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Basis of Presentation | 6 Months Ended
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Jun. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation | Basis of Presentation Principles of Consolidation The condensed consolidated financial statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries (the “Company”). There were no investments in affiliates that would be considered variable interest entities. All significant intercompany transactions have been eliminated. Interim Period Reporting The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These interim statements should be read in conjunction with the 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, 2014. The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial information set forth therein, in accordance with GAAP. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP. The Company’s quarterly results fluctuate. As a result, the Company believes the results of operations for the interim period presented are not necessarily indicative of the results to be expected for any future period. Out-of-Period Adjustment In the first quarter of 2014, the Company recorded an out-of-period adjustment, which increased gross profit, income from operations and net income by $2.3 million, $2.0 million and $1.3 million, respectively. The adjustment resulted from an over-statement of prior periods' workers compensation expense, net of cash profit sharing expense, and was not material to the first quarter of 2014 or any prior period's financial statements. While the adjustment was not material to the first quarter of 2014 or any period’s financial statements prior to the first quarter of 2014, such adjustment does affect certain line items for the six-month period ended June 30, 2014. 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, and 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 and software license sales and services, though significantly less than 1% of net sales and not material to the condensed 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. Net Earnings Per Common Share Basic earnings per common share are computed based on the weighted-average number of common shares outstanding. Potentially dilutive securities, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive. The following is a reconciliation of basic earnings per common share to diluted earnings per share:
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in thousands, except per share amounts) | 2015 |  | 2014 |  | 2015 |  | 2014
Net income available to common stockholders | $ | 21,509 |  |  | $ | 20,451 |  |  | $ | 31,560 |  |  | $ | 32,538 |
Basic weighted-average shares outstanding | 49,254 |  |  | 49,011 |  |  | 49,236 |  |  | 48,955 |
Dilutive effect of potential common stock equivalents — stock options and restricted stock units | 219 |  |  | 216 |  |  | 209 |  |  | 191 |
Diluted weighted-average shares outstanding | 49,473 |  |  | 49,227 |  |  | 49,445 |  |  | 49,146 |
Earnings per common share: |  |  |  |  |  |  |  |  |
Basic | $ | 0.44 |  |  | $ | 0.42 |  |  | $ | 0.64 |  |  | $ | 0.66 |
Diluted | $ | 0.43 |  |  | $ | 0.42 |  |  | $ | 0.64 |  |  | $ | 0.66 |
Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive | — |  |  | — |  |  | — |  |  | — |
Accounting for Stock-Based Compensation With the approval of the Company’s stockholders on April 26, 2011, the Company adopted the Simpson Manufacturing Co., Inc. 2011 Incentive Plan (the “Original 2011 Plan”). The Company's stockholders approved on April 21, 2015, and the Company adopted, the amended and restated Simpson Manufacturing Co., Inc. 2011 Incentive Plan (the "2011 Plan"), which amended and restated in its entirety, and incorporated and superseded, the Original 2011 Plan. The Original 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 directors who are not employees. Options previously granted under the 1994 Plan or the 1995 Plan were not affected by the adoption of the Original 2011 Plan or the 2011 Plan and continue to be governed by the 1994 Plan or the 1995 Plan, respectively. Under the 1994 Plan, the Company could grant incentive stock options and non-qualified stock options. The Company, however, granted only non-qualified stock options under both the 1994 Plan and the 1995 Plan. The Company generally granted options under each of the 1994 Plan and the 1995 Plan once each year. The exercise price per share of each option granted under the 1994 Plan equaled the closing market price per share of the Company’s common stock as reported by the New York Stock Exchange on the day preceding the day that the Compensation and Leadership Development Committee of the Company’s Board of Directors met to approve the grant of the options. The exercise price per share under each option granted under the 1995 Plan was at the fair market value on the date specified in the 1995 Plan. Options vest and expire according to terms established at the grant date. Options granted under the 1994 Plan typically vest evenly over the requisite service period of four years and have a term of seven years. The vesting of options granted under the 1994 Plan will be accelerated if the grantee ceases to be employed by the Company after reaching age 60 or if there is a change in control of the Company. Options granted under the 1995 Plan were fully vested on the date of grant. Shares of common stock issued on exercise of stock options under the 1994 Plan and the 1995 Plan are registered under the Securities Act of 1933. Under the 2011 Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock and restricted stock units, although the Company currently intends to award primarily restricted stock units and to a lesser extent, if at all, non-qualified stock options. The Company has not awarded, and does not currently intend to award, incentive stock options or restricted stock. Under the 2011 Plan, no more than 16.3 million shares of the Company’s common stock may be issued (including shares already issued) pursuant to all awards under the 2011 Plan, including on exercise of options previously granted under the 1994 Plan and the 1995 Plan. Shares of common stock to be issued pursuant to the 2011 Plan are registered under the Securities Act of 1933. The following table represents the Company’s stock option and restricted stock unit activity for the three and six months ended June 30, 2015 and 2014:
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in thousands) | 2015 |  | 2014 |  | 2015 |  | 2014
Stock-based compensation expense recognized in operating expenses | $ | 2,991 |  |  | $ | 3,264 |  |  | $ | 6,075 |  |  | $ | 5,740 |
Less: Tax benefit of stock-based compensation expense in provision for income taxes | 1,082 |  |  | 1,163 |  |  | 2,139 |  |  | 2,073 |
Stock-based compensation expense, net of tax | $ | 1,909 |  |  | $ | 2,101 |  |  | $ | 3,936 |  |  | $ | 3,667 |
Fair value of shares vested | $ | 3,211 |  |  | $ | 3,312 |  |  | $ | 5,995 |  |  | $ | 5,691 |
Proceeds to the Company from the exercise of stock-based compensation | $ | 92 |  |  | $ | 857 |  |  | $ | 5,576 |  |  | $ | 2,626 |
Tax effect from the exercise of stock-based compensation, including shortfall tax benefits | $ | (2 | ) |  | $ | (51 | ) |  | $ | (186 | ) |  | $ | (186 | )
| At June 30,
(in thousands) | 2015 |  | 2014
Stock-based compensation cost capitalized in inventory | $ | 500 |  |  | $ | 508 |
The amounts included in cost of sales, research and development and other engineering, selling, or general and administrative expense depend on the job functions performed by the employees to whom the stock options and restricted stock units were awarded. The assumptions used to calculate the fair value of stock options granted or restricted stock units awarded are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience. Fair Value of Financial Instruments The “Fair Value Measurements and Disclosures” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards 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; and 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. The Company’s investments consisted of only United States Treasury securities and 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 balances of the Company’s primary financial instruments were as follows:
| At June 30, |  | At December 31,
(in thousands) | 2015 |  | 2014 |  | 2014
Financial instruments | $ | 92,875 |  |  | $ | 96,996 |  |  | $ | 99,024 |
The carrying amounts of trade accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. Income Taxes The Company uses an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in each interim period. The effective tax rate was higher in the second quarter and first half of 2015 than in the second quarter and first half of 2014, primarily due to $2.0 million in year to date operating losses, mostly occurring in the Asia/Pacific segment, for which no tax benefit was recorded. The following table presents the Company’s effective tax rates and income tax expense for the three and six months ended June 30, 2015 and 2014:
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in thousands, except percentages) | 2015 |  | 2014 |  | 2015 |  | 2014
Effective tax rate | 38.5 | % |  | 36.3 | % |  | 38.4 | % |  | 37.2 | %
Provision for income taxes | $ | 13,446 |  |  | $ | 11,667 |  |  | $ | 19,637 |  |  | $ | 19,271 |
Acquisitions In the first quarter of 2015, the Company paid $0.7 million in deferred consideration and $0.3 million in contingent consideration related to the Company's 2012 acquisition of S&P Clever Reinforcement Company AG and S&P Clever International AG (collectively, “S&P Clever”) and paid $0.2 million in contingent consideration related to the Company's 2013 acquisition of Bierbach GmbH & Co. KG. Under the business combinations topic of the FASB ASC, 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 based on Level 3 inputs. Sales Office Closing During the first quarter of 2015, the Company committed to a plan to close its sales offices located in China, Thailand and Dubai, as well as to reduce its selling activities in Hong Kong, due to continued losses in the region. The closures are expected to be substantially completed by December 2015. As a result, the Company recorded employee severance obligation expenses of $1.4 million, with most of the amount paid by the Company in April 2015 and June 2015. Most of the severance obligation expense was charged to operating expenses, with less than $0.1 million recorded to cost of sales. The following table provides a rollforward of the liability balance for these costs incurred as of June 30, 2015:
In thousands | Employee Severance Obligation |  | Other Associated Costs |  | Total
Balance at March 31, 2015 | $ | 796 |  |  | $ | 85 |  |  | $ | 881 |
Charges | 562 |  |  | 461 |  |  | 1,023 |
Cash payments | (1,123 | ) |  | (70 | ) |  | (1,193 | )
Balance at June 30, 2015 | $ | 235 |  |  | $ | 476 |  |  | $ | 711 |
Until the office closings are finalized, estimated additional severance expense, retention bonuses and professional fees of $1.1 million will be recorded as commitment requirements are met or services are received. The estimated costs disclosed are based on a number of assumptions, and actual results could materially differ. All of the office locations that are being closed are leased, with remaining future minimum lease obligations of $1.0 million, and will continue to be occupied while the Company considers options for early termination of the leases. If the Company terminates a lease early with no sub-lease or concessions received from the landlord and the location is no longer in use, the remaining obligation will be determined and expensed at that time. As of June 30, 2015, remaining long-lived assets were $0.1 million, consisting mostly of office equipment and vehicles, which will either be sold or depreciated on an accelerated basis to their salvage value. Total accelerated depreciation expense of $0.2 million was recorded in the first half of 2015, nearly all as operating expenses. Recently Issued Accounting Standards There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the Company’s 2014 Annual Report on Form 10-K, except for the following: In July 2015, the FASB issued Accounting Standards Update No. 2015-11, (Topic 330), Simplifying the Measurement of Inventory (“ASU 2015-11”). The objective is to reduce the complexity related to inventory subsequent measurement and disclosure requirements. ASU 2015-11 amendments do not apply to inventory that is measured using last-in, first-out or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of the new guidance should be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments more closely align with the measurement of inventory in International Financial Reporting Standards. ASU 2015-11 will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the effect (if any) that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosure. In April 2015, the FASB issued Accounting Standards Update No. 2015-05 (Subtopic 340-40), Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05"). The guidance in this Subtopic applies only to internal-use software that a customer obtains access to in a hosting arrangement. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. With an election to adopt prospectively or retrospectively, this ASU will be effective for annual periods beginning after December 15, 2015. The Company does not believe ASU 2015-11 will have a material effect on its consolidated financial statements and footnote disclosures. Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants and the Securities and Exchange Commission did not or is not expected to have a material effect on the Company’s consolidated financial statements.

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