Months EndedThree Months Ended
 Increase (Decrease) in Operating Segment
 June 30,North Asia/Admin &June 30,
(in thousands)2020AmericaEuropePacificAll Other2021
Net sales$326,076 $63,750 $19,059 $1,396 $— $410,281 
Cost of sales176,276 24,790 11,867 673 229 213,835 
Gross profit149,800 $38,960 $7,192 $723 (229)196,446 
Research and development and other engineering expense12,191 1,619 324 34 14,169 
Selling expense26,834 4,547 1,487 299 — 33,167 
General and administrative expense38,636 9,842 2,196 101 (3,365)47,410 
Total operating expenses77,661 16,008 4,007 434 (3,364)94,746 
Net loss (gain) on disposal of assets(73)25 12 (28)
Income from operations72,212 22,927 3,178 277 3,134 101,728 
Interest income (expense), net and other(151)(2,450)(673)(139)777 (2,636)
Income before income taxes72,061 20,477 2,505 138 3,911 99,092 
Provision for income taxes18,582 8,393 474 (846)26,609 
Net income$53,479 $12,084 $2,031 $132 $4,757 $72,483 
 
Net sales increased 25.8% to $410.3 million from $326.1 million primarily by the implementation of two product price increases during the quarter along with marginal increase in sales volume. Wood construction product net sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 87% and 86% of the Company's total net sales in the second quarters of 2021 and 2020, respectively. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 13% and 14% of the Company's total net sales in the second quarters of 2021 and 2020, respectively.

Gross profit increased 31.1% to $196.4 million from $149.8 million. Gross margins increased to 47.9% from 45.9%, primarily due to product price increases. Gross margins, including some inter-segment expenses, which were eliminated in consolidation, and excluding other expenses that are allocated according to product group, increased to 47.4% from 46.2% for wood construction products and increased to 47.5% from 40.7% for concrete construction products, respectively.

Research and development and engineering expense increased 16.2% to $14.2 million from $12.2 million, primarily due to increases of $0.8 million in personnel costs, $0.7 million in professional fees and $0.2 million in patent expense,

Selling expense increased 23.6% to $33.2 million from $26.8 million, primarily due to increases of $3.2 million in personnel costs, $2.4 million in commissions, and $1.5 million in professional fees, partly offset by decreases of $0.5 million in stock-based compensation expense.

General and administrative expense increased 22.7% to $47.4 million from $38.6 million, primarily due to increases of $4.9 million in professional fees, $4.3 million in personnel costs, and $0.6 million in amortization and depreciation expense, partly offset by a decrease of $1.0 million in stock-based compensation expense. Included in general and administrative expense are SAP implementation and support costs of $4.7 million, which increased $2.2 million from the prior year quarter.

Our effective income tax rate increased to 26.9% from 25.8%.

Consolidated net income was $72.5 million compared to $53.5 million. Diluted net income per common share was $1.66 compared to $1.22.

26


Net sales
 
The following table represents net sales by segment for the three-month periods ended June 30, 2021 and 2020, respectively:
 North Asia/ 
(in thousands)AmericaEuropePacificTotal
Three months ended    
June 30, 2020$286,807 $37,379 $1,890 $326,076 
June 30, 2021350,557 56,438 3,286 410,281 
Increase$63,750 $19,059 $1,396 $84,205 
Percentage increase22.2 %51.0 %73.9 %25.8 %

The following table represents segment net sales as percentages of total net sales for the three-month periods ended June 30, 2021 and 2020, respectively:
 
North
America
EuropeAsia/
Pacific
Total
Percentage of total 2020 net sales88 %12 %— %100 %
Percentage of total 2021 net sales85 %14 %%100 %
 
Gross profit
 
The following table represents gross profit by segment for the three-month periods ended June 30, 2021 and 2020, respectively:
 
 North Asia/Admin & 
(in thousands)AmericaEuropePacificAll OtherTotal
Three months ended     
June 30, 2020$136,024$13,106$484$186$149,800
June 30, 2021174,98420,2981,207(43)196,446
Increase$38,960$7,192$723$(229)$46,646
Percentage Increase28.6 %54.9 %**31.1 %
                         
* The statistic is not meaningful or material.
 
The following table represents gross profit as a percentage of sales by segment for the three months ended June 30, 2021 and 2020, respectively:
 
North
America
EuropeAsia/
Pacific
Admin &
All Other
Total
2020 gross profit percentage47.4 %35.1 %25.6 %*45.9 %
2021 gross profit percentage49.9 %36.0 %36.7 %*47.9 %
                         
* The statistic is not meaningful or material.


North America

Net sales increased 22.2%, due primarily to product price increases that took effect in second quarter, in an effort to offset rising material costs, along with marginally higher sales volumes. Most of the Company's distribution channels continued to benefit from increased U.S. housing starts and repair and remodel activity, while sales to home centers decreased. Canada's net sales also increased primarily due to higher sales volumes and were positively impacted by approximately $2.6 million in foreign currency translation.
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Gross profit as a percentage of net sales increased to 49.9% from 47.4%, primarily due to the aforementioned product price increases.

Research, development and engineering expenses increased 14.4%, primarily due to increases of $0.5 million in personnel costs and $0.3 million in professional fees, $0.2 million in lower capitalized costs and $0.2 million in patent costs.

Selling expense increased 20.3%, primarily due to increases of $2.1 million in travel–associated expenses, $1.8 million in personnel costs, $1.3 million in commissions, and $0.5million in professional fees, offset by decreases of $0.6 million in advertising costs and $0.5 million in stock-based compensation.

General and administrative expense increased 32.6%, primarily due to increases of 8.4 million for professional\legal fees, $0.9 million in personnel costs, $0.8 million in rent, depreciation and amortization, partly offset by a decrease of $0.3 million in stock-based compensation.

Income from operations increased by $22.9 million, primarily due to increased gross profit, partly offset by higher operating expenses.

Europe

Net sales increased 51.0%, primarily due to higher sales volumes and were positively affected by approximately $5.3 million in foreign currency translation related to Europe's currencies strengthening against the United States dollar.

Gross profit as a percentage of net sales increased to 36.0% from 35.1%, primarily due to lower labor, factory, warehouse and shipping costs, partly offset by higher material costs, each as a percentage of net sales.

Income from operations increased by $3.2 million, primarily due to the increase in sales volumes and gross profit, partly offset by higher operating expenses due to higher personnel costs.

Asia/Pacific

For information about the Company's Asia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the three months ended June 30, 2021 and 2020, respectively.


Results of Operations for the Six Months Ended June 30, 2021, Compared with the Six Months Ended June 30, 2020
 
Unless otherwise stated, the results announced below, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the six months ended June 30, 2021, against the results of operations for the six months ended June 30, 2020. Unless otherwise stated, the results announced below, when referencing “both periods,” refer to the six months ended June 30, 2020 and the six months ended June 30, 2021

Year-to-Date (6-month) 2021 Consolidated Financial Highlights

The following table illustrates the differences in our operating results for the six months ended June 30, 2021, from the six months ended June 30, 2020, and the increases or decreases for each category by segment:
 
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 Six Months EndedIncrease (Decrease) in Operating SegmentSix Months Ended
 June 30,North Asia/Admin &June 30,
(in thousands)2020AmericaEuropePacificAll Other2021
Net sales609,744 $115,263 $30,623 $2,292 $— $757,922 
Cost of sales330,278 52,714 18,882 492 (3,171)399,195 
Gross profit279,466 62,549 11,741 1,800 3,171 358,727 
Research and development and other engineering expense25,573 2,723 377 85 — 28,758 
Selling expense55,361 6,637 1,626 364 63,990 
General and administrative expense77,107 17,793 2,574 107 (1,606)95,975 
158,041 27,153 4,577 556 (1,604)188,723 
Net gain on disposal of assets(137)66 25 -0.84(63)(108)
Income from operations121,562 35,330 7,139 1,307 4,774 170,112 
Interest expense, net and other(2,684)(2,833)1,062 (56)98 (4,413)
Income before income taxes118,878 32,497 8,201 1,251 4,872 165,699 
Provision for income taxes28,573 14,033 1,365 209 (1,353)42,827 
Net income$90,305 $18,464 $6,836 $1,042 $6,225 $122,872 
 
Net sales increased 24.3% to $757.9 million from $609.7 million. Net sales increased due to increases in sales volumes as well as the implementation of product price increases during the second quarter of 2021. Wood construction product net sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 87% and 86% of the Company's total net sales in the first six months of 2021 and 2020, respectively. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 13% and 14% of the Company's total net sales in the first six months of 2021 and 2020, respectively.

Gross profit increased 28.4% to $358.7 million from $279.5 million. Gross profit margins increased to 47.3% from 45.8%, primarily due to lower labor costs and factory expense as well as product price increases implemented during the second quarter, partly offset by higher material costs, warehouse, and shipping expense each as a percentage of net sales. The gross profit margins, including some inter-segment expenses, which were eliminated in consolidation, and excluding other expenses that are allocated according to product group, increased to 47.0% from 45.8% for wood construction products and increased to 45.2% from 42.4% for concrete construction products.

Research and development and engineering expense increased 12.5% to $28.8 million from $25.6 million primarily due to increases of $1.5 million in in personnel costs, $0.8 million in professional fees and $0.4 million in patent costs.

Selling expense increased to $64.0 million from $55.4 million, primarily due to increases of $6.8 million in personnel costs and sales commissions, $3.0 million in professional fees, $1.0 million in stock-based compensation, and $0.4 million cash profit sharing expense, partly offset by decreases of $1.0 million in advertising and promotional expense, $0.6 million travel-related expenses and $0.4 million software development costs being capitalized.

General and administrative expense increased to $96.0 million from $77.1 million, primarily due to increases of $6.0 million in professional fees, including consulting fees, $4.9 million in personnel costs, $3.6 million in stock-based compensation, $2.5 million in cash profit sharing expenses and $1.6 million in depreciation and amortization expenses. Included in general and administrative expense are costs associated with the SAP implementation and support of $9.3 million, an increase of $3.4 million over the first six-months of 2020.

Our effective income tax rate increased to 25.8% from 24.0%.

Consolidated net income was $122.9 million compared to $90.3 million. Diluted net income per common share was $2.82 compared to $2.05.

29


Net sales
 
The following table represents net sales by segment for the six-month periods ended June 30, 2020 and 2021, respectively:
 North Asia/ 
(in thousands)AmericaEuropePacificTotal
Six Months Ended    
June 30, 2020$535,857 $70,111 $3,776 $609,744 
June 30, 2021651,120 100,734 6,068 757,922 
Increase$115,263 $30,623 $2,292 $148,178 
Percentage increase21.5 %43.7 %60.7 %24.3 %

The following table represents segment net sales as percentages of total net sales for the six-month periods ended June 30, 2020 and 2021, respectively:
North
America
EuropeAsia/
Pacific
Total
Percentage of total 2020 net sales88 %12 %— %100 %
Percentage of total 2021 net sales86 %13 %%100 %

Gross profit
 
The following table represents gross profit by segment for the six-month periods ended June 30, 2020 and 2021, respectively:
 North Asia/Admin & 
(in thousands)AmericaEuropePacificAll OtherTotal
Six Months Ended     
June 30, 2020$254,819 $23,807 $651 $189 $279,466 
June 30, 2021317,369 35,548 2,451 3,359 358,727 
Increase$62,550 $11,741 $1,800 $3,170 $79,261 
Percentage increase24.5 %49.3 %**28.4 %
                         
* The statistic is not meaningful or material

The following table represents gross profit as a percentage of sales by segment for the six-month periods ended June 30, 2020 and 2021, respectively:
 
(in thousand)North
America
EuropeAsia/
Pacific
Admin &
All Other
Total
2020 gross profit percentage47.6 %34.0 %17.2 %*45.8 %
2021 gross profit percentage48.7 %35.3 %40.4 %*47.3 %
                         
* The statistic is not meaningful or material.

North America

Net sales increased 21.5%, primarily due to higher sales volumes from all of our distribution channels, including the return of Lowe's, and product price increases implemented during the second quarter. Canada net sales increased primarily due to increases in sales volume and were positively affected by $3.3 million foreign currency translation in local currency.

Gross profit margin increased to 48.7% from 47.6%, primarily due to decreases in labor, warehouse and factory and overhead costs as well as product price increases implemented during the second quarter, partly offset by higher material costs, each as a percentage of net sales.
30



Research and development and engineering expense increased $2.7 million, primarily due to increases of $1.0 million in personnel costs, $0.6 million in professional fees, $0.3 million in patent costs, and $0.2 million in computer related costs.

Selling expense increased $6.6 million, primarily due to increases of $4.6 million in personnel costs and sales commissions, $1.5 million in professional fees, $0.8 million in stock-based compensation, and $0.8 million in cash profit sharing expense, partly offset by decreases of $0.9 million in advertising and promotional expense, and $0.4 million in travel–associated expenses.

General and administrative expense increased $17.8 million, primarily due to increases of $11.6 million in professional fees, including consulting fees, $2.6 million in personnel costs, $1.3 million in depreciation and amortization expense, $0.8 million in computer software and hardware costs and $0.6 million in stock-based compensation, partly offset by decreases of $0.3 million in travel related expenses, and $0.3 million in cost profit sharing. Included in general and administrative expense are costs associated with the SAP implementation and support of $7.2 million, an increase of $1.3 million over the first six months of 2020.

Income from operations increased $35.3 million, mostly due to increased sales, gross profit margins, partly offset by higher operating expenses.

Europe

Net sales increased 43.7%, primarily due to higher sales volumes compared to last year’s COVID-19 related slow-down. Europe sales were also benefited by positive $8.8 million foreign currency translations resulting from some Europe currencies strengthening against the United States dollar.

Gross profit margins increased to 35.3% from 34.0%, primarily due to lower labor, factory, shipping and warehouse costs, offset by higher material costs each as a percentage of net sales.

Selling expense increased $1.6 million, primarily due to increases of $1.4 million in personnel costs, $0.6 million in professional fees, offset by decrease of $0.3 million in travel-related and advertising expenses.

General and administrative expense increased $2.6 million, primarily due to increases of $1.1 million in professional fees, $0.9 million in personnel costs, and $0.3 million in cash profit sharing. Included in general and administrative expense are costs associated with the SAP implementation and support of $2.0 million, an increase of $0.8 million over the first six months of 2020.

Income from operations increased $7.1 million, primarily due to higher sales and gross profit margins, partly offset by higher operating expenses.

Asia/Pacific

For information about the Company's Asia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the six months ended June 30, 2021 and 2020, respectively.



Effect of New Accounting Standards

See "Note 1 Basis of Presentation — Not Yet Adopted Accounting Standards” to the accompanying unaudited interim condensed consolidated financial statements.

Liquidity and Sources of Capital

In July 2021, the Company entered into a fourth 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 Facility from July 23, 2022, to July 12, 2026
31


and modified certain covenants to provide us with additional flexibility. As of June 30, 2021, the full $300 million on the Credit Facility was available for borrowing and we remain debt free.

Our principal uses of liquidity include the costs and expenses associated with our operations, including financing working capital requirements and continuing our capital allocation strategy, which includes supporting capital expenditures, repurchasing the Company's common stock, paying cash dividends, and financing other investment opportunities over the next twelve months.

As of June 30, 2021, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions. Cash and cash equivalents of $67.7 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated to the United States. The Company is maintaining a permanent reinvestment assertion on its foreign earnings relative to remaining cash held outside the United States.

The following table presents selected financial information as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively:
At June 30,At December 31,At June 30,
(in thousands)202120202020
Cash and cash equivalents$305,796 $274,639 $315,448 
Property, plant and equipment, net255,353 255,184 247,119 
Goodwill, intangible assets and other164,511 165,110 156,957 
Working capital less cash and cash equivalents363,453 284,439 326,040 

The following table provides cash flow indicators for the six-month periods ended June 30, 2021 and 2020, respectively:
Six Months Ended June 30,
(in thousands)20212020
Net cash provided by (used in):
  Operating activities$81,632 $42,766 
  Investing activities(26,214)(13,444)
  Financing activities(25,603)57,733 

Cash flows from operating activities result primarily from our earnings, and are also affected by changes in operating assets and liabilities which consist primarily of working capital balances. Our revenues are derived from manufacturing and sales of building construction materials. Our operating cash flows are subject to seasonality and are cyclically associated with the volume and timing of construction project starts. For example, trade accounts receivable is generally at its lowest at the end of the fourth quarter and increases during the first, second and third quarters.

During the six months ended June 30, 2021, operating activities provided $81.6 million in cash and cash equivalents, as a result of $122.9 million from net income and $41.2 million from reversing non-cash expenses from net income, which included depreciation and amortization expense and stock-based compensation expense. Cash provided from net income was partly offset by a decrease of $82.7 million in the net change in operating assets and liabilities, including increases of $84.7 million in trade accounts receivable, $27.3 million in inventory and $14.8 million in other current assets, partly offset by increases of $35.9 million in other current liabilities and $10.8 million in trade accounts payable.

Cash used in investing activities of $26.2 million during the six months ended June 30, 2021 was mainly for capital expenditures and a $6.8 million investment in a venture capital fund. Our capital spending in 2019, 2020 and the six months ended June 30, 2021 was $37.5 million, $37.9 million and $19.3 million, respectively, which was primarily used for machinery and equipment purchases and software in development. Based on current information and subject to future events and circumstances, we expect new capital spending for fiscal year 2021 will be in the $55 million to $60 million range which includes carryover projects from 2020 that were paused due to COVID-19 concerns. Capital spending will be primarily for safety needs, equipment replacement and productivity improvements. At this time only a small amount of capital spending is related to our growth initiatives.

32


Cash used in financing activities of $25.6 million during the six months ended June 30, 2021 consisted primarily of $20.0 million used to pay dividends to our stockholders and $5.3 million used to pay income taxes on behalf of the employees for shares withheld with respect to their vested restricted stock units.

On July 14, 2021, the Board declared a quarterly cash dividend of $0.25 per share payable on October 28, 2021, to the Company's stockholders of record on October 7, 2021. The Board also approved changing our capital return threshold from 50% of our cash flow from operations to 50% of our free cash flow, which is calculated by subtracting capital expenditures from cash flow from operations. For the six months ended June 30, 2021, we have returned $20 million of our free cash flow to stockholders.

As illustrated in the table below, from 2015 to 2020, the Company returned cash of $637.7 million in stock repurchases and dividends, which represented 70.2% of our total cash flow from operations during the same period. The Company has repurchased over 7.7 million shares of the Company's common stock since the beginning of 2015, which represents approximately 15.7% of the outstanding shares of the Company's common stock.
(in thousands)Number of Shares RepurchasedCash Paid for Share RepurchasesCash paid for DividendsTotal
January 1 - December 31, 20201,053 76,189 40,400 116,589 
January 1 - December 31, 2019972 60,816 40,258 101,074 
January 1 - December 31, 20181,955 110,540 39,891 150,431 
January 1 - December 31, 20171,138 70,000 36,981 106,981 
January 1 - December 31, 20161,244 53,502 32,711 86,213 
January 1 - December 31, 20151,339 47,144 29,352 76,496 
Total7,701 $418,191 $219,593 $637,784 

During the month of July, 2021, the Company repurchased 182,752 shares of the Company's common stock in the open market at an average price of $109.44 per share, for a total of $20.0 million. For the seven months ending July 31, 2021, the Company returned $40.0 million of our free cash flow to our stockholders.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2021.

Inflation and Raw Materials

We believe that the effect of inflation has not been material in recent years, as general inflation rates have remained relatively low. However, the cost of steel, lumber and petroleum products have increased in the last few quarters as had housing prices on strong demand, especially for new housing compared to a limited supply. This could have an effect on the general inflation rates in future quarters. Our main raw material is steel. As such, increased steel prices may adversely affect our gross profit margin if we cannot recover the higher costs through price increases in a timely manner, which is reflected in the Business Outlook section above.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
We have operations both within the United States and internationally, and are exposed to market risks in the ordinary course of our business.

Foreign Exchange Risk

We have foreign exchange rate risk in our international operations, and through purchases from foreign vendors. Changes in the values of currencies of foreign countries affect our financial position, income statement and cash flows when translated into U.S. dollars. We estimate that if the exchange rate were to change by 10% in any one country where we have our operations, the change in net income would not be material to our operations taken as a whole.

33


We may manage our exposure to transactional exposures by entering into foreign currency forward contracts for forecasted transactions and projected cash flows for foreign currencies in future periods. In 2020 and 2021, we entered into financial contracts to hedge the risk of fluctuations associated with the Chinese Yuan.

Foreign currency translation adjustments on our underlying assets and liabilities resulted in an accumulated other comprehensive loss of $1.8 million for the six months ended June 30, 2021, due to the effects of the weakening United States dollar in relation to almost all other currencies.

Interest Rate Risk

Our primary exposure to interest rate risk results from outstanding borrowings under the Credit Facility, which bears interest at variable rates. The variable interest rates on the Credit Facility fluctuate and exposes us to short-term changes in market interest rates as our interest obligation on this instrument is based on prevailing market interest rates. Interest rates fluctuate as a result of many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.
 
Item 4. Controls and Procedures.
 
Disclosure Controls and Procedures. As of June 30, 2021, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the chief executive officer (“CEO”) and the chief financial officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. Disclosure controls and procedures are controls and other procedures designed reasonably to assure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed reasonably to assure that this information is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, including the CEO and the CFO, does not, however, expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent all fraud and material errors. Internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the facts that there are resource constraints and that the benefits of controls must be considered relative to their costs. The inherent limitations in internal control over financial reporting include the realities that judgments can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of internal control is also based in part on assumptions about the likelihood of future events, and there can be only reasonable, not absolute assurance that any design will succeed in achieving its stated goals under all potential events and conditions. Over time, controls may become inadequate because of changes in circumstances, or the degree of compliance with the policies and procedures may deteriorate.

Changes in Internal Control over Financial Reporting. In 2016, we began the process of implementing a fully integrated ERP platform from SAP America, Inc. (“SAP”), as part of a multi-year plan to integrate and upgrade our systems and processes. As of July 31, 2021, SAP was operational, in all of North America and parts of Europe. We believe the necessary steps have been taken to monitor and maintain appropriate internal control over financial reporting during this period of change and will continue to evaluate the operating effectiveness of related key controls during subsequent periods.

As the phased implementation of this system continues, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. While we expect SAP to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolves. For a discussion of risks related to the implementation of new systems, see Item 1A - "Risk Factors - Risks - Related to Our Intellectual Property and Information Technology - We rely on complex software systems and hosted applications to operate our business, and our business may be disrupted if we are unable to successfully/efficiently update these systems or convert to new systems." in the 2020 Form 10-K.

There were no changes in our internal control over financial reporting during the three months ended June 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
34



PART II — OTHER INFORMATION


Item 1. Legal Proceedings.
 
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. 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 Company currently is not a party to any legal proceedings, which the Company expects individually or in the aggregate to have a material adverse effect on the Company’s financial condition, cash flows or results of operations. Nonetheless, the resolution of any claim or litigation is subject to inherent uncertainty and we could in the future, incur judgments, enter into settlements of claims or revise our expectations regarding the outcome of the various legal proceedings and other matters we are currently involved in, which could materially impact our financial condition, cash flows or results of operations. See “Note 13 — Commitments and Contingencies” to the accompanying unaudited interim condensed consolidated financial statements for certain potential third-party claims.


Item 1A. Risk Factors

There have been no material changes to our risk factors reported or new risk factors identified since the filing of our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Our Board has authorized, as announced on December 16, 2020, the repurchase of up to $100.0 million of the Company’s common stock. For the six months ended June 30, 2021, there were no repurchases of the Company’s common stock under this authorization. As of June 30, 2021, the approximate dollar value of shares that may still be repurchased under this authorization was $100.0 million. The timing, manner, price and amount of any share repurchases will be determined by us, in our discretion, based upon the evaluation of economic and market conditions, stock price, applicable legal and regulatory requirements and other factors. This authorization is scheduled to expire on December 31, 2021. The program does not require us to repurchase any specific number of shares.


Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosure.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.
 
35


EXHIBIT INDEX
3.1
3.2
31.1
31.2
32
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101.SCH Inline XBRL Taxonomy Schema Linkbase Document
101.CAL Inline XBRL Taxonomy Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Labels Linkbase Document
101.PRE Inline XBRL Taxonomy Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  Simpson Manufacturing Co., Inc.
  (Registrant)
   
   
DATE:August 5, 2021 By /s/Brian J. Magstadt
  Brian J. Magstadt
  Chief Financial Officer
  (principal accounting and financial officer)

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