Edgar Filing: SIMPSON MANUFACTURING CO INC /CA/

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-13429

Simpson Manufacturing Co., Inc.

(Exact name of registrant as specified in its charter)

Delaware		94-3196943
(State or other jurisdiction of incorporation		(I.R.S. Employer
or organization)		Identification No.)

5956 W. Las Positas Blvd., Pleasanton, CA 94588

(Address of principal executive offices)

(Registrant’s telephone number, including area code): (925) 560-9000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s common stock outstanding as of June 30, 2011: 48,281,053

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,
	2011		2010		2010
ASSETS
Current assets
Cash and cash equivalents	$	262,013	$	219,763	$	335,049
Trade accounts receivable, net	117,975		104,284		68,256
Inventories	166,934		150,786		152,297
Deferred income taxes	10,884		19,257		10,189
Assets held for sale	6,792		40,457		10,787
Other current assets	8,813		10,224		14,678
Total current assets	573,411		544,771		591,256

Property, plant and equipment, net	183,698		184,949		177,072
Goodwill	72,111		72,163		70,069
Intangible assets, net	22,051		23,156		23,466
Equity method investment	839		473		213
Other noncurrent assets	12,465		17,005		12,633
Total assets	$	864,575	$	842,517	$	874,709

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	32,060	$	27,906	$	35,164
Accrued liabilities	36,067		31,192		31,372
Liabilities held for sale	—		2,739		—
Income taxes payable	3,054		760		—
Accrued profit sharing trust contributions	2,997		3,540		5,591
Accrued cash profit sharing and commissions	13,036		9,264		2,805
Accrued workers’ compensation	5,663		4,386		4,684
Total current liabilities	92,877		79,787		79,616

Long-term liabilities	7,246		9,263		7,300
Total liabilities	100,123		89,050		86,916

Commitments and contingencies (Note 8)

Stockholders’ equity
Common stock, at par value	482		494		500
Additional paid-in capital	167,862		147,745		165,425
Retained earnings	571,229		604,479		607,241
Accumulated other comprehensive income	24,879		749		14,627
Total stockholders’ equity	764,452		753,467		787,793
Total liabilities and stockholders’ equity	$	864,575	$	842,517	$	874,709

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

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands except per-share amounts, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net sales	$	177,812		$	165,614		$	310,348		$	289,434
Cost of sales	94,313			88,828			169,900			158,620
Gross profit	83,499			76,786			140,448			130,814
Operating expenses:
Research and development and other engineering	6,945			5,700			12,939			10,441
Selling	19,819			16,610			36,895			31,483
General and administrative	25,454			20,524			47,076			37,456
Loss on sale of assets	73			15			48			404
	52,291			42,849			96,958			79,784
Income from operations	31,208			33,937			43,490			51,030
Loss in equity method investment, before tax	(69		)	(131		)	(82		)	(275		)
Interest income, net	108			26			179			37
Income from continuing operations before taxes	31,247			33,832			43,587			50,792
Provision for income taxes from continuing operations	11,754			12,773			17,016			19,903
Income from continuing operations, net of tax	19,493			21,059			26,571			30,889
Loss from discontinued operations, net of tax	—			(14,356		)	—			(14,986		)
Net income	$	19,493		$	6,703		$	26,571		$	15,903

Earnings (loss) per common share:
Basic
Continuing operations	$	0.39		$	0.43		$	0.53		$	0.63
Discontinued operations	—			(0.29		)	—			(0.30		)
Net income	0.39			0.14			0.53			0.32
Diluted
Continuing operations	$	0.39		$	0.42		$	0.53		$	0.62
Discontinued operations	—			(0.29		)	—			(0.30		)
Net income	0.39			0.14			0.53			0.32
Number of shares outstanding
Basic	49,404			49,417			49,753			49,403
Diluted	49,456			49,598			49,809			49,559
Cash dividends declared per common share	$	0.125		$	0.10		$	0.25		$	0.20

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

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the six months ended June 30, 2010 and 2011 and December 31, 2010

(In thousands except per-share amounts, unaudited)

												Accumulated
						Additional						Other
	Common Stock					Paid-in			Retained			Comprehensive			Treasury
	Shares		Par Value			Capital			Earnings			Income (Loss)			Stock			Total
Balance, January 1, 2010	49,377		$	493		$	146,036		$	598,493		$	18,762		—			$	763,784
Comprehensive income:
Net income	—		—			—			15,903			—			—			15,903
Other comprehensive income:
Translation adjustment, net of tax of $3	—		—			—			—			(18,013		)	—			(18,013		)
Comprehensive income																		(2,110		)
Stock options exercised	39		1			954			—			—			—			955
Stock compensation	—		—			561			—			—						561
Tax effect of options exercised	—		—			(83		)	—			—			—			(83		)
Cash dividends declared on common stock, $0.20 per share	—		—			—			(9,917		)	—			—			(9,917		)
Common stock issued at $26.89 per share for stock bonus	10		—			277			—			—			—			277
Balance, June 30, 2010	49,426		494			147,745			604,479			749			—			753,467
Comprehensive income:
Net income	—		—			—			12,683			—			—			12,683
Other comprehensive income:
Translation adjustment, net of tax of $9	—		—			—			—			13,878			—			13,878
Comprehensive income																		26,561
Stock options exercised	668		6			16,987			—			—			—			16,993
Stock compensation	—		—			3,016			—			—			—			3,016
Tax effect of options exercised	—		—			(2,347		)	—			—			—			(2,347		)
Cash dividends declared on common stock, $0.20 per share	—		—			—			(9,921		)	—			—			(9,921		)
Common stock issued at $22.04 per share for stock bonus	2		—			24			—			—			—			24
Balance, December 31, 2010	50,096		500			165,425			607,241			14,627			—			787,793
Comprehensive income:
Net income	—		—			—			26,571			—			—			26,571
Other comprehensive income:
Translation adjustment, net of tax of $1	—		—			—			—			10,252			—			10,252
Comprehensive income															—			36,823
Stock options exercised	6		—			154			—			—			—			154
Stock compensation	—		—			2,118			—			—			—			2,118
Tax effect of options exercised	—		—			(39		)	—			—			—			(39		)
Repurchase of common stock	(1,828	)	—			—			—			—			(50,075		)	(50,075		)
Retirement of common stock	—		(18		)	—			(50,057		)	—			50,075			—
Cash dividends declared on common stock, $0.25 per share	—		—			—			(12,526		)	—			—			(12,526		)
Common stock issued at $30.91 per share for stock bonus	7		—			204			—			—			—			204
Balance, June 30, 2011	48,281		$	482		$	167,862		$	571,229		$	24,879		$	—		$	764,452

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

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

	Six Months
	Ended June 30,
	2011			2010
Cash flows from operating activities
Net income	$	26,571		$	15,903
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Loss on sale of assets	48			404
Depreciation and amortization	10,055			12,501
Impairment loss on assets held for sale	1,094			17,566
Deferred income taxes	(1,026		)	(5,396		)
Noncash compensation related to stock plans	2,377			768
Loss in equity method investment	82			275
Excess tax benefit of options exercised	4			(10		)
Provision for (recovery of) doubtful accounts	179			(189		)
Provision for excess and obsolete inventory	—			4,932
Accrued interest earned from related party	(58		)	—
Changes in operating assets and liabilities:
Trade accounts receivable	(48,234		)	(41,951		)
Inventories	(12,404		)	(15,703		)
Trade accounts payable	(2,386		)	1,854
Income taxes payable	7,890			6,883
Accrued profit sharing trust contributions	(2,611		)	(3,459		)
Accrued cash profit sharing and commissions	10,160			6,966
Other current assets	410			(540		)
Accrued liabilities	3,215			4,373
Long-term liabilities	(42		)	190
Accrued workers’ compensation	979			34
Other noncurrent assets	352			158
Net cash provided by (used in) operating activities	(3,345		)	5,559

Cash flows from investing activities
Capital expenditures	(14,095		)	(21,628		)
Proceeds from sale of capital assets	3,156			60
Loans made to related parties	—			(1,798		)
Loans repaid by related parties	26			50
Net cash used in investing activities	(10,913		)	(23,316		)

Cash flows from financing activities
Repurchase of common stock	(50,075		)	—
Issuance of common stock	154			955
Excess tax benefit of options exercised	(4		)	10
Dividends paid	(11,274		)	(9,879		)
Net cash used in financing activities	(61,199		)	(8,914		)

Effect of exchange rate changes on cash and cash equivalents	2,421			(3,947		)

Net decrease in cash and cash equivalents	(73,036		)	(30,618		)
Cash and cash equivalents at beginning of period	335,049			250,381
Cash and cash equivalents at end of period	$	262,013		$	219,763

Noncash activity during the period
Noncash capital expenditures	$	1,587		$	226
Dividends declared but not paid	$	6,263		$	4,978
Issuance of Company’s common stock for compensation	$	204		$	277

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

Simpson Manufacturing Co., Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

Principles of Consolidation

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

Interim Period Reporting

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These interim statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the “2010 Annual Report”).

The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial information set forth therein, in accordance with GAAP. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP. The Company’s quarterly results fluctuate. As a result, the Company believes the results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period.

Revenue Recognition

The Company recognizes revenue when the earnings process is complete, net of applicable provision for discounts, returns and incentives, whether actual or estimated, based on the Company’s experience. This generally occurs when products are shipped to the customer in accordance with the sales agreement or purchase order, ownership and risk of loss pass to the customer, collectibility is reasonably assured and pricing is fixed or determinable. The Company’s general shipping terms are F.O.B. shipping point, where title is transferred and revenue is recognized when the products are shipped to customers. When the Company sells F.O.B. destination point, title is transferred and the Company recognizes revenue on delivery or customer acceptance, depending on terms of the sales agreement. Service sales, representing after-market repair and maintenance, engineering activities, software license sales and services and lease income, though significantly less than 1% of net sales and not material to the consolidated financial statements, are recognized as the services are completed or the software products and services are delivered. If actual costs of sales returns, incentives and discounts were to significantly exceed the recorded estimated allowance, the Company’s sales would be adversely affected.

Segment and Discontinued Operations Information

The Company had operated under two reportable segments, the connector products segment and the venting products segment. As set forth in Note 11 “Discontinued Operations,” on August 31, 2010, the Company sold substantially all of the assets and liabilities of its venting segment. Accordingly, the Company has classified the results of the venting products segment, including impairments and losses of goodwill and other assets, as discontinued operations in the Condensed Consolidated Statements of Operations for all periods presented. Except as otherwise stated below, discussion in these notes pertains to the Company’s continuing operations.

As a result of the sale of the assets of Simpson Dura-Vent Company, Inc (“Simpson Dura-Vent”), the Company has reorganized its operating segments into three reportable operating segments consisting of North America, Europe and Asia/Pacific.

Net Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed based on the weighted average number of common shares outstanding. Potentially dilutive securities, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.

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

	Three Months Ended					Six Months Ended
(in thousands, except)	June 30,					June 30,
per-share amounts)	2011		2010			2011		2010

Earnings from continuing operations, net of tax	$	19,493	$	21,059		$	26,571	$	30,889

Loss from discontinued operations, net of tax	—		(14,356		)	—		(14,986		)

Net income available to common stockholders	$	19,493	$	6,703		$	26,571	$	15,903

Basic weighted average shares outstanding	49,404		49,417			49,753		49,403

Dilutive effect of potential common stock equivalents — stock options	52		181			56		156

Diluted weighted average shares outstanding	49,456		49,598			49,809		49,559

Net earnings (loss) per share — basic:
Continuing operations	$	0.39	$	0.43		$	0.53	$	0.63
Discontinued operations	—		(0.29		)	—		(0.30		)
Net income	0.39		0.14			0.53		0.32

Net earnings (loss) per share — diluted:
Continuing operations	$	0.39	$	0.42		$	0.53	$	0.62
Discontinued operations	—		(0.29		)	—		(0.30		)
Net income	0.39		0.14			0.53		0.32

Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive	1,743		646			1,743		856

Anti-dilutive shares attributable to outstanding stock options were excluded from the calculation of diluted net income per share.

Accounting for Stock-Based Compensation

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

Under the 1994 Plan, the Company could grant incentive stock options and non-qualified stock options, although the Company granted only non-qualified stock options under the 1994 Plan and the 1995 Plan. The Company generally granted options under each of the 1994 Plan and the 1995 Plan once each year. The exercise price per share of each option granted in February 2011 and February 2010 under the 1994 Plan equaled the closing market price per share

of the Company’s common stock as reported by the New York Stock Exchange on the day preceding the day that the Compensation and Leadership Development Committee of the Company’s Board of Directors met to approve the grant of the options. The exercise price per share under each option granted under the 1995 Plan was at the fair market value on the date specified in the 1995 Plan. Options vest and expire according to terms established at the grant date. Options granted under the 1994 Plan typically vest evenly over the requisite service period of four years and have a term of seven years. The vesting of options granted under the 1994 Plan will be accelerated if the grantee ceases to be employed by the Company after reaching age 60 or if there is a change in control of the Company. Options granted under the 1995 Plan are fully vested on the date of grant. Shares of common stock issued on exercise of stock options under the 1994 Plan and the 1995 Plan are registered under the Securities Act of 1933.

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

The following table represents the Company’s stock option activity, including both continuing and discontinued operations, for the three and six months ended June 30, 2011 and 2010:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands)	2011		2010			2011			2010

Stock option expense recognized in operating expenses	$	845	$	218		$	2,293		$	585

Tax benefit of stock option expense in provision for income taxes	297		56			818			173

Stock option expense, net of tax	$	548	$	162		$	1,475		$	412

Fair value of shares vested	$	837	$	179		$	2,118		$	561

Proceeds to the Company from the exercise of stock options	$	—	$	863		$	154		$	955

Tax effect from exercise of stock options, including shortfall tax benefits	$	—	$	(9	)	$	(39	)	$	(83	)

	At June 30,
	2011		2010
Stock option cost capitalized in inventory	$	108	$	44

The amounts included in cost of sales, research and development and other engineering, selling, or general and administrative expense depend on the job functions performed by the employees to whom the stock options were granted. The amounts attributed to discontinued operations were not significant for any of the periods presented.

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

Fair Value of Financial Instruments

The “Fair Value Measurements and Disclosures” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“ASC”) establishes a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar

assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

As of June 30, 2011, the Company’s investments consisted of only United States Treasury securities and money market funds aggregating $171.6 million, which are maintained in cash equivalents and are carried at cost, approximating fair value, based on Level 1 inputs. There are no other recurring or non-recurring fair value measurements.

Income Taxes

The Company uses an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in each interim period. The provision for income taxes for the first two quarters of 2010, however, have been computed based on those quarters as discrete periods due to the uncertainty regarding the Company’s ability to reliably estimate income before taxes during 2010, primarily as a result of uncertainty in the construction markets in which the Company operates.

The following table presents the Company’s effective tax rates and income tax expense for the three and six months ended June 30, 2011 and 2010:

	Three Months Ended						Six Months Ended
(in thousands, except)	June 30,						June 30,
percentage amounts)	2011			2010			2011			2010
Effective tax rate	37.6		%	37.8		%	39.0		%	39.2		%
Provision for income taxes	$	11,754		$	12,773		$	17,016		$	19,903

Recently Issued Accounting Standards

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

2. Trade Accounts Receivable, Net

Trade accounts receivable consist of the following:

	At June 30,						At December 31,
(in thousands)	2011			2010			2010
Trade accounts receivable	$	121,414		$	107,910		$	70,781
Allowance for doubtful accounts	(1,500		)	(1,506		)	(1,344		)
Allowance for sales discounts and returns	(1,939		)	(2,120		)	(1,181		)
	$	117,975		$	104,284		$	68,256

3. Inventories

Inventories consist of the following:

	At June 30,					At December 31,
(in thousands)	2011			2010		2010
Raw materials	$	66,016		$	61,238	$	61,996
In-process products	19,885			18,729		18,364
Finished products	81,033			70,819		71,937
	$		166,934	$	150,786	$	152,297

4. Property, Plant and Equipment, Net

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

	At June 30,						At December 31,
(in thousands)	2011			2010			2010
Land	$	29,459		$	23,182		$	26,384
Buildings and site improvements	155,251			139,304			141,834
Leasehold improvements	3,737			3,543			3,693
Machinery and equipment	190,202			182,317			186,021
	378,649			348,346			357,932
Less accumulated depreciation and amortization	(198,461		)	(184,638		)	(189,751		)
	180,188			163,708			168,181
Capital projects in progress	3,510			21,241			8,891
	$	183,698		$	184,949		$	177,072

The Company’s vacant facility in San Leandro, California, remained classified as an asset held for sale as of June 30, 2011, consistent with the classification at December 31, 2010. The Company concluded, in the quarter ended June 30, 2011, that the San Leandro facility, associated with the North American segment, is expected to be sold below carrying value, and therefore recorded an impairment charge, within general and administrative expense, of $1.1 million, equal to the amount by which carrying value exceeds net estimated realizable value. In April 2011, the facility in France, which was acquired in the Aginco purchase, was sold for an amount approximately equal to its carrying cost.

5. Investments

Equity Method Investment

At December 31, 2010, the Company had a 40.6% equity interest in Keymark Enterprises, LLC (“Keymark”), for which the Company accounts using the equity method. Keymark develops software that assists in designing and engineering residential structures. The Company’s relationship with Keymark includes the specification of the Company’s products in the Keymark software. The Company has no obligation to make any additional capital contributions to Keymark. In March 2011, Keymark’s other owner defaulted on its loan and pledge agreement, entered into with the Company in October 2008, for the payment of the remaining balance of $0.7 million that was due in March 2011. As a result, the Company was assigned an additional 5.5% equity interest pursuant to the pledge agreement, which discharged the remaining debt. At June 30, 2011, the Company’s equity interest in Keymark was 46.1%.

6. Goodwill and Intangible Assets, Net

Goodwill was as follows:

	At June 30,				At December 31,
(in thousands)	2011		2010		2010

North America	$	41,887	$	41,567	$	41,761
Europe	28,179		28,969		26,367
Asia/Pacific	2,045		1,627		1,941
Total	$	72,111	$	72,163	$	70,069

Intangible assets, net, were as follows:

	At June 30, 2011
	Gross					Net
	Carrying		Accumulated			Carrying
(in thousands)	Amount		Amortization			Amount

North America	$	24,022	$	(12,094	)	$	11,928
Europe	15,344		(5,221		)	10,123
Total	$	39,366	$	(17,315	)	$	22,051

	At June 30, 2010
	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount

North America	$	24,022	$	(9,489	)	$	14,533
Europe	11,398		(2,775		)	8,623
Total	$	35,420	$	(12,264	)	$	23,156

	At December 31, 2010
	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount

North America	$	24,022	$	(10,792	)	$	13,230
Europe	14,632		(4,396		)	10,236
Total	$	38,654	$	(15,188	)	$	23,466

Intangible assets consist primarily of customer relationships, patents, unpatented technology and non-compete agreements. Amortization expense, for continuing and discontinued operations, for intangible assets during the three months ended June 30, 2011 and 2010, totaled $1.1 million and $1.2 million, respectively, and during the six months ended June 30, 2011 and 2010, totaled $2.2 million and $2.5 million, respectively.

At June 30, 2011, estimated future amortization of intangible assets was as follows:

(in thousands)

Final six months of 2011	$	2,222
2012	3,984
2013	3,417
2014	3,195
2015	2,449
2016	2,307
Thereafter	4,477
	$	22,051

The changes in the carrying amount of goodwill and intangible assets from December 31, 2010, to June 30, 2011, were as follows:

				Intangible
(in thousands)	Goodwill			Assets

Balance at December 31, 2010	$	70,069		$	23,466
Amortization	—			(2,209		)
Reclassifications	(227		)	—
Foreign exchange	2,269			794
Balance at June 30, 2011	$	72,111		$	22,051

7. Debt

The Company has revolving lines of credit with different banks in the United States and Europe. The Company’s primary credit facility, a revolving line of credit with $200.0 million in available credit, charges interest at LIBOR plus 0.27% (at June 30, 2011, LIBOR plus 0.27% was 0.46%), expires in October 2012, and has commitment fees payable at the annual rate of 0.08% on the unused portion of the facility. Other revolving credit lines, with combined available credit of $4.9 million at June 30, 2011, charge interest ranging from 2.4% to 3.7% and have various maturity dates. There were no outstanding balances at June 30, 2011 and 2010, and December 31, 2010, and the Company was in compliance with its financial covenants at June 30, 2011.

8. Commitments and Contingencies

Note 9 to the consolidated financial statements in the 2010 Annual Report provides information concerning commitments and contingencies. From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. The resolution of claims and litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows and results of operations.

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 these environmental matters will have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

Corrosion, hydrogen enbrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, manufacturing defects, environmental conditions or other factors can contribute to failure of fasteners, connectors, tools, anchors, adhesives and venting products. On occasion, some of the fasteners and connectors that the Company sells have failed, although the Company has not incurred any material liability resulting from those failures. The Company attempts to avoid such failures by establishing and monitoring appropriate product specifications, manufacturing quality control procedures, inspection procedures and information on appropriate installation methods and conditions. The Company subjects its products to extensive testing, with results and conclusions published in Company catalogues and on its websites.

Pending Claims

Four lawsuits (the “Cases”) have been filed against the Company in the Hawaii First Circuit Court: Alvarez v. Haseko Homes, Inc. and Simpson Manufacturing, Inc., Civil No. 09-1-2697-11 (“Case 1”); Ke Noho Kai Development, LLC v. Simpson Strong-Tie Company, Inc., and Honolulu Wood Treating Co., LTD., Case No. 09-1-1491-06 SSM (“Case 2”); North American Specialty Ins. Co. v. Simpson Strong-Tie Company, Inc. and K.C. Metal Products, Inc., Case No. 09-1-1490-06 VSM (“Case 3”); and Charles et al. v. Haseko Homes, Inc. et al. and Third Party Plaintiffs Haseko Homes, Inc. et al. v. Simpson Strong-Tie Company, Inc., et al., Civil No. 09-1-1932-08 (“Case 4”). Case 1 was filed on November 18, 2009. Cases 2 and 3 were originally filed on June 30, 2009. Case 4 was filed on August 19, 2009. The Cases all relate to alleged premature corrosion of the Company’s strap tie holdown products installed in buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii, allegedly causing property damage. Case 1 is a class action brought by the owners of allegedly affected Ocean Pointe houses. Case 1 was originally filed as Kai et al. v. Haseko Homes, Inc., Haseko Construction, Inc. and Simpson Manufacturing, Inc., Case No. 09-1-1476, but was voluntarily dismissed and then re-filed with a new representative plaintiff. Case 2 is an action by the builders and developers of Ocean Pointe against the Company, claiming that either the Company’s strap tie holdowns are defective in design or manufacture or the Company failed to provide adequate warnings regarding the products’ susceptibility to corrosion in certain environments. Case 3 is a subrogation action brought by the insurance company for the builders and developers against the Company claiming the insurance company expended funds to correct problems allegedly caused by the Company’s products. Case 4 is a putative class action brought, like Case 1, by owners of allegedly affected Ocean Pointe homes. In Case 4, Haseko Homes, Inc. (“Haseko”), the developer of the Ocean Pointe development, has brought a third party complaint against the Company alleging that any damages for which Haseko may be liable are actually the fault of the Company. None of the Cases alleges a specific amount of damages sought, although each of the Cases seeks compensatory damages, and Case 1 seeks punitive damages. The Company is currently investigating the facts underlying the claims asserted in the Cases, including, among other things, the cause of the alleged corrosion; the severity of any problems shown to exist; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if needed. At this time, the likelihood that the Company will be found liable for any property damage allegedly suffered and the extent of such liability, if any, are unknown. Management believes the Cases may not be resolved for an extended period. The Company intends to defend itself vigorously in connection with the Cases.

Based on facts currently known to the Company, the Company believes that all or part of the claims alleged in the Cases may be covered by its insurance policies. On April 19, 2011, an action was filed in the United States District Court for the District of Hawaii, National Union Fire Insurance Company of Pittsburgh, PA v. Simpson Manufacturing Company, Inc., et al., Civil No. 11-00254 ACK. In this action, Plaintiff National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), which issued certain Commercial General Liability insurance policies to the Company, seeks declaratory relief in the Cases with respect to its obligations to defend or indemnify the Company, Simpson Strong-Tie Company Inc., and a vendor of the Company’s strap tie holdown products. The Company has moved to dismiss or stay National Union’s action, and anticipates that it will vigorously defend all claims advanced by National Union and vigorously advance all of its own claims against National Union.

On October 28, 2009, a patent infringement lawsuit, entitled Ei-Land Corporation v. Simpson Strong-Tie Company Inc., Simpson Manufacturing Co., Inc., et at., was filed against the Company in the United States District Court, for the Eastern District of Texas, Marshall Division, 2:09-cv-00337-TJW. In this action, Plaintiff alleges that the Company’s Steel Strong Wall® product infringes several claims of a patent owned by Plaintiff. Plaintiff seeks monetary damages in the form of a reasonable royalty based on the Company’s manufacture and sale of the allegedly infringing product. Plaintiff does not manufacture the invention disclosed by the patent-in-suit. The Company denies the allegations of the Plaintiff’s complaint and has counterclaimed on the ground that the patent-in-suit is invalid. Trial is set to begin on April 2, 2012. At this time, liability, if any, is unknown, but management believes is unlikely to be material to the Company’s results of operations.

9. Stock-Based Incentive Plans

The Company currently has one stock-based incentive plan, which incorporates and supersedes its two previous plans (see Note 1 “Basis of Presentation — Accounting for Stock-Based Compensation”). Participants are granted stock-based awards only if the applicable Company-wide or profit-center operating goals, or both, established by the Compensation and Leadership Development Committee of the Board of Directors at the beginning of the year, are met.

The fair value of each stock option award was estimated on the date of grant using the Black-Scholes option pricing model. Expected volatility is based on historical volatilities of the Company’s common stock measured monthly over a term that is equivalent to the expected life of the award. The expected term of awards granted is estimated based on the Company’s prior exercise experience and future expectations of the exercise and termination behavior of the grantees. The risk-free rate is based on the yield of United States Treasury zero-coupon bonds with maturities comparable to the expected life in effect at the time of grant. The dividend yield is based on the expected dividend yield on the grant date.

Black-Scholes option pricing model assumptions for options granted in 2011 and 2010 are as follows:

Number		Risk-								Weighted
of Options		Free								Average
Granted	Grant	Interest		Dividend		Expected				Fair
(in thousands)	Date	Rate		Yield		Life	Volatility		Exercise Price	Value

1994 Plan
1,362	02/03/11	2.62	%	1.75	%	6.2 years	39.0	%	$29.66 to $32.63	$	10.33
148	02/02/10	2.93	%	1.62	%	6.5 years	36.0	%	$24.75	$	8.46

1995 Plan
30	02/15/11	2.92	%	1.76	%	6.6 years	38.0	%	$29.58	$	10.49

No options were granted under the 1995 Plan in 2010.

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2011:

					Weighted-
			Weighted-		Average	Aggregate
			Average		Remaining	Intrinsic
	Shares		Exercise		Contractual	Value *
Non-Qualified Stock Options	(in thousands)		Price		Life (in years)	(in thousands)

Outstanding at January 1, 2011	1,124		$	34.19
Granted	1,392		29.66
Exercised	(7	)	23.74
Forfeited	(16	)	35.69
Outstanding at June 30, 2011	2,493		$	31.68	4.6	$	1,873
Outstanding and expected to vest at June 30, 2011	2,436		$	31.74	4.6	$	1,817
Exercisable at June 30, 2011	1,083		$	35.04	2.2	$	773

* The intrinsic value represents the amount, if any, by which the fair market value of the underlying common stock exceeds the exercise price of the option, using the closing price per share of $29.87 as reported by the New York Stock Exchange on June 30, 2011.

The total intrinsic value of options exercised during the six months ended June 30, 2011 and 2010, was $40 thousand and $0.3 million, respectively.

A summary of the status of unvested options as of June 30, 2011, and changes during the six months ended June 30, 2011, are presented below:

			Weighted-
			Average
	Shares		Grant-Date
Unvested Options	(in thousands)		Fair Value

Unvested at January 1, 2011	180		$	7.85
Granted	1,392		10.33
Vested	(161	)	9.88
Forfeited	(1	)	6.55
Unvested at June 30, 2011	1,410		$	10.07

As of June 30, 2011, $9.9 million of total unrecognized compensation cost was related to unvested share-based compensation arrangements under the 1994 Plan. This cost is expected to be recognized over a weighted-average period of 3.5 years. Options granted under the 1995 Plan are fully vested and are expensed on the date of grant.

10. Segment Information

The Company is organized into three reportable segments. The segments are defined by the regions where the Company’s products are manufactured, marketed and distributed to the Company’s customers. The three regional segments are the North American segment, comprising primarily the United States and Canada, the European segment and the Asia/Pacific segment, comprising the Company’s operations in China, Hong Kong, the south Pacific and the Middle East. These segments are similar in several ways, including the types of materials, the production processes, the distribution channels and the product applications.

The following table illustrates certain measurements used by management to assess the performance as of or for the following periods:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2011			2010			2011			2010

Net Sales
North America	$	139,112		$	134,963		$	243,734		$	235,494
Europe	35,648			28,481			61,446			49,592
Asia/Pacific	2,815			2,170			4,692			4,348
Administrative and all other	237			—			476			—
Total	$	177,812		$	165,614		$	310,348		$	289,434

Sales to Other Segments*
North America	$	1,490		$	966		$	2,812		$	1,609
Europe	169			15			250			67
Asia/Pacific	2,044			1,949			4,155			3,597
Total	$	3,703		$	2,930		$	7,217		$	5,273

Income (Loss) from Operations
North America	$	30,793		$	32,890		$	45,843		$	53,368
Europe	2,650			2,534			1,196			698
Asia/Pacific	(552		)	(117		)	(1,265		)	(309		)
Administrative and all other	(1,683		)	(1,370		)	(2,284		)	(2,727		)
Total	$	31,208		$	33,937		$	43,490		$	51,030

* The sales to other segments are eliminated on consolidation.

					At
	At June 30,				December 31,
(in thousands)	2011		2010		2010

Total Assets
North America	$	595,842	$	549,130	$	557,762
Europe	140,572		116,637		123,669
Asia/Pacific	25,461		21,327		25,576
Administrative and all other	102,700		155,423		167,702
Total	$	864,575	$	842,517	$	874,709

Total assets from discontinued operations of $32.6 million at June 30, 2010, are included in “Administrative and all other.” 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 $191.5 million, $173.6 million, and $274.6 million, as of June 30, 2011 and 2010, and December 31, 2010, respectively. Real estate assets previously allocated to the venting products segment have been allocated to the “Administrative and all other” as of August 31, 2010. See Note 11.

11. Discontinued Operations

On August 31, 2010, the Company sold substantially all of the assets and liabilities of Simpson Dura-Vent Company, Inc. pursuant to an agreement dated June 30, 2010, with M&G Holding B.V. (“M&G”) and M&G Dura-Vent, Inc. The Company decided to sell the assets of Simpson Dura-Vent in order to focus exclusively on the development of its profitable connector products business. Simpson Dura-Vent represented the Company’s entire venting operating segment. The carrying amounts of the major classes of assets and liabilities of the discontinued operations held for sale at June 30, 2010, consisted of the following:

(in thousands)

Trade accounts receivable, net	$	12,408
Inventories, net	19,878
Other current assets	284
Assets held for sale	$	32,570

Accounts payable	$	1,573
Other current liabilities	1,166
Liabilities held for sale	$	2,739

The results from discontinued operations, including the impairments and losses recorded in operating expenses, for the three and six months ended June 30, 2010, were as follows:

	Three Months			Six Months
	Ended			Ended
(in thousands)	June 30, 2010			June 30, 2010

Revenues	$	12,992		$	23,072
Cost of sales	10,443			19,116
Gross profit	2,549			3,956
Operating expenses	2,375			4,829
Impairment charge	21,350			21,350
Loss from discontinued operations	(21,176		)	(22,223		)
Benefit from income taxes from discontinued operations	(6,820		)	(7,237		)
Loss from discontinued operations, net of tax	$	(14,356	)	$	(14,986	)

12. Subsequent Events

In July 2011, the Company’s Board of Directors declared a cash dividend of $0.125 per share, estimated to total $6.0 million, to be paid on October 27, 2011, to stockholders of record on October 6, 2011.

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

This document contains forward-looking statements, based on numerous assumptions and subject to risks and uncertainties. Although the Company believes that the forward-looking statements are reasonable, it does not and cannot give any assurance that its beliefs and expectations will prove to be correct. Many factors could significantly affect the Company’s operations and cause the Company’s actual results to be substantially different from the Company’s expectations. See “Part II, Item 1A - Risk Factors.” Actual results might differ materially from results suggested by any forward-looking statements in this report. The Company does not have an obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events or otherwise.

The following is a discussion and analysis of the consolidated financial condition and results of continuing operations for the Company for the three and six months ended June 30, 2011 and 2010. The following should be read in conjunction with the interim Condensed Consolidated Financial Statements and related Notes appearing elsewhere herein.

Results of Continuing Operations for the Three Months Ended June 30, 2011, Compared with the Three Months Ended June 30, 2010

Income from operations decreased 8.0% from $33.9 million in the second quarter of 2010 to $31.2 million in the second quarter of 2011. The following table illustrates the change in the Company’s continuing operations from the three months ended June 30, 2010, to the three months ended June 30, 2011, and the increases or decreases for each category by segment.

	Three Months Ended June 30,
	Continuing		Increase (Decrease) in Operating Segment											Continuing
	Operations		North					Asia/			Admin &			Operations
(in thousands)	2010		America			Europe		Pacific			All Other			2011

Net sales	$	165,614	$	4,149		$	7,167	$	645		$	237		$	177,812
Cost of sales	88,828		(1,708		)	5,312		1,224			657			94,313
Gross profit	76,786		5,857			1,855		(579		)	(420		)	83,499

Research and development and other engineering expense	5,700		907			332		6			—			6,945
Selling expense	16,610		2,291			774		143			1			19,819
General and administrative expense	20,524		4,781			544		(286		)	(109		)	25,454
Loss on sale of assets	15		(24		)	89		(8		)	1			73
Income from operations	33,937		(2,098		)	116		(434		)	(313		)	31,208