Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Each of the terms the “Company,” “we,” “our,” “us” and similar terms used herein refer collectively to Simpson Manufacturing Co., Inc., a Delaware corporation, and its wholly-owned subsidiaries, including Simpson Strong-Tie Company Inc., unless otherwise stated. The Company regularly uses its website to post information regarding its business and governance. The Company encourages investors to use http://www.simpsonmfg.com as a source of information about the Company. The information on our website is not incorporated by reference into this report or other material we file with or furnish to the SEC, except as explicitly noted or as required by law.
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s consolidated financial condition and results of operations. This discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and notes thereto included in this report.
“Strong-Tie” and our other trademarks appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
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: North America, Europe and Asia/Pacific.
In 2021, we shared our strategy for continuing to achieve above market revenue growth through a combination of organic and inorganic opportunities. Our organic opportunities focused on expanding our product line with our current customers while also identifying new opportunities within our core competencies of wood and concrete products. These new growth opportunities focused on gaining share with OEM customers, DIY and construction contractors, and providing more solutions for mass timber, concrete and structural steel construction.
In order to grow in these markets, we aspire to be among the leaders in engineered load-rated construction building products and systems and digital product offerings while leveraging our engineering expertise, deep-rooted relationships with top builders, engineers, contractors, code officials and distributors, along with our ongoing commitment to testing, research and innovation. Importantly, we currently have existing products, testing results, distribution and manufacturing capabilities to support our growth ambitions. This will ultimately be a function of expanding our sales and/or marketing functions to promote our products to different end users and distribution channels, expanding our customer base, and potentially introducing new products in the future.
Our commitment to continuous improvement has fostered our core Company ambitions, which we continue to pursue including:
• Strengthen our values-based culture;
• Be the partner of choice;
• Be an innovative leader in the markets we operate;
• Above market growth relative to the United States housing starts;
• An operating income margin within the top quartile of our proxy peers;
• Remain within the top quartile of our proxy peers for operating income margin; and
• Integrate ETANCO and restoring our return on invested capital to be within the top quartile of our proxy peers.
We have made progress towards our key growth initiatives since they were first announced in 2021. A few recent examples include:
• The acquisition and integration of ETANCO which has resulted in additional scale for our legacy European operations, as well as the opportunity to realize synergies in those operations;
• Converted component manufacturers to using our truss software and purchasing our truss plate and connectors solution sets, including a major component manufacturer;
• Our announced alliance with Structural Technologies drove record revenue of our concrete strengthening solutions, while our field support and strong industry relationships continued to drive specifications of our anchors, fasteners, cold-formed steel, and structural steel products on commercial projects;
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• Expansion of our Outdoor Accents® decorative hardware, fasteners and anchors product lines, which contributed to our growth in the DIY or construction contractor segments of our national retail market;
• Designed, manufactured, and installed many critical connections in the construction of a 112-foot wood building that was used for the world’s tallest shake table test;
• Completed strategic asset acquisitions to accelerate the expansion of our product line to meet our customer needs;
• Made strategic investments in software development critical to the component manufacturing market segment as well as other digital product offerings to support customers in our residential and national retail markets;
• Achieved an industry-leading product fulfillment rate and increased our same day delivery service in North America;
• Completed our path-to-market shift away from two-step distribution in North America, enabling us to sell our complete product line and drive additional market share gains;
• Continued growing United States sales volumes above United States housing starts growth;
• Rolled out over 50 new products during 2023 (a Company record);
• Re-aligned our North America sales team to be customer market focused with the five groups: residential, commercial, OEM, national retail and component manufacturers; and
• Invested in venture capital funds and other companies focused on the home building industry and related new technologies.
We believe this progress is the result of our high service levels, increasingly diverse portfolio of products and software as well as our commitment to innovation and developing complete solutions for the markets we serve. As we continue to make progress on our growth initiatives, we believe we can continue to achieve above market growth in the United States relative to United States housing starts for fiscal 2024 and beyond. These examples further emulate our Founder, Barclay Simpson’s, nine principles of doing business, and more specifically the focus and obsession on customers and users.
Factors Affecting Our Results of Operations
The Company’s business, financial condition and results of operations depends in large part on the level of United States housing starts and residential construction activity. Both single-family and multi-family housing starts decreased during 2023 compared to the prior two years, primarily due to interest rate increases and inflation. Lower housing starts could result in lower demand, which would affect the Company's sales and possibly operating profit,
Unlike lumber or other products that have a more direct correlation to United States housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. Our products are generally used in a sequential progression 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.
In prior years, our sales were heavily seasonal with operating results varying from quarter to quarter depending on weather conditions that could delay construction starts. Our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year. Due to efforts in diversifying our global footprint with the acquisition of ETANCO and changing our path to market in the United States, sales from our product line, customer base and customer purchases are becoming less seasonal. Political and economic events such as rising energy costs, volatility in the steel market, stressed product transportation systems and increasing interest rates can also have an effect on our gross and operating profits as well. Changes in raw material cost could impact the amount of inventory on-hand, and negatively affect our gross profit and operating margins depending on the timing of raw material purchases or how much sales prices can be increased to offset any increases in raw material costs.
Our operations also expose us to risks associated with pandemics, epidemics or other public health crises.
Business Segment Information
Historically, our North America segment has generated more revenues from wood construction products compared to concrete construction products. North America sales increased 0.9% for the year ended December 31, 2023 compared to December 31, 2022. Our wood construction product sales decreased 0.9% for the year ended December 31, 2023 compared to December 31, 2022, primarily due to product price decreases implemented during the first quarter of 2023, partly offset by increased sales volumes. Our concrete construction product sales increased 9.9% over the same periods due to product price increases to offset rising raw material costs and higher sales volumes. Over the last several years, our historical average volume growth in North America has exceeded the housing starts market growth by approximately 250 basis points. We believe 2024 North America sales volumes will continue to outpace the housing starts market with 2024 housing starts projected to grow in the low single digits relative to fiscal year 2023 housing starts.
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During 2023, work continued on the Columbus facility expansion and work commenced on replacing our Gallatin facility. We expect the expansion and replacement facility will improve our overall service, production efficiencies and safety in the workplace, as well as reduce our reliance on certain outsourced finished goods and component products and continue to ensure we have ample capacity to meet our customer needs. These investments reinforce our core business model differentiators to remain the partner of choice as we continue to produce products locally and ensure superior levels of customer service.
Europe's operating results for the fiscal year ending December 31, 2023 includes twelve months of ETANCO operating results, while fiscal year ending December 31, 2022 includes the results of ETANCO as of the April 1, 2022 acquisition date. Europe sales increased 20.1% for the year ended December 31, 2023 compared to December 31, 2022, primarily due to ETANCO as well as the positive effect of $12.7 million in foreign currency translation related mostly to Europe's currencies strengthening against the United States dollar. Gross profit increased $51.4 million primarily due to the acquisition of ETANCO as well as due to lower material costs. Cost of sales in the prior year period included a $13.6 million inventory fair-value adjustment as a result of purchase accounting with respect to the acquisition of ETANCO. Operating income increased $34.9 million, primarily due to ETANCO. Operating income in the prior period was negatively impacted by the $13.6 million in non-recurring fair-value adjustments noted above and $12.7 million in higher acquisition and integration costs. Fiscal 2024 operating margins will include anticipated integration costs estimated to range between $4.0 million to $5.0 million.
Our Asia/Pacific segment has generated revenues from both wood and concrete construction products. We believe that the Asia/Pacific segment is not significant to our overall performance.
Business Outlook
Based on business trends and conditions, the Company's outlook for the full fiscal year ending December 31, 2024 is as follows:
• Operating margin is estimated to be in the range of 20.0% to 21.5%, including $86.1 million in depreciation and amortization expense.
• The effective tax rate is estimated to be in the range of 25.0% to 26.0%, including both federal and state income tax rates as well as international income tax rates, and assuming no tax law changes are enacted.
• Capital expenditures are estimated to be approximately $200.0 million, which includes $120.0 million for the Columbus, Ohio facility expansion and the new Gallatin, Tennessee fastener facility construction, some of which may carry over to fiscal year 2025.
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Results of Operations
Our discussion of our results focuses on 2023 and 2022 and year-to-year comparisons between those periods. Discussions of 2021 results and year-to-year comparison between 2022 and 2021 results are not included in this Annual Report on Form 10-K and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The following table sets forth, for the years indicated, the Company’s operating results as a percentage of net sales for the years ended December 31, 2023, 2022 and 2021, respectively:
Years Ended December 31,
2023 2022 2021
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales 52.9 % 55.5 % 52.0 %
Gross profit 47.1 % 44.5 % 48.0 %
Research and development and other engineering expenses
4.2 % 3.2 % 3.8 %
Selling expense 9.2 % 8.0 % 8.6 %
General and administrative expense 12.1 % 10.8 % 12.3 %
Total operating expense 25.5 % 22.0 % 24.7 %
Acquisition and integration related costs 0.2 % 0.8 % — %
Net gain on disposal of assets — % (0.1) % — %
Income from operations 21.4 % 21.8 % 23.3 %
Interest expense, net and other 0.2 % (0.4) % (0.2) %
Other and foreign exchange loss, net (0.1) % (0.2) % (0.4) %
Income before taxes 21.5 % 21.2 % 22.8 %
Provision for income taxes 5.5 % 5.4 % 5.9 %
Net income 16.0 % 15.8 % 16.9 %
Comparison of the Years Ended December 31, 2023 and 2022
Unless otherwise stated, the results announced 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 year ended December 31, 2023, against the results of operations for the year ended December 31, 2022 and include the results of the acquisition of FIXCO Invest S.A.S ("ETANCO") on April 1, 2022. 2023 full year comparisons include twelve months of ETANCO operating results for the fiscal year ending December 31, 2023 compared to nine months for the fiscal year ending December 31, 2022. Unless otherwise stated, the results announced below, when referencing “both years,” refer to the year ended December 31, 2022 and the year ended December 31, 2023.
Beginning in 2022, the Company changed its presentation for both the North America and the Administrative and all other segment's statement of operations to display allocated expenses and management fees as a separate item below income from operations. During 2021, allocated expenses and management fees between the two segments were previously included in gross profit, operating expenses and in income from operations and have been adjusted herein to conform to the 2022 presentation. Consolidated income from operations, income before tax and net income for all periods presented below are not affected by the change in presentation
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The following table shows the change in the Company’s operations from 2022 to 2023, and the increases or decreases from the prior year, for each category by segment:
Increase (Decrease) in Operating Segment
North America Asia/
Pacific Admin &
All Other
(in thousands)
2022 Europe 2023
Net sales $ 2,116,087 $ 15,381 $ 80,453 $ 1,882 $ — $ 2,213,803
Cost of sales 1,174,794 (36,446) 29,021 1,113 1,566 1,170,048
Gross profit 941,293 51,827 51,432 769 (1,566) 1,043,755
Operating expenses:
Research and development and other engineering expense 68,354 21,905 2,057 (149) — 92,167
Selling expense 169,378 23,634 10,681 302 (15) 203,980
General and administrative expense 228,468 18,892 15,621 767 4,355 268,103
Operating expenses 466,200 64,431 28,359 920 4,340 564,250
Net gain (loss) on disposal of assets (1,317) 66 908 39 28 (276)
Acquisition and integration related costs 17,343 — (12,711) — — 4,632
Income from operations 459,067 (12,670) 34,876 (190) (5,934) 475,149
Interest income (expense), net and other financing costs (7,594) (639) (3,354) 239 14,739 3,391
Other & foreign exchange gain (loss), net (3,408) 4,729 2,306 (98) (5,522) (1,993)
Income before taxes
448,065 (8,580) 33,828 (49) 3,283 476,547
Provision for income taxes 114,070 (2,815) 10,243 222 840 122,560
Net income $ 333,995 $ (5,765) $ 23,585 $ (271) $ 2,443 $ 353,987
Net Sales increased 4.6% to $2,213.8 million from $2,116.1 million primarily due to the acquisition and integration of ETANCO as well as the positive effect of $12.7 million in foreign currency translation related mostly to Europe's currencies weakening against the United States dollar. Wood construction product net sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 85% and 87% of the Company’s total net sales for the years ended December 31, 2023 and 2022, respectively. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 15% and 13% of the Company’s total net sales for the years ended December 31, 2023 and 2022, respectively.
Gross profit increased to $1,043.8 million from $941.3 million, primarily due to the acquisition and integration of ETANCO. Gross margins increased to 47.1% from 44.5%, primarily due to lower material costs. Cost of sales in the prior year period included a $13.6 million inventory fair-value adjustment as a result of purchase accounting with respect to the acquisition of ETANCO. Gross margins, including some inter-segment expenses, which were eliminated upon consolidation, and excluding certain expenses that are allocated according to product group, increased from 44.4% to 47.2% for wood construction products and increased from 43.9% to 46.0% for concrete construction products.
Research and development and other engineering expense increased 34.8% to $92.2 million from $68.4 million, primarily due increased personnel costs of $11.7 million and professional fees of $5.7 million associated with our strategic growth initiatives and to further our Building Technologies offering, $3.2 million in variable compensation, and $1.2 million in depreciation and amortization.
Selling expense increased 20.4% to $204.0 million from $169.4 million, primarily due to increases of $14.0 million in personnel costs, $7.3 million in sales commission expense, $2.8 million in travel-related expenses, $2.8 million in professional fees, and $2.5 million in other variable compensation.
General and administrative expense increased 17.3% to $268.1 million from $228.5 million, primarily due to increases of $12.5 million in personnel costs, $7.6 million in depreciation and amortization, $6.0 million in variable compensation, and $1.6 million in travel costs.
Our effective income tax rate increased to 25.7% from 25.5%.
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Net income was $354.0 million compared to $334.0 million. Diluted net income per share of common stock was $8.26 compared to $7.76.
Net Sales
The following table shows net sales by segment for the years ended December 31, 2022 and 2023, respectively:
(in thousands) North
America Europe Asia/
Pacific Total
December 31, 2022 $ 1,701,041 $ 400,303 $ 14,743 $ 2,116,087
December 31, 2023 1,716,422 480,756 16,625 2,213,803
Increase $ 15,381 $ 80,453 $ 1,882 $ 97,716
Percentage increase 0.9 % 20.1 % 12.8 % 4.6 %
The following table shows segment net sales as percentages of total net sales for the years ended December 31, 2022 and 2023, respectively:
North
America Europe Asia/
Pacific Total
Percentage of total 2022 net sales 80 % 19 % 1 % 100 %
Percentage of total 2023 net sales 78 % 22 % — % 100 %
Gross Profit
The following table shows gross profit by segment for the years ended December 31, 2022 and 2023, respectively:
(in thousands) North
America Europe Asia/
Pacific Admin &
All Other Total
December 31, 2022 $ 810,730 $ 125,616 $ 4,910 $ 37 $ 941,293
December 31, 2023 862,557 177,048 5,679 (1,529) 1,043,755
Increase $ 51,827 $ 51,432 $ 769 $ (1,566) $ 102,462
Percentage increase 6.4 % 40.9 % * * 10.9 %
* The statistic is not meaningful or material.
The following table shows gross margins by segment for the years ended December 31, 2022 and 2023, respectively:
North
America Europe Asia/
Pacific Admin &
All Other Total
2022 gross margin 47.7 % 31.4 % 33.3 % * 44.5 %
2023 gross margin 50.3 % 36.8 % 34.2 % * 47.1 %
* The statistic is not meaningful or material.
North America
• Net sales increased 0.9% primarily due to higher sales volumes, partly offset by price decreases implemented during the first quarter of 2023.
• Gross margin increased to 50.3% from 47.7%, primarily due to lower raw material and labor costs as a percentage of net sales.
• Research and development and engineering expense increased $21.9 million, primarily due increased personnel costs of $7.0 million and professional fees of $5.8 million associated with our strategic growth initiatives and to further our Building Technologies offering, $3.1 million in variable compensation, and $1.0 million in depreciation and amortization.
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• Selling expense increased $23.6 million, primarily due to increases of $10.5 million in personnel costs, $5.0 million in sales commission expense, $2.2 million in professional fees, $2.1 million in travel-related expenses, and $1.6 million in other variable compensation.
• General and administrative expense increased $18.9 million, primarily due to increases of $6.9 million in personnel costs, $4.3 million in computer software and hardware costs, $2.7 million in variable compensation, and $1.4 million in depreciation and amortization.
• Income from operations decreased $12.7 million , primarily due to higher operating expenses including personnel costs, professional fees, variable compensation, sales commission expense, and computer software and hardware costs.
Europe
• Net sales increased 20.1%, primarily due to the acquisition and integration of ETANCO as well as the positive effect of $12.7 million in foreign currency translation related mostly to Europe's currencies strengthening against the United States dollar.
• Gross margin increased to 36.8% from 31.4% resulting in an increase in gross profit of $51.4 million, primarily due to lower raw material costs as a percentage of net sales. Cost of sales in the prior year included a $13.6 million non-recurring fair-value adjustment for inventory costs as a result of purchase accounting with respect to the acquisition of ETANCO.
• Income from operations increased $34.9 million , primarily due to higher gross profit and lower acquisition and integration costs. Prior year costs included a $13.6 million non-recurring fair-value adjustment for inventory costs as a result of purchase accounting with respect to the acquisition of ETANCO.
Asia/Pacific
• For information about the Company’s Asia/Pacific segment, please refer to the table above setting forth changes in our operating results for the years ended December 31, 2023 and 2022.
Administrative and All Other
• General and administrative expense increased $4.4 million, primarily due to increases of $1.2 million in variable compensation, $1.0 million in personnel costs, and $1.0 million professional and legal fees.
Critical Accounting Policies and Estimates
The critical accounting policies described below affect the Company’s more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. If the Company’s business conditions change or if it uses different assumptions or estimates in the application of these and other accounting policies, the Company’s future results of operations could be adversely affected.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value (market). Cost includes all costs incurred in bringing each product to its present location and condition, as follows:
• Raw materials and purchased finished goods — principally valued at cost determined on a weighted average basis; and
• In-process products and finished goods — cost of direct materials and labor plus attributable overhead based on a normal level of activity.
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The Company applies net realizable value and makes estimates for obsolescence to the gross value of inventory. The Company estimates net realizable value based on estimated selling price less further costs through completion and disposal. The Company impairs slow-moving products by comparing inventories on hand to projected demand. If on-hand supply of a product exceeds projected demand or if the Company believes the product is no longer marketable, the product is considered obsolete inventory. The Company revalues obsolete inventory to its net realizable value and has consistently applied this methodology. The Company believes that this approach is suitable for impairments of slow-moving and obsolete inventory. When impairments are established, a new cost basis of the inventory is created. Unexpected changes in market demand, building codes or buyer preferences could reduce the rate of inventory turnover and require the Company to recognize more obsolete inventory.
Business Combinations.
Accounting for business combinations requires us to make significant estimates and assumptions. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.
Critical estimates in valuing certain of the intangible assets and goodwill we have acquired are:
• future expected cash flows from operations;
• historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
• assumptions about the period of time the acquired trade name will continue to be used in our offerings; and
• discount rates.
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
Goodwill and Other Intangible Assets
Our goodwill balance is not amortized to expense, and we may assess quantitative or qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments. The Company evaluates the recoverability of goodwill in accordance with Accounting Standard Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other,” annually, or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount.
Intangible assets acquired are recognized at their fair value at the date of acquisition. Finite-lived intangibles are amortized over their applicable useful lives. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization or depreciation period. We test these assets for potential impairment annually and whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company tests goodwill for impairment at the reporting unit level on an annual basis (in the fourth quarter for the Company). The Company also reviews goodwill for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or disposition or relocation of a significant portion of a reporting unit.
During fiscal year 2023, we re-evaluated our European reporting units after a full year of operations from our acquisition of ETANCO as it has become further integrated into our other European operations resulting in changes to the management, product distribution, and operations structure of our European operations. As a result of this re-evaluation, all European reporting units were consolidated for reporting purposes into one overall Europe reporting unit. A qualitative assessment was performed immediately preceding the reporting unit change and determined that it was not more likely than not that any impairment existed prior to the reporting unit change.
We determined that the U.S. reporting unit includes four components: Northwest United States, Southwest United States, Northeast United States and Southeast United States. The Australia reporting unit includes two components: Australia and New Zealand. For each of these reporting units, the Company aggregated the components because management concluded that they are economically similar, and that the goodwill is recoverable from these components working in concert.
We applied the ("Step 1") approach where the Company compares the fair value of the reporting unit to its carrying value during the annual impairment assessment performed in the fourth quarter of 2023. For this qualitative assessment, we assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units as
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compared to their quantitative fair value measurement determined in the fourth quarter of 2023. The fair value calculation uses both the income approach (discounted cash flow method) and the market approach, equally weighted. If the Company determines that the carrying value of the net assets assigned to the reporting unit, including goodwill, exceeds the fair value of the reporting unit, no further action is taken. If the Company determines that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, the Company will record an impairment charge equal to the difference between the implied fair value of the goodwill and the carrying value.
We completed our annual impairment assessment by performing a qualitative assessment during the annual impairment assessment performed in the fourth quarter of 2022. For this qualitative assessment, we assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units. Based on the qualitative assessment performed, the Company concluded that there was no evidence of events or circumstances that would indicate a material change from the Company’s prior year quantitative assessment by reporting unit and therefore, it was more likely than not that the estimated fair value of reporting units exceeded their respective carrying values
The 2023 and 2022 annual testing of goodwill for impairment did not result in impairment charges.
Revenue from Contracts with Customers
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer at a point in time. The Company's 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).
Volume rebates, discounts and rights of return are accounted for as variable considerations because the transaction price is either uncertain until the customer completes or fails the specified volumes or returned product are not returned by the return period. The Company estimates allowances based on historical experience from prior periods and the customer’s historical purchasing pattern. These estimates are deducted from revenues and are reevaluated periodically during the reporting period.
Effect of New Accounting Standards
See "Note 1 — Operations and Summary of Significant Accounting Policies" for effects of new accounting standards on the Company’s consolidated financial statements.
Liquidity and Capital Resources
We have historically met our capital needs through a combination of cash flows from operating activities and, when necessary, borrowings under our credit facilities. Our principal uses of capital include the costs and expenses associated with our operations, including financing working capital requirements and continuing our capital allocation strategy, which includes supporting capital expenditures, paying cash dividends, repurchasing the Company's common stock, and financing other investment opportunities from time to time.
On March 30, 2022, the Company entered into an Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement provides for a 5-year revolving credit facility of $450.0 million, which includes a letter of credit-sub-facility up to $50.0 million, and for a 5-year term loan facility of $450.0 million. As of December 31, 2023, the Company had borrowings of $75.0 million under the revolving credit facility and $410.6 million under the term loan facility, and has $375.0 million available to borrow under the revolving credit facility.
The Company has certain contractual obligations, primarily debt interest, operating leases and purchase obligations, which include annual facility fees. Refer to "Note 12 - Leases", "Note 14 - Debt" and "Note 15 - Commitment and Contingencies" in Part II, Item 8 for details related to the Company's obligations and debt annual facility fees. The Company did not have any significant off-balance sheet commitments as of December 31, 2023.
As of December 31, 2023, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions, and includes $106.4 million held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated to the U.S. The Company is maintaining a permanent reinvestment assertion on its foreign earnings relative to remaining cash held outside the United States.
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The following table presents selected financial information as of December 31, 2023, 2022 and 2021, respectively:
As of December 31,
(in thousands) 2023 2022 2021
Cash and cash equivalents $ 429,822 $ 300,742 $ 301,155
Property, plant and equipment, net 418,612 361,555 259,869
Equity investment, goodwill and intangible assets 883,079 872,699 170,309
Net working capital
521,362 529,945 453,078
The following table presents the significant categories of cash flows for the twelve months ended December 31, 2023, 2022 and 2021, respectively:
Years Ended December 31,
(in thousands) 2023 2022 2021
Net cash provided by (used in):
Operating activities $ 427,022 $ 399,821 $ 151,295
Investing activities (103,251) (870,244) (58,805)
Financing activities (199,034) 465,526 (71,616)
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. Our revenues are derived from manufacturing and sales of 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.
In 2023, operating activities provided $427.0 million in cash and cash equivalents as a result of $354.0 million from net income and adding back $101.8 million for non-cash adjustments from net income which includes depreciation and amortization, stock-based compensation and non-cash lease expense, partially offset by a decrease of $28.8 million for the net change in operating assets and liabilities.
Cash used in investing activities of $103.3 million during the year ended December 31, 2023, was mostly for capital spending of $88.8 million, which was primarily used for machinery and equipment purchases and facility expansion projects including a land purchase. Based on current information and subject to future events and circumstances, capital expenditures are estimated to be approximately $200.0 million for 2024 including the expected spend of $120.0 million on our previously announced Columbus, Ohio facility expansion and replacement of Gallatin, Tennessee facility, with some spend potentially may carrying over to 2025. The remaining $80.0 million in capital expenditures will be primarily focused on purchases of new equipment to support increased productivity and efficiencies, enhancements to our existing facilities to expand our manufacturing footprint in-line with increasing customer needs, as well as investments for adjacencies and key growth initiatives.
Cash used in financing activities of $199.0 million during the year ended December 31, 2023, consisted primarily of $98.7 million in loan principal payments, $50.0 million for the repurchase of the Company’s common stock and $45.2 million used to pay cash dividends. During 2023, we purchased and received approximately 361 thousand shares of the Company’s common stock on the open market at an average price of $138.60 per share, for a total of $50.0 million under a previously announced $100.0 million share repurchase authorization (which expired at the end of 2023).
On October 19, 2023, the Company's Board of Directors (the "Board") authorized the Company to repurchase up to $100.0 million of the Company's common stock, effective January 1, 2024 through December 31, 2024. Further, on January 19, 2024, the Board declared a quarterly cash dividend of $0.27 per share payable on April 25, 2024 to stockholders of record on April 4, 2024, and estimated to be $11.5 million in total.
For the fiscal year ended December 31, 2023, the Company returned $95.2 million to the Company's stockholders, which represents 28.1% of our free cash flow from operations during the same period. Since the beginning of 2021 to the fiscal year ended December 31, 2023, we have returned $283.5 million to stockholders, which represents 36.2% of our free cash flow and
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over the same period the Company has repurchased over $1.4 million shares of the Company's common stock, which represents approximately 3.2% of the outstanding shares of the Company's common stock.
Cash flows from operating activities years ended December 31, 2022 and 2021 are incorporated by reference to Form 10-K 202 2 filing.
Contingencies
From time to time, we are subject to various claims, lawsuits, legal proceedings (including litigation, arbitration or regulatory actions) and other matters arising in the ordinary course of business. Periodically, we evaluate the status of each matter and assess our potential financial exposure.
The Company records a liability when we believe that it is both probable that a loss has been incurred, and the amount is reasonably estimable. Significant judgment is required to determine both probability of a loss and the estimated amount. The outcomes of claims, lawsuits, legal proceedings and other matters brought against the Company are subject to significant uncertainty, some of which are inherently unpredictable and/or beyond our control. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these matters were resolved against the Company for amounts in excess of management’s expectations, they could have a material adverse impact on our business, results of operations, financial position and liquidity.
See “Item 3 — Legal Proceedings” above and “Note 15 — Commitments and Contingencies” to the Company’s consolidated financial statements.
Inflation and Raw Materials
Inflation rates increased during fiscal year 2023, which have negatively affected labor costs and other costs of doing business, and as such may adversely affect our operating profits if we cannot recover the higher costs through price increases. Our main raw material is steel, and as such, increases in steel prices may adversely affect our gross margin if we cannot recover the higher costs through price increases. See “Item 1 — Raw Materials” and “Item 1A — Risk Factors.”
Indemnification
In the normal course of business, to facilitate transactions of services and products, we have agreed to indemnify certain parties with respect to certain matters. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers and directors, and the Company’s bylaws as permitted by the Company’s certificate of incorporation require the Company to indemnify corporate servants, including our officers and directors, to the fullest extent permitted by law. The Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations. The Company has not incurred significant obligations under indemnification provisions historically, and does not expect to incur significant obligations in the future. It is not possible to determine the maximum potential amount under these indemnities due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Accordingly, the Company has not recorded any liability for costs related to these indemnities through December 31, 2023.