10-Q 1 ssd-20210930.htm 10-Q ssd-20210930
SIMPSON MANUFACTURING CO INC 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2021
 
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                           to                           
 
Commission file number: 1-13429
 
Simpson Manufacturing Co., Inc.
(Exact name of registrant as specified in its charter) 
Delaware 94-3196943
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
 
5956 W. Las Positas Blvd., Pleasanton, CA 94588
(Address of principal executive offices, including zip code) 
(925) 560-9000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareSSDNew York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
  Yes ý  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 



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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ý
 
The number of shares of the registrant’s common stock outstanding as of November 2, 2021: 43,439,655  



Simpson Manufacturing Co., Inc. and Subsidiaries

TABLE OF CONTENTS

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




PART I — FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, unaudited)
 
 September 30,December 31,
 202120202020
ASSETS   
Current assets   
Cash and cash equivalents$294,180 $311,465 $274,639 
Trade accounts receivable, net236,535 226,447 165,128 
Inventories385,512 260,054 283,742 
Other current assets33,427 22,439 29,630 
Total current assets949,654 820,405 753,139 
Property, plant and equipment, net255,547 246,472 255,184 
Operating lease right-of-use assets41,513 41,453 45,792 
Goodwill133,495 133,734 135,844 
Intangible assets, net22,077 20,964 26,800 
Other noncurrent assets19,783 14,837 15,810 
Total assets$1,422,069 $1,277,865 $1,232,569 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities   
Trade accounts payable$62,405 $42,271 $48,271 
Accrued liabilities and other current liabilities183,072 148,890 145,790 
      Total current liabilities245,477 191,161 194,061 
   Operating lease liabilities33,063 33,354 37,199 
Long term debt, net of current portion 75,000  
  Deferred income tax and other long-term liabilities20,526 17,550 20,366 
Total liabilities299,066 317,065 251,626 
Commitments and contingencies (see Note 13)
Stockholders’ equity   
Common stock, at par value435 444 433 
Additional paid-in capital291,733 281,134 284,007 
Retained earnings885,472 772,851 720,441 
Treasury stock(37,635)(72,058)(13,510)
Accumulated other comprehensive loss(17,002)(21,571)(10,428)
Total stockholders’ equity1,123,003 960,800 980,943 
Total liabilities and stockholders’ equity$1,422,069 $1,277,865 $1,232,569 

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


Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Income
(In thousands except per-share amounts, unaudited)
 
Three Months EndedNine Months Ended
September 30,September 30,
 2021202020212020
Net sales$396,738 $364,304 $1,154,661 $974,048 
Cost of sales198,706 191,061 597,901 521,339 
Gross profit198,032 173,243 556,760 452,709 
Operating expenses:
Research and development and other engineering14,562 12,287 43,321 37,860 
Selling35,063 29,396 99,053 84,757 
General and administrative47,792 40,289 143,767 117,396 
Total operating expenses97,417 81,972 286,141 240,013 
Net gain on disposal of assets(4)(72)(112)(209)
Income from operations100,619 91,343 270,731 212,905 
Interest expense, net and other(846)(518)(5,259)(3,202)
Income before taxes99,773 90,825 265,472 209,703 
Provision for income taxes25,995 23,768 68,822 52,341 
Net income$73,778 $67,057 $196,650 $157,362 
Other comprehensive income
Translation adjustment(4,889)6,238 (6,649)3,170 
   Unamortized pension adjustments(182)28 209 88 
   Unrealized (losses) on derivative instruments
(153) (134) 
        Comprehensive net income$68,554 $73,323 $190,076 $160,620 
Net income per common share:  
Basic$1.70 $1.54 $4.54 $3.60 
Diluted$1.70 $1.54 $4.52 $3.59 
Number of shares outstanding  
Basic43,276 43,474 43,287 43,683 
Diluted43,485 43,683 43,500 43,873 
Cash dividends declared per common share$0.25 $0.23 $0.73 $0.69 
 
The accompanying notes are an integral part of these condensed consolidated financial statements
5


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

Three Months Ended September 30, 2021 and 2020

 Common StockAdditional Paid-inRetainedAccumulated Other ComprehensiveTreasury 
 SharesPar ValueCapitalEarningsIncome (Loss)StockTotal
Balance at June 30, 202143,437 $435 $289,261 $822,497 $(11,778)$(13,510)$1,086,905 
Net income— — — 73,778 — — 73,778 
Translation adjustment, net of tax— — — — (4,889)— (4,889)
Pension adjustment and other,
net of tax
— — — — (335)— (335)
Stock-based compensation— — 2,606 — — — 2,606 
Shares issued from release of Restricted Stock Units2  (134)— — — (134)
Repurchase of common stock(222)— — — — (24,125)(24,125)
Cash dividends declared on common stock, $0.25 per share— — — (10,803)— — (10,803)
Balance at September 30, 202143,217 $435 $291,733 $885,472 $(17,002)$(37,635)$1,123,003 
Balance at June 30, 202043,473 $444 $277,625 $716,038 $(27,837)$(72,058)$894,212 
Net income— — — 67,057 — — 67,057 
Translation adjustment and other,
net of tax
— — — — 6,238 — 6,238 
Pension adjustment and other,
net of tax
— — — — 28 — 28 
Stock-based compensation— — 3,651 — — — 3,651 
Shares issued from release of Restricted Stock Units3  (162)— — — (162)
Cash dividends declared on common stock, $0.23 per share— — — (10,244)— — (10,244)
Common stock issued at $99.63 per share for stock bonus — 20 — — — 20 
Balance, at September 30, 202043,476 $444 $281,134 $772,851 $(21,571)$(72,058)$960,800 









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


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

Nine Months Ended September 30, 2021 and 2020

 Common StockAdditional Paid-inRetainedAccumulated Other ComprehensiveTreasury 
 SharesPar ValueCapitalEarningsIncome (Loss)StockTotal
Balance at December 31, 202043,326 $433 $284,007 $720,441 $(10,428)$(13,510)$980,943 
Net income— — — 196,650 — — 196,650 
Translation adjustment, net of tax— — — — (6,649)— (6,649)
Pension adjustment and other,
net of tax
— — — — 75 — 75 
Stock-based compensation— — 12,432 — — — 12,432 
Shares issued from release of Restricted Stock Units106 1 (5,397)— — — (5,396)
Repurchase of common stock(222)— — — — (24,125)(24,125)
Cash dividends declared on common stock, $0.73 per share— — — (31,619)— — (31,619)
Common stock issued at $93.45 per share for stock bonus7 1 691 — — — 692 
Balance at September 30, 202143,217 $435 $291,733 $885,472 $(17,002)$(37,635)$1,123,003 
Balance at December 31, 201944,209 $442 $280,216 $645,507 $(24,829)$(9,379)$891,957 
Net income— — — 157,362 — — 157,362 
Translation adjustment, net of tax— — — — 3,170 — 3,170 
Pension adjustment and other,
net of tax
— — — — 88 — 88 
Stock-based compensation— — 8,481 — — — 8,481 
Shares issued from release of Restricted Stock Units165 2 (7,905)— — — (7,903)
Repurchase of common stock(902)— — — — (62,679)(62,679)
Cash dividends declared on common stock, $0.69 per share— — — (30,018)— — (30,018)
Common stock issued at $81.30 per share for stock bonus4 — 342 — — — 342 
Balance, at September 30, 202043,476 $444 $281,134 $772,851 $(21,571)$(72,058)$960,800 
The accompanying notes are an integral part of these condensed consolidated financial statements
7


Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
Nine Months Ended
September 30,
 20212020
Cash flows from operating activities  
Net income$196,650 $157,362 
Adjustments to reconcile net income to net cash provided by operating activities:  
Loss/(gain) on sale of assets and other2,251 (204)
Depreciation and amortization33,192 30,088 
Noncash lease expense7,237 6,246 
Deferred income taxes1,197 1,852 
Noncash compensation related to stock plans13,391 9,459 
Provision of doubtful accounts74 23 
Changes in operating assets and liabilities:  
Trade accounts receivable(73,219)(87,170)
Inventories(104,223)(7,199)
Trade accounts payable15,527 7,825 
Other current assets(11,272)(618)
Accrued liabilities and other current liabilities45,924 21,762 
Other noncurrent assets and liabilities(4,631)(9,808)
Net cash provided by operating activities122,098 129,618 
Cash flows from investing activities  
Capital expenditures(31,285)(20,879)
Asset acquisitions, net of cash acquired(218)(1,425)
Equity method investments(9,829) 
Proceeds from sale of property and equipment132 750 
Net cash used in investing activities(41,200)(21,554)
Cash flows from financing activities  
Repurchase of common stock(24,125)(62,679)
Proceeds from lines of credit 8,530 164,330 
Repayments of lines of credit and capital leases(8,632)(89,347)
Debt issuance costs(819)(712)
Dividends paid(30,815)(30,164)
Cash paid on behalf of employees for shares withheld(5,397)(7,581)
Net cash used in financing activities(61,258)(26,153)
Effect of exchange rate changes on cash and cash equivalents(99)(656)
Net increase in cash and cash equivalents19,541 81,255 
Cash and cash equivalents at beginning of period274,639 230,210 
Cash and cash equivalents at end of period$294,180 $311,465 
Noncash activity during the period  
Noncash capital expenditures$550 $778 
Dividends declared but not paid10,847 10,000 
Issuance of Company’s common stock for compensation692 342 
The accompanying notes are an integral part of these condensed consolidated financial statements
8



Notes to Condensed Consolidated Financial Statements
(Unaudited)

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

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

Interim Reporting Period
 
The accompanying unaudited quarterly condensed consolidated financial statements have been prepared in accordance with GAAP pursuant to the rules and regulations for reporting interim financial information and instructions on Form 10-Q. Accordingly, certain information and footnotes required by GAAP have been condensed or omitted. These interim statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Form 10-K”).
 
The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial information set forth therein in accordance with GAAP. Certain prior period amounts in the condensed consolidated financial statements and the accompanying notes have been reclassified to conform to the current period’s presentation. The year-end condensed consolidated balance sheet data provided herein were derived from audited financial statements included in the 2020 Form 10-K, but do not include all disclosures required by GAAP. The Company’s quarterly results fluctuate. As a result, the Company believes the results of operations for this interim period presented are not indicative of the results to be expected for any future periods.

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



9



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

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

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

Fair Value of Financial Instruments
 
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified under a three-tier fair valuation hierarchy based on the observability of the inputs available in the market: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The carrying amounts of trade accounts receivable, accounts payable, accrued liabilities and other current liabilities approximate fair value due to the short-term nature of these instruments. The fair value of the Company’s contingent consideration related to acquisitions and equity investment are classified as Level 3 within the fair value hierarchy as it is based on unobserved inputs such as management estimates and entity-specific assumptions and is evaluated on an ongoing basis. The fair value of foreign currency forward contracts, calculated based on Level 1 inputs, was not material as of September 30, 2021.

Derivative Instruments - Foreign Currency Contracts

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


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Cash and Cash Equivalents

The Company classifies investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. As of September 30, 2021 and 2020, the value of these investments were $28.6 million and $46.5 million, respectively, consisting of United States Treasury securities and money market funds. The value of the investments is based on cost, which approximates fair value based on Level 1 inputs.

Current Estimated Credit Loss - Allowance for Doubtful Accounts

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

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

The changes in the allowance for doubtful accounts receivable for the nine months ended September 30, 2021 are outlined in the table below:
Balance at
Balance at
(in thousands)
December 31, 2020
Expense (Deductions), net
Write-Offs1
September 30, 2021
Allowance for Doubtful Accounts
$2,110 74 514 $1,670 
1Amount is net of recoveries and the effect of foreign currency fluctuations for the nine months ended September 30, 2021.

Income Taxes

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

Accounting Standards Not Yet Adopted

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

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

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


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2.    Revenue from Contracts with Customers

Disaggregated Revenue

The Company disaggregates sales into the following major product groups as described in the footnote for segment information included in these interim financial statements under Note 14.

Wood Construction Products Revenue. Wood construction products represented 86% of total sales for both the nine months ended September 30, 2021 and 2020.

Concrete Construction Products Revenue. Concrete construction products represented 14% of total sales for both the nine months ended September 30, 2021 and 2020.

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

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

Reconciliation of Contract Balances

Contract assets are the rights to consideration in exchange for goods or services that the Company has transferred to a customer when that right is conditional on something other than the passage of time. Contract liabilities are recorded for any services billed to customers and not yet recognizable if the contract period has commenced or for the amount collected from customers in advance of the contract period commencing. As of September 30, 2021, the Company had no contract assets or contract liabilities from contracts with customers.



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3.    Net Income Per Share

The following table reconciles basic net income per share of the Company's common stock to diluted net income per share for the three and nine months ended September 30, 2021 and 2020, respectively:
 
Three Months Ended 
 
September 30,
Nine Months Ended 
 
September 30,
(in thousands, except per share amounts)2021202020212020
Net income available to common stockholders$73,778 $67,057 $196,650 $157,362 
Basic weighted-average shares outstanding43,276 43,474 43,287 43,683 
Dilutive effect of potential common stock equivalents — restricted stock units209 209 213 190 
Diluted weighted-average shares outstanding43,485 43,683 43,500 43,873 
Net income per common share:    
Basic$1.70 $1.54 $4.54 $3.60 
Diluted$1.70 $1.54 $4.52 $3.59 


4.    Stockholders' Equity

Treasury Shares

As of September 30, 2021, the Company held 373,034 shares of its common stock as treasury shares.

During the nine months ended September 30, 2021, the Company repurchased 222,060 shares of the Company's common stock in the open market at an average of $108.64 per share, for a total of $24.1 million. As of September 30, 2021, approximately $75.9 million remains available for repurchase under the previously announced $100 million share repurchase authorization (which expires at the end of 2021).

5.    Stock-Based Compensation
 
The Company allocates stock-based compensation expense related to equity plans for employees and non-employee directors among the cost of sales, research and development and other engineering expense, selling expense, or general and administrative expense based on the job functions performed by the employees or non-employee directors to whom the stock-based compensation is awarded. The Company recognized stock-based compensation expense related to its equity plans for employees of $2.6 million and $4.0 million for the three months ended September 30, 2021 and 2020, respectively, and $12.4 million and $9.5 million for the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, the Company granted 133,717 restricted stock units ("RSUs") to the Company's employees, including officers at an estimated weighted average fair value of $100.93 per share based on the closing price (adjusted for the present value of dividends) of the Company's common stock on the grant date. The RSUs granted to the Company's employees may be performance-based and/or time-based. Certain performance-based RSUs are granted to officers and key employees, where the number of performance-based awards to be issued is based on the achievement of certain Company performance criteria established in the RSU agreement over a cumulative three-year period. These awards cliff vest after three years. In addition, these same officers and key employees also receive time-based RSUs, which vest pursuant to a three-year graded vesting schedule. Time-based RSUs that are granted to the Company's employees excluding officers and certain key employees, vest ratably over the four year vesting-term of the award.

The Company’s seven non-employee directors are entitled to receive approximately $690 thousand in equity compensation annually. The number of shares ultimately granted are based on the average closing share price for the Company over the 60 day period prior to approval of the award in the second quarter of each year. In May and June 2021, the Company granted 6,601 shares of the Company's common stock to the non-employee directors, based on the average closing price of $114.60 per share and recognized a total expense of $756 thousand.
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As of September 30, 2021, the Company's aggregate unamortized stock compensation expense was approximately $20.3 million, which is expected to be recognized in expense over a weighted-average period of 2.3 years.


6.    Trade Accounts Receivable, Net
 
Trade accounts receivable at the dates indicated consisted of the following: 
 At September 30,At December 31,
(in thousands)
202120202020
Trade accounts receivable
$241,955 $231,559 $170,001 
Allowance for doubtful accounts
(1,670)(2,032)(2,110)
Allowance for sales discounts and returns
(3,750)(3,080)(2,763)
 $236,535 $226,447 $165,128 
 

7.    Inventories
 
Inventories at the dates indicated consisted of the following: 
 At September 30,At December 31,
(in thousands)
202120202020
Raw materials
$149,488 $100,198 $95,777 
In-process products
28,399 21,533 21,803 
Finished products
207,625 138,323 166,162 
 $385,512 $260,054 $283,742 

8.    Derivative Instruments

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

The Company sources certain materials for its concrete products from a wholly owned subsidiary in China, and as a result is exposed to variability in cash outflows associated with changes in the foreign exchange rate between the United States Dollar and the Chinese Yuan (CNY). As of September 30, 2021, the aggregate notional amount of the Company's outstanding foreign currency derivative contracts was to buy CNY 14.1 million by selling $2.0 million throughout fiscal year 2021. These forward contracts are accounted for as cash flow hedges under the accounting standards, and the fair value included in other current assets or other current liabilities, as applicable, in the consolidated balance sheet was $0.1 million.

Net deferred gains and losses on these contracts relating to changes in fair value are included in accumulated other comprehensive income or loss ("OCI"), a component of shareholders' equity in the consolidated balance sheets, and are reclassified into the line item in the consolidated statement of income in which the hedged items are recorded in the same period the hedged item affects earnings. For the nine months ended September 30, 2021, gains on these contracts of $0.4 million were recognized, as a reduction of cost of sales. Changes in fair value of any forward contracts that are determined to be ineffective are immediately reclassified from OCI into earnings. The amounts deferred in OCI are expected to be recognized as a
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component of cost of sales in the consolidated statement of operations from 2021 to 2022. There were no amounts recognized due to ineffectiveness during the nine months ended September 30, 2021.


9.    Property, Plant and Equipment, Net
 
Property, plant and equipment, net, at the dates indicated consisted of the following: 
 At September 30,At December 31,
(in thousands)
202120202020
Land
$28,232 $28,287 $28,553 
Buildings and site improvements
201,730 201,020 203,421 
Leasehold improvements
5,956 5,699 7,091 
Machinery, equipment, and software
396,201 363,187 372,923 
 632,119 598,193 611,988 
Less accumulated depreciation and amortization
(400,981)(369,655)(377,460)
 231,138 228,538 234,528 
Capital projects in progress
24,409 17,934 20,656 
Total$255,547 $246,472 $255,184 


10.    Goodwill and Intangible Assets, Net
 
Goodwill at the dates indicated was as follows: 
 At September 30,At December 31,
(in thousands)
202120202020
North America
$96,306 $96,161 $96,311 
Europe
35,816 36,215 38,059 
Asia/Pacific
1,373 1,358 1,474 
Total
$133,495 $133,734 $135,844 
 
Intangible assets, net, at the dates indicated were as follows: 
 At September 30, 2021
 Gross Net
 CarryingAccumulatedCarrying
(in thousands)
AmountAmortizationAmount
North America
$41,003 $(25,563)$15,440 
Europe
26,361 (19,724)6,637 
Total
$67,364 $(45,287)$22,077 
 
 At September 30, 2020
 Gross Net
(in thousands)
Carrying
Amount
Accumulated
Amortization
Carrying
Amount
North America
$33,755 $(21,761)$11,994 
Europe
25,930 (16,960)8,970 
   Total$59,685 $(38,721)$20,964 
 
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 At December 31, 2020
 Gross Net
(in thousands)
Carrying
Amount
Accumulated
Amortization
Carrying
Amount
North America
$40,786 $(22,697)$18,089 
Europe
26,341 (17,630)8,711 
Total
$67,127 $(40,327)$26,800 
 
Intangible assets consist of definite-lived and indefinite-lived assets. Definite-lived intangible assets include customer relationships, patents, unpatented technology, and non-compete agreements. Amortization expense of definite-lived intangible assets was $1.5 million and $1.7 million for the three months ended September 30, 2021 and 2020, respectively, and was $5.0 million and $4.5 million for the nine months ended September 30, 2021 and 2020, respectively. The weighted-average amortization period for all amortizable intangibles on a combined basis is 6.3 years.

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

At September 30, 2021, the estimated future amortization of definite-lived intangible assets was as follows: 
(in thousands) 
Remaining three months of 2021$1,538 
20224,387 
20233,490 
20242,439 
20252,211 
20261,481 
Thereafter5,914 
$21,460 
 
The changes in the carrying amount of goodwill and intangible assets for the nine months ended September 30, 2021, were as follows: 
  Intangible
(in thousands)GoodwillAssets
Balance at December 31, 2020$135,844 $26,800 
Acquisitions— 218 
Reclassifications(106)348 
Amortization— (4,960)
Foreign exchange(2,243)(329)
Balance at September 30, 2021$133,495 $22,077 


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11.    Leases

Operating Lease Obligations

The Company has operating leases for certain facilities, equipment and automobiles. The existing operating leases expire at various dates through 2025, some of which include options to extend the leases for up to 5 years. The Company measured the lease liability at the present value of the lease payments to be made over the lease term. The lease payments are discounted using the Company's incremental borrowing rate. The Company measured the right-of-use ("ROU") assets at the amount at which the lease liability is recognized plus initial direct costs incurred or prepayment amounts. The ROU assets are amortized on a straight-line basis over the lease term.

The following table provides a summary of leases included on the condensed consolidated balance sheets as of September 30, 2021 and 2020 and December 31, 2020, condensed consolidated statements of earnings and comprehensive income, and condensed consolidated statements of cash flows as of three and nine months ended September 30, 2021 and 2020:
Condensed Consolidated Balance Sheets Line ItemSeptember 30,December 31,
(in thousands)202120202020
Operating leases
Assets
Operating leasesOperating lease right-of-use assets$41,513 $41,453 $45,792 
Liabilities
Operating - currentAccrued expenses and other current liabilities8,849 $8,443 $9,143 
Operating - noncurrent Operating lease liabilities33,063 33,354 37,199 
Total operating lease liabilities$41,912 $41,797 $46,342 
Finance leases
Assets
Property and equipment, grossProperty, plant and equipment, net$3,569 $3,569 $3,569 
Accumulated amortizationProperty, plant and equipment, net(3,340)(3,036)(3,112)
Property and equipment, netProperty, plant and equipment, net$229 $533 $457 
Liabilities
Other current liabilitiesAccrued expenses and other current liabilities$ $771 $384 
   Total finance lease liabilities$ $771 $384 


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The components of lease expense were as follows:
Condensed Consolidated Statements of Earnings and Comprehensive Income Line ItemThree Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Operating lease costGeneral administrative expenses and
     cost of sales
$2,958 $2,736 $8,570 $7,708 
Finance lease cost:
   Amortization of right-of-use
        assets
General administrative expenses$2 $218 $215 $654 
   Interest on lease liabilitiesInterest expense, net 7 2 28 
Total finance lease$2 $225 $217 $682 

Other Information

Supplemental cash flow information related to leases as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows for operating leases$2,919 $2,611 $8,417 $7,395 
   Finance cash flows for finance leases2 290 291 870 
Operating right-of-use assets obtained in exchange for lease
     obligations during the current period
926 7,155 5,624 14,312 
The following is a schedule, by years, of maturities of lease liabilities as of September 30, 2021:
(in thousands)Operating Leases
Remaining three months of 2021$2,822 
202210,058 
20237,662 
20245,872 
20255,063 
Thereafter17,852 
Total lease payments49,329 
Less: Present value discount(7,417)
     Total lease liabilities$41,912 


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The following table summarizes the Company's lease terms and discount rates as of September 30, 2021 and 2020:
Weighted-average remaining lease terms (in years):20212020
Operating leases6.777.03
Finance leases0.00.71
Weighted-average discount rate:
Operating leases5.26 %5.3 %
Finance leases %3.27 %


12.    Debt

As previously disclosed, the Credit Facility is the $300.0 million revolving line of credit with Wells Fargo Bank and is the Company's primary credit facility. In addition to the Credit Facility, certain of the Company’s domestic subsidiaries are guarantors for a credit agreement between certain of its foreign subsidiaries and institutional lenders. Together, these credit facilities provide the Company with a total of $304.0 million in revolving credit lines and an irrevocable standby letter of credit in support of various insurance deductibles. There was a $0.6 million outstanding balance as of September 30, 2021 and there were no outstanding balances as of September 30, 2020 and December 31, 2020, respectively.

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

13.    Commitments and Contingencies

Environmental

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

Litigation and Potential Claims

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

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

Gentry Homes, Ltd. v. Simpson Strong-Tie Company Inc., et al., Case No. 17-cv-00566, was filed in a federal district court in Hawaii against Simpson Strong-Tie Company Inc. and the Company on November 20, 2017. The Gentry Case is a product of a previous state court class action, Nishimura v. Gentry Homes, Ltd., et al., Civil No. 11-1-1522-07, which is now closed. The Nishimura case concerned alleged corrosion of the Company’s galvanized “hurricane straps” and mudsill anchor products used in a residential project in the Ewa District of Honolulu, Hawaii by Gentry Homes, Ltd. ("Gentry"). In the Gentry Case, Gentry alleges breach of warranty and negligent misrepresentation by the Company related to its “hurricane strap” and mudsill anchor products. The Gentry Case was resolved pursuant to a written settlement agreement ("Settlement") without adjudication or any admission of liability by the Company. The Settlement may not be used as evidence of liability against the party. The case will be dismissed with prejudice by no later than January 4, 2022. The Company incurred no uninsured liability to the plaintiff in connection with the Gentry Case, or the Settlement.


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14.    Segment Information
 
The Company is organized into three reporting segments defined by the regions where the Company’s products are manufactured, marketed and distributed to the Company’s customers. The three regional segments are the North America segment (comprised primarily of the Company’s operations in the United States and Canada), the Europe segment and the Asia/Pacific segment (comprised of the Company’s operations in Asia, the South Pacific, and the Middle East). These segments are similar in several ways, including the types of materials used, the production processes, the distribution channels and the product applications.

The following tables illustrate certain measurements used by management to assess the performance of its reportable segments as of or for the following periods: 
Three Months Ended September 30,