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: March 31, 20222023
 
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 May 3, 2022: 43,159,9344, 2023: 42,670,186



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)
 
March 31,December 31, March 31,December 31,
202220212021 202320222022
ASSETSASSETS   ASSETS   
Current assetsCurrent assets   Current assets   
Cash and cash equivalentsCash and cash equivalents$984,372 $257,428 $301,155 Cash and cash equivalents$252,541 $984,372 $300,742 
Trade accounts receivable, netTrade accounts receivable, net320,428 227,201 231,021 Trade accounts receivable, net339,674 320,428 269,124 
InventoriesInventories443,448 296,640 443,756 Inventories576,433 443,448 556,801 
Other current assetsOther current assets39,632 37,732 22,903 Other current assets53,893 39,632 52,583 
Total current assetsTotal current assets1,787,880 819,001 998,835 Total current assets1,222,541 1,787,880 1,179,250 
Property, plant and equipment, netProperty, plant and equipment, net265,675 255,684 259,869 Property, plant and equipment, net369,089 265,675 361,555 
Operating lease right-of-use assetsOperating lease right-of-use assets44,651 44,236 45,438 Operating lease right-of-use assets55,902 44,651 57,652 
GoodwillGoodwill133,651 133,477 134,022 Goodwill500,749 133,651 495,672 
Intangible assets, netIntangible assets, net25,021 25,059 26,269 Intangible assets, net366,122 25,021 362,917 
Other noncurrent assetsOther noncurrent assets23,472 17,270 19,692 Other noncurrent assets41,231 23,472 46,925 
Total assetsTotal assets$2,280,350 $1,294,727 $1,484,125 Total assets$2,555,634 $2,280,350 $2,503,971 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilitiesCurrent liabilities   Current liabilities   
Trade accounts payableTrade accounts payable$76,390 $66,236 $57,215 Trade accounts payable$95,302 $76,390 $97,841 
Accrued liabilities and other current liabilitiesAccrued liabilities and other current liabilities207,959 158,578 187,387 Accrued liabilities and other current liabilities212,864 207,959 228,222 
Long-term debt, current portionLong-term debt, current portion22,500 — — Long-term debt, current portion22,500 22,500 22,500 
Total current liabilities Total current liabilities306,849 224,814 244,602  Total current liabilities330,666 306,849 348,563 
Operating lease liabilities Operating lease liabilities36,336 35,810 37,091  Operating lease liabilities45,368 36,336 46,882 
Long term debt, net670,733 — — 
Long-term debt, net of issuance costsLong-term debt, net of issuance costs549,594 670,733 554,539 
Deferred income tax and other long-term liabilities Deferred income tax and other long-term liabilities34,621 19,594 18,434  Deferred income tax and other long-term liabilities142,597 34,621 140,608 
Total liabilitiesTotal liabilities1,048,539 280,218 300,127 Total liabilities1,068,225 1,048,539 1,090,592 
Commitments and contingencies (see Note 13)Commitments and contingencies (see Note 13)000Commitments and contingencies (see Note 13)
Stockholders’ equityStockholders’ equity   Stockholders’ equity   
Common stock, at par valueCommon stock, at par value433 435 432 Common stock, at par value426 433 425 
Additional paid-in capitalAdditional paid-in capital289,773 285,896 294,330 Additional paid-in capital295,976 289,773 298,983 
Retained earningsRetained earnings990,611 760,862 906,841 Retained earnings1,194,993 990,611 1,118,030 
Treasury stockTreasury stock(21,281)(13,510)— Treasury stock— (21,281)— 
Accumulated other comprehensive lossAccumulated other comprehensive loss(27,725)(19,174)(17,605)Accumulated other comprehensive loss(3,986)(27,725)(4,059)
Total stockholders’ equityTotal stockholders’ equity1,231,811 1,014,509 1,183,998 Total stockholders’ equity1,487,409 1,231,811 1,413,379 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$2,280,350 $1,294,727 $1,484,125 Total liabilities and stockholders’ equity$2,555,634 $2,280,350 $2,503,971 

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 EndedThree Months Ended
March 31,March 31,
20222021 20232022
Net salesNet sales$493,570 $347,642 Net sales$534,430 $493,570 
Cost of salesCost of sales256,789 185,360 Cost of sales281,554 256,789 
Gross profitGross profit236,781 162,282 Gross profit252,876 236,781 
Operating expenses:Operating expenses:Operating expenses:
Research and development and other engineeringResearch and development and other engineering15,866 14,591 Research and development and other engineering20,747 15,866 
SellingSelling36,836 30,823 Selling48,667 36,836 
General and administrativeGeneral and administrative53,774 48,565 General and administrative63,707 53,774 
Total operating expensesTotal operating expenses106,476 93,979 Total operating expenses133,121 106,476 
Acquisition related costs6,951 — 
Acquisition and integration related costsAcquisition and integration related costs1,442 6,951 
Net gain on disposal of assetsNet gain on disposal of assets(1,083)(80)Net gain on disposal of assets(50)(1,083)
Income from operationsIncome from operations124,437 68,383 Income from operations118,363 124,437 
Interest expense, net and other(428)(1,778)
Interest expense, net and other finance costsInterest expense, net and other finance costs(570)(212)
Other & foreign exchange loss, netOther & foreign exchange loss, net(398)(216)
Income before taxesIncome before taxes124,009 66,605 Income before taxes117,395 124,009 
Provision for income taxesProvision for income taxes29,433 16,218 Provision for income taxes29,441 29,433 
Net incomeNet income$94,576 $50,387 Net income$87,954 $94,576 
Other comprehensive incomeOther comprehensive incomeOther comprehensive income
Translation adjustmentTranslation adjustment(3)(9,264)Translation adjustment4,560 (3)
Unamortized pension adjustments Unamortized pension adjustments(172)492  Unamortized pension adjustments218 (172)
Cash flow hedge adjustment, net of taxCash flow hedge adjustment, net of tax(9,946)26 Cash flow hedge adjustment, net of tax(4,705)(9,946)
Comprehensive net income Comprehensive net income$84,455 $41,641  Comprehensive net income$88,027 $84,455 
Net income per common share:Net income per common share:  Net income per common share:  
BasicBasic$2.19 $1.16 Basic$2.06 $2.19 
DilutedDiluted$2.18 $1.16 Diluted$2.05 $2.18 
Number of shares outstanding  
Weighted average number of shares outstandingWeighted average number of shares outstanding  
BasicBasic43,179 43,379 Basic42,610 43,179 
DilutedDiluted43,376 43,612 Diluted42,827 43,376 
Cash dividends declared per common shareCash dividends declared per common share$0.25 $0.23 Cash dividends declared per common share$0.26 $0.25 

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 March 31, 20222023 and 20212022

Common StockAdditional Paid-inRetainedAccumulated Other ComprehensiveTreasury  Common StockAdditional Paid-inRetainedAccumulated Other ComprehensiveTreasury 
SharesPar ValueCapitalEarningsIncome (Loss)StockTotal SharesPar ValueCapitalEarningsIncome (Loss)StockTotal
Balance at December 31, 202143,217 $432 $294,330 $906,841 $(17,605)$— $1,183,998 
Balance at December 31, 2022Balance at December 31, 202242,560 $425 $298,983 $1,118,030 $(4,059)$— $1,413,379 
Net incomeNet income— — — 94,576 — — 94,576 Net income— — — 87,954 — — 87,954 
Translation adjustment, net of taxTranslation adjustment, net of tax— — — — (3)— (3)Translation adjustment, net of tax— — — — 4,560 — 4,560 
Pension adjustment and other,
net of tax
Pension adjustment and other,
net of tax
— — — — (171)— (171)Pension adjustment and other,
net of tax
— — — — 218 — 218 
Cash flow Hedges, net of tax— — — — (9,946)— (9,946)
Cash flow hedges, net of taxCash flow hedges, net of tax— — — — (4,705)— (4,705)
Stock-based compensationStock-based compensation— — 4,390 — — — 4,390 
Shares issued from release of Restricted Stock UnitsShares issued from release of Restricted Stock Units103 (7,397)— — — (7,396)
Cash dividends declared on common stock, $0.26 per shareCash dividends declared on common stock, $0.26 per share— — — (10,991)— — (10,991)
Balance at March 31, 2023Balance at March 31, 202342,663 $426 $295,976 $1,194,993 $(3,986)$— $1,487,409 
Balance at December 31, 2021Balance at December 31, 202143,217 $432 $294,330 $906,841 $(17,605)$— $1,183,998 
Net incomeNet income— — — 94,576 — — 94,576 
Translation adjustment and other,
net of tax
Translation adjustment and other,
net of tax
— — — — (3)— (3)
Derivative instrument adjustments, net of taxDerivative instrument adjustments, net of tax— — — — (9,946)— (9,946)
Pension adjustment and other,
net of tax
Pension adjustment and other,
net of tax
— — — — (171)— (171)
Stock-based compensationStock-based compensation— — 4,007 — — — 4,007 Stock-based compensation— — 4,007 — — — 4,007 
Shares issued from release of Restricted Stock UnitsShares issued from release of Restricted Stock Units130 (9,524)— — — (9,523)Shares issued from release of Restricted Stock Units130 (9,524)— — — (9,523)
Repurchase of common stockRepurchase of common stock(195)— — — — (21,281)(21,281)Repurchase of common stock(195)— — — — (21,281)(21,281)
Cash dividends declared on common stock, $0.25 per shareCash dividends declared on common stock, $0.25 per share— — — (10,806)— — (10,806)Cash dividends declared on common stock, $0.25 per share— — — (10,806)— — (10,806)
Common stock issued at $139.07 per share for stock bonusCommon stock issued at $139.07 per share for stock bonus— 960 — — — 960 Common stock issued at $139.07 per share for stock bonus— 960 — — — 960 
Balance at March 31, 2022Balance at March 31, 202243,159 $433 $289,773 $990,611 $(27,725)$(21,281)$1,231,811 Balance at March 31, 202243,159 $433 $289,773 $990,611 $(27,725)$(21,281)$1,231,811 
Balance at December 31, 202043,326 $433 $284,007 $720,441 $(10,428)$(13,510)$980,943 
Net income— — — 50,387 — — 50,387 
Translation adjustment and other,
net of tax
— — — — (9,264)— (9,264)
Pension adjustment and other,
net of tax
— — — — 492 — 492 
Cash flow Hedges, net of tax26 26 
Stock-based compensation— — 6,462 — — — 6,462 
Shares issued from release of Restricted Stock Units97 (5,264)— — — (5,263)
Cash dividends declared on common stock, $0.23 per share— — — (9,966)— — (9,966)
Common stock issued at $93.45 per share for stock bonus691 — — — 692 
Balance, at March 31, 202143,430 $435 $285,896 $760,862 $(19,174)$(13,510)$1,014,509 








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


Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
Three Months EndedThree Months Ended
March 31,March 31,
20222021 20232022
Cash flows from operating activitiesCash flows from operating activities  Cash flows from operating activities 
Net incomeNet income$94,576 $50,387 Net income$87,954 $94,576 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:  Adjustments to reconcile net income to net cash provided by operating activities: 
Loss/(gain) on sale of assets and other(1,267)333 
Gain on sale of assets and otherGain on sale of assets and other(50)(1,083)
Depreciation and amortizationDepreciation and amortization10,795 11,225 Depreciation and amortization17,746 10,795 
Noncash lease expenseNoncash lease expense2,477 2,393 Noncash lease expense2,946 2,477 
(Gain) Loss in equity method investment, before tax(Gain) Loss in equity method investment, before tax136 (184)
Deferred income taxesDeferred income taxes(1,810)314 Deferred income taxes— (1,810)
Noncash compensation related to stock plansNoncash compensation related to stock plans4,872 6,542 Noncash compensation related to stock plans4,629 4,872 
Provision of doubtful accounts(211)(215)
Changes in operating assets and liabilities:  
Provision for doubtful accountsProvision for doubtful accounts635 (211)
Deferred hedge gainDeferred hedge gain(896)— 
Changes in operating assets and liabilitiesChanges in operating assets and liabilities 
Trade accounts receivableTrade accounts receivable(89,799)(62,660)Trade accounts receivable(69,990)(89,799)
InventoriesInventories(381)(14,750)Inventories(16,931)(381)
Trade accounts payableTrade accounts payable17,929 17,301 Trade accounts payable(3,418)17,929 
Other current assetsOther current assets(16,479)(14,109)Other current assets(3,137)(16,479)
Accrued liabilities and other current liabilitiesAccrued liabilities and other current liabilities21,707 22,126 Accrued liabilities and other current liabilities(13,238)21,707 
Other noncurrent assets and liabilitiesOther noncurrent assets and liabilities2,270 (1,054)Other noncurrent assets and liabilities(3,428)2,270 
Net cash provided by operating activitiesNet cash provided by operating activities44,679 17,833 Net cash provided by operating activities2,958 44,679 
Cash flows from investing activitiesCash flows from investing activities  Cash flows from investing activities 
Capital expendituresCapital expenditures(17,823)(10,505)Capital expenditures(18,758)(17,823)
Asset acquisitions(488)— 
Asset acquisitions, net of cash acquiredAsset acquisitions, net of cash acquired(8,329)(488)
Equity method investmentsEquity method investments(600)(5,329)Equity method investments— (600)
Proceeds from sale of property and equipmentProceeds from sale of property and equipment1,830 105 Proceeds from sale of property and equipment44 1,830 
Net cash used in investing activitiesNet cash used in investing activities(17,081)(15,729)Net cash used in investing activities(27,043)(17,081)
Cash flows from financing activitiesCash flows from financing activities  Cash flows from financing activities 
Repurchase of common stockRepurchase of common stock(21,281)— Repurchase of common stock— (21,281)
Proceeds from lines of credit and term loan borrowing700,038 — 
Repayments of lines of credit and capital leases(1,024)(192)
Proceeds from borrowing under lines of credit and term loanProceeds from borrowing under lines of credit and term loan271 700,038 
Repayments of lines of credit and term loanRepayments of lines of credit and term loan(5,625)(1,024)
Debt issuance costsDebt issuance costs(6,804)— Debt issuance costs— (6,804)
Dividends paidDividends paid(10,806)(9,967)Dividends paid(11,065)(10,806)
Cash paid on behalf of employees for shares withheldCash paid on behalf of employees for shares withheld(9,523)(5,263)Cash paid on behalf of employees for shares withheld(7,398)(9,523)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities650,600 (15,422)Net cash provided by (used in) financing activities(23,817)650,600 
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents5,019 (3,893)Effect of exchange rate changes on cash and cash equivalents(299)5,019 
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents683,217 (17,211)Net increase (decrease) in cash and cash equivalents(48,201)683,217 
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period301,155 274,639 Cash and cash equivalents at beginning of period300,742 301,155 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$984,372 $257,428 Cash and cash equivalents at end of period$252,541 $984,372 
Noncash activity during the periodNoncash activity during the period  Noncash activity during the period 
Noncash capital expendituresNoncash capital expenditures$761 $1,526 Noncash capital expenditures$2,657 $761 
Dividends declared but not paidDividends declared but not paid10,847 9,967 Dividends declared but not paid10,991 10,847 
Issuance of Company’s common stock for compensationIssuance of Company’s common stock for compensation$960 $692 Issuance of Company’s common stock for compensation— 960 
The accompanying notes are an integral part of these condensed consolidated financial statements
7



Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.    Basis of Presentation
 
Principles of Consolidation
 
The accompanying condensed consolidated financial statementsCondensed 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 condensed financial statementsCondensed 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 condensed consolidated financial statementsCondensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these condensed consolidated financial statementsCondensed 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 COVID-19. The Company's actual results could differ materially from those estimates.

Interim Reporting Period
 
The accompanying unaudited quarterly condensed consolidated financial statementsCondensed 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, 20212022 (the “2021“2022 Form 10-K”).
 
The unaudited quarterly condensed consolidated financial statementsCondensed 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 statementsCondensed Consolidated Financial Statements and the accompanying notes have been reclassified to conform to the current period’s presentation. The year-end condensed consolidated balance sheetCondensed Consolidated Balance Sheet data provided herein were derived from audited consolidated financial statements included in the 20212022 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 necessarily indicative of the results to be expected for any future periods.

Revenue Recognition
 
Generally, the Company's revenue contract with a customer exists when (1) the goods are shipped, services are rendered, and the related invoice is generated, (2) the duration of the contract does not extend beyond the promised goods or services already transferred and (3) 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 overof a product to a customer at a point in time. Our shipping terms provide the primary indicator of the transfer of control. The Company's general shipping terms are Incoterm C.P.T. (F.O.B. shipping point), where the title, and risk and rewards of ownership transfer at the point when the products are no longer on the Company's premises. Other Incoterms are allowed as exceptions depending on the product or service being sold and the nature of the sale. 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 would 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.
8



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 stocksstock 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 of their inclusion is dilutive.
Accounting for Leases

The Company has operating and finance leases for certain facilities, equipment, autos and data centers. As an accounting policy for short-term leases, the Company elected to not recognize a right-of-use ("ROU") asset ("ROU 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 a 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 three or 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.

0FairFair 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 valuevalues 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 theCompany's interest rate and foreign currency contracts are classified as Level 2 within the fair value hierarchy. The fair values of the Company’s contingent consideration related to acquisitions and equity investments are classified as Level 3 within the fair value hierarchy, as these amounts are based on unobserved inputs such as management estimates and entity-specific assumptions and are evaluated on an ongoing basis.


















9


The following tables summarize financial assets and liabilities measured at fair value as of March 31, 2023 and 2022:

 20232022
 (in millions) 
Level 1Level 2Level 3Level 1Level 2
Cash equivalents (1)
$120.5 $— $— $32.6 — 
Term loan due 2027 (2)
— 427.5 — — 450.0 
Revolver due 2027 (2)
— 150.0 — — 250.0 
Derivative instruments - assets (3)
— 35.6 — — 9.7 
Derivative instruments - liabilities (3)
— (11.5)— — (25.8)
Contingent considerations— — 6.5 — — 
1) The carrying amounts of cash equivalents, representing government and other money market funds traded in an active market with relatively short maturities, are reported on the consolidated balance sheet as of March 31, 2023 and 2022 as a component of "Cash and cash equivalents".
(2) The carrying amounts of the term loan and revolver approximate fair value as of March 31, 2023 based upon the terms and conditions as disclosed in Note 12 in comparison to debt instruments with similar terms and conditions available on the same date.
(3) Derivatives for interest rate, foreign exchange and forward swap contracts are discussed in Note 8.

Derivative Instruments - Foreign Currency and Interest Rate Contracts

The Company uses derivative instruments as a risk management tool to mitigate the potential impact of certain market risks. Foreign currency and interest rate risk are the primary market risks the Company manages through the use of derivative instruments, which are accounted for as cash flow hedges or net investment hedges under the accounting standards and carried at fair value as other current or noncurrent assets or as other current or other long-term liabilities. Assets and liabilities inwith the condensed consolidated balance sheets.legal right of offset are not offset. Net deferred gains and losses related to changes in fair value of cash flow hedges are included in accumulated other comprehensive income/loss ("OCI"), a component of shareholders'stockholders' equity, in the condensed consolidated balance sheets, and are reclassified into the line item in the condensed consolidated statement of earnings and comprehensive incomeCondensed Consolidated Statement Of Earnings And Comprehensive Income in which the hedged items are recorded in the same period the hedged item affects earnings. The effective portion of gains and losses attributable to net investment hedges is recorded net of tax to OCI to offset the change in the carrying value of the net investment being hedged. Recognition in earnings of amounts previously recorded to OCI are limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operation. Changes in fair value of any derivatives that are determined to be ineffective are immediately reclassified from OCI into earnings.
9


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 March 31, 2023 and 2022, and 2021, the valuevalues of these investments were $32.6$120.5 million and $28.2$32.6 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 three months ended March 31, 20222023 are outlined in the table below:
Balance atBalance at
(in thousands)December 31, 2021Expense (Deductions), net
Write-Offs1
March 31, 2022
Allowance for Doubtful Accounts$1,933 (211)103 $1,619 
10


Balance atBalance at
(in thousands)December 31, 2022Expense (Deductions), net
Write-Offs1
March 31, 2023
Allowance for Doubtful Accounts$3,240 635 (85)$3,960 
1Amount is net of recoveries and the effect of foreign currency fluctuations for thethreemonths ended March 31, 2022.fluctuations.

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.

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,We believe that all recently issued accounting pronouncements from the Financial Accounting Standards Board issued Accounting Standards Update ("ASU"FASB") 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 provides optional guidancedo not apply to ease the potential burden in accounting for reference rate reform on financial reporting in responseus or will not have a material impact to the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on December 31, 2021. The Company's primary credit facility, which was amended and restated on March 30, 2022, is composed of $450.0 million revolving line of credit and a $450.0 million term loan (the "Amended and Restated Credit Facility"), which matures on March 30, 2027. Borrowings under the Amended and Restated Credit Facility bear interest using Secured Overnight Financing Rate ("SOFR") plus an applicable margin.Condensed Consolidated Financial Statements.


All other newly issued and effective accounting standards during the first quarter of 2022 were determined to be not relevant or material to the Company.

11


2.    Revenue from Contracts with Customers

Disaggregated Revenue

The Company disaggregates net sales into the following major product groups as described in its segment information included in these interim financial statements under Note 14.
10


Wood Construction Products Revenue. Wood construction products represented 88%approximately 85% and 87%88% of total net sales for the three months ended March 31, 2023 and 2022, and 2021.respectively.

Concrete Construction Products Revenue. Concrete construction products represented 12%approximately 14% and 13%12% of total net sales for both the three months ended March 31, 2023 and 2022 and 2021.respectively.

Customer Acceptance Criteria. Generally, there are no customer acceptance criteria included in the Company's standard sales agreement with customers. When an arrangement with the customer does not meet the criteria to be accounted for as a revenue contract under the standard, the Company recognizes revenue in the amount of nonrefundable consideration received when the Company has transferred control of the goods or services and has stopped transferring (and has no obligation to transfer) additional goods or services. The Company offers certain customers discounts for paying invoices ahead of the due date, which are generally 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 0.1%1% of net sales and recognized as the services are completed or by transferring control over a product to a customer at a point in time. Services may be sold separately or in bundled packages. The typical contract length for a service is generally less than one year. For bundled packages, the Company accounts for individual services separately when they are distinct within the context of the contract. A distinct service is separately identifiable from other items in the bundled package if a customer can benefit from it 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 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 Balancescontract 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 March 31, 2022,2023, the Company had no contract assets or contract liabilities from contracts with customers.


3.    Acquisition

On April 1, 2022, the Company completed its acquisition (the "Acquisition") of 100% of the outstanding equity interest of FIXCO Invest S.A.S. (together with its subsidiaries, "ETANCO") for total purchase consideration of $805.4 million, net of cash acquired. The Acquisition was completed pursuant to the securities purchase agreement dated January 26, 2022, as amended, by and among the Company, Fastco Investment, Fastco Financing, LRLUX and certain other security holders. The purchase price for the Acquisition was paid using cash on hand and borrowings in the amount of $250.0 million under the revolving credit facility and $450.0 million under the term loan facility.

ETANCO is a manufacturer and distributor of fastener and fixing products headquartered in France and its primary product applications directly align with the addressable markets in which the Company operates. The Acquisition allows the Company to enter into new commercial building markets such as façades, waterproofing, safety and solar, as well as grow its share of direct business sales in Europe.

ETANCO’s results of operations were included in the Company's Condensed Consolidated Financial Statements from April 1, 2022 the acquisition date, and as such, only includes ETANCO's results of operations for the three months ending March 31, 2023. ETANCO had net sales of $80.0 million and a net income of $5.3 million, for the three months ended March 31, 2023, which includes costs related to the amortization of acquired intangible assets, and expenses incurred for integration.

12



Purchase price allocation

The Acquisition was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations ("ASC 805") which requires, among other things, that assets acquired and liabilities assumed in a business combination be recorded at fair value as of the acquisition date with limited exceptions.

The allocation of the $824.4 million purchase price, including cash, to the estimated fair values of the tangible and intangible assets acquired and liabilities assumed is as follows:

(in thousands)Amount
Cash and cash equivalents$19,010 
Trade accounts receivable, net63,607 
Inventory107,185 
Other current assets4,491 
Property and equipment, net89,695 
Operating lease right-of-use assets5,361 
Goodwill365,591 
Intangible assets, net357,327 
Other noncurrent assets2,881 
Total assets1,015,148
Trade accounts payable46,457 
Accrued liabilities and other current liabilities22,079 
Operating lease liabilities5,176 
Deferred income tax and other long-term liabilities117,031 
Total purchase price$824,405

Trade accounts receivable, net

The gross amount of trade receivables acquired was approximately $67.4 million, of which $63.6 million was estimated to be recoverable based on ETANCO's historical trend for collections.

Inventory

Acquired inventory primarily consists of raw materials and finished goods consisting of building and construction materials products. The Company adjusted acquired finished goods higher by $14.3 million to estimated fair value based on expected selling prices less a reasonable amount for selling efforts. The fair value adjustment was fully recognized as a component of cost of sales over the inventory’s estimated turnover period during the nine months ended December 31, 2022.

Property and equipment, net

Acquired property and equipment includes land of $16.1 million, buildings and site improvements of $32.5 million, and machinery, equipment, and software of $41.1 million. The estimated fair value of property and equipment was determined primarily using market and/or or cost approach methodologies. The acquired fair value for buildings and site improvements depreciate on a straight-line basis over the estimated useful lives of the assets for a period of up to sixteen years, machinery, equipment and software will depreciate on an accelerated basis over an estimated useful life of three to ten years. Depreciation expense associated with the acquired property and equipment amounted to $1.8 million for the three months ended March 31, 2023.




13


Goodwill

The excess of purchase price over the net assets acquired was recognized as goodwill and relates to the value that is expected from the acquired assembled workforce as well as the increased scale and synergies resulting from the integration of both businesses. The goodwill recognized from the Acquisition is not deductible for local income tax purposes. Goodwill has been allocated to components within the ETANCO reporting unit.

Intangible assets, net

The estimated fair value of intangible assets acquired was determined primarily using income approach methodologies. The values allocated to intangible assets and the useful lives were as follows:

(in thousands, except useful lives)Weighted-average useful life (in years)Amount
Customer relationships15$248,398 
Trade names Indefinite93,811 
Developed technology1011,256 
Patents83,862 
$357,327 

The acquired definite-lived intangible assets are being amortized on a straight-line basis over estimated useful lives, which approximates the pattern in which these assets are utilized. The Company recognized $4.4 million of amortization expense on these assets during the three months ended March 31, 2023.

Deferred taxes

As a result of the increase in fair value of inventory, property and equipment, and intangible assets, deferred tax liabilities of $105.9 million were recognized, primarily due to intangible assets.

Acquisition and integration related costs

During the three months ended March 31, 2023, the Company incurred integration related expenses of $1.4 million. During the three months ended March 31, 2022, the Company incurred acquisition related costs of $7.0 million for investment banking, legal, accounting, advisory, and consulting fees. Acquisition and integration related costs have been included in the Company’s income from operations.

Unaudited pro forma results

The following unaudited pro forma combined financial information presents estimated results as if the Company acquired ETANCO on January 1, 2021. The unaudited pro forma financial information as presented below is for informational purposes only and does not purport to actually represent what the Company’s combined results of operations would have been had the Acquisition occurred on January 1, 2021, or what those results will be for any future periods.

The following unaudited pro forma consolidated financial information has been prepared using the acquisition method of accounting in accordance with U.S. GAAP:

14


Three Months Ended 
 
March 31,
(in thousands, except per share amounts)20232022
Net sales$534,430 $572,754 
Net income$89,032 $105,447 
Pro forma earnings per common share:
Basic$2.09 $2.44 
Diluted$2.08 $2.43 
Weighted average shares outstanding:
Basic42,610 43,179 
Diluted42,827 43,376 

The unaudited pro forma results above includes the following adjustments to net income:

1) Integration related costs of $1.4 million and acquisition related costs $7.0 million, which were incurred during the three months ended March 31, 2023 and March 31, 2022, respectively, were adjusted as if such costs were incurred during the twelve months ended December 31, 2021.

2) Net income for ETANCO includes adjustments of $0.4 million to conform ETANCO’s historical financial results prepared under French GAAP to U.S. GAAP for the three months ended March 31, 2022. The U.S. GAAP adjustments are primarily related to share-based payments expense on awards that were settled prior to the Acquisition, and costs incurred and capitalized by ETANCO on its historical acquisitions.


4.    Net Income Perper Share

The following shows a reconciliation of basic net earnings per share ("EPS") per share to diluted EPS:
 
Three Months Ended 
 
March 31,
Three Months Ended 
 
March 31,
(in thousands, except per share amounts)(in thousands, except per share amounts)20222021(in thousands, except per share amounts)20232022
Net income available to common stockholdersNet income available to common stockholders$94,576 $50,387 Net income available to common stockholders$87,954 $94,576 
Basic weighted-average shares outstandingBasic weighted-average shares outstanding43,179 43,379 Basic weighted-average shares outstanding42,610 43,179 
Dilutive effect of potential common stock equivalents — restricted stock unitsDilutive effect of potential common stock equivalents — restricted stock units197 233 Dilutive effect of potential common stock equivalents — restricted stock units217 197 
Diluted weighted-average shares outstandingDiluted weighted-average shares outstanding43,376 43,612 Diluted weighted-average shares outstanding42,827 43,376 
Net income per common share:  
Net earnings per common share:Net earnings per common share:  
BasicBasic$2.19 $1.16 Basic$2.06 $2.19 
DilutedDiluted$2.18 $1.16 Diluted$2.05 $2.18 


4.    Stockholders' Equity

Treasury Shares

As of March 31, 2022, the Company held 194,745 shares of its common stock as treasury shares.

1115


During the three months ended March 31, 2022, the Company repurchased 194,745 shares of the Company's common stock in the open market at an average of $109.28 per share, for a total of $21.3 million. As of March 31, 2022, approximately $78.7 million remains available for repurchase under the previously announced $100.0 million share repurchase authorization (which expires at the end of 2022).

5.    Stock-Based Compensation

The Company allocates stock-based compensation expense amongst 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 to whom the stock-based compensation is awarded. Stock-based compensation capitalized in inventory was immaterial for all periods presented. The Company recognized stock-based compensation expense related to its equity plans for employees of $4.9$4.6 million and $6.5$4.9 million for the three months ended March 31, 2023 and 2022, and 2021, respectively.


During the three months ended March 31, 2022,2023, the Company granted 112,101 RSUs261,760 restricted stock units (RSUs) and PSUsperformance stock units (PSUs) to the Company's employees, including officers at an estimated weighted average fair value of $120.51$98.49 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 and PSUs granted to the Company's employees may be time-based performance-based or time-time and performance-based. Certain of the PSUs 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 award agreement over a cumulative three year period. Theseperiod, after which time these awards cliff vest after three years.vest. 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.

As of March 31, 2022,2023, the Company's aggregate unamortized stock compensation expense was approximately $31.0$32.2 million which is expected to be recognized in expense over a weighted-average period of 2.62.7 years.


6.    Trade Accounts Receivable, Netnet
 
Trade accounts receivable consisted of the following:
At March 31,At December 31, As of March 31,As of December 31,
(in thousands)(in thousands)202220212021(in thousands)202320222022
Trade accounts receivableTrade accounts receivable$327,054 $232,646 $237,312 Trade accounts receivable$348,201 $327,054 $276,229 
Allowance for doubtful accountsAllowance for doubtful accounts(1,618)(1,776)(1,932)Allowance for doubtful accounts(3,961)(1,618)(3,240)
Allowance for sales discounts and returnsAllowance for sales discounts and returns(5,008)(3,669)(4,359)Allowance for sales discounts and returns(4,566)(5,008)(3,865)
$320,428 $227,201 $231,021  $339,674 $320,428 $269,124 
 
7.    Inventories
 
The components of inventories are as follows:
At March 31,At December 31, As of March 31,As of December 31,
(in thousands)(in thousands)202220212021(in thousands)202320222022
Raw materialsRaw materials$180,431 $94,340 $191,174 Raw materials$200,190 $180,431 $187,149 
In-process productsIn-process products36,029 22,678 30,309 In-process products56,937 36,029 55,171 
Finished productsFinished products226,988 179,622 222,273 Finished products319,306 226,988 314,481 
$443,448 $296,640 $443,756  $576,433 $443,448 $556,801 

8.    Derivative Instruments

The Company enters into derivative instrument agreements, including forward foreign currency exchange contracts, interest rate swaps, and cross currency swaps to manage risk in connection with changes in foreign currency and interest rates. The Company hedges committed exposures and does not engage in speculative transactions. The Company only enters into derivative instrument agreements with counterparties who have highly rated credit.
12



The Company uses a forward foreign currency contract to hedge its exposure to adverse foreign currency exchange rate movements for its operations in Europe. This contract matures in March 2029. The Company has elected the spot method for designating this contract as a net investment hedge. The Company has also converted a Euro-denominated ("EUR"), fixed rate obligation into a U.S. Dollar fixed rate obligation using a receive fixed, pay fixed cross currency swap. The cross-currency swap is designated as a cash flow hedge. In addition, the Company has converted domestic U.S. variable rate debt to fixed rate debt using a receive variable, pay fixed interest rate swap. The interest rate swap contract is also designated as a cash flow hedge.

As of March 31, 2022,2023, the aggregate notional amount of the Company's outstanding interest rate contracts, cross currency swap contracts, andEUR forward contract and CNY forward contracts were $700.0$577.5 million, $500.0$448.2 million, $321.7 million and $328.2$9.9 million, respectively. As of March 31, 2021,2022, the aggregate notional amount of the Company's outstanding forward contracts used to hedge variability in cash flows on its Chinese Yuan denominated purchases were $9.1 million.CNY68.3 million, all of which expired by December 31, 2022.
16



Changes in fair value of any forward contracts that are determined to be ineffective are immediately reclassified from OCI into earnings. There were no amounts recognized due to ineffectiveness during the three monthsthree-months ended March 31, 2022.2023.

The effects of fair value and cash flow hedge accounting on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the periodperiods ended March 31, 2022 waswere as follows:
20232022
(in thousands)(in thousands)Cost of Goods SoldInterest expense, net and other(in thousands)Interest expense, netOther & foreign exchange loss, netCost of salesInterest expense, netOther & foreign exchange loss, net
Total amounts of income and expense line items presented in the Condensed Consolidated Statement of Earnings in which the effects of fair value or cash flow hedges are recordedTotal amounts of income and expense line items presented in the Condensed Consolidated Statement of Earnings in which the effects of fair value or cash flow hedges are recorded$256,789 $(428)Total amounts of income and expense line items presented in the Condensed Consolidated Statement of Earnings in which the effects of fair value or cash flow hedges are recorded$(570)$(398)256,789 (212)(216)
The effects of fair value and cash flow hedgingThe effects of fair value and cash flow hedgingThe effects of fair value and cash flow hedging
Gain or (loss) on cash flow hedging relationshipsGain or (loss) on cash flow hedging relationships
Interest contracts:Interest contracts:
Amount of gain or (loss) reclassified from OCI to earnings— (29)Amount of gain or (loss) reclassified from OCI to earnings3,196 — — (29)— 
Cross currency swap contractCross currency swap contract
Amount of gain or (loss) reclassified from OCI to earnings— (2,946)Amount of gain or (loss) reclassified from OCI to earnings1,339 (1,816)— 21 (2,967)
Forward contractForward contract
Amount of gain or (loss) reclassified from OCI to earnings163 — Amount of gain or (loss) reclassified from OCI to earnings— — 163— — 

Fair value and cash flow hedge accounting had 0 effect on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the period ended March 31, 2021.

The effects of derivative instruments on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the periodthree months ended March 31, 2023 and 2022 were as follow:follows:

Cash Flow Hedging RelationshipsCash Flow Hedging RelationshipsGain (Loss) Recognized in OCILocation of Gain (Loss) Reclassified from OCI into EarningsGain (Loss) Reclassified from OCI into EarningsCash Flow Hedging RelationshipsGain (Loss) Recognized in OCILocation of Gain (Loss) Reclassified from OCI into EarningsGain (Loss) Reclassified from OCI into Earnings
(in thousands)(in thousands)2022202120222021(in thousands)2023202220232022
Interest rate contractsInterest rate contracts$(1,805)$— Interest expense$(29)$— Interest rate contracts$(4,043)$(1,805)Interest expense$3,196 $(29)
Cross currency contractsCross currency contracts(7,548)— Interest expense21 — Cross currency contracts(2,279)(7,548)Interest expense1,339 21 
FX gain (loss)(2,967)— 
Forward contractsForward contracts$— $— Cost of goods sold163 — Forward contracts$(35)$— FX gain (loss)(1,816)(2,967)
FX gain (loss)FX gain (loss)$— $— Cost of goods sold— 163 
TotalTotal$(9,353)$— $(2,812)$— Total$(6,357)$(9,353)$2,719 $(2,812)


For the three months ending March 31, 2022,2023 losses on the net investment hedge and March 31, 2022 gains on net investment hedge of $0.2 million and $6.8 million waswere included in OCI, and norespectively. For the three months ending March 31, 2023, excluded gains or lossesof $1.2 million were reclassified from OCI to earnings.interest expense, while none were reported for the three months ended March 31, 2022.

As of March 31, 2023, the aggregate fair values of the Company’s derivative instruments on the Condensed Consolidated Balance Sheet were comprised of an asset of $35.6 million, of which $18.0 million is included in other current assets, and the balance, or $17.7 million as other non-current assets, and a non-current liability of $11.5 million.




17

9.    Property, Plant and Equipment, Netnet
 
Property, plant and equipment consisted of the following:
13

At March 31,At December 31, As of March 31,As of December 31,
(in thousands)(in thousands)202220212021(in thousands)202320222022
LandLand$34,591 $28,280 $28,175 Land$51,543 $34,591 $50,025 
Buildings and site improvementsBuildings and site improvements197,180 201,283 202,393 Buildings and site improvements233,141 197,180 233,123 
Leasehold improvementsLeasehold improvements6,153 7,023 5,995 Leasehold improvements6,621 6,153 6,367 
Machinery, equipment, and softwareMachinery, equipment, and software407,808 385,195 399,079 Machinery, equipment, and software481,993 407,808 472,907 
645,732 621,781 635,642  773,298 645,732 762,422 
Less accumulated depreciation and amortizationLess accumulated depreciation and amortization(406,835)(382,907)(402,246)Less accumulated depreciation and amortization(443,762)(406,835)(432,392)
238,897 238,874 233,396  329,536 238,897 330,030 
Capital projects in progressCapital projects in progress26,778 16,810 26,473 Capital projects in progress39,553 26,778 31,525 
TotalTotal$265,675 $255,684 $259,869 Total$369,089 $265,675 $361,555 


10.    Goodwill and Intangible Assets, net
 
Goodwill consisted of the following: 
At March 31,At December 31, As of March 31,As of December 31,
(in thousands)(in thousands)202220212021(in thousands)202320222022
North AmericaNorth America$96,359 $96,340 $96,307 North America$103,570 $96,359 $103,572 
EuropeEurope35,864 35,684 36,331 Europe395,903 35,864 390,799 
Asia/PacificAsia/Pacific1,428 1,453 1,384 Asia/Pacific1,276 1,428 1,301 
TotalTotal$133,651 $133,477 $134,022 Total$500,749 $133,651 $495,672 
 
Amortizable intangibleGoodwill totaled $500.7 million as of March 31, 2023, including $360.0 million attributable to the Acquisition.

Intangible assets, net, consisted of the following:
At March 31, 2022 As of March 31, 2023
Gross Net GrossNet
CarryingAccumulatedCarrying CarryingAccumulatedCarrying
(in thousands)(in thousands)AmountAmortizationAmount(in thousands)AmountAmortizationAmount
North AmericaNorth America$46,642 $(27,205)$19,437 North America$53,353 $(30,744)$22,609 
EuropeEurope26,274 (20,690)5,584 Europe378,158 (38,824)339,334 
Asia/PacificAsia/Pacific4,179 — 4,179 
TotalTotal$72,916 $(47,895)$25,021 Total$435,690 $(69,568)$366,122 
 
 At March 31, 2021
 Gross Net
(in thousands)Carrying
Amount
Accumulated
Amortization
Carrying
Amount
North America$40,785 $(23,724)$17,061 
Europe26,347 (18,349)7,998 
   Total$67,132 $(42,073)$25,059 
At December 31, 2021 As of March 31, 2022
Gross Net GrossNet
(in thousands)(in thousands)Carrying
Amount
Accumulated
Amortization
Carrying
Amount
(in thousands)Carrying
Amount
Accumulated
Amortization
Carrying
Amount
North AmericaNorth America$46,643 $(26,346)$20,297 North America$46,642 $(27,205)$19,437 
EuropeEurope26,371 (20,399)5,972 Europe26,274 (20,690)5,584 
TotalTotal$73,014 $(46,745)$26,269  Total$72,916 $(47,895)$25,021 
 
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 As of December 31, 2022
 GrossNet
(in thousands)Carrying
Amount
Accumulated
Amortization
Carrying
Amount
North America$53,498 $(29,782)$23,716 
Europe373,538 (34,337)339,201 
Total$427,036 $(64,119)$362,917 
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 $1.1$5.7 million and $1.7$1.1 million for the three months ended March 31, 20222023 and 2021,2022, respectively. The weighted-average amortization period for all amortizable intangibles on a combined basis is 8.38.9 years.

The only indefinite-livedIndefinite-lived intangible asset, consistingassets totaled $93.0 million as of a trade name, totaled $0.6 million at March 31, 2022.2023, including $92.3 million attributable to trade names acquired in the Acquisition.

At March 31, 2022,2023, the estimated future amortization of definite-lived intangible assets was as follows: 
(in thousands)(in thousands) (in thousands) 
Remaining nine months of 2022$3,553 
20233,740 
Remaining nine months of 2023Remaining nine months of 2023$15,748 
202420242,809 202420,314 
202520252,523 202520,087 
202620261,840 202619,618 
202720271,690 202719,334 
2028202819,123 
ThereafterThereafter8,250 Thereafter158,943 
$24,405 $273,167 
 
The changes in the carrying amount of goodwill and intangible assets for the three months ended March 31, 2022,2023, were as follows: 
 Intangible  Intangible
(in thousands)(in thousands)GoodwillAssets(in thousands)GoodwillAssets
Balance at December 31, 2021$134,022 $26,269 
Balance at December 31, 2022Balance at December 31, 2022$495,672 $362,917 
AcquisitionAcquisition— 4,179 
ReclassificationsReclassifications— (21)
AmortizationAmortization— (1,149)Amortization— (5,668)
Foreign exchangeForeign exchange(371)(99)Foreign exchange5,077 4,715 
Balance at March 31, 2022$133,651 $25,021 
Balance at March 31, 2023Balance at March 31, 2023$500,749 $366,122 


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11.    Leases

The Company has operating leases for certain facilities, equipment and automobiles. The existing operating leases expire at various dates through 2026,2027, some of which include options to extend the leases for up to 5five 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 sheetsCondensed Consolidated Balance Sheets as of March 31, 20222023 and 20212022 and December 31, 2021, condensed consolidated statements of earnings2022, Condensed Consolidated Statements Of Earnings and comprehensive income,Comprehensive Income, and condensed consolidated statements of cash flowsCondensed Consolidated Statements Of Cash Flows for the three months ended March 31, 20222023 and 2021, respectively:2022:
Condensed Consolidated Balance Sheets Line ItemMarch 31,December 31,Condensed Consolidated Balance Sheets Line ItemMarch 31,December 31,
(in thousands)(in thousands)20222021(in thousands)20232022
Operating leasesOperating leasesOperating leases
AssetsAssetsAssets
Operating leasesOperating leasesOperating lease right-of-use assets$44,651 $44,236 $45,438 Operating leasesOperating lease right-of-use assets$55,902 $44,651 $57,652 
LiabilitiesLiabilitiesLiabilities
Operating - currentOperating - currentAccrued expenses and other current liabilities8,750 $8,941 $8,769 Operating - currentAccrued expenses and other current liabilities$11,612 $8,750 $11,544 
Operating - noncurrentOperating - noncurrentOperating lease liabilities36,336 35,810 37,091 Operating - noncurrentOperating lease liabilities45,368 36,336 46,882 
Total operating lease liabilitiesTotal operating lease liabilities$45,086 $44,751 $45,860 Total operating lease liabilities$56,980 $45,086 $58,426 
Finance leasesFinance leasesFinance leases
AssetsAssetsAssets
Property and equipment, grossProperty and equipment, grossProperty, plant and equipment, net$— $3,569 $3,569 Property and equipment, grossProperty, plant and equipment, net$— $— $3,569 
Accumulated amortizationAccumulated amortizationProperty, plant and equipment, net— (3,188)(3,416)Accumulated amortizationProperty, plant and equipment, net— — (3,569)
Property and equipment, netProperty and equipment, netProperty, plant and equipment, net$— $381 $153 Property and equipment, netProperty, plant and equipment, net$— $— $— 
Liabilities
Other current liabilitiesAccrued expenses and other current liabilities$— $193 $— 
Total finance lease liabilities$— $193 $— 


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The components of lease expense were as follows:
Condensed Consolidated Statements of Earnings and Comprehensive Income Line ItemThree Months Ended March 31,
(in thousands)20222021
Operating lease costGeneral administrative expenses and
     cost of sales
$3,128 $2,859 
Finance lease cost:
   Amortization of right-of-use
        assets
General administrative expenses$— $216 
   Interest on lease liabilitiesInterest expense, net— 
Total finance lease$— $218 
Condensed Consolidated Statements of Earnings and Comprehensive Income Line ItemThree Months Ended March 31,
(in thousands)20232022
Operating lease costGeneral administrative expenses and
     cost of sales
$3,959 $3,128 


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Other Information

Supplemental cash flow information related to leases is as follows:
Three Months Ended March 31,Three Months Ended March 31,
(in thousands)(in thousands)20222021(in thousands)20232022
Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases Operating cash flows for operating leases$3,097 $2,805  Operating cash flows for operating leases$3,653 $3,097 
Finance cash flows for finance leases— 290 
Operating right-of-use assets obtained in exchange for lease
obligations during the current period
Operating right-of-use assets obtained in exchange for lease
obligations during the current period
2,196 786 Operating right-of-use assets obtained in exchange for lease
obligations during the current period
1,272 2,196 

The following is a schedule, by years, of maturities of lease liabilities as of March 31, 2022:2023:
(in thousands)Operating Leases
Remaining nine months of 2022$8,438 
20239,327 
20247,550 
20256,005 
20264,997 
Thereafter16,279 
Total lease payments52,596 
Less: Present value discount(7,510)
     Total lease liabilities$45,086 


17

(in thousands)Operating Leases
Remaining nine months of 2023$10,840 
202412,689 
202510,687 
20268,424 
20276,519 
Thereafter16,680 
Total lease payments65,839 
Less: Present value discount(8,859)
     Total lease liabilities$56,980 

The following table summarizes the Company's lease terms and discount rates as of March 31, 20222023 and 2021:2022:
Weighted-average remaining lease terms (in years):Weighted-average remaining lease terms (in years):20222021Weighted-average remaining lease terms (in years):20232022
Operating leasesOperating leases6.647.13Operating leases5.936.64
Finance leases0.00.25
Weighted-average discount rate:Weighted-average discount rate:Weighted-average discount rate:
Operating leasesOperating leases5.17 %5.28 %Operating leases4.67 %5.17 %
Finance leases— %3.5 %


12.    Debt

OnAs of March 30, 2022,31, 2023, the Company entered into the Amended and Restated Credit Facility. The Amended and Restated Credit Agreement amends and restates the Company's previous Credit Agreement, dated as of July 27, 2012. Thehas $577.5 million, excluding deferred financing costs, outstanding under its Amended and Restated Credit Facility, provides for a 5-year revolving credit facilitywhich is the estimated fair value as of $450.0 million revolving lineMarch 31, 2023. The Company had outstanding balances of credit, which includes a letter of credit-sub-facility up to $50.0$700.0 million and for a 5-year term loan facility of $450.0 million. The Company borrowed $250.0$583.2 million under the revolving credit facility and $450.0 million under the term loan facility to finance a portion of the purchase price of the Company’s acquisition of the ETANCO Group ("ETANCO"). In addition, the Company incurred $6.8M debt issuance costs reflected in long term debt, net that will be deferred and amortized over the 5-year terms of the Amended and Restated Credit Facility.

The Company is required to pay an annual revolving credit facility fee of 0.10% to 0.25% per annum on the available commitments under the terms of the Amended and Restated Revolving Credit Facility, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s net leverage ratio. The fee is included within other expense in the Company's condensed consolidated statement of operations.

Amounts borrowed under the Amended and Restated Credit Facility will bear interest from time to time at either Base Rate, Spread Adjusted Daily Simple SOFR, Spread Adjusted Term SOFR, Adjusted Eurocurrency Rate or Daily Simple RFR,as of March 31, 2022, and December 31, 2022, respectively.

The following is a schedule, by years, of maturities for the remaining term loan facility as of March 31, 2023:
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(in thousands)5-Year Term Loan
Remaining nine months of 2023$16,875 
202422,500 
202522,500 
202622,500 
2027343,125 
Total loan outstanding$427,500 

The $150.0 million outstanding under the revolving credit facility is due on March 31, 2027.

The Company was in each case, as calculated under and as in effect from time to timecompliance with its financial covenants under the Amended and Restated Credit Facility plus the Applicable Margin, as defined in the Amended and Restated Credit Facility. The Applicable Margin is determined based on the Company’s net leverage ratio, and ranges (i) from 0.00% to 0.75% per annum for amounts borrowed under the term loan facility that bear interest at Base Rate, (ii) from 0.75% to 1.75% per annum for amounts borrowed under the term loan facility that bear interest at Adjusted Eurocurrency Rate, Spread Adjusted Daily Simple SOFR or Spread Adjusted Term SOFR, (iii) from 0.00% to 0.50% per annum for amounts borrowed under the revolving credit facility that bear interest at Base Rate, (iv) from 0.6826% to 1.5326% per annum for amounts borrowed under the revolving credit facility that bear interest at Daily Simple RFR (solely to the extent denominated in pound sterling) and (v) from 0.65% to 1.50% per annum for amounts borrowed under the revolving credit facility that bear interest at Daily Simple RFR (other than loans denominated in pound sterling) or Adjusted Eurocurrency Rate. Loans outstanding under the Amended and Restated Credit Facility may be prepaid at any time without penalty except for customary breakage costs and expenses.of March 31, 2023.

As of March 31, 2022,2023, in addition to the Amended and Restated 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, all of its credit facilities provide the Company with a total of $204.3$305.7 million in revolving credit linesavailable borrowing capacity and an irrevocable standby letter of credit in support of various insurance deductibles.

The Company has a $700.0 million outstanding debt balance which we deem as the fair value as of March 31, 2022. There were no outstanding balances as of March 31, 2021, and December 31, 2021.

The Company was in compliance with its financial covenants under the Credit Facility as of March 31, 2022.

13.    Commitments and Contingencies

Environmental

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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.


14.    Segment Information

The Company is organized into 3three reporting segments defined by the regions where the Company’s products are manufactured, marketed and distributed to the Company’sits customers. The 3three reporting segments are the North America segment (comprised primarily of the Company’s operations in the U.S. and Canada), the Europe segment, which includes ETANCO, and the Asia/Pacific segment (comprised of the Company’s operations in Asia and 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 Administrative & All Other columnline item primarily includes expenses such as self-insured workers compensation claims for employees, 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.

22

The following tables illustrate certain measurements used by management to assess the performance of its reportable segments as of or the following periods:
Three Months Ended March 31,Three Months Ended March 31,
(in thousands)(in thousands)20222021(in thousands)20232022
Net SalesNet Sales Net Sales 
North AmericaNorth America$438,731 $300,564 North America$406,330 $438,731 
EuropeEurope51,451 44,296 Europe124,215 51,451 
Asia/PacificAsia/Pacific3,388 2,782 Asia/Pacific3,885 3,388 
TotalTotal$493,570 $347,642 Total$534,430 $493,570 
Sales to Other Segments*Sales to Other Segments* Sales to Other Segments* 
North AmericaNorth America$1,134 $696 North America$1,168 $1,134 
EuropeEurope1,684 1,609 Europe1,613 1,684 
Asia/PacificAsia/Pacific8,567 8,527 Asia/Pacific5,902 8,567 
TotalTotal$11,385 $10,832 Total$8,683 $11,385 
Income (Loss) from Operations ** 
Income (Loss) from OperationsIncome (Loss) from Operations 
North AmericaNorth America$135,727 $73,025 North America$114,393 $135,727 
EuropeEurope(1,370)2,291 Europe13,470 (1,370)
Asia/PacificAsia/Pacific564 425 Asia/Pacific(138)564 
Administrative and all otherAdministrative and all other(10,484)(7,358)Administrative and all other(9,362)(10,484)
TotalTotal$124,437 $68,383 Total$118,363 $124,437 
            
*    Sales to other segments are eliminated in consolidation.
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**    The Company changed its presentation of its North America and Administrative and all other segment statement of operations to account for allocated expenses and management fees as a separate item below income from operations. Allocated expenses and management fees between the two segments were previously included in operating expenses and in income from operations.
 At  At
At March 31,December 31, As of March 31,December 31,
(in thousands)(in thousands)202220212021(in thousands)202320222022
Total AssetsTotal Assets Total Assets 
North AmericaNorth America$1,120,027 $1,125,887 $1,352,988 North America$1,425,374 $1,120,027 $1,393,968 
EuropeEurope1,034,323 198,363 202,631 Europe695,268 1,034,323 675,634 
Asia/PacificAsia/Pacific32,847 31,831 31,832 Asia/Pacific32,789 32,847 34,599 
Administrative and all otherAdministrative and all other93,153 (61,354)(103,326)Administrative and all other402,203 93,153 399,770 
TotalTotal$2,280,350 $1,294,727 $1,484,125 Total$2,555,634 $2,280,350 $2,503,971 
 
Cash collected by the Company’s U.S. subsidiaries is routinely transferred into the Company’s cash management accounts and, therefore is in the total assets of “Administrative and all other.” Cash and cash equivalent balances in the “Administrative and all other” segment were $189.8 million, $96.1 million, $248.7 million, and $223.5$222.5 million, as of March 31, 20222023 and 2021,2022, and December 31, 2021,2022, respectively. On April 1, 2022,Also included in the Companytotal assets of "Administrative and all other" are intercompany borrowings due from the Europe segment, which were used approximately $800 millionby the Europe segment in the acquisition of ETANCO. Included in the funds held in our foreign operationstotal assets of each segment are net intercompany borrowings due to acquire ETANCO.and from the other segments.

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.and commercial construction. 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 table below illustrates the distribution of the Company’s sales by product group as additional information for the following periods:
Three Months Ended March 31,
(in thousands)20222021
Wood construction products$435,438 $301,578 
Concrete construction products57,976 45,523 
Other156 541 
Total$493,570 $347,642 
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Three Months Ended March 31,
(in thousands)20232022
Wood construction products$454,758 $435,438 
Concrete construction products76,672 57,976 
Other3,000 156 
Total$534,430 $493,570 


15.    Subsequent Events

Dividend Declared

On May 4, 2022,April 26, 2023, the Company’s Board of Directors (the "Board") declared a quarterly cash dividend of $0.26$0.27 per share, estimated to be $11.2$11.5 million in total. The dividend will be payable on July 28, 2022,27, 2023, to the Company's stockholders of record on July 7, 2022.6, 2023.

ETANCO Acquisition

On April 1, 2022, the Company acquired ETANCO, a manufacturer of fastener and fixing products headquartered in France, for $800.0 million (725 million euros(1)) net of cash. Information regarding the ETANCO acquisition information is incorporated by reference to Form 8-K April 7, 2022 filing.

Footnotes
(1) Reflects EUR to USD exchange rate as of March 21, 2022.


2024

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

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

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

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

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

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

Forward-looking statements are subject to inherent uncertainties, risks and other factors that are difficult to predict and could cause our actual results to vary in material respects from what we have expressed or implied by these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those expressed in our forward looking statements include, among others, the prolonged impact of the COVID-19 pandemic on our operations and supply chain, the operations of our customers, suppliers and business partners, and the successful integration of ETANCO and those discussed under Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022. Additional risks include: the cyclicality and impact of general economic conditions; changing conditions in global markets including the impact of sanctions and tariffs, quotas and other trade actions and import restrictions; the impact of pandemics, epidemics or other public health emergencies, such as the recent outbreak of a novel strain of coronavirus (COVID-19);emergencies; volatile supply and demand conditions affecting prices and volumes in the markets for both our products and raw materials we purchase; the impact of foreign currency fluctuations; potential limitations on our ability to access capital resources and borrowings under our existing credit agreement; restrictions on our business and financial covenants under our credit agreement; reliance on employees subject to collective bargaining agreements; and or ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any.

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




2125

Overview
 
We design, manufacture and sell building construction products that are of high quality and performance, easy touse and cost-effective for customers. We operate in three business segments determined by geographic region: North America,Europe and Asia/Pacific.

At our March 23,Recent Developments

In 2021, analyst and investor day, we unveiled several key growth initiatives that we believe will help us continue our track record of achieving above market revenue growth through a combination of organic and inorganic opportunities. Our organic opportunities are focused on expansion into newexpanding the markets within our core competencies offor wood and concrete products.structural connections and solutions. These key growth initiatives will focus on the original equipment manufacturers,OEM, repair and remodel or do-it-yourself, mass timber, concrete and structural steel markets.

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

Also during the March analyst and investor day, weWe also highlighted our five-year ambitions in 2021, which are as follows:

Strengthen our values-based culture;
Be the business partner of choice;
Strive to be an innovative leader in the markets we operate;
Continue above market growth relative to the United States housing starts;
Remain within the top quartile of our proxy peers for operating income margin; and
Remain in the top quartile of our proxy peers for return on invested capital.

We will make periodic updates related to material developments tohave made progress towards our key growth initiatives that were first announced in 2021. Select highlights that include both organic and with our five-year ambitions.

Acquisitionsinorganic growth from 2022 and Investments2023 were:

On April 1, 2022,Acquiring ETANCO which has resulted in additional scale for our European operations and was accretive to earnings in the Company successfully completed the acquisitionfirst quarter of ETANCO, a manufacturer of fastener products headquartered in France, for $800.0 million (725 million euros(1)) net of cash. For the 12 months ending September 30, 2021, ETANCO's net sales and operating income margin were approximately $291.0 million (approximately €258 million(2)) and 19.7%(2), respectively.2023;

ETANCO's primary product applications directly align with the addressable markets in which the Company operates. Leveraging ETANCO's leadingIncreasing our number of commercial market position in Europe, following the proposed acquisition, the Company would expand its portfolio of solutions, including mechanical anchors, fasteners and commercial building envelope solutions,customers as well as significantly increase its market presence across Europe. The transaction would allow the Company to enter intolaunching new commercial building markets such as façades, waterproofing, safety and solar, as well as grow its share of direct business sales in Europe.

The Company expects to realize operating income synergies of approximately $30 million, on an annual run rate basis, within 36 months following the proposed acquisition. These synergies would be achieved through expanding the Company's market share by selling its products into new markets and channels, incorporating ETANCO's products into the Company's existing channels, as well as procurement optimization, manufacturing and operating expense efficiencies. The Company expects to scale its European net sales and operating income margin performance, which is anticipated to result in an approximate 500 basis point increase in Europe operating income margins by 2025. Additionally, the Company also expects that its interest expense will increase as a result of the incurrence of debt to finance the acquisition of ETANCO.

Other accomplishments over the past year included the following:
22

Realigned our sales teams to more specifically focus on five end use markets – Residential, Commercial, OEM, National Retail and Building Technology, which has led to new customer and project wins within five of our key growth initiatives.structural steel products;
InvestedGrowing across all OEM customer types, while continuing to develop the market for mass timber:
Expanding our wood product line by acquiring intellectual property;
Continuing to invest in a venture capital fundfunds and other companies focused on the home building industry and related new technologies.
Entered into a joint indirect investment in the North America Hundegger equipment sales and service representative partner, Hundegger USA, LC to increase each parties' sales in the mass timber and component manufacturing markets by offering North America customers end-to-end solutions, including integrated software from a single source.
Formed an strategic alliance with Structural Technologies that will allow both parties jointly deliver complete end-to-end strengthening solutions to engineering professionals, contractors and owners across multiple construction and repair markets,
Within the National Retail market, we focused on growth in the repair and remodel and do-it-yourself markets by completing a reset of some of our fastener sets with one of our key customers,technologies; and
Within the Commercial market, we expanded our offerings, including the expansionAs part of our structural steel product line.Partner of Choice initiative, we anticipate completing our path-to-market customer transition by the end of this year.

The COVID-19 pandemic has severely impacted global economic conditions, resulting in substantial volatility in the financial markets, increased unemployment, and operational challenges resulting from measures that governments have imposed to control its spread. We continue to monitor the COVID-19 pandemic for potential impactAs we make progress on our business. We have undertaken numerous stepskey growth initiatives, we believe we can continue our above market growth relative to U.S. housing starts in fiscal 2023 and instituted additional precautions to comply with healthbeyond. These examples further emulate our Founder, Barclay Simpson’s, nine principles of doing business, and safety guidelinesmore specifically the focus and to protect our employees, suppliersobsession on customers and customers, as their safety and well-being is one of our top priorities, and to comply with health and safety guidelines. These steps and precautions include enhanced deep cleaning, staggered shifts, temperature checking, use of face masks, practicing social distancing and limiting non-employees at our locations, amongst other safety related policies and procedures.users.

The Company’s management team continues to monitor and manage its ability to operate effectively and, to date, the Company has not experienced any significant disruptions within its supply chain.Factors Affecting Our supply chain partners have been very supportive and continue to do their part to ensure that service levels to our customers remain strong and, to date, we have not experienced any supply-chain disruptions and continued to meet our customers’ needs despite the challenges presented by the COVID-19 pandemic. We will continue to communicate with our supply chain partners to identify and mitigate risk and to manage inventory levels. The Company's Crisis Management Team, which includes membersResults of senior management, meets periodically to review and assess the status of the Company's operations and the health and safety of its employees.Operations

The Company’s business, financial condition and results of operations depends in large part on the level of United States housing starts and residential construction activity. Though single-family housing starts increased significantly in the last year,prior years, we believe there is uncertainty currenthave seen demand will remain at the current leveldecline recently due to supply-chain factors, unfavorable economic conditions, including rising interest rates, inflation, and interest rate increases affectingrecession fears, resulting in lower new home starts and completions. With recent salesHowever, the Company also supplies product used in multifamily housing construction, which increased in the first quarter of 2023 compared to last year. During 2021, we passed four price increases to our customers to offset significantly higher material costs arising from supply constraints. During the first quarter of 2023, we believe sales will likelygave back some of the increase in future periods even if demand does not decrease. However, increased sellingproduct prices are expectedin response to be offset by increasingmarginally lower raw material costs, sourcing logistics complications andwhile a tight labor market whichand unusually wet winter in the western region of the United States could further negatively affect operating margins for 2023 as compared to 2022.

26

Management continues to monitor the impact of rising material input and product logistics costs on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce.

Factors Affecting Our Results of Operations

Unlike lumber or other products that have a more direct correlation to United States 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 processprogression 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.

OurIn prior years, our sales also tend to bewere heavily seasonal with operating results varying from quarter to quarter. With some exceptions, ourquarter depending on weather conditions that could delay construction starts. 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, asyear. Due to efforts in diversifying our customers tend to purchase construction materials in the late springglobal footprint, most notably with our acquisition of ETANCO, sales from our product line, customer base and summer months for the construction season. Weather conditions, such as extended cold or wet weather, which affect and sometimes delay installation of some of our products, could negatively affect our results of operations.customer purchases are becoming less seasonal. Political and economic events such as tariffsrising energy costs, volatility in the steel market, stressed product transportation systems and the possibility of additional tariffs on imported raw materials or finished goods or such as labor disputesincreasing interest rates can also have an effect on our gross and operating profits as well as the amount of inventory on-hand. Our operations can also be affected by a volatile steel market and stressed product
23

transportation systems.well. Changes in raw material cost could impact the amount of inventory on-hand, and negatively affect our gross profit and operating margins depending on the timing of raw material purchases or how much sales prices can be increased to offset higher raw material costs. Delays in receiving products or shipping sales orders, as well as increased transportation costs, could negatively impact sales and operating profits.

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

Business Segment Information

Historically our North America segment has generated more revenues from wood construction products compared to concrete construction products. Our wood construction product sales increased 49.0%decreased 9.9% for the quarter ended March 31, 20222023 compared to March 31, 2021,2022, mostly due to lower sales volumes, and our concrete construction product sales increased 27.5% for6.3% over the quarter ended March 31, 2022 compared to March 31, 2021,same periods, due to product price increases throughout 2021 in an effort to offset rising raw material costs. These price increases were also the primary contributor to gross profits and operating profits increasing over the same comparable periods. As a result of the product price increases phased in during 2021, full phased in product price increases for 2022 could result in $300 million in additional net sales compared to 2021. We currently anticipate gross margin and operating margin compression beginning in the latter half of 2022 as higher priced raw materials and rising average cost of steel on hand offset the price increases.

Our Europe segment also generates more revenues from wood construction products than concrete construction products. Europe sales increased 16.2% for the quarter ended March 31, 2022 compared to March 31, 2021, primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs, partly offset by lower volumes. Previously announced decreases for pricing on certain of our wood products for 2023 will likely negatively affect 2023 net sales compared to 2022. We currently anticipate compression of our operating margin for fiscal 2023 compared to 2022 due to the effects of our product price decreases and increases in operating expenses, partly offset by lower average priced steel in cost of sales relative to much of the prior year.

During 2022, we reviewed the footprint for our U.S. operations with assistance from a third party. As a result, we identified opportunities to expand our facilities in the U.S. We believe that this expansion will improve our overall service, production efficiencies and safety in the workplace, as well as reduce our reliance on certain outsourced finished goods and component products and continue to ensure we have ample capacity to meet our customer needs. These investments reinforce our core business model differentiators to remain the partner of choice as we continue to produce products locally and ensure superior levels of customer service. Facility investments have already started in 2022 with the announced expansion of the Columbus facility, expected to be completed in 2024 while additional facility expansions are being considered.

Europe sales increased 141.4% for the quarter ended March 31, 2023 compared to March 31, 2022, primarily due to the acquisition of ETANCO, which contributed $80.0 million in net sales, along with product price increases, offset by lower volumes and the negative effect of approximately $3.7$2.8 million in foreign currency translation due to a strengtheningweakening United States dollar. Wood construction product sales increased 14.7%129.4% for the quarter ended March 31, 20222023 compared to March 31, 2021.2022 with ETANCO contributing $64.8 million to that increase. Concrete construction product sales are mostly project based, and sales increased 26.2%215.5% for the quarter ended March 31, 20222023 compared to March 31, 2021.2022 with ETANCO contributing $15.2 million. Europe gross profit of $46.6 million included $30.6 million from the acquisition of ETANCO. Europe reported income from operations of $14.8 million for the quarter ended March 31, 2023 compared to a loss from operations for the quarter ended March 31, 2022. ETANCO contributed operating income of $9.4 million for the current quarter, which was net of $4.2 million of amortization expense on acquired intangible assets and acquisition and integration costs were lower by $5.5 million. We expect to incur additional costs in 2023 as originally planned, to continue integrating ETANCO. The Company including ETANCO, have suspended all saleshas begun to benefit from some of the previously identified synergies and distribution activitywe believe remains well positioned to Russia and Belarus. We estimate annual salesbenefit meaningfully from other synergies, subject to these countries are less $5.0 million. Gross margins decreased, primarily due to higher factory & tooling costs, as a percentagechanging macroeconomic circumstances, which will delay some of net sales. Europe reported an operating loss of $1.4 million, primarily due to professional fees of $7.0 million associated with the ETANCO acquisition, offset by a $1.1 million gain on the sale of a property and increased gross profits. We anticipate incurring approximately $15 million to $17 million in integration and transaction costs related to the ETANCO acquisition, of which $8 million to $10 million are incremental. Including increased steel costs, product sourcing complications with the Ukraine conflict, Europe's net sales and operating margins for the full year 2022 will likely be negatively impacted.synergy opportunities.

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

Since March 2021, inventory pounds in North America, which is the bulk of our inventory, remained flat while the weighted average cost per pound of total on hand increased approximately 56%. Based on our current expectations, we are anticipating continued raw material cost pressure for fiscal 2022. As we work through our on hand inventory and continue to buy raw material at these much higher prices, our anticipated costs of goods sold are expected to increase during fiscal 2022, even if prices for raw material decline, as the impact from averaging raw material costs typically lags our price increases. We began to see this sequential accelerating increase in material costs occur beginning in the third quarter 2021.

Business Outlook

The Company has updated its 2022 financial outlook to includefor the acquisition of ETANCO, which closedfull fiscal year ending December 31, 2023 based on April 1, 2022, one quarter of actual results, andperformance to reflect its latest expectations regarding demand trends, raw material costs and operating expenses. Based on business trends and conditionsexpense as of April 25, 2022, the Company's outlook for the full fiscal year ending December 31, 2022 is24, 2023 as follows:

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Operating margin is expectednow estimated to be in the range of 19.0%19% to 20.0%, mostly attributable to an improved outlook for the overall market and Simpson. In addition, the revised outlook includes projected results for ETANCO, including $15.0 to $17.0 million in integration and transaction costs.21%.

InterestAnnual interest expense on the $577.5 million outstanding borrowings of $250.0 million onunder the RevolvingAmended and Restated Credit Facility and $450.0 million Term Loanas of March 31, 2023, is expected to be approximately $12.0$9.7 million, including the effect ofbenefit from interest hedgesrate and bank fee amortizations.cross currency swaps.

24

The effective tax rate is expectedestimated to be in the range of 25.5%25% to 26.5%.26%, including both federal and state income tax rates and assuming no tax law changes are enacted.

Capital expenditures are expectedestimated to be in the range of $65.0$90.0 million to $70.0 million. As part$95.0 million, including the expected spend of $22.0 million to $25.0 million on our previously announced Columbus, Ohio facility expansion, with the integration process for ETANCO, Simpson management isbalance of that project to be spent in the process of assessing additional capital expenditures in support of ETANCO's operations.2024.

Footnotes
(1) Reflects EURThe Company has made solid progress on its efforts to USD exchange rate as of March 21, 2022.integrate ETANCO into its operations and to realize previously identified offensive and defensive synergies in the years ahead. However, these efforts will continue to result in additional costs in 2023 that have been planned since the Company announced the transaction.
(2) For the last 12 months ending September 30, 2021, in accordance with French GAAP. Subject to change following conversion to IFRS or U.S. GAAP accounting standards and reflects EUR to USD exchange rate as of December 22, 2021.


Results of Operations for the Three Months Ended March 31, 2022,2023, Compared with the Three Months Ended March 31, 20212022
 
Unless otherwise stated, the below results, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the three months ended March 31, 2022,2023, against the results of operations for the three months ended March 31, 2021.2022. Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended March 31, 20212022 and the three months ended March 31, 2022.2023.

The Company changed its presentation of its North America and Administrative and all other segment statement of operations to account for allocated expenses and management fees as a separate item below income from operations. Allocated expenses and management fees between the two segments were previously included in operating expenses and in income from operations. Income from operations for the North America and Administrative and all other segments for the quarter ended March 31, 2022 presented below was not affected by the change in presentation. Consolidated income from operations, income before tax and net income for the quarters ended March 31, 2022 and March 31, 2021 presented below were not affected by the change in presentation.
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First Quarter 20222023 Consolidated Financial Highlights

The following table shows the change in the Company's operations from the three months ended March 31, 20212022 to the three months ended March 31, 2022,2023, and the increases or decreases for each category by segment:
Three Months EndedThree Months EndedThree Months EndedThree Months Ended
Increase (Decrease) in Operating Segment Increase (Decrease) in Operating Segment
March 31,North Asia/Admin &March 31, March 31,North Asia/Admin &March 31,
(in thousands)(in thousands)2021AmericaEuropePacificAll Other2022(in thousands)2022AmericaEuropePacificAll Other2023
Net salesNet sales$347,642 $138,167 $7,155 $606 $— $493,570 Net sales$493,570 $(32,401)$72,764 $497 $— $534,430 
Cost of salesCost of sales185,360 66,078 4,952 402 (3)256,789 Cost of sales256,789 (20,004)43,613 1,021 135 281,554 
Gross profitGross profit162,282 72,089 2,203 204 236,781 Gross profit236,781 (12,397)29,151 (524)(135)252,876 
Research and development and other engineering expenseResearch and development and other engineering expense14,591 1,389 (109)(5)— 15,866 Research and development and other engineering expense15,866 4,120 874 (113)— 20,747 
Selling expenseSelling expense30,823 5,654 264 82 13 36,836 Selling expense36,836 3,954 7,827 65 (15)48,667 
General and administrative expenseGeneral and administrative expense48,565 2,333 (158)(81)3,115 53,774 General and administrative expense53,774 887 10,066 220 (1,240)63,707 
Total operating expensesTotal operating expenses93,979 9,376 (3)(4)3,128 106,476 Total operating expenses106,476 8,961 18,767 172 (1,255)133,121 
Acquisition related costs— 6,951 — 6,951 
Acquisition and integration related costsAcquisition and integration related costs6,951 — (5,509)— — 1,442 
Net loss (gain) on disposal of assetsNet loss (gain) on disposal of assets(80)11 (1,084)69 (1,083)Net loss (gain) on disposal of assets(1,083)(24)1,052 — (50)
Income from operationsIncome from operations68,383 62,702 (3,661)139 (3,126)124,437 Income from operations124,437 (21,334)14,841 (701)1,120 118,363 
Interest income (expense), net and otherInterest income (expense), net and other(1,778)(4,016)(943)155 6,154 (428)Interest income (expense), net and other(212)125 (2,750)2,262 (570)
Income before income taxes66,605 58,686 (4,604)294 3,028 124,009 
Other & foreign exchange loss, netOther & foreign exchange loss, net(216)1,736 100 (563)(1,455)(398)
Income (loss) before income taxesIncome (loss) before income taxes124,009 (19,473)12,191 (1,259)1,927 117,395 
Provision for income taxesProvision for income taxes16,218 14,490 (1,670)148 247 29,433 Provision for income taxes29,433 (3,925)4,049 (350)234 29,441 
Net income$50,387 $44,196 $(2,934)$146 $2,781 $94,576 
Net income (loss)Net income (loss)$94,576 $(15,548)$8,142 $(909)$1,693 $87,954 
 
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Net sales increased 42.0%8.3% to $534.4 million from $493.6 million from $347.6primarily due to ETANCO which contributed $80.0 million primarily drivenin net sales, offset by the four product price increases we implementedlower sale volumes in 2021 to offset rising raw material costs.North America. Wood construction product sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 88%85% and 87%88% of the Company's total sales in both the first quarters of 20222023 and 2021,2022, respectively. Concrete construction product sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 12%14% and 13%12% of the Company's total sales in both the first quarters of 20222023 and 2021,2022, respectively.

Gross profit increased 45.9%6.8% to $236.8$252.9 million from $162.3 million. Gross margins increased to 48.0% from 46.7%,$236.8 million primarily due to $30.6 million of gross profit from ETANCO at a 38.3% gross margin which resulted in a consolidated gross margin of 47.3% compared to 48.0% last year without ETANCO. From a product price increases contributingperspective, gross margin decreased to lower costs, each as a percentage of sales, in warehouse/freight, factory & tooling, and labor costs, which were negatively offset by higher raw material costs. Gross margins increased to47.1% from 48.1% from 46.6% for wood construction products and increased to 46.9%47.1% from 42.5%46.9% for concrete construction products, respectively.

Research and development and engineering expense increased 8.7%30.8% to $15.9$20.7 million from $14.6$15.9 million, primarily due to increases of $1.6$2.8 million in personnel costs, and $0.4$0.5 million in professional fees, offset by $0.9 higher software development expenses capitalized.services, $0.3 million in travel related costs, $0.3 million in depreciation and amortization and $0.2 million for cash profit sharing.

Selling expense increased 19.5%32.1% to $36.8$48.7 million from $30.8$36.8 million, primarily due to increases of $2.4$7.0 million in personnel costs and commissions, $1.7 million in travel related costs, $1.6$1.1 million in personnel costs, $0.9professional fees, and $0.8 million in advertising &and trade shows, andoffset by a decrease of $0.6 million infor cash profit sharing expense.sharing.

General and administrative expense increased 10.7%18.5% to $53.8$63.7 million from $48.6$53.8 million, primarily due to increases of $3.5$5.3 million in professional fees, $2.6depreciation and amortization, $3.0 million in personnel costs, $0.4$1.1 million for bad debt expenses, $1.1 million in computer and software expenses net of amounts capitalized, and $0.8 million in travel related costs, and $0.3offset by a decrease of $1.3 million in cash profit sharing expense, offset by a decrease of $1.9and $0.8 million in stock-based compensation expense.professional and legal fees.

Acquisition and integration costs related to ETANCO were $5.5 million lower.

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Our effective income tax rate decreasedincreased to 23.7%25.1% from 24.3%23.7%.

Consolidated net income was $94.6$88.0 million, which includes the operating results from ETANCO, compared to $50.4$94.6 million. Diluted earnings per share was $2.18$2.05 compared to $1.16.$2.18.

Net sales
 
The following table shows net sales by segment for the three months ended March 31, 20222023 and 2021,2022, respectively:
North Asia/  North Asia/ 
(in thousands)(in thousands)AmericaEuropePacificTotal(in thousands)AmericaEuropePacificTotal
Three months endedThree months ended    Three months ended    
March 31, 2021$300,564 $44,296 $2,782 $347,642 
March 31, 2022March 31, 2022438,731 51,451 3,388 493,570 March 31, 2022$438,731 $51,451 $3,388 $493,570 
Increase$138,167 $7,155 $606 $145,928 
Percentage increase46.0 %16.2 %21.8 %42.0 %
March 31, 2023March 31, 2023406,330 124,215 3,885 534,430 
Increase (decrease)Increase (decrease)$(32,401)$72,764 $497 $40,860 
Percentage increase (decrease)Percentage increase (decrease)(7.4)%141.4 %14.7 %8.3 %

The following table shows segment net sales as percentages of total net sales for the three months ended March 31, 20222023 and 2021,2022, respectively:
 
North
America
EuropeAsia/
Pacific
TotalNorth
America
EuropeAsia/
Pacific
Total
Percentage of total 2021 net sales87 %13 %— %100 %
Percentage of total 2022 net salesPercentage of total 2022 net sales89 %10 %%100 %Percentage of total 2022 net sales89 %10 %%100 %
Percentage of total 2023 net salesPercentage of total 2023 net sales76 %23 %%100 %
 
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Gross profit
 
The following table shows gross profit by segment for the three months ended March 31, 20222023 and 2021,2022, respectively:
 
North Asia/Admin &  North Asia/Admin & 
(in thousands)(in thousands)AmericaEuropePacificAll OtherTotal(in thousands)AmericaEuropePacificAll OtherTotal
Three months endedThree months ended     Three months ended     
March 31, 2021$145,830$15,250$1,244$(42)$162,282
March 31, 2022March 31, 2022217,91917,4531,448(39)236,781March 31, 2022$217,919$17,453$1,448$(39)$236,781
Increase$72,089$2,203$204$3$74,499
Percentage Increase49.4 %14.4 %**45.9 %
March 31, 2023March 31, 2023205,52246,604924(174)252,876
Increase (decrease)Increase (decrease)$(12,397)$29,151$(524)$(135)$16,095
Percentage Increase (decrease)Percentage Increase (decrease)(5.7)%167.0 %**6.8 %
                         
* The statistic is not meaningful or material.
 
The following table shows gross margin by segment for the three months ended March 31, 20222023 and 2021,2022, respectively:
 
North
America
EuropeAsia/
Pacific
Admin &
All Other
TotalNorth
America
EuropeAsia/
Pacific
Admin &
All Other
Total
2021 gross margin percentage48.5 %34.4 %44.7 %*46.7 %
2022 gross margin percentage2022 gross margin percentage49.7 %33.9 %42.7 %*48.0 %2022 gross margin percentage49.7 %33.9 %42.7 %*48.0 %
2023 gross margin percentage2023 gross margin percentage50.6 %37.5 %23.8 %*47.3 %
                         
* The statistic is not meaningful or material.





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North America

Net sales increased 46.0%decreased 7.4%,primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs. Canada's net sales increased primarily due to product price increases offset by lower sales volumes.

Gross margin increased to 49.7%50.6% from 48.5%49.7%, primarily due to product price increases throughout 2021, contributing tofrom lower raw material costs, eachpartially offset by higher factory and tooling, warehouse and freight costs, as a percentage of sales, in warehouse/freight, factory & tooling, and labor costs, which were negatively offset by higher raw material costs.net sales.

Research, development and engineering expenses increased 10.3%27.8%, primarily due to increases of $1.3$1.5 million in personnel costs, and $0.9$0.5 million in professional fees, offset by $0.9 higher software development expenses capitalized.$0.3 million in travel related costs, $0.2 million depreciation and amortization and $0.2 million for cash profit sharing.

Selling expense increased 22.5%12.8%, primarily due to increases of $2.2 million in travel–associated expenses, $1.8$2.0 million in personnel costs $0.9and commissions, $1.1 million in travel related costs, $1.0 million in professional fees, $0.5 million in advertising &and trade show costs, $0.6and $0.2 million in stock compensation, offset by a decrease of $0.8 million in cash profit sharing expense, offset by a decrease $0.3 million in stock-based compensation expense.sharing.

General and administrative expense increased 6.8%2.4%, primarily due to increases of $2.7$0.8 million in personnel cost, $0.8 million bad debt expense, $0.9 million in computer and software expense net of amounts capitalized, $0.5 million in travel rated costs, and $0.4 million in stock compensation, offset by decreases of 1.1 million in professional fees$1.0 million in personnel costs, $0.4 and $0.9 million for cash profit sharing expense, partly offset by decreases of $0.7 million in stock-based compensation and $0.6 million in depreciation and amortization.sharing.

Income from operations increaseddecreased by $62.7$21.3 million primarily due to higher gross profit, partly offset by higher operating expensesthe factors discussed above.

Europe

Net sales increased 16.2%141.4%, primarily due to product price increases throughout 2021ETANCO, which contributed $80.0 million in an effort to offset rising raw material costs,net sales, partly offset by lower volumes and the negative effect of approximately $3.7$2.8 million in foreign currency translation.

Gross margin decreased slightlyincreased to 33.9%37.5% from 34.4%, primarily due to higher factory & tooling costs, as a percentage33.9%. Europe gross profit of net sales.$46.6 million included $30.6 million from ETANCO which contributed 38.3% gross margin.

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Income from operations decreasedincreased by $3.7$14.8 million, primarily due to professional feeswhich includes ETANCO's operating income of $7.0$9.4 million associated with the ETANCO acquisition, offset by a $1.1which is net of $4.2 million gainof amortization expense on the sale of a propertyacquired intangible assets, and increased gross profits.$1.4 million in integration costs.

Asia/Pacific

For information about the Company's Asia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the three months ended March 31, 20222023 and 2021.2022.


Effect of New Accounting Standards

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

Liquidity and Sources of Capital

On March 30, 2022, the Company entered into an AmendedWe have historically met our capital needs through a combination of cash flows from operating activities and, Restated Credit Agreement. The Amended and Restated Credit Agreement provides for a 5-year revolvingwhen necessary, borrowings under our credit facility of $450.0 million, which includes a letter of credit-sub-facility up to $50.0 million, and for a 5-year term loan facility of $450.0 million. The Company borrowed $250.0 million, under the revolving credit facility and $450.0 million under the term loan facility to finance a portion of the purchase price of the Company’s acquisition of ETANCO.

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

On March 30, 2022, the next twelve months.Company entered into an Amended and Restated Credit Agreement to finance a portion of its acquisition of ETANCO, which provides for a 5-year revolving credit facility of $450.0 million, and for a 5-year term loan facility of $450.0 million. As of March 31, 2023, the Company had borrowings of $150.0 million under the revolving credit facility and $427.5 million under the term loan facility, and has $300.0 million available to borrow under the revolving credit facility. We believe that our cash position and cash flows from operating activities are sufficient to meet our cash flow needs for
31


the foreseeable future, including repayments of amounts of outstanding debt under the Amended and Restated Credit Agreement.

As of March 31, 2022,2023, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions. Cash and cash equivalents of $889.2$62.5 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated to the United States. On April 1, 2022, the Company used approximately $800 million of the funds held in our foreign operations to acquire ETANCO. The Company is maintaining a permanent reinvestment assertion on its foreign earnings relative to remaining cash held outside the United States.

The following table shows selected financial information as of March 31, 2022,2023, December 31, 20212022 and March 31, 2021,2022, respectively:
At March 31,At December 31,At March 31,As of March 31,As of December 31,As of March 31,
(in thousands)(in thousands)202220212021(in thousands)202320222022
Cash and cash equivalentsCash and cash equivalents$984,372 $301,155 $257,428 Cash and cash equivalents$252,541 $300,742 $984,372 
Property, plant and equipment, netProperty, plant and equipment, net265,675 259,869 255,684 Property, plant and equipment, net369,089 361,555 265,675 
Goodwill, intangible assets and otherGoodwill, intangible assets and other169,474 170,309 165,918 Goodwill, intangible assets and other880,845 863,841 169,474 
Working capital less cash and cash equivalents496,659 453,078 336,759 
Working capital excluding cash and cash equivalentsWorking capital excluding cash and cash equivalents639,334 529,945 496,659 

The following table provides information on how cash flow indicators forwas used or provided during the three-month periods ended March 31, 20222023 and 2021,2022, respectively:
Three Months Ended March 31,Three Months Ended March 31,
(in thousands)(in thousands)20222021(in thousands)20232022
Net cash provided by (used in):Net cash provided by (used in):Net cash provided by (used in):
Operating activities Operating activities$44,679 $17,833  Operating activities$2,958 $44,679 
Investing activities Investing activities(17,081)(15,729) Investing activities(27,043)(17,081)
Financing activities Financing activities$650,600 (15,422) Financing activities(23,817)650,600 

Cash flows from operating activities result primarily from our earnings before non-cash items such as depreciation, amortization and stock-based compensation, and are also affected by changes in operating assets and liabilities which consist primarily of working capital balances. Our revenues are derived from manufacturing and sales of
28


building construction materials. Our operating cash flows are subject to seasonality and are cyclically associated with the volume and timing of construction project starts. For example, trade accounts receivable isare generally at its lowest at the end of the fourth quarter and increases during the first, second and third quarters.quarters as construction activity ramps in markets we serve.

During the three months ended March 31, 2022,2023, operating activities provided $44.7$3.0 million in cash, and cash equivalents, as a result of $94.6$88.0 million from net income and $14.9plus $25.1 million from non-cash expenses from net income, which includedsuch as depreciation, and amortization, expense and stock-based compensation expense. Cash provided from net incomecompensation. This amount was partly offset by a decrease of $64.8$110.1 million inused for the net change in operating assets and liabilities, including increases of $89.8$70.0 million in trade accounts receivable partly offsetand $16.9 million in inventory, as well as by increasesa decrease of $21.7$13.2 million in other current liabilities and $17.9 million in trade accounts payable.liabilities.

Cash used in investing activities of $17.1$27.0 million during the three months ended March 31, 20222023 was mainly for capital expenditures offset by proceeds from the sale of a property.and acquisition related activities. Our capital spending for the three months ended March 31, 20212023 and the three months ended March 31, 2022 was $10.5$18.8 million and $17.8 million, respectively, which was primarily used for a land purchase, machinery and equipment purchases and software in development. Based on current information and subject to future events and circumstances, total approved capital spending for 2022,2023 will be in the $65.0$90.0 million to $70.0$95.0 million range. Capital spending will be dedicatedrange including the expected spend of $22.0 million to maintenance$25.0 million on our previously announced Columbus, Ohio facility expansion, with the remainder focused onbalance of that project to be spent in 2024. Other capital spending is earmarked for both maintenance and growth to maximize efficiencies expand our manufacturing footprint and invest in our key growth initiatives. As part of the integration process for ETANCO, Simpson management is in the process of assessing additional capital expendituresOur acquisition activities were primarily in support of ETANCO's operations.the building technology services and acquiring intellectual property.

Cash provided byused in financing activities of $650.6$23.8 million during the three months ended March 31, 20222023 consisted primarily of $700.0 million loan proceeds used for the acquisition of ETANCO, offset by $21.3 million used to repurchase 194,745 shares of common stock at an average price of $109.28 per share, $10.8$11.1 million used to pay dividends to our stockholders, $9.5$7.4 million used to pay income taxes on behalf of the employees for shares withheld with respect to their vested restricted stock units and $6.8$5.6 million in bank fees paid in connection with the Amended and Restated Credit Agreement.used for debt repayment.

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On May 4, 2022,April 26, 2023, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.26$0.27 per share payable on July 28, 2022,27, 2023, to the Company's stockholders of record on July 7, 2022.

During 2022, the Board also approved changing our capital return target to 35% of our free cash flow from 50%.6, 2023.

Since the beginning of 2019 to the quarter ended March 31, 2022,2023, we have returned $315.5$417.0 million to stockholders, which represents 67.7%55.5% of our free cash flow and includes repurchasing over the same period the Company has repurchased over 2,442,4563.1 million shares of the Company's common stock, which represents approximately 5.4%6.8% of the outstanding shares of the Company's common stock at the start of 2019.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2022.2023.

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

Foreign Exchange Risk

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

We may manage our exposure to transactional exposures by entering into foreign currency forward contracts for forecasted transactions and projected cash flows for foreign currencies in future periods. In 2021 and 2022, we entered into financial contracts at various times to hedge the risk of fluctuations associated with the Euro and the Chinese Yuan.Yuan during 2022 and 2023.

Interest Rate Risk

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Our primary exposure to interest rate risk results from outstanding borrowings under the Amended and Restated Credit Agreement, which bears interest at variable rates. As of March 31, 2022,2023, the outstanding debt under the Amended and Restated Credit Agreement subject to interest rate fluctuations was $700.0$577.5 million. The variable interest rates on the Credit Agreement fluctuate and expose us to short-term changes in market interest rates as our interest obligation on this instrument is based on prevailing market interest rates. Interest rates fluctuate as a result of many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control.

We have entered into certainan interest rate swap agreementsagreement to convert the variable interest rate on the balances outstanding under our revolverAmended and term loanRestated Credit Agreement to fixed interest rates. The objective of the interest rate swap agreementsagreement is to eliminate the variability of the interest payment cash flows associated with the variable interest rate enteredoutstanding under the borrowings. We designated the interest rate swaps as cash flow hedges. Refer to Note 8, "Derivatives and Hedging Instruments", for further information on our interest rate swap contracts in effect as of March 31, 2022.2023.

Commodity Price Risk

In the normal course of business, we are exposed to market risk related to our purchase of steel, a significant raw material upon which our manufacturing depends. Steel cost increased in 2021 when compared to 2020 and historical levels due to the worldwide raw material shortage stemming from the COVID-19 pandemic.pandemic. While steel is typically available from numerous suppliers, the price of steel is a commodity subject to fluctuations that apply across broad spectrums of the steel market. We do not use any derivative or hedging instruments to manage steel price risk. If the price of steel increases, our variable costs would also increase. While historically we have successfully mitigated these increased costs through the implementation of price increases, in the future we may not be able to successfully mitigate these costs, which could cause our operating margins to decline. As noted above, higher steel prices not mitigated by price increases will likely result in a 200 to 300 basis point declinefurther declines in operating margins for the full year of 20222023 compared to operating margins for the full year of 2021.2022.
 

Item 4. Controls and Procedures.
 
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Disclosure Controls and Procedures. As of March 31, 2022,2023, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the chief executive officer the (“CEO”) and the chief financial officer (the “CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15-d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act). Based on this evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. Disclosure controls and procedures are controls and other procedures designed reasonably to assure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed reasonably to assure that this information is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure.

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

Changes in Internal Control over Financial Reporting. 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 March 31, 2022, 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 March 31, 2022.

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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 March 31, 2022,2023, that materially affected, or are reasonably likely to materially affect, ourthe Company's internal control over financial reporting.


PART II — OTHER INFORMATION


Item 1. Legal Proceedings.
 
From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. Corrosion, hydrogen embrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, manufacturing defects, labeling defects, product formula defects, inaccurate chemical mixes, adulteration, environmental conditions, or other factors can contribute to failure of fasteners, connectors, anchors, adhesives, specialty chemicals, such as fiber reinforced polymers, and tool products. In addition, inaccuracies may occur in product information, descriptions and instructions found in catalogs, packaging, data sheets, and the Company’s website.

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




Item 1A. Risk Factors.

There have been no material changes to our risk factors reported or new risk factors identified since the filing of our Annual Report on Form 10-K for the year ended December 31, 2021.2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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The table below shows the monthly repurchases of shares of the Company's common stock in the first quarter of 2022.2023.
(a)(b)(c)(d)
Period
Total Number of Shares Purchased [1][2]
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs [2]
Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs [2]
January 1 - January 31, 202259,132 $109.26 58,953 $93,563,287 
February 1 - February 28, 2022194,108 112.60 113,092 81,216,076 
March 1 - March 31, 202222,700 110.00 22,700 $78,719,058 
     Total275,940 
(a)(b)(c)(d)
Period
Total Number of Shares Purchased [1][2]
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs [2]
Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs [2]
January 1 - January 31, 202331 $103.21 — $100,000,000 
February 1 - February 28, 202366,099 111.87 — 100,000,000 
March 1 - March 31, 2023— — — $100,000,000 
     Total66,130 

[1] Total number of shares purchased includes shares withheld for settlement of payroll taxes from stock-based compensation awards vested and for retirement eligible employees who retired during the first quarter of 2022.2023.

[2] Pursuant to the Board’s $100.0 million repurchase authorization that was publicly announced on November 18, 2021,December 15, 2022, which authorization is scheduled to expire on December 31, 2022.2023.


Item 3. Defaults Upon Senior Securities.

None.

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Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.


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Item 6. Exhibits.
 
EXHIBIT INDEX
3.1
3.2
10.1
10.2
10.3
31.1
31.2
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101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Schema Linkbase Document
101.CAL Inline XBRL Taxonomy Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Labels Linkbase Document
101.PRE Inline XBRL Taxonomy Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  Simpson Manufacturing Co., Inc.
  (Registrant)
   
   
DATE:May 5, 20228, 2023 By /s/Brian J. Magstadt
  Brian J. Magstadt
  Chief Financial Officer
  (principal accounting and financial officer)

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