GROWING A
LEGACY OF
STRENGTH
SIMPSON MANUFACTURING CO., INC.
2017 ANNUAL REPORT
Concrete
Construction
Cold-Formed
Steel Construction
Wood
Construction
Fastening Systems
Deck and Outdoor Decorative Hardware
Mid-Rise Light-Frame
Construction
Concrete Repair, Protection
and Strengthening
Software
2 | Simpson Manufacturing Co., Inc.
A passion for
innovation is the
spark from which
truly remarkable
products emerge.
After more than half a century delivering
No-Equal solutions, we continue to
reach outward — deepening and
spreading our roots with a complete
portfolio of high-performance structural
building products. And today, we also
keep reaching upward with our passion
for technological innovation, continuous
research initiatives and relentless
product refinement.
As a result of our intensive structural
systems research, leading-edge
engineering and comprehensive testing,
we lead the industry in developing
higher load values, faster product
installations and increased building
safety standards to better serve the
needs of our customers.
Driven by our enduring passion, we’re
proud to take risks and continue to
spark the most innovative ideas and
products within the construction
space — growing our legacy of strength.
CONSTRUCTION MARKETS
WOOD
CONCRETE
MID-RISE LIGHT-FRAME
COLD-FORMED STEEL
WASTEWATER TREATMENT,
BRIDGE AND MARINE
DECKS AND OUTDOOR LIVING
PRODUCTS
STRUCTURAL CONNECTORS
LATERAL-FORCE-RESISTING SYSTEMS
FASTENING SYSTEMS
ANCHOR SYSTEMS
CONCRETE REPAIR, PROTECTION
AND STRENGTHENING SOLUTIONS
SOFTWARE: TRUSS, BUILDER
AND LBM SOLUTIONS
2017 Annual Report | 3
We also further enhanced our corporate governance policies in 2017.
Key highlights from the year, which incorporate shareholder feedback,
include board declassification and the elimination of cumulative
voting; the adoption of proxy access; and the election of a new
independent director, Michael Bless.
Commitment to Safety and Sustainability
We remain committed to providing a safe working environment for
all of our employees. In addition, we are dedicated to sustainable
building practices and strive to make our facilities as environmentally
friendly and as cost effective as possible. Please reference the Social
Responsibility section of our website at www.simpsonmfg.com for
additional metrics and details pertaining to our commitment to safety
and sustainability.
On behalf of everyone at Simpson Manufacturing Co., Inc., we
thank you for your ongoing support.
We believe our 2020 Plan objectives reflect our dedication to integrity,
innovation, leadership and service that will ensure our customers,
employees and stockholders are rewarded for their loyalty, hard work
and investment. Our founder, Barclay Simpson, instilled these values
in our culture over 60 years ago, and we will continue to operate
under these principles as we grow and execute on our goals.
Sincerely,
Karen Colonias
President and
Chief Executive Officer
Peter N. Louras, Jr.
Non-Executive
Chairman of the
Board of Directors
To Our Stockholders
To our stockholders, customers and employees:
2017 was a highly productive year for Simpson Manufacturing Co.
as we laid the foundation to position the Company for long-term
sustainable, increasingly profitable growth and enhanced operating
leverage. At Simpson Manufacturing Co., Inc., through our subsidiary
Simpson Strong-Tie Company Inc., we strive for excellence and
remain committed to our employees, their families, our stockholders,
customers and the community at large. Our mission to improve the
performance and integrity of structures through our tested solutions
is something that all of us at Simpson Strong-Tie are very passionate
about. A commitment to operational excellence takes that mission a
step further.
2017 consolidated net sales were $977 million, up 14% from $861
million in 2016, and our income from operations was $139 million,
a slight decrease from 2016.
2020 Plan
In late 2017, we unveiled our 2020 Plan to maximize operating
efficiencies and drive long-term stockholder value. The Plan
is centered on three key operational objectives which include
focusing on organic growth; rationalizing our cost structure to
improve company-wide profitability; and improving working capital
management and overall balance sheet discipline. We believe these
objectives will substantially enhance our return on invested capital as
well as provide additional capital to return to stockholders.
Importantly, the operational improvements we are making will not
jeopardize the basic fundamentals of our business that enable us to
achieve such strong gross profit and operating income margins. We
maintain a trusted brand reputation through our proprietary testing
capabilities, deep industry relationships and involvement with code
officials to improve construction practices. We also pride ourselves on
being able to provide reliable and timely delivery for our customers.
Creating Stockholder Value
We generated $119 million in cash flow from operations in 2017 and
remain committed to returning 50% of that cash flow to stockholders.
In 2017, we paid $37 million in quarterly cash dividends and
committed $70 million for repurchases of common stock. Since we
began paying dividends in January of 2004, we have increased our
annual dividend by 440%. In the last five years, we have repurchased
more than $183 million in shares. As part of our disciplined capital
allocation strategy, we remain focused on organic growth through
strategic capital investments in the business and acquisitions that fit
our criteria for growth.
4 | Simpson Manufacturing Co., Inc.
Financial Highlights
2017
2016
% Change
Capital Allocation (2013 – 2017)
Net Sales
$977,025
$860,661
13.5%
Income from
Operations
Net Income
Diluted Earnings
per Share
$139,167
$139,477
(0.2%)
$92,617
$89,734
3.2%
$1.94
$1.86
4.3%
15%
M&A
30%
CapEx
19%
Dividends
36%
Share
Repurchases
Total Assets
$1,037,523
$979,974
23.4%
OPERATIONS IN
Stockholders’
Equity
Common Shares
Outstanding
Number of
Employees
$884,778
$865,842
2.2%
46,745
47,437
(1.5%)
2,902
2,647
9.6%
LOCATIONS
Dollars in thousands except per-share amounts.
Dividends per Share1
Earnings per Share
Net Sales
Stockholders’ Equity
1.10
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
2.20
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
1 Part of the 2013 dividend was accelerated due to
uncertainity of changes to tax code in 2013. The
dividend paid in December 2012 is included in 2013.
2017 Annual Report | 5
Strategic growth
is at the core
of our vision,
propelling us
forward to lead
the industry.
Just like vast natural forests, our market
strategy begins with organic growth
that focuses on strengthening our core
wood construction business along with
targeting concrete markets domestically
and abroad. We’re expanding our
global market presence with selective
acquisitions and a diversified product
offering while increasing our distribution
network to introduce our products to
new customers.
As a company focused on our long-
term vision, we’re dedicated to
providing the most trusted construction
solutions worldwide. Every day, we
strengthen our relationships with
engineers, contractors and retailers
to earn their trust and solidify our
leadership within the industry.
6 | Simpson Manufacturing Co., Inc.
2017 Annual Report | 7
2017 Annual Report | 7
2017 Annual Report | 7
8 | Simpson Manufacturing Co., Inc.
8 | Simpson Manufacturing Co., Inc.
It lives at the core of our culture and
in every branch of our operations: We
have a long history of looking for ways
to eliminate waste and streamline
our business. We’re evaluating and
rationalizing our cost structure to
strengthen growth and improve
company-wide profitability.
Many years ago, we began to increase
operating efficiencies with a multitude
of lean initiatives, and now we’re
expanding that effort. Every day, we’re
ensuring that we optimize materials,
equipment, labor, time and space to
free up resources, improve productivity
and deliver high-quality products to our
customers.
When it comes to creating long-term
shareholder value, we’re continually
refining our capital management
discipline in order to ensure strong
financial health and capital returns to
shareholders long into the future.
Weaving
efficiencies into
proven company
practices makes
us lean, strong
and built to last.
2017 Annual Report | 9
2017 Annual Report | 9
10 | Simpson Manufacturing Co., Inc.
10 | Simpson Manufacturing Co., Inc.
At the heart of our company lives our
strong family tree, where the roots of
dedication and service run deep. Since
Barclay Simpson founded our company
in 1956, the exceptional integrity of our
people has fortified our core values.
Whether on the jobsite, online or
by phone, our technical service
representatives and engineers are
available, delivering support and
product solutions that our customers
and their businesses need. By
strategically expanding our distribution
and worldwide support network, we’re
achieving greater on-time product
delivery and building stronger customer
relationships than ever before.
At Simpson Strong-Tie, we support
our product offerings with workshops,
classes, regional training centers and a
full array of online resources, apps and
software. As a result, builders, designers
and suppliers always have access to a
comprehensive suite of multi-platform,
mobile-friendly design and sales tools
and educational content.
Integrated and
dedicated support
is key to achieving
our goals.
2017 Annual Report | 11
2017 Annual Report | 11
Investing in our
business builds
stronger value for
our future.
Simpson Strong-Tie is focused on the
execution of our business plan, yet
always looking toward future growth.
Guided by our long-term strategy,
we’re discovering new markets and
seizing new opportunities to increase
shareholder value through our 2020
initiatives.
We’re expanding through organic
growth by concentrating on higher-
margin product lines, while preserving
and growing our core business. We’re
rationalizing our cost structure and
increasing operating efficiencies in
efforts to improve company-wide
profitability and shareholder return.
All of these efforts are designed
to put us in a stronger position for
growth and diversification, which will
increase the long-term value we bring
to our employees, customers and
shareholders.
As a company with a strong foundation
and culture, we’re reaching ever
outward and upward with passion,
efficiency and dedication — fulfilling
our mission of helping people design
and build safer, stronger structures.
Together, we’re growing an ongoing
legacy of strength.
12 | Simpson Manufacturing Co., Inc.
12 | Simpson Manufacturing Co., Inc.
2017 Annual Report | 13
2017 Annual Report | 13
Office
Street Address | 5956 W. Las Positas Boulevard, Pleasanton, CA 94588, USA | (800) 925-5099
Mailing Address | P.O. Box 10789, Pleasanton, CA 94588
2017 Officers
Karen Colonias
President and Chief Executive Officer
Roger Dankel
President, North American Sales
Simpson Strong-Tie Company Inc.
Ricardo M. Arevalo
Chief Operating Officer
Simpson Strong-Tie Company Inc.
Brian J. Magstadt
Chief Financial Officer, Treasurer and Secretary
Board of Directors
Peter N. Louras, Jr.(1)(2)(4)
Chairman
Group Vice President (retired)
The Clorox Company
Karen Colonias(4)
President and Chief Executive Officer
James S. Andrasick(2)(3)(4)
Chairman (retired)
Matson Navigation
Jennifer A. Chatman(1)(2)
Paul J. Cortese Distinguished
Professor of Management
Haas School of Business,
University of California, Berkeley
Gary M. Cusumano(1)(3)(4)
Chairman (retired)
The Newhall Land and Farming Company
Celeste Volz Ford(1)(4)
Chief Executive Officer
Stellar Solutions, Inc.
Robin Greenway MacGillivray(2)(3)
Senior Vice President (retired)
One AT&T Integration – AT&T
Michael A. Bless(2)(4)
Chief Executive Officer
Century Aluminum Company
Annual Meeting
The annual meeting of stockholders will take place at 2:00 p.m., Pacific Daylight Time,
on Tuesday, April 24, 2018, at the Company’s home office located at
5956 W. Las Positas Boulevard, Pleasanton, California.
Stock Listing
Simpson Manufacturing Co., Inc.’s (the “Company’s”) common stock is traded on the
New York Stock Exchange under the ticker “SSD.”
Quarterly Stock Data
The table below shows the per-share closing price range of the Company’s common
stock for the last two years as quoted on the New York Stock Exchange.
2017
Low
High
Close
High
2016
Low
Close
4Q
3Q
2Q
1Q
$60.92
$48.63
$57.41
$48.17
$40.88
$43.75
$49.32
$42.01
$49.04
$45.27
$39.32
$43.95
$44.13
$40.18
$43.71
$39.97
$37.25
$39.97
$44.94
$41.55
$43.09
$38.17
$30.49
$38.17
Form 10-K
The Company’s annual report on Form 10-K (which is included in this report) and its
quarterly and current reports on Forms 10-Q and 8-K are filed with the Securities
and Exchange Commission and are available upon request. These reports are also
available on the Company’s website at www.simpsonmfg.com.
Investor Relations
ADDO Investor Relations
Investor.relations@strongtie.com
(310) 829-5400
For an investor information package, please call (925) 560-9097.
Transfer Agent & Registrar
P.O. Box 30170, College Station, Texas 77842
For stockholder inquiries, please call (877) 282-1168.
www.computershare.com
Independent Registered Public Accountants
Grant Thornton LLP
101 California Street, Suite 2700, San Francisco, CA 94111
14 | Simpson Manufacturing Co., Inc.
(1) Member of Compensation and Leadership Development Committee
(2) Member of Audit and Finance Committee
(3) Member of Nominating and Governance Committee
(4) Member of Corporate Strategy and Acquisitions Committee
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
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
(State or other jurisdiction of
incorporation or organization)
94-3196943
(I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01
(Title of each class)
New York Stock Exchange, Inc.
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes
No
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
No
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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected has elected not to use the extended
transition period for complying with the new or revised financial accounting standards provided pursuant to Section 13 (a) of the
Exchanged Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 30, 2017, there were outstanding 47,273,393 shares of the registrant’s common stock, par value $0.01, which is the
only outstanding class of common or voting stock of the registrant. The aggregate market value of the shares of common stock held
by non-affiliates of the registrant (based on the closing price for the common stock on the New York Stock Exchange on June 30, 2017)
was approximately $1,755,382,642.
15
As of February 26, 2018, 46,684,831 shares of the registrant’s common stock were outstanding.
Documents Incorporated by Reference
Portions of the registrant's definitive Proxy Statement for its 2018 annual meeting of the stockholders (the "2018 Annual Meeting")
are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such Proxy Statement
will be filed with the Securities and Exchange Commission (the "SEC") within 120 days of the registrant's fiscal year ended December 31,
2017.
16
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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. All statements relating to events or results that may occur in the future are forward-looking statements, including
but not limited to, statements regarding our plans, sales, sales trends, sales growth rates, revenues, profits, costs, working capital,
balance sheet, inventories, products (including software and concrete offerings), relationships with contractors and partners
(including our collaboration with The Home Depot, Inc.), market strategies, market shares, expenses (including operating expenses
and research, development and engineering investments), unrecognized costs (including those with respect to unvested stock-
based compensation), cost savings or reduction measures, repatriation of funds, factory utilization rates, results of operations, tax
liabilities, losses, capital spending, housing starts, price changes (including product prices and raw material, such as steel, prices),
profitability, profit margins, effective tax rates, depreciation or amortization expenses, amortization periods, returns on invested
capital, stock repurchases, dividends, compensation arrangements, prospective adoption of new accounting standards, effects of
changes in accounting standards and tax laws, effects and expenses of (including eventual gains or losses related to) mergers and
acquisitions and related integrations, effects and expenses of equity investments, effects and expenses of relocating manufacturing
facilities, effects of changes in foreign exchange rates or interest rates, effects and costs of facility consolidations and expansions
(including related savings), success, effects and costs of software program implementations (including related capital expenditures
and savings), labor relations, needs for additional facilities, materials and personnel, effects and costs of credit facilities and capital
lease obligations, headcount, engagement of consultants, the Company’s 2020 Plan (discussed under “Management's Discussion
and Analysis of Financial Condition and Results of Operations” below), the Company’s efforts and costs to implement the 2020
Plan, the effects of the 2020 Plan and the projected impact of any of the foregoing on our business, financial condition and results
of operations. Forward-looking statements generally can be identified by words such as “anticipate,” “assume,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “target,” “continue,” “predict,” “project,” “change,” “result,” “future,” “will,” “could,”
“can,” “may,” “likely,” “potentially,” or similar expressions. Forward-looking statements are necessarily speculative in nature, are
based on numerous assumptions, and involve known and unknown risks, uncertainties and other factors (some of which are beyond
our control) that could significantly affect our operations and may cause our actual actions, results, financial condition, performance
or achievements to be substantially different from any future actions, results, financial condition, performance or achievements
expressed or implied by any such forward-looking statements. Those factors include, but are not limited to: (i) the impact, execution
and effectiveness of the Company’s current strategic plan, the 2020 Plan, and the efforts and costs to implement the plan; (ii)
general economic cycles and construction business conditions; (iii) customer acceptance of our products; (iv) product liability
claims, contractual liability, engineering and design liability and similar liabilities or claims, (v) relationships with partners,
suppliers and customers and their financial conditions; (vi) materials and manufacturing costs; (vii) changes in capital and credit
market conditions; (viii) technological developments, including system updates and conversions; (ix) increased competition; (x)
changes in laws or industry practices; (xi) litigation risks and actions by activist shareholders, (xii) changes in market conditions;
(xiii) governmental and business conditions in countries where our products are manufactured and sold; (xiv) natural disasters
and other factors that are beyond the Company’s reasonable control; (xv) changes in trade regulations or U.S. and international
taxes, tariffs and duties including those imposed on the Company’s income, imports, exports and repatriation of funds; (xvi) effects
of merger or acquisition activities or the lack thereof; (xvii) actual or potential takeover or other change-of-control threats; (xviii)
changes in our plans, strategies, objectives, assumptions, expectations or intentions; and (xix) other risks and uncertainties indicated
from time to time in our filings with the U.S. Securities and Exchange Commission, including this Annual Report on Form 10-K.
See below “Part I, Item 1A - Risk Factors.” Each forward-looking statement contained in this Annual Report on Form 10-K is
specifically qualified in its entirety by the aforementioned factors. In light of the foregoing, investors are advised to carefully read
this Annual Report on Form 10-K in connection with the important disclaimers set forth above and are urged not to rely on any
forward-looking statements in reaching any conclusions or making any investment decisions about us or our securities. All forward-
looking statements hereunder are made as of the date of this Annual Report on Form 10-K and are subject to change. Except as
required by law, we do not intend and undertake no obligation to update, revise or publicly release any updates or revisions to any
forward-looking statements hereunder, whether as a result of the receipt of new information, the occurrence of future events, the
change of circumstances or otherwise. We further do not accept any responsibility for any projections or reports published by
analysts, investors or other third parties.
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.
“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.
17
Item 1. Business.
Company Background
PART I
The Company is focused on making buildings safe and secure. The Company, through its wholly owned subsidiary, Simpson
Strong-Tie Company Inc. ("SST"), designs, engineers and is a leading manufacturer of wood construction products, including
connectors, truss plates, fastening systems, fasteners and pre-fabricated lateral systems used in light-frame construction, and
concrete construction products used for concrete, masonry, steel construction and for concrete repair, protection and strengthening,
including adhesives, chemicals, mechanical anchors, carbide drill bits, powder actuated tools and fiber reinforced materials. The
Company markets its products to the residential construction, light industrial and commercial construction, remodeling and do-
it-yourself (“DIY”) markets. The Company also provides engineering services in support of some of its products and increasingly
offers design and other software that facilitates the specification, selection and use of its products. The Company has continuously
manufactured structural connectors since 1956 and believes that the Simpson Strong-Tie brand benefits from strong brand name
recognition among architects and engineers who frequently request the use of the Company’s products.
Business Strategy
The Company attracts and retains customers by designing, manufacturing and selling products that are of high quality and
performance, easy to use and cost-effective for customers. The Company aims to manufacture and warehouse its products in
geographic proximity to its markets to provide availability and rapid delivery of products to customers and prompt response to
customer requests for specially designed products and services. The Company maintains levels of inventory intended to operate
with little backlog and fill most customer orders within a few days. High levels of manufacturing automation and flexibility allow
the Company to maintain its quality standards while continuing to provide prompt delivery.
The Company intends to continue efforts to increase market share in both the wood construction and concrete construction product
groups by:
• maintaining frequent contact with customers and private organizations that provide information to building code officials;
continuing to sponsor seminars to inform architects, engineers, contractors and building officials on appropriate use,
•
proper installation and identification of the Company’s products;
continuing to invest in mobile, web and software applications for customers, utilizing social media, blog posts and videos
to connect and engage with customers and to help them do their jobs more efficiently; and
continuing to diversify product offerings to be less dependent on United States residential housing.
•
•
The Company’s long-term strategy is to develop, acquire or invest in product lines or businesses that have the potential to increase
the Company’s earnings per share over time and that:
complement the Company’s existing product lines;
can be marketed through the Company’s existing distribution channels;
•
•
• might benefit from use of the Company’s brand names and expertise;
•
•
•
are responsive to needs of the Company’s customers;
expand the Company’s markets geographically; and
reduce the Company’s dependence on the United States residential construction market.
New Products. The Company commits substantial resources to new product development. The majority of SST’s products have
been developed through its internal research and development program. SST’s research and development expense for the three
years ended December 31, 2017, 2016 and 2015, was $10.6 million, $10.8 million, and $12.0 million, respectively. The Company
believes it is the only United States manufacturer with the capability to test multi-story wall systems, thus enabling full scale
testing rather than analysis alone to prove system performance. The Company’s engineering, sales, product management, and
marketing teams work together with architects, engineers, building inspectors, code officials and customers in the new product
development process.
The Company’s product research and development is based largely on products or solutions that are identified within the Company
or as customers communicate to the Company as well as the Company’s strategic initiatives to develop new markets or product
lines. The Company’s strategy is to develop new products on a proprietary basis, to seek patents when appropriate and to rely on
trade secret protection for others. The Company typically develops 15 to 25 new products each year.
18
The Company expanded its product offering in 2017 by adding:
•
•
•
•
•
•
new connectors for wood framing applications;
new connectors for cold formed steel applications;
new screws, tools and products for deck, fascia and drywall applications;
new mechanical anchors and a new epoxy adhesive;
new fiber reinforced cementitious mortar product; and
new decorative hardware and connectors for outdoor living spaces.
The Company intends to continue to expand its product offering.
Distribution channels. The Company seeks to expand its product and distribution coverage through several channels:
• Distributors. The Company regularly evaluates its distribution coverage and the service levels provided by its distributors,
and from time to time implements changes. The Company evaluates distributor product mix and conducts promotions to
encourage distributors to add the Company’s products that complement the mix of product offerings in their markets.
• Home Centers. The Company intends to increase penetration of the DIY markets by continuing to solicit home centers
and increase product offerings. The Company’s sales force maintains on-going contact with home centers to work with
them in a broad range of areas, including inventory levels, retail display maintenance and product knowledge training.
The Company’s strategy is to ensure that the home center retail stores are fully stocked with adequate supplies of the
Company’s products carried by those stores. The Company has further developed extensive bar coding and merchandising
aids and has devoted a portion of its research efforts to the development of DIY products. The Company’s sales to home
centers increased year-over-year in 2017, 2016 and 2015.
• Dealers. In some markets, the Company sells its products directly to lumber dealers and cooperatives.
• OEM Relationships. The Company works closely with manufacturers of engineered wood products and OEMs to develop
and expand the application and sales of its engineered wood connector and fastener products. The Company has
relationships with several of the largest manufacturers of engineered wood products.
International Sales. The Company has established a presence in the European Community through acquisition of
companies with existing customer bases and through servicing United States-based customers operating in Europe. The
Company also distributes connector, anchor and epoxy products in Mexico, Chile, Australia, New Zealand, South Africa
and the Middle East.
•
See “Item 1A — Risk Factors,” “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” and “Note 14 — Segment Information” to the accompanying audited consolidated financial statements included in
Part II, Item 8 — "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K (the "Company’s
Consolidated Financial Statements").
Operating Segments and Geographic Areas
The Company is organized into three operating segments consisting of the North America, Europe and Asia/Pacific segments. The
North America segment includes operations primarily in the United States and Canada. The Europe segment includes operations
primarily in France, the United Kingdom, Germany, Denmark, Switzerland, Portugal, Poland, The Netherlands, Belgium, Sweden
and Norway. The Asia/Pacific segment includes operations primarily in Australia, New Zealand, South Africa, China, Taiwan,
and Vietnam. These segments are similar in several ways, including similarities in the products manufactured and distributed, the
types of materials used, the production processes, the distribution channels and the product applications. See “Note 14 — Segment
Information” to the Company’s Consolidated Financial Statements for information regarding the assets, revenue and performance
of each of the Company’s operating segments and geographic areas. Also see “Item 1A — Risk Factors.”
Products and Services
The Company manufactures and markets building and construction products and is a recognized brand name in residential and
commercial applications. The product lines historically have encompassed connectors, anchors, fasteners, lateral resistive systems,
truss plates, as well as repair and strengthening product lines for the marine, industrial and transportation markets. See “Item 7
— Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Note 14 — Segment
Information” to the Company’s Consolidated Financial Statements for financial information regarding revenues by product
category.
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Most of the Company’s products are approved by building code evaluation agencies. To achieve such approvals, the Company
conducts extensive product testing, which is witnessed and certified by independent testing laboratories. The tests also provide
the basis of load ratings for the Company’s structural products. This test and load information is used by architects, engineers,
contractors, building officials and homeowners and is useful across all applications of the Company’s products, ranging from the
deck constructed by a homeowner to a multi-story structure designed by an architect or engineer.
Wood Construction Products. As described below, the Company’s wood construction products include (1) connectors, (2) truss
plates, (3) fastening systems and (4) lateral systems, and are typically made of steel. The Company produces and markets over
16,000 standard and custom wood construction products. These products are used primarily to strengthen, support and connect
wood applications in residential and commercial construction and DIY projects. The Company’s wood construction products
contribute to structural integrity and resistance to seismic, wind and other forces.
1. The Company’s connectors are prefabricated metal products that attach wood, concrete, masonry or steel together.
Connectors are essential for tying wood construction elements together and create safer and stronger buildings.
2. The Company’s truss connector plates and software are marketed under the name Integrated Component Systems. Truss
plates are toothed metal plates that join wood members together to form a truss. The Company continues to develop
sophisticated software to assist truss and component manufacturers’ in modeling, designing trusses and selecting the
appropriate truss plates for the applicable jobs.
3. The Company’s fastener line includes various nails, screws and staples. Complementing these products is the Quik Drive
auto-feed screw driving system used in numerous applications such as decking, subfloors, drywall and roofing.
4. The Company’s lateral resistive systems are assemblies used to resist earthquake or wind forces and include Steel and
Wood Shearwalls, Anchor Tiedown Systems (“ATS”) and steel moment frames.
Concrete Construction Products. As described below, the Company’s concrete construction products include (1) anchor products,
and (2) repair, protection and strengthening products. The Company produces and markets over 1,300 standard and custom concrete
construction products. The Company’s concrete construction products are composed of various materials including steel, chemicals
and carbon fiber. They are used primarily to anchor, protect and strengthen concrete, brick and masonry applications in industrial,
infrastructure, residential commercial and DYI projects. The Company’s concrete construction products contribute to structural
integrity and resistance to seismic, wind and other forces. These products are sold in all segments of the Company worldwide.
1. The Company’s concrete construction anchor products include adhesives, mechanical anchors, carbide drill bits and
powder-actuated pins and tools used for numerous applications of anchoring or attaching elements onto concrete, brick,
masonry and steel.
2. The Company's concrete construction repair, protection and strengthening products include grouts, coatings, sealers,
mortars, fiberglass and fiber-reinforced polymer systems and asphalt products.
Engineering and Design Services. The Company’s engineers not only design and test products, but also provide engineering
support for customers in connection with a number of products that the Company manufactures and sells. This support might
range from the discussion of a load value in a catalog to testing the suitability of an existing product in a unique application. For
certain product lines, industry norms require that the Company’s engineers are more involved in the sales process. For example,
in connection with the sale of our truss plates, the Company’s engineers review the output of the Company’s software to assist
customers in ensuring that trusses are properly designed and specified, and in some instances seal design diagrams. Generally, in
connection with any engineering services the Company provides, the Company’s engineers serve as a point of reference and
support for the customer’s engineers and other service professionals, who ultimately determine and are responsible for the
engineering approach to any project.
Sales and Marketing
The Company’s sales and marketing programs are implemented through its branch system. The Company currently maintains
branches in California, Texas, Ohio, Canada, England, France, Germany, Denmark, Switzerland, Poland, Portugal, Austria, The
Netherlands, Ireland, Belgium, Sweden, Norway, Spain, Australia, New Zealand, South Africa and Chile. Each branch is served
by its own sales force, warehouse and office facilities, while some branches have their own manufacturing facilities. Each branch
is responsible for setting and executing sales and marketing strategies that are consistent both with the markets in the geographic
area that the branch serves and with the goals of the Company. Branch sales forces in North America are supported by marketing
managers in the home office in Pleasanton, California. The home office also coordinates issues affecting customers that operate
in multiple regions. The sales force maintains close working relationships with customers, develops new business, calls on
architects, engineers and building officials and participates in a range of educational seminars.
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The Company dedicates substantial resources to customer service. The Company produces numerous publications and point-of-
sale marketing aids to serve specifiers, distributors, retailers and users for the various markets that it serves. These publications
include general catalogs, as well as various specific catalogs, such as those for its fastener products. The catalogs and publications
describe the products and provide load and installation information. The Company also maintains several linked websites centered
on www.strongtie.com, which include catalogs, product and technical information, code reports and other general information
related to the Company, its product lines and promotional programs. The contents of these websites are not incorporated into this
filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.
Manufacturing Process
The Company designs and manufactures most of its products. The Company has developed and uses automated manufacturing
processes for many of its products. The Company’s innovative manufacturing systems and techniques have allowed it to control
manufacturing costs, even while developing both new products and products that meet customized requirements and specifications.
The Company’s development of specialized manufacturing processes has also permitted increased operating flexibility and
enhanced product design innovation. As part of ongoing continuous improvement processes in its factories, the Company’s major
North American and European manufacturing facilities initiated lean manufacturing practices to improve efficiency and customer
service. The Company sources some products from third-party vendors, both domestically and internationally. The Company has
27 manufacturing locations in the United States, Canada, France, Denmark, Germany, Switzerland, Poland, Portugal, Belgium,
Sweden, China and England.
Quality Control. The Company has developed a quality system that manages defined procedures to ensure consistent product
quality and also meets the requirements of product evaluation reports of the International Code Council (ICC) and the International
Association of Plumbers and Mechanical Officials Uniform Evaluation Services (IAPMO-UES). Since 1996, the Company’s
quality system has been registered under ISO 9001, an internationally recognized set of quality-assurance standards. The Company
believes that ISO registration is a valuable tool for maintaining and promoting its high quality standards. As the Company establishes
new business locations through expansion or acquisitions, projects are established to integrate the Company’s quality systems and
achieve ISO 9001 registration. In addition, the Company has six testing laboratories accredited to ISO standard 17025, an
internationally accepted standard that provides requirements for the competence of testing and calibration laboratories. The
Company implements testing requirements through systematic control of its processes, enhancing the Company’s standard for
quality products, whether produced by the Company or purchased from others.
Wood Construction Products Manufacturing. Most of the Company’s wood construction products are produced with a high level
of automation. The Company has significant press capacity and has multiple dies for some of its high volume products to enable
production of these products close to the customer and to provide back-up capacity. The balance of production is accomplished
through a combination of manual, blanking and numerically controlled (NC) processes that include robotic welders, lasers and
turret punches. This capability allows the Company to produce products with little redesign or set-up time, facilitating rapid
turnaround for customers. The Company also has smaller specialty production facilities, which primarily use batch production
with some automated lines.
Concrete Construction Products Manufacturing. The Company manufactures its concrete construction products at its facilities
in Zhangjiagang, China; West Chicago, Illinois; Cardet, France; Seewen, Switzerland; Malbork, Poland; Elvas, Portugal and
Madrid, Spain. The mechanical anchor products are produced with a high level of automation. Some products, such as epoxy and
adhesive anchors, are mixed in batches and are then loaded into one-part or two-part dispensers, which mix the product on the job
site because set-up times are usually very short. In addition, the Company purchases a number of products, powder actuated pins,
tools and accessories and certain of its mechanical anchoring products, from various sources around the world. These purchased
products undergo inspections on a sample basis for conformance with ordered specifications and tolerances before being distributed.
Regulation
Environmental Regulation. The Company itself is subject to environmental laws and regulations governing emissions into the
air, discharges into water, and generation, handling, storage, transportation, treatment and disposal of waste materials. The Company
is also subject to other federal and state laws and regulations regarding health and safety matters. The Company believes that it
has obtained all material licenses and permits required by environmental, health and safety laws and regulations in connection
with the Company’s operations and that its policies and procedures comply in all material respects with existing environmental,
health and safety laws and regulations. See “Item 1A — Risk Factors.”
Other. The Company’s product lines are subject to federal, state, county, municipal and other governmental and quasi-governmental
regulations that affect product development, design, testing, analysis, load rating, application, marketing, sales, exportation,
installation and use.
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The Company considers product evaluation, recognition and listing to the building code as a significant tool that facilitates and
expedites the use of the Company’s products by design professionals, building officials, inspectors, builders, home centers and
contractors. Industry members are more likely to use building products that have the appropriate recognition and listing than
products that lack this acceptance. The Company devotes considerable time and testing resources to obtaining and maintaining
appropriate listings for its products. The Company actively participates in industry related professional associations and building
code committees both to keep abreast of regulatory changes and to provide comments and expertise to these regulatory agencies.
A substantial portion of the Company’s products have been evaluated and are recognized by governmental and product evaluation
agencies. Some of the entities that recognize the Company’s products include the International Code Council Uniform Evaluation
Service (ICC-ES), IAPMO-UES, the City of Los Angeles (LARR’s), California Division of the State Architect, the State of Florida,
Underwriters Laboratory (UL), Factory Mutual (FM) and state departments of transportation. In Europe, the Company’s structural
products meet European Technical Agreement (ETA) regulations.
Competition
The Company faces a variety of competition in all of the markets in which it participates. This competition ranges from subsidiaries
of large national or international corporations to small regional manufacturers. While price is an important factor, the Company
also competes on the basis of quality, breadth of product line, proprietary technology, technical support, availability of inventory,
service (including custom design and manufacturing), field support and product innovation. As a result of differences in structural
design and building practices and codes, the Company’s markets tend to differ by region. Within these regions, the Company
competes with companies of varying size, several of which also distribute their products nationally or internationally. See “Item
1A — Risk Factors.”
Raw Materials
The principal raw material used by the Company is steel, including stainless steel. The Company also uses materials such as carbon
fiber, fiberglass, mortars, grouts, epoxies and acrylics in the manufacture of its chemical anchoring and reinforcing products. The
Company purchases raw materials from a variety of commercial sources. The Company’s practice is to seek cost savings and
enhanced quality by purchasing from a limited number of suppliers.
The steel industry is highly cyclical and prices for the Company’s raw materials are influenced by numerous factors beyond the
Company’s control. The steel market continues to be dynamic, with a high degree of uncertainty about future pricing trends. Given
current conditions, anti-dumping and countervailing duty trade cases filed by United States steel producers in 2015 and 2016, and
the current political climate regarding international trade, the Company currently expects that the high degree of uncertainty
regarding steel prices will continue. Numerous factors may cause steel prices to increase in the future. In addition to increases in
steel prices, steel mills may add surcharges for zinc, energy and freight in response to increases in their costs. See “Item 1A —
Risk Factors” and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The
Company historically has not attempted to hedge against changes in prices of steel or other raw materials.
Patents and Proprietary Rights
The Company has United States and foreign patents, the majority of which cover products that the Company currently manufactures
and markets. These patents, and applications for new patents, cover various design aspects of the Company’s products, as well as
processes used in their manufacture. The Company continues to develop new potentially patentable products, product enhancements
and product designs. Although the Company does not intend to apply for additional foreign patents covering existing products,
the Company has developed an international patent program to protect new products that it may develop. In addition to seeking
patent protection, the Company relies on unpatented proprietary technology to maintain its competitive position. See “Item 1A
— Risk Factors.”
Acquisitions and Expansion into New Markets
In January 2017, the Company acquired CG Visions, Inc. ("CG Visions"), an Indiana corporation, for $20.8 million. CG Visions
provides scalable technologies and services in building information modeling ("BIM") technologies, estimation tools and software
solutions to a number of the top 100 mid-sized to large builders in the United States, which are expected to complement and
support the Company's sales in North America. During the third quarter of 2017, the Company finalized its fair value measurement
of assets acquired and liabilities assumed in this acquisition. CG Visions assets and liabilities included other current assets of $0.5
million, noncurrent assets of $20.4 million, current liabilities and contingent consideration of $1.1 million. Included in noncurrent
assets was goodwill of $10.1 million, which was assigned to the North America segment, and intangible assets of $10.3 million,
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both of which are not subject to tax-deductible amortization. The estimated weighted-average amortization period for the intangible
assets is 7 years.
In January 2017, the Company acquired Gbo Fastening Systems AB ("Gbo Fastening Systems"), a Sweden limited company, for
$10.2 million. Gbo Fastening Systems manufactures and sells a complete line of CE-marked structural fasteners as well as fastener
dimensioning software for wood construction applications, currently sold mostly in northern and eastern Europe, which are expected
to complement the Company's line of wood construction products in Europe. The Gbo Fastening Systems acquisition resulted in
a $6.3 million gain on bargain purchase of a business, which was included in the Company's condensed consolidated statements
of operation.
In August 2016, the Company purchased all of the outstanding shares of Multi Services Dêcoupe S.A. ("MS Decoupe"), a Belgium
public limited company, for $6.9 million. MS Decoupe primarily manufactures and distributes wood construction, plastic, and
metal labeling products in Belgium and the Netherlands, including distributing the Company's products manufactured at the
Company's production facility in France. With this acquisition, the Company will offer the Belgium market a wider-range of its
products, shorten delivery lead times, and expand the Company's sales presence into the Netherlands market. During the third
quarter of 2017, the Company finalized its fair value measurement of assets acquired and liabilities assumed in this acquisition.
MS Decoupe assets and liabilities included cash and cash equivalents of $1.4 million, other current assets of $1.6 million, noncurrent
assets of $5.0 million, current liabilities of $0.6 million and noncurrent deferred income tax liabilities of $1.0 million. Included
in noncurrent assets was goodwill of $1.4 million, which was assigned to the Europe segment, and intangible assets of $1.7 million,
both of which are not subject to tax-deductible amortization. The estimated weighted-average amortization period for the intangible
assets is 10 years.
In December 2015, the Company purchased all of the business assets including intellectual property from Blue Heron Enterprises,
LLC, and Fox Chase Enterprises, LLC (collectively, "EBTY"), both New Jersey limited liability companies, for $3.4 million in
cash. EBTY manufactured and sold hidden deck clips using a patented design. EBTY's patented design complements the Company's
line of hidden clips and fastener systems. The Company's measurement of assets acquired included goodwill of $2.0 million, which
was assigned to the North America segment, and intangible assets of $1.1 million, both of which are subject to tax-deductible
amortization. Net assets consisting of inventory and equipment accounted for the balance of the purchase price. The weighted-
average amortization period for the intangible assets is 7 years.
The Company’s growth potential depends, to some extent, on its ability to penetrate new markets, both domestically and
internationally. See “Item 1 — Business Strategy” above. The Company may pursue acquisitions of product lines or businesses
including if the right opportunity were to arise in its core fastener space. See “Note 13 — Acquisitions and Dispositions” and
“Note 15 — Subsequent Events” to the Company’s Consolidated Financial Statements, as well as “Item 1A — Risk Factors” and
“Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Seasonality and Cyclicality
The Company’s sales are seasonal and cyclical. Operating results vary from quarter to quarter and with economic cycles. The
Company’s sales are also dependent, to a large degree, on the North American residential home construction industry. See “Item
1A — Risk Factors” and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Employees and Labor Relations
As of December 31, 2017, the Company had 2,902 full-time employees, of whom 1,575 were hourly employees and 1,327 were
salaried employees. The Company believes that its overall compensation and benefits for the most part meet or exceed industry
averages and that its relations with its employees are good.
As of December 31, 2017, approximately 13% of the Company’s employees are represented by labor unions and are covered by
collective bargaining agreements. We have two locations with collective bargaining agreements covering tool and die craftsmen,
maintenance workers, and sheet-metal workers. The two union contracts in Stockton, California will expire in July and September
2019, respectively. Moreover, the two contracts in San Bernardino County will expire in June 2018 and February 2021, respectively.
We have not begun negotiations to extend the sheetmetal workers union labor contract that will expire in June 2018. Based on
current information and subject to future events and circumstances, we believe that, even if new agreements are not reached before
the existing labor union contracts expire, it is not expected to have a material adverse effect on the Company's ability to provide
products to customers or on the Company's profitability. See “Item 1A — Risk Factors.”
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Available Information
The Company makes available, free of charge, on its website www.simpsonmfg.com, copies of its annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments to reports filed pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) after the Company files them
with the U.S. Securities and Exchange Commission (“SEC”). Printed copies of any of these materials will also be provided free
of charge on request.
You may read and copy any materials filed by the Company with the SEC at the SEC's Public Reference Room at 100 F Street,
NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC at www.sec.gov.
The contents of the websites referred to above are not incorporated into this filing. Further, our references to the URLs for these
websites are intended to be inactive textual references only.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described
below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial
statements and related notes thereto, before you decide to buy or hold shares of our common stock. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently
believe are not material, may also become important factors that adversely affect our business. We may not be able to control any
of those risks and uncertainties. If any of those risks and uncertainties, whether described below or not, actually occurs, our
business, results of operations, financial condition and future prospects could be materially and adversely affected, and you may
lose all or part of your investment.
To facilitate a review of our risk factors, we have organized our risk factors into general groups of risks, including “General
Business Risks,” “Products, Services and Sales Risks,” “Technological and Intellectual Property Risks,” “Regulatory Risks,”
“Capital Expenditures, Expansions, Acquisitions and Divestitures Risk,” “International Operations Risks,” “Capital Structure
Risks,” “Employee Risks” and “Other Risks.” The grouping of risks is to facilitate your review only, and no ranking of importance
of risks or other inference should be made on account of such groups.
General Business Risks
Our 2020 Plan may not be effective in achieving our stated strategic and operating objectives, and our efforts may
increase costs or otherwise adversely affect our business, results of operations and financial condition.
We are implementing a new strategic plan, the 2020 Plan, centered on focusing on our organic growth, rationalizing our
cost structure to improve profitability, improving our working capital management primarily through the reduction of
inventory levels and other working capital items such as accounts payable and accounts receivable. While the new strategy
calls for increased emphasis on certain operational targets, such as growing our net sales, reducing our operating expenses
as a percentage of net sales and decreasing our inventory levels, it moderates focus on other aspects of our operations
that used to be part of our prior strategy, such as certain categories of acquisitions (especially in the concrete space).
There can be no guarantee that the new strategy will yield the results that we currently anticipate or results that will
exceed those that might be obtained under our prior strategy, if we fail to successfully execute on one or more prongs of
the new strategy, even if we successfully implement one or more other prongs.
We may not fully execute on one or more elements of the new strategy due to any number of reasons, including, for
instance, because of the division of our management and financial resources among multiple objectives, or other factors
beyond our control or not foreseeable.
The successful execution of our new strategy depends on, among other things, our ability to:
•
Maintain our top-line growth and achieve a net sales compound annual growth rate of approximately 8%
from fiscal 2016 through fiscal 2020 by gaining market share in certain products lines;
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•
•
•
Carry out effective cost reduction measures in Europe and our concrete product line, justify certain expense
categories for each new period, and by fiscal 2020, reduce our operating expenses as a percent of net sales to
be below or at 27%;
Eliminate at least 25% to 30% of our product SKUs, implement Lean principles in our factories, and achieve
an additional 30% reduction of our raw materials and finished goods inventory by fiscal 2020; and
Realize return from our investment in software initiatives.
If we cannot address these challenges successfully without interrupting our day-to-day operations, productions and
procedures, or overcome execution risks and other critical obstacles that may emerge as we gain experience with our
new strategy, we may not be successful in achieving such strategic and operating objectives, we may not be able to expand
our business or increase our revenues or profitability at the rates we currently contemplate, if at all, and our efforts to
execute the 2020 Plan may increase costs or otherwise adversely affect our business.
As a result, we may refine our strategic and operating objectives, update our current strategic plan, and pursue strategies
outside the 2020 Plan that we believe represent great opportunities due to changes in our business, operations and financial
condition such as, lower-than-expected revenues, unanticipated expenses, increased competition, unfavorable economic
conditions, other risk factors discussed in this Annual Report on Form 10-K, or other unforeseen circumstances.
Business cycles affect our operating results.
Our operating results and our stock price are heavily tied to the health of the building construction industry, with an
estimated 60% of our total product sales being dependent on housing starts. The construction industry is subject to
significant volatility due to real estate market cycles, fluctuations in interest rates, the availability, or lack thereof, of
credit to builders and developers, inflation rates, weather, and other factors and trends.
Further, many of our customers in the construction industry are small and medium-sized businesses. These businesses
are more likely to be significantly affected by economic downturns than larger, more established businesses. Uncertainty
about current global economic conditions may cause these consumers to postpone or refrain from spending or may cause
them to switch to lower-cost alternative products, which could reduce demand for our products and materially and
adversely affect our financial condition and operating results.
Additionally, declines in commercial and residential construction, such as housing starts and remodeling projects, which
generally occur during economic downturns, have in the past significantly reduced, and in the future can be expected to
reduce, the demand for our products and our stock price.
Our sales are seasonal and we have little control over the timing of customer purchases. If we miss seasonal forecasts
or customers purchase our products in different quarters than we or analysts expect, our stock could materially
decline.
Our sales are 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, as customers tend to
purchase construction materials in the late spring and summer months for the construction season. In addition, weather
conditions, such as unseasonably warm, cold or wet weather, which affect, and sometimes delay or accelerate installation
of some of our products, may significantly affect our results of operations. Sales that we anticipate in one quarter may
occur in another quarter, affecting both quarters’ results and potentially our stock price.
In addition, we typically ship orders as we receive them and maintain inventory levels to allow us to operate with little
backlog. The efficiency of our inventory system, and our ability to avoid backlogs and potential loss of customers, is
closely tied to our ability to accurately predict seasonal and quarterly variances. Further, our planned expenditures are
also based primarily on sales forecasts. When sales do not meet our expectations, our operating results will be reduced
for the relevant quarters, as we will have already incurred expenses based on those expectations. This could result in a
material decline in our stock price.
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We operate in a competitive industry, and if we fail to anticipate and react appropriately to competitors,
technological changes, changing industry trends and other competitive forces our sales and profit margins will
decline.
Our ability to compete effectively depends upon our ability to meet changing market conditions and develop enhancements
to our products on a timely basis in order to maintain our competitive advantage. Many of our competitors have greater
financial and other resources than we do. Our continued growth depends upon our ability to develop additional products,
services and technologies that meet our customers’ expectation of our brand and quality. There can be no assurance that
we will be successful in developing and marketing new products, product enhancements and additional technologies,
that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing
of these products, or that our new products and product enhancements will adequately meet the requirements of the
marketplace, or will achieve market acceptance.
Further, one of the core elements of our strategy is to provide high quality products and customer services. Many of our
competitors are dedicating increasing resources to competing with us, especially as our products and services become
more affected by technological advances and software innovations. Some of our competitors have more experience
producing software and other technology-driven solutions. As a result, we are dedicating increasing resources to research
and development in new and changing technologies in order to stay competitive and provide high quality and innovative
products and services. These increased expenditures could reduce our operating results.
Additionally, our ability to compete effectively depends, to a significant extent, on the specification or approval of our
products by architects, engineers, building inspectors, building code officials and customers and their acceptance of our
premium brand. If a significant segment of those communities were to decide that the design, materials, manufacturing,
testing or quality control of our products is inferior to that of any of our competitors or the cost differences between our
products and any competitors are not justifiable, our sales and profits would be materially reduced.
Our future growth may depend on our ability to develop new products and penetrate new markets, which could
reduce our profitability.
Our future success depends upon our continued investment in research and new product development and our ability to
continue to develop new products that allow us to expand into new markets. Expansion into new markets and the
development of new products may involve considerable costs and may not generate sufficient revenue to be profitable
or cover the costs of development. We might not be able to penetrate these product markets and any market penetration
that occurs might not be timely or profitable. We may be unable to recoup part or all of the significant investments we
will have made in attempting to penetrate new markets.
Our failure to continue to successfully avoid, manage, defend, litigate and accrue for claims and litigation could
negatively impact our results of operations or cash flows.
We are exposed to and become involved in various litigation matters arising out of the ordinary routine conduct of our
business, including, from time to time, actual or threatened litigation relating to such items as our products and services,
product liability, employment-related claims, our distributors, intellectual property claims and regulatory actions.
The defense of litigation, including fees of legal counsel, expert witnesses and related costs, is expensive and difficult to
forecast accurately. In general, such costs are unrecoverable even if we ultimately prevail in litigation and could represent
a significant use of our capital resources. To defend lawsuits, it is also necessary for us to divert officers and other
employees from their normal business functions to gather evidence, give testimony and otherwise support litigation
efforts. We expect to experience higher than normal litigation costs arising from the lawsuits disclosed in this Annual
Report on Form 10-K.
If we lose any material litigation, we could face material judgments or awards against us. An unfavorable resolution of
one or more of the proceedings in which we are involved now or in the future could have a material adverse effect on
our business, assets, cash flow and financial condition.
There can be no assurance that we will be able to continue to successfully avoid, manage and defend such matters. In
addition, given the inherent uncertainties in evaluating certain exposures, actual costs to be incurred in future periods
may vary from our estimates for such contingent liabilities.
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Product, Services and Sales Risks
Design defects, labeling defects, product formula defects, inaccurate chemical mixes, product recalls and/or product
liability claims could harm our reputation, sales and financial results.
We have on occasion found flaws and deficiencies in the design, manufacturing, assembling, labeling, product
formulations, chemical mixes or testing of our products. We also have on occasion found flaws and deficiencies in raw
materials and finished goods produced by others and used with or incorporated into our products. Some flaws and
deficiencies have not been apparent until after the products were installed by customers.
Many of our products are integral to the structural soundness or safety of the structures in which they are used. If any
flaws or deficiencies exist in our products and if such flaws or deficiencies are not discovered and corrected before our
products are incorporated into structures, the structures could be unsafe or could suffer severe damage, such as collapse
or fire, and personal injury or death could result. Errors in the installation of our products, even if the products are free
of flaws and deficiencies, could also cause personal injury or death and unsafe structural conditions. To the extent that
such damage or injury is not covered by our product liability insurance and we are held to be liable, we could be required
to correct such damage and to compensate persons who might have suffered injury or death, and our reputation, business
and financial condition could be materially and adversely affected.
Even if a flaw or deficiency is discovered before any damage or injury occurs, we may need to refund customers and/or
repair or recall products (to the extent possible), and we may be liable for any costs necessary to replace recalled products
or retrofit or remedy the affected structures. Any such recall, retrofit or other remedy could entail substantial costs and
adversely affect our reputation, sales and financial condition. We do not carry insurance against recall costs or the adverse
business effect of a recall, and our product liability insurance may not cover retrofit or other remedy costs.
As a result of the nature of many of our products and their use in construction projects, claims (including product warranty
claims and claims resulting from a natural disaster) may be made against us with regard to damage or destruction of
structures incorporating our products whether or not our products failed. Any such claims, if asserted, could require us
to expend material time and efforts defending the claim and may materially and adversely affect our business and financial
condition. Costs associated with resolving such claims (such as repair or replacement of the affected parts) could be
material and may exceed any amounts reserved in our consolidated financial statements.
While we generally attempt to limit our contractual liability and our exposure to price or expense increases, we
may have uncapped liabilities or significant exposure under some contracts, and could suffer material losses under
such contracts.
We enter into many types of contracts with our customers, suppliers and other third parties, including in connection with
our expansion into new markets and new product lines. Under some of these contracts, our overall liability may not be
limited to a specified maximum amount or we may have significant potential exposure to price or expense increases. If
we receive claims under these contracts or experience significant price increases or comparable expense increases, we
may incur liabilities significantly in excess of the revenues associated with such contracts, which could have a material
adverse effect on our results of operations.
Our software provides some design functions to customers, and we are involved both in product sales and
engineering services. Any software errors or deficiencies or failures in our engineering services could have material
adverse effects on our operations and financial condition.
Our design software facilitates the creation by customers of complex construction and building designs and we are
involved both in product sales and engineering services. Our software is extremely complex and is continually being
modified and improved. As a result, it may contain defects or errors and new versions may introduce new defects and
errors. While we have attempted to limit our potential liability for the failure of any designs created by our software, as
a result of defects in our software, the structures could be unsafe or could suffer severe damage, such as collapse or fire,
and personal injury or death could result. Errors in construction unconnected with our design could also cause personal
injury or death and unsafe structural conditions, even if our software design is sufficient. To the extent that a structure
designed by our software suffers any failure or deficiency, we could be required to correct deficiencies and may become
involved in litigation, even if our software design was not the cause of such deficiency. Further, if any damage or injury
is not covered by our insurance and we are held to be liable, we could be required to correct such damage and to compensate
persons who might have suffered injury, and our reputation, business and financial condition could be materially and
adversely affected.
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While we engage in testing and upgrades, there can be no assurance that, despite our testing and upgrades, errors will
not be found in new and existing products resulting in loss of revenues or delay in market acceptance, diversion of
development resources, damage to our reputation, adverse litigation, or increased service and warranty costs, any of
which would have a material adverse effect upon our business, operating results and financial condition.
We are also involved in providing engineering solutions to our clients. The risks associated with providing these services
are materially different than the risks we historically faced when we only produced products. If our engineers prepare,
approve or seal drawings that contain defects or otherwise are involved in any design or construction that contains flaws,
regardless of whether our engineers caused such flaws, we may be held liable for professional negligence or other damages,
which could involve material claims.
We have a few large customers, the loss of any one of which could negatively affect our sales and profits.
Our largest customers accounted for a significant portion of net sales for the years ended December 31, 2017, 2016, and
2015. Any reduction in, or termination of, our sales to these customers would at least temporarily, and possibly on a
longer term basis, cause a material reduction in our net sales, income from operations and net income. Such a reduction
in or elimination of our sales to any of our largest customers would increase our relative dependence on our remaining
large customers.
In addition, our distributor customers have increasingly consolidated over time, which has increased the material adverse
effect of losing any one of them and may increase their bargaining power in negotiations with us. These trends could
negatively affect our sales and profitability.
Increases in prices of raw materials could negatively affect our sales and profits.
Our principal raw material is steel, including stainless steel. The steel industry can have large fluctuations. Numerous
factors beyond our control, such as general economic conditions, competition, worldwide demand, material and labor
costs, energy costs, foreign exchange rates, import duties and other trade restrictions influence prices for our raw materials.
Further, the domestic steel market is heavily influenced by three major United States manufacturers. We have not always
been able, and in the future we might not be able, to increase our product prices in amounts that correspond to increases
in costs of raw materials, without materially and adversely affecting our sales and profits.
We have historically not hedged against changes in prices of steel or other raw materials. In past years, however, we have
increased our anticipatory purchases of steel in an effort to mitigate the effects of rising steel prices. This strategy, coupled
with changing economic conditions, has resulted in substantial fluctuations in our inventory in recent years, which can
materially and adversely affect our margins, cash flow and profits.
We depend on third parties for transportation services and the lack of availability of transportation and/or increases
in cost could materially and adversely affect our business and operations.
Our business depends on the transportation of both finished goods to our customers and distributors and the transportation
of raw materials to us. We rely on third parties for transportation services of these items, which services are occasionally
in high demand (especially at the end of calendar quarters) and/or subject to price fluctuations.
If the required supply of transportation services is unavailable when needed, our manufacturing processes may be
interrupted or we may be unable to sell our products at full value, or at all. This could harm our reputation, negatively
impact our customer relationships and have a material adverse effect on our financial condition and results of operation.
In addition, a material increase in transportation rates or fuel surcharges could have a material adverse effect on our
profitability.
Technological and Intellectual Property Risks
Our recent efforts to increase our technology offerings and integrate new software and application offerings may
prove unsuccessful and may affect our future prospects.
Our industry has experienced increased complexity in some home design and builders are more aggressively trying to
reduce their costs. One of our responses has been to design and market sophisticated software to facilitate the design and
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marketing of our product systems. We have continued to commit substantial resources to our software development
endeavors in recent years and expect that trend to continue in 2018.
We have a limited operating history in the technology space and may not be able to create commercially successful
software and applications. Even if we are able to create initially successful ideas, the technology industry is subject to
rapid changes. We may not be able to adapt quickly enough to keep up with changing demands, and our software may
become obsolete.
While we see having a software interface with the construction industry as a potential growth area, we also face competition
from other companies that are focused solely or primarily on the development of software and applications. These
companies may have significantly greater expertise and resources to devote to software development, and we may be
unable to compete with them in that space.
If we cannot protect our technology, we will not be able to compete effectively.
Our ability to compete effectively with other companies depends in part on our ability to maintain the proprietary nature
of our technology, in part through patents, copyrights, trade secrets and other intellectual property protections. We might
not be able to protect or rely on our patents and copyrights. Patents might not issue pursuant to pending patent applications.
Our software copyright and other protections might not be adequate to protect our software and application code. Others
might independently develop the same or similar technology, develop around the patented aspects of any of our products
or proposed products, or otherwise obtain access to or circumvent our proprietary technology. We also rely on unpatented
proprietary technology to maintain our competitive position. We might not be able to protect our trade secrets, our know-
how or other proprietary information. If we are unable to maintain the proprietary nature of our significant products, our
sales and profits are likely to be materially reduced.
In attempting to protect our proprietary information, we sometimes initiate lawsuits against competitors and others that
we believe have infringed or are infringing our rights. In such an event, the defendant may assert counterclaims to
complicate or delay the litigation or for other reasons. Litigation may be very costly and may result in adverse judgments
that affect our sales and profits materially and adversely.
Claims that we infringe intellectual property rights of others may materially increase our expenses and reduce
our profits.
Other parties have in the past and may in the future claim that our products or processes infringe their intellectual property
rights. We may incur substantial costs and liabilities in investigating, defending and resolving such claims, whether or
not they are meritorious, which may materially reduce our profitability and materially and adversely affect our business
and financial condition. Litigation can be disruptive to normal business operations and may result in adverse rulings or
decisions. If any such infringement claim is asserted against us, we may be required to obtain a license or cross-license,
modify our existing technology or design a new non-infringing technology, any of which could be costly and time-
consuming. A ruling against us in an infringement lawsuit could include an injunction barring our production or sale of
any infringing product. A damages award against us could include an award of royalties or lost profits and, if the court
finds willful infringement, treble damages and attorneys’ fees.
If we are unable to protect our information systems against data corruption, cyber-based attacks or network
security breaches, our operations could be disrupted and our reputation and profitability could be negatively
affected.
We depend on information technology networks and systems, including the internet, to process, transmit and store
electronic information. We depend on our information technology infrastructure for electronic communications among
our locations around the world and between our personnel and our subsidiaries, customers and suppliers. We collect and
retain large volumes of internal and customer, vendor and supplier data, including some personally identifiable
information, for business purposes. We also maintain personally identifiable information about our employees. The
integrity and protection of our customer, vendor, supplier, employee and other Company data is critical to our business.
The regulatory environment governing information, security and privacy laws is increasingly demanding and continues
to evolve. Maintaining compliance with applicable security and privacy regulations may increase our operating costs or
adversely affect our business operations.
Unauthorized parties may also attempt to gain access to our systems or facilities through fraud, trickery or other forms
of deceiving our employees, contractors or other agents or representatives. Security breaches of our infrastructure could
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create system disruptions, shutdowns or unauthorized disclosures of confidential information. Despite the security
measures we have in place, our facilities and systems, and those of the retailers, dealers, licensees and other third party
distributors with which we do business, may be vulnerable to security breaches, cyber-attacks, acts of vandalism, computer
viruses, misplaced or lost data, programming and/or human errors or other similar events. Any security breach involving
the misappropriation, loss or other unauthorized disclosure of confidential customer, employee, supplier or Company
information, whether by us or by the retailers, dealers, licensees and other third party distributors with which we do
business, could result in losses, severely damage our reputation, expose us to the risks of litigation and liability (including
regulatory liability), disrupt our operations and have a material adverse effect on our business, results of operations and
financial condition.
We publicly post our privacy policies and practices concerning our processing, use, and disclosure of personally
identifiable information on our website. The publication of our privacy policy and other statements we publish that provide
assurances about privacy and security can subject us to potential federal, state, or other regulatory action if they are found
to be deceptive or misrepresentative of our practices.
We may experience delays or outages in our information technology system and computer networks.
We may be subject to information technology system failures and network disruptions. These may be caused by delays
or disruptions due to system updates, natural disasters, malicious attacks, accidents, power disruptions,
telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins or similar events
or disruptions.
Despite our security measures, our systems could be vulnerable to disruption, and any such disruption could negatively
affect our financial condition and results of operations.
Some of our agreements for software and software-as-services products have limited terms, and we may be unable
to renew such agreements and may lose access to such products.
We have various agreements with a number of third parties that provide software and software-as-service products to us.
These agreements often require reoccurring payments for online access to the products and have limited terms. In the
future, we will be required to renegotiate the terms of these agreements, and may be unable to renew such agreements
on favorable terms. If any such agreement cannot be renewed or can only be renewed on terms that are materially worse
for us, we may be unable to access the applicable software, and our business and operating results may be adversely
affected.
Regulatory Risks
Failure to comply with industry regulations could result in reduced sales and increased costs.
We are subject to environmental laws and regulations governing emissions into the air, discharges into water, and
generation, handling, storage, transportation, treatment and disposal of waste materials. We are also subject to other
federal and state laws and regulations regarding health and safety matters.
Our manufacturing operations involve the use of solvents, chemicals, oils and other materials that are regarded as hazardous
or toxic. We also use complex and heavy machinery and equipment that can pose severe safety hazards, especially if not
properly and carefully used. Some of our products also incorporate materials that are hazardous or toxic in some forms,
such as zinc and lead used in some steel galvanizing processes, chemicals used in our acrylic and epoxy anchoring
products, and chemicals used in our concrete repair, strengthening and protecting products. The gun powder used in our
powder-actuated tools is explosive. We have in the past, and may in the future, need to take steps to remedy our failure
to properly label, store, transport, use and manufacture such toxic and hazardous materials.
If we do not obtain all material licenses and permits required by environmental, health and safety laws and regulations,
we may be subject to regulatory action by governmental authorities. If our policies and procedures are flawed, or our
employees fail or neglect to follow our policies and procedures in all respects, we might incur liability. Relevant laws
and regulations could change or new ones could be adopted that require us to incur substantial expense to comply.
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Complying or failing to comply with conflict minerals regulations could materially and adversely affect our supply
chain, our relationships with customers and suppliers and our financial results.
We are currently subject to conflict mineral disclosure regulations in the U.S. and may be affected by new regulations
concerning conflict and similar minerals adopted by other jurisdictions where we operate. While we have been successful
to date in adapting to such regulations, we have and will continue to incur added costs to comply with the disclosure
requirements, including costs related to determining the source of such minerals used in our products. We may not be
able to ascertain the origins of such minerals that we use and may not be able to satisfy requests from customers to certify
that our products are free of conflict minerals. These requirements also could constrain the pool of suppliers from which
we source such minerals. We may be unable to obtain conflict-free minerals at competitive prices. Such consequences
will increase costs and may materially and adversely affect our manufacturing operations and profitability.
When we provide engineering services we are subject to various local, state and federal rules and regulations
which can increase our potential liability.
As part of our product offerings, we may provide engineering and design-related services to our clients. Some of these
services require us to stamp drawings or otherwise be involved in the engineering process. While we generally attempt
to limit our liability through our internal processes and through our legal agreements with third parties to which we
provide such services, under various local, state and federal rules and regulations these limitations may not be effective
and we may be held liable for engineering failures. Any such liability could materially and adversely affect our profitability.
Capital Expenditures, Expansions, Acquisitions and Divestitures Risks
Our acquisition activities, if any, present unique risks for our business, and any acquisition could materially and
adversely affect our business and operating results.
We compete for acquisitions with other potential acquirers, some of which have greater financial or operational resources
than we do. As a result, we may not be able to identify suitable acquisition candidates or strategic opportunities. Any
acquisitions we undertake involve numerous risks, including, for example:
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inadequate access to information and/or due diligence of acquired businesses;
diversion of management’s attention from other business concerns;
overvaluation of acquired businesses;
difficulties assimilating the operations and products of acquired businesses, including expensive and time
consuming integration costs such as employee redeployment, relocation or severance, combining teams and
processes in various functional areas, reorganization or closures of facilities, and relocation or disposition of
excess equipment;
inaccurate accounting or public reporting arising from integration of the financial statements and disclosures of
acquired businesses;
undisclosed existing or potential liabilities of acquired businesses;
slow acceptance or rejection of acquired businesses’ products by our customers;
risks of entering markets in which we have little or no prior experience;
litigation involving activities, properties or products of acquired businesses;
increased cost of regulatory compliance and enforcement;
consumer and other claims related to products of acquired businesses; and
the potential loss of key employees of acquired businesses.
In addition, future acquisitions may involve issuance of additional equity securities that dilute the value of our existing
equity securities, increase our debt, cause impairment related to goodwill and cause impairment of, and amortization
expenses related to, other intangible assets, which could materially and adversely affect our profitability. Any acquisition
could materially and adversely affect our business and operating results, and as a result, our business and operating results
may differ from any guidance that we may provide.
We may decide to dispose of assets and incur material expenses in doing so.
We have terminated in the past and may terminate in the future product lines or businesses if we determine that the cost
of operating them is not warranted by their expected profitability. For example, we closed our sales offices in China,
Thailand and Dubai in 2015. There are significant costs with such divestitures, which could materially and adversely
affect our sales, assets, profitability and financial condition.
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Our capital expenditures may not be adequate to maintain our competitive position and may not be implemented
in a timely or cost-effective manner.
Our capital expenditures are limited by our liquidity and capital resources and the amount we have available for capital
spending is limited by the need to pay our other expenses and to maintain adequate cash reserves and borrowing capacity
to meet unexpected demands that may arise. Productivity improvements through process re-engineering, design efficiency
and manufacturing cost improvements may be required to offset potential increases in labor and raw material costs and
competitive price pressures. If we are unable to make sufficient capital expenditures, or to maximize the efficiency of
the capital expenditures we do make, our competitive position may be harmed and we may be unable to manufacture the
products necessary to compete successfully in our targeted market segments.
Additional financing, if needed, to fund our working capital, growth or other business requirements may not be
available on reasonable terms, or at all.
If the cash needed for working capital or to fund our growth or other business requirements increases to a level that
exceeds the amount of cash that we generate from operations and have available through our current credit arrangements,
we will need to seek additional financing. Additional or new borrowings may not be available on reasonable terms, or at
all. Our ability to raise money by issuing and selling shares of our common or preferred stock depends on general market
conditions and the demand for our stock. If we sell stock, our existing stockholders could experience substantial dilution.
Our inability to secure additional financing could prevent the expansion of our business, internally and through
acquisitions.
If we change significantly the location, nature or extent of some of our manufacturing operations, we may reduce
our net income.
If we decide to change significantly the location, nature or extent of a portion of our manufacturing operations, we may
need to record an impairment of our goodwill. Our goodwill totaled $137.1 million at December 31, 2017. Recording an
impairment of our goodwill correspondingly reduces our net income. Other changes or events in the future could further
impair our recorded goodwill, which could also materially and adversely affect our profitability.
International Operations Risks
Our international operations may be materially and adversely affected by factors beyond our control.
Economic, social and political conditions, laws, practices and customs vary widely among the countries where we produce
or sell our products. Our operations outside of the United States are subject to a number of risks and potential costs,
including, for example, lower profit margins, less protection of intellectual property and economic, political and social
uncertainty in some countries. Our sales and profits depend, in part, on our ability to develop and implement policies and
strategies that effectively anticipate and manage these and other risks in the countries where we do business. These and
other risks may materially and adversely affect our operations in any particular country and our business as a whole.
International construction standards, techniques and methods differ from those in the United States. Laws and regulations
applicable in new markets may be unfamiliar to us. Compliance may be substantially more costly than we anticipate. As
a result, we may need to redesign our products, or invent or design new products, to compete effectively and profitably
in international markets. Inflation in emerging markets may also make our products more expensive there and increases
the market and credit risks that we are exposed to.
Other significant challenges to conducting business in foreign countries include, among other factors, local acceptance
of our products, political instability, changes in import and export regulations, changes in tariff and freight rates,
fluctuations in foreign exchange rates, currency controls, cash repatriation restrictions and differing economic outcomes.
International operations expose us to foreign exchange rate risk.
We have foreign exchange rate risk in our international operations and through purchases from foreign vendors. We do
not currently hedge this risk. Changes in currency exchange rates could materially and adversely affect our sales and
profitability.
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Because of our international operations, we could be adversely affected by violations of applicable U.S. federal
and state or foreign laws and regulations, such as the United States Foreign Corrupt Practices Act and similar
worldwide anti-bribery, anti-corruption and anti-kickback laws.
As a result of our expanded international operations, we face increasing compliance and regulatory oversight related to
operating in foreign countries. The foreign and U.S. laws and regulations that are applicable to our operations are complex
and may increase the costs of regulatory compliance, or limit or restrict the products or services we sell or subject our
business to the possibility of regulatory actions or proceedings. The United States Foreign Corrupt Practices Act, and
other similar laws and regulations, generally prohibit companies and their intermediaries from making improper payments
to foreign governmental officials for the purpose of obtaining or retaining business. While our policies mandate compliance
with applicable laws and regulations, including anti-bribery laws and other anti-corruption laws, we cannot guarantee
that we will be successful in preventing our employees or other agents from taking actions in violation of these laws or
regulations. Such violations, or allegations of such violations, could disrupt our business and result in a material adverse
effect on our financial condition, results of operations and cash flows.
Our international operations depend on our successful management of our subsidiaries outside of the United
States.
We conduct our international business through wholly owned subsidiaries. Managing distant subsidiaries and fully
integrating them into our business is challenging. We cannot directly supervise every aspect of the operations of our
subsidiaries operating outside the United States. As a result, we rely on local managers and staff. Cultural factors and
language differences can result in misunderstandings among internationally dispersed personnel. The risk that
unauthorized conduct may go undetected may be greater in subsidiaries outside of the United States. These problems
could adversely affect our sales and profits.
Failure to comply with export, import, and sanctions laws and regulations could affect us materially and adversely.
We are subject to a number of export, import and economic sanction regulations, including the International Traffic in
Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and U.S. sanction regulations administered
by the U.S. Department of Treasury, Office of Foreign Assets (“OFAC”). Foreign governments where we have operations
also implement export, import and sanction laws and regulations, some of which may be inconsistent or conflict with
ITAR and EAR. Where we face such inconsistencies, it may be impossible for us to comply with all applicable regulations.
If we do not obtain all necessary import and export licenses required by applicable export and import regulations, including
ITAR and EAR, or do business with sanctioned countries or individuals, we may be subject to fines, penalties and other
regulatory action by governmental authorities, including, among other things, having our export or import privileges
suspended. Even if our policies and procedures for exports, imports and sanction regulations comply, but our employees
fail or neglect to follow them in all respects, we might incur similar liability.
Any changes in applicable export, import or sanction laws or regulations or any legal or regulatory violations could
materially and adversely affect our business and financial condition.
Our manufacturing facilities in China complicate our supply and inventory management.
We maintain manufacturing capability in various parts of the world, in part to allow us to serve our customers with prompt
delivery of needed products. Such customer service is a significant factor in our efforts to compete with larger companies
that have greater resources than we have. In recent years, we have substantially expanded our manufacturing in China.
Nearly all of our manufacturing output in China was and is currently intended for export to other parts of the world.
Because of the great distances between our manufacturing facilities in China and the markets to which the products made
there will be shipped, we may have difficulty providing adequate service to our customers, which may put us at a
competitive disadvantage. Our attempts to provide prompt delivery may necessitate that in China we produce and keep
on hand substantially more inventory of finished products than would otherwise be needed. Inventory fluctuations can
materially and adversely affect our margins, cash flow and profits. Any tariffs, duties, taxes, penalties imposed by the
United States on imports from China would negatively affect our inventory management and profits.
We are subject to U.S. and international tax laws that could affect our financial results.
We generally conduct international operations through our wholly-owned subsidiaries. Our income tax liabilities in the
different countries where we operate depend in part on internal settlement prices and administrative charges among us
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and our subsidiaries. These arrangements require us to make judgments with which tax authorities may disagree. Tax
authorities may impose additional tariffs, duties, taxes, penalties and interest on us. Transactions that we have arranged
in light of current tax rules could have material and adverse consequences if tax rules change, and changes in tax rules or
imposition of any new or increased tariffs, duties and taxes could materially and adversely affect our sales, profits and
financial condition.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations are issued or applied. The
U.S. recently enacted significant tax reform, and certain provisions of the new law may adversely affect us. If the U.S.
or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial
condition or results of operations may be adversely impacted.
Recent changes in applicable law regarding the transfer of personally identifiable information by U.S. companies
doing business in the European Union could lead us to spend significant resources trying to comply with the newly
developed rules. We may not succeed in meeting such requirements, and we may face governmental actions and
suffer business losses.
We have in the past relied on adherence to the U.S. Department of Commerce’s Safe Harbor Policy Principles and
compliance with the Safe Harbor Frameworks as agreed to and set forth by the European Commission and the United
States, which established a means for legitimating the transfer of personally identifiable information by U.S. companies
doing business in the European Union (“EU”) to the U.S. under the EU Data Protection Directive (95/46/EC). New EU
legislation, the General Data Protection Regulation (Regulation (EU) 2016/679) (“GDPR”) will apply from May 25,
2018, in replacement of the EU Data Protection Directive, and is expected to have a significant impact on how businesses
can collect and process the personal data of EU individuals.
In light of the GDPR, we have made and continue to engage in additional compliance efforts when transferring certain
data from the EU. We may be unsuccessful in complying with the new EU data transfer requirements, and as a result,
we may be at risk of enforcement actions taken by an EU data protection authority until such point in time that we ensure
all data transfers to us from the EU are in compliance with applicable law. We may find it necessary to establish systems
to maintain EU-origin data in the European Economic Area, which may involve substantial expense and distraction from
other aspects of our business.
Capital Structure Risks
A stockholder controls approximately 11% of the outstanding shares of our common stock, which may reduce
other stockholders' ability to influence our affairs.
As of December 31, 2017, Sharon Simpson controlled, directly and indirectly, approximately 11% of the then outstanding
shares of our common stock. Ms. Simpson, therefore, has significant influence with respect to our corporate matters
requiring stockholder approval such as the election of our directors and proposals that come before the stockholders at
the annual meeting or other special meetings.
Further, if all or a substantial portion of her shares of our common stock is sold, it could depress the price of our common
stock.
Any issuance of preferred stock may dilute your investment and reduce funds available for dividends.
Our Board of Directors is authorized by our Certificate of Incorporation to determine the terms of one or more series of
preferred stock and to authorize the issuance of shares of any such series on such terms as our Board of Directors may
approve. Any such issuance could be used to impede an acquisition of our business that our Board of Directors does not
approve, further dilute the equity investments of holders of our common stock and reduce funds available for the payment
of dividends to holders of our common stock.
Future sales of our common stock could adversely affect our stock price.
Our Board of Directors has the authority to issue, from time to time, authorized and unissued shares of our common
stock. Our issuance of substantial amounts of new shares of our common stock could adversely affect the prevailing
market price for our common stock.
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All of the outstanding shares of our common stock are freely tradable without restriction under the Securities Act of 1933,
as amended (the “Securities Act”), other than shares of our common stock held by our “affiliates,” as that term is defined
in Rule 144 under the Securities Act, which, however, may be sold by our affiliates pursuant to Rule 144.
If a substantial number of shares of our common stock are sold in the public market pursuant to Rule 144 by our affiliates
or issued upon the exercise of our outstanding options, the trading price of our common stock in the public market could
be adversely affected. As of February 26, 2018, there were 5,294,439 million shares held by our affiliates
Delaware law and our corporate governance documents could deter takeover attempts that might otherwise be
beneficial to our stockholders.
Provisions of Delaware law could make it more difficult for a third party to acquire us. Section 203 of the Delaware
General Corporation Law may make the acquisition of the Company more difficult for potential acquirers by prohibiting
stockholders holding 15% or more of our outstanding voting stock from acquiring us without the consent of our Board
of Directors for at least three years from the date they first hold 15% or more of the voting stock.
Pursuant to the Company's current corporate governance documents, our stockholders cannot call special meetings and
cannot take action by written consent. In addition, a change in the composition of our Board of Directors that is not
approved by the existing Board of Directors could trigger a default under our existing credit facilities.
These provisions may discourage, delay or make difficult a merger or acquisition of the Company, including a transaction
that may offer a premium price for our common stock.
We will continue to incur increased costs as a result of being a publicly-traded company, including costs arising
from the scrutiny of our business, practice and governance as a publicly-traded company.
As a U.S. public company, we are generally subject to the reporting and other requirements of applicable federal and
state securities laws, rules and regulations and scrutiny by stockholders and proxy advisors. Compliance with these laws,
rules and regulations and attending to stockholder requests, requires us to continue to incur significant legal, accounting
and other expenses and costs, makes some activities more difficult, time-consuming or costly and increases demands on
our systems and resources, and may continue to do so. For example, we recently expended significant time and resources
in terminating our stockholder rights plan, creating a compensation recovery policy and an anti-hedging and anti-pledging
policy, redesigning our executive compensation program and responding to other requests from our stockholders. We
continue to implement strategic and board initiatives to comply with recent and updated best-practices related to our
public company status and respond to stockholder feedback, and expect that will have to continue to allocate significant
time and resources to such endeavors.
In addition, as a result of disclosure of information in filings required of a public company, our business and financial
condition will become more visible, which may result in threatened or actual litigation, including by competitors and
other third parties. If such claims are successful, our business and operating results could be harmed, and even if the
claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve
them, could divert the resources of our management and adversely affect our business, brand and reputation and results
of operations.
Employee Risks
We depend on key management and technical personnel, the loss of whom could harm our business.
We depend on our key management and technical personnel. The loss of one or more key employees could materially
and adversely affect us.
Our success also depends on our ability to attract and retain highly qualified technical, sales and marketing and management
personnel necessary for the maintenance and expansion of our activities. We face strong competition for such personnel
and may not be able to attract or retain such personnel. In addition, when we experience periods with little or no profits,
a decrease in compensation based on our profits may make it difficult to attract and retain highly qualified personnel.
In order to attract and retain executives and other key employees, we must provide a competitive compensation package,
including cash and stock-based compensation. Our primary form of stock-based compensation is restricted stock units
(“RSUs”). We have issued a substantial number of RSUs in various forms to our management and staff. We cannot
35
guarantee that such stock-based incentive awards are tax deductible. As a result, we may be required to pay additional
tax on stock-based compensation to our employees.
If the anticipated value of our stock-based incentive awards does not materialize so that they cease to be viewed as
valuable, if our profits decrease, or if our total compensation package is not viewed as competitive, our ability to attract,
retain and motivate executives and key employees could be weakened. The failure to successfully hire and retain executives
and key employees or the loss of any executives and key employees could have a significant impact on our operations.
Any work stoppage or interruption by employees could materially and adversely affect our business and financial
condition.
A significant number of our employees are represented by labor unions and covered by collective bargaining agreements
that will expire between 2018 and 2021. Although we believe that our relations with our employees are generally good,
no assurance can be given that we will be able to successfully extend or renegotiate our collective bargaining agreements
as they expire from time to time. If we fail to extend or renegotiate our collective bargaining agreements, if disputes with
our unions arise, or if our unionized workers engage in a strike or other work stoppage or interruption, we could experience
a significant disruption of, or inefficiencies in, our operations or incur higher labor costs, which could have a material
adverse effect on our business, results of operations, financial position and liquidity.
Other Risks
Natural disasters could decrease our manufacturing capacity.
Some of our current manufacturing facilities are located in geographic regions that have experienced major natural
disasters, such as earthquakes, floods and hurricanes. Our disaster recovery plan may not be adequate or effective. We
do not carry earthquake insurance. Other insurance that we carry is limited in the risks covered and the amount of coverage.
Our insurance would not be adequate to cover all of our resulting costs, business interruption and lost profits when a
major natural disaster occurs. A natural disaster rendering one or more of our manufacturing facilities totally or partially
unusable, whether or not covered by insurance, would materially and adversely affect our business and financial condition.
Climate change could materially and adversely affect our business.
We cannot predict the effects that climate change may have on our business. They might, for example:
•
•
•
•
•
•
•
•
•
depress or reverse economic development,
reduce the demand for construction,
increase the cost and reduce the availability of fresh water,
destroy forests, increasing the cost and reducing the availability of wood products used in construction,
increase the cost and reduce the availability of raw materials and energy,
increase the cost of capital,
increase the cost and reduce the availability of insurance covering damage from natural disasters,
lead to claims regarding the content or adequacy of our public disclosures, and
lead to new laws and regulations that increase our expenses and reduce our sales.
Any of these consequences, and other consequences of climate change that we do not foresee, could materially and
adversely affect our sales, profits and financial condition.
We may have exposure to greater than anticipated tax liabilities.
We provide guidance on our anticipated tax rates. Failure to meet these anticipated rates could cause us to miss analyst
forecasts and could result in material declines in our stock price. Our future income taxes could be adversely affected by
earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in
jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, as
a result of changes in foreign tax exchanges, or changes in tax laws, regulations, or accounting principles, as well as
certain discrete items. The determination of our worldwide provision for income taxes and other tax liabilities requires
significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain.
Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our
financial statements and may materially affect our financial results in the period or periods for which such determination
is made.
36
On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the "Tax Reform Act") was signed into law. The impact
of the Tax Reform Act and any future Treasury rules, regulations or guidance thereunder on our business and our
stockholders is uncertain and could be adverse and cause our future results of operations and financial condition to differ
materially from our expectations, estimates and assumptions disclosed in this Annual Report on Form 10-K or previously.
Contracts that we file as exhibits to our public reports contain recitals, representations and warranties that may
not be factually correct.
The parties to any agreement or other instrument that we file as an exhibit to this or any other report did not necessarily
intend that any recital, representation, warranty or other statement of purported fact in the instrument establish or confirm
any fact, even if it is worded as such. Often such statements are used to allocate contractual risk between the parties, and
the statements often are subject to standards of materiality that differ from the standards applicable to our reports. In
addition, such statements may have been qualified by other materials that we have not filed with (or incorporated by
reference into) this or any other report or document. Such exhibits should be read in the context of our other disclosures
in our reports and it should not be assumed that any statement, representation or warranty of any party is necessarily
factually accurate.
Impairment charges on goodwill or other intangible assets adversely affect our financial position and results of
operations.
We are required to perform impairment tests on our goodwill, indefinite-lived intangible assets and definite-lived intangible
assets annually or at any time when events occur that could affect the value of such assets. To determine whether a
goodwill impairment has occurred, we compare fair value of each of our reporting units with its carrying value. In the
past, these tests have led us to incur significant impairment charges. Significant and unanticipated changes in
circumstances, such as significant adverse changes in business climate, adverse actions by regulatory authorities,
unanticipated competition, loss of key customers or changes in technology or markets, can require a charge for impairment
that can materially and adversely affect our reported net income and our stockholders’ equity.
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.
We are increasingly dependent on technology systems to operate our business, reduce costs, and enhance customer service.
These systems include complex software systems and hosted applications that are provided by third parties such as
financial management and human capital management platforms from SAP America, Inc. and Workday, Inc. Software
systems need to be updated on a regular basis with patches, bug fixes and other modifications. Hosted applications are
subject to service availability and reliability of hosting environments. We also migrate from legacy systems to new systems
from time to time. Maintaining existing software systems, implementing upgrades and converting to new systems are
costly and require a significant allocation of personnel and other resources. The implementation of these systems upgrades
and conversions is a complex and time-consuming project involving substantial expenditures for implementation
activities, consultants, system hardware and software, often requires transforming our current business and financial
processes to conform to new systems, and therefore, may take longer, be more disruptive, and cost more than forecast
and may not be successful. If the implementation is delayed or otherwise is not successful, it may hinder our business
operations and negatively affect our financial condition and results of operations. There are many factors that may
materially and adversely affect the schedule, cost, and execution of the implementation process, including, without
limitation, problems during the design and testing phases of new systems; system delays and malfunctions; the deviation
by suppliers and contractors from the required performance under their contracts with us; the diversion of management
attention from our daily operations to the implementation project; reworks due to unanticipated changes in business
processes; difficulty in training employees in the operation of new systems and maintaining internal control while
converting from legacy systems to new systems; and integration with our existing systems. Some of such factors may
not be reasonably anticipated or may be beyond our control.
Failure of our internal control over financial reporting or our accounting systems could harm our business and
financial results.
Because of the inherent limitations of internal control, our internal control over financial reporting might not detect or
prevent misstatements of our consolidated financial statements on a timely basis. We have used accounting and other
financial management software systems in connection with our operations. Defects in such systems or their implementation
could result in errors in our consolidated financial statements. Our growth and entry into globally dispersed markets as
37
well as periodic conversions from legacy software systems to new software systems puts significant additional pressure
on our internal control. Failure to maintain an effective internal control could limit our ability to report our financial
results accurately or to detect and prevent deficiencies timely, cause investors to lose confidence in the accuracy and
completeness of our financial reports, and subject us to regulatory investigations and litigation. As a result, our business
and the market price of our common stock could be materially and adversely affected.
Changes in accounting standards could materially and adversely affect our financial results.
The accounting rules applicable to public companies are subject to frequent revision. Future changes in accounting
standards, guidance and interpretations could require us to change the way we measure revenue, expense or balance sheet
amounts, which could result in material and adverse change to our reported results of operations or financial condition.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The Company owns its home office in Pleasanton, California, and its principal United States manufacturing facilities in Stockton
and San Bernardino County, California, McKinney, Texas, West Chicago, Illinois, Columbus, Ohio, and Gallatin, Tennessee. The
principal manufacturing facilities located outside the United States, the majority of which are owned, are in Canada, France,
Denmark, Germany, Poland, Switzerland, Sweden, Portugal and China. The Company also owns and leases smaller manufacturing
facilities, warehouses, research and development facilities and sales offices in the United States, the United Kingdom, Europe,
Asia, Australia, New Zealand, South Africa and Chile. As of February 28, 2018, the Company’s owned and leased facilities were
as follows:
North America
Europe
Asia/Pacific
Administrative and all other
Total
Number
Of
Properties
Approximate Square Footage
Owned
Leased
Total
(in thousands of square feet)
29
20
11
3
63
2,323
541
175
368
3,407
702
329
78
—
1,109
3,025
870
253
368
4,516
Our headquarters and principal executive offices are located in Pleasanton, California. We believe that our properties are maintained
in good operating condition. Our manufacturing facilities are equipped with specialized equipment and use extensive automation.
We consider its existing and planned facilities to be adequate for its operations as currently conducted and as planned through
2018. Our leased facilities typically have renewal options and have expiration dates through 2026. We believe it will be able to
extend leases on our various facilities as necessary, as they expire. Currently, our manufacturing facilities are being operated with
at least one full shift. Based on current information and subject to future events and circumstances, we anticipate that it may require
additional facilities to accommodate possible future growth.
We retained our real estate in Vacaville, California, and leased it to M&G Dura-Vent, Inc. for approximately $0.9 million per year
for ten years ending 2020. These properties are classified under the “Administrative & All other” segment.
Item 3. 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 enbrittlement, 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,
38
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.
Certain of the legal proceedings in which we are involved are discussed under “Litigation and Potential Claims” in Note 9,
“Commitments and Contingencies,” to the Company’s Consolidated Financial Statements, and are hereby incorporated by
reference. 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.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Common Stock
The information presented below is our historical data and not necessarily indicative of our future financial condition or results
of operations.
The Company’s common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “SSD.” The following
table shows the range of high and low closing sale prices per share of our common stock as reported by the NYSE and dividends
declared per share of our common stock for each quarter of the two most recent fiscal years indicated below, respectively:
Quarter
2017
Fourth
Third
Second
First
2016
Fourth
Third
Second
First
Record Holders
Market Price
High
Low
Dividends
Declared
$
$
$
$
60.92
49.32
44.13
44.94
48.17
45.27
39.97
38.17
$
$
48.63
42.01
40.18
41.55
40.88
39.32
37.25
30.49
—
0.42
0.21
0.18
0.18
0.18
0.18
0.16
As of February 23, 2018, there were 9,283 holders of record of the Company’s common stock. Because many of our shares of
common stock are held by brokers and other nominees on behalf of stockholders, including in trust, we are unable to estimate the
total number of stockholders represented by these record holders.
Dividends
The Company declared dividends of $0.16 per share of our common stock in the first quarter of 2016 and $0.18 per share of our
common stock in each of the second, third and fourth quarters of 2016. The Company declared dividends of $0.18 per share of
our common stock in the first quarter of 2017, $0.21 per share of our common stock in the second quarter and $0.42 in the third
quarter of 2017 ($0.21 per share of our common stock declared in each of July and September ). The Company declared no
dividends in the fourth quarter of 2017. On January 29, 2018, the Company declared a dividend of $0.21 per share of our common
stock. See "Note 15 — Subsequent Events" to the Company's Consolidated Financial Statements. Future dividends, if any, will
39
be determined by the Company’s Board of Directors, based on the Company’s future earnings, cash flows, financial condition and
other factors deemed relevant by the Board of Directors. See “Item 7 — Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item with respect to our equity compensation plans is incorporated by reference to our Proxy
Statement for the 2018 Annual Meeting to be filed with the SEC within 120 days of the fiscal year ended December 31, 2017.
40
Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference
into any filing of the Company under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific
reference in such filing. The information presented below is our historical data and not necessarily indicative of our future financial
condition or results of operations.
The graph below compares the cumulative total stockholder return on the Company’s common stock from December 31, 2012,
through December 31, 2017, with the cumulative total return on the S&P 500 Index (a broad equity market index), the Dow Jones
U.S. Building Materials & Fixtures Index (a published industry or line-of-business index) and a Peer Group Index over the same
period (assuming the investment of $100 in the Company’s common stock and in each of the indices on December 31, 2012, and
reinvestment of all dividends into additional shares of the same class of equity securities at the frequency with which dividends
are paid on such securities during the applicable fiscal year). To provide an additional comparison to our performance, we included
an index consisting of companies in the building products or construction materials industries that are most comparable to us in
terms of size and nature of operations, which group has also been referenced by us in connection with setting our executive
compensation. The Peer Group Index below consisted of AAON, Inc., PGT Innovations, Inc., Continental Building Products, Inc.,
Trex Company, Inc., Insteel Industries, Inc., Quanex Building Products Corp., American Woodmark Corp, Headwaters
Incorporated, Patrick Industries, Inc., Apogee Enterprises, Inc., U.S. Concrete, Inc., Gibraltar Industries, Inc., Eagle Materials
Corp., Summit Material, LLC., NCI Building Systems, Inc., Ply Gem Holdings, Inc., and Masonite International Corp. We added
a Peer Group Index to the stock performance graph below to ensure that it continues to reflect an appropriate comparison to our
business operations. Headwaters Incorporated was acquired in, and not included in such group with respect to 2017.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Simpson Manufacturing Co., Inc., the S&P 500 Index,
the Dow Jones US Building Materials & Fixtures Index, and a Peer Group
$300
$250
$200
$150
$100
$50
$0
12/12
12/13
12/14
12/15
12/16
12/17
Simpson Manufacturing Co., Inc.
S&P 500
Dow Jones US Building Materials & Fixtures
Peer Group
*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
41
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The table below presents the monthly repurchases of shares of our common stock in the fourth quarter of the fiscal year ended
December 31, 2017.
Period
October 1 - October 31, 2017
November 1 - November 30, 2017
December 1 - December 31, 2017
Total
(a)
(b)
Total
Number of
Shares
Purchased
—
—
677,500
677,500
Average
Price Paid
per Share
N/A
N/A
59.04
$
(c)
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
—
—
677,500
(d)
Approximate
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs (1)
$201.5 million
$201.5 million
$151.5 million
(1)
Pursuant to the $275.0 million repurchase authorization that was publicly announced on August 1, 2017, and is scheduled to expire at
the end of 2018. See “Note 1 — Stock Repurchase Program” to the Company’s Consolidated Financial Statements.
In December 2017, the Company entered into a Supplemental Confirmation with Wells Fargo Bank, National Association ("Wells
Fargo") for a $50 million accelerated share repurchase program (the "2017 December ASR Program"). Under the 2017 December
ASR Program, the Company received 677,500 shares at an average price of $59.04 per share for a total of $40.0 million. The final
delivery under the 2017 December ASR Program was made in February 2018. See Note 15 — "Subsequent Events" to the Company’s
Consolidated Financial Statements.
42
Item 6. Selected Financial Data.
You should read the following selected consolidated financial data in conjunction with Part II, Item 7 — "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the Company’s Consolidated Financial Statements and the
related Notes thereto, including any discussion of accounting changes, business combinations or dispositions of business operations
therein, to fully understand factors that may affect the comparability of the information presented below.
The consolidated statements of operations data for each of the years ended December 31, 2017, 2016 and 2015 and the consolidated
balance sheets data as of December 31, 2017 and 2016 are derived from our audited consolidated financial statements included
in the Company's Consolidated Financial Statements. The consolidated statements of operations data for the years ended
December 31, 2014 and 2013 and the consolidated balance sheets data as of December 31, 2015, 2014 and 2013 are derived from
our audited consolidated financial statements, except as otherwise noted, that are not included in this Annual Report on Form 10-
K. The information presented below is our historical data and not necessarily indicative of our future financial condition or results
of operations. The financial data below includes the results of operations of acquired companies following their acquisition. For
a summary of acquisitions that took place during the fiscal years ended December 31, 2017, 2016 and 2015, see “Note 13 —
Acquisitions and Dispositions” to the Company’s Consolidated Financial Statements.
(in thousands, except per-share data)
Statement of Operations Data:
Net sales
Cost of sales
Gross profit
Research and development and other engineering expense
Selling expense
General and administrative expense
Impairment of goodwill
Net loss (gain) on disposal of assets
Income from operations
Loss in equity method investment, before tax
Interest income (expense), net
Gain on bargain purchase of a business
Loss on disposal of a business
Income from operations
Provision for income taxes
Net income
Earnings per share of common stock:
Basic
Diluted
Cash dividends declared per share of common stock
Years Ended December 31,
2017
2016
2015
2014
2013
$ 977,025
530,761
446,264
$ 860,661
448,211
412,450
$ 794,059
435,140
358,919
$ 752,148
410,118
342,030
$ 705,322
391,791
313,531
47,616
114,903
144,738
—
(160)
139,167
(86)
(788)
6,336
(211)
144,418
51,801
92,617
1.95
1.94
0.810
46,248
98,343
129,162
—
(780)
139,477
—
(577)
—
—
138,900
49,166
89,734
1.87
1.86
0.700
46,196
90,663
113,428
—
(389)
109,021
—
(342)
—
—
108,679
40,791
67,888
1.39
1.38
0.620
39,018
92,031
111,500
530
(325)
99,276
—
46
—
—
99,322
35,791
63,531
1.30
1.29
0.545
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
36,843
85,102
108,070
—
2,038
81,478
—
86
—
—
81,564
30,593
50,971
1.05
1.05
0.375
$
$
$
$
43
(in thousands)
Balance Sheet Data:
Working capital
Property, plant and equipment, net
Goodwill
Total assets
Line of credit and long-term debt, including current
portion
Total liabilities
Total stockholders’ equity
2017
2016
2015
2014
2013
December 31,
$
$
447,450
273,020
137,140
1,037,523
3,662
152,745
884,778
476,451
232,810
124,479
979,974
—
114,132
865,842
$
494,308
213,716
123,950
961,309
—
111,485
849,824
$
509,838
207,027
123,881
973,065
18
109,600
863,465
$
464,901
209,533
129,218
953,613
103
112,334
841,279
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following is a discussion and analysis of the financial condition and results of operations, unless stated otherwise, for the
Company for the fiscal years ended December 31, 2017, 2016 and 2015, and of certain factors that may affect the Company’s
prospective financial condition and results of operations. The following discussion and analysis contain forward-looking statements
as discussed in the “Note About Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K and should
be read in conjunction with the Company's Consolidated Financial Statements and related Notes included therein. In addition to
our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our
plans, estimates, and beliefs. Our actual results could differ materially from those plans, estimates, and beliefs. Factors that could
cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K,
particularly "Item 1A — Risk Factors."
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.
Our primary business strategy is to grow through increasing our market share and profitability in Europe; growing our share in
the concrete space; and continuing to develop our software to support our core wood products offering while leveraging our
strengths in engineering, sales and distribution, and our strong brand name. We believe these initiatives and objectives are crucial
to not only offer a more complete solution to our customers and bolster our sales of core wood connector products, but also to
mitigate the cyclicality of the U.S. housing market.
On October 30, 2017, we announced the 2020 Plan to provide additional transparency into our strategic plan and financial objectives.
We remain on track to substantially achieve our aggressive financial targets under the 2020 Plan, assuming (i) that there are mid-
single digit growths in U.S. housing starts and in the repair and remodel market, (ii) that we can realize the $30 million annualized
revenue opportunity for our mechanical anchor product line in stores of The Home Depot, Inc., (iii) that we can increase our market
share and profitability in Europe, and (iv) that we can gain market shares for both our truss and concrete product offerings. Subject
to future events and circumstances, our 2020 Plan is centered on three key aggressive operational objectives as further described
below.
•
•
First, a continued focus on organic growth with a goal to achieve a net sales compound annual growth rate of approximately
8% (from $860.7 million reported in fiscal 2016) through fiscal 2020.
Second, rationalizing our cost structure to improve company-wide profitability by reducing total operating expenses, as
a percent of net sales from 31.8% in fiscal 2016 to a range of 26.0% to 27.0% by fiscal 2020. We expect to achieve this
initiative, aside from top-line growth, through cost reduction measures in Europe and our concrete product line, zero-
based budgeting for certain expense categories and a commitment to remaining headcount neutral (except in the production
and sales departments to meet demands from sales growth). Offsetting these reductions will be the Company’s ongoing
investment in its software initiatives as well as the expenses associated with our ongoing SAP implementation.
• Third, improving our working capital management and overall balance sheet discipline primarily through the reduction
of inventory levels by aggressively eliminating 25 to 30% of the Company’s product SKUs and implementing Lean
principles in many factories. We believe we can achieve an additional 30% reduction of our raw materials and finished
goods inventory over the next three years without impacting day-to-day production and shipping procedures.
44
In addition to these efforts, we recently hired a leading management consultant to perform an independent in-depth analysis of
our operations and identify additional opportunities to enhance our operational efficiencies. We believe our efforts to achieve the
2020 Plan will contribute to improved business performance and operating results, improve returns on invested capital (1) and
allow us to be more aggressive in repurchasing shares of our stock in the near-term. Through execution on the 2020 Plan, we also
expect by the end of fiscal year 2020 to achieve a return on invested capital target within the range of 17% to 18%.
We believe our ability to achieve industry-leading margins from a gross profit and operating income standpoint is due to the high
level of value-added services that we provide to our customers. Aside from our strong brand recognition and trusted reputation,
Simpson is unique due to our extensive product testing capabilities and our state-of-the-art test lab; strong customer support and
education for engineers, builders and contractors; deep 40-plus year relationships with engineers that get our products specified
on the blueprint and pulled through to the job site; product availability with delivery in typically 24 hours or less; and an active
involvement with code officials to improve building codes and construction practices. Based on current information, we expect
the competitive environment to be relatively stable. We also expect U.S. single-family housing starts to continue to grow as a
percentage in the mid to high single digits over the next few years, which should support a sustainable organic revenue growth
outlook in North America for many of our products.
We have invested in strategic initiatives, including approximately $8 million annual research and development expenses in software
development, to help us perform throughout all industry cycles, such as scaling up our wood construction products operations in
Europe and ongoing development of our software solutions, which we estimate supports approximately 40% of our connector and
truss plate sales, as our market strategy is to sell engineered product solutions. In support of this effort, we acquired Gbo Fastening
Systems AB (“Gbo Fastening Systems”) and CG Visions, Inc. (“CG Visions”) in January 2017, as we believe these two acquisitions
fit into our current business model and growth strategy.
While acquisitions were part of a dual-fold approach to growth in the past, our go-forward strategy will focus on organic growth,
supported by strategic capital investments in the business. As such, we will de-emphasize acquisitions activities going forward,
especially as it relates to the concrete space. An exception may occur if the right opportunity were to arise in our core fastener
space, which is the particular area where we believe it would be beneficial to gain additional production capacity to support our
wood business.
Factors Affecting Our Results of Operations
Unlike lumber or other products that have a more direct correlation to 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.
Foundation product sales could be considered a leading indicator for our product sales. Sales of foundation products in the fourth
quarter of 2017 decreased compared to the same period in 2016.
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. In addition,
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 and economic events can also affect our sales and profitability.
Operating expenses, excluding gain (losses) on disposal of assets, as a percentage of net sales was 31%, 32% and 31% for the
years ended 2017, 2016 and 2015, respectively.
Acquisitions
North America
In January 2017, we acquired CG Visions for approximately $20.8 million subject to specified holdback provisions and post-
closing adjustments. This acquisition is expected to enable us to build closer partnerships with builders by offering software and
services to help them control costs and increase efficiency at all stages of the home building process. We have begun to look for
opportunities to incorporate our products into CG Visions' building information modeling ("BIM") packages and apply CG Visions’
expertise to our existing and future software initiatives.
45
Europe
In January 2017, we acquired Gbo Fastening Systems for approximately $10.2 million. Gbo Fastening Systems manufactures and
sells a complete line of European approved CE-marked structural fasteners, mostly in northern and eastern Europe, which we have
begun to distribute and sell to our subsidiaries in western Europe. We have begun distributing into the Nordic countries wood
connector products that were manufactured in the Company's manufacturing facilities in western Europe. Further, we begun to
access Gbo Fastening Systems' expertise in product development and testing, and proficiency in fastener manufacturing and surface
treatment, to strengthen Gbo Fastening Systems' global presence and contribute engineering expertise in automatic fastening
systems and fastener collation to help broaden its fastener and structural connectors lines.
The Company sold Gbo Fastening Systems' Poland and Gbo Fastening Systems' Romania subsidiaries ("Gbo Poland and Gbo
Romania") on September 29, 2017 and October 31, 2017, respectively. The Company retains Gbo Fastening Systems' operations
in Sweden and Norway.
ERP Integration
In July 2016, our Board of Directors (the "Board") 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 over a period of three to four years at all facilities plus our headquarters, with a focus on configuring,
instead of customizing, the standard SAP modules. We anticipate the ERP implementation project will cost approximately $30
million to $34 million through 2019, including capital expenditures. Annual operating expenses will increase from 2017 to 2024
as a result of the ERP project, partly due to the amortization of related capitalized costs.
We believe that the ERP project has progressed well in 2017 and is currently on track and on budget. As of December 31, 2017,
we have capitalized $11.6 million and expensed $3.3 million of the costs associated with the ERP project. We went live with our
first locations in February of 2018. We anticipate that, as the project progresses further into 2018, we will spend more time and
resources in training our staff for the new platform, as opposed to configuring the SAP modules, and we expect to record the cost
associated with such training as expense. For 2018, we estimate that approximately $7 to $8 million of the costs associated with
the ERP project will be expensed, including the amortization of capitalized SAP costs.
Business Segment Information
Our North America segment has generated revenues primarily from wood construction products compared to concrete construction
products. Due to improved economic conditions, including an increase in housing starts, net sales in regions of the segment have
trended up, primarily due to increases in unit sales volumes and an approximately 4% price increase for our connector products
in the United Stated effective on December 1, 2016, as well as added revenues from CG Visions. Our truss sales decreased slightly
in 2017. Our truss specialists will focus on converting medium size truss customers to our design and management software in
2018, while continuing to support our smaller truss customers. In addition, we have presented the BIM platform acquired from
CG Visions to various builders to showcase the software and for us to determine which modules and services that builders might
be interested in using to support their business.
During 2016, we initiated a multi-year plan to increase our North America factory production efficiency, aiming to achieve a 75%
factory utilization rate on two full shifts by moving high-volume connector production from both our Riverside and Western
Canada facilities to our other three manufacturing locations in North America. As of September 30, 2017, we had relocated 100%
of our planned high-volume connector production. Based on current information and subject to future events and circumstances,
we estimate this transition will save approximately $3.0 million per year, mostly in production costs. Also, we are moving all of
our truss plate manufacturing to our existing wood connector manufacturing facilities to increase the efficiency and plant utilization.
Upon completion, the truss plate manufacturing facility will be permanently closed. Based on current information and subject to
future events and circumstances, we will complete the transition by the end of the first quarter of 2018 and we estimate this
transition will save approximately $2 million per year in annual production costs.
In late 2016, we collaborated with The Home Depot, Inc. (“The Home Depot”) to begin to roll out our mechanical anchor line of
products that are available at The Home Depot. This collaboration increased a portion of our finished goods inventory and we
expect to continue to introduce our mechanical anchor line of products through approximately 1,900 of The Home Depot store
locations by 2020. Once the rollout is completed, we anticipate this opportunity will meaningfully contribute to our concrete
business lines going forward and estimate that on an annualized basis it could potentially increase our net sales by approximately
$30 million.
46
Our Europe segment generates more revenues from wood construction products than concrete construction products. Wood
construction product sales increased 58% in 2017 compared to 2016, primarily due to the acquisition of Gbo Fastening Systems.
Concrete construction product sales are mostly project based and net sales increased 20% in 2017 compared to 2016, primarily
due to increased sales volume in 2017. We are uncertain whether concrete construction product net sales will continue to grow at
this pace for 2018. In the first quarter of 2018, our Western European locations introduced a complete line of Gbo fastener products
to its customers and started taking sales orders. Also, we reduced future operating expenses by an estimated $2.0 million per year
through personnel reductions. See “Europe” below.
Our Asia/Pacific segment has generated revenues from both wood and concrete construction products. We have closed our sales
offices located in China, Thailand and Dubai; and discontinued our selling activities in Hong Kong, due to continued losses in the
regions. We believe that the Asia/Pacific segment is not significant to our overall performance.
(1) When referred to above, the Company’s return on invested capital (“ROIC”) for a fiscal year is calculated based on (i)
the net income of that year as presented in the Company’s consolidated statements of operations prepared pursuant to
generally accepted accounting principles in the U.S. (“GAAP”), as divided by (ii) the average of the sum of the total
stockholders’ equity and the total long-term liabilities at the beginning of and at the end of such year, as presented in the
Company’s consolidated balance sheets prepared pursuant to GAAP for that applicable year. As such, the Company’s
ROIC, a ratio or statistical measure, is calculated using exclusively financial measures presented in accordance with
GAAP.
Business Outlook
Based on current information and subject to future events and circumstances:
• The Company currently anticipates that the market price of steel to rise during the first quarter of 2018.
• The Company estimates that its full-year 2018 gross profit margin will be between approximately 45% and 46%.
• The Company estimates that its full-year 2018 effective tax rate will be between 26% and 27%. The ultimate impact of
the Tax Reform Act may differ materially from the Company’s estimates due to changes in the interpretations and
assumptions made by the Company as well as additional regulatory guidance that may be issued and actions the Company
may take as a result of the Tax Reform Act, such as cash repatriation to the United States. The Company will continue
to assess the expected impacts of the new tax law and provide additional disclosures at appropriate times.
47
Results of Operations
The following table sets forth, for the years indicated, the Company's operating results as a percentage of net sales for the years
ended December 31, 2017, 2016 and 2015, respectively:
Net sales
Cost of sales
Gross profit
Research and development and other engineering
Selling expense
General and administrative expense
Net gain on disposal of assets
Income from operations
Income in equity method investment
Interest income (expense), net
Gain on bargain purchase of a business
Loss on disposal of a business
Income before taxes
Provision for income taxes
Net income
Years Ended December 31,
2017
2016
2015
100.0 %
54.3 %
45.7 %
4.9 %
11.8 %
14.8 %
(0.1)%
14.3 %
— %
(0.1)%
0.6 %
— %
14.8 %
5.3 %
9.5 %
100.0 %
52.1 %
47.9 %
5.4 %
11.4 %
15.0 %
(0.1)%
16.2 %
— %
(0.1)%
— %
— %
16.1 %
5.7 %
10.4 %
100.0 %
54.8 %
45.2 %
5.8 %
11.4 %
14.3 %
— %
13.7 %
— %
— %
— %
— %
13.7 %
5.1 %
8.6 %
Unless otherwise stated, the Company’s results below, when referencing “recent acquisitions,” refer to the January 2017
acquisitions of Gbo Fastening Systems and CG Visions; when referencing “recently acquired businesses,” refer to Gbo
Fastening Systems and/or CG Visions, as applicable; and when referencing “acquired net sales,” refer to net sales of such
acquired businesses, as applicable. When referencing the “recent North America acquisition,” the Company’s results below
refer to the CG Vision acquisition; and when referencing “recent Europe acquisitions,” refer to the Gbo Fastening Systems
acquisition. See "Note 13 — Acquisitions and Dispositions" to the Company's Consolidated Financial Statements).
2015 to 2017 Financial Highlights
Net sales increased 23% to $977.0 million in 2017 from $794.1 million in 2015.
• North America — Net sales increased 19% to $803.7 million in 2017 from $676.6 million in 2015.
• Europe — Net sales increased 53% to $165.2 million in 2017 from $108.1 million in 2015, primarily due recent acquisitions.
• Asia/Pacific — Net sales decreased 13% to $8.2 million in 2017 from $9.4 million in 2015, due to the closing of sales offices
in China, Thailand and Dubai in the first quarter of 2015.
Gross profit increased 24% to $446.3 million in 2017 from $358.9 million in 2015 and gross profit as a percentage of net sales
("gross profit margin") increased to 46% in 2017 from 45% in 2015.
• North America — Gross profit margin remained at 47% for both 2017 and 2015.
• Europe — Gross profit margin decreased to 36% in 2017 from 38% in 2015, primarily due recent acquisitions.
•
Product group — The gross profit margins, including some inter-segment expenses, that are eliminated in consolidation, and
excluding other expenses not allocated according to product group, remained at 47% for both 2017 and 2015 for wood
construction products and remained at 35% for both 2017 and 2015 for concrete construction products.
Income from operations increased 28% to $139.2 million in 2017 from $109.0 million in 2015 and operating profit as a percentage
of net sales ("operating profit margin") remained at 14% for both 2017 and 2015. Operating expenses (excluding net gain on
disposal of assets) increased to $307.3 million in 2017 from $250.3 million in 2015, but remained at 31% of net sales in both of
years ended 2017 and 2015.
48
• North America — Income from operations increased 21% to $132.9 million in 2017 from $109.4 million in 2015. Operating
profit margin increased to 17% in 2017 from 16% in 2015.
• Europe — Income from operations increased 16% to $4.4 million in 2017 from $3.8 million in 2015. Operating profit margin
decreased to 3% in 2017 from 4% in 2015.
• Asia/Pacific — Income from operations was $1.2 million in 2017 compared to a loss of $3.4 million in 2015.
Our effective income tax rate decreased to 36% in 2017 from 38% in 2015.
The Company had net income of $92.6 million for 2017 compared to net income of $67.9 million for 2015. Diluted net income
per share of common stock was $1.94 for 2017 compared to $1.38 for 2015.
Comparison of the Years Ended December 31, 2017 and 2016
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 year ended December 31,
2017, against the results of operations for the year ended December 31, 2016. Unless otherwise stated, the results announced
below, when referencing “both years,” refer to the year ended December 31, 2016 and the year ended December 31, 2017. To
avoid fractional percentages, all percentages presented below were rounded to the nearest whole number.
The following table shows the change in the Company’s operations from 2016 to 2017, and the increases or decreases for each
category by segment:
(in thousands)
Net sales
Cost of sales
Gross profit
Research and development and other
engineering expense
Selling expense
General and administrative expense
Gain on sale of assets
Income from operations
Loss in equity method, before tax
Interest expense, net
Gain on bargain purchase of a business
Loss on disposal of a business
Income before income taxes
Provision for income taxes
Net income
2016
860,661
448,211
412,450
46,248
98,343
129,162
(780)
139,477
—
(577)
—
—
138,900
49,166
89,734
$
$
Increase (Decrease) in Operating Segment
North
America
Europe
Asia/
Pacific
Admin &
All Other
$
$
61,676
41,245
20,431
$
53,881
38,946
14,935
$
807
2,255
(1,448)
— $
104
(104)
201
8,042
15,840
769
(4,421)
(86)
89
—
—
(4,418)
4,278
(8,696) $
$
1,224
8,268
1,935
(18)
3,526
—
(204)
6,336
(211)
9,447
697
8,750
$
6
227
(653)
(67)
(961)
—
63
—
—
(898)
(302)
(596) $
(63)
23
(1,546)
(64)
1,546
—
(159)
—
—
1,387
(2,038)
3,425
$
2017
977,025
530,761
446,264
47,616
114,903
144,738
(160)
139,167
(86)
(788)
6,336
(211)
144,418
51,801
92,617
Net Sales increased 14% to $977.0 million from $860.7 million. Recently acquired businesses accounted for $47.9 million (41%)
of the increase in net sales. Net sales to contractor distributors, lumber dealers, dealer distributors and home centers increased
primarily due to increased home construction activity and average net sales unit prices. Wood construction product net sales,
including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 85% of the Company's total
net sales in both years. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors,
powder actuated tools and reinforcing fiber materials, represented 15% of the Company's total net sales in both years.
Gross profit increased to $446.3 million from $412.5 million. Gross profit margins decreased to 46% from 48%. Recently acquired
businesses had an average gross profit margin of 30% for the year ended 2017. The gross profit margins, including some intersegment
expenses, which were eliminated in consolidation, and excluding other expenses that are allocated according to product group,
decreased to 47% from 49% for wood construction products and remained at 35% for both years for concrete construction products.
49
Research and development and engineering expense increased 3% to $47.6 million from $46.2 million, primarily due to increases
of $2.2 million in personnel costs mainly attributable to the addition of staff and pay rate increases instituted on January 1, 2017,
and $1.2 million in severance expenses, partly offset by a decreases of $1.4 million in professional fees and $0.8 million in cash
profit sharing on lower operating income.
Selling expense increased 17% to $114.9 million from $98.3 million primarily due to increases of $10.3 million in personnel costs
mostly related to recent acquisitions and the addition of staff and pay rate increases instituted on January 1, 2017, $3.1 million in
advertising costs, $2.0 million in severance expenses, $0.7 million in depreciation expense, $0.3 million in donation expense, $0.3
million in facility expenses and $0.2 million in computer and phone expenses, which was partly offset by a decrease of $0.9 million
in cash profit sharing expense. Recent acquisitions increased selling expense by $7.2 million.
General and administrative expense increased 12% to $144.7 million from $129.2 million, primarily due to increases of $10.3
million in personnel costs mostly related to recent acquisitions and the addition of staff and pay rate increases instituted on January
1, 2017, $6.5 million in legal and professional fees mostly related to strategic initiatives such as software and systems integration
and compensation and governance changes, $3.7 million in software licensing, maintenance and hosting fees, $2.2 million in
depreciation expense and $2.0 million in severance expenses, which was partly offset by a decrease of $6.0 million in cash profit
sharing expense on lower operating income and reduced payouts under our executive officer cash profit sharing plan and $0.4
million in stock-based compensation as well as an increase of $3.0 million from favorable net foreign currency translations and
transactions. Recently acquired businesses were responsible for $11.2 million of the total increase in general and administrative
expenses.
Gain on bargain purchase of a business - On January 3, 2017, we acquired Gbo Fastening Systems for approximately $10.2
million. This transaction was recorded as a business combination in accordance with the business acquisition method. We recorded
a bargain purchase gain of $6.3 million, which represents the fair value of the net assets acquired and liabilities assumed over the
consideration exchanged as of the acquisition date. This nonrecurring, non-operating income gain is included in the line item
“Gain (adjustment) on bargain purchase of a business” in our results of operations for 2017.
Loss on disposal of a business - In 2017, we sold all of the outstanding shares of Gbo Poland and Gbo Romania for approximately
$10.2 million, resulting in a loss of $0.2 million. In February 2018, post-closing adjustments were finalized, which resulted in the
Company receiving an additional $69 thousand in sales proceeds.
Our effective income tax rate increased to 36% from 35%, primarily due to the Tax Reform Act toll tax (repatriation), partly offset
by a decrease in the deferred tax liability due to the December 31, 2017 re-measurement the liability using the new 21% U.S.
corporate tax rate.
Net income was $92.6 million compared to $89.7 million. Diluted net income per share of common stock was $1.94 compared to
$1.86. The increase in net income was primarily due to the $6.3 million nonrecurring bargain purchase gain (see "Gain on bargain
purchase of a business" above), which increased diluted net income by $0.13 per share of common stock.
Net Sales
The following table shows net sales by segment for the years ended December 31, 2016 and 2017, respectively:
(in thousands)
December 31, 2016
December 31, 2017
Increase
Percentage increase
North
America
$ 742,021
803,697
61,676
$
Europe
$ 111,274
165,155
53,881
$
8%
48%
Asia/
Pacific
7,366
8,173
807
11%
$
$
Total
$ 860,661
977,025
$ 116,364
14%
The following table shows segment net sales as percentages of total net sales for the years ended December 31, 2016 and 2017,
respectively:
Percentage of total 2016 net sales
Percentage of total 2017 net sales
50
North
America
Europe
Asia/
Pacific
86%
82%
13%
17%
Total
100%
100%
1%
1%
Gross Profit
The following table shows gross profit by segment for the years ended December 31, 2016 and 2017, respectively:
(in thousands)
December 31, 2016
December 31, 2017
Increase (decrease)
Percentage increase (decrease)
* The statistic is not meaningful or material.
North
America
$ 365,758
386,189
20,431
$
Europe
44,038
58,973
14,935
$
$
$
$
6%
34%
Asia/
Pacific
Admin &
All Other
$
2,419
971
(1,448) $
*
Total
$ 412,450
446,264
33,814
235
131
(104) $
*
8%
The following table shows gross profit percentages by segment for the years ended December 31, 2016 and 2017, respectively:
2016 gross profit percentage
2017 gross profit percentage
* The statistic is not meaningful or material.
North America
North
America
Europe
Asia/
Pacific
49%
48%
40%
36%
33%
12%
Admin &
All Other
*
*
Total
48%
46%
• Net sales increased 8% mostly due to increased average unit price in the United States and increased overall sales volumes.
Canada's net sales increased primarily due to increased sales volumes on flat average net sales unit prices. Canada's net
sales were not significantly affected by foreign currency translation. The recent North America acquisition increased net
sales by $5.8 million.
• Gross profit margin decreased to 48% from 49% due to increased material, factory and overhead expenses and labor
expenses, which was partly offset by the effect of increased average net sales unit prices.
• Research and development and engineering expense increased $0.2 million primarily due to increases of $1.5 million in
personnel costs mainly related to the addition of staff and pay rate increases instituted on January 1, 2017, and $0.6 million
in severance expenses, partly offset by a decreases of $1.4 million in consulting fees and $0.9 million in cash profit sharing
expense.
•
Selling expense increased $8.0 million, primarily due to increases of $4.5 million in personnel costs mostly related to the
addition of staff and pay rate increases instituted on January 1, 2017, $2.4 million in advertising expense mostly in point
of purchase advertising, trade show and sale promotion costs, $0.8 million in severance expenses, $0.7 million in depreciation
expense and $0.3 million in donation expense, partly offset by a decrease of $1.0 million in cash profit sharing costs on
lower operating income.
• General and administrative expense increased $15.8 million, primarily due to increases of $6.9 million in personnel costs,
mostly related to the North America acquisition and the addition of staff and pay rate increases instituted on January 1,
2017, $6.4 million in legal and professional fees, mostly related to strategic initiatives such as software and systems
integration and compensation and governance changes, $2.6 million mostly in software licensing, maintenance and hosting
fees, $2.0 million in depreciation expense, $1.8 million in severance expenses, $0.6 million in intangible amortization
expense and $0.5 million in stock-based compensation, partly offset by a decrease of $3.8 million in cash profit sharing
expense as well as the benefit from $0.5 million in net foreign currency translation in the current period. The recent North
America acquisition increased general and administrative expense by $6.5 million.
•
Income from operations decreased $4.4 million, mostly due to increased operating expenses, which were partially offset
by higher gross profit. Severance expenses of $3.6 million were recorded in 2017.
51
Europe
• Net sales increased 48% primarily due acquired net sales of $42.1 million, which accounted for 78% of the total increase.
Net sales were positively affected by approximately $1.4 million in foreign currency translations primarily related to the
strengthening of the Euro, Polish zloty and Danish Kroner against the United States dollar.
• Gross profit margin decreased to 36% from 40% primarily due to our recent Europe acquisitions. The acquired businesses
in Europe had an average gross profit margin of 20% in 2017.
• Research and development and engineering expense increased $1.2 million primarily due to increases of $0.6 million in
severance expenses and $0.5 million in personnel costs mainly related to the addition of staff and pay rate increases instituted
on January 1, 2017.
•
Selling expense increased $8.3 million primarily due to an increase of $5.4 million in personnel costs mostly related to
acquisitions and the addition of staff, $1.2 million in severance expenses, $0.6 million mostly in advertising costs, $0.3
million in facility expenses and $0.2 million in agent commissions. The recent Europe acquisitions increased selling expense
by $6.6 million.
• General and administrative expense increased $1.9 million primarily due to increases of $2.4 million in personnel costs,
mostly related to the addition of staff and pay rate increases instituted on January 1, 2017, $1.0 million in computer expenses
mostly in software licensing and data processing fees, $0.6 million in cash profit sharing expense, $0.2 million in severance
expenses, $0.2 million in stock based compensation and $0.2 million in professional fees, partly offset by a decrease in
amortization expense of $0.5 million as well as the benefit from $2.9 million in net foreign currency translation in the
current period. Recent Europe acquisitions increased general and administrative expense by $4.7 million.
•
Income from operations increased $3.5 million, mostly due to increased gross profits, which were partially offset by higher
operating expenses, which included $2.0 million in severance expenses.
Asia/Pacific
•
For information about the Company's Asia/Pacific segment, please refer to the table above setting forth changes in our
operating results for the years ended December 31, 2017 and 2016.
Administrative and All Other
• General and administrative expenses decreased, primarily due to a decreases of $2.8 million in cash profit sharing expense,
partly offset by an increase of $1.3 million in personnel costs.
Comparison of the Years Ended December 31, 2016 and 2015
Unless otherwise stated, the results announced below, in this "Comparison of the Years Ended December 31, 2016 and 2015"
section, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” "remained" or
“compared to”), compare the results of operations for the year ended December 31, 2016, against the results of operations for the
year ended December 31, 2015.
To avoid fractional percentages, all percentages presented below in this section were rounded to the nearest whole number.
52
The following table shows the change in the Company’s operations from 2015 to 2016, and the increases or decreases for each
category by segment.
(in thousands)
Net sales
Cost of sales
Gross profit
Research and development and other
engineering expense
Selling expense
General and administrative expense
Gain on sale of assets
Income from operations
Interest expense, net
Income before income taxes
Provision for income taxes
Net income
Increase (Decrease) in Operating Segment
North
America
Europe
Asia/
Pacific
Admin &
All Other
$
$
65,403
17,273
48,130
$
3,206
680
2,526
(2,007) $
(4,174)
2,167
— $
(708)
708
(33)
6,370
14,622
(695)
27,866
(79)
27,787
8,547
19,240
$
191
1,920
3,337
(24)
(2,898)
(256)
(3,154)
(264)
(2,890) $
(90)
(563)
(3,027)
263
5,584
(96)
5,488
140
5,348
$
$
(16)
(47)
802
65
(96)
196
100
(48)
148
$
2015
794,059
435,140
358,919
46,196
90,663
113,428
(389)
109,021
(342)
108,679
40,791
67,888
$
$
2016
860,661
448,211
412,450
46,248
98,343
129,162
(780)
139,477
(577)
138,900
49,166
89,734
Net Sales increased 8% to $860.7 million from $794.1 million. Net sales to dealer distributors, lumber dealers, contractor distributors
and home centers increased primarily due to increased home construction activity. Wood construction product net sales, including
sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 85% of the Company's total net sales in
both 2016 and 2015. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors, powder
actuated tools and reinforcing fiber materials, represented 15% of the Company's total net sales in both 2016 and 2015.
Gross profit increased to $412.5 million from $358.9 million. Gross profit margins increased to 48% from 45%. The gross profit
margins, including some inter-segment expenses, that are eliminated in consolidation, and excluding other expenses not allocated
according to product group, increased to 49% from 47% for wood construction products and increased to 35% from 31% for
concrete construction products.
Research and development and engineering expense was $46.2 million in both 2016 and 2015, primarily due to increases of $2.3
million in cash profit sharing expense on increased profits, $0.7 million in personnel costs, $0.5 million in supply costs, $0.4
million in computer costs and $0.1 in stock-based compensation, offset by decreases of $4.2 million write-offs of software
development projects, most of which occurred in the North America segment.
Selling expense increased 8% to $98.3 million from $90.7 million, primarily due to increases of $5.0 million in personnel costs,
$2.6 million in cash profit sharing expense on increased profits, and $0.5 million in advertising expense, partly offset by a decrease
of $0.8 million in professional fees.
General and administrative expense increased 14% to $129.2 million from $113.4 million, primarily due to increases of $5.4
million in cash profit sharing expense on increased profits, $4.0 million in legal and professional fees, primarily related to acquisition
activities, stockholder engagement and board initiatives, such as changes to executive compensation and corporate governance,
$2.2 million in stock-based compensation, $1.8 million in computer and information technology expense, $1.1 million in personnel
costs, and $0.4 million in contingent compensation related to prior acquisitions made in Europe, as well as a $0.9 million increase
in net foreign currency losses, partly offset by decreases of $0.6 million in bad debt reserve and $0.1 million in facility rent and
maintenance expense.
Income taxes
Our effective income tax rate decreased to 35% from 38%, primarily due to reduced operating losses in the Asia/Pacific segment,
for which no tax benefit was recorded.
Net income was $89.7 million compared to $67.9 million. Diluted net income per share was $1.86 compared to $1.38. The increase
in net income was primarily due to increased gross profit margin, partly offset by increased general and administrative and selling
expenses.
53
Net Sales
The following table shows net sales by segment for the years ended December 31, 2015 and 2016, respectively:
(in thousands)
December 31, 2015
December 31, 2016
Increase (decrease)
Percentage increase (decrease)
North
America
$ 676,618
742,021
65,403
$
Europe
$ 108,068
111,274
3,206
$
$
Asia/
Pacific
9,373
7,366
$ (2,007)
Total
$ 794,059
860,661
66,602
$
10%
3%
(21)%
8%
The following table shows segment net sales as percentages of total net sales for the years ended December 31, 2015 and 2016,
respectively:
Percentage of total 2015 net sales
Percentage of total 2016 net sales
Gross Profit
North
America
Europe
Asia/
Pacific
85%
86%
14%
13%
Total
100%
100%
1%
1%
The following table shows gross profit by segment for the years ended December 31, 2015 and 2016, respectively:
(in thousands)
December 31, 2015
December 31, 2016
Increase
Percentage increase
* The statistic is not meaningful or material.
North
America
$ 317,628
365,758
$ 48,130
Europe
41,512
44,038
2,526
$
$
$
$
15%
6%
Asia/
Pacific
Admin &
All Other
Total
$
$
251
2,419
2,168
*
(472) $ 358,919
412,450
235
53,531
707
$
*
15%
The following table shows gross profit percentages by segment for the years ended December 31, 2015 and 2016, respectively:
2015 gross profit percentage
2016 gross profit percentage
* The statistic is not meaningful or material.
North America
North
America
Europe
Asia/
Pacific
47%
49%
38%
40%
3%
33%
Admin &
All Other
*
*
Total
45%
48%
• Net sales increased 10%, mostly due to increased unit sales volumes on improved economic activity as well as a slight
increase in average net sales unit prices in both the United States and Canada. Canada's net sales were negatively affected
by approximately $1.2 million in foreign currency translation, due to the weakening of the Canadian dollar against the
United States dollar.
• Gross profit margin increased to 49% from 47%, primarily as a result of a decrease in material costs, as a percentage of
sales and an increase in average net sales unit price.
• Research and development and engineering expense was flat in 2016 compared to 2015.
•
Selling expense increased $6.4 million, primarily due to increases of $4.4 million in personnel costs, mostly related to the
addition of staff and pay rate increases instituted on January 1, 2016, $2.3 million in cash profit sharing expense and $0.5
million in advertising expense, partly offset by a decrease of $1.0 million in professional fees.
54
• General and administrative expense increased $14.6 million, primarily due to increases of $4.9 million in cash profit sharing
expense, $2.5 million in legal and professional fees, $2.3 million in personnel costs, $1.8 million in computer and information
technology expense, $1.1 million in stock-based compensation, and $0.5 million in facility rent and maintenance expense,
as well as a $0.9 million increase in net foreign currency losses, partly offset by a decrease of $0.4 million in bad debt
reserve.
•
Income from operations increased $27.9 million, mostly due to increased gross profits, which were partially offset by higher
general and administrative and selling expenses.
Europe
• Net sales increased 3%, mostly due to increased unit sales volumes, partly offset by a decrease in average net sales unit
prices. Europe's net sales were negatively affected by approximately $3.1 million primarily due to the weakening of the
British pound against the United States dollar.
• Gross profit margin increased to 40% from 38%, primarily as a result of decreases in material costs and factory overhead
costs, each as a percentage of sales.
• Research and development and engineering expense increased $0.2 million in 2016 compared to 2015.
•
Selling expense increased $1.9 million, primarily due to increases of $1.2 million in personnel costs, mostly related to the
addition of staff, and $0.2 million in cash profit sharing expense.
• General and administrative expense increased $3.3 million, primarily due to increases of $1.6 million in legal and professional
fees related to acquisition activities, $0.6 million in personnel costs, and $0.4 million in contingent compensation related
to prior acquisitions, partly offset by a decrease of $0.2 million in stock-based compensation and $0.2 million in bad debt
reserves.
•
Income from operations decreased $2.9 million, mostly due to increased operating expenses, which were partially offset
by increased gross profits.
Asia/Pacific
• Net sales decreased 21%, primarily due to the effects of the closing of sales offices in China, Thailand and Dubai late in
the first quarter of 2015, which accounted for an approximately $4.1 million decrease in net sales.
• Asia/Pacific — Selling expense decreased $0.6 million, primarily due to a decrease of $0.6 million in personnel costs related
to closing three sales offices and downsizing one sales office in 2015.
• Asia/Pacific — General and administrative expense decreased $3.0 million, primarily due to decreases of $1.7 million in
personnel costs, $0.6 million in facility rent and maintenance expense and $0.2 million in legal and professional fees, each
related to the sales office closures in 2015.
•
Income from operations increased $5.6 million, mostly due to costs related to closing three sales offices and downsizing
one sales office in 2015.
Administrative and All Other
• Administrative and All Other — General and administrative expense increased, primarily due to increases of $1.3 million
in stock-based compensation and $0.4 million in cash profit sharing expense.
Critical Accounting Policies and Estimates
The critical accounting policies described below affect the Company’s more significant judgments and estimates used in the
preparation of the Company's Consolidated Financial Statements. If the Company’s business conditions change or if it uses different
assumptions or estimates in the application of these and other accounting policies, the Company’s future results of operations
could be adversely affected.
55
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value (market). Cost includes all costs incurred in bringing each product
to its present location and condition, as follows:
• Raw materials and purchased finished goods — principally valued at cost determined on a weighted average basis;
•
and
In-process products and finished goods — cost of direct materials and labor plus attributable overhead based on a
normal level of activity.
The Company applies net realizable value and obsolescence to the gross value of inventory. The Company estimates net realizable
value based on estimated selling price less further costs to completion and disposal. The Company impairs slow-moving products
by comparing inventories on hand to projected demand. If on-hand supply of a product exceeds projected demand or if the Company
believes the product is no longer marketable, the product is considered obsolete inventory. The Company revalues obsolete inventory
to its net realizable value. The Company has consistently applied this methodology. The Company believes that this approach is
prudent and makes suitable impairments for slow-moving and obsolete inventory. When impairments are established, a new cost
basis of the inventory is created. Unexpected change in market demand, building codes or buyer preferences could reduce the rate
of inventory turnover and require the Company to recognize more obsolete inventory.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete, net of applicable provision for discounts, returns and
incentives, whether actual or estimated, based on the Company’s experience. This generally occurs when products are shipped to
the customer in accordance with the sales agreement or purchase order, ownership and risk of loss pass to the customer, collectability
is reasonably assured and pricing is fixed or determinable. The Company’s general shipping terms are F.O.B. shipping point, where
title is transferred and revenue is recognized when the products are shipped to customers. When the Company sells F.O.B. destination
point, title is transferred and the Company recognizes revenue on delivery or customer acceptance, depending on terms of the
sales agreement. Service sales, representing after-market repair and maintenance, engineering activities, software license sales
and service 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.
Business Combinations
The Company recognizes separately from goodwill or any gain from a bargain purchase the assets acquired and the liabilities
assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration
transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. A gain on a bargain
purchase as of the acquisition date is measured as the excess of the net of the fair value of the assets acquired less liabilities assumed
and consideration transferred. While the Company uses its best estimates and assumptions as a part of the purchase price allocation
process to value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain
and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the
Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. On the
conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever
comes first, the Company records subsequent adjustments, if any, to its consolidated statements of operations. None of the
subsequent adjustments for the fiscal years ended 2015, 2016 and 2017 were material.
Accounting for business combinations requires the Company’s management to make significant estimates and assumptions,
especially at the acquisition date with respect to intangible assets. Although the Company believes that the assumptions and
estimates it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information
obtained from the management of the acquired companies and are inherently uncertain.
Examples of critical estimates in valuing certain of the intangible assets that the Company has acquired include:
Future expected cash flows from customer relationships and acquired unpatented technologies and patents;
•
• The acquired company’s brand and competitive position and assumptions about the period of time the acquired brand
will continue to be used in the combined company’s product portfolio; and
• Discount rates.
56
Unanticipated events and circumstances may affect the accuracy or validity of such assumptions, estimates or actual results.
For a given acquisition, the Company may identify pre-acquisition contingencies as of the acquisition date and may extend its
review and evaluation of these pre-acquisition contingencies throughout the measurement period (up to one year from the acquisition
date) to obtain sufficient information to assess whether the Company includes these contingencies as a part of the purchase price
allocation and, if so, to determine their estimated amounts.
If the Company determines that a pre-acquisition contingency (that is not income-tax related) is probable and estimable as of the
acquisition date, the Company records its best estimate for such a contingency as a part of the preliminary purchase price allocation.
The Company often continues to gather information and evaluate its pre-acquisition contingencies throughout the measurement
period. If the Company changes the amounts recorded or identifies additional pre-acquisition contingencies during the measurement
period, such amounts are included in the purchase price allocation during the measurement period and, subsequently, in the
Company’s results of operations.
In addition, the Company estimates uncertain tax positions and income tax related valuation allowances assumed in connection
with a business combination initially as of the acquisition date. The Company reevaluates these items quarterly with any adjustments
to its preliminary estimates being recorded to goodwill if the Company is within the measurement period. The Company continues
to collect information to determine estimated values. Subsequent to the measurement period or the Company’s final determination
of the uncertain tax positions estimated value or tax-related valuation allowances, whichever comes first, changes to these uncertain
tax positions and tax-related valuation allowances will affect the Company’s provision for income taxes in its consolidated statement
of operations and could have a material effect on the Company’s results of operations and financial position.
Goodwill Impairment Testing
The Company tests goodwill for impairment at the reporting unit level on an annual basis (in the fourth quarter for the Company).
The Company also reviews goodwill for impairment whenever events or changes in circumstances indicate the carrying value of
an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal
factors, operating performance indicators, competition, or disposition or relocation of a significant portion of a reporting unit.
The reporting unit level is generally one level below the operating segment, which is at the country level, except for the United
States, Australia and S&P Clever reporting units.
The Company determined that the United States reporting unit includes four components: Northwest United States, Southwest
United States, Northeast United States and Southeast United States (collectively, the “U.S. Components”). The Company aggregates
the U.S. Components into a single reporting unit because management concluded that they are economically similar and that the
goodwill is recoverable from the U.S. Components working in concert. The U.S. Components are economically similar because
of a number of factors, including selling similar products to shared customers and sharing assets and services such as intellectual
property, manufacturing assets for certain products, research and development projects, manufacturing processes, management of
inventory excesses and shortages and administrative services. These activities are managed centrally at the U.S. Components level
and costs are allocated among the four U.S. Components.
The Company determined that the Australia reporting unit includes four components: Australia, New Zealand, South Africa and
United Arab Emirates (collectively, the “AU Components”). The Company aggregates the AU Components into a single reporting
unit because management concluded that they are economically similar and that the goodwill is recoverable from the AU
Components working in concert. The AU Components are economically similar because of a number of factors, including that
New Zealand, South Africa and United Arab Emirates operate as extensions of their Australian parent company selling similar
products and sharing assets and services such as intellectual property, manufacturing assets for certain products, management of
inventory excesses and shortages and administrative services. These activities are managed centrally at the AU Components level
and costs are allocated among the AU Components.
The Company determined that the S&P Clever reporting unit includes nine components: S&P Switzerland, S&P Poland, S&P
Austria, S&P The Netherlands, S&P Portugal, S&P Germany, S&P France, S&P Nordic and S&P Spain (collectively, the "S&P
Components”). The Company aggregates the S&P Components into a single reporting unit because management concluded that
they are economically similar and that the goodwill is recoverable from the S&P Components working in concert. The S&P
Components are economically similar because of a number of factors, including sharing assets and services such as intellectual
property, manufacturing assets for certain products, research and development projects, manufacturing processes, management of
inventory excesses and shortages and administrative services. These activities are managed centrally at the S&P Components level
and costs are allocated among the S&P Components.
57
For certain reporting units, the Company may first assess qualitative factors related to the goodwill of the reporting unit to determine
whether it is necessary to perform a two-step impairment test. If the Company judges that it is more likely than not that the fair
value of the reporting unit is greater than the carrying amount of the reporting unit, including goodwill, no further testing is required.
If the Company judges that it is more likely than not that the fair value of the reporting unit is less than the carrying amount of the
reporting unit, including goodwill, management will perform a two-step impairment test on goodwill. In the first step of the
Company's annual goodwill impairment test ("Step 1"), the Company compares the fair value of the reporting unit to its carrying
value. The fair value calculation uses both the income approach (discounted cash flow method) and the market approach, equally
weighted. If the Company judges that the carrying value of the net assets assigned to the reporting unit, including goodwill, exceeds
the fair value of the reporting unit, a second step of the impairment test must be performed to determine the implied fair value of
the reporting unit’s goodwill. If the Company judges that the carrying value of a reporting unit’s goodwill exceeds its implied fair
value, the Company would record an impairment charge equal to the difference between the implied fair value of the goodwill
and the carrying value.
Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is a judgment involving significant
estimates and assumptions. These estimates and assumptions include revenue growth rates, operating margins and working capital
requirements used to calculate projected future cash flows, risk-adjusted discount rates, selected multiples, control premiums and
future economic and market conditions (Level 3 fair value inputs). The Company bases its fair value estimates on assumptions
that it believes to be reasonable, but that are unpredictable and inherently uncertain. Actual future results may differ from those
estimates.
Assumptions about a reporting unit’s operating performance in the first year of the discounted cash flow model used to determine
whether or not the goodwill related to that reporting unit is impaired are derived from the Company’s budget. The fair value model
considers such factors as macro-economic conditions, revenue and expense forecasts, product line changes, material, labor and
overhead costs, tax rates, working capital levels and competitive environment. Future estimates, however derived, are inherently
uncertain but the Company believes that this is the most appropriate source on which to base its fair value calculations.
The Company uses these parameters only to provide a basis for the determination of whether or not the goodwill related to a
reporting unit is impaired. No inference whatsoever should be drawn from these parameters about the Company’s future financial
performance and they should not be taken as projections or guidance of any kind.
The 2017, 2016 and 2015 annual testing of goodwill for impairment did not result in impairment charges.
The Denmark reporting unit passed Step 1 of the annual 2017 impairment test by a 8.3% margin indicating an estimated fair value
greater than its net book value and was the only reporting unit with a fair value greater than net book value margin of less than
10%. The Denmark reporting unit is sensitive to management’s plans for increasing sales and operating margins. The Denmark
reporting unit’s failure to meet management’s objectives could result in future impairment of some or all of the Denmark reporting
unit’s goodwill, which was $7.1 million at December 31, 2017.
Key assumptions used in Step 1 of the Company's annual goodwill impairment test included compound annual growth rates
(“CAGR”) and average annual pre-tax operating margins during the forecast period, multiple and discount rates. A sensitivity
assessment for the key assumptions included in the 2017 goodwill impairment test on the Denmark reporting unit is as follows:
• A 500 basis point hypothetical increase in the discount rate, holding all other assumptions constant, would not have
decreased the fair value of the reporting unit below its carrying value, and thus it would not result in the reporting unit
failing Step 1 of the goodwill impairment test;
• A 210 basis point hypothetical decrease in the multiple rate, holding all other assumptions constant, would not have
decreased the fair value of the reporting unit below its carrying value, and thus it would not result in the reporting unit
failing Step 1 of the goodwill impairment test;
• A 139 basis point hypothetical percentage decrease in the CAGR, holding all other assumptions constant, would not have
decreased the fair value of the reporting unit below its carrying value and
• A 37% hypothetical decrease in average annual pre-tax operating profit, holding all other assumptions constant, would
not have decreased the fair value of the reporting unit below its carrying value.
Effect of New Accounting Standards
See "Note 1 — Recently Adopted Accounting Standards" and "Note 1 — Recently Issued Accounting Standards Not Yet Adopted"
to the Company's Consolidated Financial Statements.
58
Liquidity and Sources of Capital
The Company’s primary sources of liquidity are cash and cash equivalents and income from the Company’s operations. The
Company also receives proceeds from the issuance of its common stock through the exercise of stock options by its employees.
As of February 28, 2018, all outstanding stock options of the Company were either exercised or expired. As of December 31,
2017, the Company's cash and cash equivalents consisted of deposits and money market funds held with established national
financial institutions.
The Company's principal uses of liquidity are paying the costs and expenses associated with the Company's operations, continuing
its capital allocation strategy, which includes growing its business by internal improvements or acquisitions, repurchasing the
Company’s common stock, paying cash dividends and meeting other liquidity requirements. Depending, however, on the
Company’s future growth and possible acquisitions, it may become necessary to secure additional sources of financing, which
may not be available on reasonable terms, or at all.
The Company currently maintains a $300.0 million revolving line of credit as its primary credit facility, which expires on July 23,
2021. See "Note 8 — Debt" to the Company's Consolidated Financial Statements.
As of December 31, 2017, the Company held cash and cash equivalents of $86.5 million in the local currencies of its foreign
operations and could be subject to additional taxation if repatriated to the United States. The Company has no imminent plans to
repatriate cash and cash equivalents held outside the United States.
The following table presents selected financial information as of December 31, 2017, 2016 and 2015, respectively:
(in thousands)
At December 31,
2017
2016
2015
Cash and cash equivalents
Property, plant and equipment, net
Equity investment, goodwill and intangible assets
Working capital(1)
$
168,514
$
226,537
$
258,825
273,020
169,015
447,450
232,810
149,843
476,451
213,716
151,625
494,308
(1)Due to the adoption of ASU 2015-17, (see "Note 1 — Recently Adopted Accounting Standards" to the Company's Consolidated Financial
Statements), $16.2 million of current deferred income taxes included in current assets and working capital, as of January 1, 2016, were reclassified
to non-current assets and long-term liabilities, resulting in decreases in current assets from $589.3 million to $573.1 million and in working
capital from $494.3 million to $478.1 million.
The following table provides cash flow indicators for the twelve months ended December 31, 2017, 2016 and 2015, respectively:
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Years Ended December 31,
2017
2016
2015
$
$
119,065
(75,815)
(106,671)
$
98,965
(48,543)
(83,134)
117,923
(37,828)
(71,608)
Cash flows from operating activities result primarily from the Company's earnings or losses, and are also affected by changes in
operating assets and liabilities which consist primarily of working capital balances. As a building materials manufacturer, the
Company's 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, net, is generally at its lowest at the end of the fourth quarter and increases
during the first, second and third quarters.
In 2017, operating activities provided $119.1 million in cash and cash equivalents, as a result of $92.6 million from net income
and $48.5 million from non-cash adjustments to net income which includes depreciation and amortization expenses and stock-
based compensation expenses, partly offset by a decrease of $22.0 million in the net change in operating assets and liabilities,
including net change decreases in cash and cash equivalents due to increases of $17.8 million in trade accounts receivable, net,
59
$6.6 million in inventory and $5.6 million in income tax receivable, partly offset by an increase of $10.1 million in accrued
liabilities. Cash used in investing activities of $75.8 million during the year ended December 31, 2017, consisted primarily of
$58.0 million for property, plant and equipment expenditures, primarily related to real estate improvements, ERP software,
machinery and equipment purchases, and software in development, and $27.9 million, net of acquired cash of $4.0 million, for
the acquisitions of CG Visions and Gbo Fastening Systems, which was partly offset by $9.5 million, net of delivered cash of $0.8
million, for the sale of Gbo Poland and Gbo Romania (see "Note 13 — Acquisitions and Dispositions" to the Company's
Consolidated Financial Statements). Cash used in financing activities of $106.7 million during the year ended December 31, 2017,
consisted primarily of $70.0 million for the repurchase of the Company's common stock (see "Note 1 — Stock Repurchase Program"
to the Company's Consolidated Financial Statements) and $37.0 million used to pay cash dividends.
In 2016, operating activities provided $94.9 million in cash and cash equivalents, as a result of $89.7 million from net income and
$42.1 million from non-cash adjustments to net income which includes depreciation and amortization expenses, stock-based
compensation expenses and software development project write-off, partly offset by a decrease of $36.9 million in the net change
in operating assets and liabilities, including net change decreases in cash and cash equivalents due to increases of $36.6 million
in inventory and $7.5 million in trade accounts receivable, net, partly offset by a decrease of $5.8 million in trade accounts payable.
Cash used in investing activities of $48.5 million during the year ended December 31, 2016, consisted primarily of $42.0 million
for property, plant and equipment expenditures, related to real estate improvements, primarily related to improvements of the West
Chicago facility, machinery and equipment purchases, and software in development, $5.4 million, net of acquired cash of $1.5
million, for the acquisition of MS Decoupe, and $2.5 million for the equity investment in Ruby Sketch. See "Note 13 — Acquisitions
and Dispositions" and "Note 6 — Equity Investments" to the Company's Consolidated Financial Statements. Cash used in financing
activities of $79.1 million during the year ended December 31, 2016, consisted primarily of $53.5 million for the repurchase of
the Company's common stock, including a $50.0 million accelerated share repurchase program (see "Note 1 — Stock Repurchase
Program" to the Company's Consolidated Financial Statements) and $32.7 million used to pay cash dividends, partly offset by
$8.0 million received from the exercise of stock options.
In 2015, operating activities provided $114.2 million in cash and cash equivalents, as a result of $67.9 million from net income
and $44.2 million from non-cash adjustments to net income which includes depreciation and amortization expenses, stock-based
compensation expenses, software development project write-offs, and changes in deferred income taxes, as well as an increase of
$2.1 million in the net change in operating assets and liabilities, including net change increases in cash and cash equivalents due
to decreases of $17.2 million in inventory and $6.3 million in current assets, partly offset by an increase of $16.8 million in trade
accounts receivable, net and $5.1 million in accrued liabilities. Cash used in investing activities of $37.8 million during the year
ended December 31, 2015, consisted primarily of $34.2 million for property, plant and equipment expenditures, related to the
purchase a manufacturing site in West Chicago, software development and machinery and equipment, and $4.2 million for
acquisitions. Cash used in financing activities of $67.9 million during the year ended December 31, 2015, consisted primarily of
$47.1 million for the repurchase of the Company's common stock, including a $25.0 million accelerated share repurchase program
and $29.4 million used to pay cash dividends, partly offset by $9.7 million received from the exercise of stock options.
Capital Allocation Strategy
The Company has a strong cash position and remains committed to seeking growth opportunities in the building products range
where it can leverage its expertise in engineering, testing, manufacturing and distribution to invest in and grow its business. Those
opportunities include internal improvements or acquisitions that fit within the Company’s strategic growth plan. Additionally, we
have financial flexibility and are committed to providing returns to our stockholders. Below are highlights of the Company’s capital
allocation strategy since the beginning of 2016.
•
•
In August 2016, we acquired all the stock of MS Decoupe (a former customer of one of our subsidiaries) for a net cost of
approximately $5.4 million. Our preliminary measurement of MS Decoupe assets acquired included goodwill and intangible
assets of $3.1 million. In January 2017, we acquired Gbo Fastening Systems for approximately $10.2 million and CG Visions
for approximately $20.8 million subject to specified holdback provisions and post-closing adjustments. Our final
measurement of Gbo Fastening Systems' assets acquired resulted in a $6.3 million gain on a bargain purchase of a business.
Our final measurement of CG Visions assets acquired included goodwill and intangible assets of $20.4 million. See "Note
13 — Acquisitions and Dispositions" to the Company's Consolidated Financial Statements.
In December 2016, we acquired a 25.0% equity interest in Ruby Sketch Pty Ltd. (“Ruby Sketch”) for $2.5 million, for
which we account for our ownership interest using the equity accounting method. See "Note 6 — Equity Investments" to
the Company's Consolidated Financial Statements.
• Our capital spending in 2016 was $42.0 million and was primarily used for the purchase and build-out of our West Chicago,
Illinois, chemical facility, manufacturing equipment and software development. Our capital spending in 2017 was $58.0
60
million primarily related to our real estate improvements, ERP software, machinery and equipment purchases, and software
in development. Based on current information and subject to future events and circumstances, we estimate that our full-
year 2018 capital spending will be approximately $30 million to $32 million, mostly for equipment replacement or upgrades,
information technology upgrades and development of software, assuming all such projects will be completed by the end of
2018. Based on current information and subject to future events and circumstances, we estimate that our full year 2018
depreciation and amortization expense to be approximately $39 million to $40 million, of which approximately $34 million
to $35 million is related to depreciation.
In April 2017, the Company’s Board of Directors raised the quarterly cash dividend by 16.7% to $0.21 per share. On
January 29, 2018, the Board declared a cash dividend of $0.21 per share, estimated to be $9.8 million in total. Such dividend
is scheduled to be paid on April 26, 2018, to stockholders of record on April 5, 2018.
In February 2016, the Board authorized the Company to repurchase up to $50.0 million of the Company’s common stock
in 2016. In August 2016, the Board increased and extended the $50.0 million repurchase authorization from February 2016
by authorizing the Company to repurchase up to $125.0 million of the Company's common stock through December 2017.
In August 2017, the Board increased its previous $125.0 million share repurchase authorization by $150.0 million to $275.0
million and extended the authorization from December 2017 to December 2018.
In August 2016, the Company entered into a Supplemental Confirmation with Wells Fargo for a $50.0 million accelerated
share repurchase program (the “2016 August ASR Program”), which has been completed. In June 2017, the Company
entered into another Supplemental Confirmation for a $20.0 million accelerated share repurchase program with Wells Fargo
(the “2017 June ASR Program”), which was completed in 2017. In December 2017, the Company entered into the $50
million 2017 December ASR Program with Wells Fargo. During February 2018, the Company received 182,171 shares of
the Company's common stock pursuant to the 2017 December ASR Program, which constituted the final delivery thereunder.
In total, the Company received 859,671 shares of the Company's common stock under the 2017 December ASR Program
at an average price of $58.17 per share.
•
•
•
The following table presents the Company’s dividends paid and share repurchases for the year ended December 31, 2017,
December 31, 2016 and December 31, 2015, respectively, in aggregated amounts:
(in thousands)
Dividends Paid
Open Market Share
Repurchases
Accelerated Share
Repurchases
Total
January 1 - December 31, 2017
January 1 - December 31, 2016
January 1 - December 31, 2015
Total
$
$
36,981
$
32,711
29,352
99,044
$
—
3,502
22,144
25,646
70,000
$
50,000
25,000
145,000
$
106,981
86,213
76,496
269,690
As of December 31, 2017, approximately $151.5 million remained available under the $275.0 million repurchase authorization
from August 2017, after taking into account final settlement of the 2017 December ASR Program that occurred in early February
2018.
Contractual Obligations
The following table summarizes our known material contractual obligations and commitments as of December 31, 2017:
Contractual Obligation (in thousands)
Long-term debt interest obligations (1)
Operating lease obligations (2)
Capital lease obligations(3)
Purchase obligations (4)
Payments Due by Period
Total
all
periods
Less
than 1
year
1 — 3
years
3 — 5
years
More
than 5
years
$
1,600
25,167
3,749
45,452
$
450
6,923
1,055
42,833
$
900
10,259
2,214
1,358
$
250
5,646
480
1,261
$
—
2,339
—
—
Total
$ 75,968
$ 51,261
$ 14,731
$
7,637
$
2,339
61
(1)
Includes interest payments on fixed-term debt, line-of-credit borrowings and annual facility fees on the Company’s primary line-of-credit facility. Interest on
line-of-credit facilities was estimated based on historical borrowings and repayment patterns. The Company’s primary line-of-credit facility requires the Company
pay an annual facility fee from 0.15% to 0.30%, depending on the Company’s leverage ratio, on the unused portion of the facilities.
(2)
Includes real estate and auto leases and other equipment.
(3)
Includes obligations under two lease agreements for certain office equipment. The interest rates for these two capital leases are 2.89% and 3.50%, respectively,
and the two leases will mature in May 2021 and July 2021.
(4)Consists of other purchase commitments related to facility equipment, consulting services, minimum quantities of certain raw materials. The Company currently
is not a party to any long-term supply contracts with respect to the purchase of raw materials or finished goods.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements as of December 31, 2017.
Contingencies
From time to time, we are subject to various claims, lawsuits, legal proceedings (including litigation, arbitration or regulatory
actions) and other matters arising in the ordinary course of business. Periodically, we evaluate the status of each matter and assess
our potential financial exposure.
The Company records a provision for a liability when we believe that (a) it is probable that a loss has been incurred, and (b) the
amount is reasonably estimable. Significant judgment is required to determine both probability and the estimated amount. The
outcomes of claims, lawsuits, legal proceedings and other matters brought against the Company are subject to significant uncertainty,
some of which are inherently unpredictable and/or beyond our control. Therefore, although management considers the likelihood
of such an outcome to be remote, if one or more of these matters were resolved against the Company for amounts in excess of
management’s expectations, they could have a material adverse impact on our business, results of operations, financial position
and liquidity and the Company’s Consolidated Financial Statements could be materially adversely affected.
See “Item 3 — Legal Proceedings” above and “Note 9 — Commitments and Contingencies” to the Company’s Consolidated
Financial Statements.
Inflation
The Company believes that the effect of inflation on the Company has not been material in the three most recent fiscal years ended
December 31, 2017, 2016 and 2015, respectively, as general inflation rates have remained relatively low. The Company’s main
raw material is steel. Increases in steel prices may adversely affect the Company’s gross profit margin if it cannot recover the
higher costs through price increases of its products. See “Item 1 — Raw Materials” and “Item 1A — Risk Factors.”
Indemnification
In the normal course of business, to facilitate transactions of services and products, we have agreed to indemnify certain parties
with respect to certain matters. These agreements may limit the time within which an indemnification claim can be made and the
amount of the claim. In addition, we have entered into indemnification agreements with our officers and directors, and the
Company’s bylaws as permitted by the Company’s certificate of incorporation require the Company to indemnify corporate servants,
including our officers and directors, to the fullest extent permitted by law. The Company maintains directors and officers liability
insurance coverage to reduce its exposure to such obligations. The Company has not incurred significant obligations under
indemnification provisions historically, and does not expect to incur significant obligations in the future. It is not possible to
determine the maximum potential amount under these indemnities due to the limited history of prior indemnification claims and
the unique facts and circumstances involved in each particular agreement. Accordingly, the Company has not recorded any liability
for costs related these indemnities through December 31, 2017.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course
of our business, including changes to foreign currency exchange rates and interest rates.
62
Foreign Currency Exchange Risk
The Company has foreign currency exchange rate risk in its 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 United States dollars. The Company does not currently hedge this risk. The Company estimates that if the exchange
rate were to change by 10% in any one country where the Company has operations, the change in net income would not be material
to the Company’s operations taken as a whole.
The translation adjustment on the Company's underlying assets and liabilities resulted in a decrease in accumulated other
comprehensive income of $21.4 million for the year ended December 31, 2017, primarily due to the effect of the weakening of
the United States dollar in relation to most foreign currencies during 2017.
Interest Rate Risk
The Company has no variable interest-rate debt outstanding. The Company estimates that a hypothetical 100 basis point change
in U.S. interest rates would not be material to the Company’s operations taken as a whole.
63
Item 8. Consolidated Financial Statements and Supplementary Data.
SIMPSON MANUFACTURING CO., INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated financial statements
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Stockholders' Equity for the years ended December 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to the Consolidated Financial Statements
Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts
65
67
68
69
70
71
72
100
64
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Simpson Manufacturing Co., Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Simpson Manufacturing Company, Inc. (a Delaware corporation)
and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December
31, 2017, and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity
with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”), and our report dated February 28, 2018 expressed an unqualified opinion thereon.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2015.
/s/ Grant Thornton LLP
San Francisco, California
February 28, 2018
65
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Simpson Manufacturing Co., Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Simpson Manufacturing Company, Inc. (a Delaware
corporation) and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in the 2013 Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017, and our
report dated February 28, 2018 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over
financial reporting of Gbo Fastening Systems and CG Visions, wholly-owned subsidiaries, whose financial statements reflect
total assets constituting 2.5 and 1.9 percent, respectively, and revenues constituting 4.3 and 0.6 percent, respectively, of the
related consolidated financial statement amounts as of and for the year ended December 31, 2017. As indicated in
Management’s Report, Gbo Fastening Systems and CG Visions were acquired during 2017. Management’s assertion on the
effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of
Gbo Fastening Systems and CG Visions.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Grant Thornton LLP
San Francisco, California
February 28, 2018
66
Simpson Manufacturing Co., Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share data)
ASSETS
Current assets
Cash and cash equivalents
Trade accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Equity investment (see Note 6)
Intangible assets, net
Other noncurrent assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Capital lease obligations - current portion
Trade accounts payable
Accrued liabilities
Accrued profit sharing trust contributions
Accrued cash profit sharing and commissions
Accrued workers’ compensation
Total current liabilities
Capital lease obligations - net of current portion
Deferred income tax and other long-term liabilities
Total liabilities
Commitments and contingencies (see Note 9)
Stockholders’ equity
Preferred stock, par value $0.01; authorized shares, 5,000; issued and outstanding shares,
none
Common stock, par value $0.01; authorized shares, 160,000; issued and outstanding shares,
46,745 and 47,437 at December 31, 2017 and 2016, respectively
Additional paid-in capital
Retained earnings
Treasury stock
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2017
2016
$ 168,514
135,958
252,996
26,473
583,941
273,020
137,140
2,549
29,326
11,547
$1,037,523
$ 226,537
112,423
232,274
14,013
585,247
232,810
124,479
2,500
22,864
12,074
$ 979,974
$
1,055
31,536
84,204
7,054
9,416
3,226
136,491
2,607
13,647
152,745
$
—
27,674
60,477
6,549
10,527
3,569
108,796
—
5,336
114,132
—
—
473
260,157
676,644
(40,000)
(12,496)
884,778
$1,037,523
473
255,917
642,422
—
(32,970)
865,842
$ 979,974
67
Simpson Manufacturing Co., Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expenses:
Research and development and other engineering
Selling
General and administrative
Net gain on disposal of assets
Income from operations
Loss in equity method investment, before tax
Interest income
Interest expense
Gain on bargain purchase of a business
Loss on disposal of a business
Income before taxes
Provision for income taxes
Net income
Earnings per share of common stock:
Basic
Diluted
Weighted average number of shares of common stock outstanding
Basic
Diluted
Years Ended December 31,
$
$
2017
977,025
530,761
446,264
$
2016
860,661
448,211
412,450
2015
794,059
435,140
358,919
47,616
114,903
144,738
(160)
307,097
139,167
(86)
389
(1,177)
6,336
(211)
144,418
51,801
92,617
1.95
1.94
47,486
47,774
$
$
$
46,248
98,343
129,162
(780)
272,973
139,477
—
570
(1,147)
—
—
138,900
49,166
89,734
1.87
1.86
48,084
48,295
$
$
$
46,196
90,663
113,428
(389)
249,898
109,021
—
655
(997)
—
—
108,679
40,791
67,888
1.39
1.38
48,952
49,181
$
$
$
68
Simpson Manufacturing Co., Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income:
Year End December 31,
2017
2016
2015
$
92,617
$
89,734
$
67,888
Translation adjustment, net of tax expense of $0, ($222) and ($57) for
2017, 2016 and 2015, respectively
Unamortized pension adjustments, net of tax benefit of $37, $88, and
$82 for 2017, 2016 and 2015, respectively
Comprehensive income
21,418
(3,920)
(20,939)
(944)
113,091
$
$
(474)
85,340
$
(457)
46,492
69
Simpson Manufacturing Co., Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2015, 2016 and 2017
(In thousands, except per share data)
Common Stock
Shares
Par Value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Balance at January 1, 2015
48,966
$
489
$
220,982
$649,174
$
Net income
Translation adjustment, net of tax
Pension adjustment, net of tax
Options exercised
Stock-based compensation expense
Tax benefit of options exercised
Repurchase of common stock
Retirement of common stock
Cash dividends declared on common
stock, $0.62 per share
Shares issued from release of
restricted stock units
Common stock issued at $34.32 per
share
Balance at December 31, 2015
Net income
Translation adjustment, net of tax
Pension adjustment, net of tax
Options exercised
Stock-based compensation expense
Tax benefit of options exercised
Repurchase of common stock
Retirement of common stock
Cash dividends declared on common
stock, $0.70 per share
Shares issued from release of
restricted stock units
Common stock issued at $32.45 per
share
—
—
—
331
—
—
(1,339)
—
—
210
16
48,184
—
—
—
270
—
—
(1,244)
—
217
10
Balance at December 31, 2016
47,437
Net income
Translation adjustment, net of tax
Pension adjustment, net of tax
Options exercised
Stock-based compensation expense
Repurchase of common stock
Retirement of common stock
Cash dividends declared on common
stock, $0.81 per share
Shares issued from release of
restricted stock units
Common stock issued at $44.26 per
share
—
—
—
223
—
(1,138)
—
—
214
9
—
—
—
3
—
—
—
(13)
—
2
—
481
—
—
—
3
—
—
—
(13)
—
2
—
473
—
—
—
3
—
—
(5)
—
2
—
—
—
—
9,717
67,888
—
—
—
—
10,997
(318)
—
—
—
— (47,131)
— (30,224)
(3,718)
552
—
—
639,707
238,212
89,734
—
—
—
—
—
—
7,973
—
13,186
—
251
—
—
— (53,489)
— (33,530)
(4,020)
315
—
—
255,917
642,422
—
—
—
6,607
12,565
(10,000)
92,617
—
—
—
—
—
— (19,995)
— (38,400)
(5,343)
411
—
—
Balance at December 31, 2017
46,745
$
473
$
260,157
$676,644
$
70
(7,180) $
—
(20,939)
(457)
—
— $863,465
—
67,888
— (20,939)
(457)
—
9,720
—
—
—
—
—
— (47,144)
47,144
—
10,997
(318)
(47,144)
—
—
—
— (30,224)
—
(3,716)
—
552
—
(28,576)
— 849,824
89,734
—
—
(3,920)
(3,920)
—
(474)
(474)
—
7,976
—
—
13,186
—
—
251
—
—
(53,502)
— (53,502)
—
53,502
—
—
—
(32,970)
—
21,418
(944)
—
— (33,530)
—
—
(4,018)
315
— 865,842
—
—
—
92,617
21,418
(944)
6,610
12,565
(70,000)
—
—
—
— (60,000)
20,000
—
—
—
— (38,400)
—
(5,341)
—
411
(12,496) $ (40,000) $884,778
—
Simpson Manufacturing Co., Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of assets
Depreciation and amortization
Write-off of software development project
Loss in equity method investment, before tax
Gain (adjustment) on bargain purchase of a business
Loss on disposal of a business
Gain on contingent consideration adjustment
Deferred income taxes
Noncash compensation related to stock plans
Excess tax benefit of options exercised and restricted stock units vested
Recovery (provision) of doubtful accounts
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
Trade accounts receivable
Inventories
Other current assets
Other noncurrent assets
Trade accounts payable
Accrued liabilities
Accrued profit sharing trust contributions
Accrued cash profit sharing and commissions
Long-term liabilities
Accrued workers’ compensation
Income taxes payable
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Assets acquisitions, net of cash acquired
Equity investments
Loan repayment by customer
Proceeds from sale of property and equipment
Proceeds from sale of a business
Net cash used in investing activities
Cash flows from financing activities
Repayment of long-term borrowings and capital leases
Repayment of debt and line of credit borrowings
Deferred and contingent consideration paid for asset acquisitions
Debt issuance costs
Repurchase of common stock
Issuance of Company’s common stock
Excess tax benefit of options exercised and restricted stock units vested
Dividends paid
Cash paid on behalf of employees for shares withheld
Net cash used in financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for
Interest
Income taxes
Noncash activity during the year for
Noncash capital expenditures
Capital lease obligations
Contingent consideration for acquisition
Issuance of Company's common stock for compensation
Dividends declared but not paid
Years Ended December 31,
2016
2015
2017
$
92,617
$
89,734
$
67,888
(160)
33,724
676
86
(6,336)
211
—
6,299
13,908
—
66
(17,822)
(6,580)
(2,016)
513
1,157
10,130
498
(1,246)
(718)
(343)
(5,599)
119,065
(58,041)
(27,921)
—
—
681
9,466
(75,815)
(354)
(400)
(205)
—
(70,000)
6,610
—
(36,981)
(5,341)
(106,671)
5,398
(58,023)
226,537
168,514
121
50,832
1,533
3,750
1,314
411
9,954
$
$
$
(780)
27,927
2,212
—
—
—
—
(869)
13,946
(273)
(83)
(7,548)
(36,617)
(2,180)
336
5,785
4,290
757
2,064
242
(1,024)
1,046
98,965
(42,002)
(5,361)
(2,500)
—
1,320
—
(48,543)
—
—
(27)
(1,125)
(53,502)
7,976
273
(32,711)
(4,018)
(83,134)
424
(32,288)
258,825
226,537
284
49,425
2,318
—
—
315
8,535
$
$
$
$
$
$
(389)
26,821
3,140
—
—
—
(245)
2,537
11,958
(78)
440
(16,818)
17,208
6,274
(1,301)
(1,035)
(1,432)
417
2,530
(2,930)
492
2,446
117,923
(34,186)
(4,179)
—
244
293
—
(37,828)
(17)
—
(1,177)
—
(47,144)
9,720
78
(29,352)
(3,716)
(71,608)
(9,969)
(1,482)
260,307
258,825
249
34,008
1,214
—
—
552
7,716
71
Simpson Manufacturing Co., Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1.
Operations and Summary of Significant Accounting Policies
Nature of Operations
Simpson Manufacturing Co., Inc., through Simpson Strong-Tie Company Inc. and its other subsidiaries (collectively, the
“Company”), focuses on designing, manufacturing, and marketing systems and products to make buildings and structures safe
and secure. The Company designs, engineers and is a leading manufacturer of wood construction products, including connectors,
truss plates, fastening systems, fasteners and shearwalls, and concrete construction products, including adhesives, specialty
chemicals, mechanical anchors, powder actuated tools and fiber reinforcing materials. The Company markets its products to the
residential construction, industrial, commercial and infrastructure construction, remodeling and do-it-yourself markets.
The Company operates exclusively in the building products industry. The Company’s products are sold primarily in the United
States, Canada, Europe and Pacific Rim. The Company closed its sales office in Asia in 2015 and its revenues have some geographic
market concentration in the United States. A portion of the Company’s business is therefore dependent on economic activity within
the North America segment. The Company is dependent on the availability of steel, its primary raw material.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries.
Investments in 50% or less owned entities are accounted for using either cost or the equity method. The Company consolidates
all variable interest entities ("VIEs") where it is the primary beneficiary. There were no VIEs as of December 31, 2017 or 2016.
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, as amended from time to time ("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. The Company's actual results
could differ from those estimates.
Revenue Recognition
The Company recognizes revenue when the earnings process is complete, net of applicable provision for discounts, returns and
incentives, whether actual or estimated based on the Company’s experience. This generally occurs when products are shipped to
the customer in accordance with the sales agreement or purchase order, ownership and risk of loss pass to the customer, collectability
is reasonably assured and pricing is fixed or determinable. The Company’s general shipping terms are F.O.B. shipping point, where
title is transferred and revenue is recognized when the products are shipped to customers. When the Company sells F.O.B. destination
point, title is transferred and the Company recognizes revenue on delivery or customer acceptance, depending on terms of the
sales agreement. Service sales, representing after-market repair and maintenance, engineering activities, software license sales
and service 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 allowances, the Company’s sales would
be adversely affected.
Sales Incentive and Advertising Allowances
The Company records estimated reductions to revenues for sales incentives, primarily rebates for volume discounts, and allowances
for co-operative advertising.
Allowances for Sales Discounts
The Company records estimated reductions to revenues for discounts taken on early payment of invoices by its customers.
72
Cash Equivalents
The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time
of purchase to be cash equivalents.
Allowance for Doubtful Accounts
The Company assesses the collectability of specific customer accounts that would be considered doubtful based on the customer’s
financial condition, payment history, credit rating and other factors that the Company considers relevant, or accounts that the
Company assigns for collection. The Company reserves for the portion of those outstanding balances that the Company believes
it is not likely to collect based on historical collection experience. The Company also reserves 100% of the amounts that it deems
uncollectable due to a customer’s deteriorating financial condition or bankruptcy. If the financial condition of the Company’s
customers were to deteriorate, resulting in probable inability to make payments, additional allowances may be required.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. Cost includes all costs incurred in bringing each product to its
present location and condition, as follows:
• Raw materials and purchased finished goods for resale — principally valued at cost determined on a weighted average
•
basis; and
In-process products and finished goods — cost of direct materials and labor plus attributable overhead based on a
normal level of activity.
The Company applies net realizable value and obsolescence to the gross value of the inventory. The Company estimates net
realizable value based on estimated selling price less further costs to completion and disposal. The Company impairs slow-moving
products by comparing inventories on hand to projected demand. If on-hand supply of a product exceeds projected demand or if
the Company believes the product is no longer marketable, the product is considered obsolete inventory. The Company revalues
obsolete inventory to its net realizable value. The Company has consistently applied this methodology. The Company believes
that this approach is prudent and makes suitable impairments for slow-moving and obsolete inventory. When impairments are
established, a new cost basis of the inventory is created. Unexpected change in market demand, building codes or buyer preferences
could reduce the rate of inventory turnover and require the Company to recognize more obsolete inventory.
Warranties and recalls
The Company provides product warranties for specific product lines and records estimated recall expenses in the period in which
the recall occurs, none of which has been material to the Consolidated Financial Statements. In a limited number of circumstances,
the Company may also agree to indemnify customers against legal claims made against those customers by the end users of the
Company’s products. Historically, payments made by the Company, if any, under such agreements have not had a material effect
on the Company’s consolidated results of operations, cash flows or financial position
Fair Value of Financial Instruments
The “Fair Value Measurements and Disclosures” topic of the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification™ (“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.
73
As of December 31, 2017 and 2016, the Company’s investments consisted of only money market funds, which are the Company’s
primary financial instruments, maintained in cash equivalents and carried at cost, approximating fair value, based on Level 1
inputs. The balance of the Company’s primary financial instruments was as follows:
(in thousands)
Money market funds
At December 31,
2017
2016
$
5,293 $
2,832
The carrying amounts of trade accounts receivable, accounts payable and accrued 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 is 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. As of December 31, 2017, the estimated fair value of the Company's contingent
consideration was approximately a total of $1.3 million, which was mostly based on the use of the Monte Carlo method of valuation.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Major renewals and betterments are capitalized. Maintenance and repairs are
expensed on a current basis. When assets are sold or retired, their costs and accumulated depreciation are removed from the
accounts, and the resulting gains or losses are reflected in the accompanying Consolidated Statements of Operations.
The “Intangibles—Goodwill and Other” topic of the FASB ASC provides guidance on capitalization of the costs incurred for
computer software developed or obtained for internal use. The Company capitalizes qualified external costs and internal costs
related to the purchase and implementation of software projects used for business operations and engineering design activities.
Capitalized software costs primarily include purchased software, internal costs and external consulting fees. Capitalized software
projects are amortized over the estimated useful lives of the software.
Depreciation and Amortization
Depreciation of software, machinery and equipment is provided using accelerated methods over the following estimated useful
lives:
Software
Machinery and equipment
3 to 5 years
3 to 10 years
Buildings and site improvements are depreciated using the straight-line method over their estimated useful lives, which range
from 15 to 45 years. Leasehold improvements are amortized using the straight-line method over the shorter of the expected life
or the remaining term of the lease. Amortization of purchased intangible assets with finite useful lives is computed using the
straight-line method over the estimated useful lives of the assets.
Cost of Sales
The types of costs included in cost of sales include material, labor, factory and tooling overhead, shipping, and freight costs. Major
components of these expenses are material costs, such as steel, packaging and cartons, personnel costs, and facility costs, such as
rent, depreciation and utilities, related to the production and distribution of the Company’s products. Inbound freight charges,
purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and other costs of the Company’s
distribution network are also included in cost of sales.
Tool and Die Costs
Tool and die costs are included in product costs in the year incurred.
Shipping and Handling Fees and Costs
The Company’s general shipping terms are F.O.B. shipping point. Shipping and handling fees and costs are included in revenues
and product costs, as appropriate, in the year incurred.
74
Product and Software Research and Development Costs
Product research and development costs, which are included in operating expenses and are charged against income as incurred,
were $10.6 million, $10.8 million and $12.0 million in 2017, 2016 and 2015, respectively. The types of costs included as product
research and development expenses was revised in 2017 and prior years to include all related personnel costs including salary,
benefits, retirement, stock-based compensation costs, as well as computer and software costs, professional fees, supplies, tools
and maintenance costs. In 2017, 2016 and 2015, the Company incurred software development expenses related to its expansion
into the plated truss market and some of the software development costs were capitalized. See "Note 5 — Property, Plant and
Equipment." The Company amortizes acquired patents over their remaining lives and performs periodic reviews for impairment.
The cost of internally developed patents is expensed as incurred.
Selling Costs
Selling costs include expenses associated with selling, merchandising and marketing the Company’s products. Major components
of these expenses are personnel, sales commissions, facility costs such as rent, depreciation and utilities, professional services,
information technology costs, sales promotion, advertising, literature and trade shows.
Advertising Costs
Advertising costs are included in selling expenses, are expensed when the advertising occurs, and were $9.6 million, $7.1 million
and $6.4 million in 2017, 2016, and 2015, respectively.
General and Administrative Costs
General and administrative costs include personnel, information technology related costs, facility costs such as rent, depreciation
and utilities, professional services, amortization of intangibles and bad debt charges.
Income Taxes
Income taxes are calculated using an asset and liability approach. The provision for income taxes includes federal, state and foreign
taxes currently payable and deferred taxes, due to temporary differences between the financial statement and tax bases of assets
and liabilities. In addition, future tax benefits are recognized to the extent that realization of such benefits is more likely than not.
This method gives consideration to the future tax consequences of the deferred income tax items and immediately recognizes
changes in income tax laws in the year of enactment. On December 22, 2017, the President of the United States signed into law
the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”). Further information on the tax impacts of the Tax Reform Act is
included in Note 10 — Income Taxes of the Company’s consolidated financial statements.
Sales Taxes
The Company presents taxes collected and remitted to governmental authorities on a net basis in the accompanying Consolidated
Statements of Operations.
Foreign Currency Translation
The local currency is the functional currency of most of the Company’s operations in Europe, Canada, Asia, Australia, New Zealand
and South Africa. Assets and liabilities denominated in foreign currencies are translated using the exchange rate on the balance
sheet date. Revenues and expenses are translated using average exchange rates prevailing during the year. The translation adjustment
resulting from this process is shown separately as a component of stockholders’ equity. Foreign currency transaction gains or
losses are included in general and administrative expenses.
Common Stock
Subject to the rights of holders of any preferred stock that may be issued in the future, holders of common stock are entitled to
receive such dividends, if any, as may be declared from time to time by the Company’s Board of Directors (the "Board") out of
legally available funds, and in the event of liquidation, dissolution or winding-up of the Company, to share ratably in all assets
available for distribution. The holders of common stock have no preemptive or conversion rights. Subject to the rights of any
preferred stock that may be issued in the future, the holders of common stock are entitled to one vote per share on any matter
submitted to a vote of the stockholders. A director in an uncontested election is elected if the votes cast “for” such director’s
election exceed the votes cast “against” such director’s election, except that, if a stockholder properly nominates a candidate for
75
election to the Board, the candidates with the highest number of affirmative votes (up to the number of directors to be elected) are
elected. There are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
The Board has the authority to issue the authorized and unissued preferred stock in one or more series with such designations,
rights and preferences as may be determined from time to time by the Board. Accordingly, the Board is empowered, without
stockholder approval, to issue preferred stock with dividend, redemption, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the Company’s common stock.
Stock Repurchase Program
At its meeting in August 2016, the Board authorized the Company to repurchase up to $125 million of its common stock. This
authorization increased and extended the $50.0 million repurchase authorization from February 2016. For the fiscal year ended
December 31, 2016, the Company purchased a total of 1,244,003 shares of its common stock at an average price of $43.01, which
included 1,137,656 shares purchased pursuant to the $50.0 million accelerated share repurchase program ("2016 ASR Program")
that the Company entered into with Wells Fargo Bank, National Association ("Wells Fargo") in August 2016. As of December 31,
2016, the 2016 ASR Program was completed at an average share price of $43.95 per share. All shares repurchased during 2016
were retired.
At its meeting in August 2017, the Board authorized the Company to repurchase up to $275.0 million of the its common stock.
This authorization increased and extended the $125.0 million repurchase authorization from August 2016 and will remain in effect
through December 31, 2018. For the fiscal year ended December 31, 2017, the Company purchased a total of 1,138,387 shares
of its common stock for a total of $60.0 million through accelerated share repurchase programs that the Company entered into
with Wells Fargo, which included 460,887 shares purchased at an average share price of $43.39 per share pursuant to a $20.0
million accelerated share repurchase program initiated in June 2017 (the "2017 June ASR Program"), and 677,500 shares received
at an average share price of $59.04 per share, or $40.0 million, pursuant to a $50.0 million accelerated share repurchase program
initiated in December 2017 (the "2017 December ASR Program"). The final delivery under the 2017 December ASR Program
was made in February 2018. See Note 15 - "Subsequent Events." As of December 31, 2017, 460,887 shares were retired, 677,500
shares were held as treasury shares and approximately $151.5 million remained available for share repurchases through December
31, 2018 under the Board current authorization.
See the "Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015."
Net Income per Share
Basic net income per common share is computed based on the weighted average number of common shares outstanding. Potentially
dilutive shares, 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 shows a reconciliation of basic earnings per share (“EPS”) to diluted EPS:
(in thousands, except per-share amounts)
Net income available to common stockholders
Basic weighted average shares outstanding
Dilutive effect of potential common stock equivalents
Diluted weighted average shares outstanding
Net earnings per share:
Basic
Diluted
Fiscal Year Ended December 31,
2017
92,617
$
2016
$
89,734
2015
$ 67,888
47,486
288
47,774
48,084
211
48,295
48,952
229
49,181
$
$
1.95
1.94
$
$
1.87
1.86
$
$
1.39
1.38
For the year ended December 31, 2017, 2016, and 2015, no potential common shares with anti-dilutive effect were included in
the calculation of diluted net income per share.
76
Comprehensive Income or Loss
Comprehensive income is defined as net income plus other comprehensive income or loss. Other comprehensive income or loss
consists of changes in cumulative translation adjustments and changes in unamortized pension adjustments recorded directly in
accumulated other comprehensive income within stockholders’ equity. The following shows the components of accumulated other
comprehensive income or loss as of December 31, 2017 and 2016, respectively:
(in thousands)
Balance at January 1, 2015
Other comprehensive income before reclassification net of tax benefit (expense) of
($57) and $82, respectively
Amounts reclassified from accumulative other comprehensive income, net of $0 tax
Balance at December 31, 2015
Other comprehensive loss net of tax benefit (expense) of ($222) and $87, respectively
Balance at December 31, 2016
Other comprehensive loss net of tax benefit (expense) of $0 and $36, respectively
Amounts reclassified from accumulative other comprehensive income, net of $0 tax
Balance at December 31, 2017
Foreign
Currency
Translation
Pension
Benefit
Total
$
(6,613) $
(567) $
(7,180)
(20,708)
(231)
(27,552)
(3,920)
(31,472)
21,273
145
(457)
(1,024)
(474)
(1,498)
(944)
—
$
(10,054) $ (2,442) $
(21,165)
(231)
(28,576)
(4,394)
(32,970)
20,329
145
(12,496)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash in banks, short-term
investments in money market funds and trade accounts receivable. The Company maintains its cash in demand deposit and money
market accounts held primarily at 17 banks.
Accounting for Stock-Based Compensation
The Company recognizes stock-based expenses related to stock options and restricted stock awards on a straight-line basis, net
of forfeitures, over the requisite service period of the awards, which is generally the vesting term of four years. Stock-based
expenses related to performance share grants are measured based on grant date fair value and expensed on a straight-line basis
over the service period of the awards, which is generally the vesting term of three years. The assumptions used to calculate the
fair value of options or restricted stock units are evaluated and revised, as necessary, to reflect market conditions and the Company’s
experience.
Goodwill Impairment Testing
The Company tests goodwill for impairment at the reporting unit level on an annual basis (in the fourth quarter for the Company).
The Company also reviews goodwill for impairment whenever events or changes in circumstances indicate the carrying value of
an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal
factors, operating performance indicators, competition, or disposition or relocation of a significant portion of a reporting unit.
The reporting unit level is generally one level below the operating segment and is at the country level except for the United States,
Denmark, Australia, and S&P Clever reporting units.
The Company has determined that the United States reporting unit includes four components: Northwest United States, Southwest
United States, Northeast United States and Southeast United States (collectively, the “U.S. Components”). The Company aggregates
the U.S. Components into a single reporting unit because management concluded that they are economically similar and that the
goodwill is recoverable from the U.S. Components working in concert. The U.S. Components are economically similar because
of a number of factors, including, selling similar products to shared customers and sharing assets and services such as intellectual
property, manufacturing assets for certain products, research and development projects, manufacturing processes, management
of inventory excesses and shortages and administrative services. These activities are managed centrally at the U.S. Components
level and costs are allocated among the four U.S. Components.
77
The Company determined that the Australia reporting unit includes four components: Australia, New Zealand, South Africa and
United Arab Emirates (collectively, the “AU Components”). The Company aggregates the AU Components into a single reporting
unit because management concluded that they are economically similar and that the goodwill is recoverable from the AU
Components working in concert. The AU Components are economically similar because of a number of factors, including that
New Zealand, South Africa and United Arab Emirates operate as extensions of their Australian parent company selling similar
products and sharing assets and services such as intellectual property, manufacturing assets for certain products, management of
inventory excesses and shortages and administrative services. These activities are managed centrally at the AU Components level
and costs are allocated among the AU Components.
The Company has determined that the S&P Clever reporting unit includes nine components: S&P Switzerland, S&P Poland, S&P
Austria, S&P The Netherlands, S&P Portugal, S&P Germany, S&P France, S&P Nordic, and S&P Spain (collectively, the "S&P
Components”). The Company aggregates the S&P Components into a single reporting unit because management concluded that
they are economically similar and that the goodwill is recoverable from the S&P Components working in concert. The S&P
Components are economically similar because of a number of factors, including sharing assets and services such as intellectual
property, manufacturing assets for certain products, research and development projects, manufacturing processes, management
of inventory excesses and shortages and administrative services. These activities are managed centrally at the S&P Components
level and costs are allocated among the S&P Components.
For certain reporting units, the Company may first assess qualitative factors related to the goodwill of the reporting unit to determine
whether it is necessary to perform a two-step impairment test. If the Company judges that it is more likely than not that the fair
value of the reporting unit is greater than the carrying amount of the reporting unit, including goodwill, no further testing is required.
If the Company judges that it is more likely than not that the fair value of the reporting unit is less than the carrying amount of
the reporting unit, including goodwill, management will perform a two-step impairment test on goodwill. In the first step ("Step
1"), the Company compares the fair value of the reporting unit to its carrying value. The fair value calculation uses the income
approach (discounted cash flow method) and the market approach, equally weighted. If the Company judges that the carrying
value of the net assets assigned to the reporting unit, including goodwill, exceeds the fair value of the reporting unit, a second step
of the impairment test must be performed to determine the implied fair value of the reporting unit’s goodwill. If the Company
judges that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, the Company would record an impairment
charge equal to the difference between the implied fair value of the goodwill and the carrying value.
Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is a judgment involving significant
estimates and assumptions. These estimates and assumptions include revenue growth rates, operating margins and working capital
requirements used to calculate projected future cash flows, risk-adjusted discount rates, selected multiples, control premiums and
future economic and market conditions (Level 3 fair value inputs). The Company bases its fair value estimates on assumptions
that it believes to be reasonable, but that are unpredictable and inherently uncertain. Actual future results may differ from those
estimates.
Assumptions about a reporting unit’s operating performance in the first year of the discounted cash flow model used to determine
whether or not the goodwill related to that reporting unit is impaired are derived from the Company’s budget. The fair value model
considers such factors as macro-economic conditions, revenue and expense forecasts, product line changes, material, labor and
overhead costs, tax rates, working capital levels and competitive environment. Future estimates, however derived, are inherently
uncertain but the Company believes that this is the most appropriate source on which to base its fair value calculation.
The Company uses these parameters only to provide a basis for the determination of whether or not the goodwill related to a
reporting unit is impaired. No inference whatsoever should be drawn from these parameters about the Company’s future financial
performance and they should not be taken as projections or guidance of any kind.
The 2017, 2016 and 2015 annual testing of goodwill for impairment did not result in impairment charges.
The Denmark reporting unit passed Step 1 of the annual 2017 impairment test by a 8.3% margin indicating an estimated fair value
greater than its net book value and was the only reporting unit with a fair value greater than net book value margin of less than
10%. The Denmark reporting unit is sensitive to management’s plans for increasing sales and operating margins. The Denmark
reporting unit’s failure to meet management’s objectives could result in future impairment of some or all of the Denmark reporting
unit’s goodwill, which was $7.1 million at December 31, 2017.
Key assumptions used in Step 1 of the Company's annual goodwill impairment test included compound annual growth rates
(“CAGR”) and average annual pre-tax operating margins during the forecast period, multiple and discount rates. A sensitivity
assessment for the key assumptions included in the 2017 goodwill impairment test on the Denmark reporting unit is as follows:
78
• A 500 basis point hypothetical increase in the discount rate, holding all other assumptions constant, would not have
decreased the fair value of the reporting unit below its carrying value, and thus it would not result in the reporting unit
failing Step 1 of the goodwill impairment test;
• A 210 basis point hypothetical decrease in the multiple rate, holding all other assumptions constant, would not have
decreased the fair value of the reporting unit below its carrying value, and thus it would not result in the reporting unit
failing Step 1 of the goodwill impairment test;
• A 139 basis point hypothetical percentage decrease in the CAGR, holding all other assumptions constant, would not have
decreased the fair value of the reporting unit below its carrying value and
• A 37% hypothetical decrease in average annual pre-tax operating profit, holding all other assumptions constant, would
not have decreased the fair value of the reporting unit below its carrying value.
The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair
values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets
of acquired businesses. The annual changes in the carrying amount of goodwill, by segment, as of December 31, 2016 and 2017,
were as follows, respectively:
(in thousands)
Balance as of January 1, 2016:
Goodwill
Accumulated impairment losses
Goodwill acquired
Foreign exchange
Reclassifications (1)
Balance as of December 31, 2016:
Goodwill
Accumulated impairment losses
Goodwill acquired
Foreign exchange
Reclassifications(2)
Balance as of December 31, 2017:
Goodwill
Accumulated impairment losses
North
America
Europe
Asia
Pacific
Total
$
$
96,500
(10,666)
85,834
—
93
(439)
96,154
(10,666)
85,488
10,066
198
3
$
50,135
(13,415)
36,720
1,848
(952)
—
51,031
(13,415)
37,616
—
2,472
(192)
$
1,396
—
1,396
—
(21)
—
1,375
—
1,375
—
114
—
148,031
(24,081)
123,950
1,848
(880)
(439)
0
148,560
(24,081)
124,479
10,066
2,784
(189)
0
161,221
(24,081)
137,140
$
(1) Reclassifications in 2016 of $0.2 million in patents, $0.1 million in non-compete agreements, $46 thousand in customer relationships and other assets, with
a corresponding $0.4 million decrease in goodwill related to the EBTY acquisition.
(2) Reclassifications in 2017 were $3 thousand and $192 thousand in other assets, with a corresponding $189 thousand decrease in goodwill related to CG
Visions and MS Decoupe acquisitions.
106,421
(10,666)
95,755
53,311
(13,415)
39,896
1,489
—
1,489
$
$
$
Amortizable Intangible Assets
Intangible assets from acquired businesses are recognized at their estimated fair values at the date of acquisition and consist of
patents, unpatented technology, non-compete agreements, trademarks, customer relationships and other intangible assets. Finite-
lived intangibles are amortized to expense over the applicable useful lives, ranging from three to 21 years, based on the nature of
the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. The Company performs an
impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be
impaired.
The total gross carrying amount and accumulated amortization of intangible assets subject to amortization at December 31, 2017,
were $54.5 and $25.2 million, respectively. The aggregate amount of amortization expense of intangible assets for the years ended
December 31, 2017, 2016 and 2015 was $6.2 million, $6.0 million and $6.1 million, respectively.
79
The annual changes in the carrying amounts of patents, unpatented technologies, customer relationships and non-compete
agreements and other intangible assets subject to amortization as of December 31, 2016, and 2017 were as follows, respectively:
(in thousands)
Patents
Balance at January 1, 2016
Amortization
Reclassification(1)
Foreign exchange
Balance at December 31, 2016
Acquisition
Amortization
Foreign exchange
Removal of fully amortized assets
Balance at December 31, 2017
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
1,513
—
212
(7)
1,718
800
—
2
(170)
2,350
$
$
(379) $
(149)
—
—
(528)
—
(187)
—
170
(545) $
1,134
(149)
212
(7)
1,190
800
(187)
2
—
1,805
(1) Reclassifications in 2016 of $0.2 million in patents, $0.1 million in non-compete agreements, $46 thousand in customer relationships and other assets, with
a corresponding $0.4 million decrease in goodwill related to the EBTY acquisition
(in thousands)
Unpatented Technology
Balance at January 1, 2016
Amortization
Reclassifications (1)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
21,604
—
(8,656) $
(2,058)
12,948
(2,058)
1,512
(243)
Foreign exchange
—
Removal of fully amortized assets
12,159
Balance at December 31, 2016
(1,976)
Amortization
505
Foreign exchange
10,688
Balance at December 31, 2017
(1) Reclassifications in 2016 of $1.5 million in unpatented technology for completed indefinite-lived in-process research and development ("IPR&D"), with a
corresponding reduction in IPR&D intangibles.
—
—
1,711
(9,003)
(1,976)
—
(10,979) $
1,512
(243)
(1,711)
21,162
—
505
21,667
$
$
$
(in thousands)
Gross
Carrying
Amount
Net
Carrying
Amount
$
Accumulated
Amortization
Non-Compete Agreements,
Trademarks and Other
3,375
Balance at January 1, 2016
1,212
Acquisition
(2,040)
Amortization
(39)
Foreign exchange
Reclassifications(1)
119
—
Removal of fully amortized assets
2,627
Balance at December 31, 2016
9,260
Acquisition
(2,495)
Amortization
16
Foreign exchange
—
Removal of fully amortized asset
Balance at December 31, 2017
9,408
(1) Reclassifications in 2016 of $0.2 million in patents, $0.1 million in non-compete agreements, $46 thousand in customer relationships and other assets, with a
corresponding $0.4 million decrease in goodwill related to the EBTY acquisition.
(7,203)
—
(2,040)
—
—
5,143
(4,100)
—
(2,495)
—
3,778
(2,817) $
10,578
1,212
—
(39)
119
(5,143)
6,727
9,260
—
16
(3,778)
12,225
$
$
80
(in thousands)
Customer Relationships
Balance at January 1, 2016
Acquisition
Amortization
Reclassifications(1)
Foreign exchange
Balance at December 31, 2016
Acquisition
Amortization
Reclassifications (2)
Foreign exchange
Removal of fully amortized assets
Balance at December 31, 2017
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
21,242
—
—
46
(71)
21,217
1,091
—
626
394
(5,650)
17,678
$
(13,152)
—
(1,793)
—
—
(14,945)
—
(1,574)
—
—
5,650
(10,869) $
8,090
—
(1,793)
46
(71)
6,272
1,091
(1,574)
626
394
—
6,809
(1) Reclassifications in 2016 of $0.2 million to patents, $0.1 million in non-compete agreements, $46 thousand in customer relationships and other assets,
with a corresponding $0.4 million decrease in goodwill related to the EBTY acquisition.
(2) Reclassifications in 2017 of $0.6 million in customer relationships with a corresponding $0.6 million decrease in other assets related to the MS Decoupe
acquisition.
At December 31, 2017, estimated future amortization of intangible assets was as follows:
(in thousands)
2018
2019
2020
2021
2022
Thereafter
$
$
5,352
5,260
5,230
4,751
2,859
5,258
28,710
Indefinite-Lived Intangible Assets
As of December 31, 2017, the only indefinite-lived intangible asset, consisting of a trade name, totaled $0.6 million.
Amortizable and indefinite-lived assets, net, by segment, as of December 31, 2016 and 2017, respectively, were as follows:
(in thousands)
Total Intangible Assets
North America
Europe
Total
(in thousands)
Total Intangible Assets
North America
Europe
Total
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
23,562
27,880
51,442
$
$
(13,811) $
(14,767)
(28,578) $
9,751
13,113
22,864
At December 31, 2017
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
30,775
23,762
54,537
$
$
(13,732) $
(11,479)
(25,211) $
17,043
12,283
29,326
$
$
$
$
81
Recently Adopted Accounting Standards
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718),
Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which amends existing guidance related to
accounting for employee share-based payments affecting the income tax consequences of awards, classification of awards as equity
or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2016, with early adoption permitted. On January 1, 2017, the Company adopted
ASU 2016-09.
This new guidance requires all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the
income statement and classified as an operating activity in the statement of cash flows. The Company prospectively adopted this
guidance with the tax impact of a $1.1 million tax benefit recognized in the consolidated income statements and classified it as
an operating activity in the consolidated statement of cash flows. The guidance also requires a policy election either to estimate
the number of awards that are expected to vest or to account for forfeitures whenever they occur. The Company did not change
its policy for calculating accrual compensation costs by estimating the number of awards that are expected to vest. Therefore,
when the Company adopted this guidance, there was no recognized cumulative effect adjustment to retained earnings. In addition,
this guidance requires cash paid by an employer, when directly withholding shares for tax withholding purposes, to be classified
in the statement of cash flows as a financing activity, which differs from the Company's previous method of classification of such
cash payments as an operating activity. Accordingly, the Company applied this provision retrospectively for the twelve months
ended December 31, 2017 and 2016, and reclassified $1.3 million and $4.3 million, respectively, from operating activities to
financing activities in the condensed consolidated statements of cash flows.
In March 2016, the FASB issued Accounting Standards Update No. 2016-07, Simplifying the Transition to the Equity Method of
Accounting ("ASU 2016-07"), which eliminates the requirement to apply the equity method of accounting retrospectively when
a reporting entity obtains significant influence over a previously held investment. The amendments in ASU 2016-07 are effective
for public companies for fiscal years beginning after December 15, 2016, including interim periods therein, with early adoption
permitted. The new standard should be applied prospectively for investments that qualify for the equity method of accounting
after the effective date. On January 1, 2017, the Company prospectively adopted ASU 2016-07. Adoption of ASU 2016-07 has
had no material effect on the Company's consolidated financial statements and footnote disclosures.
In January 2017, the FASB issued Accounting Standards Updated No. 2017-01, Business Combinations (Topic 805): Clarifying
the Definition of a Business ("ASU 2017-01"), which changes the definition of a business to assist entities with evaluating when
a set of transferred assets and activities is a business. The new guidance clarifies that a business must also include at least one
substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606,
Revenue from Contracts with Customers. ASU 2017-01 is effective for fiscal years, and interim periods within those fiscal years
beginning after December 15, 2017, with early adoption permitted. On January 1, 2017, the Company prospectively adopted ASU
2017-01. Adoption of ASU 2017-01 has had no material effect on the Company's consolidated financial statements and footnote
disclosures.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740), Balance Sheet
Classification of Deferred Taxes ("ASU 2015-17"). The objective is to simplify the presentation of deferred income taxes; the
amendments require that deferred tax assets and liabilities be classified as noncurrent in a classified consolidated balance sheets.
ASU 2015-17 will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal
years. The Company adopted prospectively ASU 2015-17 in the first quarter of 2016, resulted in the Company offsetting all of its
deferred income tax assets and liabilities, as of January 1, 2016, by taxing jurisdictions and classifying those balances as noncurrent.
The result was a $4.1 million increase in "Other noncurrent assets," from $6.7 million to $10.8 million, and a $12.1 million decrease
in "Deferred income tax and other long-term liabilities," from $16.5 million to $4.4 million.
All other issued and effective accounting standards during 2017 were determined to be not relevant or material to the Company.
Recently Issued Accounting Standards Not Yet Adopted
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (later codified as ASC 606), Revenue from Contracts
with Customers (“ASC 606”), which supersedes nearly all existing revenue recognition guidance under GAAP. ASC 606 provides
a five-step model for revenue recognition to be applied to all revenue contracts with customers. The five-step model includes: (1)
determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and
obligations, exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4)
allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the
82
performance obligations are satisfied. The core principle of ASC 606 is that an entity should recognize revenue for the transfer of
goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASC 606 also requires
additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts, including
significant judgments and changes in judgments. The standard is effective for annual and interim periods beginning after December
15, 2017 and permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method),
or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified
retrospective method). The Company will adopt the new standard effective January 1, 2018 using the modified retrospective
approach.
We completed our review of customer contracts and do not expect the adoption of this standard will materially impact the amount
or timing of revenue recognized. The guidance requires the Company to estimate and record variable consideration resulting from
rebates and other pricing allowances at contract inception. Net sales will not be materially impacted as a result of adoption as the
Company currently records estimated rebates and allowances as reductions to revenue. Under current revenue recognition
guidance, revenue from the sale of our finished goods is recognized at the point in time when all revenue recognition criteria are
met, which typically occurs when products are shipped from our facilities with the Company’s general shipping terms. Based on
the nature of our contracts, we expect to continue to recognize revenue from the sale of our finished goods upon shipment, which
is the point in time when control is transferred to the customer. Accordingly, the adoption of this standard is not expected to have
a material impact on the Company’s consolidated financial statements. The Company is identifying and preparing to implement
changes to our accounting policies and practices, business processes, systems and controls to support the enhanced disclosure
requirements of ASC 606.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers
of Assets Other Than Inventory ("ASU 2016-16"), which requires companies to account for the income tax effects of intercompany
sales and transfers of assets other than inventory when the transfer occurs. Current guidance requires companies to defer the income
tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized. The
amendment is to be applied using a modified retrospective approach. ASU 2016-16 is effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Based on current information
and subject to future events and circumstances, the Company does not know whether ASU 2016-16 will have a material impact
on its financial statements upon adoption.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which eliminates the requirement to calculate the implied fair
value of goodwill to measure a goodwill impairment charge or Step 2 of the goodwill impairment analysis. Instead, an impairment
charge will be recorded based on the excess of a reporting unit's carrying amount over its fair value using Step 1 of the goodwill
impairment analysis. The standard is required to be adopted for annual and interim impairment tests performed after December
15, 2019. The amendment is to be applied prospectively. Early adoption is permitted for annual and interim goodwill impairment
testing dates after January 1, 2017. Based on current information and subject to future events and circumstances, the Company
does not know whether ASU 2017-04 will have a material impact on its financial statements upon adoption.
In February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). ASU 2018-02
allows a reclassification from Accumulated other Comprehensive Income to Retained Earnings for stranded tax effects resulting
from the Tax Cuts and Jobs Act of 2017. The amendments in this ASU are effective for fiscal years beginning after December 15,
2018 and for interim periods therein. Early adoption of ASU 2018-02 is permitted. The Company is evaluating the impact of
adopting this new accounting guidance on its consolidated financial statements.
2.
Stock-Based Compensation
The Company currently maintains an equity incentive plan, the Simpson Manufacturing Co., Inc. Amended and Restated 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 the
Company's independent directors. Awards 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.
The Company generally granted options under each of the 1994 Plan and the 1995 Plan once each year. Options vest and expire
according to terms established at the grant date. 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, as amended (the "Securities Act").
83
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 performance-based and/or time-based restricted stock
units ("RSUs"), and to a lesser extent, if at all, non-qualified stock options. The performance-based RSUs may vest, only if the
applicable Company-wide or profit-center operating goals, or both, or strategic goals, established by the Compensation and
Leadership Development Committee (the “Committee”) of the Board, are met.
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 in aggregate may be issued including shares already issued pursuant to prior
awards granted under the 2011 Plan and shares issued on exercise of options previously granted under the 1994 Plan and the 1995
Plan. Shares of common stock underlying awards to be issued pursuant to the 2011 Plan are registered under the Securities Act.
The Company granted RSUs under the 2011 Plan in 2015, 2016 and 2017 to its employees, including officers, and directors. The
fair value of each RSU award is estimated on the measurement date as determined in accordance with GAAP and is based on the
closing price of shares of the Company’s common stock on the day preceding the measurement date. The fair value excludes the
present value of the dividends that the RSUs do not participate in. The RSUs granted to the Company’s employees may be time-
based, performance-based or time- and performance-based. The restrictions on a portion of the time-based RSUs generally lapse
pursuant to a vesting schedule. The restrictions on the performance-based RSUs generally lapse following a performance period,
and the underlying shares of the Company’s common stock are subject to performance-based adjustment before becoming vested.
The time- and performance-based RSUs require the underlying shares of the Company’s common stock to be subject to performance-
based adjustment before starting to vest according to a vesting schedule.
The following table shows the Company’s stock-based compensation activity:
(in thousands)
Stock-based compensation expense recognized in operating expenses
Fiscal Years Ended December 31,
2017
$ 12,744
2016
$ 13,113
2015
$ 11,212
Tax benefit of stock-based compensation expense in provision for income taxes
4,575
4,757
3,987
Stock-based compensation expense, net of tax
Fair value of shares vested
Proceeds to the Company from the exercise of stock-based compensation
Tax benefit from exercise of stock-based compensation, including shortfall tax benefits
$
8,169
$
8,356
$
7,225
$ 11,043
$ 13,186
$ 10,997
$
$
6,610
$
7,976
$
9,720
— $
(251) $
(318)
The stock-based compensation expense included in cost of sales, research and development and engineering expense, selling
expense, or general and administrative expense depends on the job functions performed by the employees to whom the stock
options were granted, or the restricted stock units were awarded. Stock-based compensation cost capitalized in inventory was $0.2
million in 2017, and was $0.4 million in both 2016 and 2015, respectively.
The following table summarizes the Company’s unvested restricted stock unit activity for the year ended December 31, 2017:
Unvested Restricted Stock Units (RSUs)
Outstanding at January 1, 2017
Awarded
Vested
Forfeited
Outstanding at December 31, 2017
Outstanding and expected to vest at December 31, 2017
Shares
(in thousands)
Weighted-
Average
Price
615
589
(336)
(172)
696
690
$
$
$
31.81
38.79
32.85
35.96
35.34
35.33
$
$
$
Aggregate
Intrinsic
Value *
(in thousands)
26,915
39,976
39,609
* The intrinsic value for outstanding and expected to vest is calculated using the closing price per share of $57.41, as reported
by the New York Stock Exchange on December 31, 2017.
84
On February 4, 2017, 579,139 RSUs were awarded to the Company's employees, including officers, at an estimated fair value of
$38.74 per share, based on the closing price on February 3, 2017 of $43.42 per share and adjusted for certain market factors, and
to a lesser extent, the present value of dividends. On May 16, 2017, 10,066 RSUs were awarded to each of the Company’s seven
non-employee directors at an estimated fair value of $41.52 per share based on the closing price on May 15, 2017, which RSUs
vested fully on the date of the grant.
The total intrinsic value of RSUs vested during the years ended December 31, 2017, 2016 and 2015 was $14.7 million, $10.8
million and $10.3 million, respectively, based on the market value on the award date.
No stock options were granted under the 2011 Plan in 2015, 2016 or 2017.
The following table summarizes the Company’s stock option activity for the year ended December 31, 2017:
Non-Qualified Stock Options
Outstanding at January 1, 2017
Exercised
Forfeited
Outstanding and exercisable at December 31, 2017
Shares
(in thousands)
251
$
(223) $
— $
$
28
29.66
29.66
—
29.66
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value*
(in thousands)
3,538
1.1
$
0.1
$
780
* The intrinsic value as of December 31, 2017 represents the amount by which the fair market value of the underlying common
stock exceeds the exercise price of the option, and is calculated using the closing price per share of $57.41, as reported by
the New York Stock Exchange on December 31, 2017.
The total intrinsic value of stock options exercised during each of the three years ended December 31, 2017, 2016 and 2015, was
$4.6 million, $3.1 million and $2.4 million, respectively.
As of December 31, 2017, there was $10.2 million total unrecognized compensation cost related to unvested stock-based
compensation arrangements under the 2011 Plan for awards made through December 31, 2017, which is expected to be recognized
over a weighted-average period of 1.8 years.
On February 15, 2018, approximately 186 thousand RSUs were awarded to the Company's employees, including officers. The
Company's closing price of its stock was $57.16 on February 14, 2018. The fair value of the awards has not yet been determined,
but the Company expects it will be less after adjustment for expected dividends the RSUs do not participate in.
Stock Bonus Plan
The Company also maintains a stock bonus plan, the Simpson Manufacturing Co., Inc. 1994 Employee Stock Bonus Plan (the
“Stock Bonus Plan”), whereby it awards shares of the Company’s common stock to employees, who do not otherwise participate
in any of the Company’s equity-based incentive plans and meet minimum service requirements as determined by the Committee.
The number of shares awarded, as well as the required period of service, is determined by the Committee. Shares have generally
been issued under the Stock Bonus Plan following the year in which the respective employee reached his or her tenth, twentieth,
thirtieth, fortieth or fiftieth anniversary of employment with the Company or any direct or indirect subsidiary thereof. The Company
committed to issuing 12 thousand shares for 2017, (8,100 shares to be issued and 3,900 shares of which are expected to be settled
in cash for the Company's foreign employees). In 2016 and 2015, the Company issued 12 thousand and 10 thousand shares,
respectively. As a result, we recorded pre-tax compensation charges of $1.2 million, $0.8 million and $0.7 million for each of the
years ended December 31, 2017, 2016 and 2015, respectively. Employees are also awarded cash bonuses as included in these
charges, to compensate for income taxes payable as a result of the stock bonuses.
85
3. Trade Accounts Receivable, net
Trade accounts receivable consisted of the following:
(in thousands)
Trade accounts receivable
Allowance for doubtful accounts
Allowance for sales discounts
The Company sells products on credit and generally does not require collateral.
4.
Inventories
The components of inventories consisted of the following:
(in thousands)
Raw materials
In-process products
Finished products
5. Property, Plant and Equipment, net
Property, plant and equipment consisted of the following:
(in thousands)
Land
Buildings and site improvements
Leasehold improvements
Machinery and equipment
Less accumulated depreciation and amortization
Capital projects in progress
December 31,
2017
2016
139,910
(996)
(2,956)
135,958
$
$
116,368
(895)
(3,050)
112,423
December 31,
2017
2016
91,022
26,849
135,125
252,996
$
$
86,524
20,902
124,848
232,274
December 31,
2017
2016
33,087
212,817
4,684
300,334
550,922
(299,907)
251,015
22,005
273,020
$
$
32,127
183,882
5,550
248,861
470,420
(273,302)
197,118
35,692
232,810
$
$
$
$
$
$
Included in property, plant and equipment at December 31, 2017 and 2016, are fully depreciated assets with an original cost of
$189.9 million and $166.7 million, respectively. These fully depreciated assets are still in use in the Company’s operations.
The Company capitalizes certain development costs associated with internal use software, including external direct costs of
materials and services and payroll costs for employees devoting time to a software project. As of December 31, 2017 and 2016,
depreciable capitalized software development costs were $20.5 million and $4.6 million, respectively, and included in capital
projects in progress at December 31, 2017 and 2016, were software in development costs of $12.2 million and $13.5 million,
respectively. The approximate $29.0 million increase in buildings and site improvements was primarily related to $21.2 million
improvement costs associated with the manufacturing facility in West Chicago and the expansion of the McKinney facility.
86
Depreciation expense, including depreciation of equipment and software acquired through capital lease arrangements, was $27.3
million, $21.6 million and $20.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.
6. Equity Investments
In December 2016, the Company acquired a 25.0% equity interest in Ruby Sketch Pty Ltd. (“Ruby Sketch”), an Australian
proprietary limited company, for $2.5 million. The Company has accounted for its ownership interest using the equity accounting
method and recognized Ruby Sketch investment as an asset at cost. The investment will fluctuate in future periods based on the
Company’s allocable share of earnings or losses from the investment which is recognized through earnings.
Ruby Sketch develops software that assists in designing residential structures, primarily used in Australia and potentially for the
North America market. The Company’s future relationship with Ruby Sketch also could potentially include the specification of
the Company’s products in Ruby Sketch's software. The Company has no obligation to make any additional capital contributions
to Ruby Sketch.
7. Accrued Liabilities
Accrued liabilities consisted of the following:
(in thousands)
Sales incentive and advertising accruals
Vacation liability
Dividend payable
Labor related liabilities
Sales taxes payable and other
8. Debt
December 31,
2017
2016
$
$
31,143
8,993
9,954
16,970
17,144
84,204
$
$
25,761
7,432
8,535
8,431
10,318
60,477
The Company has revolving lines of credit with various banks in the United States and Europe. Total available credit at December 31,
2017 was $304.2 million including revolving credit lines and an irrevocable standby letter of credit in support of various insurance
deductibles.
The Company’s primary credit facility is a revolving line of credit with $300.0 million in available credit, which expires on July 23,
2021. Amounts borrowed under this credit facility will bear interest at an annual rate equal to either, at the Company’s option,
(a) the rate for Eurocurrency deposits for the corresponding deposits of United States dollars appearing on Reuters LIBOR1screen
page (the “LIBOR Rate”), adjusted for any reserve requirement in effect, plus a spread of 0.60% to 1.45%, determined quarterly
based on the Company’s leverage ratio (at December 31, 2017, the LIBOR Rate was 1.49%, or (b) a base rate, plus a spread of
0.00% to 0.45%, determined quarterly based on the Company’s leverage ratio. The base rate is defined in a manner such that it
will not be less than the LIBOR Rate. The Company will pay fees for standby letters of credit at an annual rate equal to the
applicable spread described above, and will pay market-based fees for commercial letters of credit. The Company is required to
pay an annual facility fee of 0.15% to 0.30% of the available commitments under the credit agreement, regardless of usage, with
the applicable fee determined on a quarterly basis based on the Company’s leverage ratio.
In addition to the $300.0 million credit facility, the Company’s borrowing capacity under other revolving credit lines totaled $4.0
million at December 31, 2017. The other revolving credit lines charge interest ranging from 0.47% to 8.50% and have maturity
dates from March 2017 to December 2018. The Company had no outstanding balance on any of its revolving credit lines at
December 31, 2017 and 2016, respectively.
The Company and its subsidiaries are required to comply with various affirmative and negative covenants. The covenants include
provisions that would limit the availability of funds as a result of a material adverse change to the Company’s financial position
or results of operations. The Company was in compliance with its financial covenants under the loan agreement as of December 31,
2017.
87
The Company incurs interest costs, which include interest, maintenance fees and bank charges. The amount of costs incurred,
capitalized, and expensed for the years ended December 31, 2017, 2016 and 2015, consisted of the following:
Interest costs incurred
Less: Interest capitalized
Interest expense
Capital Lease Obligations
Years Ended December 31,
2017
2016
2015
$
$
1,249
(72)
1,177
$
$
1,167
(20)
1,147
$
$
1,133
(136)
997
The Company entered into two four-year lease agreements for certain office equipment with Cisco Systems Capital Corporation
for a total of approximately $4.4 million, which was recorded in fixed assets as capital lease obligations. These capital lease
obligations are included in current liabilities and other long-term liabilities in the accompanying condensed consolidated balance
sheets. The interest rates for these two capital leases are 2.89% and 3.50%, respectively, and the two leases will mature in May
2021 and July 2021, respectively.
As of December 31, 2017, the current portion of the outstanding liability for the leased equipment was approximately $1.1 million
and the long-term portion was approximately $2.6 million.
9. Commitments and Contingencies
Leases
Certain properties occupied by the Company are leased. The leases expire at various dates through 2026 and generally require the
Company to assume the obligations for insurance, property taxes and maintenance of the facilities.
Rental expense for 2017, 2016 and 2015 with respect to all leased property was approximately $6.4 million, $5.9 million and $6.6
million, respectively.
At December 31, 2017, minimum rental commitments under all non-cancelable leases were as follows:
(in thousands)
2018
2019
2020
2021
2022
Thereafter
Total
$
$
6,923
5,787
4,472
3,376
2,270
2,339
25,167
Some of these minimum rental commitments contain renewal options and provide for periodic rental adjustments based on changes
in the consumer price index or current market rental rates. Other rental commitments provide options to cancel early without
penalty. Future minimum rental payments, under the earliest cancellation options, are included in minimum rental commitments
in the table above.
Other Contractual Obligations
Purchase obligations consist of commitments primarily related to the acquisition, construction or expansion of facilities and
equipment, consulting agreements, and minimum purchase quantities of certain raw materials. The Company is not a party to any
long-term supply contracts with respect to the purchase of raw materials or finished goods. Debt interest obligations include annual
facility fees on the Company’s primary line-of-credit facility. Interest on line-of-credit facilities was estimated based on historical
borrowings and repayment patterns.
88
At December 31, 2017, other contractual obligations were as follows:
(in thousands)
As of December 31, 2017
2018
2019
2020
2021
2022
Thereafter
Total
Employee Relations
Debt Interest
Obligations
$
$
450
450
450
250
—
—
1,600
$
Capital
Lease
Obligations
$
Purchase
Obligations
42,833
679
679
679
582
—
45,452
1,055 $
1,089
1,125
480
—
—
3,749 $
Total
44,338
2,218
2,254
1,409
582
—
50,801
$
$
As of December 31, 2017, approximately 13% of the Company’s employees are represented by labor unions and are covered by
collective bargaining agreements. We have two locations with collective bargaining agreements covering tool and die craftsmen,
maintenance workers, and sheet-metal workers. The two union contracts in Stockton, California will expire in July and September
2019, respectively. Moreover, the two contracts in San Bernardino County will expire in June 2018 and February 2021, respectively.
We have not begun negotiations to extend the sheetmetal workers union labor contract that will expire in June 2018. Based on
current information and subject to future events and circumstances, we believe that, even if new agreements are not reached before
the existing labor union contracts expire, it is not expected to have a material adverse effect on the Company's ability to provide
products to customers or on the Company's profitability.
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 enbrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations,
misuse, design and assembly flaws, manufacturing defects, labeling defects, product formula defects, inaccurate chemical mixes,
adulteration, environmental conditions, or other factors can contribute to failure of fasteners, connectors, anchors, adhesives,
specialty chemicals, such as fiber reinforced polymers, and tool products. In addition, inaccuracies may occur in product
information, descriptions and instructions found in catalogs, packaging, data sheets, and the Company’s website.
The resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s
financial condition, cash flows or results of operations.
Gentry Homes, Ltd. v. Simpson Strong-Tie Company Inc., et al., Case No. 17-cv-00566, was filed in a federal district court in
Hawaii against Simpson Strong-Tie Company Inc. and the Company on November 20, 2017. The Gentry case is a product of a
previous state court class action, Nishimura v. Gentry Homes, Ltd., et al., Civil No. 11-1-1522-07, which is now closed. The
Nishimura case concerned alleged corrosion of the Company’s galvanized “hurricane straps” and mudsill anchor products used
in a residential project in Ewa by Gentry, Honolulu, Hawaii. In the Nishimura case, the plaintiff homeowners and the developer,
Gentry Homes, Ltd. (“Gentry”), arbitrated their dispute and agreed on a settlement in the amount of approximately $90 million.
In the subsequent Gentry case, Gentry alleges breach of warranty and negligent misrepresentation by the Company related to its
“hurricane strap” and mudsill anchor products, and demands general, special, and consequential damages from the Company in
an amount to be proven at trial. Gentry also seeks pre-judgment and post-judgment interest, attorneys’ fees and costs, and other
relief. The Company admits no liability and will vigorously defend the claims brought against it. At this time, the Company cannot
reasonably ascertain the likelihood that it will be found responsible for substantial damages to Gentry. Based on the facts currently
89
known, and subject to future events and circumstances, the Company believes that all or part of the claims brought against it in
the Gentry case may be covered by its insurance policies.
Charles Vitale, et al. v. D.R. Horton, Inc. and D.R. Horton-Schuler Homes, LLC, Civil No. 15-1-1347-07, a putative class action
lawsuit, was filed in the Hawaii First Circuit on July 13, 2015, in which the plaintiff homeowners allege that all homes built by
D.R Horton/D.R. Horton-Schuler Homes (collectively, “Horton Homes”) in the State of Hawaii have strap-tie holdowns that are
suffering premature corrosion. The complaint alleges that various manufacturers make strap-tie holdowns that suffer from such
corrosion, but does not identify the Company’s products specifically. The Company is not currently a party to the Vitale lawsuit,
but the lawsuit in the future could potentially involve the Company’s strap-tie holdowns. If claims are asserted against the Company
in the Vitale case, it will vigorously defend any such claims, whether brought by the plaintiff homeowners or by Horton Homes.
Based on the facts currently known, and subject to future events and circumstances, the Company believes that all or part of any
claims that any party might bring against it related to the Vitale case may be covered by its insurance policies.
Given the nature and the complexities involved in the Gentry and Vitale proceedings, the Company is unable to estimate reasonably
the likelihood of possible loss or a range of possible loss until the Company knows, among other factors, (i) the specific claims
brought against the Company and the legal theories on which they are based; (ii) what claims, if any, might be dismissed without
trial; (iii) how the discovery process will affect the litigation; (iv) the settlement posture of the other parties to the litigation; (v)
the damages to be proven at trial, particularly if the damages are not specified or are indeterminate; (vi) the extent to which the
Company’s insurance policies will cover the claims or any part thereof, if at all; and (vii) any other factors that may have a material
effect on the proceeding.
10. Income Taxes
On December 22, 2017, the Tax Reform Act was signed, which includes a broad range of tax reform proposals affecting businesses,
including corporate tax rates, business deductions, and international tax provisions. Many of these provisions significantly differ
from current U.S. tax law, resulting in financial reporting implications. Some of the changes include, but are not limited to, a U.S.
corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the option to claim
accelerated depreciation deductions, the transition of U.S. international taxation from a worldwide tax system to a territorial system,
and a one-time transition tax on the mandatory deemed repatriation of foreign earnings as of December 31, 2017.
While the Tax Reform Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion
provisions: the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”)
provisions. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign
corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on
GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. Effective the first quarter
of 2018, the Company will elect to treat any potential GILTI inclusions as a period cost as we are not projecting any material
impact from GILTI inclusions and any deferred taxes related to any inclusion would be immaterial.
The BEAT provisions in the Tax Reform Act eliminate the deduction of certain base-erosion payments made to related foreign
corporations, and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax
and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31,
2017.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued by the SEC to address the application of U.S.
GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance
with SAB 118, the Company has recorded provisional amounts for $2.8 million of deferred tax benefit recorded in connection
with the re-measurement of deferred tax assets and liabilities and $3.8 million of current tax expense recorded in connection with
the transition tax on the mandatory deemed repatriation of foreign earnings. The Company considers these amounts to be reasonable
estimates at December 31, 2017. Additional work is necessary to do a more detailed analysis of historical data as well as potential
correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in 2018 when the
analysis is complete.
The provision for income taxes from operations consisted of the following:
90
(in thousands)
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
Years Ended December 31,
2017
2016
2015
$
$
36,077
6,357
3,068
6,093
544
(338)
51,801
$
$
39,649
7,053
3,333
260
13
(1,142)
49,166
$
$
29,684
5,001
3,568
2,390
753
(605)
40,791
Income and loss from operations before income taxes for the years ended December 31, 2017, 2016, and 2015, respectively,
consisted of the following:
(in thousands)
Domestic
Foreign
Years Ended December 31,
2017
2016
2015
$
$
132,105
12,313
144,418
$
$
131,827
7,073
138,900
$
$
106,381
2,298
108,679
As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company re-
measured its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $2.8 million tax benefit for the
year ended December 31, 2017.
At December 31, 2017, the Company had $32.1 million of pre-tax loss carryforwards in various foreign taxing jurisdictions, of
which $1.1 million will begin to expire between 2019 and 2024. The remaining tax losses can be carried forward indefinitely.
At December 31, 2017, and 2016, the Company had deferred tax valuation allowances of $11.1 million and $6.9 million,
respectively. The valuation allowance increased $4.2 million and decreased $0.7 million for the years ended December 31, 2017
and 2016, respectively. The increase in the valuation allowance in 2017 was primarily due to the Company’s remaining foreign
tax credits carryforward in the U.S. The Company concluded it is more likely than not that these foreign tax credits will expire
unrealized under the Tax Reform Act.
The Company has not historically recorded federal income taxes on the undistributed earnings of its foreign subsidiaries because
such earnings are reinvested and, in the Company’s opinion, will continue to be reinvested indefinitely. The Tax Reform Act
provided for a one-time transition tax on the mandatory deemed repatriation of foreign earnings through the year ended December
31, 2017. The Company has recorded a net $3.8 million tax liability based on undistributed foreign earnings of approximately
$73.3 million, payable over eight years. The Company intends to limit any possible future distributions to earnings previously
taxed in the U.S. As a result, the Company has not recognized a deferred tax liability on its investment in foreign subsidiaries.
Determination of the related amount of unrecognized deferred U.S. income taxes is not practicable because of the complexities
associated with this hypothetical calculation.
91
Reconciliations between the statutory federal income tax rates and the Company’s effective income tax rates as a percentage of
income before income taxes for its operations were as follows:
(in thousands)
Federal tax rate
State taxes, net of federal benefit
Tax benefit of domestic manufacturing deduction
Mandatory deemed repatriation of foreign earnings
Change in U.S. tax rate applied to deferred taxes
Change in valuation allowance
Difference between United States statutory and foreign local tax rates
Change in uncertain tax position
Other
Effective income tax rate
Years Ended December 31,
2017
2016
2015
35.0 %
3.2 %
(2.0)%
2.7 %
(1.9)%
1.3 %
(0.8)%
— %
(1.6)%
35.9 %
35.0 %
3.4 %
(2.5)%
— %
— %
(0.1)%
(0.3)%
(0.2)%
0.1 %
35.4 %
35.0 %
3.3 %
(2.3)%
— %
— %
1.3 %
0.2 %
0.3 %
(0.3)%
37.5 %
The tax effects of the significant temporary differences that constitute the deferred tax assets and liabilities at December 31, 2017
and 2016, respectively, were as follows:
(in thousands)
Deferred asset taxes
State tax
Workers’ compensation
Health claims
Vacation liability
Allowance for doubtful accounts
Inventories
Sales incentive and advertising allowances
Acquisition costs
Unrealized foreign exchange gain or loss
Stock-based compensation
Foreign tax credit carryforwards
Uncertain tax positions’ unrecognized tax benefits
Foreign tax loss carry forward
Other
Less valuation allowances
Deferred tax liabilities
Depreciation
Goodwill and other intangibles amortization
Tax effect on cumulative translation adjustment
Other
Total Deferred tax
92
December 31,
2017
2016
$
$
1,390
822
487
1,008
104
5,385
709
—
291
2,967
4,453
31
6,892
1,291
25,830
(11,114)
14,716
(7,050) $
(11,331)
(487)
—
(18,868)
2,518
1,381
755
1,485
123
6,833
1,126
528
678
5,550
1,288
104
6,841
1,259
30,469
(6,868)
23,601
(6,138)
(14,126)
(667)
(744)
(21,675)
(4,152) $
1,926
$
$
$
$
A reconciliation of the beginning and ending amounts of unrecognized tax benefits in 2017, 2016 and 2015, respectively, was as
follows, including foreign translation amounts:
Reconciliation of Unrecognized Tax Benefits
Balance at January 1
Additions based on tax positions related to prior years
Reductions based on tax positions related to prior years
Additions for tax positions of the current year
Lapse of statute of limitations
Balance at December 31
2017
2016
2015
1,119
660
(1)
319
(202)
1,895
$
$
1,107
204
—
155
(347)
1,119
$
$
1,307
310
(514)
191
(187)
1,107
$
$
Tax positions of $0, $0, and $0.2 million are included in the balance of unrecognized tax benefits at December 31, 2017, 2016,
and 2015, respectively, which if recognized, would reduce the effective tax rate.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense, which is a
continuation of the Company’s historical accounting policy. During the year ended December 31, 2017, accrued interest increased
by $0.2 million and during the years ended 2016 and 2015, accrued interest decreased by $61 thousand and $30 thousand,
respectively. The Company had accrued $0.4 million for each of the fiscal year ended 2017, and $0.2 million for the years ended
2016 and 2015, for the potential payment of interest, before income tax benefits.
At December 31, 2017, the Company remained subject to United States federal income tax examinations for the tax years 2014
through 2017. In addition, the Company remained subject to state, local and foreign income tax examinations primarily for the
tax years 2012 through 2017.
11. Retirement Plans
The Company has six defined contribution retirement plans covering substantially all salaried employees and nonunion hourly
employees. On January 1, 2015, the Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan for Salaried Employees was
amended, restated and superseded by the Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan (the “Restated Plan”), and
the Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan for Hourly Employees was merged with and incorporated into
the Restated Plan. The Restated Plan, covering United States employees, provides for quarterly safe harbor contributions, limited
to 3% of the employees quarterly eligible compensation and for annual discretionary contributions, subject to certain limitations,
but in no event are total contributions more than the amounts permitted under the Internal Revenue Code as deductible expense.
The discretionary amounts for 2016 and 2017 were equal to 7% of qualifying salaries or wages of the covered employees. The
other four plans, covering the Company’s European and Canadian employees, require the Company to make contributions ranging
from 3% to 15% of the employees’ compensation. The total cost for these retirement plans for the years ended December 31, 2017,
2016 and 2015, was $14.2 million, $10.1 million and $9.5 million, respectively.
We participate in various multiemployer benefit plans that cover some of our employees who are represented by labor unions. We
make periodic contributions to these plans in accordance with the terms of applicable collective bargaining agreements and laws
but do not sponsor or administer these plans. We do not participate in any multiemployer benefit plans for which we consider our
contributions to be individually significant. If we were to otherwise withdraw from participation in any of these plans, applicable
law would require us to fund our allocable share of the unfunded vested benefits, which is known as a withdrawal liability. As of
December 31, 2017, we believe that there was no probable withdrawal liability under the multiemployer benefit pension plans
under the terms of collective-bargaining agreements that cover its union-represented employees.
Our total contribution to various industry-wide, union-sponsored pension funds and a statutorily required pension fund for
employees in the U.S. and Europe were $4.0 million, $3.1 million and $2.5 million for the years ended December 31, 2017, 2016
and 2015, respectively.
12. Related Party Transactions
During 2017, the Company identified certain purchases of goods and services from companies where the Chief Executive Officer
or a member of the Company’s own board of directors serve as directors on the respective company providing the goods or services.
93
The Company also identified purchases of services from a company affiliated with an immediate family member of another of
the Company’s own board of directors. The amount of goods and services purchased by the Company pursuant to these
arrangements was not material to the Company’s consolidated statement of income and cash flows for the year ended December
31, 2017.
13. Acquisitions and Dispositions
Under the business combinations topic of the FASB ASC 805, the Company accounts for acquisitions as business combinations
and ascribes acquisition-date fair values to the acquired assets and assumed liabilities. Provisional fair value measurements are
made at the time of the acquisitions. Adjustments to those measurements may be made in subsequent periods, up to one year from
the acquisition date, as information necessary to complete the analysis is obtained. Fair value of intangible assets are generally
based on Level 3 inputs.
CG Visions, Inc.
In January 2017, the Company acquired CG Visions, Inc. ("CG Visions"), an Indiana corporation for $20.8 million. CG Visions
provides scalable technologies and services in building information modeling ("BIM") technologies, estimation tools and software
solutions to a number of the top 100 mid-sized to large builders in the United States, which are expected to complement and
support the Company's sales in North America. During the third quarter of 2017, the Company finalized its fair value measurement
of assets acquired and liabilities assumed in this acquisition. CG Visions assets and liabilities included other current assets of $0.5
million, noncurrent assets of $20.4 million, current liabilities and contingent consideration of $1.1 million. Included in noncurrent
assets was goodwill of $10.1 million, which was assigned to the North America segment, and intangible assets of $10.3 million,
both of which are not subject to tax-deductible amortization. The estimated weighted-average amortization period for the intangible
assets is 7 years.
Gbo Fastening Systems AB
In January 2017, the Company acquired Gbo Fastening Systems AB ("Gbo Fastening Systems"), a Sweden limited company, for
$10.2 million. Gbo Fastening Systems manufactures and sells a complete line of CE-marked structural fasteners as well as fastener
dimensioning software for wood construction applications, currently sold mostly in northern and eastern Europe, which are expected
to complement the Company's line of wood construction products in Europe. The Gbo Fastening Systems acquisition result in a
$6.3 million gain on bargain purchase of a business, which was included in the condensed consolidated statements of operation.
Without speculating regarding the sellers' motivation, the Company does not know why Gbo Fastening Systems was sold below
fair value, resulting in a nonrecurring bargain purchase gain for the Company.
94
The following table represents the final allocation of the purchase price to the estimated fair value of the assets acquired and
liabilities assumed in the Gbo Fastening Systems acquisition:
(In thousands)
Assets*
Cash and cash equivalents
Accounts receivable
Inventory
Other current assets
Noncurrent assets
Liabilities
Accounts payable
Other current liabilities and long-term liabilities
Total net assets
Gain on bargain purchase of a business, net of tax
Total purchase price
* Intangible assets acquired were determined to have little to no value, thus were not recognized
Multi Services Dêcoupe S.A.
$
3,956
4,914
13,591
760
3,929
27,150
4,500
6,146
10,646
16,504
(6,336)
10,168
In August 2016, the Company purchased all of the outstanding shares of Multi Services Dêcoupe S.A. ("MS Decoupe"), a Belgium
public limited company, for $6.9 million. MS Decoupe primarily manufactures and distributes wood construction, plastic, and
metal labeling products in Belgium and the Netherlands, including distributing the Company's products manufactured at the
Company's production facility in France. With this acquisition, the Company could potentially offer the Belgium market a wider-
range of its products, shorten delivery lead times, and expand the Company's sales presence into the Netherlands market. During
the third quarter of 2017, the Company finalized its fair value measurement of assets acquired and liabilities assumed in this
acquisition. MS Decoupe assets and liabilities included cash and cash equivalents of $1.4 million, other current assets of $1.6
million, noncurrent assets of $5.0 million, current liabilities of $0.6 million and noncurrent deferred income tax liabilities of $1.0
million. Included in noncurrent assets was goodwill of $1.4 million, which was assigned to the Europe segment, and intangible
assets of $1.7 million, both of which are not subject to tax-deductible amortization. The estimated weighted-average amortization
period for the intangible assets is 10 years.
Blue Heron Enterprises, LLC and Fox Chase Enterprises, LLC.
In December 2015, the Company purchased all of the business assets including intellectual property from Blue Heron Enterprises,
LLC, and Fox Chase Enterprises, LLC (collectively, "EBTY"), both New Jersey limited liability companies, for $3.4 million in
cash. EBTY manufactured and sold hidden deck clips using a patented design. EBTY's patented design complements the Company's
line of hidden clips and fastener systems. The Company's measurement of assets acquired included goodwill of $2.0 million, which
was assigned to the North America segment, and intangible assets of $1.1 million, both of which are subject to tax-deductible
amortization. Net assets consisting of inventory and equipment accounted for the balance of the purchase price. The weighted-
average amortization period for the intangible assets is 7 years.
The results of operations of the businesses acquired in 2015 through 2017 have been in the Company’s consolidated results of
operations since the date of the acquisition. They were not material to the Company on an individual or aggregate basis, and
accordingly, pro forma results of such operations have not been presented.
Sales of Gbo Poland and Gbo Romania
As a result of incompatibility with Simpson's market strategy, the Company completed the sale of all of its equity in Gbo Fastening
Systems' Poland and Gbo Romania subsidiaries on September 29, 2017 and October 31, 2017, respectively, for approximately
$10.2 million, resulting in a loss of $0.2 million which was presented in the accompanying condensed statements of operations.
95
14. Segment Information
The Company is organized into three reporting segments. The segments are defined by the regions where the Company’s products
are manufactured, marketed and distributed to the Company’s customers. The three regional segments are the North America
segment (comprising primarily the Company's operations in the United States and Canada), the Europe segment and the Asia/
Pacific segment (comprising the Company’s operations in Asia, the South Pacific, South Africa 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 Administrative & All Other column primarily includes expenses such as self-insured workers compensation claims for
employees of the Company’s venting business, which was sold in 2010, stock-based compensation for certain members of
management, interest expense, foreign exchange gains or losses and income tax expense, as well as revenues and expenses related
to real estate activities, such as rental income and depreciation expense on the Company’s property in Vacaville, California, which
the Company has leased to a third party for a 10-year term expiring in August 2020.
The following table shows certain measurements used by management to assess the performance of the segments described above
as of December 31, 2017, 2016 and 2015, respectively:
(in thousands)
2017
Net sales
Sales to other segments *
Income from operations
Depreciation and amortization
Gain on bargain purchase of a business
Significant non-cash charges
Provision for income taxes
Capital expenditures and business acquisitions, net of
cash acquired
Total assets
North
America
Europe
Asia/
Pacific
Administrative
& All Other
Total
$
803,697
$
165,155
$
8,173
$
— $ 977,025
3,237
132,890
25,745
—
9,861
47,434
70,040
953,033
959
4,421
5,832
6,336
1,509
2,124
11,411
208,640
20,715
1,179
1,246
—
65
419
4,511
26,820
—
677
901
—
2,473
1,824
24,911
139,167
33,724
6,336
13,908
51,801
—
(150,970)
85,962
1,037,523
(in thousands)
2016
Net sales
Sales to other segments *
Income (loss) from operations
Depreciation and amortization
Significant non-cash charges
Provision for income taxes
Capital expenditures and business acquisitions, net of
cash acquired
Total assets
$
North
America
742,021
2,512
137,311
19,433
9,124
45,547
37,652
853,826
$
$
Europe
111,274
570
895
5,809
1,052
1,428
8,461
165,121
Asia/
Pacific
Administrative
& All Other
$
7,366
28,690
2,140
1,208
113
721
1,250
25,118
— $
—
(869)
1,477
3,657
1,470
—
(64,091)
Total
860,661
31,772
139,477
27,927
13,946
49,166
47,363
979,974
96
(in thousands)
2015
Net sales
Sales to other segments *
Income (loss) from operations
Depreciation and amortization
Significant non-cash charges
Provision for (benefit from) income taxes
Capital expenditures and business acquisitions, net of
cash acquired
Total assets
$
$
North
America
676,618
2,857
109,446
17,812
8,221
36,999
33,336
748,241
$
Europe
108,068
931
3,795
5,773
1,251
1,692
4,177
168,305
Asia/
Pacific
Administrative
& All Other
$
9,373
20,496
(3,445)
1,785
131
581
825
24,366
— $
—
(775)
1,451
2,355
1,519
27
20,397
Total
794,059
24,284
109,021
26,821
11,958
40,791
38,365
961,309
* Sales to other segments are eliminated on consolidation.
Cash collected by the Company’s United States subsidiaries is routinely transferred into the Company’s cash management accounts,
and therefore has been included in the total assets of “Administrative & All Other.” Cash and short-term investment balances in
“Administrative & All Other” were $80.2 million, $137.4 million and $164.1 million as of December 31, 2017, 2016 and 2015,
respectively. As of December 31, 2017, the Company had $86.5 million, or 51.3%, of its cash and cash equivalents held outside
the United States in accounts belonging to the Company’s various foreign operating entities. The majority of this balance is held
in foreign currencies and could be subject to additional taxation if it were repatriated to the United States.
The significant non-cash charges comprise compensation related to the awards under the Company's stock-based incentive plans
and the Company's employee stock bonus plan. The Company’s measure of profit or loss for its reportable segments is income
(loss) from operations. The reconciling amounts between consolidated income before tax and consolidated income from operations
are net interest income (expense), loss in equity method investment, gain on bargain purchase of a business, and loss on disposal
of a business. Interest income (expense) is primarily attributed to “Administrative & All Other.”
The following table shows the geographic distribution of the Company’s net sales and long-lived assets as of December 31, 2017,
2016 and 2015, respectively:
(in thousands)
United States
Canada
United Kingdom
Germany
France
Poland
Sweden
Denmark
Norway
Switzerland
Australia
Belgium
The Netherlands
New Zealand
Chile
Other countries
2017
2016
2015
Net
Sales
Long-Lived
Assets
Net
Sales
Long-Lived
Assets
Net
Sales
Long-Lived
Assets
$
758,181
$
223,184
$
702,071
$
192,787
$
639,443
$
171,367
43,176
23,157
21,821
36,677
20,409
16,421
14,723
12,902
5,593
5,501
5,050
4,834
2,604
2,314
3,662
4,650
1,459
14,153
9,152
2,471
1,068
1,601
229
8,748
268
2,065
110
130
61
12,710
38,269
20,905
20,751
33,062
6,633
—
15,728
—
6,549
4,741
1,286
4,909
2,474
1,572
1,711
4,473
1,183
12,582
8,349
1,830
—
1,249
—
8,469
239
1,798
21
163
56
7,471
36,122
22,924
19,974
31,147
6,417
—
14,987
—
5,538
3,121
—
4,773
2,154
902
6,557
4,275
1,357
13,358
8,621
893
—
1,381
—
9,071
274
—
15
142
91
8,241
$
977,025
$
282,059
$
860,661
$
240,670
$
794,059
$
219,086
97
Net sales and long-lived assets, net of intangible assets, are attributable to the country where the sales or manufacturing operations
are located.
The Company's 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.
Its concrete construction products include adhesives, specialty chemicals, mechanical anchors, carbide drill bits, powder actuated
tools and reinforcing fiber materials and are used for restoration, protection or strengthening concrete, masonry and steel
construction in residential, industrial, commercial and infrastructure construction. The following table show the distribution of
the Company’s net sales by product for the years ended December 31, 2017, 2016 and 2015, respectively:
(in thousands)
Wood Construction
Concrete Construction
Other
Total
2017
2016
2015
$
$
833,200
143,102
723
977,025
$
$
732,414
128,247
—
860,661
$
$
674,274
119,481
304
794,059
No customer accounted for as much as 10% of net sales for the years ended December 31, 2017, 2016 and 2015.
15. Subsequent Events
Dividend Declaration
On January 29, 2018, the Board declared a cash dividend of $0.21 per share of our common stock, estimated to be $9.8 million
in total. The record date for the dividend will be April 5, 2018, and it will be paid on April 26, 2018.
Share Repurchase
In February 2018, the Company received 182,171 shares of its common stock pursuant to the $50.0 million accelerated share
repurchase program that it entered into with Wells Fargo in December 2017, which constituted the final delivery thereunder.
98
16. Selected Quarterly Financial Data (Unaudited)
The following table sets forth selected quarterly financial data for each of the quarters in 2017 and 2016, respectively:
(in thousands, except per share amounts)
2017
2016
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Net sales
Cost of sales
Gross profit
$231,681
128,983
102,698
$262,476
142,591
119,885
$263,002
139,477
123,525
$219,866
119,710
100,156
$200,192
105,226
94,966
$230,974
117,499
113,475
$229,973
118,486
111,487
$199,523
107,000
92,523
Research and development and
other engineering
Selling
General and administrative
Gain (loss) on sale of assets
12,565
28,753
36,688
(13)
8,679
28,156
36,501
(147)
13,264
28,511
36,563
50
13,108
29,483
34,986
(50)
12,441
24,030
32,376
(17)
10,932
24,304
32,543
(81)
11,452
24,822
34,945
(656)
11,423
25,187
29,298
(26)
Income from operations
24,705
46,696
45,137
22,629
26,136
45,777
40,924
26,641
Loss in equity method
investment, before tax
Interest (expense) income, net
Gain (adjustment) on bargain
purchase of a business
Gain (loss) on disposal of a
business
Provision for
income taxes
Net income
Earnings per share of common
stock:
Basic
Diluted
Cash dividends declared per
share of common stock
(33)
(104)
(13)
(296)
(12)
(199)
—
(2,052)
(654)
443
—
—
(28)
(189)
8,388
—
—
(177)
—
—
—
(82)
—
—
—
(83)
—
—
—
(235)
—
—
10,829
$ 13,085
16,581
$ 28,197
16,712
$ 28,214
7,679
$ 23,121
8,565
$ 17,394
15,898
$ 29,797
14,640
$ 26,201
10,063
$ 16,343
$
$
$
0.28
0.27
$
0.60
0.59
$
0.59
0.59
0
0.49
0.48
$
$
0.37
0.36
$
0.62
0.62
$
0.54
0.54
0.34
0.34
— $
0.42
$
0.21
$
0.18
$
0.18
$
0.18
$
0.18
$
0.16
Basic earnings per share of common stock (“EPS”) for each of the quarters presented above is computed based on the weighted
average number of shares of common stock outstanding during the quarter. Diluted EPS is computed based on the weighted
average number of shares of common stock plus the effect of dilutive potential shares of common stock outstanding during the
quarter using the treasury stock method. Dilutive potential shares of common stock include outstanding stock options and stock
awards. The sum of the quarterly basic and diluted EPS amounts may not necessarily be equal to the full-year basic and diluted
EPS amounts.
99
SCHEDULE II
Simpson Manufacturing Co., Inc. and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 2017, 2016 and 2015
Column D
Column E
Column B
Balance at
Beginning
of Year
Column C
Additions
Charged
to Costs
Charged
to Other
and
Accounts —
Expenses
Write-offs
Deductions
Balance
at End
of Year
$
$
895
3,050
6,868
1,142
2,706
7,575
929
2,089
6,754
66
(94)
5,765
(83)
344
358
440
617
1,577
$
(35) $
—
1,519
996
2,956
11,114
164
—
1,065
227
—
756
895
3,050
6,868
1,142
2,706
7,575
—
—
—
—
—
—
—
Column A
(in thousands)
Classification
Year to date December 31, 2017
Allowance for doubtful accounts
Allowance for sales discounts
Allowance for deferred tax assets
Year to date December 31, 2016
Allowance for doubtful accounts
Allowance for sales discounts
Allowance for deferred tax assets
Year to date December 31, 2015
Allowance for doubtful accounts
Allowance for sales discounts
Allowance for deferred tax assets
100
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures. As of December 31, 2017, 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. 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, such as this Annual
Report on Form 10-K, 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. Based on this evaluation, as of December 31, 2017, the Company's CEO
and CFO have concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting. The Company’s management is responsible for establishing
and maintaining adequate internal control over financial reporting. The Company’s management assessed the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2017, using the criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and
concluded that the Company's internal control over financial reporting was effective as of December 31, 2017.
The Company’s management does not include Gbo Fastening Systems and CG Visions, wholly owned subsidiaries, in its assessment
of internal control over financial reporting as of December 31, 2017, because they were acquired by the Company in purchase
business combinations during 2017. The total assets of these acquisitions are 2.5% and 1.9%, respectively, and total revenues are
4.3% and 0.6%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31,
2017
Grant Thornton LLP, an independent registered public accounting firm that audited the Company’s Consolidated Financial
Statements, has also audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017,
as stated in their report included in the Company's Consolidated Financial Statements.
Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting
identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three months
ended December 31, 2017, that materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting. 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 necessarily 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.
Item 9B. Other Information.
None.
101
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item will be contained in the Company’s proxy statement for the 2018 Annual Meeting to be
held on Monday, April 24, 2018, to be filed with the SEC not later than 120 days following the end of the Company’s fiscal year
ended December 31, 2017, which information is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be contained in the Company’s proxy statement for the 2018 Annual Meeting to be
held on Monday, April 24, 2018, to be filed with the SEC not later than 120 days following the end of the Company’s fiscal year
ended December 31, 2017, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be contained in the Company’s proxy statement for the 2018 Annual Meeting to be
held on Monday, April 24, 2018, to be filed with the SEC not later than 120 days following the end of the Company’s fiscal year
ended December 31, 2017, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be contained in the Company’s proxy statement for the 2018 Annual Meeting to be
held on Monday, April 24, 2018, to be filed with the SEC not later than 120 days following the end of the Company’s fiscal year
ended December 31, 2017, which information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item will be contained in the Company’s proxy statement for the 2018 Annual Meeting to be
held on Monday, April 24, 2018, to be filed with the SEC not later than 120 days following the end of the Company’s fiscal year
ended December 31, 2017, which information is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules.
PART IV
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Consolidated financial statements
The following consolidated financial statements are filed as a part of this report:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and
2015
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
102
The following consolidated financial statement schedule for each of the years in the three-year period ended
December 31, 2017, is filed as part of this Annual Report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts-Years ended December 31, 2017, 2016 and 2015
All other schedules have been omitted as the required information is not present or is not present in
amounts sufficient to require submission of the schedule, or because the information required is included
in the consolidated financial statements and related notes thereto.
(b) Exhibits
The following exhibits are either incorporated by reference into, or filed or furnished with, this Annual Report on Form 10-K, as
indicated below.
3.1 Certificate of Incorporation of Simpson Manufacturing Co., Inc. is incorporated by reference to Exhibit 3.1 of its
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
3.2 Certificate of Amendment of Certificate of Incorporation of Simpson Manufacturing Co., Inc. is incorporated by
reference to Exhibit 3.1 of its Current Report on Form 8-K dated March 28, 2017.
3.3 Amended and Restated Bylaws of Simpson Manufacturing Co., Inc., as amended, are incorporated by reference
to Exhibit 3.2 of its Current Report on Form 8-K dated March 28, 2017.
4.1 Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock of Simpson
Manufacturing Co., Inc., dated July 30, 1999, is incorporated by reference to Exhibit 4.2 of its Registration
Statement on Form 8-A dated August 4, 1999.
10.1 Form of Indemnification Agreement between Simpson Manufacturing Co., Inc. and its directors and executive
officers, as well as the officers of Simpson Strong-Tie Company Inc., is incorporated by reference to Exhibit 10.2
of Simpson Manufacturing Co., Inc.’s Annual Report on Form 10-K for the year ended December 31, 2004.
10.2 Credit Agreement, dated as of July 27, 2012 (the “2012 Credit Agreement”), among Simpson Manufacturing Co.,
Inc., as Borrower, Wells Fargo Bank, National Association (“Wells Fargo”), MUFG Union Bank, N.A. (f/k/a Union
Bank, N.A.), HSBC Bank USA, N.A., and Bank of Montreal, as Lenders, Wells Fargo in its separate capacities
as Swing Line Lender and L/C issuer and as Administrative Agent, and Simpson Strong-Tie Company Inc., and
Simpson Strong-Tie International, Inc. as Guarantors, is incorporated by reference to Exhibit 10.1 of Simpson
Manufacturing Co., Inc.’s Current Report on Form 8-K dated August 1, 2012.
10.3 Second Amendment to the 2012 Credit Agreement, dated as of July 25, 2016, among the Company, as Borrower,
Wells Fargo Bank, National Association (“Wells Fargo”), MUFG Union Bank, N.A. (f/k/a Union Bank, N.A.),
HSBC Bank USA, N.A., and Bank of Montreal, as Lenders, Wells Fargo in its separate capacities as Swing Line
Lender and L/C issuer and as Administrative Agent, and Simpson Strong-Tie Company Inc., and Simpson Strong-
Tie International, Inc. as Guarantors, which Second Amendment incorporates and supersedes the First Amendment
to the Credit Agreement dated December 8, 2015, is incorporated by reference to Exhibit 10.1 of Simpson
Manufacturing Co., Inc.’s Current Report on Form 8-K dated July 25, 2016.
10.4 Simpson Manufacturing Co., Inc. Executive Officer Cash Profit Sharing Plan, as amended through March 17,
2017, is filed herewith.
10.5 Simpson Manufacturing Co., Inc. 1994 Stock Option Plan, as amended through February 13, 2008, is incorporated
by reference to Exhibit 10.1 of Simpson Manufacturing Co., Inc.’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2008.
10.6 Simpson Manufacturing Co., Inc. 1995 Independent Director Stock Option Plan, as amended through
November 18, 2004, is incorporated by reference to Exhibit 10.2 of Simpson Manufacturing Co., Inc.’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2008.
103
10.7 Simpson Manufacturing Co., Inc. Amended and Restated 2011 Incentive Plan is incorporated by reference to
Exhibit A of Simpson Manufacturing Co., Inc.’s Schedule 14A Proxy Statement dated March 9, 2015.
10.8 Simpson Manufacturing Co., Inc. 401(k) Profit Sharing Plan is incorporated by reference to Exhibit 4.5 of Simpson
Manufacturing Co., Inc.’s Registration Statement on Form S-8, File Number 333-173811, dated December 15,
2015.
10.9 Compensation of Named Executive Officers and Directors is incorporated by reference to Item 5.02 of Simpson
Manufacturing Co., Inc.’s Current Report on Form 8-K dated February 15, 2018, Item 5.02 of Simpson
Manufacturing Co., Inc.’s Current Report on Form 8-K dated February 4, 2017, Item 5.02 of Simpson
Manufacturing Co., Inc.’s Current Report on Form 8-K dated December 6, 2016 and Item 5.02 of Simpson
Manufacturing Co., Inc.’s Current Report on Form 8-K/A filed on October 26, 2016.
10.10 Form of Simpson Manufacturing Co., Inc. 2017 Performance Based Restricted Stock Unit Agreement is filed
herewith.
10.11 Form of Simpson Manufacturing Co., Inc. 2017 Time Based Restricted Stock Unit Agreement is filed herewith.
10.12 Form of Simpson Manufacturing Co., Inc. 2017 Director Time Based Restricted Stock Unit Agreement is filed
herewith.
10.13 Form of Simpson Manufacturing Co., Inc. 2018 Performance Based Restricted Stock Unit Agreement is filed
herewith.
10.14 Form of Simpson Manufacturing Co., Inc. 2018 Time Based Restricted Stock Unit Agreement is filed herewith.
10.15 Form of Simpson Manufacturing Co., Inc. 2018 Director Time Based Restricted Stock Unit Agreement is filed
herewith.
21. List of Subsidiaries of the Registrant is filed herewith.
23
Consent of Grant Thornton LLP is filed herewith.
31.1 Chief Executive Officer’s Rule 13a-14(a)/15d-14(a) Certification is filed herewith.
31.2 Chief Financial Officer’s Rule 13a-14(a)/15d-14(a) Certification is filed herewith.
32.
Section 1350 Certifications are furnished herewith.
99.1 Simpson Manufacturing Co., Inc. 1994 Employee Stock Bonus Plan, as amended through December 7, 2015, is
incorporated by reference to Exhibit A of Simpson Manufacturing Co., Inc.’s Schedule 14A Proxy Statement dated
March 10, 2016.Simpson Manufacturing Co., Inc. 1994 Employee Stock Bonus Plan, as amended through
December 7, 2015, is incorporated by reference to Exhibit A of Simpson Manufacturing Co., Inc.’s Schedule 14A
Proxy Statement dated March 10, 2016.
99.2 Form of Simpson Manufacturing Co., Inc. 2017 Performance & Time Based Restricted Stock Unit Agreement is
filed herewith.
99.3 Form of Simpson Manufacturing Co., Inc. 2018 Company OP Performance & Time Based Restricted Stock Unit
Agreement is filed herewith.
99.4 Form of Simpson Manufacturing Co., Inc. 2018 Branch OP Performance & Time Based Restricted Stock Unit
Agreement is filed herewith.
101 Financial statements from the annual report on Form 10-K of Simpson Manufacturing Co., Inc. for the year ended
December 31, 2017, formatted in XBRL, are filed herewith and include: (i) the Consolidated Balance Sheets,
(ii) the Consolidated Statements of Operations, (iii) the Statement of Comprehensive Income, (iv) the Consolidated
Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to
Consolidated Financial Statements.
104
Item 16. Form 10-K Summary.
None.
105
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Dated:
February 28, 2018
Simpson Manufacturing Co., Inc.
(Registrant)
By
/s/Brian J. Magstadt
Brian J. Magstadt
Chief Financial Officer
and Duly Authorized Officer
of the Registrant
(principal accounting and financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated below.
Signature
Title
Date
Chief Executive Officer:
/s/Karen Colonias
(Karen Colonias)
Chief Financial Officer:
President, Chief Executive
Officer and Director
(principal executive officer)
February 28, 2018
/s/Brian J. Magstadt
(Brian J. Magstadt)
Chief Financial Officer,
Treasurer and Secretary
February 28, 2018
(principal accounting and financial officer)
Directors:
/s/Peter N. Louras, Jr.
(Peter N. Louras, Jr.)
/s/James S. Andrasick
(James S. Andrasick)
/s/Michael A. Bless
(Michael A. Bless)
Chairman of the Board and Director
February 28, 2018
Director
Director
February 28, 2018
February 28, 2018
/s/Jennifer A. Chatman
Director
February 28, 2018
(Jennifer A. Chatman)
/s/Gary M. Cusumano
(Gary M. Cusumano)
/s/Celeste Volz Ford
(Celeste Volz Ford)
Director
Director
February 28, 2018
February 28, 2018
/s/Robin G. MacGillivray
Director
February 28, 2018
(Robin G. MacGillivray)
106
Simpson Manufacturing Co., Inc. and Subsidiaries
List of Subsidiaries of Simpson Manufacturing Co., Inc.
At February 28, 2018
Exhibit 21
1. Simpson Strong-Tie Company Inc., a California corporation
2. Simpson Strong-Tie International, Inc., a California corporation
3. Simpson Strong-Tie Canada, Limited, a Canadian corporation
4. Simpson Strong-Tie Europe EURL, a French corporation
5. Simpson Strong-Tie, S.A.S., a French corporation
6. Simpson Strong-Tie Australia, Inc., a California corporation
7. Simpson Strong-Tie A/S, a Danish corporation
8. Simpson Strong-Tie GmbH, a German corporation
9. Simpson Strong-Tie Sp. z.o.o., a Polish corporation
10. Simpson France SCI, a French corporation
11. Simpson Strong-Tie Australia Pty Limited, an Australian corporation
12. Simpson Strong-Tie Asia Limited, a Hong Kong company
13. Simpson Strong-Tie Asia Holding Limited, a Hong Kong company
14. Simpson Strong-Tie (Zhangjiagang) Co., Ltd., a Chinese company
15. Simpson Strong-Tie s.r.o., a Czech company
16. Socom S.A.S., a French corporation
17. Simpson Strong-Tie (New Zealand) Limited, a New Zealand company
18. Simpson Strong-Tie Switzerland GmbH, a Switzerland company
19. S&P Clever Reinforcement Company AG, a Switzerland company
20. S&P Handels GmbH, an Austrian company
21. S&P Clever Reinforcement GmbH, a Germany company
22. S&P Clever Reinforcement Company Benelux B.V., a Dutch company
23. S&P Polska Sp. z.o.o., a Polish corporation
24. Clever Reinforcement Iberica - Materiais de Construção, Lda., a Portugal company
25. S&P Reinforcement France, a French company
26. Simpson Strong-Tie (Thailand) Co., Ltd, a Thai company
27. Simpson Strong-Tie Vietnam Company Limited, a Vietnam company
28. Simpson Strong-Tie South Africa (PTY) Ltd, a South Africa company
29. Simpson Strong-Tie Chile Limitada, a Chile company
30. S&P Reinforcement Nordic ApS, a Danish company
31. Simpson Strong-Tie Structural Connectors Ireland Ltd, an Ireland company
32. Multi Services Dêcoupe S.A., a Belgium company
33. CG Visions, Inc., an Indiana corporation
34. Gbo Fastening Systems AB, a Swedish corporation
35. Christiania Spigerverk AS, a Norwegian company
36. S&P Reinforcement Spain, S.L., a Spanish company
107
Consent of Independent Registered Public Accounting Firm
Exhibit 23
We have issued our reports dated February 28, 2018, with respect to the consolidated financial statements, financial
statement schedule, and internal control over financial reporting included in the Annual Report of Simpson
Manufacturing Co., Inc. on Form 10-K for the year ended December 31, 2017. We consent to the incorporation by
reference of said reports in the Registration Statements of Simpson Manufacturing Co., Inc. on Forms S-8 (File Nos.
033-90964, 333-37325, 333-40858, 333-97313, 333-97315, 333-173811, and 033-85662).
/s/ Grant Thornton LLP
San Francisco, California
February 28, 2018
108
Simpson Manufacturing Co., Inc. and Subsidiaries
Rule 13a-14(a)/15d-14(a) Certifications
I, Karen Colonias, certify that:
1.
I have reviewed this annual report on Form 10-K of Simpson Manufacturing Co., Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
DATE:
February 28, 2018
By /s/Karen Colonias
Karen Colonias
Chief Executive Officer
109
Simpson Manufacturing Co., Inc. and Subsidiaries
Rule 13a-14(a)/15d-14(a) Certifications
I, Brian J. Magstadt, certify that:
1.
I have reviewed this annual report on Form 10-K of Simpson Manufacturing Co., Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
DATE:
February 28, 2018
By /s/Brian J. Magstadt
Brian J. Magstadt
Chief Financial Officer
110
Simpson Manufacturing Co., Inc. and Subsidiaries
Section 1350 Certifications
Exhibit 32
The undersigned, Karen Colonias and Brian J. Magstadt, being the duly elected and acting Chief Executive Officer and
Chief Financial Officer, respectively, of Simpson Manufacturing Co., Inc., a Delaware corporation (the “Company”), hereby certify
that the annual report of the Company on Form 10-K for the year ended December 31, 2017, fully complies with the requirements
of section 13(a) of the Securities Exchange Act of 1934, as amended, and that information contained in such report fairly presents,
in all material respects, the financial condition and results of operations of the Company.
DATE: February 28, 2018
By /s/Karen Colonias
Karen Colonias
Chief Executive Officer
By /s/Brian J. Magstadt
Brian J. Magstadt
Chief Financial Officer
A signed original of this written statement required by Section 1350 of Chapter 63 of Title 18 of the United States Code has been
provided to Simpson Manufacturing Co., Inc. and will be retained by Simpson Manufacturing Co., Inc. and furnished to the Securities
and Exchange Commission or its staff on request.
The foregoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is
not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference
into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in
such filing.
111
Simpson Manufacturing Co., Inc.
5956 W. Las Positas Boulevard
Pleasanton, CA 94588
Tel: (800) 925-5099 Fax: (925) 847-1608
simpsonmfg.com
© 2018 Simpson Manufacturing Co., Inc. P01070 AR17