SIMPSON MANUFACTURING CO., INC. Each of the terms the "Company," "we," "our," "us" and similar terms used herein refer collectively toSimpson Manufacturing Co., Inc. , aDelaware corporation and its wholly-owned subsidiaries, includingSimpson 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. "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 (the "Exchange Act"). 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 growth, comparable sales, earnings and performance, stockholder value, capital expenditures, cash flows, the housing market, the home improvement industry, demand for services, share repurchases, our strategic initiatives, including the impact of these initiatives 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, risk 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, those discussed under the Item 1A. Risk Factors and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2019 Form 10-K and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations and Part II Item 1A Risk Factors in the Quarterly Report on Form 10- 20 -------------------------------------------------------------------------------- Q for the quarter endedMarch 31, 2020 and this Form 10-Q. 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 coronavirus disease 2019 (COVID-19)? 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 existing credit facilities? restrictions on our business and financial covenants under our bank credit agreement? and reliance on employees subject to collective bargaining agreements. We caution that you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. 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 theSEC that advise of the risks and factors that may affect our business.
Overview
We design, manufacture and sell building construction products that are of high
quality and performance, easy to use and cost-effective for customers. We
operate in three business segments determined by geographic region:
Our strategic plan for growth includes increasing our market share and profitability inEurope ; growing our market share in the concrete space; and continuing to develop our software to support our core wood products offering while leveraging our strengths in engineering, sales and distribution, and our strong brand name. We believe these initiatives and objectives are crucial to not only offer a more complete solution to our customers and bolster our sales of core wood connector products, but also to mitigate the effect of the cyclicality of theU.S. housing market. OnOctober 30, 2017 , we announced the 2020 Plan to provide additional transparency into the execution of our strategic plan and financial objectives. During the first quarter of 2020, the execution of our 2020 Plan continued to deliver financial and operational efficiencies. However, given the uncertainties surrounding the impact of COVID-19 on our business, onApril 27, 2020 , we withdrew our prior full year 2020 guidance originally issued onFebruary 3, 2020 , as well as the financial targets associated with the 2020 Plan. InDecember 2019 , COVID-19 was first identified inWuhan, China . Over the next several months, COVID-19 quickly spread across the world. InMarch 2020 , the WHO declared COVID-19 a worldwide pandemic based on the rapid increase in exposure globally, and the President ofthe United States declared the COVID-19 outbreak a national emergency. As ofJune 30, 2020 , the virus continues to spread infecting more than 10 million people worldwide. No vaccine is currently available for COVID-19 and the duration and severity of its effects are still unknown. Government authorities in the countries and states where we operate have issued various and differing shelter in place, stay at home, social distancing guidelines and other measures in response to the COVID-19 pandemic. In many of those locations our operations are classified as an essential business and all of our manufacturing and distribution facilities continue to operate in accordance with those orders. In late March, two of our larger European manufacturing facilities in theUnited Kingdom andFrance were ordered to cease nearly all operations. Those two facilities have since re-opened. 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 related to COVID-19 and have been able to meet our customers' needs. In response to the COVID-19 pandemic the Company proactively took measures to maintain and preserve its strong financial position and flexibility, including drawing down on the Credit Facility, temporarily suspending our stock repurchase program, implementing a hiring freeze and adjusting employee hours based on lower production levels in the near term. The Company will also remain conservative in our capital allocation approach with a focus on cash preservation. The health, safety and wellbeing of our employees continues to be one of our top priorities and we have implemented strict measures to mitigate risk in our manufacturing and distribution facilities and administrative offices, including face coverings, social distancing and enhanced sanitization protocols. A significant portion of the Company's total product sales is dependent on US housing starts and its business, financial condition, and results of operations depends significantly on the level of housing and residential construction activity, which has been and could continue to be negatively affected by the COVID-19 pandemic. We anticipated previously that the effects of responses to the pandemic would have a negative effect on ourNorth America operations as a result of the decline in single-family housing starts in April. However, single-family housing starts increased by June from April's and May's lower levels. With the return of a 21 -------------------------------------------------------------------------------- nationwide home center customer,July 2020 sales were up compared toJuly 2019 . Whether housing starts continue at the same pace or decline in the second half of the year is not known. Declines in housing and residential construction, such as housing starts and home improvement projects, which generally occur during economic downturns, have in the past significantly reduced, and in the future can be expected to reduce, the demand for, and net sales, of the Company's products. The magnitude and duration of the pandemic including its impact on our operations, supply chain partners and general economic conditions, is uncertain and we continue to monitor the impact of the pandemic on our operations and financial condition, which was not significantly adversely impacted in the first half of 2020. We are uncertain of the long-term effects on theNorth America segment andEurope segment at this time.
Management continues to monitor the impact of the global situation on its 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 toU.S. housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. Our products are generally used in a sequential process that follows the construction process. Residential and commercial construction begins with the foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules. Our sales also tend to be seasonal, with operating results varying from quarter to quarter. With some exceptions, our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year, as our customers tend to purchase construction materials in the late spring and summer months for the construction season. Weather conditions, such as extended cold or wet weather, which affect and sometimes delay installation of some of our products, could negatively affect our results of operations. Political, economic events such as tariffs and the possibility of additional tariffs on imported raw materials or finished goods or such as labor disputes can also have an effect on our gross and operating profits as well as the amount of inventory on-hand. Our operations expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic which spread fromChina to many other countries includingthe United States . The pandemic resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, social distancing guidelines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, school closures, and other measures. In addition, governments and central banks in several parts of the world had enacted fiscal and monetary stimulus measures to counteract the impacts of the pandemic. Notwithstanding our continued operations and second quarter performance, the COVID-19 pandemic may have negative impacts on our operations, supply chain, transportation networks and customers, which may compress our margins, including as a result of preventative and precautionary measures that we, other businesses and governments are taking. Any resulting economic downturn could adversely affect demand for our products and contribute to volatile supply and demand conditions affecting prices and volumes in the markets for our products, services and raw materials. The progression of this matter could also negatively impact our business or results of operations through the temporary closure of our operating locations or those of our customers or suppliers, among others. In addition, the ability of our employees and our suppliers' and customers' employees to work may be significantly impacted by individuals contracting or being exposed to COVID-19, or as a result of the control measures noted above, which may significantly hamper our production throughout the supply chain and constrict sales channels. The extent to which COVID-19 pandemic may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the pandemic and the effectiveness of actions globally to contain or mitigate its effects. Our consolidated financial statements and discussion and analysis of financial condition and results of operations reflect estimates and assumptions made by management as ofJune 30, 2020 . Events and changes in circumstances arising afterJune 30, 2020 , including those resulting from the impacts of COVID-19 pandemic, will be reflected in management's estimates for future periods. For further discussion of this matter, refer "Item 1A. Risk Factors" in Part II of this Form 10-Q. ERP Integration InJuly 2016 , our Board of Directors (the "Board") approved a plan to replace our current in-house enterprise resource planning ("ERP") and externally sourced accounting platforms with a fully integrated ERP platform fromSAP America, Inc. ("SAP") in multiple phases by location at all facilities plus our headquarters, with a focus on configuring, instead of customizing, the standard SAP modules. 22 -------------------------------------------------------------------------------- We went live with our first wave of the SAP implementation project in February of 2018, and we implemented SAP at three additional locations in 2019 and 2020. We are tracking toward rolling out SAP technology in our remainingNorth America branches by late 2020 or early 2021, and company-wide completion of the SAP roll-out is currently targeted for the end of 2021. Meeting the 2021 goal is highly dependent on the lifting of current travel restrictions, which are the result of the COVID-19 pandemic. While we believe the SAP implementation will be beneficial to the Company over time, annual operating expenses have and are expected to continue to increase through 2024 as a result of the SAP implementation, primarily due to increases in training costs and the depreciation of previously capitalized costs. As ofJune 30, 2020 , we have capitalized$19.4 million and expensed$31.8 million of the costs, including depreciation of capitalized costs associated with the ERP project.
Business Segment Information
Historically ourNorth America segment has generated more revenues from wood construction products compared to concrete construction products. During the first half of 2020, the return of a nationwide home center customer, favorable weather and increased home improvement activity offset lower housing starts and resulted in higher sales volumes over the same time period of 2019, which had extremely wet weather but high housing starts. Our wood construction product net sales increased 11.8% for the quarter endedJune 30, 2020 compared toJune 30, 2019 , primarily due to increased sales volumes in connection with the return of a nationwide home center customer. Our concrete construction product net sales increased 4.0% for the quarter endedJune 30, 2020 compared toJune 30, 2019 , primarily due to higher volumes. Operating profits increased due to higher sales, lower cost of goods sold, mostly due to lower material and factory and overhead costs, and lower operating expenses. In operating expenses, reductions in consulting fees and travel and entertainment expense were partly offset by increases in stock-based compensation expense and cash profit sharing expense. OurEurope segment also generates more revenues from wood construction products than concrete construction products.Europe net sales decreased primarily due to the effects of the COVID-19 pandemic, which was primarily caused by a number of countries issuing home and shelter orders ahead ofthe United States , and a decreased number of concrete jobs in the second quarter of 2020 compared to the second quarter of 2019. Wood construction product sales decreased 11.4% for the quarter endedJune 30, 2020 compared toJune 30, 2019 . Concrete construction product sales are mostly project based, and net sales decreased 24.0% for the quarter endedJune 30, 2020 compared toJune 30, 2019 .Europe net sales were negatively affected by approximately$1.2 million in foreign currency translations due toEurope currencies weakening againstthe United States dollar compared to the same period in 2019. Gross margins decreased, mostly due to higher overall costs on lower production. Operating expenses were lower due to reductions in travel and entertainment expense and cash profit sharing expense.
Our
Business Outlook
At the time the Company withdrew its outlook it was unable to forecast its full-year outlook with reasonable accuracy given the uncertainty surrounding the COVID-19 pandemic and the related impact on the Company's business. The Company believes that it is now in a better position to provide full year outlook, primarily reflecting an additional quarter of actual results, as well as improved visibility on the progression of pandemic-related restrictions and the impact of those restrictions on the Company's operations. Based on business trends and conditions as of the day we announced our second quarter earnings, the Company's outlook for the full fiscal year endingDecember 31, 2020 is as follows:
• Net sales are estimated to increase in the range of 1.5% to 4.0% compared
to the full year ended
• Gross margin is estimated to be in the range of approximately 43.0% to 45.0%. • Operating expenses, as a percentage of net sales, are estimated to be in
the range of approximately 27.0% to 29.0%.
• The effective tax rate is estimated to be in the range of 24.0% to 26.0%,
including both federal and state income tax rates.
While the magnitude and duration of the COVID-19 pandemic and its impact on
general economic conditions remains uncertain, the Company is continuing to
monitor the impact of the pandemic on its operations and financial condition,
which was not significantly adversely impacted in the second quarter of 2020,
primarily due to the return of a nationwide home center customer. Please note
that ongoing uncertainties surrounding the impact of the pandemic on Simpson's
business, which may include the
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economic impact on its operations, raw material costs, consumers, suppliers,
vendors, and other factors outside of its control, may have a material adverse
impact on the Company's financial outlook.
Results of Operations for the Three Months Ended
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 endedJune 30, 2020 , against the results of operations for the three months endedJune 30, 2019 . Unless otherwise stated, the results announced below, when referencing "both quarters," refer to the three months endedJune 30, 2019 and the three months endedJune 30, 2020 .
Second Quarter 2020 Consolidated Financial Highlights
The following table illustrates the differences in our operating results for the three months endedJune 30, 2020 , from the three months endedJune 30, 2019 , and the increases or decreases for each category by segment: Three Months Three Months Ended Increase (Decrease) in Operating Segment Ended June 30, North Asia/ Admin & June 30, (in thousands) 2019 America Europe Pacific All Other 2020 Net sales$ 304,853 $ 27,734 $ (6,269 ) $ (242 ) $ -$ 326,076 Cost of sales 170,674 8,590 (3,243 ) 423 (168 ) 176,276 Gross profit 134,179 19,144 (3,026 ) (665 ) 168 149,800 Research and development and other engineering expense 11,055 1,170 (29 ) (15 ) 10 12,191 Selling expense 28,687 (990 ) (633 ) (255 ) 25 26,834 General and administrative expense 41,345 (3,590 ) (851 ) (130 ) 1,862 38,636 Total operating expenses 81,087 (3,410 ) (1,513 ) (400 ) 1,897 77,661 Net loss (gain) on disposal of assets (561 ) 196 434 (5 ) (137 ) (73 ) Income from operations 53,653 22,358 (1,947 ) (260 ) (1,592 ) 72,212 Interest income (expense), net and other 147 946 500 (326 ) (1,418 ) (151 ) Income before income taxes 53,800 23,304 (1,447 ) (586 ) (3,010 ) 72,061 Provision for income taxes 14,223 5,389 (195 ) (273 ) (562 ) 18,582 Net income$ 39,577 $ 17,915 $ (1,252 ) $ (313 ) $ (2,448 ) $ 53,479 Net sales increased 7.0% to$326.1 million from$304.9 million . Net sales to home centers and lumber dealers increased primarily due to increases in sales volumes. The increase in sales to home centers was primarily due to the return of a nationwide customer. Wood construction product net sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 86% and 84% of the Company's total net sales in the second quarters of 2020 and 2019, respectively. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 14% and 16% of the Company's total net sales in the second quarters of 2020 and 2019, respectively. Gross profit increased 11.6% to$149.8 million from$134.2 million . Gross margins increased to 45.9% from 44.0%, primarily due to lower material, factory and overhead expense (on higher production), partly offset by higher labor, warehouse and shipping expense each as a percentage of net sales. Gross margins, including some inter-segment expenses, which were eliminated in consolidation, and excluding other expenses that are allocated according to product group, increased to 46.3% from 43.4% for wood construction products and decreased to 40.8% from 44.0% for concrete construction products, respectively.
Research and development and engineering expense increased 10.3% to
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Selling expense decreased 6.5% to $26.8 million from $28.7 million , primarily
due to decreases of $2.0 million in travel-associated expenses, $1.0 million in
professional fees and $0.4 million in promotional and advertising expense,
partly offset by increases of $1.0 million in cash profit sharing, $0.7 million
in stock-based compensation and $0.7 million in personnel costs.
General and administrative expense decreased 6.6% to $38.6 million from $41.3
million , primarily due to decreases of $4.7 million in professional fees,
including consulting fees, $1.0 million in travel-associated expenses and $0.9
million in bad debt expense, partly offset by increases of $1.2 million in cash
profit sharing expense, $1.2 million in stock-based compensation expense,$0.6
million in computer hardware and software expense and $0.5 million in
depreciation and amortization expense. Included in general and administrative
expense are SAP implementation and support costs of $2.5 million , which
decreased $0.9 million from the prior quarter.
Our effective income tax rate decreased to 25.8% from 26.4%.
Consolidated net income was
Net sales
The following table represents net sales by segment for the three-month periods
ended
North Asia/
(in thousands) America Europe Pacific Total
Three months ended
June 30, 2019 $ 259,073 $ 43,648 $ 2,132 $ 304,853
June 30, 2020 286,807 37,379 1,890 326,076
Increase (decrease) $ 27,734 $ (6,269 ) $ (242 ) $ 21,223 Percentage Increase (decrease) 10.7 % (14.4 )% (11.4 )%
7.0 %
The following table represents segment net sales as percentages of total net
sales for the three-month periods ended
North Asia/
America Europe Pacific Total
Percentage of total 2019 net sales 85 % 14 % 1 % 100 % Percentage of total 2020 net sales 88 % 12 % - % 100 %
Gross profit
The following table represents gross profit by segment for the three-month
periods ended
North Asia/ Admin &
(in thousands) America Europe Pacific All Other Total
Three months ended
June 30, 2019 $ 116,880 $ 16,132 $ 1,149 $ 18 $ 134,179
June 30, 2020 136,024 13,106 484 186 149,800
Increase (decrease) $ 19,144 $ (3,026 ) $ (665 ) $ 168 $ 15,621
Percentage Increase (decrease) 16.4 % (18.8 )% * * 11.6 %
* The statistic is not meaningful or material.
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The following table represents gross profit as a percentage of sales by segment
for the three months ended
North Asia/ Admin &
America Europe Pacific All Other Total
2019 gross profit percentage 45.1 % 37.0 % 53.9 % * 44.0 %
2020 gross profit percentage 47.4 % 35.1 % 25.6 % * 45.9 %
* The statistic is not meaningful or material.
• Net sales increased 10.7%, primarily due to increases in sales volumes, in
part, based on the return of a nationwide home center customer.
sales increased but were negatively affected by foreign currency
translation.
• Gross profit as a percentage of net sales increased to 47.4% from 45.1%
primarily due to lower material costs and factory and overhead costs (on
higher production), partly offset by higher labor, warehouse and shipping
expense, each as a percentage of net sales.
• Research and development and engineering expense increased
primarily due to increases of
and $0.3 million in personnel costs.
• Selling expense decreased
million in travel-associated expenses,
increases of
expense and
• General and administrative expense decreased
decreases of
expense, partly offset by increases of
expense,
computer hardware and software expense and
amortization expense. Included in general and administrative expense are SAP
implementation and support costs of $1.9 million , which decreased $0.6
million from the prior quarter.
• Income from operations increased by
increased gross profit and lower operating expenses.
• Net sales decreased 14.4%, primarily due to lower sales volumes, primarily
due to lower sales volumes related to COVID-19 plant closures. Net sales
were impacted by approximately
translations resulting from some Europe currencies weakening against the
United States dollar. In local currency, Europe net sales decreased.
• Gross profit as a percentage of net sales decreased to 35.1% from 37.0%,
primarily due to increased costs as a percentage of sales, which resulted
from lower production volume.
• Selling expense decreased
million in travel and entertainment expense.
• General and administrative expense increased
decreases of
professional fees. Included in general and administrative expense are SAP
related costs of
quarter.
• Income from operations decreased
primarily due to lower net sales and lower profit margins, partly offset by
lower operating expenses.
• For information about the Company's
the tables above setting forth changes in our operating results for the
three months ended June 30, 2020 and 2019, respectively.
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Results of Operations for the Six Months Ended
Unless otherwise stated, the results announced below, when providing comparisons (which are generally indicated by words such as "increased," "decreased," "unchanged" or "compared to"), compare the results of operations for the six months endedJune 30, 2020 , against the results of operations for the six months endedJune 30, 2019 . Unless otherwise stated, the results announced below, when referencing "both periods," refer to the six months endedJune 30, 2019 and the six months endedJune 30, 2020
Year-to-Date (6-month) 2020 Consolidated Financial Highlights
The following table illustrates the differences in our operating results for the six months endedJune 30, 2020 , from the six months endedJune 30, 2019 , and the increases or decreases for each category by segment: Six Months Six Months Ended Increase (Decrease) in Operating Segment Ended June 30, North Asia/ Admin & June 30, (in thousands) 2019 America Europe Pacific All Other 2020 Net sales 564,097$ 55,353 $ (9,317 ) $ (389 ) $ -$ 609,744 Cost of sales 319,664 15,811 (5,438 ) 429 (188 ) 330,278 Gross profit 244,433 39,542 (3,879 ) (818 ) 188 279,466 Research and development and other engineering expense 23,316 2,322 (22 ) (43 ) - 25,573 Selling expense 56,799 (542 ) (539 ) (357 ) - 55,361 General and administrative expense 80,893 (5,042 )
(507 ) (89 ) 1,852 77,107
161,008 (3,262 ) (1,068 ) (489 ) 1,852 158,041
Net gain on disposal of assets (251 ) (302 ) 422 (6 ) - (137 )
Income from operations 83,676 43,106 (3,233 ) (323 ) (1,664 ) 121,562
Interest expense, net and other (616 ) 213 (889 ) (146 ) (1,246 ) (2,684 )
Income before income taxes 83,060 43,319 (4,122 ) (469 ) (2,910 ) 118,878
Provision for income taxes 20,821 9,199 (681 ) (220 ) (546 ) 28,573
Net income $ 62,239 $ 34,120 $ (3,441 ) $ (249 ) $ (2,364 ) $ 90,305
Net sales increased 8.1% to $609.7 million from $564.1 million . Net sales to
home centers, lumber dealers, dealer distributors and contractor distributor
increased, primarily due to increases in product sales volumes. The increase in
sales to home centers was primarily due to the return of a nationwide customer.
Net sales to contractor distributors decreased. Wood construction product net
sales, including sales of connectors, truss plates, fastening systems, fasteners
and shearwalls, represented 86% and 84% of the Company's total net sales in the
first six months of 2020 and 2019, respectively. Concrete construction product
net sales, including sales of adhesives, chemicals, mechanical anchors, powder
actuated tools and reinforcing fiber materials, represented 14% and 16% of the
Company's total net sales in the first six months of 2020 and 2019,
respectively.
Gross profit increased 14.3% to $279.5 million from $244.4 million . Gross profit
margins increased to 45.8% from 43.3%, primarily due to lower material, factory
and overhead expense (on higher production), partly offset by higher labor,
warehouse and shipping expense each as a percentage of net sales. The gross
profit margins, including some inter-segment expenses, which were eliminated in
consolidation, and excluding other expenses that are allocated according to
product group, increased to 45.8% from 43.0% for wood construction products and
increased to 42.4% from 41.6% for concrete construction products.
Research and development and engineering expense increased 9.7% to $25.6 million
from $23.3 million primarily due to an increases of $1.3 million in cash profit
sharing expense and $0.7 million in personnel costs.
Selling expense decreased 2.5% to $55.4 million from $56.8 million , primarily
due to decreases of $2.0 million in travel-associated expenses, $1.2 million in
professional fees, $0.7 million in advertising and promotional expense, $0.5
million in royalty expense and $0.4 million in stock-based compensation expense,
partly offset by increases of $2.4 million in cash profit sharing and sales
commissions and $1.5 million in personnel costs.
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General and administrative expense decreased 4.7% to $77.1 million from $80.9
million , primarily due to decreases of $6.8 million in professional fees,
including consulting, $1.2 million in stock-based compensation and $1.1 million
in travel-associated expenses, partly offset by increases of $2.6 million in
cash profit sharing expense, $1.5 million in personnel expense, $0.8 million in
depreciation and amortization expense, and $0.6 million in computer software and
hardware costs. Included in general and administrative expense are costs
associated with the SAP implementation and support of $5.9 million , an increase
of $0.1 million over the first six-months of 2019.
Our effective income tax rate decreased to 24.0% from 25.1%.
Consolidated net income was
Net sales
The following table represents net sales by segment for the six-month periods
ended
North Asia/
(in thousands) America Europe Pacific Total
Six Months Ended
June 30, 2019 $ 480,504 $ 79,428 $ 4,165 $ 564,097
June 30, 2020 535,857 70,111 3,776 609,744
Increase (decrease) $ 55,353 $ (9,317 ) $ (389 ) $ 45,647 Percentage increase (decrease) 11.5 % (11.7 )% (9.3 )%
8.1 %
The following table represents segment net sales as percentages of total net
sales for the six-month periods ended
North Asia/
America Europe Pacific Total
Percentage of total 2019 net sales 85 % 14 % 1 % 100 % Percentage of total 2020 net sales 88 % 12 % - % 100 %
Gross profit
The following table represents gross profit by segment for the six-month periods
ended
North Asia/ Admin &
(in thousands) America Europe Pacific All Other Total
Six Months Ended
June 30, 2019 $ 215,277 $ 27,686 $ 1,469 $ 1 $ 244,433
June 30, 2020 254,819 23,807 651 189 279,466
Increase (decrease) $ 39,542 $ (3,879 ) $ (818 ) $ 188 $ 35,033
Percentage increase (decrease) 18.4 % (14.0 )% * * 14.3 %
* The statistic is not meaningful or material.
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The following table represents gross profit as a percentage of sales by segment
for the six-month periods ended
North Asia/ Admin &
(in thousand) America Europe Pacific All Other Total
2019 gross profit percentage 44.8 % 34.9 % 35.3 % * 43.3 %
2020 gross profit percentage 47.6 % 34.0 % 17.2 % * 45.8 %
* The statistic is not meaningful or material.
• Net sales increased 11.5%, primarily due to higher sales volumes from the
return of a nationwide home center customer.
negatively affected by foreign currency translation. In local currency,
Canada net sales increased primarily due to increases in sales volume. • Gross profit margin increased to 47.6% from 44.8%, primarily due to decreases in material costs and factory and overhead costs (on higher
production), partly offset by higher warehouse, labor and shipping costs,
each as a percentage of net sales.
• Research and development and engineering expense increased
primarily due to increases of
and $0.7 million in personnel costs.
• Selling expense decreased
million in travel-associated expenses,
expense and
by decreases of
and
• General and administrative expense decreased
decreases of
million in stock-based compensation and
expenses, partly offset by increases of
expense, $1.4 million in personnel expense, $0.7 million in computer
software and hardware costs and $0.5 million in depreciation and
amortization expense. Included in general and administrative expense are
costs associated with the SAP implementation and support of
increase of $0.1 million over the first six-months of 2019.
• Income from operations increased
sales, gross profit margins, as well as lower operating expenses.
• Net sales decreased 11.7%, primarily due to lower sales volumes, that
resulted from lower production related to COVID-19 plant closures.
sales were impacted by approximately $2.3 million of negative foreign
currency translations resulting from some Europe currencies weakening
against the United States dollar. In local currency, Europe net sales
decreased primarily due to lower sales volumes.
• Gross profit margins decreased to 34.0% from 34.9%, primarily due toincreases in labor, shipping and warehouse costs as well as factory overhead
(on lower production), partly offset by lower material, each cost as a
percentage of net sales.
• Selling expense decreased
million in travel-associated expenses.
• General and administrative expense decreased
a decrease of
administrative expense are costs associated with the SAP implementation of
$1.2 million for both the first six-months of 2020 and 2019.
• Income from operations decreased
and gross profit margins, partly offset by lower operating expenses.
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• For information about the Company's
the tables above setting forth changes in our operating results for the six
months ended June 30, 2020 and 2019, respectively.
Effect of New Accounting Standards
See "Note 1 Basis of Presentation - Recently Adopted Accounting Standards" to the accompanying unaudited interim condensed consolidated financial statements.
Liquidity and Sources of Capital
The Company is a borrower, and certain of its domestic subsidiaries are guarantors under a revolving credit agreement withWells Fargo Bank, N.A . as administrative agent, and certain other lenders, which provides the Company with a$300.0 million revolving line of credit (the "Credit Facility"), and an irrevocable standby letter of credit in support of various insurance deductibles. InMay 2020 , the Company entered into a third amendment to the unsecured credit agreement datedJuly 27, 2012 withWells Fargo Bank, National Association , and certain other institutional lenders that provides for a$300.0 million unsecured revolving credit facility ("Credit Facility"). The Amendment extends the term of the Credit Agreement fromJuly 23, 2021 , toJuly 23, 2022 As previously disclosed, as a proactive measure, the Company elected to draw down$150.0 million from the Credit Facility to increase its cash position and preserve financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic. The proceeds from the borrowings are available to be used for working capital, general corporate or other purposes permitted by the Credit Facility. Total available credit as ofJune 30, 2020 , was$153.6 million , including the Credit Facility and other revolving credit lines. As ofJune 30, 2020 , our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions. Cash and cash equivalents of$53.6 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated tothe United States . The Company is maintaining a permanent reinvestment assertion on its foreign earnings relative to remaining cash held outsidethe United States .
The following table presents selected financial information as of
At June 30, At December 31, At June 30,
(in thousands) 2020 2019 2019
Cash and cash equivalents $ 315,448 $ 230,210 $ 141,731
Property, plant and equipment, net 247,119 249,012 252,710
Goodwill , intangible assets and equity
investment 156,957 159,430 157,801
Working capital 641,488 482,000 456,709
The following table provides cash flow indicators for the six-month periods
ended
Six Months Ended June 30,
(in thousands) 2020 2019
Net cash provided by (used in):
Operating activities$ 42,766 $ 53,581 Investing activities (13,444 ) (16,258 ) Financing activities 57,733 (55,609 ) Cash flows from operating activities result primarily from our earnings, and are also affected by changes in operating assets and liabilities which consist primarily of working capital balances. As a significant portion of our revenues are derived from manufacturing 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 is generally at its lowest at the end of the fourth quarter and increases during the first, second and third quarters. 30 -------------------------------------------------------------------------------- During the six months endedJune 30, 2020 , operating activities provided$42.8 million in cash and cash equivalents, as a result of$90.3 million from net income and$31.0 million from non-cash adjustments to net income, which included depreciation and amortization expense and stock-based compensation expense. The increase in net cash provided by operating activities was partly offset by a decrease of$78.5 million in the net change in operating assets and liabilities, including increases of$95.9 million in trade accounts receivable and$14.4 million in inventory, partly offset by increases of$22.9 million in other current liabilities and$15.3 million in trade accounts payable. Cash used in investing activities of$13.4 million during the six months endedJune 30, 2020 . Cash provided by financing activities of$57.7 million during the six months endedJune 30, 2020 . Cash flow used for investing activities result primarily from the capital expenditures. Our capital spending in 2018, 2019 and the six months endedJune 30, 2020 was$29.3 million ,$32.7 million and$14.1 million , respectively, which was primarily used for machinery and equipment purchases and software in development. Based on current information and subject to future events and circumstances, new capital spending for fiscal year 2020 will be primarily for safety and equipment replacement, but may be for other capital projects, including those that provide cost savings or enable future growth. Cash flow provided by financing activities was primarily due to the Company borrowing$150.0 million on its credit facility. During the first half of 2020, we used$62.7 million to purchase 902,340 shares of the Company's common stock on the open market at an average price of$69.46 per share and we used$20.2 million to pay dividends to our stockholders.
On
As illustrated in the table below, since 2014, the Company has repurchased over seven-and-a-half million shares of the Company's common stock, which represents approximately 15.4% of our shares of common stock outstanding at the beginning of 2015. Including dividends, we have returned cash of$614.3 million , which represents 82.5% of our total cash flow from operations during the same period. Number of Shares Cash Paid for Cash paid for (in thousands) Repurchased Share Repurchases Dividends Total January 1 - July 31, 2020 902$ 62,679 $ 30,399 $ 93,078 January 1 - December 31, 2019 972 60,816 40,258 101,074 January 1 - December 31, 2018 1,955 110,540 39,891 150,431 January 1 - December 31, 2017 1,138 70,000 36,981 106,981 January 1 - December 31, 2016 1,244 53,502 32,711 86,213 January 1 - December 31, 2015 1,339 47,144 29,352 76,496 Total 7,550$ 404,681 $ 209,592 $ 614,273
Given current circumstances, the Company has temporarily suspended its share
repurchase program as of
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
Inflation and Raw Materials
We believe that the effect of inflation has not been material in recent years,
as general inflation rates have remained relatively low. Our main raw material
is steel. As such, increases in steel prices may adversely affect our gross
profit margin if we cannot recover the higher costs through price increases.
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