Simpson Manufacturing Co., Inc. 10-Q

Item 1. Financial Statements. Simpson Manufacturing Co., Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, unaudited) June 30, December 31, 2023 2022 2022 ASSETS Current assets Cash and cash equivalents $ 407,982 $ 246,134 $ 300,742 Trade accounts receivable, net 387,917 375,130 269,124 Inventories 523,561 539,844 556,801 Other current assets 53,344 43,501 52,583 Total current assets 1,372,804 1,204,609 1,179,250 Property, plant and equipment, net 375,240 346,184 361,555 Operating lease right-of-use assets 63,358 48,984 57,652 Goodwill 495,065 492,338 495,672 Intangible assets, net 369,649 357,698 362,917 Other noncurrent assets 43,233 35,655 46,925 Total assets $ 2,719,349 $ 2,485,468 $ 2,503,971 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Trade accounts payable $ 97,847 $ 112,968 $ 97,841 Accrued liabilities and other current liabilities 276,601 225,928 228,222 Long-term debt, current portion 22,500 22,500 22,500 Total current liabilities 396,948 361,396 348,563 Operating lease liabilities 51,560 39,654 46,882 Long-term debt, net of issuance costs 544,309 665,449 554,539 Deferred income tax and other long-term liabilities 142,921 134,331 140,608 Total liabilities 1,135,738 1,200,830 1,090,592 Commitments and contingencies (see Note 13) Stockholders’ equity Common stock, at par value 426 433 425 Additional paid-in capital 301,612 293,720 298,983 Retained earnings 1,290,686 1,072,959 1,118,030 Treasury stock — ( 46,281 ) — Accumulated other comprehensive loss ( 9,113 ) ( 36,193 ) ( 4,059 ) Total stockholders’ equity 1,583,611 1,284,638 1,413,379 Total liabilities and stockholders’ equity $ 2,719,349 $ 2,485,468 $ 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 Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 Net sales $ 597,580 $ 593,232 $ 1,132,010 $ 1,086,802 Cost of sales 310,114 333,899 591,669 590,688 Gross profit 287,466 259,333 540,341 496,114 Operating expenses: Research and development and other engineering 21,538 16,943 42,284 32,809 Selling 50,438 45,074 99,106 81,910 General and administrative 68,767 58,419 132,474 112,192 Total operating expenses 140,743 120,436 273,864 226,911 Acquisition and integration related costs 1,859 5,864 3,301 12,815 Net gain on disposal of assets ( 157 ) ( 43 ) ( 207 ) ( 1,126 ) Income from operations 145,021 133,076 263,383 257,514 Interest expense, net and other finance costs ( 705 ) ( 3,372 ) ( 1,274 ) ( 3,585 ) Other & foreign exchange loss, net 357 ( 1,890 ) ( 42 ) ( 2,107 ) Income before taxes 144,673 127,814 262,067 251,822 Provision for income taxes 37,462 34,244 66,903 63,677 Net income $ 107,211 $ 93,570 $ 195,164 $ 188,145 Other comprehensive income Translation adjustment ( 48 ) ( 27,817 ) 4,509 ( 27,819 ) Unamortized pension adjustments 180 860 400 689 Cash flow hedge adjustment, net of tax ( 5,259 ) 18,489 ( 9,963 ) 8,542 Comprehensive net income $ 102,084 $ 85,102 $ 190,110 $ 169,557 Net income per common share: Basic $ 2.51 $ 2.17 $ 4.58 $ 4.36 Diluted $ 2.50 $ 2.16 $ 4.55 $ 4.34 Weighted average number of shares outstanding Basic 42,669 43,145 42,640 43,162 Diluted 42,813 43,240 42,857 43,306 Cash dividends declared per common share $ 0.27 $ 0.26 $ 0.53 $ 0.51 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 June 30, 2023 and 2022 Common Stock Additional Paid-in Retained Accumulated Other Comprehensive Treasury Shares Par Value Capital Earnings Loss Stock Total Balance at March 31, 2023 42,663 $ 426 $ 295,976 $ 1,194,993 $ ( 3,986 ) $ — $ 1,487,409 Net income — — — 107,211 — — 107,211 Translation adjustment, net of tax — — — — ( 48 ) — ( 48 ) Pension adjustment and other, net of tax — — — — 180 — 180 Cash flow hedges, net of tax — — — — ( 5,259 ) — ( 5,259 ) Stock-based compensation — — 5,636 — — — 5,636 Shares issued from release of Restricted Stock Units 10 — — — — — — Cash dividends declared on common stock, $0.27 per share — — — ( 11,518 ) — — ( 11,518 ) Balance at June 30, 2023 42,673 $ 426 $ 301,612 $ 1,290,686 $ ( 9,113 ) $ — $ 1,583,611 Balance at March 31, 2022 43,159 $ 433 $ 289,773 $ 990,611 $ ( 27,725 ) $ ( 21,281 ) $ 1,231,811 Net income — — — 93,570 — — 93,570 Translation adjustment and other, net of tax — — — — ( 27,817 ) — ( 27,817 ) Derivative instrument adjustments, net of tax — — — — 18,489 — 18,489 Pension adjustment and other, net of tax — — — — 860 — 860 Stock-based compensation — — 3,947 — — — 3,947 Shares issued from release of Restricted Stock Units 7 — — — — — — Repurchase of common stock ( 260 ) — — — — ( 25,000 ) ( 25,000 ) Cash dividends declared on common stock, $0.26 per share — — — ( 11,222 ) — — ( 11,222 ) Balance at June 30, 2022 42,906 $ 433 $ 293,720 $ 1,072,959 $ ( 36,193 ) $ ( 46,281 ) $ 1,284,638 The accompanying notes are an integral part of these condensed consolidated financial statements 6 Simpson Manufacturing Co., Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity (In thousands except per-share data, unaudited) Six Months Ended June 30, 2023 and 2022 Common Stock Additional Paid-in Retained Accumulated Other Comprehensive Treasury Shares Par Value Capital Earnings Loss Stock Total Balance at December 31, 2022 42,560 $ 425 $ 298,983 $ 1,118,030 $ ( 4,059 ) $ — $ 1,413,379 Net income — — — 195,164 — — 195,164 Translation adjustment, net of tax — — — — 4,509 — 4,509 Pension adjustment and other, net of tax — — — — 400 — 400 Cash flow hedges, net of tax — — — — ( 9,963 ) — ( 9,963 ) Stock-based compensation — — 10,027 — — — 10,027 Shares issued from release of Restricted Stock Units 113 1 ( 7,398 ) — — — ( 7,397 ) Cash dividends declared on common stock, $0.53 per share — — — ( 22,508 ) — — ( 22,508 ) Balance at June 30, 2023 42,673 $ 426 $ 301,612 $ 1,290,686 $ ( 9,113 ) $ — $ 1,583,611 Balance at December 31, 2021 43,217 $ 432 $ 294,330 $ 906,841 $ ( 17,605 ) $ — $ 1,183,998 Net income — — — 188,145 — — 188,145 Translation adjustment, net of tax — — — — ( 27,819 ) — ( 27,819 ) Pension adjustment and other, net of tax — — — — 689 — 689 Cash flow hedges, net of tax — — — — 8,542 — 8,542 Stock-based compensation — — 7,954 — — — 7,954 Shares issued from release of Restricted Stock Units 137 1 ( 9,524 ) — — — ( 9,523 ) Repurchase of common stock ( 455 ) — — — — ( 46,281 ) ( 46,281 ) Cash dividends declared on common stock, $0.51 per share — — — ( 22,027 ) — — ( 22,027 ) Common stock issued at $139.07 per share for stock bonus 7 — 960 — — — 960 Balance at June 30, 2022 42,906 $ 433 $ 293,720 $ 1,072,959 $ ( 36,193 ) $ ( 46,281 ) $ 1,284,638 The accompanying notes are an integral part of these condensed consolidated financial statements 7 Simpson Manufacturing Co., Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (In thousands, unaudited) Six Months Ended June 30, 2023 2022 Cash flows from operating activities Net income $ 195,164 $ 188,145 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of assets and other ( 489 ) ( 1,126 ) Depreciation and amortization 36,045 28,324 Noncash lease expense 6,595 5,430 (Gain) loss in equity method investment, before tax 102 ( 229 ) Deferred income taxes ( 6,517 ) ( 4,557 ) Noncash compensation related to stock plans 11,164 9,528 Provision for doubtful accounts 459 223 Deferred hedge gain ( 2,148 ) ( 693 ) Changes in operating assets and liabilities Trade accounts receivable ( 118,922 ) ( 88,635 ) Inventories 34,884 ( 15,203 ) Trade accounts payable 672 15,668 Other current assets ( 1,416 ) ( 5,834 ) Accrued liabilities and other current liabilities 48,971 21,904 Other noncurrent assets and liabilities ( 7,324 ) ( 23,730 ) Net cash provided by operating activities 197,240 138,451 Cash flows from investing activities Capital expenditures ( 37,918 ) ( 31,829 ) Asset acquisitions, net of cash acquired ( 18,195 ) ( 805,904 ) Equity method investments ( 663 ) ( 1,170 ) Proceeds from sale of property and equipment 183 1,816 Proceeds from sale of business 8,544 — Terminated forward contract — 3,535 Net cash used in investing activities ( 48,049 ) ( 833,552 ) Cash flows from financing activities Termination of cash flow hedge — 21,252 Repurchase of common stock — ( 46,281 ) Proceeds from borrowing under lines of credit and term loan 265 701,083 Repayments of lines of credit and term loan ( 11,705 ) ( 6,600 ) Debt issuance costs — ( 6,804 ) Dividends paid ( 22,158 ) ( 21,596 ) Cash paid on behalf of employees for shares withheld ( 7,398 ) ( 9,523 ) Net cash provided by (used in) financing activities ( 40,996 ) 631,531 Effect of exchange rate changes on cash and cash equivalents ( 955 ) 8,549 Net increase (decrease) in cash and cash equivalents 107,240 ( 55,021 ) Cash and cash equivalents at beginning of period 300,742 301,155 Cash and cash equivalents at end of period $ 407,982 $ 246,134 Noncash activity during the period Noncash capital expenditures $ 1,059 $ 1,082 Dividends declared but not paid 11,518 11,222 Issuance of Company’s common stock for compensation — 960 The accompanying notes are an integral part of these condensed consolidated financial statements 8 Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation Principles of Consolidation The accompanying Condensed Consolidated Financial Statements include the accounts of Simpson Manufacturing Co., Inc. and its subsidiaries (collectively, the “Company”). Investments in 50% or less owned entities are accounted for using either the cost or the equity method. All significant intercompany transactions have been eliminated. Use of Estimates The preparation of the Condensed 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 Statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these Condensed Consolidated Financial Statements include all normal and recurring adjustments necessary for a fair presentation under GAAP. Interim Reporting Period The accompanying unaudited quarterly Condensed Consolidated Financial Statements have been prepared in accordance with GAAP pursuant to the rules and regulations for reporting interim financial information and instructions on Form 10-Q. Accordingly, certain information and footnotes required by GAAP have been condensed or omitted. These interim statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”). The unaudited quarterly Condensed Consolidated Financial Statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to state fairly the financial information set forth therein in accordance with GAAP. The year-end Condensed Consolidated Balance Sheet data provided herein were derived from audited consolidated financial statements included in the 2022 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 the interim periods 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 of 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. 9 Net Income Per Common Share The Company calculates net income per common share based on the weighted-average number of shares of the Company's common stock outstanding during the period. Potentially dilutive securities are included in the diluted per-share calculations using the treasury stock method for all periods when the effect 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 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. Fair Value of Financial Instruments Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified under a three-tier fair valuation hierarchy based on the observability of the inputs available in the market: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The carrying amounts of trade accounts receivable, accounts payable, accrued liabilities and other current liabilities approximate fair value due to the short-term nature of these instruments. The fair values of the Company'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 unobservable inputs developed using management's estimates and entity-specific assumptions, which reflect those that market participants would use, and are evaluated on an ongoing basis. 10 The following tables summarize financial assets and liabilities measured at fair value as of June 30, 2023 and 2022: 2023 2022 (in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Cash equivalents (1) $ 248.1 $ — $ — $ 42.4 $ — $ — Derivative instruments - assets (2) — 37.9 — — 24.5 — Derivative instruments - liabilities (2) — ( 18.6 ) — — ( 7.9 ) — Contingent considerations — — 6.5 — — 6.5 1) The carrying amounts of cash equivalents, representing United States Treasury securities and money market funds traded in an active market with relatively short maturities, are reported on the consolidated balance sheet as of June 30, 2023 and 2022 as a component of "Cash and cash equivalents". (2) Derivatives for interest rate, foreign exchange and forward swap contracts are discussed in Note 8. The carrying amounts of the term loan and revolver approximate fair value as of June 30, 2023 based upon its terms and conditions in comparison to debt instruments with similar terms and conditions available on the same date. Derivative Instruments 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 with the 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 stockholders' equity, and are reclassified into the line item in the Condensed 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. 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. 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, (5) reasonable and supportable forecasts about collectability, and (6) current market and economic conditions, and expectations of the future market and economic conditions. 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 collectability based on 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 six months ended June 30, 2023 are outlined in the table below: Balance at Balance at (in thousands) December 31, 2022 Expense (Deductions), net Write-Offs 1 June 30, 2023 Allowance for Doubtful Accounts $ 3,240 459 ( 88 ) $ 3,611 1 Amount is net of recoveries and the effect of foreign currency fluctuations. 11 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 We believe that all recently issued accounting pronouncements from the Financial Accounting Standards Board ("FASB") do not apply to us or will not have a material impact to the Condensed Consolidated Financial Statements. 12 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. Wood Construction Products Revenue . Wood construction products represented approximately 86 % and 87 % of total net sales for the six months ended June 30, 2023 and 2022, respectively. Concrete Construction Products Revenue. Concrete construction products represented approximately 14 % and 13 % of total net sales for the six months ended June 30, 2023 and 2022 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 % 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 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 June 30, 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. ETANCO had net sales of $ 80.3 million and net loss of $ 2.0 million, for the three and six months ended June 30, 2022, which includes costs related to the amortization of acquired intangible assets, and expenses incurred for integration. 13 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 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, net 63,607 Inventory 107,185 Other current assets 4,491 Property and equipment, net 89,695 Operating lease right-of-use assets 5,361 Goodwill 365,591 Intangible assets, net 357,327 Other noncurrent assets 2,881 Total assets 1,015,148 Trade accounts payable 46,457 Accrued liabilities and other current liabilities 22,079 Operating lease liabilities 5,176 Deferred income tax and other long-term liabilities 117,031 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 $ 10.9 million to estimated fair value based on expected selling prices less a reasonable amount for selling efforts. The fair value adjustment is recognized as a component of cost of sales over the inventory’s expected turnover period, and as a result, $ 9.2 million of the adjustment was recognized during the three and six months ended June 30, 2022. Property and equipment, net Acquired property and equipment includes land of $ 22.3 million, buildings and site improvements of $ 29.4 million, and machinery, equipment, and software of $ 35.5 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 $ 1.4 million for the three and six months ended June 30, 2022. 14 Goodwill The excess of the 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 relationships 15 $ 248,398 Trade names Indefinite 93,811 Developed technology 10 11,256 Patents 8 3,862 $ 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 $ 4.2 million, of amortization expense on these assets during the three and six months ended June 30, 2022. Deferred taxes As a result of the increase in fair value of inventory, property and equipment, and intangible assets, deferred tax liabilities of $ 104.5 million were recognized, primarily due to intangible assets. Acquisition and integration related costs During the three and six months ended June 30, 2022, the Company incurred acquisition and integration related expenses of $ 5.9 million and $ 12.8 million, respectively, for investment banking, legal, accounting, advisory, and consulting fees. These costs were 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: 15 Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2022 2022 Net sales $ 593,232 $ 1,165,986 Net income $ 104,823 $ 210,772 Pro forma earnings per common share: Basic $ 2.43 $ 4.88 Diluted $ 2.42 $ 4.87 Weighted average shares outstanding: Basic 43,145 43,162 Diluted 43,240 43,306 The unaudited pro forma results above includes the following adjustments to net income: 1) Acquisition and integration related costs of $ 5.9 million which were incurred during the three and six months ended June 30, 2022, were adjusted as if such costs were incurred during the twelve months ended December 31, 2021. 2) The $ 9.2 million of amortization related to the fair value adjustment for inventory and recognized during the three and six months ended June 30, 2022 was adjusted as if incurred during the three months ended March 31, 2021. 3) 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 and six months ended June 30, 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 per Share The following shows a reconciliation of basic net earnings per share ("EPS") to diluted EPS: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2023 2022 2023 2022 Net income available to common stockholders $ 107,211 $ 93,570 $ 195,164 $ 188,145 Basic weighted-average shares outstanding 42,669 43,145 42,640 43,162 Dilutive effect of potential common stock equivalents — restricted stock units 144 95 217 144 Diluted weighted-average shares outstanding 42,813 43,240 42,857 43,306 Net earnings per common share: Basic $ 2.51 $ 2.17 $ 4.58 $ 4.36 Diluted $ 2.50 $ 2.16 $ 4.55 $ 4.34 16 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 $ 6.5 million and $ 4.7 million for the three months ended June 30, 2023 and 2022, respectively, and $ 11.2 million and $ 9.5 million for the six months ended June 30, 2023 and 2022, respectively. During the six months ended June 30, 2023, the Company granted 277,793 restricted stock units (RSUs) and performance stock units (PSUs) to the Company's employees, including officers at an estimated weighted average fair value of $ 99.66 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 or 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, after which time these awards cliff 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. The Company’s nine non-employee directors are entitled to receive an aggregate of approximately $ 1.1 million in equity compensation annually. The number of shares ultimately granted are based on the average closing share price for the Company over the 60 day period prior to approval of the award in the second quarter of each year. In April 2023 and June 2023, the Company granted 9,776 shares of the Company's common stock to the non-employee directors, based on the average closing price of $ 122.50 per share and recognized $ 1.2 million of expense. As of June 30, 2023, the Company's aggregate unamortized stock compensation expense was approximately $ 29.2 million which is expected to be recognized in expense over a weighted-average period of 2.5 years. 6. Trade Accounts Receivable, net Trade accounts receivable consisted of the following: As of June 30, As of December 31, (in thousands) 2023 2022 2022 Trade accounts receivable $ 397,212 $ 382,016 $ 276,229 Allowance for doubtful accounts ( 3,611 ) ( 2,211 ) ( 3,240 ) Allowance for sales discounts and returns ( 5,684 ) ( 4,675 ) ( 3,865 ) $ 387,917 $ 375,130 $ 269,124 7. Inventories The components of inventories are as follows: As of June 30, As of December 31, (in thousands) 2023 2022 2022 Raw materials $ 164,019 $ 193,254 $ 187,149 In-process products 53,883 47,141 55,171 Finished products 305,659 299,449 314,481 $ 523,561 $ 539,844 $ 556,801 17 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. As of June 30, 2023, the aggregate notional amount of the Company's outstanding interest rate contracts, cross currency swap contracts, EUR forward contract and CNY forward contracts were $ 571.9 million, $ 442.3 million, $ 321.7 million and $ 5.9 million (CNY 40.4 million), respectively. 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 and six months ended June 30, 2023 and June 30, 2022. The effects of fair value and cash flow hedge accounting on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the six months ended June 30, were as follows: 2023 2022 (in thousands) Cost of sales Interest expense, net Other & foreign exchange loss, net Cost of sales Interest expense, net Other & 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 recorded $ 591,669 ( 1,274 ) $ ( 42 ) 590,688 ( 3,585 ) ( 2,107 ) The effects of fair value and cash flow hedging Gain or (loss) on cash flow hedging relationships Interest contracts: Amount of gain or (loss) reclassified from OCI to earnings — 7,107 — — ( 2,978 ) — Cross currency swap contract Amount of gain or (loss) reclassified from OCI to earnings — 2,605 ( 5,244 ) — 1,959 ( 29,124 ) Forward contract Amount of gain reclassified from OCI to earnings 80 — — 163 — — The effects of derivative instruments on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the three months ended June 30, 2023 and 2022 were as follows: Cash Flow Hedging Relationships Gain (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from OCI into Earnings Gain (Loss) Reclassified from OCI into Earnings (in thousands) 2023 2022 2023 2022 Interest rate contracts $ 10,589 $ 8,681 Interest expense $ 3,911 $ ( 2,949 ) Cross currency contracts ( 5,739 ) 30,263 Interest expense 1,266 1,938 Forward contracts ( 413 ) — FX gain (loss) ( 3,429 ) 32,091 Cost of goods sold 80 — Total $ 4,437 $ 38,944 $ 1,828 $ 31,080 18 The effects of derivative instruments on the Condensed Consolidated Statement of Earnings and Comprehensive Income for the six months ended June 30, 2023 and 2022 were as follows: Cash Flow Hedging Relationships Gain (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from OCI into Earnings Gain (Loss) Reclassified from OCI into Earnings (in thousands) 2023 2022 2023 2022 Interest rate contracts $ 6,546 $ 6,876 Interest expense $ 7,107 $ ( 2,978 ) Cross currency contracts ( 8,019 ) 22,715 Interest expense 2,605 1,959 Forward contracts ( 448 ) $ — FX gain (loss) ( 5,244 ) 29,124 Cost of goods sold 80 163 Total $ ( 1,921 ) $ 29,591 $ 4,548 $ 28,268 For the three months ending June 30, 2023 losses on the net investment hedge, and June 30, 2022 gains on net investment hedge of $ 4.1 million and $ 18.1 million were included in OCI, respectively. For the three months ending June 30, 2023 and June 30, 2022, excluded gains of $ 1.3 million and $ 1.1 million were reclassified from OCI to interest expense, respectively. For the six months ending June 30, 2023 losses on the net investment hedge, and June 30, 2022 gains on net investment hedge of $ 4.4 million and $ 11.3 million were included in OCI, respectively. For the six months ending June 30, 2023 and June 30, 2022, excluded gains of $ 2.5 million and $ 1.1 million were reclassified from OCI to interest expense, respectively. As of June 30, 2023, the aggregate fair values of the Company’s derivative instruments on the Condensed Consolidated Balance Sheet were comprised of an asset of $ 37.9 million, of which $ 19.5 million is included in other current assets, and the balance of $ 18.4 million as other non-current assets, and of a liability of $ 18.9 million, of which $ 0.3 million is included in accrued liabilities and other current liabilities, and the balance of $ 18.6 million as deferred income tax and other long-term liabilities. 9. Property, Plant and Equipment, net Property, plant and equipment consisted of the following: As of June 30, As of December 31, (in thousands) 2023 2022 2022 Land $ 51,558 $ 55,279 $ 50,025 Buildings and site improvements 235,209 223,920 233,123 Leasehold improvements 7,131 6,062 6,367 Machinery, equipment, and software 486,354 443,652 472,907 780,252 728,913 762,422 Less accumulated depreciation and amortization ( 451,134 ) ( 415,029 ) ( 432,392 ) 329,118 313,884 330,030 Capital projects in progress 46,122 32,300 31,525 Total $ 375,240 $ 346,184 $ 361,555 10. Goodwill and Intangible Assets, net Goodwill consisted of the following: As of June 30, As of December 31, (in thousands) 2023 2022 2022 North America $ 103,630 $ 96,264 $ 103,572 Europe 390,172 394,761 390,799 Asia/Pacific 1,263 1,313 1,301 Total $ 495,065 $ 492,338 $ 495,672 19 I ntangible assets, net, consisted of the following: As of June 30, 2023 Gross Net Carrying Accumulated Carrying (in thousands) Amount Amortization Amount North America $ 63,269 $ ( 31,765 ) $ 31,504 Europe 377,866 ( 43,748 ) 334,118 Asia/Pacific 4,224 ( 197 ) 4,027 Total $ 445,359 $ ( 75,710 ) $ 369,649 As of June 30, 2022 Gross Net (in thousands) Carrying Amount Accumulated Amortization Carrying Amount North America $ 46,642 $ ( 28,063 ) $ 18,579 Europe 364,241 ( 25,122 ) 339,119 Total $ 410,883 $ ( 53,185 ) $ 357,698 As of December 31, 2022 Gross Net (in thousands) Carrying Amount Accumulated Amortization Carrying Amount North America $ 53,498 $ ( 29,782 ) $ 23,716 Europe 373,538 ( 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 of definite-lived intangible assets was $ 6.0 million and $ 5.3 million for the three months ended June 30, 2023 and 2022, respectively, and was $ 11.6 million and $ 6.4 million for the six months ended June 30, 2023 and 2022, respectively. The weighted-average amortization period for all amortizable intangibles on a combined basis is 8.8 years. Indefinite-lived intangible assets totaled $ 92.8 million, $ 88.9 million, and $ 91.7 million as of June 30, 2023, and 2022 and December 31, 2022, respectively. At June 30, 2023, the estimated future amortization of definite-lived intangible assets was as follows: (in thousands) Remaining six months of 2023 $ 11,225 2024 22,294 2025 22,069 2026 21,492 2027 21,298 2028 21,077 Thereafter 157,380 $ 276,835 20 The changes in the carrying amount of goodwill and intangible assets for the six months ended June 30, 2023, were as follows: Intangible (in thousands) Goodwill Assets Balance at December 31, 2022 $ 495,672 $ 362,917 Acquisition — 13,996 Disposal ( 5,678 ) — Reclassifications — 46 Amortization — ( 11,638 ) Foreign exchange 5,071 4,328 Balance at June 30, 2023 $ 495,065 $ 369,649 21 11. Leases The Company has operating leases for certain facilities, equipment and automobiles. The existing operating leases expire at various dates through 2027, some of which include options to extend the leases for up to five 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 ROU assets at the amount at which the lease liability is recognized plus initial direct costs incurred or prepayment amounts. The ROU assets are amortized on a straight-line basis over the lease term. The following table provides a summary of leases included on the Condensed Consolidated Balance Sheets as of June 30, 2023 and 2022 and December 31, 2022, Condensed Consolidated Statements of Earnings and Comprehensive Income, and Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022: Condensed Consolidated Balance Sheets Line Item June 30, December 31, (in thousands) 2023 2022 2022 Operating leases Assets Operating leases Operating lease right-of-use assets $ 63,358 $ 48,984 $ 57,652 Liabilities Operating - current Accrued expenses and other current liabilities $ 12,809 $ 9,831 $ 11,544 Operating - noncurrent Operating lease liabilities 51,560 39,654 46,882 Total operating lease liabilities $ 64,369 $ 49,485 $ 58,426 Finance leases Assets Property and equipment, gross Property, plant and equipment, net $ — $ 3,569 $ 3,569 Accumulated amortization Property, plant and equipment, net — ( 3,556 ) ( 3,569 ) Property and equipment, net Property, plant and equipment, net $ — $ 13 $ — The components of lease expense were as follows: Condensed Consolidated Statements of Earnings and Comprehensive Income Line Item Three Months Ended June 30, (in thousands) 2023 2022 Operating lease cost General administrative expenses and cost of sales $ 4,192 $ 3,364 22 Other Information Supplemental cash flow information related to leases is as follows: Three Months Ended June 30, (in thousands) 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 3,932 $ 3,296 Operating right-of-use assets obtained in exchange for lease obligations during the current period 8,423 2,936 The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2023: (in thousands) Operating Leases Remaining six months of 2023 $ 7,986 2024 14,612 2025 12,843 2026 10,231 2027 8,198 Thereafter 20,107 Total lease payments 73,977 Less: Present value discount ( 9,608 ) Total lease liabilities $ 64,369 The following table summarizes the Company's lease terms and discount rates as of June 30, 2023 and 2022: Weighted-average remaining lease terms (in years): 2023 2022 Operating leases 5.9 6.4 Weighted-average discount rate: Operating leases 4.7 % 4.8 % 12. Debt As of June 30, 2023, the Company has $ 571.9 million, excluding deferred financing costs, outstanding under its Amended and Restated Credit Facility. The Company had outstanding balances of $ 694.4 million and $ 583.2 million under the Amended and Restated Credit Facility as of June 30, 2022, and December 31, 2022, respectively. The following is a schedule, by years, of maturities for the remaining term loan facility as of June 30, 2023: 23 (in thousands) 5-Year Term Loan Remaining six months of 2023 $ 11,250 2024 22,500 2025 22,500 2026 22,500 2027 343,125 Total loan outstanding $ 421,875 The $ 150.0 million outstanding under the revolving credit facility is due on March 31, 2027. The Company was in compliance with its financial covenants under the Amended and Restated Credit Facility as of June 30, 2023. Certain of the Company's domestic subsidiaries are guarantors for a credit agreement between certain of its foreign subsidiaries and institutional lenders that is in addition to the Amended and Restated Credit Facility. As of June 30, 2023, all of the Company's credit facilities provide a total of $ 306.1 million in available borrowing capacity and an irrevocable standby letter of credit in support of various insurance deductibles. 13. Commitments and Contingencies Environmental The Company’s policy with regard to environmental liabilities is to accrue for future environmental assessments and remediation costs when information becomes available that indicates that it is probable that the Company is liable for any related claims and assessments and the amount of the liability is reasonably estimable. The Company does not believe that any such matters will have a material adverse effect on the Company’s financial condition, cash flows or results of operations. Litigation and Potential Claims From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. Corrosion, hydrogen embrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, manufacturing defects, labeling defects, product formula defects, inaccurate chemical mixes, adulteration, environmental conditions, or other factors can contribute to failure of fasteners, connectors, anchors, adhesives, specialty chemicals, such as fiber reinforced polymers, and tool products. In addition, inaccuracies may occur in product information, descriptions and instructions found in catalogs, packaging, data sheets, and the Company’s website. The resolution of any claim or litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows or results of operations. 14. Segment Information The Company is organized into three reporting segments defined by the regions where the Company’s products are manufactured, marketed and distributed to its customers. The three 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), 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 line 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. 24 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 June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Net Sales North America $ 465,467 $ 456,410 $ 871,797 $ 895,140 Europe 127,817 133,238 252,031 184,689 Asia/Pacific 4,296 3,584 8,182 6,973 Total $ 597,580 $ 593,232 $ 1,132,010 $ 1,086,802 Sales to Other Segments* North America $ 1,524 $ 1,441 $ 2,692 $ 2,575 Europe 1,459 1,271 3,072 2,955 Asia/Pacific 7,956 7,940 13,858 16,506 Total $ 10,939 $ 10,652 $ 19,622 $ 22,036 Income (Loss) from Operations North America $ 143,430 $ 137,291 $ 257,823 $ 273,064 Europe 13,974 5,560 27,444 4,189 Asia/Pacific 379 100 241 664 Administrative and all other ( 12,762 ) ( 9,875 ) ( 22,125 ) ( 20,403 ) Total $ 145,021 $ 133,076 $ 263,383 $ 257,514 * Sales to other segments are eliminated in consolidation. At As of June 30, December 31, (in thousands) 2023 2022 2022 Total Assets North America $ 1,570,275 $ 1,225,176 $ 1,393,968 Europe 702,740 689,621 675,634 Asia/Pacific 35,604 34,981 34,599 Administrative and all other 410,730 535,690 399,770 Total $ 2,719,349 $ 2,485,468 $ 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 $ 326.5 million, $ 167.4 million, and $ 222.5 million, as of June 30, 2023 and 2022, and December 31, 2022, respectively. Also included in the total assets of "Administrative and all other" are intercompany borrowings due from the Europe segment. Included in the total assets of each segment are net intercompany borrowings due to and from the other segments. The Company’s wood construction products include connectors, truss plates, fastening systems, fasteners and pre-fabricated shearwalls that are used for connecting and strengthening wood-based construction primarily in residential and commercial construction. Its concrete construction products include adhesives, specialty chemicals, mechanical anchors, carbide drill bits, powder actuated tools and reinforcing fiber materials that 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: 25 Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Wood construction products $ 515,378 $ 514,832 $ 970,137 $ 950,191 Concrete construction products 81,319 78,209 157,990 136,185 Other 883 191 3,883 426 Total $ 597,580 $ 593,232 $ 1,132,010 $ 1,086,802 15. Subsequent Events Dividend Declared On July 28, 2023, the Company’s Board of Directors (the "Board") declared a quarterly cash dividend of $ 0.27 per share, estimated to be $ 11.5 million in total. The dividend will be payable on October 26, 2023, to the Company's stockholders of record on October 5, 2023. 26