**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**(MarkOne)**

 

**x****                  Annual ReportPursuant to Section 13 or 15(d) of the Securities Exchange Act of1934**

** **

**for the fiscal year ended December 31, 2009**

 

**OR**

 

**o****                     TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934**

 

**for the transition period from                to                ..**

 

**Commission file number:  1-13429**

 

**Simpson ManufacturingCo., Inc.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                     | ** ** | **94-3196943**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |

** **

**5956 W. Las Positas Blvd.,Pleasanton, CA 94588**

(Address of principal executive offices)

 

Registrant’s telephone number, including areacode:  **(925)560-9000**

 

Securities registered pursuant to Section 12(b) ofthe Act:

 

| **Common  Stock, par value $0.01** | ** ** | **New  York Stock Exchange, Inc.**      |
|------------------------------------|------------|----------------------------------------------|
| (Title of each  class)             |       | (Name of each  exchange on which registered) |

 

Securities registered pursuant to Section 12(g) ofthe Act:

**None**

(Title of class)

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.   Yes x   No o

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or15(d) of the Exchange Act.   Yes o   No x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes x   No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).  Yes o   No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act.

 

| Large  accelerated filer x                    |   | Accelerated  filer o         |
|-----------------------------------------------|--------|------------------------------|
| Non-accelerated  filer o                      |   | Smaller reporting  company o |
| (Do not check if a smaller reporting company) |   |                         |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o   No x

 

As of June 30,2009, there were outstanding 49,049,791 shares of the registrant’s commonstock, par value $0.01, which is the only outstanding class of common or votingstock of the registrant. The aggregate market value of the shares of commonstock held by nonaffiliates of the registrant (based on the closing price forthe common stock on the New York Stock Exchange on June 30, 2009) wasapproximately $830,099,403. As of February 9, 2010, 49,387,761 shares ofthe registrant’s common stock were outstanding.

 

**Documents Incorporated byReference**

 

Theinformation called for by Part III is incorporated by reference to thedefinitive Proxy Statement for the Annual Meeting of Stockholders of theCompany to be held April 28, 2010, which will be filed with the Securitiesand Exchange Commission not later than 120 days after December 31, 2009.

 

 

 

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*Thisdocument contains forward-looking statements, based on numerous assumptions andsubject to risks and uncertainties. Although the Company believes that theforward-looking statements are reasonable, it does not and cannot give anyassurance that its beliefs and expectations will prove to be correct. Manyfactors could significantly affect the Company’s operations and cause theCompany’s actual results to be substantially different from the Company’sexpectations. Those factors include, but are not limited to: (i) generaleconomic and construction business conditions; (ii) customer acceptance ofthe Company’s products; (iii) relationships with key customers; (iv) materialsand manufacturing costs; (v) the financial condition of customers,competitors and suppliers; (vi) technological developments; (vii) increasedcompetition; (viii) changes in capital and credit markets; (ix) governmentaland business conditions in countries where the Company’s products aremanufactured and sold; (x) changes in trade regulations; (xi) the effectof acquisition activity; (xii) changes in the Company’s plans, strategies,objectives, expectations or intentions; and (xiii) other risks anduncertainties indicated from time to time in the Company’s filings with theSecurities and Exchange Commission.**Actual results might differmaterially from results suggested by any forward-looking statements in thisreport.**The Company does not have an obligation to publicly updateany forward-looking statements, whether as a result of the receipt of newinformation, the occurrence of future events or otherwise. See “Item 1A — RiskFactors.”*

 

##### **PART I**

 

**Item 1.Business.**

 

**Background**

 

SimpsonManufacturing Co., Inc., a Delaware Corporation, (the “Company”), throughits subsidiary, Simpson Strong-Tie Company Inc. (“Simpson Strong-Tie” or “SST”),designs, engineers and is a leading manufacturer of wood-to-wood,wood-to-concrete and wood-to-masonry connectors, SST Quik Drive screw fasteningsystems and collated screws, stainless steel fasteners, and pre-fabricatedshearwalls. SST Anchor Systems also offers a full line of adhesives, mechanicalanchors, carbide drill bits and powder actuated tools for concrete, masonry andsteel. SST also offers screw fastening systems and collated screws for variousconstruction applications through the Quik Drive product line and a line ofstainless steel fasteners through the Swan Secure product line. SST is theCompany’s connector products segment. The Company’s subsidiary, SimpsonDura-Vent Company, Inc. (“Simpson Dura-Vent” or “SDV”), designs, engineersand manufactures venting systems for gas, wood, oil, pellet and otheralternative fuel burning appliances. SDV is the Company’s venting productssegment. The Company markets its products to the residential construction,light industrial and commercial construction, remodeling and do-it-yourself (“DIY”)markets. The Company believes that SST benefits from strong brand namerecognition among architects and engineers who frequently specify in buildingplans the use of SST products, and that SDV benefits from strong brand namerecognition among contractors, dealers, distributors and SDV’s relationshipswith original equipment manufacturers (“OEMs”) to which SDV markets itsproducts. SST has continuously manufactured structural connectors since 1956.See Note 14 to the Company’s Consolidated Financial Statements for informationregarding the net sales, income (loss) from operations, depreciation andamortization, significant non-cash charges, goodwill impairment,  income tax expense (benefit), capitalexpenditures and acquisitions and total assets for the Company’s two operatingsegments. See “Item 1A — Risk Factors.”

 

Connectorsproduced by Simpson Strong-Tie typically are steel devices that are used tostrengthen, support and connect joints in residential and commercialconstruction and DIY projects. SST’s Anchor Systems product line is included inthe connector product segment. SST’s connector products enhance the safety anddurability of the structures in which they are installed and can save time andlabor costs. SST’s connector products contribute to structural integrity andresistance to seismic, wind and other forces. Applications range fromcommercial and residential building, to deck construction, to DIY projects.

 

SimpsonDura-Vent’s venting systems are used to vent gas furnaces, water heaters,including tankless water heaters, fireplaces and stoves, wood and oil burningappliances, condensing appliances and wood pellet and corn stoves. SDV’s metalvents, chimneys and chimney liner systems exhaust combustion products to theexterior of the building. SDV designs its products for ease of assembly andsafe operation and to achieve a high level of performance.

 

TheCompany emphasizes continuous new product development and often obtains patentprotection for its new products. The Company’s products are marketed in all 50states of the United States and in Europe, Canada, Asia, Australia, NewZealand, Mexico and several countries in Central and South America and theMiddle East. Both Simpson Strong-Tie and Simpson Dura-Vent products aredistributed to home centers, through wholesale distributors, to contractors anddealers and to OEMs.

 

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TheCompany has developed and uses automated manufacturing processes. Itsinnovative manufacturing systems and techniques have allowed it to controlmanufacturing costs, while developing both new products and products that meetcustomized requirements and specifications. The Company’s development ofspecialized manufacturing processes has also permitted increased operatingflexibility and enhanced product design innovation. The Company has 21manufacturing locations in the United States, Canada, France, Denmark, Ireland,Germany, China and England. In 2009, SST opened a new manufacturing facility inZhangjiagang, China, and moved its production of mechanical anchors to the newfacility from its facility in Brampton, Ontario. In 2008, SDV consolidated itsproduction of venting products in Vacaville, California, and discontinuedproduction at its Vicksburg, Mississippi, facility. SDV also added amanufacturing and distribution facility in Albany, New York, with theacquisition of ProTech Systems, Inc. in June 2008.

 

**Industry and Market Trends**

 

Basedon trade periodicals, participation in trade and professional associations andcommunications with governmental and quasi-governmental organizations and withcustomers and suppliers, the Company believes that a variety of events andtrends have resulted in significant developments in the markets that theCompany serves. The Company’s products are designed to respond to increasingdemand resulting from these trends. Some of these events and trends arediscussed below.

 

Naturaldisasters throughout the world have focused attention on safety concernsrelating to the structural integrity of homes and other buildings. The 1995earthquake in Kobe, Japan, the 1994 earthquake in Northridge, California, the1989 Loma Prieta earthquake in Northern California, Hurricanes Hugo in 1989 andAndrew in 1992 and a series of hurricanes in 2004 and 2005, including Katrina,in the southeastern United States, and other less cataclysmic naturaldisasters, damaged and destroyed innumerable homes and other buildings,resulting in heightened consciousness of the fragility of some of thosestructures.

 

In recent years, architects, engineers, modelcode agencies, contractors, building inspectors and legislators have continuedefforts to improve structural integrity and safety of homes and other buildingsin the face of disasters of various types, including seismic events, storms andfires. Based on ongoing participation in trade and professional associationsand communications with governmental and quasi-governmental regulatoryagencies, the Company believes that building codes are being more uniformlyapplied around the country and their enforcement is becoming more rigorous.

 

Recently, there has been consolidation amongseveral of the Company’s customer groups. The industry has experiencedincreased complexity in some home design, and builders are more aggressivelytrying to reduce their costs. The Company has responded to these trends bymarketing its products as systems, in addition to individual parts. In somecases, the Company uses sophisticated design and specification software tofacilitate systems marketing.

 

Therequirements of the Endangered Species Act, the Federal Lands Policy ManagementAct and the National Forest Management Act have reduced the amount of timberavailable for harvest from public lands. Over the past several years, this andother factors have led to the increased use of engineered wood products.Engineered wood products, which substitute for strong, clear-grained lumberhistorically obtained from logging older, large-diameter trees, have beendeveloped to conserve lumber. Engineered wood products frequently requirespecialized connectors and fasteners. Sales of Simpson Strong-Tie’s engineeredwood connector and fastener products have contributed significant revenues overthe past several years.

 

Concernsabout energy conservation and air quality have led to increasing recognition ofthe advantages of natural gas as a heating fuel, including its clean burningcharacteristics. Use of natural gas for home heating has been increasing in theUnited States over a number of years. The cyclical nature of natural gas costshas resulted in fluctuating demand for Simpson Dura-Vent’s natural gas productsand its products for alternative fuel appliances.

 

TheCompany continues to develop its distribution through home centers throughoutthe United States. The Company’s sales to home centers were flat in 2007 anddeclined in 2008 and 2009. See “Item 7 — Management’s Discussion and Analysisof Financial Condition and Results of Operations.”

 

The Company’s principalmarkets are in the building construction industry. That industry is subject tosignificant volatility due to real estate market cycles, fluctuations ininterest rates, the availability, or lack thereof, of credit to builders,developers and consumers, inflation rates, weather, and other factors andtrends. The world-wide recession and the declines in residential constructionthat began in 2007 have reduced the demand for the Company’s products. See “Item 1A — Risk Factors.”

 

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**Business Strategy**

 

TheCompany designs, manufactures and sells products that are of high quality andperformance, easy to use and cost-effective for customers. The Company providesrapid delivery of its products and prompt engineering and sales support. Basedon its communications with customers, engineers, architects, contractors andother industry participants, the Company believes that its products have strongbrand-name recognition, and the Company seeks to continue to develop the valueof its brand names through a variety of customer-driven strategies. Informationprovided by customers has led to the development of many of the Company’sproducts, and the Company expects that customer needs will continue to shapethe Company’s product development, marketing and services.

 

Specificationin architects’ and engineers’ plans and drawings influences which products willbe used for particular purposes and therefore is key to the use of the Company’sproducts in construction projects. The Company encourages architects andengineers to specify the installation of the Company’s products in projectsthey design and supervise, and encourages construction contractors to acceptthe Company’s products. The Company maintains frequent contacts witharchitects, engineers and contractors, as well as private organizations thatprovide information to building code officials, both to inform them regardingthe quality, proper installation, capabilities and value of the Company’sproducts and to update them about product modifications and new products thatmay be useful or necessary. The Company sponsors seminars to inform architects,engineers, contractors and building officials on appropriate use and properinstallation of the Company’s products. Additionally, the Company maintainsrelationships with home builders throughout the country to promote the use ofits products.

 

TheCompany seeks to expand its product and distribution coverage through severalchannels:

 

*Distributors.*The Company regularly evaluates its distributioncoverage and service levels provided by its distributors and from time to timemodifies its distribution strategy and implements changes to address weaknessesand opportunities. The Company has various programs to evaluate distributorproduct mix and conducts promotions to encourage distributors to add Companyproducts that complement the mix of product offerings in their markets.

 

Throughits efforts to increase specifications by architects and engineers, and throughincreasing the number of products sold to particular contractors, the Companyseeks to increase sales to channels that serve building contractors. TheCompany continuously seeks to expand the number of contractors served by eachdistributor through such sales efforts as demonstrations of productcost-effectiveness and information programs.

 

*Home Centers.*The Company intends to increase penetration ofthe DIY markets by solicitation of home centers. The Company’s sales forcemaintains on-going contact with home centers to work with them in a broad rangeof areas including inventory levels, retail display maintenance, and productknowledge training. To satisfy specialized requirements of the home centermarket, the Company has developed extensive bar coding and merchandising aidsand has devoted a portion of its research efforts to the development of DIYproducts.

 

*Dealers.* In some markets, the Company sells its productsdirectly to lumber dealers.

 

*OEM Relationships.*The Company works closely withmanufacturers of engineered wood products and OEMs in developing and expandingthe application and sales of Simpson Strong-Tie’s engineered wood connector andfastener products and Simpson Dura-Vent’s gas, wood and pellet stove ventingproducts. SST has relationships with several of the largest manufacturers ofengineered wood products, and SDV has OEM relationships with major fireplaceand stove manufacturers.

 

While theCompany is expanding its established facilities outside of California toincrease its presence and sales in these markets, sales of some products mayrelate primarily to certain regions. For example, sales of SST’s line ofshearwalls are concentrated mostly in the western region of the United States,because their use is primarily intended to resist the effects of seismicforces. Since 1993 the Company —

·                  has established operations in the United Kingdom,

·                  opened manufacturing and warehouse and distribution facilities in westernCanada and the midwestern, northeastern, and eastern seaboard regions of theUnited States,

·                  purchased anchor products manufacturers in Illinois, eastern Canada andIreland and connector product manufacturers in France, Denmark, Germany andCanada,

 

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·                  acquired the assets of a leading manufacturer and distributor of screwfastening systems and collated screws with manufacturing and distributionoperations in Tennessee and distribution in Canada, Europe, Australia and NewZealand, and acquired a German manufacturer with manufacturing in Germany,Czech Republic and China,

·                  acquired a manufacturer and distributor of stainless steel fasteners withmanufacturing in Maryland and distribution in Maryland, Florida, Oregon andMassachusetts,

·                  purchased a venting products manufacturer in New York and acquired theassets of a specialized venting manufacturing line,

·                  built a manufacturing facility in China and opened sales offices in HongKong, Beijing, Shanghai and Dubai for distribution in Asia and the Middle East,and

·                  acquired the business of a software company which licenses deck design andestimation software.

 

The Company’sEuropean investments have established a presence in the European Communitythrough companies with existing customer bases and through servicing UnitedStates-based customers operating there. The Company also distributes connector,anchor and epoxy products in Mexico, Australia, New Zealand, Asia and theMiddle East. The Company intends to continue to pursue and expand operationsboth inside and outside of the United States (see Note 14 to the Company’sConsolidated Financial Statements).

 

A Company goal is to manufacture and warehouse itsproducts in geographic proximity to its markets to provide availability andrapid delivery of products to customers and prompt response to customerrequests for specially designed products and services. With respect to the DIYand dealer markets, the Company’s strategy is to keep the customer’s retailstores continuously stocked with adequate supplies of the full line of theCompany’s products that those stores carry. The Company manages its inventoryto help assure continuous product availability. Most customer orders are filledwithin a few days. High levels of manufacturing automation and flexibilityallow the Company to maintain its quality standards while continuing to provideprompt delivery.

 

TheCompany’s product research and development is based largely on needs thatcustomers communicate to the Company. The Company typically has developed 10 to25 new products annually (some of which may be produced in a range of sizes).The Company’s strategy is to develop new products on a proprietary basis, topatent them when appropriate and to seek trade secret protection for others.

 

The Company’s long-term strategy is to develop,acquire or invest in product lines or businesses that have the potential toincrease the Company’s earnings per share over time and that—

·                  complement theCompany’s existing product lines,

·                  can be marketedthrough its existing distribution channels,

·                  might benefit fromuse of the Simpson Strong-Tie or Simpson Dura-Vent brand names and expertise,

·                  are responsive toneeds of the Company’s customers,

·                  expand the Company’smarkets geographically and

·                  reduce the Company’sdependence on the United States residential construction market.

 

**Simpson Strong-Tie**

 

*Overview*

 

Connectorsproduced by Simpson Strong-Tie typically are steel devices that are used tostrengthen, support and connect joints in residential and commercialconstruction and DIY projects. These products enhance the safety and durabilityof the structures in which they are installed and can save time and labor costsfor the contractor. SST’s connector products increase structural integrity andimprove structural resistance to seismic, wind and other forces. Applicationsrange from building framing to deck construction to DIY projects. SST producesand markets over 11,000 standard and custom products.

 

In the United States, connector usage developed fasterin the West than elsewhere due to the low cost and abundance of timber and tolocal construction practices. Increasingly, the market has been influenced bothby a growing awareness that the devastation caused by seismic, wind and otherdisasters can be reduced through improved building codes and constructionpractices and by environmental concerns that contribute to the increasing costand reduced availability of wood. Most Simpson Strong-Tie products are listedby recognized building standards agencies as complying with model buildingcodes and are specified by architects and engineers for use in projects theyare designing or supervising. The engineered wood products industry continuesto develop in response to concerns about the availability of wood, and theCompany believes that SST is the leading supplier of connectors for use withengineered wood products. SST operates manufacturing or warehouse facilities inCalifornia, Texas, Ohio, Florida, Connecticut, Illinois, Washington, Tennessee,Minnesota, North Carolina, Maryland, Massachusetts, British Columbia, Ontario,England, France, Denmark, Germany, Australia, Scotland, Poland, Ireland, CzechRepublic, Hong Kong, Dubai and China.

 

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Metal connectors, anchors and fasteners will corrode andlose load-carrying capacity when installed in corrosive environments or exposedto corrosive materials. There are many environments and materials that maycause corrosion, including ocean salt air, fire retardants,preservative-treated wood, dissimilar metals, fumes and fertilizers. Thevariables present in a single building environment make it impossible topredict accurately if, or when, significant corrosion will begin or reach acritical level. This relative uncertainty makes it crucial that the specifiersbe knowledgeable of the potential risks and select a product coating or metalthat is suitable for the intended use. Changes in the preservative-treated woodindustry have created additional concerns. Effective December 31, 2003,the preservative-treated wood industry voluntarily transitioned from ChromatedCopper Arsenate (“CCA-C”) used in residential applications to alternativetreatments. Testing has shown that certain alternative replacement treatmentsare generally more corrosive than CCA-C. SST publishes technical bulletins onsubjects such as this and others that affect the installation and use of itsproducts. SST makes its technical bulletins available on its website atwww.strongtie.com.

 

*Products*

 

SimpsonStrong-Tie is a recognized brand name in the markets it serves. SSTmanufactures and markets products that strengthen the three types ofconnections typically found in residential and commercial construction:  wood-to-wood, wood-to-concrete andwood-to-masonry. Many of the Company’s connector products, including itspre-fabricated shearwalls, are installed in a continuous load path from thefoundation to the roof system. SST also markets specialty screws and nails forproper installation of certain of its connector products. These products haveseismic, high-wind, retrofit and remodeling applications for both newconstruction and DIY markets. Through its Anchor Systems product line, SST offersa full line of adhesives, mechanical anchors, carbide drill bits andpowder-actuated pins and tools for numerous anchoring applications in concrete,masonry and steel in both standard and metric sizes. SST also offers screwfastening systems and collated screws for various construction applicationsthrough the Quik Drive product line and a line of stainless steel fastenersthrough the Swan Secure product line.

 

Most of Simpson Strong-Tie’s products are listed byrecognized model building code agencies. To achieve such listings, SST conductsextensive product testing, which is witnessed and certified by independenttesting engineers. The tests also provide the basis for publication of loadratings for SST structural connectors, and this information is used byarchitects, engineers, contractors and homeowners. The information is usefulacross the range of applications of SST’s products, from the deck constructedby a homeowner to a multi-story structure designed by an architect or engineerin an earthquake zone.

 

Simpson Strong-Tie also manufactures connector productsspecifically designed for use with engineered wood products, such as woodI-joists. With increased timber costs and reduced availability of treessuitable for making traditional solid sawn lumber, construction with engineeredwood products has increased substantially in the last several years. Sales ofSimpson Strong-Tie’s engineered wood connector and fastener products havecontributed significant revenues over the past several years.

 

*New Product Development*

 

SimpsonStrong-Tie commits substantial resources to new product development. Themajority of SST’s products have been developed through its internal researchand development program. SST’s research and development expense for the threeyears ended December 31, 2009, 2008 and 2007, was $5,884,000, $6,148,000and $5,206,000, respectively. SST is the only known United States manufacturerwith the capability to test multi-story wall systems, thus enabling testingrather than calculations alone to prove system performance. SST engineering,sales, product management, and marketing teams work together with architects,engineers, building inspectors, code officials and customers in the new productdevelopment process.

 

SSTtypically develops 10 to 20 new products each year. In 2009, SST introduced theStrong Drive® SD screw for use with SST connectors. Designed to replace nailsin many connectors, the new SD screws often increase load capacity and affordeasier and more convenient installation in many applications. SST alsodeveloped new products for beam attachment to concrete masonry units (“CMUs”)and concrete piers when high uplift capacity is required, one-piece face-mounthangers to support beam attachments to CMUs and concrete walls using the Company’sTiten HD screw anchor, adjustable stair-stringer connectors for both wood-frameand deck construction, wood-fence-to-steel-post connectors, and several otherproducts for general construction and DIY. SST developed additional fastenersand collated delivery systems for several applications, including metalroofing, composite decking, cooling towers, and other general constructionfastening applications.

 

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Whilecontinuing to service the new single-family residential housing market, SST hasincreased development efforts for products used in DIY, multi-familyresidential, and some light commercial and industrial markets.

 

*Sales and Marketing*

 

Simpson Strong-Tie’s sales and marketing programs areimplemented through SST’s branch system. SST currently maintains branches inNorthern and Southern California, Texas, Ohio, Canada, England, France,Germany, Denmark and China. Each branch is served by its own sales force, aswell as manufacturing, warehouse and office facilities. Each branch isresponsible for a broad geographic area. Each is responsible for setting andexecuting sales and marketing strategies that are consistent with the marketsthat the branch serves and the goals of SST. The domestic branches closelyintegrate their manufacturing activities to enhance product availability.Branch sales forces in the United States are supported by marketing managers inthe home office in Pleasanton, California. The home office also coordinatesissues affecting customers that operate in multiple regions. The sales forcemaintains close working relationships with customers, develops new business,calls on architects, engineers and building officials and participates in arange of educational seminars.

 

Simpson Strong-Tie sells its products through anextensive distribution system comprising dealer distributors supplyingthousands of retail locations nationwide, contractor distributors, homecenters, lumber dealers, manufacturers of engineered wood products, and specializedcontractors such as roof framers. In recent years, home centers have been oneof SST’s fastest growing distribution channels. A large part of that growth wassales to The Home Depot, which exceeded 10% of the Company’s consolidated netsales in both 2007 and 2009 (see “Item 1A — Risk Factors,” “Item 7 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” andNote 14 to the Company’s Consolidated Financial Statements). SST’s DIY anddealer products are used to build projects such as decks, patio covers andgarage organization systems.

 

SimpsonStrong-Tie dedicates substantial resources to customer service. SST producesnumerous publications and point-of-sale marketing aids to serve specifiers,distributors, retailers and users for the various markets that it serves. Thesepublications include general catalogs, as well as various specific catalogs,such as those for its Anchor System products. The catalogs and publicationsdescribe the products and provide load and installation information. SST alsomaintains several linked websites centered on www.strongtie.com, which includecatalogs, product and technical information, code reports and other generalinformation related to SST’s product lines and promotional programs.

 

SimpsonStrong-Tie’s engineers not only design and test products, but also provideengineering support for customers. This support might range from the discussionof a load value in a catalog to testing the suitability of an existing productin a unique application. SST’s sales force communicates with customers in eachof its marketing channels, through its publications, seminars and frequentsales calls.

 

Basedon its communications with customers, Simpson Strong-Tie believes that itsproducts are important to its customers’ businesses, and it is SST’s policy toship products within a few days of receiving the order, with many of the ordersshipped the same day as the order is received. Many of SST’s customers servecontractors that require rapid delivery of needed products. Home centers anddealers also require superior service because of fluctuating demand and toserve the needs of a broad base of customers. To satisfy these requirements,SST maintains appropriate inventory levels, has redundant manufacturingcapability and some multiple dies to produce the same parts. SST also maintainsinformation systems that provide sales and inventory control and forecastingcapabilities throughout its network of factories and warehouses. SST also hasspecial programs for contractors intended to ensure the prompt manufacture anddelivery of custom products.

 

SimpsonStrong-Tie believes that dealer and home center sales of SST products aresignificantly greater when the bins and racks at dealer and home center locationsare adequately stocked with appropriate products. Various retailers carryvarying numbers of SST products. SST’s sales force is engaged in ongoingefforts to inform retailers about SST’s merchandising programs and the appealof the SST brand.

 

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**Simpson Dura-Vent**

 

*Overview*

 

SimpsonDura-Vent’s venting systems are used to vent gas furnaces, water heaters,including tankless water heaters, fireplaces and stoves, wood and oil burningappliances, condensing appliances and wood pellet and corn stoves. SDV’s metalvents, chimneys and chimney liner systems exhaust the products of combustion tothe exterior of the building. SDV’s products have been designed for ease ofassembly and safe operation and to achieve a high level of performance. SDVproduces and markets approximately 4,000 different venting products.

 

Theclean burning characteristics of natural gas have gained public recognition,resulting in increased market share for natural gas appliances in the new constructionand the appliance replacement markets. As a result, Simpson Dura-Vent hasdeveloped venting systems, such as Direct-Vent, to address changes in appliancetechnology. Fluctuations in natural gas prices, however, affect demand for gasappliances. Historically, during periods of high oil and natural gas prices andenergy shortages, sales of wood and pellet burning stoves, consideredalternative energy sources, have increased, while sales of gas burningappliances have tended to decline.

 

SimpsonDura-Vent’s objective is to expand market share in all of its distributionchannels by entering expanding markets that address energy and environmentalconcerns. SDV’s strategy is to capitalize on its strengths in new productdevelopment and its established distribution network and to continue itscommitment to high quality and service. SDV operates manufacturing andwarehouse facilities in California, Mississippi, Minnesota and New York. In January 2008,SDV decided to close its Vicksburg, Mississippi, facility and consolidate itsmanufacturing operations in Vacaville, California.

 

In June 2008,SDV acquired the equity of ProTech Systems, Inc. (“ProTech”), which isbased in Albany, New York. ProTech manufactures special gas vents forcondensing appliances, including tankless water heaters and boilers. In July 2008,SDV acquired the assets and trademarks of Ventinox relining systems fromAmerican BOA, Inc.

 

*Products*

 

SimpsonDura-Vent is a leading supplier of double-wall Type B Gas Vent systems, usedfor venting gas furnaces, water heaters, boilers and decorative gas fireplaces.SDV’s Type B Gas Vent product line features heavy-duty quality construction anda twist-lock design that provides for fast and easy job-site assembly comparedto conventional snap-together designs. The twist-lock design has broaderapplications and has been incorporated into SDV’s gas, pellet and Direct-Ventproduct lines. SDV also markets a patented flexible vent connector,Dura/Connect, for use between the gas appliance flue outlet and the connectionto the Type B Gas Vent installed in the ceiling. Dura/Connect affords simpletwist, bend and connect installation for water heaters and gas furnaces. As aresult of the acquisition of ProTech in July 2008, SDV offers special gas vent and reliningproducts.

 

Consumerconcerns over the rising costs of natural gas and home heating oil in 2003through the first half of 2006 increased demand for alternative fuelappliances. This resulted in increased demand for SDV’s all-fuel chimney andpellet vent products, although demand for these and other SDV products declinedalong with the slowdown in home building activity in the first half of 2006 andagain in late 2007 and 2008. The gas fireplace market has evolved into twobasic types of fireplace: top-vent fireplaces that are vented with the standardType B Gas Vent and direct-vent fireplaces that use a special double-wallventing system. SDV’s Direct-Vent system is designed not only to exhaust theflue products, but also to draw in outside air for combustion, an importantfeature in modern energy-efficient home construction. Direct-Vent gas fireplacesystems afford ease of installation, permitting horizontal through-the-wallventing or standard vertical through-the-roof venting. SDV has established relationshipswith several large manufacturers of gas stoves and gas fireplaces to supplyDirect-Vent venting products.

 

*New Product Development*

 

SimpsonDura-Vent has gained industry recognition by offering innovative new productsthat meet changing needs of customers. SDV representatives serve on industrycommittees concerned with issues such as new appliance standards and governmentregulations. SDV’s research and development expense for the three years ended December 31,2009, 2008 and 2007, was $655,000, $812,000 and $816,000, respectively. SDValso maintains working relationships with research and development departmentsof major appliance manufacturers, providing prototypes for field testing andconducting tests in SDV’s testing laboratory. SDV believes that suchrelationships provide competitive advantages. For example, SDV introduced thefirst venting system for Direct-Vent gas appliances. In 2004, SDV completedtesting for a new chimney product line, Dura-Plus HTC, which is designed tomeet Canadian standards for chimney systems, and began marketing in Canada in2005. In 2006, SDVlaunched a new, improved PelletVent for venting pellet burning stoves. SDVmanufactures the new PelletVent product line using laser welding equipment. SDVhas patents pending for the PelletVent product line. In 2007, SDV determinedthat the exhaust gases that result from burning corn pellets and other biofuels can be corrosive and has begun using material that is more suited to thisapplication. Also in 2007, SDV launched improvements in its Direct-Ventcategories, applying laser weld techniques, and launched a new air-cooled largediameter (10” through 16”) chimney product line, Dura-Chimney 2, for ventingvery large wood-burning fireplaces.

 

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*Sales and Marketing*

 

Simpson Dura-Vent’s sales and marketing programs areimplemented through SDV’s sales and marketing staff and a network ofindependent manufacturer’s agents. SDV markets venting systems for both gas andwood burning appliances through wholesale distributors in the United States,Canada and Australia to the HVAC (heating, ventilating and air conditioning)and PHC (plumbing, heating and cooling) contractor markets, and to fireplacespecialty distributors. These customers sell to contractor and DIY markets. SDValso markets venting products to home center and hardware store chains. SDV hasestablished OEM relationships with several major gas fireplace and gas stovemanufacturers, which SDV believes are leaders in the direct-vent gas appliancemarket.

 

SimpsonDura-Vent responds to technological changes occurring in the industry throughnew product development and has developed a reputation for quality and serviceto its customers. To reinforce its reputation for quality, SDV producesextensive sales support literature and advertising materials. Recognizing the difficulty that customersand users may have in understanding correct sizing for venting, SDV publishes asizing handbook to assist contractors, building officials and retail outlets. SDV has designed its advertising and promotionalmaterials for use by distributors and their customers, as well as home centersand hardware chains.

 

Toenhance its marketing effort, SDV maintains a website, www.duravent.com, thatincludes product descriptions, catalogs and installation instructions, as wellas a direct link to SDV’s customer service and engineering departments. SDValso regularly publishes and sends e-mail newsletters to its distributors andauthorized Dura-Pro dealers.

 

**Manufacturing Process**

 

The Company designs and manufactures most of itsstandard products. The Company has concentrated on making its manufacturingprocesses as efficient as possible without compromising the quality orflexibility necessary to serve the needs of its customers. The Company hasdeveloped and uses automated manufacturing processes. The Company’s innovativemanufacturing systems and techniques have allowed it to control manufacturingcosts, even while developing both new products and products that meetcustomized requirements and specifications. The Company’s development ofspecialized manufacturing processes also has permitted increased operatingflexibility and enhanced product design innovation. The Company sources someproducts from third party vendors, both domestically and internationally.

 

The Company is committed to helping people build saferstructures economically through the design, engineering and manufacturing ofstructural connectors, pre-fabricated shearwalls, anchors, fasteners and relatedproducts. With the support and involvement of management, the Company hasdeveloped a quality system that manages defined procedures to ensure consistentproduct quality and also meets the requirements of International Code Council(ICC) product evaluation reports. Simpson Strong-Tie is recognized in itsindustry as a manufacturer of high quality products.  Since 1996, SST’s quality system has beenregistered under ISO 9001, an internationally recognized set ofquality-assurance standards. The Company believes that ISO registration is avaluable tool for maintaining its high quality standards. As SST establishesnew business locations through expansion or acquisitions, projects areestablished to integrate SST’s quality systems and achieve ISO 9001 registration.  In addition, SST has five testinglaboratories accredited to ISO standard 17025, an internationally acceptedstandard that provides requirements for the competence of testing andcalibration laboratories.

 

Most of SimpsonStrong-Tie’s products are produced with a high level of automation, usingprogressive dies run in automatic presses making parts from coiled sheet steelat rates that often exceed 100 strokes per minute. SST estimates that itproduces over 500 million product pieces per year. Most of SST’s products(SKUs) are bar coded with UPC numbers for easy identification, and nearly allof the products sold to home centers are labeled with bar codes. SST hassignificant press capacity and has multiple dies for some of its high volumeproducts because of the need to produce these products close to the customerand to provide backup capacity. The balance of production is accomplishedthrough a combination of manual, blanking and numerically controlled (NC)processes that include robotic welders, lasers and turret punches. Thiscapability allows SST to produce products with little redesign or set-up time,facilitating rapid turnaround for customers. New tooling is also highlyautomated. Dies are designed and produced using computer aided design (CAD) andcomputer aided machining (CAM) systems. CAD/CAM capability enables SST tocreate multiple dies quickly and design them to high standards. The Company isconstantly reviewing its product line to reduce manufacturing costs, increaseautomation, and take advantage of new types of materials.

 

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SimpsonStrong-Tie also manufactures chemical anchoring products at its facility inAddison, Illinois. The chemicals are mixed in batches and are then loaded in two-partdispensers. These dispensers mix the product on the job site because set uptimes are usually very short. In addition, SST purchases a number of products,primarily fasteners, powder actuated pins and tools and accessories and certainof its mechanical anchoring products, from various sources around the world.These purchased products undergo inspections on a sample basis for conformancewith ordered specifications and tolerances before being distributed.

 

SimpsonDura-Vent produces component parts for venting systems using NC-controlledpunch presses equipped with high-speed progressive and compound tooling. SDV’svent pipe and elbow assembly lines are automated, to produce finished productsefficiently from large coils of steel and aluminum. UPC bar coding and computertracking systems provide SDV’s industrial engineers and production supervisorswith real-time productivity tools to measure and evaluate current productionrates, methods and equipment.

 

**Regulation**

 

SimpsonStrong-Tie’s product lines are subject to federal, state, county, municipal andother governmental and quasi-governmental regulations that affect productdesign, development, testing, applications, marketing, sales, installation anduse. Most SST products are recognized by building code and standards agencies.Agencies that recognize Company products include the International Code CouncilEvaluation Service (ICC-ES), the International Association of Plumbing andMechanical Officials (IAPMO), the City of Los Angeles, the State of Florida,and the California Division of the State Architect. These and other agenciesadopt various testing and design standards and incorporate them into theirrelated building codes. With the adoption of the International Residential Codeand the International Building Code, these standards are being applied moreuniformly, and these Codes are recognized throughout most of the United States.SST considers code recognition to be a significant marketing tool and devotesconsiderable effort to obtaining and maintaining appropriate approvals for itsproducts. SST believes that architects, engineers, contractors and othercustomers are more likely to purchase structural products that have theappropriate code acceptance than competitive products that lack code acceptance.SST actively participates in industry related professional associations to keepabreast of regulatory changes and to provide information to regulatoryagencies.

 

Simpson Dura-Vent operates under a regulatoryenvironment that includes appliance and venting performance standards relatedto safety, energy efficiency and air quality. Gas venting regulations arecontained in the National Fuel Gas Code (“NFGC”), while safety and performanceregulations for wood burning appliances and chimney systems are contained in aNational Fire Protection Association standard (“NFPA 211”). Standards fortesting gas vents and chimneys are developed by testing laboratories such asUnderwriter’s Laboratories (“UL”) in compliance with the American NationalStandards Institute. The Environmental Protection Agency (“EPA”) regulatesclean air standards for both gas and wood burning appliances. The Department ofEnergy (“DOE”) regulates energy efficiency standards under the authority of theNational Appliance Energy Conservation Act. Under this Act, the DOEperiodically reviews the necessity for increased efficiency standards withrespect to gas furnaces and gas water heaters. A substantial percentage of SDV’sType B Gas Vent sales are for gas furnaces and gas water heaters. Minimumappliance efficiency standards have been enacted that could negatively affectsales of Type B Gas Vents, which could adversely affect the Company’s operatingresults. In turn, the various building codes could be adopted by localauthorities, resulting in enforcement through the building permit process.Safety, air quality and energy efficiency requirements are enforced by localair quality districts and municipalities by requiring proper UL, EPA and DOElabels on appliances and venting systems.

 

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**Competition**

 

TheCompany faces a variety of competition in all of the markets in which itparticipates. This competition ranges from subsidiaries of large national orinternational corporations to small regional manufacturers. While price is animportant factor, the Company competes on the basis of quality, breadth ofproduct line, technical support, availability of inventory, service (includingcustom design and manufacturing), field support and product innovation. As aresult of differences in structural design and building practices and codes,Simpson Strong-Tie’s markets tend to differ by region. Within these regions,SST competes with companies of varying size, several of which also distributetheir products nationally.

 

The venting industry is highly competitive. SDV’scompetitors include a variety of manufacturers that have operations in theUnited States, Canada, China and Mexico. Most of its competitors do not competein all of SDV’s product lines, and some have additional product lines that SDVdoes not offer. SDV competes on the basis of quality, service, breadth ofproduct line, availability of inventory, technicalsupport and product innovation.

 

**RawMaterials**

 

Theprincipal raw material used by both Simpson Strong-Tie and Simpson Dura-Vent issteel, including stainless steel. The Company generally orders steel tospecific American Society of Testing and Materials (“ASTM”) standards. SST alsouses materials such as epoxies and acrylics in the manufacture of its chemicalanchoring products. SDV also uses raw materials such as aluminum, aluminumalloys and ceramic and other insulation materials, and both SST and SDV usecartons. The Company purchases raw materials from a variety of commercialsources. The Company’s practice is to seek cost savings and enhanced quality bypurchasing from a limited number of suppliers.

 

Thesteel industry is highly cyclical and prices for the Company’s raw materialsare influenced by numerous factors beyond the Company’s control, includinggeneral economic conditions, competition, labor costs, foreign exchange rates,import duties, raw material shortages and trade restrictions. The steel marketcontinues to be dynamic, with a high degree of uncertainty about future pricingtrends. Steel priceshave declined from their peak in July 2008, but the Company believes thatthey may have reached a low point in mid-2009 and that they may increase in2010 as demand returns to the market and imports and steel mill capacityutilization remain constricted. Demand for steel, although slow, increased dueto manufacturers’ low inventories in the fourth quarter of 2009. Numerous factors may cause steel prices toincrease in the future. In addition toincreases in steel prices, mills have added surcharges for zinc, energy andfreight in response to increases in their costs. These and other factors couldadversely affect the Company’s cost and access to steel in 2010. If steelprices increase and the Company is not able to maintain its prices or increasethem sufficiently, the Company’s margins could deteriorate. See “Item 1A — RiskFactors” and “Item 7 — Management’s Discussion and Analysis of FinancialCondition and Results of Operations.” The Company historically has notattempted to hedge against changes in prices of steel or other raw materials.

 

**Patents andProprietary Rights**

 

TheCompany’s subsidiaries have United States and foreign patents, the majority ofwhich cover products that they currently manufacture and market. These patents,and applications for new patents, cover various design aspects of thesubsidiaries’ products, as well as processes used in their manufacture. TheCompany’s subsidiaries are continuing to develop new potentially patentableproducts, product enhancements and product designs. Although the Company’ssubsidiaries do not intend to apply for additional foreign patents coveringexisting products, the Company has developed an international patent program toprotect new products that its subsidiaries may develop. In addition to seekingpatent protection, the Company relies on unpatented proprietary technology tomaintain its competitive position. See “Item 1A — Risk Factors.”

 

**Acquisitionsand Expansion into New Markets**

 

TheCompany’s future growth, if any, may depend to some extent on its ability topenetrate new markets, both domestically and internationally. See “Industry andMarket Trends” and “Business Strategy.” Therefore, the Company may in thefuture pursue acquisitions of product lines or businesses. See “Item 1A — RiskFactors” and “Item 7 — Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”

 

InJuly 2007, the Company’s subsidiary, Simpson Strong-Tie Company Inc.,purchased the stock of Swan Secure Products, Inc. (“Swan Secure”) for$42.1 million in cash, net of cash received. Swan Secure is a manufacturer anddistributor of fasteners, largely stainless steel, and its products aremarketed throughout the United States. In 2009, SST integrated the Swan Secureproduct line into its sales and distribution system and is transitioning theSwan secure brand to the SST brand.

 

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In April 2008, theCompany’s subsidiary, Simpson Strong-Tie Ireland Limited, purchased certainassets of Liebig International Ltd., an Irish company, Heinrich LiebigStahldübelwerke GmbH, Liebig GmbH & Co. KG and Liebig InternationalVerwaltungsgesellschaft GmbH, all German companies, Liebig Bolts Limited, anEnglish company, and Liebig International Inc., a Virginia corporation(collectively “Liebig”). Liebig manufactures mechanical anchor products inIreland and distributes them primarily throughout Europe through warehouseslocated in Germany and the United Kingdom. Liebig expands the Company’s anchorproduct offerings in its connector product segment. The purchase price was$19.2 million in cash, including due diligence and transaction costs. TheCompany recorded goodwill of $7.6 million and intangible assets subject toamortization of $2.7 million as a result of the acquisition. Tangible assets,including real estate, machinery and equipment, inventory and trade accountsreceivable, accounted for the balance of the purchase price.

 

In June 2008, theCompany’s subsidiary, Simpson Dura-Vent Company, Inc., purchased theequity of ProTech Systems, Inc., a New York corporation (“ProTech”).ProTech manufactures venting products in New York and distributes themthroughout North America. ProTech expands the Company’s product offerings inthe venting product segment. The purchase price was $8.3 million in cash, includingdue diligence and transaction costs and $1.4 million to be paid in the future,plus an additional earn-out of up to $2.25 million if certain futureperformance targets are met. The Company recorded goodwill of $2.2 million andintangible assets subject to amortization of $3.3 million as a result of theacquisition. Net tangible assets, including machinery and equipment, inventoryand trade accounts receivable, accounted for the balance of the purchase price.In July 2008, Simpson Dura-Vent also purchased certain assets to producethe Ventinox stainless steel chimney liner product line from American BOA Inc.ProTech had been the distributor of Ventinox products. The purchase price was$1.6 million in cash, including due diligence and transaction costs. TheCompany recorded goodwill of $0.7 million and intangible assets subject toamortization of $0.1 million. Tangible assets, including machinery andequipment and inventory, accounted for the balance of the purchase price.

 

In July 2008, theCompany’s subsidiary, Simpson Strong-Tie Company Inc., purchased the equity ofAhorn-Geräte & Werkzeuge Vertriebs GmbH, a German company, and itssubsidiaries Ahorn Upevnovaci Technika s.r.o., a Czech company, and AhornPacific Fasteners (Kunshan) Co., Ltd., a Chinese company (collectively “Ahorn”).The acquisition broadened Simpson Strong-Tie’s collated fastener product lineand added production capacity in both Europe and China. The purchase price was$9.2 million in cash, including due diligence and transaction costs. TheCompany recorded goodwill of $3.3 million and intangible assets subject toamortization of $3.9 million as a result of the acquisition. Net tangibleassets, including machinery and equipment, inventory and trade accountsreceivable, accounted for the balance of the purchase price.

 

In January 2009, theCompany’s subsidiary, Simpson Strong-Tie Company Inc., acquired the business ofRO Design Corp, a Florida corporation doing business as DeckTools, whichlicenses deck design and estimation software. Payments under the purchaseagreement total $4.0 million in cash, including $2.5 million to be paid in thefuture, which will be treated as compensation expense to the principal officerof RO Design Corp, who is now employed by the Company. As a result of theacquisition, the Company recorded goodwill of $0.4 million and intangibleassets subject to amortization of $1.1 million.

 

In April 2009,the Company’s subsidiary, Simpson Strong-Tie Europe EURL, purchased the equityof Agence Internationale Commerciale et Industrielle, S.A.S. (“Aginco”). Agincomanufactures a line of high-quality builder products and distributes them inFrance. The purchase price was $22.2 million in cash. The Company has recordedgoodwill in connection with the transaction of $10.5 million and intangibleassets subject to amortization of $6.0 million. Net tangible assets, includingmachinery and equipment, inventory and trade accounts receivable, accounted forthe balance of the purchase price.

 

**Seasonality and Cyclicality**

 

TheCompany’s sales are seasonal and cyclical. Operating results vary from quarterto quarter and with economic cycles. The Company’s sales are also dependent, toa large degree, on the North American residential home construction industry.See “Item 1A — Risk Factors” and “Item 7 — Management’s Discussion and Analysisof Financial Condition and Results of Operations.”

 

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**Environmental,Health and Safety Matters**

 

The Company issubject to environmental laws and regulations governing emissions into the air,discharges into water, and generation, handling, storage, transportation,treatment and disposal of waste materials. The Company is also subject to otherfederal and state laws and regulations regarding health and safety matters. TheCompany believes that it has obtained all material licenses and permitsrequired by environmental, health and safety laws and regulations in connectionwith the Company’s operations and that its policies and procedures comply inall material respects with existing environmental, health and safety laws andregulations. See “Item 1A — Risk Factors.”

 

**Employeesand Labor Relations**

 

Asof January 1, 2010, the Company had 2,138 full-time employees, of whom1,116 were hourly employees and 1,022 were salaried employees. The Companybelieves that its overall compensation and benefits for the most part meetindustry averages and that its relations with its employees are good.

 

A significant number of the employees at two of the Company’s facilitiesare represented by labor unions and are covered by collective bargainingagreements. Two of the Company’s collective bargaining agreements cover theCompany’s tool and die craftsmen and maintenance workers and its sheetmetalworkers in Brea, California. These two contracts expire February 2011 and June 2012,respectively. Simpson Strong-Tie’s facility in Stockton, California, is also aunion facility with two collective bargaining agreements, which cover its tooland die craftsmen and maintenance workers, and its sheetmetal workers. Thesetwo contracts will expire June 2011 and September 2011, respectively.See “Item 1A — Risk Factors.”

 

**AvailableInformation**

 

The SECmaintains an internet site (http://www.sec.gov) that contains reports, proxyand information statements, and other information regarding issuers that fileelectronically with the SEC. The Company makes available, free of charge,copies of its recent annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K, proxy statement, company governanceguidelines and code of ethics and the charters of the Audit Committee,Compensation and Leadership Development Committee, and Governance andNominating Committee of its Board of Directors on its website atwww.simpsonmfg.com. Printed copies of any of these materials will be providedfree of charge on request.

 

**Item 1A.Risk Factors.**

 

*You should carefully consider thefollowing risks before you decide to buy or hold shares of our common stock. Ifany of the following risks actually occurs, our business, results of operationsor financial condition would likely suffer. In such case, the trading price ofour common stock could decline, and you may lose all or part of the money youpaid to buy our stock.*

 

*This and other public reports maycontain forward-looking statements based on current expectations, assumptions,estimates and projections about us and our industry. Those forward-lookingstatements involve risks and uncertainties. Our actual results could differmaterially from those forward-looking statements as a result of many factors,as more fully described below and elsewhere in our public reports. We do notundertake to update publicly any forward-looking statements for any reason,even if new information becomes available or other events occur in the future.*

 

**Worldwideeconomic conditions and credit tightening materially and adversely affect ourbusiness.**

 

Our business has beenmaterially and adversely affected by changes in regional, national or globaleconomic conditions.  Such changes haveincluded or may include reduced consumer spending, reduced availability ofcapital, inflation, deflation, adverse changes in interest rates, reducedenergy availability and increased energy costs, and government initiatives tomanage economic conditions. Continuing instability in financial markets and thedeterioration of other national and global economic conditions may have furthermaterially adverse effects on our operations, financial results or liquidity,including the following:

·                  the financial stability of our customers or suppliersmay be compromised, which could result in additional bad debts for us ornon-performance by suppliers;

 

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·                  financial instability of the financial institutionswhere we have our cash balances invested could result in loss of our principalbalance;

·                  one or more of the financial institutions that makeavailable our revolving credit facility may become unable to fulfill theirfunding obligations, which could materially and adversely affect our liquidity;

·                  it may become even more costly or difficult for us toobtain the agreed or additional financing or to refinance our existing creditfacility; or

·                  our assets may be impaired or subject to write down orwrite off.

 

Uncertainty about currentglobal economic conditions may cause consumers of our products to postpone orrefrain from spending in response to tighter credit, negative financial news,declines in income or asset values, or other adverse economic events orconditions, which could materially reduce demand for our products andmaterially and adversely affect our financial condition and operating results.Further deterioration of economic conditions would likely exacerbate theseadverse effects, result in wide-ranging, adverse and prolonged effects ongeneral business conditions, and materially and adversely affect ouroperations, financial results and liquidity.

 

**Failure to comply with industryregulations could result in reduced sales and increased costs.**

 

The design, capacity andquality of most of our products and manufacturing processes are subject tonumerous and extensive regulations and standards promulgated by governmental,quasi-governmental and industry organizations. These regulations and standardsare highly technical, complex and subject to frequent revision. If our productsor manufacturing processes fail to comply with any regulations or standards, wemay not be able to manufacture and market our products profitably. Failure tocomply with regulations and standards could therefore materially reduce oursales and increase our costs.

 

**If we fail to competeeffectively, our revenue and profit margins could decline.**

 

We face a variety ofcompetition in all of the markets in which we participate. Many of ourcompetitors have greater financial and other resources than we do. In addition,other technologies may be the bases for competitive products that could renderour products obsolete or noncompetitive. Other companies may find our marketsattractive and enter those markets. Competitive pricing, including pricecompetition or the introduction of new products, could have material adverseeffects on our revenues and profit margins.

 

Our ability to competeeffectively depends to a significant extent on the specification or approval ofour products by architects, engineers, building inspectors, building codeofficials and customers. If a significant segment of those communities were todecide that the design, materials, manufacturing, testing or quality control ofour products is inferior to that of any of our competitors, our sales andprofits would be materially reduced.

 

**If welose all or part of a large customer, our sales and profits would decline.**

 

We have substantial salesto a few large customers. Loss of all or part of our sales to a large customerwould have a material adverse effect on our revenues and profits. Our largestcustomer accounted for 11% of net sales for the year ended December 31,2009, and slightly less than 10% of net sales for the year ended December 31,2008. In August 2007, this customer sold a division, which is now aseparate customer of the Company. As a combined company in 2007, these twocustomers accounted for 15% of our net sales. As two separate customers,neither would have accounted for more than 10% of our consolidated net salesfor  2007. See Note 14 to the Company’sConsolidated Financial Statements. This customer may endeavor to replace,in some or all markets, our products with lower-priced productssupplied by others or may otherwise reduce its purchases of ourproducts. We also might reduce our dependence on our largest customerby reducing or terminating sales to one or more of the customer’ssubsidiaries. Any reduction in, or termination of, our salesto this customer would at least temporarily, and possiblylonger, cause a material reduction in our net sales, income fromoperations and net income. A reduction in or elimination of our salesto our largest customer, or another of our largercustomers, would increase our relative dependence on our remaininglarge customers.

 

In addition, ourcustomers include retailers and distributors. Retail and distributionbusinesses have consolidated over time, which could increase the materialadverse effect of losing any of them.

 

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**Increases in prices of rawmaterials could negatively affect our sales and profits.**

 

Our principal rawmaterial is steel, including stainless steel. The steel industry is highlycyclical. Numerous factors beyond our control, such as general economicconditions, competition, worldwide demand, material and labor costs, energycosts, foreign exchange rates, import duties and other trade restrictions,influence prices for our raw materials. Consolidation among domestic integratedsteel producers, changes in supply and demand in steel markets, changes inforeign currency exchange rates and economic conditions, and other events haveled to volatility in steel costs. The domestic steel market is heavily influencedby three major United States manufacturers. We have not always been able, andin the future we might not be able, to increase our product prices in amountsthat correspond to increases in costs of raw materials, without materially andadversely affecting our sales and profits.

 

We have not attempted tohedge against changes in prices of steel or other raw materials. In recentyears, however, we have increased our steel purchases in an effort to mitigatethe effects of rising steel prices. At the same time, since 2007 our sales havedeclined with the declines in the housing and financial markets. As a result,our inventory fluctuated substantially. Inventory fluctuation can materiallyand adversely affect our margins, cash flow and profits.

 

**If we cannot protect ourtechnology, we will not be able to compete effectively.**

 

Our ability to competeeffectively with other companies depends in part on our ability to maintain theproprietary nature of our technology, in part through patents. We might not beable to protect or rely on our patents. Patents might not issue pursuant topending patent applications. Others might independently develop the same orsimilar technology, develop around the patented aspects of any of our productsor proposed products, or otherwise obtain access to or circumvent ourproprietary technology. We also rely on unpatented proprietary technology tomaintain our competitive position. We might not be able to protect our know-howor other proprietary information. If we are unable to maintain the proprietarynature of our significant products, our sales and profits could be materiallyreduced.

 

In attempting to protectour proprietary information, we sometimes initiate lawsuits against competitorsand others that we believe have infringed or are infringing our rights. In suchan event, the defendant may assert counterclaims to complicate or delay thelitigation or for other reasons. Litigation may be very costly and may resultin adverse judgments that affect our sales and profits materially andadversely.

 

**Integrating acquired businessesmay divert management’s attention away from our day-to-day operations.**

 

We may pursueacquisitions of product lines or businesses. Acquisitions involve numerousrisks, including, for example:

·                  difficulties assimilating the operations and productsof acquired businesses;

·                  diversion of management’s attention from otherbusiness concerns;

·                  overvaluation of acquired businesses;

·                  undisclosed existing or potential liabilities ofacquired businesses;

·                  slow acceptance or rejection of acquired businesses’products by our customers;

·                  risks of entering markets in which we have little orno prior experience;

·                  litigation involving activities, properties orproducts of acquired businesses;

·                  consumer and other claims related to products ofacquired businesses; and

·                  the potential loss of key employees of acquiredbusinesses.

 

In addition, futureacquisitions may cause us to issue additional equity securities that dilute thevalue of our existing equity securities, increase our debt, and causeimpairment and amortization expenses related to goodwill and other intangibleassets, which could materially and adversely affect our profitability. Anyacquisition could materially and adversely affect our business and operatingresults.

 

**Significantcosts to integrate our acquired operations may negatively affect our financialcondition and the market price of our stock.**

 

We will incurcosts from integrating acquired business operations, products and personnel.These costs may be significant and may include expenses and other liabilitiesfor employee redeployment, relocation or severance, combining teams andprocesses in various functional areas, reorganization or closures offacilities, and relocation or disposition of excess equipment. The integrationcosts that we incur may negatively affect our profitability and the marketprice of our stock.

 

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**Our future growth may depend onour ability to penetrate new domestic and international markets, which couldreduce our profitability.**

 

Internationalconstruction customs, standards, techniques and methods differ from those inthe United States. Laws and regulations applicable in new markets may beunfamiliar to us. Compliance may be substantially more costly than weanticipate. As a result, we may need to redesign products, or invent or designnew products, to compete effectively and profitably in new markets. We expectthat we will need significant time, which may be years, to generate substantialsales or profits in new markets.

 

Other significantchallenges to conducting business in foreign countries include, among otherfactors, local acceptance of our products, political instability, changes inimport and export regulations, changes in tariff and freight rates,fluctuations in foreign exchange rates and currency controls. We might not beable to penetrate these markets and any market penetration that occurs mightnot be timely or profitable. If we do not penetrate these markets within areasonable time, we will be unable to recoup part or all of the significantinvestments we will have made in attempting to do so.

 

**Seasons and business cyclesaffect our operating results.**

 

Our sales are seasonal,with operating results varying from quarter to quarter. With some exceptions,our sales and income have historically been lower in the first and fourthquarters than in the second and third quarters of the year, as customerspurchase construction materials in the late spring and summer months for theconstruction season. In addition, weather conditions, such as unseasonablywarm, cold or wet weather, which affect, and sometimes delay or accelerate,installation of some of our products, significantly affect our results ofoperations. Political and economic events can also affect our sales andprofitability.

 

We have little controlover the timing of customer purchases. Sales that we anticipate in one quartermay occur in another quarter, affecting both quarters’ results. In addition, weincur significant expenses as we develop, produce and market our products inanticipation of future orders. We maintain high inventory levels and typicallyship orders as we receive them, so we operate with little backlog. As a result,net sales in any quarter generally depend on orders booked and shipped in thatquarter. A significant portion of our operating expenses is fixed. Plannedexpenditures are based primarily on sales forecasts. When sales do not meet ourexpectations, our operating results will be reduced for the relevant quarters,as we will have already incurred expenses based on those expectations.

 

Our principal markets arein the building construction industry. That industry is subject to significantvolatility due to real estate market cycles, fluctuations in interest rates,the availability, or lack thereof, of credit to builders and developers,inflation rates, weather, and other factors and trends. None of these factorsor trends is within our control. Declines in commercial and residentialconstruction, such as housing starts, and remodeling projects have reduced, andin the future can be expected to reduce, the demand for our products. Negativeeconomic or construction industry performance adversely affects our business.Declines in construction activity or demand for our products have materiallyand adversely affected, and could in the future materially and adverselyaffect, our sales and profitability.

 

**Product liability claims andproduct recalls could harm our reputation, sales and financial condition.**

 

We design and manufacturemost of our standard products and expect to continue to do so, although we buyraw materials and some manufactured products from others. We have on occasionfound flaws and deficiencies in the manufacturing, design or testing of ourproducts. We also have on occasion found flaws and deficiencies in rawmaterials and finished goods produced by others. Some flaws and deficiencieshave not been apparent until after the products were installed by customers.

 

Many of our products areintegral to the structural soundness or safety of the structures in which theyare used. If any flaws or deficiencies exist in our products and if such flawsor deficiencies are not discovered and corrected before our products are incorporatedinto structures, the structures could be unsafe or could suffer severe damage,such as collapse or fire, and personal injury could result. Errors in theinstallation of our products, even if the products are free of flaws anddeficiencies, could also cause personal injury and unsafe structuralconditions. To the extent that such damage or injury is not covered by ourproduct liability insurance and we are held to be liable, we could be requiredto correct such damage and to compensate persons who might have sufferedinjury, and our reputation, business and financial condition could bematerially and adversely affected.

 

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Even if a flaw ordeficiency is discovered before any damage or injury occurs, we may need torecall products, and we may be liable for any costs necessary to replacerecalled products or retrofit the affected structures. Any such recall orretrofit could entail substantial costs and adversely affect our reputation,sales and financial condition. We do not carry insurance against recall costsor the adverse business effect of a recall, and our product liability insurancemay not cover retrofit costs.

 

Claims resulting from anatural disaster might be made against us with regard to damage or destructionof structures incorporating our products. Any such claims, if asserted, couldmaterially and adversely affect our business and financial condition.

 

**Complying or failing to complywith environmental, health and safety laws and regulations could affect usmaterially and adversely.**

 

We are subject toenvironmental laws and regulations governing emissions into the air, dischargesinto water, and generation, handling, storage, transportation, treatment anddisposal of waste materials. We are also subject to other federal and statelaws and regulations regarding health and safety matters.

 

Our manufacturingoperations involve the use of solvents, chemicals, oils and other materialsthat are regarded as hazardous or toxic. We also use complex and heavymachinery and equipment that can pose severe safety hazards, especially if notproperly and carefully used. Some of our products also incorporate materialsthat are hazardous or toxic in some forms, such as zinc and lead used in somesteel galvanizing processes and chemicals used in our acrylic and epoxyanchoring products. The gun powder used in our powder-actuated tools isexplosive. Misuse of other materials in some of our products could also causeinjury or sickness.

 

If we do not obtain allmaterial licenses and permits required by environmental, health and safety lawsand regulations, we may be subject to regulatory action by governmentalauthorities. If our policies and procedures do not comply in all respects withexisting environmental, health and safety laws and regulations, our activitiesmight violate such laws and regulations. Even if our policies and procedures docomply, but our employees fail or neglect to follow them in all respects, wemight incur similar liability. Relevant laws and regulations could change ornew ones could be adopted that require us to obtain additional licenses andpermits and cause us to incur substantial expense.

 

Our generation, handling,use, storage, transportation, treatment or disposal of hazardous or toxicmaterials, machinery and equipment might cause injury to persons or to theenvironment. We may need to take remedial action if properties that we occupyare contaminated by hazardous or toxic substances.

 

Any change in laws orregulations, any legal or regulatory violations, or any contamination, couldmaterially and adversely affect our business and financial condition.

 

**New appliance efficiencystandards could materially and adversely affect our operating results andfinancial condition.**

 

The Department of Energyregulates energy efficiency under the authority of the National ApplianceEnergy Conservation Act. Under this Act, the Department of Energy periodicallyreviews the need for increased efficiency standards with respect to gasfurnaces and gas water heaters. A substantial percentage of our Type B Gas Ventsales are for gas furnaces and gas water heaters. The Department of Energymight adopt minimum appliance efficiency standards that negatively affect salesof Type B Gas Vents, which could materially and adversely affect our operatingresults.

 

**We depend on key management andtechnical personnel, the loss of whom could harm our business.**

 

We depend on certain keymanagement and technical personnel, including, among others, Thomas JFitzmyers, Michael J. Herbert, Phillip “Terry” Kingsfather, Barclay Simpson,Stephen P. Eberhard, Karen Colonias and Jeffrey E. Mackenzie. The loss of oneor more key employees could materially and adversely affect us.

 

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Our success also dependson our ability to attract and retain additional highly qualified technical,marketing and management personnel necessary for the maintenance and expansionof our activities. We face strong competition for such personnel. We might notbe able to attract or retain such personnel. In addition, when we experienceperiods with little or no profits, a decrease in compensation based on ourprofits may make it difficult to attract and retain highly qualified personnel.

 

**Any work stoppage or interruptionby employees could materially and adversely affect our business and financialcondition.**

 

A significant number ofour employees are represented by labor unions and are covered by collectivebargaining agreements that will expire in 2011 and 2012. A work stoppage orinterruption by a significant number of our employees could have a material andadverse effect on our sales and profitability.

 

**International operations exposeus to foreign exchange rate risk.**

 

We have foreign exchangerate risk in our international operations and through purchases from foreignvendors. We do not currently hedge this risk. Changes in currency exchangerates could materially and adversely affect our sales and profitability.

 

**Natural disasters could decreaseour manufacturing capacity.**

 

Most of our current andplanned manufacturing facilities are located in geographic regions that haveexperienced major natural disasters, such as earthquakes, floods andhurricanes. For example, the earthquakes in Northridge, California, in January 1994,destroyed several freeways and numerous buildings in the region in which ourfacilities in Brea are located. Our disaster recovery plan may not be adequateor effective. We do not carry earthquake insurance. Other insurance that wecarry is limited in the risks covered and the amount of coverage. Our insurancewould not be adequate to cover all of our resulting costs, businessinterruption and lost profits when a major natural disaster occurs. A naturaldisaster rendering one or more of our manufacturing facilities totally orpartially unusable, whether or not covered by insurance, would materially andadversely affect our business and financial condition.

 

**Control by our principalstockholder reduces the ability of other stockholders to influence management.**

 

Barclay Simpson, theChairman of our Board of Directors, controls approximately 20% of theoutstanding shares of our common stock. Mr. Simpson and Thomas JFitzmyers, our President and Chief Executive Officer (even though he owns lessthan 1% of the outstanding shares of our common stock), have significantinfluence with respect to the election of our directors and over somefundamental changes affecting us, such as a merger or sale of assets oramendment of our Certificate of Incorporation or Bylaws.

 

**Additionalfinancing, if needed, to fund our working capital, growth or acquisitions maynot be available on reasonable terms, or at all.**

 

If our cash requirementsfor working capital or to fund our growth increase to a level that exceeds theamount of cash that we generate from operations, or if we should decide to makean acquisition that requires more cash than we have available internally andthrough our current credit arrangements, we will need to seek additionalresources. In that event, we may need to enter into additional or new borrowingarrangements or consider equity financing. Additional or new borrowings may notbe available on reasonable terms, or at all, especially under currentconditions in the financial markets. Our ability to raise money by selling andissuing shares of our common or preferred stock would depend on general marketconditions and the demand for our stock. We may be unable to raise adequatecapital on reasonable terms by selling stock. If we sell stock, our existingstockholders could experience substantial dilution. Our inability to secureadditional financing could prevent the expansion of our business, internallyand through acquisitions.

 

**Any issuance of preferred stockmay dilute your investment and reduce funds available for dividends.**

 

Our Board of Directors isauthorized by our Certificate of Incorporation to determine the terms of one ormore series of preferred stock and to authorize the issuance of shares of anysuch series on such terms as our Board of Directors may approve. Any suchissuance could be used to impede an acquisition of our business that our Boardof Directors does not approve, further dilute the equity investments of holdersof our common stock and reduce funds available for the payment of dividends toholders of our common stock.

 

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**Our stock price is likely to bevolatile and could drop.**

 

The trading price of ourcommon stock could be subject to wide fluctuations in response to period toperiod variations in operating results, changes in earnings estimates byanalysts, announcements of technological innovations or new products by us orour competitors, general conditions in the construction and constructionmaterials industries, relatively low trading volume in our common stock andother events or factors. In addition, the stock market is subject to extremeprice fluctuations. This volatility has had a substantial effect on the marketprices of securities issued by many companies for reasons unrelated to theoperating performance of those companies. Securities market fluctuations maymaterially and adversely affect the market price of our common stock.

 

**Future sales of common stockcould adversely affect our stock price.**

 

Sales of substantialamounts of our common stock in the public market could adversely affect theprevailing market price for our common stock. All of the outstanding shares ofour common stock are freely tradable without restriction under the SecuritiesAct of 1933, other than 10.0 million shares held (as of February 9, 2010)by our “affiliates,” as that term is defined in Rule 144 under theSecurities Act of 1933. Options to purchase 1.8 million shares of our commonstock were outstanding as of December 31, 2009, including options topurchase 1.7 million shares that were exercisable. If a substantial number ofshares were sold in the public market pursuant to Rule 144 or on exerciseof options, the trading price of our common stock in the public market could beadversely affected.

 

**Delaware law and our stockholderrights plan contain anti-takeover provisions that could deter takeover attemptsthat might otherwise be beneficial to our stockholders.**

 

Provisions of Delawarelaw could make it more difficult for a third party to acquire us. Section 203of the Delaware General Corporation Law may make the acquisition of SimpsonManufacturing Co., Inc. and the removal of incumbent officers anddirectors more difficult by prohibiting stockholders holding 15% or more of ouroutstanding voting stock from acquiring Simpson Manufacturing Co., Inc.without the consent of our Board of Directors for at least three years from thedate they first hold 15% or more of the voting stock. Barclay Simpson and hisaffiliates are not subject to this provision of Delaware law with respect totheir investment in Simpson Manufacturing Co., Inc. In addition, ourStockholder Rights Plan has significant anti-takeover effects by causingsubstantial dilution to a person or group that attempts to acquire us on termsnot approved by our Board of Directors.

 

**We are subject to a number ofsignificant risks that might cause our actual results to vary materially fromour plans, targets or projections, including:**

·                  lack of market acceptance of new products;

·                  failing to develop new products with significant market potential;

·                  increased labor costs, including significant increases in worker’scompensation insurance premiums and health care benefits;

·                  failing to increase, or even maintain, sales and profits;

·                  failing to anticipate, appropriately invest in and effectively managethe human, information technology and logistical resources necessary to supportthe growth of our business, including managing the costs associated with suchresources;

·                  failing to integrate, leverage and generate expected rates of return oninvestments, including expansion of existing businesses and expansion throughacquisitions;

·                  failing to generate sufficient future positive operating cash flowsand, if necessary, secure adequate external financing to fund our growth; and

·                  interruptions in service by common carriers that ship goods within ourdistribution channels.

 

**If wechange significantly the location, nature or extent of some of ourmanufacturing operations, we may reduce our net income.**

 

If we decide to changesignificantly the location, nature or extent of a portion of our manufacturingoperations, we may need to record an impairment of our goodwill. Our goodwilltotaled $81.6 million at December 31, 2009. Recording an impairment of ourgoodwill correspondingly reduces our net income. In 2007, for example, wedecided to move part of our Canadian manufacturing operations to China in 2008or 2009, and as a result, we recorded a goodwill impairment of $10.7 million,which materially reduced our net income in 2007. Other changes or events in thefuture could further impair our recorded goodwill, which could also materiallyand adversely affect our profitability.

 

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**Impairment charges on goodwill or other intangibleassets would adversely affect our financial position and results of operations.**

 

We are required toperform impairment tests on our goodwill and other intangible assets annuallyor at any time when events occur that could affect the value of our businesssegments. To determine whether a goodwill impairment has occurred, we comparefair value of each of our reporting units with its carrying value. Significantand unanticipated changes in circumstances, such as significant adverse changesin business climate, adverse actions by regulatory authorities, unanticipatedcompetition, loss of key customers or changes in technology or markets, canrequire a charge for impairment that can materially and adversely affect ourreported net income and our stockholders’ equity. For example, in 2008, ourannual impairment test resulted in goodwill impairment charge of $3.0 millionassociated with assets acquired in England in 1999 as part of our U.K.reporting unit. Our U.K. reporting unit’s carrying value exceeded its fairvalue, primarily due to reduced future expected net cash flows. If currentadverse conditions in the home-building industry, the financial markets or theeconomy generally should continue longer than we expect, we may need to takefurther charges for impairment, which we are not now able to estimate, butwhich may be substantial.

 

**Failureof our internal control over financial reporting could harm our business andfinancial results.**

 

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting. Internal control over financial reporting is a process toprovide reasonable assurance regarding the reliability of financial reporting forexternal purposes in accordance with accounting principles generally acceptedin the United States. Internal control over financial reporting includes:

·                  maintaining records that in reasonable detail accurately and fairlyreflect our transactions;

·                  providing reasonable assurance that transactions are recorded asnecessary for preparation of the consolidated financial statements;

·                  providing reasonable assurance that receipts and expenditures of ourassets are made in accordance with management authorization; and

·                  providing reasonable assurance that unauthorized acquisition, use ordisposition of our assets that could have a material effect on our consolidatedfinancial statements would be prevented or detected on a timely basis.

 

Because of the inherentlimitations of internal control, our internal control over financial reportingmight not detect or prevent misstatement of our consolidated financialstatements. Our growth and entry into new, globally dispersed markets putssignificant additional pressure on our system of internal control overfinancial reporting. Failure to maintain an effective system of internalcontrol over financial reporting could limit our ability to report ourfinancial results accurately and timely or to detect and prevent fraud.

 

**Failureof our accounting systems could harm our business and financial results.**

 

Wehave implemented a new commercially available Microsoft third-party accountingsoftware system, initially focused on replacing our internally developedgeneral ledger and purchasing and payables systems, for use in our operationsin the United States, Europe and Asia. Any errors or defects in, or unavailability of,third-party software or our implementation of the systems, could result inerrors in our financial statements, which could materially and adversely affectour business. If we continue to use our other internally developed accountingsystems and they are not able to accommodate our future business needs, or ifwe find that they or any new systems we may implement contain errors ordefects, our business and financial condition could be materially and adverselyaffected.

 

**Ourinternational operations may be materially and adversely affected by factorsbeyond our control.**

 

Economic, social andpolitical conditions, laws, practices and customs vary widely among thecountries where we produce or sell our products. Our operations outside of theUnited States are subject to a number of risks and potential costs, including,for example, lower profit margins, less protection of intellectual property andeconomic, political and social uncertainty in some countries, especially inChina and other emerging markets. Our sales and profits depend, in part, on ourability to develop and implement policies and strategies that effectivelyanticipate and manage these and other risks in the countries where we dobusiness. These and other risks may have a material adverse effect on ouroperations in any particular country and on our business as a whole. Inflationin emerging markets also makes our products more expensive there and increasesthe market and credit risks to which we are exposed.

 

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**Ourinternational operations depend on our successful management of oursubsidiaries outside of the United States.**

 

We conduct most of ourinternational business through wholly owned subsidiaries. Managing distantsubsidiaries and fully integrating them into our business is challenging. Wecannot directly supervise every aspect of the operations of our subsidiariesoperating outside the United States. As a result, we rely on local managers andstaff. Cultural factors and language differences can result inmisunderstandings among internationally dispersed personnel. The risk thatunauthorized conduct may go undetected may be greater in subsidiaries outsideof the United States. These problems could adversely affect our sales andprofits.

 

**Ourmanufacturing facilities in China complicate our inventory management.**

 

We maintain manufacturingcapability in various parts of the world, in part to allow us to serve ourcustomers with prompt delivery of needed products. Such customer service is asignificant factor in our efforts to compete with larger companies that havegreater resources than we have. We have expanded, substantially, ourmanufacturing in China. Much of the output of our manufacturing in China is andwill be intended for export to other parts of Asia and elsewhere. Because ofthe unusually great distances between our manufacturing facilities in China andthe markets to which the products made there will be shipped, we may havedifficulty providing adequate service to our customers, which may put us at acompetitive disadvantage. Our attempts to provide prompt delivery maynecessitate that in China we produce and keep on hand substantially moreinventory of finished products than would otherwise be needed. Inventoryincreases can materially and adversely affect our margins, cash flow and netincome.

 

**If wefail to keep pace with advances in our industry or fail to persuade customersto adopt new products we introduce, customers may not buy our products, whichwould adversely affect our sales and profits.**

 

Constant development ofnew technologies and techniques, frequent new product introductions and strongprice competition characterize the construction industry. The first company tointroduce a new product or technique to the market gains a competitiveadvantage. Our future growth depends, in part, on our ability to developproducts that are more effective, safer, or incorporate emerging technologiesbetter than our competitors’ products. Sales of our existing products maydecline rapidly if a competitor were to introduce superior products, or even ifwe announce a new product of our own. If we fail to make sufficient investmentsin research and development or if we focus on technologies that do not lead tobetter products, our current and planned products could be surpassed by moreeffective or advanced products. If we fail to manufacture our productseconomically and market them successfully, our sales and profits would bematerially and adversely affected.

 

**Changesin accounting standards could materially and adversely affect our financialresults.**

 

The accounting rules applicableto public companies are subject to frequent revision. Future changes inaccounting standards, guidance and interpretations could require us to changethe way we measure revenue, expense or balance sheet amounts, which couldresult in material and adverse change to our reported results of operations orfinancial condition.

 

**Climatechange could materially and adversely affect our business.**

 

Scientific reportsindicate that, as a result of human activity:

·                  temperatures around the world have beenincreasing and are likely to continue to increase as a result of increasingatmospheric concentrations of carbon dioxide and other carbon compounds,

·                  the frequency and severity of storms, andflooding, are likely to increase,

·                  severe weather is likely to occur inplaces where the climate has historically been more mild, and

·                  average sea levels have risen and arelikely to rise more, threatening worldwide coastal development.

 

We cannot predict theeffects that these phenomena may have on our business. They might, for example:

·                  depress or reverse economic development,

·                  reduce the demand for construction,

·                  increase the cost and reduce theavailability of fresh water,

·                  destroy forests, increasing the cost andreducing the availability of wood products used in construction,

·                  increase the cost and reduce theavailability of raw materials and energy,

 

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·                  increase the cost of capital,

·                  increase the cost and reduce theavailability of insurance covering damage from natural disasters,

·                  lead to claims regarding the content oradequacy of our public disclosures, and

·                  lead to new laws and regulations thatincrease our expenses and reduce our sales.

 

Any of these consequences,and other consequences of climate change that we do not foresee, couldmaterially and adversely affect our sales, profits and financial condition.

 

**We are subject to U.S. and international tax laws thatcould affect our financial results.**

 

We conduct international operations through our subsidiaries. Tax lawsaffecting international operations are complex and subject to change. Ourincome tax liabilities in the different countries where we operate depend inpart on internal settlement prices and administrative charges among us and oursubsidiaries. These arrangements require us to make judgments with which taxauthorities may disagree. Tax authorities may impose additional tariffs,duties, taxes, penalties and interest on us. For example, we manufacture steelproducts in foreign countries for importation into the U.S. and othercountries, and government agencies may impose substantial prospective orretroactive tariffs on such products. Transactions that we have arranged inlight of current tax rules could have material and adverse consequences iftax rules change, and changes in tax rules or imposition of any newor increased tariffs, duties and taxes could materially and adversely affectour sales, profits and financial condition.

 

**Contractsthat we file as exhibits to our public reports contain recitals,representations and warranties that may not be factually correct.**

 

Any recital,representation, warranty or other statement of purported fact in any contract,agreement or similar instrument that we file as an exhibit to this or any otherreport may not be true or complete, either at the date of such instrument or atany later time. Even if such statements were accurate when made, they may notbe accurate when we file the instrument as an exhibit to any of our reports.The parties to such instruments did not intend such statements to establish orconfirm any facts, but intended such statements to allocate contractual riskbetween the parties. Such instruments may be subject to standards ofmateriality that differ from the standards applicable to our reports. Inaddition, such statements may have been qualified by schedules and otherdisclosures that we have not filed with (or incorporated by reference into)this or any other report or document. In reviewing any of our reports, youshould rely on the text of the report, which we believed was complete andcorrect in all material respects when we filed the report. You should notassume that any statement of purported fact in any such instrument is accurateor complete, because such an assumption could result in misapprehension of thefacts and circumstances.

 

**If weare unable to protect our information systems against data corruption,cyber-based attacks or network security breaches, our operations could be disrupted.**

 

We depend on informationtechnology networks and systems, including the Internet, to process, transmitand store electronic information. We depend on our information technologyinfrastructure for electronic communications among our locations around theworld and between our personnel and our subsidiaries, customers and suppliers.Security breaches of this infrastructure could create system disruptions,shutdowns or unauthorized disclosure of confidential information. Securitybreaches could disrupt our operations, and we could suffer financial damage orloss because of lost or misappropriated information.

 

**Item 1B.Unresolved Staff Comments.**

 

None.

 

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**Item 2. Properties.**

 

TheCompany owns its home office in Pleasanton, California, and its principalUnited States manufacturing facilities in Stockton and Brea, California,McKinney, Texas, and Columbus, Ohio. The principal manufacturing facilitieslocated outside the United States, the majority of which are owned, are inCanada, the United Kingdom, France, Denmark and China. The Company also ownsand leases smaller manufacturing facilities, warehouses, research anddevelopment facilities and sales offices throughout the United States, Europe,Australia, Asia and the Middle East. As of February 26, 2010, the Company’s owned andleased facilities were as follows:

 
| ** **                    | ** ** | **Number**     | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------|------------|----------------|------------|-----------------------------------|------------|------------|------------|------------|------------|
| ** **                    | ** ** | **Of**         | ** ** | **Approximate Square Footage**    | ** ** |
| ** **                    | ** ** | **Properties** | ** ** | **Owned**                         | ** ** | **Leased** | ** ** | **Total**  | ** ** |
| ** **                    | ** ** | ** **     | ** ** | **(in thousands of square feet)** | ** ** |
| Connectors                    |       |           |       |                              |       |       |       |       |       |
| United  States                |       | 27             |       | 2,174                             |       | 491        |       | 2,665      |       |
| International                 |       | 23             |       | 682                               |       | 301        |       | 983        |       |
| Venting                       |       |           |       |                              |       |       |       |       |       |
| United  States                |       | 4              |       | 581                               |       | 64         |       | 645        |       |
| Administrative  and all other |       | 1              |       | 89                                |       | —     |       | 89         |       |
| Total                         |       | 55             |       | 3,526                             |       | 856        |       | 4,382      |       |

 

The Company’s properties areconstructed primarily of steel, brick or concrete and, in management’s opinion,are maintained in good operating condition. The Company’s manufacturingfacilities are equipped with specialized equipment and use extensive automation.The Company considers its existing and planned facilities to be suitable andadequate for its operations as currently conducted and as planned through 2010.The Company’s leased facilities typically have renewal options and haveexpiration dates through 2019. The Company believes it will be able to extendleases on its various facilities as necessary, as they expire. Themanufacturing facilities currently are being operated with one full shift. TheCompany anticipates that it may require additional facilities to accommodatepossible future growth.

 

The Company has classified itsfacility in San Leandro, California, as an asset held for sale. The Companyintends to sell its facility in Vicksburg, Mississippi, and will close it atthat time. On the sale of either facility, if it is sold below its carryingvalue, the Company will record an impairment charge equal to the amount bywhich its carrying value exceeds its net realized value.

 

The Company expects, in March 2010,to acquire a facility in San Bernadino, California, in which it willconsolidate its owned manufacturing and warehouse facilities in Brea,California, and its leased warehouse in Ontario, California. The Companyintends to sell the Brea facilities. The relocation is planned to be completedin late 2010 or in 2011.

 

**Item 3.Legal Proceedings.**

 

From time to time,the Company is involved in various legal proceedings and other matters arisingin the normal course of business.

 

Four lawsuits (the “HawaiiCases”) have been filed against the Company in the Hawaii First CircuitCourt:  *Alvarez v.Haseko Homes, Inc. and Simpson Manufacturing, Inc.*, Civil No. 09-1-2697-11(“Hawaii Case 1”); *Ke Noho Kai Development,LLC v. Simpson Strong-Tie Company, Inc.*, *and HonoluluWood Treating Co., LTD.*, Hawaii Case No. 09-1-1491-06 SSM (“HawaiiCase 2”); *North American Specialty Ins. Co. v. SimpsonStrong-Tie Company, Inc. and K.C. Metal Products, Inc.*,Case No. 09-1-1490-06 VSM (“Hawaii Case 3”); and *Charles etal. v. Haseko Homes, Inc. et al. and Third Party Plaintiffs Haseko Homes, Inc.et al. v Simpson Strong-Tie Company, Inc., et al.*, Civil No. 09-1-1932-08(“Hawaii Case 4”). Hawaii Case 1 was filed on November 18, 2009. HawaiiCases 2 and 3 were originally filed on June 30, 2009. Hawaii Case 4 wasfiled on August 19, 2009. The Hawaii Cases all relate to alleged prematurecorrosion of the Company’s strap tie holdown products installed in buildings ina housing development known as Ocean Pointe in Honolulu, Hawaii, allegedlycausing property damage. Hawaii Case 1 is a putative class action brought bythe owners of allegedly affected Ocean Pointe houses. Hawaii Case 1 wasoriginally filed as *Kai et al. v. Haseko Homes, Inc.,Haseko Construction, Inc. and Simpson Manufacturing, Inc.*,Case No. 09-1-1476, but was voluntarily dismissed and then re-filed with anew representative plaintiff. Hawaii Case 2 is an

 

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action by the buildersand developers of Ocean Pointe against the Company, claiming that either theCompany’s strap tie holdowns are defective in design or manufacture or theCompany failed to provide adequate warnings regarding the products’susceptibility to corrosion in certain environments. Hawaii Case 3 is asubrogation action brought by the insurance company for the builders anddevelopers against the Company claiming the insurance company expended funds tocorrect problems allegedly caused by the Company’s products. Hawaii Case 4,like Hawaii Case 1, is a putative class action brought by owners of allegedlyaffected Ocean Pointe homes.  In HawaiiCase 4, Haseko Homes, Inc. (“Haseko”), the developer of the Ocean Pointedevelopment, has brought a third party complaint against the Company allegingthat any damages for which Haseko may be liable are actually the fault of theCompany. None of the Hawaii Cases alleges a specific amount of damages sought,although each of the Hawaii Cases seeks compensatory damages, and Hawaii Case 1seeks punitive damages. The Company is currently investigating the factsunderlying the claims asserted in the Hawaii Cases, including, among otherthings, the cause of the alleged corrosion; the severity of any problems shownto exist; the buildings affected; the responsibility of the general contractor,various subcontractors and other construction professionals for the allegeddamages; the amount, if any, of damages suffered; and the costs of repair, ifneeded. At this time, the likelihood that the Company will be found liable forany property damage allegedly suffered and the extent of such liability, ifany, are unknown. Based on facts currently known to the Company, the Companybelieves that all or part of the claims alleged in the Hawaii Cases may becovered by its insurance policies. The Company intends to defend itselfvigorously in connection with the Hawaii Cases.

 

The Company is notengaged in any other legal proceedings as of the date hereof, which the Companyexpects individually or in the aggregate to have a material adverse effect onthe Company’s financial condition, cash flows or results of operations. Theresolution of claims and litigation, however, is subject to inherentuncertainty and could have a material adverse effect on the Company’s financialcondition, cash flows or results of operations.

 

**Item 4.Submission of Matters to a Vote of Security Holders.**

 

Nomatters were submitted to a vote of security holders during the fourth quarterof the fiscal year covered by this report.

 

##### **PART II**

##### ** **

**Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.**

 

The Company’s common stock is listed on the New York Stock Exchange (“NYSE”)under the symbol “SSD.”The following table shows the range of highand low closing sale prices per share of the common stock as reported by theNYSE and dividends paid per share of common stock for the calendar quartersindicated:

 
| ** **  | ** ** | **Market Price** | ** ** | **Dividends** | ** ** |
|-------------|------------|------------------|------------|---------------|------------|
| ** **  | ** ** | **High**         | ** ** | **Low**       | ** ** | **Paid** | ** ** |
| **Quarter** |       |             |       |          |       |   |   |
| **2009**    |       |             |       |          |       |   |   |
| Fourth      |       | $                | 27.31      |          | $          | 23.39 |   | $ | 0.10 |   |
| Third       |       | 29.60            |       | 20.10         |       | 0.10 |   |
| Second      |       | 24.08            |       | 17.98         |       | 0.10 |   |
| First       |       | 27.65            |       | 13.80         |       | 0.10 |   |
| **2008**    |       |             |       |          |       |   |   |
| Fourth      |       | $                | 29.23      |          | $          | 19.70 |   | $ | 0.10 |   |
| Third       |       | 31.90            |       | 20.72         |       | 0.10 |   |
| Second      |       | 28.25            |       | 23.26         |       | 0.10 |   |
| First       |       | 28.43            |       | 22.97         |       | 0.10 |   |

 

TheCompany estimates that as of February 9, 2010, approximately 12,000persons beneficially owned shares of the Company’s common stock either directlyor through nominees.

 

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In February 2010,the Company’s Board of Directors declared a dividend of $0.10 per share to bepaid on April 29, 2010, to stockholders of record on April 8, 2010.The Company began declaring quarterly dividends of $0.05 per common share in January 2004.Future dividends, if any, will be determined by the Company’s Board ofDirectors, based on the Company’s earnings, cash flows, financial condition andother factors deemed relevant by the Board of Directors.

 

InDecember 2009, the Board of Directors authorized the Company to repurchaseup to $50.0 million of the Company’s common stock. The authorization willremain in effect through the end of 2010. This replaces the $50.0 millionrepurchase authorization from December 2008. The Company did notrepurchase any shares in 2009 or 2008. In February 2007, the Companyrepurchased 122,500 shares of its common stock for $4.2 million, which theCompany retired in March 2007, with the excess over the par value of therepurchased shares recorded against retained earnings.

 

The following table setsforth certain information as of December 31, 2009, concerning (a) allequity compensation plans of the Company previously approved by thestockholders and (b) all equity compensation plans of the Company notpreviously approved by the stockholders.

 
| ** **                                              | ** ** | ** **                          | ** ** | ** **                          | ** ** | **(c)**                                     | ** ** |
|---------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|---------------------------------------------|------------|
| ** **                                              | ** ** | ** **                          | ** ** | ** **                          | ** ** | **Number of**                          | ** ** |
| ** **                                              | ** ** | **(a)**                             | ** ** | ** **                          | ** ** | **securities remaining**               | ** ** |
| ** **                                              | ** ** | **Number of securities**  | ** ** | **(b)**                             | ** ** | **available for future**          | ** ** |
| ** **                                              | ** ** | **to be issued**          | ** ** | **Weighted-average**                | ** ** | **issuance under equity**         | ** ** |
| ** **                                              | ** ** | **on exercise of**        | ** ** | **exercise price of**     | ** ** | **compensation plans**                 | ** ** |
| ** **                                              | ** ** | **outstanding options,**       | ** ** | **outstanding options,**       | ** ** | **(excluding securities**              | ** ** |
| **Plan Category**                                  | ** ** | **warrants & rights** | ** ** | **warrants & rights** | ** ** | **reflected in column (a))** | ** ** |
|                                                    |       |                                |       |                                |       |                                        |       |
| Equity  compensation plans approved by stockholders     |       | 1,792,160                           |  (1)  | $                                   | 31.31      |                                        | 7,295,223  |  (2) |
|                                                    |       |                                |       |                                |       |                                        |       |
| Equity  compensation plans not approved by stockholders |       | 0                                   |       | N/A                                 |       | 83,400                                      |  (3)  |
|                                                    |       |                                |       |                                |       |                                        |       |
| Total                                                   |       | 1,792,160                           |       | $                                   | 31.31      |                                        | 7,378,623  |   |

 

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(1)          Excludes an additional148,000 shares subject to options granted under the Company’s 1994 Stock OptionPlan on February 2, 2010.

(2)          Includes 148,000 sharessubject to options granted under the Company’s 1994 Stock Option Plan on February 2,2010.

(3)          Excludes an additional 10,300shares issued on January 4, 2010, under the Company’s 1994 Employee StockBonus Plan. As of December 31, 2009, the Company had reserved 200,000shares of common stock for issuance as bonuses under the 1994 Employee StockBonus Plan, of which 116,600 shares had been issued.

 

25

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**CompanyStock Price Performance**

 

Thegraph below compares the cumulative total stockholder return on the Company’scommon stock from December 31, 2004, through December 31, 2009, withthe cumulative total return on the S & P 500 Index and the Dow JonesBuilding Materials Index over the same period (assuming the investment of $100in the Company’s common stock and in each of the indices on December 31,2004, and reinvestment of all dividends).

 

 

**Item 6.Selected Financial Data.**

 

The following table setsforth selected consolidated financial information with respect to the Companyfor each of the five years ended December 31, 2009, 2008, 2007, 2006 and2005 (presented in thousands, exceptper share amounts), derived from the audited Consolidated FinancialStatements of the Company, the most recent three years of which appearelsewhere herein. The Company adopted the revised business combinations guidancecodified as the “Business Combinations” topic and the revised guidance in the “IncomeTaxes” topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“ASC”)  regarding the accounting for theuncertainty in income taxes, on January 1, 2009, and January 1, 2007,respectively. The selected consolidated statement of operations data for theyear ended December 31, 2006, and the consolidated balance sheet data asof December 31, 2005, have been recast for the retrospective applicationof new accounting guidance for noncontrolling interests in a consolidatedsubsidiary, to which the Company became subject beginning January 1, 2009.The presentation of the information in the tables below complies with theaccounting pronouncements, but is not necessarily comparable with prior years.These results include acquired company results of operations beginning on thedates of acquisition. For a summary of recent acquisitions, see “Note 2 —Acquisitions” to the consolidated financial statements included herein. Thedata presented below should be read in conjunction with the ConsolidatedFinancial Statements and related Notes thereto and “Item 7 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations” includedelsewhere herein.

 

26

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| ** **                                                                                                       |       | **Years  Ended December 31,** |       |
|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                       | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Statement  of Operations Data:**                                                                               |       |                               |       |   |   |   |   |   |   |   |   |
| Net sales                                                                                                        |       | $                                  | 585,070    |   | $ | 756,499 |   | $ | 816,988 |   | $ | 863,180 |   | $ | 846,256 |   |
| Cost of sales                                                                                                    |       | 391,496                            |       | 474,190 |   | 511,499 |   | 517,885 |   | 515,420 |   |
| Gross profit                                                                                                     |       | 193,574                            |       | 282,309 |   | 305,489 |   | 345,295 |   | 330,836 |   |
|                                                                                                             |       |                               |       |   |   |   |   |   |   |   |   |
| Research and  development and other engineering expense                                                          |       | 19,993                             |       | 21,327 |   | 20,115 |   | 19,254 |   | 14,573 |   |
| Selling expense                                                                                                  |       | 64,294                             |       | 80,703 |   | 75,954 |   | 72,199 |   | 64,317 |   |
| General and  administrative expense                                                                              |       | 79,880                             |       | 89,897 |   | 88,618 |   | 91,975 |   | 100,261 |   |
| Impairment of  goodwill                                                                                          |       | —                             |       | 2,964 |   | 10,666 |   | — |   | — |   |
| Loss (gain) on  sale of assets                                                                                   |       | 797                                |       | (124 | ) | (713 | ) | 457 |   | (2,044 | ) |
| Income from  operations                                                                                          |       | 28,610                             |       | 87,542 |   | 110,849 |   | 161,410 |   | 153,729 |   |
|                                                                                                             |       |                               |       |   |   |   |   |   |   |   |   |
| Income (loss) in  equity method investment, before tax                                                           |       | (194                               | )          | (486 | ) | (33 | ) | (97 | ) | 284 |   |
| Interest income,  net                                                                                            |       | 75                                 |       | 2,596 |   | 5,759 |   | 3,719 |   | 1,551 |   |
| Income before  income taxes                                                                                      |       | 28,491                             |       | 89,652 |   | 116,575 |   | 165,032 |   | 155,564 |   |
|                                                                                                             |       |                               |       |   |   |   |   |   |   |   |   |
| Provision for  income taxes                                                                                      |       | 16,274                             |       | 35,718 |   | 47,833 |   | 62,370 |   | 57,170 |   |
| Net income  attributable to non-controlling interest                                                             |       | —                             |       | — |   | — |   | 166 |   | — |   |
| Net income  attributable to Simpson Manufacturing Co., Inc. stockholders                                    |       | $                                  | 12,217     |   | $ | 53,934 |   | $ | 68,742 |   | $ | 102,496 |   | $ | 98,394 |   |
|                                                                                                             |       |                               |       |   |   |   |   |   |   |   |   |
| Basic  net income per share of common stock attributable to Simpson Manufacturing  Co., Inc. stockholders   |       | $                                  | 0.25       |   | $ | 1.11 |   | $ | 1.42 |   | $ | 2.12 |   | $ | 2.05 |   |
|                                                                                                             |       |                               |       |   |   |   |   |   |   |   |   |
| Diluted  net income per share of common stock attributable to Simpson Manufacturing  Co., Inc. stockholders |       | $                                  | 0.25       |   | $ | 1.10 |   | $ | 1.40 |   | $ | 2.10 |   | $ | 2.02 |   |
|                                                                                                             |       |                               |       |   |   |   |   |   |   |   |   |
| Cash  dividends declared per share of common stock                                                               |       | $                                  | 0.40       |   | $ | 0.40 |   | $ | 0.40 |   | $ | 0.32 |   | $ | 0.23 |   |

 
| ** **                                                            |       | **December 31,** |       |
|-----------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                            | ** ** | **2009**              | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Balance  Sheet Data:**                                              |       |                  |       |   |   |   |   |   |   |   |   |
| Working capital                                                       |       | $                     | 458,607    |   | $ | 455,703 |   | $ | 438,538 |   | $ | 399,082 |   | $ | 342,496 |   |
| Property, plant  and equipment, net                                   |       | 187,814               |       | 193,318 |   | 198,117 |   | 197,180 |   | 166,480 |   |
| Total assets                                                          |       | 843,805               |       | 830,200 |   | 817,679 |   | 735,334 |   | 659,715 |   |
| Line of credit  and long-term debt, including current portion         |       | —                |       | 26 |   | 1,029 |   | 665 |   | 5,114 |   |
| Total  liabilities                                                    |       | 80,021                |       | 81,174 |   | 94,279 |   | 82,459 |   | 96,249 |   |
| Non-controlling  interest                                             |       | —                |       | — |   | — |   | — |   | 5,337 |   |
| Total Simpson  Manufacturing Co., Inc. stockholders’ equity |       | 763,784               |       | 749,026 |   | 723,400 |   | 652,875 |   | 558,129 |   |
|                                                                       |            |                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

27

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**Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

 

*Thisdocument contains forward-looking statements, based on numerous assumptions andsubject to risks and uncertainties. Although the Company believes that theforward-looking statements are reasonable, it does not and cannot give anyassurance that its beliefs and expectations will prove to be correct. Manyfactors could significantly affect the Company’s operations and cause theCompany’s actual results to be substantially different from the Company’sexpectations. See “Item 1A -**Risk Factors**.”**Actualresults might differ materially from results suggested by any forward-lookingstatements in this report.**The Company does not have anobligation to publicly update any forward-looking statements, whether as aresult of the receipt of new information, the occurrence of future events orotherwise.*

 

The followingis a discussion and analysis of the consolidated financial condition andresults of operations for the Company for the years ended December 31,2009, 2008 and 2007, and of certain factors that may affect the Company’sprospective financial condition and results of operations. The following shouldbe read in conjunction with the Consolidated Financial Statements and relatedNotes appearing elsewhere herein.

 

**Overview**

 

The Company’snet sales decreased to $585.1 million in 2009 from $817.0 million in 2007,reflecting slower homebuilding activity. Net sales decreased in 2009 from 2007in all regions of the United States, with above-average rates of decline inCalifornia and the western portions of the country, and net sales to homecenters decreased significantly over the same period. Expansion intointernational markets helped to offset in part the sales decline in the UnitedStates over the last three years. Sales outside of the United States haveincreased, due in part to the acquisitions of:

 

·                  Certain assets of Liebig International Ltd., an Irish company,Heinrich Liebig Stahldübelwerke GmbH, Liebig GmbH & Co. KG and LiebigInternational Verwaltungsgesellschaft GmbH, all German companies, Liebig BoltsLimited, an English company, and Liebig International Inc., a Virginiacorporation (collectively “Liebig”), in April 2008,

·                  Ahorn-Geräte &Werkzeuge Vertriebs GmbH, a German company, and its subsidiaries AhornUpevnovaci Technika s.r.o., a Czech company, and Ahorn Pacific Fasteners(Kunshan) Co., Ltd., a Chinese company (collectively “Ahorn”), in July 2008, and

·                  AgenceInternationale Commerciale et Industrielle, S.A.S., a French company (“Aginco”),in April 2009.

 

Gross profitmargin decreased to 33.1% in 2009 from 37.4% in 2007 primarily due to increasedcosts of steel and other materials, a higher proportion of fixed overhead costsand higher distribution costs, partly offset by reduced labor costs.

 

Inrecent years, home center sales have declined, although at a lower rate thanthe Company’s consolidated net sales. A large part of the home center sales wassales to The Home Depot, which exceeded 10% of the Company’s consolidated netsales in the years ended December 31, 2009, and 2007, but not in the year ended December 31,2008. (see “Item 1A — Risk Factors” andNote 14 to the Company’s Consolidated Financial Statements). Consolidationof retailers and distributors has occurred over time. While the consolidationof these large retailers and distributors provides the Company withopportunities for growth, the increasing size and importance of individualcustomers exposes Simpson Strong-Tie to potential over-dependence. The loss ofany of the larger home centers and distributors as customers would have amaterial adverse effect on SST, unless and until either such customers arereplaced or SST makes the necessary adjustments (if possible) to compensate forthe loss of business.

 

28

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**Results ofOperations**

 

Thefollowing table sets forth, for the years indicated, the percentage of netsales of certain items in the Company’s Consolidated Statements of Operations.

 
| ** **                                       |       | **Years Ended December 31,** |       |
|--------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                       | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Net sales                                        |       | 100.0                             | %          | 100.0 | % | 100.0 | % |
| Cost of sales                                    |       | 66.9                              | %          | 62.7 | % | 62.6 | % |
| Gross profit                                     |       | 33.1                              | %          | 37.3 | % | 37.4 | % |
| Research and development and  other  engineering |       | 3.4                               | %          | 2.8 | % | 2.5 | % |
| Selling expense                                  |       | 11.0                              | %          | 10.7 | % | 9.3 | % |
| General and administrative expense               |       | 13.7                              | %          | 11.9 | % | 10.8 | % |
| Impairment of goodwill                           |       | —                            |       | 0.4 | % | 1.3 | % |
| Loss (gain) on sale of assets                    |       | 0.1                               | %          | — |   | (0.1 | )% |
| Income from operations                           |       | 4.9                               | %          | 11.5 | % | 13.6 | % |
| Income (loss) in equity method  investment       |       | —                            |       | (0.1 | )% | — |   |
| Interest income, net                             |       | —                            |       | 0.4 | % | 0.7 | % |
| Income before income taxes                       |       | 4.9                               | %          | 11.8 | % | 14.3 | % |
| Provision for income taxes                       |       | 2.8                               | %          | 4.7 | % | 5.9 | % |
| Net income                                       |       | 2.1                               | %          | 7.1 | % | 8.4 | % |

 

In December 2009,the Board of Directors authorized the Company to repurchase up to $50.0 millionof the Company’s common stock. The authorization will remain in effect throughthe end of 2010. This replaced the $50.0 million repurchase authorization from December 2008.The Company made no repurchases during 2009 or 2008. In February 2007, theCompany repurchased 122,500 shares of its common stock for $4.2 million, whichthe Company retired in March 2007.

 

**Comparisonof the Years Ended December 31, 2009 and 2008**

 

***ConsolidatedCompany***

 

*Net Sales*

 

In 2009, net salesdecreased 22.7% to $585.1 million compared to net sales of $756.5 million for2008. In 2009, sales declined throughout the United States. The western andsoutheastern regions had the largest decreases in sales. Sales decreasedoverall during the year in Europe and Canada. Simpson Strong-Tie’s sales for2009 decreased 22.2% from 2008, while Simpson Dura-Vent’s sales decreased26.6%. Simpson Strong-Tie’s sales to contractor distributors and dealerdistributors decreased as a result of the weakness in the U.S. housing market.Sales to home centers also decreased. Sales decreased across all of SimpsonStrong-Tie’s major product lines, particularly those used in new homeconstruction. Sales of Simpson Dura-Vent’s Direct-Vent and gas vent, hearth andpellet vent product lines decreased, while sales of special gas vent andrelining products increased, primarily as a result of the acquisition ofProTech Systems, Inc. in June 2008.

 

*GrossProfit*

 

Grossprofit decreased 31.4% from $282.3 million in 2008 to $193.6 million in 2009.As a percentage of net sales, gross profit decreased from 37.3% in 2008 to 33.1% in 2009. Thedecrease in gross margins was primarily due to reduced absorption of fixedoverhead, as a result of lower production volumes, as well as highermanufacturing costs, including higher costs of material and labor. The Company continues to face uncertainty in thecost and availability of steel. Several factors are contributing to thisuncertainty. The price of steel, the Company’s primary raw material,increased in the second half of 2009. The Company expects steel prices tocontinue to increase into 2010 as demand returns to the market. The steelmarket continues to be dynamic, however, with a high degree of uncertaintyabout future pricing trends. If steel prices increase and the Company is notable to maintain its prices or increase them sufficiently, the Company’smargins could deteriorate further.

 

29

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*Research and Development andOther Engineering Expense*

 

Research and developmentand other engineering expense decreased 6.3% from $21.3 million in 2008 to$20.0 million in 2009, primarily due to a $0.9 million decrease in professionalservice fees and a $0.8 million decrease in personnel expenses, partly offsetby various other items.

 

*SellingExpense*

 

Selling expense decreased20.3% from $80.7 million in 2008 to $64.3 million in 2009. This decreaseresulted primarily from a $9.3 million decrease in expenses associated withsales and marketing personnel, most of which was related to cost-cuttingmeasures, a $4.3 million decrease in promotional expenditures and a $1.9million decrease in commissions paid to selling agents.

 

*General andAdministrative Expense*

 

General andadministrative expense decreased 11.1% from $89.9 million in 2008 to $79.9million in 2009. This decrease resulted primarily from a $6.1 million decreasein cash profit sharing, a $2.4 million decrease in administrative personnelexpenses, related in part to cost-cutting measures, a $1.6 million decrease inlegal and professional service expenses and a $1.0 million decrease in theprovision for bad debt, partly offset by a $1.1 million increase inamortization of intangible assets, primarily related to the businesses acquiredsince June 2008.

 

*StockOption Expense*

 

The Company believes thatthe pre-tax stock option expense for 2010 will be $0.9 million related to stockoptions granted during 2006, 2007, 2008, 2009 and through February 2010.

 

*InterestIncome and Expense*

 

Interestincome is generated on the Company’s cash and cash equivalents balances. Interest income decreased primarily as aresult of lower interest rates. Interestexpense includes interest, account maintenance fees and bank charges.

 

*Provisionfor Income Taxes*

 

Theeffective tax rate was 57.1% in 2009, up from 39.8% in 2008. The effective taxrate is higher than the statutory rate primarily due to the valuation allowances taken on foreignlosses, differences between the U.S. statutory tax rate and the local tax ratein countries where the Company operates and a reduced benefit from thereduction or loss of enterprise zone tax credits at two of the Company’sfacilities in California.

 

***ConnectorProducts — Simpson Strong-Tie (SST)***

 

SimpsonStrong-Tie’s income from operations decreased 63.1% from $91.6 million in 2008to $33.8 million in 2009.

 

*Net Sales*

 

Simpson Strong-Tie’s netsales decreased 22.2% from $676.7 million in 2008 to $526.5 million in 2009. SST accounted for 90.0% of the Company’s totalnet sales in 2009, a slight increase from 89.5% in 2008. The decrease in netsales at SST resulted from a decrease in sales volume, partly offset by anincrease in average prices of 9.9%. In 2009, sales declined throughoutthe United States, with above-average decreases in the western and southeasternregions. Sales decreased overall during the year in Europe and Canada. SimpsonStrong-Tie’s sales to contractor distributors and dealer distributors decreasedas a result of the weakness in the U.S. housing market. Sales to home centersalso decreased. Sales decreased across all of Simpson Strong-Tie’s majorproduct lines, particularly those used in new home construction.

 

*GrossProfit*

 

Simpson Strong-Tie’s gross profit decreased 32.3% from $272.2 millionin 2008 to $184.4 million in 2009. As a percentage of net sales, gross profit decreasedfrom 40.2% in 2008 to 35.0% in 2009. This decrease was primarily due to highermanufacturing costs, including material and labor costs, and higher fixedoverhead costs as a percentage of sales, as a result of the lower sales volume.

 

30

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*Research and Development andOther Engineering Expense*

 

Simpson Strong-Tie’sresearch and development and other engineering expenses decreased 6.9% from$20.1 million in 2008 to $18.8 million in 2009, primarily due to a $1.0 milliondecrease in professional service fees and a $0.8 million decrease in personnelexpenses, partly offset by various other items.

 

*SellingExpense*

 

Simpson Strong-Tie’sselling expense decreased 19.9% from $73.4 million in 2008 to $58.8 million in2009, primarily due to a $9.0 million decrease in expenses associated withsales and marketing personnel, most of which was related to cost-cuttingmeasures, a $4.3 million decrease in promotional expenditures, and a $0.5million decrease in professional service fees.

 

*General and AdministrativeExpense*

 

Simpson Strong-Tie’sgeneral and administrative expense decreased 14.3% from $84.3 million in 2008to $72.2 million in 2009. This decrease resulted primarily from a $6.0 milliondecrease in cash profit sharing, a $3.3 million decrease in administrativepersonnel expenses, related in part to cost-cutting measures, a $1.5 milliondecrease in legal and professional service expenses, a $1.2 million decrease inthe provision for bad debt and a $1.1 million decrease in informationtechnology expenses, partly offset by a $0.7 million increase in amortizationof intangible assets, primarily related to the businesses acquired since June 2008.

 

*EuropeanOperations*

 

For itsEuropean operations, Simpson Strong-Tie recorded after-tax loss of $11.4 million in 2009compared to after-tax loss of $3.7 million in 2008. The 2009 loss was primarilyrelated to the continuing integration costs associated with acquisitions since April 2008.

 

***VentingProducts — Simpson Dura-Vent (SDV)***

 

SimpsonDura-Vent’s loss from operations increased 47.5% to $3.9 million in 2009 from$2.6 million in 2008.

 

*Net Sales*

 

SimpsonDura-Vent’s net sales decreased 26.6% from $79.8 million in 2008 to $58.5million in 2009. SDV accounted for 10.0% ofthe Company’s total net sales in 2009, a slight decrease from 10.5% in 2008.The decrease in net sales at SDV resulted from a decrease in sales volume,partly offset by price increases that averaged 3.7%. In 2009, salesdeclined throughout the United States, with above-average decreases in thenortheastern region. Sales of Simpson Dura-Vent’s Direct-Vent and gas vent,hearth and pellet vent product lines decreased, while sales of special gas ventand relining products increased, primarily as a result of the acquisition ofProTech in June 2008.

 

*GrossProfit*

 

Simpson Dura-Vent’s gross profit decreased 9.6% from $10.4 million in2008 to $9.4 million in 2009. As a percentage of net sales, gross profit increasedfrom 13.0% in 2008 to 16.0% in 2009. This increase was primarily due to lowerfixed overhead costs as a percentage of net sales, partly offset by highermaterial costs.

 

*Selling Expense*

 

Simpson Dura-Vent’sselling expense decreased 23.5% from $7.2 million in 2008 to $5.5 million in2009, primarily due to a $1.4 million decrease in commissions paid to sellingagents, a $0.3 million decrease in promotional expenditures and a $0.2 million decreasein expenses associated with sales and marketing personnel, most of which wasrelated to cost-cutting measures.

 

31

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*General and AdministrativeExpense*

 

Simpson Dura-Vent’sgeneral and administrative expense increased 40.0% to $6.5 million in 2009 from$4.6 million in 2008 primarily due to increases in intangible amortizationexpense of $0.5 million, primarily related to the businesses acquired since June 2008,and various other items.

 

***Administrativeand All Other (Company)***

 

*InterestIncome and Expense*

 

Interestincome is generated on the Company’s cash and cash equivalents balances. Interest income decreased primarily as aresult of lower interest rates. Interestexpense includes interest, account maintenance fees and bank charges.

 

**Comparisonof the Years Ended December 31, 2008 and 2007**

 

***ConsolidatedCompany***

 

*Net Sales*

 

In 2008, net salesdecreased 7.4% to $756.5 million compared to net sales of $817.0 million for2007.  In 2008, sales declinedthroughout the United States, with the exception of the northeastern region ofthe country. California and the western states had the largest decrease insales. Sales during the year in continental Europe, Canada and Asia increased,while sales were down in the United Kingdom. Simpson Strong-Tie’s sales tocontractor distributors had the largest percentage rate decrease and sales todealer distributors and home centers also decreased. Reflecting thedeterioration of construction markets and economic conditions generally, salesdecreased across all of Simpson Strong-Tie’s major product lines, particularlythose used in new home construction. Sales of the Swan Secure product line, acquiredin July 2007, accounted for slightly more than 4% of Simpson Strong-Tie’s2008 sales. Anchor Systems sales, while down slightly, benefited from theacquisition of Liebig, as well as Simpson Strong-Tie’s increasing presence inAsia and the Middle East. Sales of Simpson Dura-Vent’s pellet vent, chimney,special gas vent and relining products increased, a significant portion of theincrease having resulted from the ProTech acquisition. Sales of SDV’sDirect-Vent and gas vent product lines decreased as a result of severalfactors, including the continuing weakness in new home construction.

 

*GrossProfit*

 

Grossprofit decreased 7.6% from $305.5 million in 2007 to $282.3 million in 2008. Asa percentage of net sales, gross profit decreased slightly to 37.3% in 2008 from 37.4% in2007. The decrease in gross margins was primarily due to higher distributioncosts, partly offset by lower manufacturing costs. The Company continued to face uncertainty in the cost and availability ofsteel. Several factors contributed to this uncertainty. Steel prices haddeclined from their peak in July 2008. The steel market was dynamic,however, with a high degree of uncertainty about future pricing trends. Demandfor steel had declined due to the weakening of the global economy andtightening of financial credit markets.

 

*SellingExpense*

 

Selling expense increased6.3% to $80.7 million in 2008 from $76.0 million in 2007. The increase resultedprimarily from an increase in expenses associated with sales and marketingpersonnel of $7.4 million, including those at businesses acquired since July 2007.This increase was partly offset by decreases in promotional expenses of $1.6million and donations of $0.5 million, primarily related to the gift made toHabitat for Humanity International, Inc. in 2007.

 

*General andAdministrative Expense*

 

General andadministrative expenses increased 1.4% to $89.9 million in 2008 from $88.6million in 2007. The major components of the increase were increases inadministrative personnel expenses of $8.5 million, including those atbusinesses acquired since July 2007, increased legal and professionalservice expenses of $2.8 million, higher amortization expense of $1.9 millionand higher bad debt expense of $1.7 million. These increases were mostly offsetby a decrease in cash profit sharing of $14.2 million, which resulted primarilyfrom decreased operating profit.

 

32

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*Impairment of Goodwill*

 

Impairment of goodwilldecreased 72.2% from $10.7 million in 2007 to $3.0 million in 2008. Theimpairment charge taken in 2008, which was a result of the Company’s annualimpairment test in the fourth quarter of 2008, was associated with assets thatwere acquired in England in 1999 and was associated with the Company’s U.K.reporting unit. The reporting unit’s carrying value exceeded the fair value,primarily due to reduced future expected net cash flows. The method todetermine the fair value of the U.K. reporting unit was a discounted cash flowmodel. In 2007, the Company recorded a goodwill impairment charge of $10.7million, primarily as a result of decreased expected future cash flows from itsCanadian unit that resulted from the move of production from Canada to China.The method to determine the fair value of the Canadian reporting unit was adiscounted cash flow model supported by market approaches, which were based onearnings multiples realized by similar public companies and on representativemerger and acquisition transactions of a similar nature and industry. Thesereporting units are associated with the connector products segment. See “CriticalAccounting Policies and Estimates — *Goodwill ImpairmentTesting*.”

 

*InterestIncome and Expense*

 

Interestincome is generated on the Company’s cash and cash equivalents balances. Interest income decreased primarily as aresult of lower interest rates. Interestexpense includes interest, account maintenance fees and bank charges.

 

*Provisionfor Income Taxes*

 

The effective tax rate was 39.8% in 2008, down from41.0 % in 2007. The decrease in the effective tax rate was causedprimarily by the decrease of the impairment of goodwill charge takenin the fourth quarter of 2007, the majority of which was not deductible for taxpurposes.

 

***ConnectorProducts — Simpson Strong-Tie (SST)***

 

SimpsonStrong-Tie’s income from operations decreased 19.9% from $114.4 million in 2007to $91.6 million in 2008.

 

*Net Sales*

 

Simpson Strong-Tie’s netsales decreased 9.2% from $745.7 million in 2007 to $676.7 million in 2008. SST accounted for 89.5% of the Company’s totalnet sales in 2008, a decrease from 91.3% in 2007. The decrease in net sales atSST resulted from a decrease in sales volume, partly offset by an increase inaverage prices of 8.3%. In 2008, sales declined throughout the UnitedStates, with the exception of the northeastern region of the country, whichincreased slightly. California and the western states had the largest decreasein sales. Sales during the year in continental Europe, Canada and Asiaincreased, while sales were down in the United Kingdom. Simpson Strong-Tie’ssales to contractor distributors had the largest percentage rate decrease andsales to dealer distributors and home centers also decreased. Reflecting thedeterioration of construction markets and economic conditions generally, salesdecreased across all of Simpson Strong-Tie’s major product lines, particularlythose used in new home construction. Sales of the Swan Secure product line,acquired in July 2007, accounted for slightly more than 4% of SimpsonStrong-Tie’s 2008 sales. Anchor Systems sales, while down slightly, benefitedfrom the acquisition of Liebig, as well as Simpson Strong-Tie’s increasedpresence in Asia and the Middle East.

 

*GrossProfit*

 

Simpson Strong-Tie’s gross profit decreased 8.1% from $296.2 millionin 2007 to $272.2 million in 2008. As a percentage of net sales, gross profit increasedfrom 39.7% in 2007 to 40.2% in 2008. This slight increase was primarily due tolower manufacturing costs, including material and labor costs, partly offset byhigher fixed overhead costs as a percentage of sales, as a result of the lowersales volume, and higher distribution costs.

 

33

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*Research and Development andOther Engineering Expense*

 

Simpson Strong-Tie’s researchand development and other engineering expenses increased 6.2% to $20.1 millionin 2008 from $19.0 million in 2007. The increase resulted primarily from a $1.5million increase in expenses related to additional personnel from theacquisitions during 2008, partly offset by an overall reduction in otherdepartmental overhead expenses.

 

*SellingExpense*

 

Simpson Strong-Tie’sselling expense increased 6.7% to $73.4 million in 2008 from $68.8 million in2007. The increase resulted primarily from a $7.3 million increase in expensesassociated with sales and marketing personnel, including those at businessesacquired since July 2007, partly offset by decreases in promotionalexpenses of $1.5 million and donations of $0.5 million, primarily related tothe gift made to Habitat for Humanity International, Inc. in 2007.

 

*Impairment of Goodwill*

 

Impairment of goodwilldecreased 72.2% from $10.7 million in 2007 to $3.0 million in 2008. Theimpairment charge taken in 2008, which was a result of the Company’s annual impairmenttest in the fourth quarter of 2008, was associated with assets that wereacquired in England in 1999 and was associated with the Company’s U.K.reporting unit. In 2007, the Company recorded a goodwill impairment charge of$10.7 million, primarily as a result of decreased expected future cash flowsfrom its Canadian unit that resulted from the move of production from Canada toChina.

 

*EuropeanOperations*

 

For itsEuropean operations, Simpson Strong-Tie recorded after-tax loss of $3.7 million in 2008 comparedto after-tax net income of $2.4 million in 2007. The loss was primarily relatedto the goodwill impairment charge associated with the U.K. reporting unit.

 

***VentingProducts — Simpson Dura-Vent (SDV)***

 

SimpsonDura-Vent’s loss from operations was flat at $2.6 million in both 2007 and2008.

 

*Net Sales*

 

SimpsonDura-Vent’s net sales increased 11.9% to $79.8 million in 2008 from $71.3million in 2007. SDV accounted for 10.5% ofthe Company’s total net sales in 2008, an increase from 8.7% in 2007. The increasein net sales at SDV resulted from an increase in sales volume, as well as priceincreases that averaged 4.0%. Sales were down in California and thewestern and southeastern regions of the United States and were up in themidwestern and northeastern regions of the United States in 2008 compared to2007.  Sales of Simpson Dura-Vent’spellet vent, chimney, special gas vent and relining products increased, asignificant portion of the increase having resulted from the ProTechacquisition. Sales of Direct-Vent and gas vent product lines decreased as aresult of several factors, including the continued weakness in new homeconstruction.

 

*GrossProfit*

 

Simpson Dura-Vent’s gross profit increased 10.5% to $10.4 million in2008 from $9.4 million in 2007. As a percentage of net sales, gross profit decreasedslightly to 13.0% in 2008 from 13.1% in 2007. This decrease was primarily dueto higher fixed overhead costs as a percentage of net sales and higherdistribution costs, offset by lower manufacturing costs, including material andlabor costs.

 

*General and AdministrativeExpense*

 

Simpson Dura-Vent’sgeneral and administrative expense increased 16.7% to $4.6 million in 2008 from$4.0 million in 2007 primarily due to increases in administrative personnelexpenses of $0.5 million, including those at businesses acquired in 2008.

 

34

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***Administrativeand All Other (Company)***

 

*InterestIncome and Expense*

 

Interestincome is generated on the Company’s cash and cash equivalents balances. Interest income decreased primarily as aresult of lower interest rates. Interestexpense includes interest, account maintenance fees and bank charges.

 

**Critical Accounting Policies andEstimates**

 

Thecritical policies described below affect the Company’s more significantjudgments and estimates used in the preparation of the Consolidated FinancialStatements. If the Company’s business conditions change or if it uses differentassumptions or estimates in the application of these and other accountingpolicies, the Company’s future results of operations could be adverselyaffected.

 

*InventoryValuation*

 

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.

 

·                  In-process products and finished goods — cost of direct materials and labor plus attributable overhead based on a normal level of activity.

 

The Company writes the gross value of the inventory down to its net realizable value. The Company estimates net realizable value based on estimated selling price less further costs to completion and disposal. The Company impairs slow moving product by comparing inventories on hand to future projected demand. Obsolete inventory is on-hand supply of a product in excess of two years’ sales of that product or a supply of that product that the Company believes is no longer marketable. The Company revalues obsolete inventory as having no net realizable value and impairs its full carrying value. The Company has consistently applied this methodology. The Company believes that this approach is prudent and makes suitable provisions for slow moving and obsolete inventory. When provisions are established, a new cost basis of the inventory is created.

 

Comparable inventory values are as follows (in thousands):

 
| ** **                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **2009**              | ** ** | **2008** | ** ** |
| Gross Inventories:                                         |       |                  |       |   |   |
| Raw materials                                              |       | $                     | 61,408     |   | $ | 92,638 |   |
| In-process products                                        |       | 21,113                |       | 26,371 |   |
| Finished goods                                             |       | 92,115                |       | 142,898 |   |
|                                                       |       |                  |       |   |   |
| Less:                                                      |       |                  |       |   |   |
| Slow  moving, obsolete and net realizable value provisions |       | (10,882               | )          | (10,029 | ) |
| Net inventory valuation                                    |       | $                     | 163,754    |   | $ | 251,878 |   |

 

Activity in the inventory reserve is summarized as follows (in thousands):

 
| ** **                                           | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                           | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                 |       |                              |       |   |   |   |   |
| Beginning  balance                                   |       | $                                 | 10,029     |   | $ | 10,338 |   | $ | 5,480 |   |
| Provisions  released following disposal of inventory |       | (47                               | )          | (749 | ) | 57 |   |
| Additional  provisions made                          |       | 900                               |       | 440 |   | 4,801 |   |
| Ending  balance                                      |       | $                                 | 10,882     |   | $ | 10,029 |   | $ | 10,338 |   |

 

35

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Unexpected change in market demand, building codes or buyer preferences could reduce the rate of inventory turnover and require the Company to increase its reserve for obsolescence.

 

*Revenue Recognition*

 

The Company recognizes revenue when the earnings process is complete, net of applicable provision for discounts, returns and incentives, whether actual or estimated based on the Company’s experience. This generally occurs when products are shipped to the customer in accordance with the sales agreement or purchase order, ownership and risk of loss pass to the customer, collectibility is reasonably assured and pricing is fixed or determinable. The Company’s general shipping terms are F.O.B. shipping point, where title is transferred and revenue is recognized when the products are shipped to customers. When the Company sells F.O.B. destination point, title is transferred and the Company recognizes revenue on delivery or customer acceptance, depending on terms of the sales agreement. Service sales, representing after-market repair and maintenance, engineering activities and software sales and service, though significantly less than 1% of net sales and not material to the consolidated financial statements, are recognized as the services are completed or the software products and services are delivered. If actual costs of sales returns, incentives and discounts were to significantly exceed the recorded estimated allowance, the Company’s sales would be adversely affected.

 

*Allowance forDoubtful Accounts*

 

The Company assesses thecollectibility of specific customer accounts that would be considered doubtfulbased on the customer’s financial condition, payment history, credit rating andother factors that the Company considers relevant, or accounts that the Companyassigns for collection. The Company reserves for the portion of thoseoutstanding balances that the Company believes it is not likely to collect,based on historical collection experience. The Company also reserves 100% ofthe amount that it deems potentially uncollectible due to a customer’sbankruptcy or deteriorating financial condition. If the financial condition ofthe Company’s customers were to deteriorate, resulting in inability to makepayments, additional allowances may be required.

 

Activity in the allowance for doubtful accounts is summarized as follows (in thousands):

 
| ** **                              | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|
| ** **                              | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                    |       |                              |       |   |   |   |   |
| Beginning  balance                      |       | $                                 | 4,368      |   | $ | 2,724 |   | $ | 2,286 |   |
| Adjustments,  recoveries and write-offs |       | (367                              | )          | (787 | ) | (275 | ) |
| Increase  to bad debt provision         |       | 666                               |       | 2,431 |   | 713 |   |
| Ending  balance                         |       | $                                 | 4,667      |   | $ | 4,368 |   | $ | 2,724 |   |

 

*Goodwill Impairment Testing*

 

The “Intangibles—Goodwilland Other” topic of the FASB ASC requires that goodwill be tested forimpairment at the reporting unit level (operating segment or one level below anoperating segment) on an annual basis (in the fourth quarter for the Company)and between annual tests if an event occurs or circumstances change that wouldmore likely than not reduce the fair value of a reporting unit below itscarrying value. These events or circumstances could include a significantchange in the business climate, legal factors, operating performanceindicators, competition, or disposition or relocation of a significant portionof a reporting unit. Application of the goodwill impairment test requiresjudgment, including the identification of reporting units, assignment of assetsand liabilities to reporting units, assignment of goodwill to reporting units,and determination of the fair value of each reporting unit. The fair value ofeach reporting unit is estimated using discounted cash flow methodologies or acombination of market approaches, if information is readily available, anddiscounted cash flow methodologies. This process requires significantjudgments, including estimation of future cash flows, which depends on internalforecasts, estimation of the long-term rate of growth for the Company’sbusiness, the useful life over which cash flows will occur, and determinationof the Company’s weighted average cost of capital. Changes in these estimatesand assumptions could materially affect the determination of fair value orgoodwill impairment for each reporting unit. Actual cash flows in the futuremay differ significantly from those assumed. The Company has allocated goodwillto reporting units based on the reporting unit or units expected to benefitfrom the acquisition. Reporting units are generally determined based on producttype and country or region of operations.

 

36

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The impairment chargetaken in 2008, which was a result of the Company’s annual impairment test inthe fourth quarter of 2008, was associated with assets that were acquired inEngland in 1999 and was associated with the Company’s U.K. reporting unit. Thereporting unit’s carrying value exceeded the fair value, primarily due toreduced future expected net cash flows. The method to determine the fair valueof the U.K. reporting unit was a discounted cash flow model. In 2007, theCompany recorded a goodwill impairment charge of $10.7 million related to itsCanadian reporting unit, resulting primarily from decreased expected futurecash flows due to the move of production from Canada to China. The method todetermine the fair value of the Canadian reporting unit was a discounted cashflow model supported by market approaches, which were based on earningsmultiples realized by similar public companies and on representative merger andacquisition transactions of a similar nature and industry. At December 31,2009, the remaining balances of goodwill of the U.K. and Canadian reportingunits were $1.3 million and $3.7 million, respectively. These reporting unitsare associated with the connector products segment.

 

**Effect ofNew Accounting Standards**

 

On January 1,2009, the Company adopted new or revised guidance in the following FASB ASCtopics: “Business Combinations,” “Intangibles—Goodwill and Other,” “SubsequentEvents,” and “Generally AcceptedAccounting Principles.” As of December 31, 2009, the Company had not yetadopted the revised guidance codified in the “Consolidations” topic of the FASBASC. See Note 1 tothe Company’s Consolidated Financial Statements.

 

**Liquidityand Sources of Capital**

 

The Company’sliquidity needs arise principally from working capital requirements, capitalexpenditures and business acquisitions. During the three years ended December 31,2009, the Company relied on internally generated funds to finance these needs.The Company’s working capital requirements are seasonal with the highest needtypically occurring in the second and third quarters of the year. Cash and cashequivalents were $250.4 million and $170.8 million at December 31, 2009and 2008, respectively. Working capital was $458.6 million and $455.7 millionat December 31, 2009 and 2008, respectively. As of December 31, 2009,the Company had no borrowings on its revolving line of credit. The Company hadunused capacity on these credit facilities of $205.0 million.

 

TheCompany’s operating activities provided $126.2 million, $56.1 million and$126.8 million in net cash in 2009, 2008 and 2007, respectively. In 2009, cashwas provided by net income of $12.2 million and noncash expenses, includingdepreciation and amortization and noncash compensation related to stock plans,totaling $31.6 million, a decrease in inventories of $92.6 million, an increasein trade accounts payable of $4.8 million and a decrease in trade accountsreceivable of $2.6 million. These increases were partially offset by anincrease in other current assets of $4.1 million, and decreases in otheraccrued liabilities, income taxes payable and accrued cash profit sharing of $6.8million, $4.5 million and $2.6 million, respectively. Raw material inventories decreased 33.7%from December 31, 2008, and in-progress and finished goods inventoriesdecreased 35.7% over the same period. The decrease in inventories resultedprimarily from decreased raw material purchases. The balance of the cash provided in 2009 resulted from changes in otherasset and liability accounts, none of which was material.

 

The Company’sinvesting activities used $39.5 million, $51.0 million and $75.2 million in netcash in 2009, 2008 and 2007, respectively. Cash paid for asset acquisitions,primarily for the acquisitions of Aginco and RO Design Corp, was $24.3 millionin 2009, down from $36.3 million for acquisitions in 2008 when the Companyacquired Liebig, ProTech, Ventinox and Ahorn. Cash paid for capitalexpenditures was $15.2 million in 2009, down from $16.0 million in 2008. Thecash paid was partly offset by sales of assets $1.2million. The Company used $5.8 million ofthese expenditures in 2009 to improve its real estate, primarily to constructan addition to its manufacturing facility in France. The Company alsoused $9.4 million in 2009 to purchase machinery and equipment for itsfacilities in the United States, Europe and Asia. The Company’s planned capital expenditures for 2010 total approximately$28 million. The Company also used $1.2 million in 2009 to make loans torelated parties.

 

InJanuary 2009, the Company acquired the assets of RO Design Corp, a Floridacorporation doing business as DeckTools, which licenses deck design andestimation software. The software provides professional deck builders, homecenters and lumber yards a simple, graphics-driven, solution for designingdecks and estimating material and labor costs for the project. The purchaseprice was $4.0 million in cash, including $2.5 million to be paid in thefuture.

 

In April 2009, the Company’s subsidiary, SimpsonStrong-Tie Europe EURL, purchased the equity of Aginco, which manufactures aline of high-quality builder products and distributes them in France, for $22.2million in cash.

 

37

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The Company’s vacantfacility in San Leandro, California, is classified as an asset held for sale.The Company completed its environmental remediation at this facility and isactively marketing the facility. The Company plans to sell its facility inVicksburg, Mississippi, and will cease use of it around that time. If eitherfacility is expected to be sold below its carrying value, the Company will recordan impairment charge equal to the amount by which its carrying value exceedsits net realized value. As of December 31, 2009, the property inVicksburg, Mississippi, did not qualify for held-for-sale accounting treatment,as the Company continues to use this facility as a warehouse, and the Companyexpects to record a charge in the range of $2 million to $3 million, based oncurrent market conditions, when the held-for-sale accounting treatment is met.

 

The Company expects, in March 2010, to acquire afacility in San Bernadino, California, for $19.2 million, in which it willconsolidate its owned manufacturing and warehouse facilities in Brea,California, and its leased warehouse in Ontario, California. The Companyintends to sell the Brea facilities. The relocation is planned to be completedin late 2010 or in 2011.

 

TheCompany’s financing activities used $11.7 million, $13.0 million, and $17.4million in net cash in 2009, 2008 and 2007, respectively. Uses of cash forfinancing activities were primarily from payments of cash dividends of $19.6million. Cash provided by financing activities was primarily from the issuanceof the Company’s common stock through the exercise of stock options totaling $7.6 million. In February 2010, the Company’s Board of Directors declareda dividend of $0.10 per share, a total of $4.9 million, to be paid on April 29,2010, to stockholders of record on April 8, 2010.

 

In October 2007, theCompany entered into an unsecured credit agreement with a syndicate of banksproviding for a 5-year revolving credit facility of $200 million. The Companyhas the ability to increase the amount available under the credit agreement byan additional $200 million, to a maximum of $400 million, by obtainingadditional commitments from existing lenders or new lenders and satisfyingcertain other conditions. Under existing conditions in credit markets, theCompany does not believe that additional commitments will be available on termsthe Company considers reasonable. The Company is required to pay an annual****facility fee of 0.08% to 0.10% of the available commitmentsunder the credit agreement, regardless of usage, with the applicable feedetermined on a quarterly basis based on the Company’s leverage ratio. Amountsborrowed under the credit agreement will bear interest at an annual rate equalto either, at the Company’s option, (a) the British Bankers AssociationLondon Interbank Offered Rate for the appropriate currency appearing on ReutersScreen LIBOR01-02 Page (the “LIBO Rate”) plus a spread of from 0.27% to0.40%, as determined on a quarterly basis based on the Company’s leverageratio, or (b) the Base Rate, plus a spread of 0.50%. The Company will payparticipation fees for outstanding standby letters of credit at an annual rateequal to the LIBO Rate plus the applicable spreads described in the precedingsentence, and will pay market-based fees for commercial letters of credit.Loans outstanding under the credit agreement may be prepaid at any time withoutpenalty except for LIBO Rate breakage costs and expenses.

 

The proceeds of loansadvanced under the credit agreement and letters of credit issued thereunder maybe used for working capital and other general corporate needs of the Company,to pay dividends to the Company’s stockholders or to repurchase outstandingsecurities of the Company as permitted by the credit agreement, and to financeacquisitions by the Company permitted by the credit agreement. No loans orletters of credit are currently outstanding under the credit agreement. TheCompany and its subsidiaries are required to comply with various affirmativeand negative covenants. The covenantsinclude provisions that would limit the availability of funds as a result of amaterial adverse change to the Company’s financial position or results ofoperations. The Company is in compliance with its financial covenantsunder the loan agreement.

 

TheCompany’s contractual obligations, as of December 31, 2009, for futurepayments are as follows, in thousands:

 
| ** **                  | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------|------------|----------------------------|------------|
| ** **                  | ** ** | **Total**                  | ** ** | **Less** | ** ** | ** ** | ** ** | ** ** | ** ** | **More** | ** ** |
| ** **                  | ** ** | **all**                    | ** ** | **than 1** | ** ** | **1 — 3** | ** ** | **3 — 5** | ** ** | **than 5** | ** ** |
| **Contractual Obligation**  | ** ** | **periods**                | ** ** | **year** | ** ** | **years** | ** ** | **years** | ** ** | **years** | ** ** |
|                        |       |                       |       |   |   |   |   |   |   |   |   |
| Debt interest obligations   |       | 453                        |       | 160 |   | 293 |   | — |   | — |   |
| Operating lease obligations |       | 18,334                     |       | 6,149 |   | 8,545 |   | 1,541 |   | 2,099 |   |
| Purchase obligations        |       | 26,836                     |       | 24,524 |   | 1,730 |   | 582 |   | — |   |
| Total                       |       | $                          | 45,623     |   | $ | 30,833 |   | $ | 10,568 |   | $ | 2,123 |   | $ | 2,099 |   |
|                             |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Purchase obligations consist ofcommitments primarily related to the acquisition, construction or expansion offacilities and equipment, consulting agreements, and minimum purchasequantities of certain raw materials. The Company is not a party to anylong-term supply contracts with respect to the purchase of raw materials orfinished goods. Debt interest obligations include interest payments onfixed-term debt, line-of-credit borrowings and annual maintenance fees on theCompany’s primary line-of-credit facility. Interest on line-of-creditfacilities was estimated based on historical borrowings and repayment patterns.The Company’s primary line-of-credit facility includes annual maintenance feesfrom 0.08% to 0.10%, depending on the Company’s leverage ratio, on the unusedportion of the facilities.

 

The Company adopted the revisedguidance in the “Income Taxes” topic of the FASB ASC regarding uncertain taxpositions on January 1, 2007. At December 31, 2009, the Company’sexpected payment for contractual obligations includes $7.9 million of grossliability for uncertain tax positions, although the Company cannot estimate theamount realized or the timing of cash settlement of this liability. This amountdoes not include any amount receivable that may arise from the settlement ofthe Company’s uncertain tax positions. See Notes1 and 10 to the Company’s Consolidated Financial Statements.

 

**Inflation**

 

The Companybelieves that the effect of inflation on the Company has not been material inrecent years, as general inflation rates have remained relatively low. TheCompany’s main raw material, however, is steel, and increases in steel pricesmay adversely affect the Company’s gross margins if it cannot recover thehigher costs through price increases.

 

**Item 7A. Quantitative and Qualitative Disclosures About Market Risk**

 

The Company has novariable interest-rate debt investments.

 

The Company hasforeign exchange rate risk in its international operations, primarily Europeand Canada, and through purchases from foreign vendors. The Company does notcurrently hedge this risk. If the exchange rate were to change by 10% in any onecountry where the Company has operations, the change in net income would not bematerial to the Company’s operations taken as a whole. The translationadjustment resulted in an increase in accumulated other comprehensive income of$13.0 million for the year ended December 31, 2009, primarily due to theeffect of the weakening of the United States dollar in relation to the Europeanand Canadian currencies.

 

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**Item 8. Consolidated Financial Statements andSupplementary Data.**

 

**SIMPSON MANUFACTURING CO., INC.**

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| Consolidated  financial statements                                                                               |   |
|------------------------------------------------------------------------------------------------------------------|--------|
| Report  of Independent Registered Public Accounting Firm                                                         | 41     |
| Consolidated  Balance Sheets at December 31, 2009 and 2008                                                  | 42     |
| Consolidated  Statements of Operations for the years ended December 31, 2009, 2008 and  2007                | 43     |
| Consolidated  Statements of Stockholders’ Equity for the years ended December 31,  2007, 2008 and 2009 | 44     |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2009, 2008 and  2007                | 45     |
| Notes to the Consolidated Financial Statements                                                                   | 46     |
|                                                                                                             |   |
| Financial  Statement Schedule                                                                                    |   |
| Schedule II  — Valuation and Qualifying Accounts                                                            | 72     |

 

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Report of Independent Registered Public AccountingFirm

 

To the Board of Directorsand Stockholders of Simpson Manufacturing Co., Inc.:

 

In our opinion, the consolidated financial statements listed inthe accompanying index presentfairly, in all material respects, the financial position of SimpsonManufacturing Co., Inc. and its subsidiaries at December 31, 2009 and2008, and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2009, in conformity withaccounting principles generally accepted in the United States of America. In addition, in our opinion, the financialstatement schedule listed in the accompanying index presents fairly, in allmaterial respects, the information set forth therein when read in conjunctionwith the related consolidated financial statements. Also in our opinion,the Company maintained, in all material respects, effective internal controlover financial reporting as of December 31, 2009, based on criteriaestablished in *Internal Control - Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). The Company’s management is responsible for these financial statementsand financial statement schedule, for maintaining effective internal controlover financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in Item 9A of the 2009Annual Report. Our responsibility is to express opinions on these financialstatements, on the financial statement schedule, and on the Company’s internalcontrol over financial reporting based on our integrated audits. We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Ouraudits of the financial statements included examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. Our audit ofinternal control over financial reporting included obtaining an understandingof internal control over financial reporting, assessing the risk that amaterial weakness exists, and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. Our audits alsoincluded performing such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a reasonable basis for ouropinions.

 

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (iii) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on the financialstatements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

As described in Item 9A of the 2009 Annual Report,management has excluded Agence Internationale Commerciale et Industrielle,S.A.S. (“Aginco”) from its assessment of internal control over financialreporting as of December 31, 2009, because they were purchased by theCompany through a business combination during 2009. We have also excludedAginco from our audit of internal control over financial reporting. Aginco is adivision of Simpson Strong-Tie Company Inc. whose combined total assets andtotal revenues represent approximately 3% and 1%, respectively, of the relatedconsolidated financial statement amounts as of and for the year ended December 31,2009.

 

/s/PricewaterhouseCoopers LLP

San Francisco, California

February 26, 2010

 

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**SimpsonManufacturing Co., Inc. and Subsidiaries**

**Consolidated Balance Sheets**

*(Inthousands, except per share data)*

 
| ** **                                                                                                                                                     | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                     | ** ** | **2009**              | ** ** | **2008** | ** ** |
| **ASSETS**                                                                                                                                                     |       |                  |       |   |   |
| Current  assets                                                                                                                                                |       |                  |       |   |   |
| Cash  and cash equivalents                                                                                                                                     |       | $                     | 250,381    |   | $ | 170,750 |   |
| Trade  accounts receivable, net                                                                                                                                |       | 77,317                |       | 76,005 |   |
| Inventories                                                                                                                                                    |       | 163,754               |       | 251,878 |   |
| Deferred  income taxes                                                                                                                                         |       | 13,970                |       | 11,995 |   |
| Assets  held for sale                                                                                                                                          |       | 7,887                 |       | 8,387 |   |
| Other  current assets                                                                                                                                          |       | 16,766                |       | 8,582 |   |
| Total  current assets                                                                                                                                          |       | 530,075               |       | 527,597 |   |
|                                                                                                                                                           |       |                  |       |   |   |
| Property,  plant and equipment, net                                                                                                                            |       | 187,814               |       | 193,318 |   |
| Goodwill                                                                                                                                                       |       | 81,626                |       | 68,619 |   |
| Equity  method investment                                                                                                                                      |       | 748                   |       | 214 |   |
| Intangible  assets                                                                                                                                             |       | 28,852                |       | 23,453 |   |
| Deferred  income taxes                                                                                                                                         |       | 5,598                 |       | 8,755 |   |
| Other  noncurrent assets                                                                                                                                       |       | 9,092                 |       | 8,244 |   |
| Total  assets                                                                                                                                                  |       | $                     | 843,805    |   | $ | 830,200 |   |
| ** **                                                                                                                                                     |       |                  |       |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                  |       |                  |       |   |   |
| Current  liabilities                                                                                                                                           |       |                  |       |   |   |
| Line  of credit                                                                                                                                                |       | $                     | —     |   | $ | 26 |   |
| Trade  accounts payable                                                                                                                                        |       | 28,462                |       | 21,675 |   |
| Accrued  liabilities                                                                                                                                           |       | 29,209                |       | 34,102 |   |
| Accrued  profit sharing trust contributions                                                                                                                    |       | 7,018                 |       | 9,541 |   |
| Accrued  cash profit sharing and commissions                                                                                                                   |       | 2,427                 |       | 2,264 |   |
| Accrued  workers’ compensation                                                                                                                            |       | 4,352                 |       | 4,286 |   |
| Total  current liabilities                                                                                                                                     |       | 71,468                |       | 71,894 |   |
|                                                                                                                                                           |       |                  |       |   |   |
| Long-term  liabilities                                                                                                                                         |       | 8,553                 |       | 9,280 |   |
| Total  liabilities                                                                                                                                             |       | 80,021                |       | 81,174 |   |
|                                                                                                                                                           |       |                  |       |   |   |
| Commitments  and contingencies (Note 9)                                                                                                                        |       |                  |       |   |   |
|                                                                                                                                                           |       |                  |       |   |   |
| Stockholders’  equity                                                                                                                                     |       |                  |       |   |   |
| Preferred  stock, par value $0.01; authorized shares, 5,000; issued and outstanding shares,  none                                                              |       | —                |       | — |   |
| Common  stock, par value $0.01; authorized shares, 160,000; issued and outstanding shares,  49,377 and 48,971 at December 31, 2009 and 2008, respectively |       | 493                   |       | 490 |   |
| Additional  paid-in capital                                                                                                                                    |       | 146,036               |       | 136,867 |   |
| Retained  earnings                                                                                                                                             |       | 598,493               |       | 605,950 |   |
| Accumulated  other comprehensive income                                                                                                                        |       | 18,762                |       | 5,719 |   |
| Total  stockholders’ equity                                                                                                                               |       | 763,784               |       | 749,026 |   |
| Total  liabilities and stockholders’ equity                                                                                                               |       | $                     | 843,805    |   | $ | 830,200 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

42

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**SimpsonManufacturing Co., Inc. and Subsidiaries**

**Consolidated Statements of Operations**

*(Inthousands, except per share data)*

 
| ** **                                      | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                      | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                            |       |                              |       |   |   |   |   |
| Net  sales                                      |       | $                                 | 585,070    |   | $ | 756,499 |   | $ | 816,988 |   |
| Cost  of sales                                  |       | 391,496                           |       | 474,190 |   | 511,499 |   |
| Gross  profit                                   |       | 193,574                           |       | 282,309 |   | 305,489 |   |
|                                            |       |                              |       |   |   |   |   |
| Operating  expenses                             |       |                              |       |   |   |   |   |
| Research  and development and other engineering |       | 19,993                            |       | 21,327 |   | 20,115 |   |
| Selling                                         |       | 64,294                            |       | 80,703 |   | 75,954 |   |
| General  and administrative                     |       | 79,880                            |       | 89,897 |   | 88,618 |   |
| Impairment  of goodwill                         |       | —                            |       | 2,964 |   | 10,666 |   |
| Loss  (gain) on sale of assets                  |       | 797                               |       | (124 | ) | (713 | ) |
|                                            |       | 164,964                           |       | 194,767 |   | 194,640 |   |
|                                            |       |                              |       |   |   |   |   |
| Income  from operations                         |       | 28,610                            |       | 87,542 |   | 110,849 |   |
|                                            |       |                              |       |   |   |   |   |
| Loss  in equity method investment, before tax   |       | (194                              | )          | (486 | ) | (33 | ) |
| Interest  income                                |       | 542                               |       | 2,977 |   | 5,988 |   |
| Interest  expense                               |       | (467                              | )          | (381 | ) | (229 | ) |
| Income  before income taxes                     |       | 28,491                            |       | 89,652 |   | 116,575 |   |
|                                            |       |                              |       |   |   |   |   |
| Provision  for income taxes                     |       | 16,274                            |       | 35,718 |   | 47,833 |   |
|                                            |       |                              |       |   |   |   |   |
| Net  income                                     |       | $                                 | 12,217     |   | $ | 53,934 |   | $ | 68,742 |   |
|                                            |       |                              |       |   |   |   |   |
| Net  income per common share                    |       |                              |       |   |   |   |   |
| Basic                                           |       | $                                 | 0.25       |   | $ | 1.11 |   | $ | 1.42 |   |
| Diluted                                         |       | $                                 | 0.25       |   | $ | 1.10 |   | $ | 1.40 |   |
|                                            |       |                              |       |   |   |   |   |
| Weighted  average number of shares outstanding  |       |                              |       |   |   |   |   |
| Basic                                           |       | 49,135                            |       | 48,636 |   | 48,472 |   |
| Diluted                                         |       | 49,256                            |       | 48,970 |   | 48,928 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

43

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**SimpsonManufacturing Co., Inc. and Subsidiaries**

**Consolidated Statementsof Stockholders’ Equity**

**for theyears ended December 31, 2007, 2008 and 2009**

*(Inthousands, except per share data)*

 
| ** **                                               | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------|------------|-------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                                               | ** ** | ** **            | ** ** | ** **         | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Common Stock** | ** ** | **Paid-in**        | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Treasury**    | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Shares**            | ** ** | **Par Value** | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income**      | ** ** | **Stock**  | ** ** | **Total**  | ** ** |
| Balance, January 1, 2007                            |       | 48,412                |       | $484               |       | $114,535       |       | $526,346          |       | $11,494         |       | $—    |       | $652,859   |       |
| Comprehensive income:                                    |       |                  |       |               |       |           |       |              |       |            |       |       |       |       |       |
| Net income                                               |       | —                |       | —             |       | —         |       | 68,742            |       | —          |       | —     |       | 68,742     |       |
| Other comprehensive income:                              |       |                  |       |               |       |           |       |              |       |            |       |       |       |       |       |
| Translation adjustment                                   |       | —                |       | —             |       | —         |       | —            |       | 13,803          |       | —     |       | 13,803     |       |
| Comprehensive income                                     |       |                  |       |               |       |           |       |              |       |            |       |       |       | 82,545     |       |
| Options exercised                                        |       | 252                   |       | 2                  |       | 4,830          |       | —            |       | —          |       | —     |       | 4,832      |       |
| Stock compensation expense                               |       | —                |       | —             |       | 5,893          |       | —            |       | —          |       | —     |       | 5,893      |       |
| Tax benefit of options exercised                         |       | —                |       | —             |       | 554            |       | —            |       | —          |       | —     |       | 554        |       |
| Cash dividends declared oncommon stock, $0.40 per  share |       | —                |       | —             |       | —         |       | (19,399           | )          | —          |       | —     |       | (19,399    | )          |
| Repurchase of common stock                               |       | (122                  | )          | —             |       | —         |       | —            |       | —          |       | (4,191     | )          | (4,191     | )          |
| Retirement of treasury stock                             |       | —                |       | (1                 | )          | —         |       | (4,190            | )          | —          |       | 4,191      |       | —     |       |
| Common stock issued at$31.65 per share                   |       | 10                    |       | —             |       | 307            |       | —            |       | —          |       | —     |       | 307        |       |
| Balance, December 31, 2007                          |       | 48,552                |       | 485                |       | 126,119        |       | 571,499           |       | 25,297          |       | —     |       | 723,400    |       |
| Comprehensive income:                                    |       |                  |       |               |       |           |       |              |       |            |       |       |       |       |       |
| Net income                                               |       | —                |       | —             |       | —         |       | 53,934            |       | —          |       | —     |       | 53,934     |       |
| Other comprehensive income:                              |       |                  |       |               |       |           |       |              |       |            |       |       |       |       |       |
| Translation adjustment                                   |       | —                |       | —             |       | —         |       | —            |       | (19,578         | )          | —     |       | (19,578    | )          |
| Comprehensive income                                     |       |                  |       |               |       |           |       |              |       |            |       |       |       | 34,356     |       |
| Options exercised                                        |       | 410                   |       | 5                  |       | 6,876          |       | —            |       | —          |       | —     |       | 6,881      |       |
| Stock compensation expense                               |       | —                |       | —             |       | 3,249          |       | —            |       | —          |       | —     |       | 3,249      |       |
| Tax benefit of options exercised                         |       | —                |       | —             |       | 376            |       | —            |       | —          |       | —     |       | 376        |       |
| Cash dividends declared oncommon stock, $0.40 per  share |       | —                |       | —             |       | —         |       | (19,483           | )          | —          |       | —     |       | (19,483    | )          |
| Common stock issued at$26.59 per share                   |       | 9                     |       | —             |       | 247            |       | —            |       | —          |       | —     |       | 247        |       |
| Balance, December 31, 2008                          |       | 48,971                |       | 490                |       | 136,867        |       | 605,950           |       | 5,719           |       | —     |       | 749,026    |       |
| Comprehensive income:                                    |       |                  |       |               |       |           |       |              |       |            |       |       |       |       |       |
| Net income                                               |       | —                |       | —             |       | —         |       | 12,217            |       | —          |       | —     |       | 12,217     |       |
| Other comprehensive income:                              |       |                  |       |               |       |           |       |              |       |            |       |       |       |       |       |
| Translation adjustment                                   |       | —                |       | —             |       | —         |       | —            |       | 13,043          |       | —     |       | 13,043     |       |
| Comprehensive income                                     |       |                  |       |               |       |           |       |              |       |            |       |       |       | 25,260     |       |
| Options exercised                                        |       | 396                   |       | 3                  |       | 7,624          |       | —            |       | —          |       | —     |       | 7,627      |       |
| Stock compensation expense                               |       | —                |       | —             |       | 1,690          |       | —            |       | —          |       | —     |       | 1,690      |       |
| Tax benefit of options exercised                         |       | —                |       | —             |       | (445           | )          | —            |       | —          |       | —     |       | (445       | )          |
| Cash dividends declared oncommon stock, $0.40 per  share |       | —                |       | —             |       | —         |       | (19,674           | )          | —          |       | —     |       | (19,674    | )          |
| Common stock issued at$27.76 per share                   |       | 10                    |       | —             |       | 300            |       | —            |       | —          |       | —     |       | 300        |       |
| Balance, December 31, 2009                          |       | 49,377                |       | $493               |       | $146,036       |       | $598,493          |       | $18,762         |       | $—    |       | $763,784   |       |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

44

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**Simpson Manufacturing Co., Inc. andSubsidiaries**

**Consolidated Statements of Cash Flows**

*(Inthousands)*

 
| ** **                                                                         | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Cash flows from operating activities**                                           |       |                              |       |   |   |   |   |
| Net  income                                                                        |       | $                                 | 12,217     |   | $ | 53,934 |   | $ | 68,742 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                              |       |   |   |   |   |
| Loss  (gain) on sale of assets                                                     |       | 797                               |       | (124 | ) | (713 | ) |
| Depreciation  and amortization                                                     |       | 29,387                            |       | 30,209 |   | 27,984 |   |
| Impairment  of long-lived assets                                                   |       | —                            |       | — |   | 465 |   |
| Impairment  of goodwill                                                            |       | —                            |       | 2,964 |   | 10,666 |   |
| Deferred  income taxes                                                             |       | (2,198                            | )          | (1,079 | ) | (3,745 | ) |
| Noncash  compensation related to stock plans                                       |       | 2,200                             |       | 3,823 |   | 6,333 |   |
| Loss  in equity method investment                                                  |       | 194                               |       | 486 |   | 33 |   |
| Excess  tax benefit of options exercised                                           |       | (359                              | )          | (515 | ) | (746 | ) |
| Write  down of obsolete inventory                                                  |       | 900                               |       | 440 |   | 4,801 |   |
| Provision  for doubtful accounts                                                   |       | 666                               |       | 2,431 |   | 713 |   |
| Accrued  interest earned from related party                                        |       | (78                               | )          | — |   | — |   |
| Changes  in operating assets and liabilities, net of effects of acquisitions:      |       |                              |       |   |   |   |   |
| Trade  accounts receivable                                                         |       | 2,574                             |       | 9,862 |   | 12,999 |   |
| Inventories                                                                        |       | 92,589                            |       | (32,408 | ) | 5,803 |   |
| Other  current assets                                                              |       | (4,123                            | )          | 174 |   | (1,540 | ) |
| Other  noncurrent assets                                                           |       | (1,146                            | )          | (1,213 | ) | 340 |   |
| Trade  accounts payable                                                            |       | 4,770                             |       | (7,456 | ) | 3,105 |   |
| Accrued  liabilities                                                               |       | (6,754                            | )          | (5,433 | ) | (503 | ) |
| Accrued  profit sharing trust contributions                                        |       | (2,614                            | )          | 1,070 |   | (77 | ) |
| Accrued  cash profit sharing and commissions                                       |       | 92                                |       | (1,773 | ) | (3,748 | ) |
| Other  long-term liabilities                                                       |       | 1,520                             |       | (684 | ) | (536 | ) |
| Accrued  workers’ compensation                                                |       | 66                                |       | 170 |   | 404 |   |
| Income  taxes payable                                                              |       | (4,540                            | )          | 1,254 |   | (3,935 | ) |
| Net  cash provided by operating activities                                         |       | 126,160                           |       | 56,132 |   | 126,845 |   |
|                                                                               |       |                              |       |   |   |   |   |
| **Cash flows from investing activities**                                           |       |                              |       |   |   |   |   |
| Capital  expenditures                                                              |       | (15,226                           | )          | (15,984 | ) | (36,091 | ) |
| Asset  acquisitions, net of cash acquired                                          |       | (24,261                           | )          | (36,346 | ) | (42,470 | ) |
| Loans  made to related parties                                                     |       | (1,204                            | )          | (1,300 | ) | — |   |
| Contribution  to equity investment                                                 |       | —                            |       | (700 | ) | — |   |
| Proceeds  from sale of capital assets                                              |       | 1,218                             |       | 3,305 |   | 3,363 |   |
| Net  cash used in investing activities                                             |       | (39,473                           | )          | (51,025 | ) | (75,198 | ) |
|                                                                               |       |                              |       |   |   |   |   |
| **Cash flows from financing activities**                                           |       |                              |       |   |   |   |   |
| Line  of credit borrowings                                                         |       | 1,514                             |       | 3,655 |   | 7,166 |   |
| Repayment  of debt and line of credit borrowings                                   |       | (1,540                            | )          | (4,659 | ) | (6,868 | ) |
| Debt  issuance costs                                                               |       | —                            |       | — |   | (687 | ) |
| Repurchase  of common stock                                                        |       | —                            |       | — |   | (4,191 | ) |
| Issuance  of Company’s common stock                                           |       | 7,627                             |       | 6,881 |   | 4,832 |   |
| Excess  tax benefit of options exercised                                           |       | 359                               |       | 515 |   | 746 |   |
| Dividends  paid                                                                    |       | (19,633                           | )          | (19,440 | ) | (18,415 | ) |
| Net  cash used in financing activities                                             |       | (11,673                           | )          | (13,048 | ) | (17,417 | ) |
|                                                                               |       |                              |       |   |   |   |   |
| Effect  of exchange rate changes on cash                                           |       | 4,617                             |       | (7,451 | ) | 3,613 |   |
|                                                                               |       |                              |       |   |   |   |   |
| Net  increase (decrease) in cash and cash equivalents                              |       | 79,631                            |       | (15,392 | ) | 37,843 |   |
| Cash  and cash equivalents at beginning of year                                    |       | 170,750                           |       | 186,142 |   | 148,299 |   |
| Cash  and cash equivalents at end of year                                          |       | $                                 | 250,381    |   | $ | 170,750 |   | $ | 186,142 |   |
|                                                                               |       |                              |       |   |   |   |   |
| **Supplemental Disclosure of Cash Flow Information**                               |       |                              |       |   |   |   |   |
| **Cash paid during the year for**                                                  |       |                              |       |   |   |   |   |
| Interest                                                                           |       | $                                 | 287        |   | $ | 296 |   | $ | 264 |   |
| Income  taxes                                                                      |       | 23,322                            |       | 36,956 |   | 50,637 |   |
| **Noncash activity during the year for**                                           |       |                              |       |   |   |   |   |
| Noncash  capital expenditures                                                      |       | $                                 | 278        |   | $ | 296 |   | $ | 1,081 |   |
| Noncash  asset acquisition                                                         |       | —                            |       | 1,457 |   | 1,308 |   |
| Common  stock issued for compensation                                              |       | 300                               |       | 247 |   | 307 |   |
| Dividends  declared but not paid                                                   |       | 4,939                             |       | 4,897 |   | 4,854 |   |
| Noncash  equity method investment acquisition (Note 6)                             |       | 728                               |       | — |   | — |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

45

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**SimpsonManufacturing Co., Inc. and Subsidiaries**

**Notes to ConsolidatedFinancial Statements**

 

1.             Operations and Summary of Significant AccountingPolicies

 

*Nature of Operations*

 

Simpson Manufacturing Co., Inc.,through its subsidiaries Simpson Strong-Tie Company Inc. (“Simpson Strong-Tie”)and Simpson Dura-Vent Company, Inc. and its other subsidiaries(collectively, the “Company”), designs, engineers and manufactureswood-to-wood, wood-to-concrete and wood-to-masonry connectors, screw fastening systems and collated screws,stainless steel fasteners, pre-fabricated shearwallsand moment-frames and venting systems for gas and wood burning and alternativefuel appliances. The Company markets its products to the residentialconstruction, light industrial and commercial construction, remodeling anddo-it-yourself markets. Simpson Strong-Tie also offers a line of adhesives,mechanical anchors and powder-actuated tools for concrete, masonry and steel.

 

The Company operatesexclusively in the building products industry. The Company’s products are soldprimarily in the United States, Canada, Europe and Asia. Revenues have somegeographic market concentration on the west coast of the United States. Aportion of the Company’s business is therefore dependent on economic activitywithin this region and market. The Company is dependent on the availability ofsteel, its primary raw material.

 

### *Principles of Consolidation*

### * *

The consolidatedfinancial statements include the accounts of Simpson Manufacturing Co., Inc.and its subsidiaries. Investments in 50% or less owned entities are accountedfor using either cost or the equity method. The Company consolidates allvariable interest entities (VIEs) where it is the primary beneficiary. Therewere no VIEs as of December 31, 2008 or 2009. All significant intercompanytransactions have been eliminated.

 

### *Use of Estimates*

### * *

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America (“GAAP”) requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the consolidated financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates.

 

*SubsequentEvents*

 

The Company hasevaluated the financial statements for subsequent events through the date ofthe issuance of these financial statements. See Note 15 “Subsequent Events.”

 

*Revenue Recognition*

 

The Company recognizes revenue when the earnings process is complete, net of applicable provision for discounts, returns and incentives, whether actual or estimated based on the Company’s experience. This generally occurs when products are shipped to the customer in accordance with the sales agreement or purchase order, ownership and risk of loss pass to the customer, collectibility is reasonably assured and pricing is fixed or determinable. The Company’s general shipping terms are F.O.B. shipping point, where title is transferred and revenue is recognized when the products are shipped to customers. When the Company sells F.O.B. destination point, title is transferred and the Company recognizes revenue on delivery or customer acceptance, depending on terms of the sales agreement. Service sales, representing after-market repair and maintenance, engineering activities and software sales and service, though significantly less than 1% of net sales and not material to the consolidated financial statements, are recognized as the services are completed or the software products and services are delivered. If actual costs of sales returns, incentives and discounts were to significantly exceed the recorded estimated allowance, the Company’s sales would be adversely affected.

 

46

----

 

*Cash Equivalents*

 

The Company considers allhighly liquid investments with an original or remaining maturity of threemonths or less at the time of purchase to be cash equivalents.

 

*Investments*

 

The Company has aminority investment in a privately held company. These kinds of investments arecarried either at cost or by the equity method of accounting, depending on theCompany’s ownership interest and its ability to influence the operating orfinancial decisions of the investee, and are classified as long-terminvestments.

 

The Company periodicallyreviews its investments for impairment. If the carrying value of an investmentexceeds its fair value and the decline in fair value is determined to beother-than-temporary, the Company writes down the value of the investment toits fair value. The Company generally believes an other-than-temporary declineoccurs when the fair value of an investment is below the carrying value for twoconsecutive quarters.

 

*Allowance forDoubtful Accounts*

 

The Company assesses thecollectibility of specific customer accounts that would be considered doubtfulbased on the customer’s financial condition, payment history, credit rating andother factors that the Company considers relevant, or accounts that the Companyassigns for collection. The Company reserves for the portion of thoseoutstanding balances that the Company believes it is not likely to collectbased on historical collection experience. The Company also reserves 100% ofthe amount that it deems potentially uncollectible due to a customer’sdeteriorating financial condition or bankruptcy. If the financial condition ofthe Company’s customers were to deteriorate, resulting in probable inability tomake payments, additional allowances may be required.

 

*InventoryValuation*

 

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 for resale — principally valued at cost determined on a weighted average basis.

 

·                  In-process products and finished goods — cost of direct materials and labor plus attributable overhead based on a normal level of activity.

 

The Company applies netrealizable value and obsolescence to the gross value of the inventory. TheCompany estimates net realizable value based on estimated selling price lessfurther costs to completion and disposal. The Company provides for slow movingproduct by comparing inventories on hand to future projected demand. Obsoleteinventory is on-hand supply of a product in excess of two years’ sales of thatproduct or a supply of that product that the Company believes is no longermarketable. The Company revalues obsolete inventory as having no net realizablevalue and writes off its full carrying value. The Company has consistentlyapplied this methodology. The Company believes that this approach is prudentand makes suitable provisions for slow moving and obsolete inventory. Whenprovisions are established, a new cost basis of the inventory is created.

 

*SalesIncentive and Advertising Allowances*

 

The Company recordsestimated reductions to revenues for sales incentives, primarily rebates for volumediscounts, and allowances for co-operative advertising.

 

*Allowancesfor Sales Discounts*

 

The Company recordsestimated reductions to revenues for discounts taken on early payment ofinvoices by its customers.

 

47

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*Warranties*

 

The Company providesproduct warranties for specific product lines and accrues for estimated futurewarranty costs, none of which has been material to the consolidated financialstatements, in the period in which the sale is recorded. In a limited number ofcircumstances, the Company may also agree to indemnify customers against legalclaims made against those customers by the end users of the Company’s products.Historically, payments made by the Company, if any, under such agreements havenot had a material effect on the Company’s consolidated results of operations,cash flows or financial position.

 

*Fair Value of FinancialInstruments*

 

The “Fair Value Measurements and Disclosures” topic ofthe Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“ASC”)  establishes a valuation hierarchy fordisclosure of the inputs used to measure fair value. This hierarchy prioritizesthe inputs into three broad levels as follows: Level 1 inputs are quoted prices(unadjusted) in active markets for identical assets or liabilities; Level 2inputs are quoted prices for similar assets and liabilities in active marketsor inputs that are observable for the asset or liability, either directly orindirectly through market corroboration, for substantially the full term of thefinancial instrument; Level 3 inputs are unobservable inputs based on theCompany’s assumptions used to measure assets and liabilities at fair value. Afinancial asset’s or liability’s classification within the hierarchy isdetermined based on the lowest level input that is significant to the fairvalue measurement.

 

As of December 31, 2009, the Company’sinvestments consisted of only United States Treasury securities and moneymarket funds aggregating $154.5 million, which are maintained in cashequivalents and are carried at cost, approximating fair value, based on Level 1inputs.

 

*Property, Plant and Equipment*

 

Property, plant andequipment are carried at cost. Major renewals and betterments are capitalized.Maintenance and repairs are expensed on a current basis. When assets are soldor retired, their costs and accumulated depreciation are removed from theaccounts, and the resulting gains or losses are reflected in the consolidatedstatements of operations.

 

The “Intangibles—Goodwilland Other” topic of the FASB ASC provides guidance on capitalization of thecosts incurred for computer software developed or obtained for internal use.The Company capitalizes substantially all external costs and qualifying internalcosts related to the purchase and implementation of software projects used forbusiness operations and engineering design activities. Capitalized softwarecosts primarily include purchased software and external consulting fees.Capitalized software projects are amortized over the estimated useful lives ofthe software.

 

*Depreciation and Amortization*

 

Depreciation of property,plant and equipment is provided for using accelerated methods over thefollowing estimated useful lives:

 
| Software                        |   | 3 to 5 years   |
|---------------------------------|--------|----------------|
| Machinery and equipment         |   | 3 to 10 years  |
| Buildings and site improvements |   | 15 to 45 years |

 

Leasehold improvementsare amortized using the straight-line method over the shorter of the expectedlife or the remaining term of the lease. Amortization of purchased intangibleassets with finite useful lives is computed using the straight-line method overthe estimated useful lives of the assets.

 

48

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*Cost of Sales*

 

The types of costsincluded in cost of sales include material, labor, factory and toolingoverhead, shipping, and freight costs. Major components of these expenses arematerial costs, such as steel, packaging and cartons, personnel costs andfacility costs such as rent, depreciation and utilities related to theproduction and distribution of the Company’s products. Inbound freight charges,purchasing and receiving costs, inspection costs, warehousing costs, internaltransfer costs, and other costs of the Company’s distribution network are alsoincluded in cost of sales.

 

*Tool and Die Costs*

 

Tool and die costs areincluded in product costs in the year incurred.

 

*Shipping and Handling Fees andCosts*

 

The Company’s generalshipping terms are F.O.B. shipping point. Shipping and handling fees and costsare included in revenues and product costs, as appropriate, in the yearincurred.

 

*Product Research and DevelopmentCosts*

 

Product research anddevelopment costs, which are included in operating expenses and are chargedagainst income as incurred, were $6.5 million, $7.0 million and $6.0 million in2009, 2008 and 2007, respectively. The types of costs included as productresearch and development expenses are typically related to salaries andbenefits and supplies. The Company amortizes acquired patents over their remaininglives and performs periodic reviews for impairment. The cost of internallydeveloped patents is expensed as incurred.

 

*Selling Costs*

 

Selling costs include expensesassociated with selling, merchandising and marketing the Company’s products.Major components of these expenses are personnel, sales commissions, facilitycosts such as rent, depreciation and utilities, professional services,information technology related costs, sales promotion, advertising, literatureand trade shows.

 

*Advertising Costs*

 

Advertising costs areincluded in selling expenses, are expensed when the advertising occurs, andwere $6.0 million, $9.6 million and $9.5 million in 2009, 2008 and 2007,respectively.

 

*General and Administrative Costs*

 

General and administrative costsinclude personnel, information technology related costs, facility costs such asrent, depreciation and utilities, professional services, amortization ofintangibles and bad debt charges.

 

*Income Taxes*

 

Income taxes arecalculated using an asset and liability approach. The provision for incometaxes includes federal, state and foreign taxes currently payable and deferredtaxes, due to temporary differences between the financial statement and taxbases of assets and liabilities. In addition, future tax benefits arerecognized to the extent that realization of such benefits is more likely thannot.

 

*Sales Taxes*

 

Pursuant to the “RevenueRecognition” topic of the FASB ASC, the Company presents taxes collected andremitted to governmental authorities on a net basis in the accompanyingconsolidated statements of operations.

 

49

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*Foreign Currency Translation*

 

The local currency is the functionalcurrency of the Company’s operations in Europe, Canada, Asia, Australia and NewZealand. Assets and liabilities denominated in foreign currencies aretranslated using the exchange rate on the balance sheet date. Revenues andexpenses are translated using average exchange rates prevailing during theyear. The translation adjustment resulting from this process is shownseparately as a component of stockholders’ equity. Foreign currency transactiongains or losses are included in general and administrative expenses and havenot been significant in any of the years presented.

 

### *Common Stock*

### * *

Subject to the rights of holders ofany preferred stock that may be issued in the future, holders of common stockare entitled to receive such dividends, if any, as may be declared from time totime by the Board of Directors (the “Board”) out of legally available funds,and in the event of liquidation, dissolution or winding-up of the Company, toshare ratably in all assets available for distribution. The holders of commonstock have no preemptive or conversion rights. Subject to the rights of any preferredstock that may be issued in the future, the holders of common stock areentitled to one vote per share on any matter submitted to a vote of thestockholders, except that, subject to compliance with pre-meeting notice andother conditions pursuant to the Company’s Bylaws, stockholders may cumulatetheir votes in an election of directors, and each stockholder may give onecandidate a number of votes equal to the number of directors to be electedmultiplied by the number of shares held by such stockholder or may distributesuch stockholder’s votes on the same principle among as many candidates as suchstockholder thinks fit. There are no redemption or sinking fund provisionsapplicable to the common stock.

 

In 1999, theCompany declared a dividend distribution of one Right to purchase Series AParticipating preferred stock per share of common stock. The Rights will beexercisable, unless redeemed earlier by the Company, if a person or groupacquires, or obtains the right to acquire, 15% or more of the outstandingshares of common stock or commences a tender or exchange offer that wouldresult in it acquiring 15% or more of the outstanding shares of common stock,either event occurring without the prior consent of the Company. The amount of Series AParticipating preferred stock that the holder of a Right is entitled to receiveand the purchase price payable on exercise of a Right are both subject toadjustment. Any person or group that acquires 15% or more of the outstandingshares of common stock without the prior consent of the Company would not beentitled to this purchase. Any stockholder who held 25% or more of the Company’scommon stock when the Rights were originally distributed would not be treatedas having acquired 15% or more of the outstanding shares unless suchstockholder’s ownership is increased to more than 40% of the outstandingshares.

 

The Rights willexpire on June 14, 2019, or they may be redeemed by the Company atone cent per Right prior to that date. The Rights do not have voting ordividend rights and, until they become exercisable, have no dilutive effect onthe earnings of the Company. One million shares of the Company’s preferredstock have been designated Series A Participating preferred stock andreserved for issuance on exercise of the Rights. No event during 2009 made theRights exercisable.

 

### *Preferred Stock*

### * *

The Board has theauthority to issue the authorized and unissued preferred stock in one or moreseries with such designations, rights and preferences as may be determined fromtime to time by the Board. Accordingly, the Board is empowered, withoutstockholder approval, to issue preferred stock with dividend, redemption,liquidation, conversion, voting or other rights that could adversely affect thevoting power or other rights of the holders of the Company’s common stock.

 

*Net Income per Common Share*

 

Basic net incomeper common share is computed based on the weighted average number of commonshares outstanding. Potentially dilutive shares, using the treasury stockmethod, are included in the diluted per-share calculations for all periods whenthe effect of their inclusion is dilutive.

 

50

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The following is areconciliation of basic earnings per share (“EPS”) to diluted EPS:

 
| ** **                               | ** ** | **Years  ended December 31,** | ** ** |
|------------------------------------------|------------|------------------------------------|------------|
| ** **                               | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                               | ** ** | ** **                         | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** ** | ** ** |
| **(in thousands, except**                | ** ** | **Net**                            | ** ** | **Average** | ** ** | **Per** | ** ** | **Net** | ** ** | **Average** | ** ** | **Per** | ** ** | **Net** | ** ** | **Average** | ** ** | **Per** | ** ** |
| **per-share amounts)**                   | ** ** | **Income**                         | ** ** | **Shares** | ** ** | **Share** | ** ** | **Income** | ** ** | **Shares** | ** ** | **Share** | ** ** | **Income** | ** ** | **Shares** | ** ** | **Share** |   |
| **Basic EPS**                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income  available to common stockholders |       | $                                  | 12,217     |   | 49,135 |   | $ | 0.25 |   | $ | 53,934 |   | 48,636 |   | $ | 1.11 |   | $ | 68,742 |   | 48,472 |   | $ | 1.42 |   |
| ** **                               | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Effect of Dilutive Securities**        |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock  options                           |       | —                             |       | 121 |   | — |   | — |   | 334 |   | (0.01 | ) | — |   | 456 |   | (0.02 | ) |
|                                     |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Diluted EPS**                          |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income  available to common stockholders |       | $                                  | 12,217     |   | 49,256 |   | $ | 0.25 |   | $ | 53,934 |   | 48,970 |   | $ | 1.10 |   | $ | 68,742 |   | 48,928 |   | $ | 1.40 |   |

 

Anti-dilutiveshares attributable to outstanding stock options were excluded from thecalculation of diluted net income per share. For the years ended December 31,2009, 2008, and 2007, 1.0 million, 1.1 million and 1.0 million shares,respectively, subject to stock options were anti-dilutive.

 

The potential taxbenefits derived from the amount of the average stock price for the period inexcess of the grant date fair value of stock options, known as the windfall taxbenefit, is added to the proceeds of stock option exercises under the treasurystock method for computing the amount of dilutive securities used to determinethe outstanding shares for the calculation of diluted earnings per share.

 

### *Comprehensive  Income*

### * *

Comprehensive income,which is included in the consolidated statements of stockholders’ equity, isdefined as net income plus other comprehensive income. Other comprehensiveincome consists of changes in foreign currency translation adjustments recordeddirectly into stockholders’ equity. The components of accumulated othercomprehensive income as of December 31, 2009, were $18.8 million, net oftax of $0.9 million, and as of December 31, 2008, were $5.7 million, netof tax of $0.9 million, all of which comprised foreign currency translationadjustments.

 

*Concentration of Credit Risk*

 

Financial instruments thatpotentially subject the Company to concentrations of credit risk consist ofcash in banks, short-term investments in United States Treasury securities,money market funds and trade accounts receivable. The Company maintains itscash in demand deposit and money market accounts held primarily at seven banks.

 

*Accountingfor Stock-Based Compensation*

 

The Company maintains twostock option plans under which it may grant incentive stock options andnon-qualified stock options, although the Company has granted onlynon-qualified stock options under these plans. The Simpson Manufacturing Co., Inc.1994 Stock Option Plan (the “1994 Plan”) is principally for the Company’semployees, and the Simpson Manufacturing Co., Inc. 1995 IndependentDirector Stock Option Plan (the “1995 Plan”) is for its independent directors.The Company generally grants options under each of the 1994 Plan and the 1995Plan once each year. The exercise price per share of each option granted in February 2009,February 2008 and April 2008 under the 1994 Plan equaled the closingmarket price per share of the Company’s common stock as reported by the NewYork Stock Exchange on the day preceding the day that the CompensationCommittee of the Company’s Board of Directors met to approve the grant of theoptions. The exercise price per share under each option granted under the 1995Plan is at the fair market value on the date specified in the 1995 Plan.Options vest and expire according to terms established at the grant date.

 

Under the 1994 Plan, nomore than 16 million shares of the Company’s common stock may be sold(including shares already sold) pursuant to all options granted under the 1994Plan. Under the 1995 Plan, no more than 320 thousand shares of common stock maybe sold (including shares already sold) pursuant to all options granted underthe 1995 Plan. Options granted under the 1994 Plan typically vest evenly overthe requisite service period of four years and have a term of seven years. Thevesting of options granted under the 1994 Plan will be accelerated if thegrantee ceases to be employed by the Company after reaching age sixty or ifthere is a change in control of the Company. Options granted under the 1995Plan are fully vested on the date of grant.

 

51

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The following tablerepresents the Company’s stock option activity for the years ended December 31,2009, 2008 and 2007:

 
| ** **                                                                               | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| **(in thousands)**                                                                       | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                     |       |                              |       |   |   |   |   |
| Stock option  expense recognized in operating expenses                                   |       | $                                 | 1,746      |   | $ | 3,400 |   | $ | 5,906 |   |
|                                                                                     |       |                              |       |   |   |   |   |
| Tax benefit of  stock option expense in provision for income taxes                       |       | 544                               |       | 1,341 |   | 2,330 |   |
|                                                                                     |       |                              |       |   |   |   |   |
| Stock option  expense, net of tax                                                        |       | $                                 | 1,202      |   | $ | 2,059 |   | $ | 3,576 |   |
|                                                                                     |       |                              |       |   |   |   |   |
| Fair value of  shares vested                                                             |       | $                                 | 1,690      |   | $ | 3,249 |   | $ | 5,893 |   |
|                                                                                     |       |                              |       |   |   |   |   |
| Proceeds to the  Company from the exercise of stock options                              |       | $                                 | 7,627      |   | $ | 6,881 |   | $ | 4,832 |   |
|                                                                                     |       |                              |       |   |   |   |   |
| Tax benefit from exercise of stock options,  including windfall (shortfall) tax benefits |       | $                                 | (445       | ) | $ | 376 |   | $ | 554 |   |

 
| ** **                                  | ** ** | **At December 31,** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|
| **(in  thousands)**                         | ** ** | **2009**                 | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                        |       |                     |       |   |   |   |   |
| Stock option  cost capitalized in inventory |       | $                        | 45         |   | $ | 101 |   | $ | 252 |   |
|                                             |            |                          |            |  |  |  |  |  |  |  |

 

The stock compensationexpense included in cost of sales, research and development and engineering,selling, or general and administrative expenses depend on the job functionsperformed by the employees to whom the stock options were granted. Shares of common stock issued on exercise ofstock options under the plans are registered under the Securities Act of 1933.

 

The assumptions used tocalculate the fair value of options granted are evaluated and revised, asnecessary, to reflect market conditions and the Company’s experience.

 

**Underthe 1994 Plan, the Company allows for full vesting on ceasing to be employed bythe Company if the employee becomes “retirement-eligible” by reaching agesixty. Prior to the adoption of revised stock compensation guidance in the “Compensation— Stock Compensation” topic of the FASB ASC in 2006, stock-based employeecompensation expense was recorded over the nominal vesting period and if aretirement-eligible employee retired before the end of the vesting period, theCompany recorded unrecognized compensation cost at the date of retirement (the “nominalvesting period approach”). The nominal vesting period is four years of servicesubsequent to the grant date. The “non-substantive vesting period approach”specifies that awards, in substance, become vested when the employee’sretention of the award is no longer contingent on providing service. Under thisapproach, the unrecorded compensation cost is expensed when that condition ismet even if the employee continues providing service to the Company. This wouldbe the case for existing grants when an employee becomes retirement-eligible,as well as when a retirement-eligible employee is granted an award.**

 

*Goodwill*

 

The Company reviews forimpairment its indefinite lived intangible assets annually, in the fourthquarter of each year, and whenever events or changes in circumstances indicatethe carrying value of an asset may not be recoverable in accordance with the “Intangibles—Goodwilland Other” topic of the FASB ASC. These events or circumstances could include asignificant change in the business climate, legal factors, operatingperformance indicators, competition, or disposition or relocation of asignificant portion of a reporting unit. This topic requires that managementperform a two-step impairment test on goodwill. In the first step, managementcompares the fair value of each reporting unit to its carrying value. The fairvalue calculation uses discounted cash flow model and may be supplemented bymarket approaches if information is readily available. If the carrying value ofthe net assets assigned to the reporting unit exceeds the fair value of the reportingunit, a second step of the impairment test must be performed to determine theimplied fair value of the reporting unit’s goodwill. If the carrying value of areporting unit’s goodwill exceeds its implied fair value, an impairment chargeequal to the difference between the implied fair value of the goodwill and thecarrying cost would be recorded.

 

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Determining the fairvalue of a reporting unit or an indefinite-lived purchased intangible asset isa judgment involving significant estimates and assumptions. These estimates andassumptions include revenue growth rates and operating margins used tocalculate projected future cash flows, risk-adjusted discount rates, and futureeconomic and market conditions. The Company bases its fair value estimates onassumptions that management believes to be reasonable but that areunpredictable and inherently uncertain. Actual future results may differ fromthose estimates. The $3.0 million impairment charge taken in 2008, which was aresult of the Company’s annual impairment test in the fourth quarter of 2008,was associated with assets that were acquired in England in 1999 and wasassociated with the Company’s U.K. reporting unit. The reporting unit’scarrying value exceeded the fair value, primarily due to reduced futureexpected net cash flows. The method to determine the fair value of the U.K.reporting unit was a discounted cash flow model. The $10.7 million impairmentcharge taken in 2007 was primarily attributed to the decision by the Company,in October 2007, to move production of certain products from the Canadianreporting unit to China in late 2008 and early 2009. The method to determinethe fair value of the Canadian reporting unit was a combination of a discountedcash flow model and market approaches. The market approaches were based onmultiples realized by similar public companies and on representative merger andacquisition transactions of a similar nature and industry. At December 31,2009, the remaining balances of goodwill of the U.K. and Canadian reportingunits were $1.3 million and $3.7 million, respectively. The Company’s annualgoodwill impairment analysis did not result in any impairment charges in 2009or any additional impairment charges in 2008 or 2007.

 

The changes in thecarrying amount of goodwill as of December 31, 2008 and 2009, were asfollows:

 
| ** **                                             | ** ** | **Connector** | ** ** | **Venting**  | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|---------------|------------|--------------|------------|------------|------------|
| **(in  thousands)**                                    | ** ** | **Products**  | ** ** | **Products** | ** ** | **Total**  | ** ** |
| Balance  at January 1, 2008:                      |       |          |       |         |       |       |       |
| Goodwill                                               |       | $             | 68,084     |         | $          | —     |       | $ | 68,084 |   |
| Accumulated  impairment losses                         |       | (10,666       | )          | —       |       | (10,666    | )          |
|                                                   |       | 57,418        |       | —       |       | 57,418     |       |
|                                                   |       |          |       |         |       |       |       |
| Goodwill  Acquired                                     |       | 14,163        |       | 2,975        |       | 17,138     |       |
| Adjustments  due to recognition of deferred tax assets |       | —        |       | 1,439        |       | 1,439      |       |
| Impairment  losses                                     |       | (2,964        | )          | —       |       | (2,964     | )          |
| Foreign  exchange                                      |       | (4,412        | )          | —       |       | (4,412     | )          |
|                                                   |       |          |       |         |       |       |       |
| Balance  as of December 31, 2008:                 |       |          |       |         |       |       |       |
| Goodwill                                               |       | 77,835        |       | 4,414        |       | 82,249     |       |
| Accumulated  impairment losses                         |       | (13,630       | )          | —       |       | (13,630    | )          |
|                                                   |       | 64,205        |       | 4,414        |       | 68,619     |       |
|                                                   |       |          |       |         |       |       |       |
| Goodwill  Acquired                                     |       | 11,109        |       | —       |       | 11,109     |       |
| Adjustments  due to recognition of deferred tax assets |       | 3,474         |       | (1           | )          | 3,473      |       |
| Reclassifications                                      |       | (4,166        | )          | 22           |       | (4,144     | )          |
| Foreign  exchange                                      |       | 2,569         |       | —       |       | 2,569      |       |
|                                                   |       |          |       |         |       |       |       |
| Balance  as of December 31, 2009:                 |       |          |       |         |       |       |       |
| Goodwill                                               |       | 90,821        |       | 4,435        |       | 95,256     |       |
| Accumulated  impairment losses                         |       | (13,630       | )          | —       |       | (13,630    | )          |
|                                                   |       | $             | 77,191     |         | $          | 4,435      |       | $ | 81,626 |   |

 

The goodwill associatedwith the venting products operating segment resulted from the acquisitions ofthe equity of ProTech Systems, Inc. (“ProTech”) and the Ventinox assetsthat were completed in 2008. The balance of the additions to goodwill resultedfrom the acquisitions related to the connector products operating segment (seeNote 2). The goodwill impairment charges taken in 2008 and 2007 were associatedwith the connector products operating segment.

 

53

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*IntangibleAssets*

 

The total grosscarrying amount and accumulated amortization of intangible assets subject toamortization at December 31, 2009, were $41.3 million and $12.4 million,respectively. The aggregate amount of amortization expense of intangible assetsfor the year ended December 31, 2009, was $6.1 million.

 

The changes in thecarrying amounts of patents, unpatented technologies and non-compete agreementsand other intangible assets subject to amortization as of December 31,2008 and 2009, were as follows:

 
| ** **                         | ** ** | ** **  | ** ** | **Accumulated**  | ** ** | ** **      | ** ** |
|------------------------------------|------------|-------------|------------|------------------|------------|-----------------|------------|
| **(in  thousands)**                | ** ** | **Patents** | ** ** | **Amortization** | ** ** | **Net Patents** | ** ** |
|                               |       |        |       |             |       |            |       |
| Balance  at January 1, 2008   |       | $           | 6,953      |             | $          | (2,500          | )          | $ | 4,453 |   |
| Amortization                       |       | —      |       | (630             | )          | (630            | )          |
| Foreign  exchange                  |       | (24         | )          | —           |       | (24             | )          |
| Balance  at December 31, 2008 |       | 6,929       |       | (3,130           | )          | 3,799           |       |
| Amortization                       |       | —      |       | (628             | )          | (628            | )          |
| Foreign  exchange                  |       | 10          |       | —           |       | 10              |       |
| Balance  at December 31, 2009 |       | $           | 6,939      |             | $          | (3,758          | )          | $ | 3,181 |   |

 
| ** **                         | ** ** | ** **     | ** ** | ** **       | ** ** | **Net**        | ** ** |
|------------------------------------|------------|----------------|------------|------------------|------------|----------------|------------|
| ** **                         | ** ** | **Unpatented** | ** ** | **Accumulated**  | ** ** | **Unpatented** | ** ** |
| ** **                         | ** ** | **Technology** | ** ** | **Amortization** | ** ** | **Technology** |       |
|                               |       |           |       |             |       |           |       |
| Balance  at January 1, 2008   |       | $              | 3,835      |             | $          | (2,461         | )          | $ | 1,374 |   |
| Amortization                       |       | —         |       | (767             | )          | (767           | )          |
| Balance  at December 31, 2008 |       | 3,835          |       | (3,228           | )          | 607            |       |
| Acquisition                        |       | 1,070          |       | —           |       | 1,070          |       |
| Reclassifications                  |       | 1,866          |       | —           |       | 1,866          |       |
| Amortization                       |       | —         |       | (1,088           | )          | (1,088         | )          |
| Foreign  exchange                  |       | 26             |       | —           |       | 26             |       |
| Write-off  fully amortized asset   |       | (3,835         | )          | 3,835            |       | —         |       |
| Balance  at December 31, 2009 |       | $              | 2,962      |             | $          | (481           | )          | $ | 2,481 |   |

 
| ** **                         | ** ** | ** **      | ** ** | ** **       | ** ** | **Net**         | ** ** |
|------------------------------------|------------|-----------------|------------|------------------|------------|-----------------|------------|
| ** **                         | ** ** | **Non-Compete** | ** ** | ** **       | ** ** | **Non-Compete** | ** ** |
| ** **                         | ** ** | **Agreements,** |       |             |       | **Agreements,** |       |
| ** **                         | ** ** | **Trademarks**  | ** ** | **Accumulated**  | ** ** | **Trademarks**  |       |
| ** **                         | ** ** | **and Other**   | ** ** | **Amortization** | ** ** | **and  Other**  |       |
|                               |       |            |       |             |       |            |       |
| Balance  at January 1, 2008   |       | $               | 7,166      |             | $          | (2,107          | )          | $ | 5,059 |   |
| Acquisition                        |       | 2,793           |       | —           |       | 2,793           |       |
| Amortization                       |       | —          |       | (1,555           | )          | (1,555          | )          |
| Write-off  fully amortized asset   |       | (1,696          | )          | 1,696            |       | —          |       |
| Foreign  exchange                  |       | (270            | )          | —           |       | (270            | )          |
| Balance  at December 31, 2008 |       | 7,993           |       | (1,966           | )          | 6,027           |       |
| Acquisition                        |       | 90              |       | —           |       | 90              |       |
| Reclassifications                  |       | 240             |       | —           |       | 240             |       |
| Amortization                       |       | —          |       | (1,547           | )          | (1,547          | )          |
| Foreign  exchange                  |       | 62              |       | —           |       | 62              |       |
| Write-off  fully amortized asset   |       | (290            | )          | 290              |       | —          |       |
| Balance  at December 31, 2009 |       | $               | 8,095      |             | $          | (3,223          | )          | $ | 4,872 |   |

 

54

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| ** **                         | ** ** | ** **        | ** ** | ** **       | ** ** | **Net**           | ** ** |
|------------------------------------|------------|-------------------|------------|------------------|------------|-------------------|------------|
| ** **                         | ** ** | **Customer**      | ** ** | **Accumulated**  | ** ** | **Customer**      | ** ** |
| ** **                         | ** ** | **Relationships** | ** ** | **Amortization** | ** ** | **Relationships** |       |
|                               |       |              |       |             |       |              |       |
| Balance  at January 1, 2008   |       | $                 | 14,095     |             | $          | (1,742            | )          | $ | 12,353 |   |
| Acquisition                        |       | 2,886             |       | —           |       | 2,886             |       |
| Amortization                       |       | —            |       | (2,112           | )          | (2,112            | )          |
| Foreign  exchange                  |       | (107              | )          | —           |       | (107              | )          |
| Balance  at December 31, 2008 |       | 16,874            |       | (3,854           | )          | 13,020            |       |
| Acquisition                        |       | 5,880             |       | —           |       | 5,880             |       |
| Reclassifications                  |       | 1,786             |       | —           |       | 1,786             |       |
| Amortization                       |       | —            |       | (2,865           | )          | (2,865            | )          |
| Foreign  exchange                  |       | 497               |       | —           |       | 497               |       |
| Write-off  fully amortized asset   |       | (1,755            | )          | 1,755            |       | —            |       |
| Balance  at December 31, 2009 |       | $                 | 23,282     |             | $          | (4,964            | )          | $ | 18,318 |   |

 

Intangible assets,net, by segment were as follows:

 
| ** **          | ** ** | **At  December 31, 2008** | ** ** |
|---------------------|------------|--------------------------------|------------|
| ** **          | ** ** | **Gross**                      | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **          | ** ** | **Carrying**                   | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **          | ** ** | **Amount**                     | ** ** | **Amortization** | ** ** | **Amount** |   |
|                |       |                           |       |   |   |   |   |
| Connector  Products |       | $                              | 32,669     |   | $ | (11,780 | ) | $ | 20,889 |   |
| Venting  Products   |       | 2,962                          |       | (398 | ) | 2,564 |   |
| Total               |       | $                              | 35,631     |   | $ | (12,178 | ) | $ | 23,453 |   |

 
| ** **          | ** ** | **At  December 31, 2009** | ** ** |
|---------------------|------------|--------------------------------|------------|
| ** **          | ** ** | **Gross**                      | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **          | ** ** | **Carrying**                   | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **          | ** ** | **Amount**                     | ** ** | **Amortization** | ** ** | **Amount** |   |
|                |       |                           |       |   |   |   |   |
| Connector  Products |       | $                              | 37,987     |   | $ | (11,182 | ) | $ | 26,805 |   |
| Venting  Products   |       | 3,291                          |       | (1,244 | ) | 2,047 |   |
| Total               |       | $                              | 41,278     |   | $ | (12,426 | ) | $ | 28,852 |   |

 

At December 31,2009, estimated future amortization of intangible assets was as follows:

 
| **(in  thousands)** |   |   |   |
|---------------------|--------|--------|--------|
| 2010                |   | $      | 5,082  |   |
| 2011                |   | 5,010  |   |
| 2012                |   | 4,124  |   |
| 2013                |   | 3,186  |   |
| 2014                |   | 3,060  |   |
| Thereafter          |   | 8,390  |   |
|                |   | $      | 28,852 |   |

 

*Adoption of Statements ofFinancial Accounting Standards*

 

Effective January 1,2009, the Company adopted the revised business combinations guidance codifiedas the “Business Combinations” topic of the FASB ASC. This revised guidancerequires the acquiring entity in a business combination to recognize the fullfair value of assets acquired and liabilities assumed in the transaction(whether a full or partial acquisition); establishes the acquisition-date fairvalue as the measurement objective for all assets acquired and liabilitiesassumed; requires expensing of most transaction and restructuring costs; andrequires the acquirer to disclose to investors and other users the informationneeded to evaluate and understand the nature and financial effect of thebusiness combination. The revised business combination guidance applies to alltransactions or other events in which the Company obtains control of one ormore businesses, including combinations achieved without the transfer ofconsideration, such as by contract alone or through the lapse of minority vetorights. This guidance applies prospectively to business combinations for whichthe acquisition date is on or after January 1, 2009, except that resolution of certain taxcontingencies and adjustments to valuation allowances related to businesscombinations, which previously were adjusted to goodwill, will be adjusted toincome tax expense for all such adjustments after January 1, 2009,regardless of the date of the original business combination. While thisguidance did not have a material effect on the Company’s consolidated financialstatements on adoption, the effects on future periods will depend on the natureand significance of future business combinations subject to this guidance.

 

55

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Effective January 1,2009, the Company adopted the revised guidance codified in the “Intangibles—Goodwilland Other” topic of the FASB ASC. This guidance removes the requirement ofprior guidance for an entity to consider, when determining the useful life of arecognized intangible asset, whether an intangible asset can be renewed withoutsubstantial cost or material modifications to the existing terms andconditions. This guidance requires an entity to consider its own historicalexperience in developing renewal or extension assumptions. In the absence ofentity-specific experience, this guidance requires an entity to considerassumptions that a marketplace participant would use about renewal or extensionthat are consistent with the highest and best use of the asset by a marketplaceparticipant. This guidance is effective prospectively for all intangible assetsacquired after its effective date, with additional disclosures required for allrecognized intangible assets as of the effective date. The adoption of thisguidance did not have a material effect on the Company’s consolidated financialstatements.

 

In April 2009, theFASB issued new guidance to the “Business Combinations” topic of the FASB ASC,which applies to all assets and liabilities assumed in a business combinationthat would be within the scope of the “Contingencies” topic of the FASB ASC, ifnot acquired in a business combination, except for assets or liabilitiesarising from contingencies that are subject to specific guidance in the “BusinessCombinations” topic of the FASB ASC. An acquirer must recognize at fair value,at the acquisition date, an asset or liability assumed in a businesscombination that arises from a contingency if the acquisition-date fair valueof that asset or liability can be determined during the measurement period. Ifthe acquisition-date fair value of an asset acquired or liability assumed in abusiness combination that arises from a contingency cannot be determined duringthe measurement period, an asset or liability must be recognized at theacquisition date if both information available before the end of themeasurement period indicates that it is probable that an asset existed or thata liability had been incurred at the acquisition date and the amount of theassets or liability can be reasonably estimated. This new guidance becameeffective for the Company for business combinations for which the acquisitiondate was on or after January 1, 2009, and has not and is not currentlyexpected to have a material effect on the Company’s consolidated financialstatements.

 

In May 2009, theFASB issued guidance codified in the “Subsequent Events” topic of the FASB ASC,which establishes general standards of accounting for, and disclosure of,events that occur after the balance sheet date but before the financialstatements are issued or are available to be issued. The subsequent eventsguidance requires the disclosure of the date through which an entity hasevaluated subsequent events and is effective for interim and annual reportingperiods ending after June 15, 2009. The Company adopted the new disclosurerequirements in its June 30, 2009, condensed consolidated financialstatements and the adoption did not have a material effect on the Company’sconsolidated financial statements.

 

In June 2009, the FASB issued guidancecodified as the “Generally Accepted Accounting Principles” topic of the FASBASC. The ASC is the sole source of authoritative GAAP for companies that areregistered under section 12 of the Securities Exchange Act of 1934. Thisguidance was effective for financial statements issued for interim and annualperiods ending after September 15, 2009. The ASC superseded all then-existing non-SECaccounting and reporting standards, and all other non-grandfathered non-SEC accountingliterature not included in the ASC became non-authoritative. This guidance only required a change in disclosure and did not affectthe Company’s consolidated financial statements.

 

*Recently Issued AccountingStandards*

 

In June 2009, theFASB issued guidance codified in the “Consolidation” topic of the FASB ASC,amending the accounting and disclosure requirements for the consolidation ofvariable interest entities. Thisguidance clarifies the characteristics that identify a variable interest entity(“VIE”) and changes how a reporting entity identifies a primary beneficiarythat would consolidate the VIE from a quantitative risks and rewardscalculation to a qualitative approach based on which variable interest holderhas controlling financial interest and the ability to direct the mostsignificant activities that affect the VIE’s economic performance. Thisguidance requires the primary beneficiary assessment to be performed on acontinuous basis and also requires additional disclosures about an entity’sinvolvement with the VIE, restrictions on the VIE’s assets and liabilities thatare included in the reporting entity’s consolidated balance sheet, significantrisk exposures due to the entity’s involvement with the VIE, and how itsinvolvement with a VIE affects the reporting entity’s consolidated financialstatements. It is effective for fiscal years beginning after November 15,2009. The adoption is not currently expected to have a material effect on theCompany’s financial statements for its fiscal year ending December 31,2010.

 

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2.             Acquisitions

 

In July 2007, theCompany’s subsidiary, Simpson Strong-Tie, purchased the stock of Swan SecureProducts, Inc. (“Swan Secure”) for $42.1 million in cash, net of cashreceived. Swan Secure is a manufacturer and distributor of fasteners, largelystainless steel, and its products are marketed throughout the United States.Swan Secure expands the Company’s fastener product offerings in its connectorproducts segment. The Company recorded goodwill of $20.1 million, all of whichis expected to be deductible for income tax purposes, and intangible assetssubject to amortization of $16.7 million as a result of the acquisition. Theweighted-average amortization period for the intangible assets is 11.1 years.Tangible assets, net of liabilities assumed, including inventory and tradeaccounts receivable, accounted for the balance of the purchase price. SwanSecure’s results of operations have been included in the Company’s consolidatedresults of operations as of the date of the acquisition. Through thisacquisition, the Company increased its presence in the stainless-steel fastenermarket. The Company believes that the additional product line will further itsposition in the construction products market. These factors contributed to apurchase price in excess of fair market value of Swan Secure’s net tangible andintangible assets acquired, and as a result, the Company has recorded goodwillin connection with the transaction.

 

In April 2008, theCompany’s subsidiary, Simpson Strong-Tie Ireland Limited, purchased certainassets of Liebig International Ltd., an Irish company, Heinrich LiebigStahldübelwerke GmbH, Liebig GmbH & Co. KG and Liebig InternationalVerwaltungsgesellschaft GmbH, all German companies, Liebig Bolts Limited, anEnglish company, and Liebig International Inc., a Virginia corporation(collectively “Liebig”). Liebig manufactures mechanical anchor products inIreland and distributes them primarily throughout Europe through warehouseslocated in Germany and the United Kingdom. Liebig expands the Company’s anchorproduct offerings in its connector product segment. The purchase price was$19.2 million in cash, including due diligence and transaction costs. The Companyrecorded goodwill of $7.6 million, none of which is expected to be deductiblefor income tax purposes, and intangible assets subject to amortization of $2.7million as a result of the acquisition. The weighted-average amortizationperiod for the intangible assets is 9.6 years. Tangible assets, net ofliabilities assumed, including real estate, machinery and equipment, inventoryand trade accounts receivable, accounted for the balance of the purchase price.Through this acquisition, the Company increased its presence in the Europeanand Asian anchor markets with metric size products. The Company believes thatthe additional product line and geographic sales coverage will further itsposition in the construction products market. These factors contributed to apurchase price in excess of fair market value of Liebig’s net tangible andintangible assets acquired, and as a result, the Company has recorded goodwillin connection with the transaction.

 

In June 2008, theCompany’s subsidiary, Simpson Dura-Vent Company, Inc., purchased theequity of ProTech Systems, Inc., a New York corporation (“ProTech”).ProTech manufactures venting products in New York and distributes themthroughout North America. ProTech expands the Company’s product offerings inthe venting product segment. The purchase price was $8.3 million in cash,including due diligence and transaction costs and $1.4 million to be paid inthe future, plus an additional earn-out of up to $2.25 million if certainfuture performance targets are met. The Company recorded goodwill of $2.2million, none of which is expected to be deductible for income tax purposes,and intangible assets subject to amortization of $3.3 million as a result ofthe acquisition. The weighted-average amortization period for the intangibleassets is 4.1 years. Tangible assets, net of liabilities assumed, includingmachinery and equipment, inventory and trade accounts receivable, accounted forthe balance of the purchase price. In July 2008, Simpson Dura-Vent alsopurchased certain assets to produce the Ventinox stainless steel chimney linerproduct line from American BOA Inc. ProTech had been the distributor ofVentinox products. The purchase price was $1.6 million in cash, including duediligence and transaction costs. The Company recorded goodwill of $0.7 million,all of which is expected to be deductible for income tax purposes, andintangible assets subject to amortization of $0.1 million. The weighted-averageamortization period for the intangible assets is 5.0 years. Through theseacquisitions, the Company increased its presence in the venting market withadditional products and geographic distribution. The Company believes that theadditional product line and geographic distribution will further its positionin the venting products market. These factors contributed to a purchase pricein excess of fair market value of ProTech’s and Ventinox’s net tangible andintangible assets acquired, and as a result, the Company has recorded goodwillin connection with the transaction.

 

57

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In July 2008, theCompany’s subsidiary, Simpson Strong-Tie Company Inc., purchased the equity ofAhorn-Geräte & Werkzeuge Vertriebs GmbH, a German company, and itssubsidiaries Ahorn Upevnovaci Technika s.r.o., a Czech company, and AhornPacific Fasteners (Kunshan) Co., Ltd., a Chinese company (collectively “Ahorn”).The acquisition will broaden Simpson Strong-Tie’s collated fastener productline and add production capacity in Europe. The purchase price was $9.2 millionin cash, including due diligence and transaction costs. The Company recordedgoodwill of $3.3 million, none of which is expected to be deductible for incometax purposes, and intangible assets subject to amortization of $3.9 million, asa result of the acquisition. The weighted-average amortization period for theintangible assets is 7.0 years. Tangible assets, net of liabilities assumed,including machinery and equipment, inventory and trade accounts receivable,accounted for the balance of the purchase price. The Company believes that theadditional product lines and geographic production and distribution willfurther its position in the collated fastener product line markets. Thesefactors contributed to a purchase price in excess of fair market value of Ahorn’snet tangible and intangible assets acquired, and as a result, the Company hasrecorded goodwill in connection with the transaction.

 

In January 2009, theCompany’s subsidiary, Simpson Strong-Tie Company Inc., acquired the business ofRO Design Corp, a Florida corporation doing business as DeckTools, whichlicenses deck design and estimation software. The software providesprofessional deck builders, home centers and lumber yards a simple,graphics-driven solution for designing decks and estimating material and laborcosts for the project. Payments under the purchase agreement total $4.0 millionin cash, including $2.5 million to be paid in the future, which will be treatedas compensation expense to the principal officer of RO Design Corp, who is nowemployed by the Company. As a result of the acquisition, the Company recordedgoodwill of $0.4 million, all of which is expected to be deductible for incometax purposes, and intangible assets subject to amortization of $1.1 million inthe connector products segment. The weighted-average amortization period forthe intangible assets is 6.0 years. The Company believes that the software willadd software-related sales and further its position in the connector productsmarket. These factors contributed to a purchase price in excess of fair marketvalue of RO Design’s net tangible and intangible assets acquired, and as aresult, the Company has recorded goodwill in connection with the transaction.

 

In April 2009, theCompany’s subsidiary, Simpson Strong-Tie Europe EURL, purchased the equity ofAgence Internationale Commerciale et Industrielle, S.A.S. (“Aginco”). Agincomanufactures a line of high-quality builder products and distributes them inFrance. The purchase price was $22.2 million in cash. Through this acquisition,the Company increased its presence in the connector market primarily in France.The Company believes that the additional presence will further its position inthe construction products market. This factor contributed to a purchase pricein excess of fair market value of Aginco’s net tangible and intangible assetsacquired, and as a result, the Company has recorded goodwill in connection withthe transaction of $10.5 million, none of which is expected to be deductiblefor income tax purposes, and intangible assets subject to amortization of $6.0million in the connector products segment. The weighted-average amortizationperiod for the intangible assets is 7.9 years. Tangible assets, net ofliabilities assumed, including machinery and equipment, inventory and tradeaccounts receivable, accounted for the balance of the purchase price. TheCompany believes that the increased presence will further its position in theEuropean connector products market. This factor contributed to a purchase pricein excess of fair market value of Aginco’s net tangible and intangible assetsacquired, and as a result, the Company has recorded goodwill in connection withthe transaction.

 

The results of operationsof the businesses acquired in 2009 are included in the Company’s consolidatedresults of operations since the respective dates of the acquisitions. Resultsof operations for periods prior to the 2009 acquisitions were not material tothe Company on either an individual or aggregate basis, and accordingly, proforma results of operations have not been presented.

 

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3.             Trade Accounts Receivable, net

 

Trade accounts receivableconsisted of the following:

 
| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| **(in thousands)**          | ** ** | **2009**              | ** ** | **2008** | ** ** |
|                             |       |                  |       |   |   |
| Trade accounts  receivable       |       | $                     | 83,892     |   | $ | 81,929 |   |
| Allowance for  doubtful accounts |       | (4,667                | )          | (4,368 | ) |
| Allowance for  sales discounts   |       | (1,908                | )          | (1,556 | ) |
|                             |       | $                     | 77,317     |   | $ | 76,005 |   |

 

The Company sellsproducts on credit and generally does not require collateral. The Company’slargest customer accounted for 10% of trade accounts receivable as of December 31,2009. Due to the financial condition of another customer, the Company in 2009and 2008 reserved $0.6 million and $2.0 million, respectively, that it believesit is not likely to collect.

 

4.             Inventories

 

The components ofinventories consisted of the following:

 
| ** **              | ** ** | **December 31,** | ** ** |
|-------------------------|------------|-----------------------|------------|
| **(in thousands)** | ** ** | **2009**              | ** ** | **2008** | ** ** |
|                    |       |                  |       |   |   |
| Raw materials           |       | $                     | 61,408     |   | $ | 92,638 |   |
| In-process  products    |       | 21,113                |       | 26,371 |   |
| Finished  products      |       | 81,233                |       | 132,869 |   |
|                    |       | $                     | 163,754    |   | $ | 251,878 |   |

 

5.             Property, Plant and Equipment, net

 

Property, plant andequipment consisted of the following:

 
| ** **                                      | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| **(in thousands)**                              | ** ** | **2009**              | ** ** | **2008** | ** ** |
|                                            |       |                  |       |   |   |
| Land                                            |       | $                     | 23,729     |   | $ | 23,989 |   |
| Buildings and  site improvements                |       | 148,381               |       | 135,992 |   |
| Leasehold  improvements                         |       | 3,893                 |       | 4,287 |   |
| Machinery and  equipment                        |       | 226,436               |       | 219,641 |   |
|                                            |       | 402,439               |       | 383,909 |   |
| Less accumulated  depreciation and amortization |       | (216,157              | )          | (193,639 | ) |
|                                            |       | 186,282               |       | 190,270 |   |
| Capital projects  in progress                   |       | 1,532                 |       | 3,048 |   |
|                                            |       | $                     | 187,814    |   | $ | 193,318 |   |

 

Included in property, plant andequipment at December 31, 2009 and 2008, are fully depreciated assets withan original cost of $105.8 million and $96.7 million, respectively. These fullydepreciated assets are still in use in the Company’s operations.

 

Depreciation expense for the yearsended December 31, 2009, 2008 and 2007, was $23.1 million, $25.0 millionand $24.7 million, respectively.

 

In April 2008, the Company completed the sale ofits vacant warehouse in McKinney, Texas, previously classified as an asset heldfor sale, for $1.8 million, and no significant gain or loss was realized. TheCompany’s vacant facility in San Leandro, California, remains classified as anasset held for sale as of December 31, 2009, consistent with the classificationat December 31, 2008, and is being actively marketed. These facilities areassociated with the connector segment.

 

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The Company plans to sell its facility in Vicksburg,Mississippi, and will cease use of it around that time. As of December 31,2009, this property did not qualify for held-for-sale accounting treatment, asthe Company continues to use this facility as a warehouse, and the Companyexpects to record a charge in the range of $2 million to $3 million, based oncurrent market conditions, when the held-for-sale accounting treatment is met.

 

The Company expects, in March 2010, to acquire afacility in San Bernadino, California, for $19.2 million, in which it willconsolidate its owned manufacturing and warehouse facilities in Brea,California, and its leased warehouse in Ontario, California. The Companyintends to sell the Brea facilities.

 

6.             Investments

 

At December 31,2009, the Company had a 40.6% equity interest in Keymark Enterprises, LLC (“Keymark”),for which the Company accounts using the equity method. Keymark developssoftware that assists in designing and engineering residential structures. TheCompany’s relationship with Keymark includes the specification of the Company’sproducts in the Keymark software. The Company has no obligation to make anyadditional capital contributions to Keymark. In October 2008, the Companymade an additional voluntary capital contribution of $0.7 million to Keymarkand at the same time lent $1.3 million to Keymark’s other owner, whichconcurrently contributed that amount to Keymark’s capital. Keymark’s otherowner pledged 10% of equity interest (subject to adjustment) in Keymark for theloan and interest. The Company’s sole recourse is to this equity interest. Ofthe $1.3 million loan, $0.7 million remained outstanding at December 31,2009. In October 2009, the Company foreclosed on a 5.6% equity interest inKeymark, which brought the Company’s equity interest to its current equityinterest of 40.6%, due to a default by Keymark’s other owner under terms of theloan and pledge agreement. The loan bears interest at the annual rate of6%. The remaining amounts outstanding will mature in October 2010. Theloan is backed by the pledge of the additional ownership interest in Keymark of5% (subject to adjustment) and is non-recourse.

 

7.             Accrued Liabilities

 

Accrued liabilitiesconsisted of the following:

 
| ** **                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| **(in  thousands)**                       | ** ** | **2009**              | ** ** | **2008** | ** ** |
|                                      |       |                  |       |   |   |
| Sales incentive  and advertising accruals |       | $                     | 11,823     |   | $ | 14,916 |   |
| Labor related  liabilities                |       | 4,950                 |       | 4,667 |   |
| Vacation  liability                       |       | 5,449                 |       | 5,418 |   |
| Dividend payable                          |       | 4,939                 |       | 4,897 |   |
| Other                                     |       | 2,048                 |       | 4,204 |   |
|                                      |       | $                     | 29,209     |   | $ | 34,102 |   |

 

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8.             Debt

 

The outstanding debt at December 31,2009 and 2008, and the available credit at December 31, 2009, consisted ofthe following:

 
| ** **                                                                                                                                                                                                                              | ** ** | **Available on**         | ** ** | ** **                    | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                                                                                                                              | ** ** | **Credit Facility**      | ** ** | **Debt Outstanding**     | ** ** |
| ** **                                                                                                                                                                                                                              | ** ** | **at December 31,** | ** ** | **at December 31,** | ** ** |
| **(dollar amounts in thousands)**                                                                                                                                                                                        | ** ** | **2009**                      | ** ** | **2009**                      | ** ** | **2008** | ** ** |
|                                                                                                                                                                                                                                    |       |                          |       |                          |       |   |   |
| Revolving  line of credit, interest at LIBOR plus 0.27% (at December 31, 2009,  LIBOR plus 0.27% was 0.50%), matures October 2012, commitment fees  payable at the annual rate of 0.08% on the unused portion of the facility |       | $                             | 200,000    |                          | $          | — |   | $ | — |   |
|                                                                                                                                                                                                                                    |       |                          |       |                          |       |   |   |
| Revolving  line of credit, interest at the bank’s base rate plus 3% (at  December 31, 2009, the bank’s base rate plus 3% was 3.50%), expires  December 2010                                                         |       | 405                           |       | —                        |       | — |   |
|                                                                                                                                                                                                                                    |       |                          |       |                          |       |   |   |
| Revolving  lines of credit, interest rates between 1.15% and 3.35%, expirations through  August 2010                                                                                                                               |       | 4,586                         |       | —                        |       | 26 |   |
|                                                                                                                                                                                                                                    |       | 204,991                       |       | —                        |       | 26 |   |
| Less  current portion                                                                                                                                                                                                                   |       |                          |       | —                        |       | (26 | ) |
|                                                                                                                                                                                                                                    |       |                          |       | $                             | —     |   | $ | — |   |
| Available  credit                                                                                                                                                                                                                       |       | $                             | 204,991    |                          |       |   |   |   |

 

Therevolving lines of credit are guaranteed by the Company and its designatedsubsidiaries.

 

In October 2007, theCompany entered into an unsecured credit agreement with a syndicate of banksproviding for a 5-year revolving credit facility of $200 million. The Companyhas the ability to increase the amount available under the credit agreement byan additional $200 million, to a maximum of $400 million, by obtainingadditional commitments from existing lenders or new lenders and satisfyingcertain other conditions. Under existing conditions in credit markets, theCompany does not believe that additional commitments will be available on termsthe Company considers reasonable. The Company is required to pay an annual****facility fee of 0.08% to 0.10% on the available commitmentsunder the credit agreement, regardless of usage, with the applicable feedetermined on a quarterly basis based on the Company’s leverage ratio. Amountsborrowed under the credit agreement will bear interest at an annual rate equalto either, at the Company’s option, (a) the British Bankers AssociationLondon Interbank Offered Rate for the appropriate currency appearing on ReutersScreen LIBOR01-02 Page (the “LIBO Rate”) plus a spread of from 0.27% to0.40%, as determined on a quarterly basis based on the Company’s leverageratio, or (b) the Base Rate, plus a spread of 0.50%. The Company will payparticipation fees for outstanding standby letters of credit at an annual rateequal to the LIBO Rate plus the applicable spreads described in the precedingsentence, and will pay market-based fees for commercial letters of credit.Loans outstanding under the credit agreement may be prepaid at any time withoutpenalty except for LIBO Rate breakage costs and expenses.

 

Theproceeds of loans advanced under the credit agreement and letters of creditissued thereunder may be used for working capital and other general corporateneeds of the Company, to pay dividends to the Company’s stockholders or torepurchase outstanding securities of the Company as permitted by the creditagreement, and to finance acquisitions by the Company permitted by the creditagreement. No loans or letters of credit are currently outstanding under thecredit agreement.

 

TheCompany and its subsidiaries are required to comply with various affirmativeand negative covenants. The covenantsinclude provisions that would limit the availability of funds as a result of amaterial adverse change to the Company’s financial position or results ofoperations. The Company is in compliance with its financial covenantsunder the loan agreement.

 

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The Company incursinterest costs, which include interest,maintenance fees and bank charges. The amount of costs incurred,capitalized, and expensed for the years ended December 31, 2009, 2008 and2007, consisted of the following:

 
| ** **                  | ** ** | **Years  Ended December 31,** | ** ** |
|-----------------------------|------------|------------------------------------|------------|
| **(in  thousands)**         | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
|                        |       |                               |       |   |   |   |   |
| Interest costs  incurred    |       | $                                  | 571        |   | $ | 558 |   | $ | 481 |   |
| Less: Interest  capitalized |       | (104                               | )          | (177 | ) | (252 | ) |
| Interest expense            |       | $                                  | 467        |   | $ | 381 |   | $ | 229 |   |

 

9.             Commitments and Contingencies

 

*Leases*

 

Certain propertiesoccupied by the Company are leased. The leases expire at various dates through2019 and generally require the Company to assume the obligations for insurance,property taxes and maintenance of the facilities.

 

Rentalexpense for 2009, 2008 and 2007 with respect to all leased property wasapproximately $6.9 million, $6.6 million and $5.7 million, respectively.

 

At December 31,2009, minimum rental commitments under all noncancelable leases were asfollows:

 
| **(in  thousands)** |   |   |   |
|---------------------|--------|--------|--------|
|                |   |   |   |
| 2010                |   | $      | 6,149  |   |
| 2011                |   | 4,750  |   |
| 2012                |   | 3,796  |   |
| 2013                |   | 999    |   |
| 2014                |   | 541    |   |
| Thereafter          |   | 2,099  |   |
|                |   | $      | 18,334 |   |

 

Some of these minimumrental commitments contain renewal options and provide for periodic rentaladjustments based on changes in the consumer price index or current marketrental rates.

 

The nominal term ofSimpson Strong-Tie International Inc.’s (“SSTI’s”) lease in the United Kingdomis 25 years (expiring in 2022) but provides an option to terminate withoutpenalty in either the fifteenth year (2012) or twentieth year (2017) on oneyear’s written notice by SSTI. Future minimum rental payments associated withthe remaining two to three years under the first cancellation option of thislease are included in minimum rental commitments in the table above.

 

*Employee Relations*

 

Approximately14% of the Company’s employees are represented by labor unions and are coveredby collective bargaining agreements. Two of the Company’s collective bargainingagreements cover the Company’s tool and die craftsmen and maintenance workersand its sheetmetal workers in Brea, California. These two contracts expire February 2011and June 2012, respectively. Simpson Strong-Tie’s facility in Stockton,California, is also a union facility with two collective bargaining agreements,which cover it’s tool and die craftsmen and maintenance workers, and itssheetmetal workers. These two contracts will expire June 2011 and September 2011,respectively.

 

*Environmental*

 

The Company’spolicy with regard to environmental liabilities is to accrue for futureenvironmental assessments and remediation costs when information becomesavailable that indicates that it is probable that the Company is liable for anyrelated claims and assessments and the amount of the liability is reasonablyestimable. The Company does not believe that these matters will have a materialadverse effect on the Company’s financial condition, cash flows or results ofoperations. The Company has completed its environmental remediation at its SanLeandro, California, facility.

 

62

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*Litigation*

 

From time totime, the Company is involved in litigation that it considers to be in thenormal course of its business. The resolution of claims andlitigation is subject to inherent uncertainty and could have a material adverseeffect on the Company’s financial condition, cash flows and results ofoperations. No such litigation within thelast five years resulted in any material loss.

 

Four lawsuits (the “HawaiiCases”) have been filed against the Company in the Hawaii First Circuit Court: *Alvarez v. Haseko Homes, Inc. and Simpson Manufacturing, Inc.*,Civil No. 09-1-2697-11 (“Hawaii Case 1”); *Ke Noho KaiDevelopment, LLC v. Simpson Strong-Tie Company, Inc.*, *and Honolulu Wood Treating Co., LTD.*, Hawaii Case No. 09-1-1491-06SSM (“Hawaii Case 2”); *North American SpecialtyIns. Co. v. Simpson Strong-Tie Company, Inc. and K.C. Metal Products, Inc.*,Case No. 09-1-1490-06 VSM (“Hawaii Case 3”); and *Charles etal. v. Haseko Homes, Inc. et al. and Third Party Plaintiffs Haseko Homes, Inc.et al. v Simpson Strong-Tie Company, Inc., et al.*, Civil No. 09-1-1932-08(“Hawaii Case 4”). Hawaii Case 1 was filed on November 18, 2009. HawaiiCases 2 and 3 were originally filed on June 30, 2009. Hawaii Case 4 wasfiled on August 19, 2009. The Hawaii Cases all relate to alleged prematurecorrosion of the Company’s strap tie holdown products installed in buildings ina housing development known as Ocean Pointe in Honolulu, Hawaii, allegedlycausing property damage. Hawaii Case 1 is a putative class action brought bythe owners of allegedly affected Ocean Pointe houses. Hawaii Case 1 wasoriginally filed as *Kai et al. v. Haseko Homes, Inc.,Haseko Construction, Inc. and Simpson Manufacturing, Inc.*,Case No. 09-1-1476, but was voluntarily dismissed and then re-filed with anew representative plaintiff. Hawaii Case 2 is an action by the builders anddevelopers of Ocean Pointe against the Company, claiming that either theCompany’s strap tie holdowns are defective in design or manufacture or theCompany failed to provide adequate warnings regarding the products’susceptibility to corrosion in certain environments. Hawaii Case 3 is asubrogation action brought by the insurance company for the builders anddevelopers against the Company claiming the insurance company expended funds tocorrect problems allegedly caused by the Company’s products. Hawaii Case 4,like Hawaii Case 1, is a putative class action brought by owners of allegedlyaffected Ocean Pointe homes. In Hawaii Case 4, Haseko Homes, Inc. (“Haseko”),the developer of the Ocean Pointe development, has brought a third partycomplaint against the Company alleging that any damages for which Haseko may beliable are actually the fault of the Company. None of the Hawaii Cases allegesa specific amount of damages sought, although each of the Hawaii Cases seekscompensatory damages, and Hawaii Case 1 seeks punitive damages. The Company iscurrently investigating the facts underlying the claims asserted in the HawaiiCases, including, among other things, the cause of the alleged corrosion; theseverity of any problems shown to exist; the buildings affected; theresponsibility of the general contractor, various subcontractors and otherconstruction professionals for the alleged damages; the amount, if any, of damagessuffered; and the costs of repair, if needed. At this time, the likelihood thatthe Company will be found liable for any property damage allegedly suffered andthe extent of such liability, if any, are unknown. Based on facts currentlyknown to the Company, the Company believes that all or part of the claimsalleged in the Hawaii Cases may be covered by its insurance policies. TheCompany intends to defend itself vigorously in connection with the HawaiiCases.

 

The Company isnot engaged in any other legal proceedings as of the date hereof, which theCompany expects individually or in the aggregate to have a material adverseeffect on the Company’s financial condition, cash flows or results ofoperations. Litigation is, however, subject to inherent uncertainties andactual results could differ.

 

*Other*

 

Corrosion, hydrogenenbrittlement, cracking, material hardness, wood pressure-treating chemicals,misinstallations, misuse, design and assembly flaws, environmental conditionsor other factors can contribute to failure of fasteners, connectors, tools andventing products. On occasion, some of the fasteners and connectors that theCompany sells have failed, although the Company has not incurred any materialliability resulting from those failures. The Company attempts to avoid suchfailures by establishing and monitoring appropriate product specifications,manufacturing quality control procedures, inspection procedures and informationon appropriate installation methods and conditions. The Company subjects its productsto extensive testing, with results and conclusions published in Companycatalogues and on its websites. Based on test results to date, the Companybelieves that, generally, if its products are appropriately selected, installedand used in accordance with the Company’s guidance, they may be reliably usedin appropriate applications.

 

63

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10.           Income Taxes

 

The provision for incometaxes consisted of the following:

 
|               |   | **Years  Ended December 31,** |       |
|--------------------|--------|------------------------------------|------------|
| **(in thousands)** |   | **2009**                           | ** ** | **2008** | ** ** | **2007** |   |
|               |   |                               |       |   |   |   |   |
| Current            |   |                               |       |   |   |   |   |
| Federal            |   | $                                  | 15,319     |   | $ | 28,003 |   | $ | 40,429 |   |
| State              |   | 3,171                              |       | 5,098 |   | 8,313 |   |
| Foreign            |   | (18                                | )          | 3,696 |   | 2,836 |   |
| Deferred           |   |                               |       |   |   |   |   |
| Federal            |   | (791                               | )          | (1,544 | ) | (1,798 | ) |
| State              |   | (86                                | )          | (56 | ) | (119 | ) |
| Foreign            |   | (1,321                             | )          | 521 |   | (1,828 | ) |
|               |   | $                                  | 16,274     |   | $ | 35,718 |   | $ | 47,833 |   |

 

Income before incometaxes for the years ended December 31, 2009, 2008 and 2007, consisted ofthe following:

 
| ** **          | ** ** | **Years  Ended December 31,** | ** ** |
|---------------------|------------|------------------------------------|------------|
| **(in  thousands)** | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
|                |       |                               |       |   |   |   |   |
| Domestic            |       | $                                  | 46,948     |   | $ | 86,635 |   | $ | 125,193 |   |
| Foreign             |       | (18,457                            | )          | 3,017 |   | (8,618 | ) |
|                |       | $                                  | 28,491     |   | $ | 89,652 |   | $ | 116,575 |   |

 

Reconciliations betweenthe statutory federal income tax rates and the Company’s effective income taxrates as a percentage of income before income taxes were as follows:

* *
| ** **                                                      | ** ** | **Years  Ended December 31,** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------|------------|
| **(in  thousands)**                                             | ** ** | **2009**                           | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                      | ** ** | ** **                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal tax rate                                                |       | 35.0                               | %          | 35.0 | % | 35.0 | % |
| State taxes, net  of federal benefit                            |       | 7.5                                | %          | 3.7 | % | 4.4 | % |
| Tax benefit of  domestic manufacturing deduction                |       | (3.3                               | )%         | (2.0 | )% | (2.1 | )% |
| Nondeductible  Canadian goodwill writedown                      |       | —                             |       | — |   | 2.3 | % |
| Change in  valuation allowance                                  |       | 8.4                                | %          | 1.6 | % | 0.4 | % |
| Difference  between United States statutory and local tax rates |       | 8.4                                | %          | 0.3 | % | 0.2 | % |
| Change in  uncertain tax position                               |       | (1.8                               | )%         | — |   | 0.7 | % |
| Other                                                           |       | 2.9                                | %          | 1.2 | % | 0.1 | % |
| Effective income  tax rate                                      |       | 57.1                               | %          | 39.8 | % | 41.0 | % |

 

64

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The tax effects of thesignificant temporary differences that constitute the deferred tax assets andliabilities at December 31, 2009, 2008 and 2007, were as follows:

 
| ** **                                               | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|
| **(in  thousands)**                                      | ** ** | **2009**              | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                               | ** ** | ** **            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current deferred  tax assets (liabilities)               |       |                  |       |   |   |   |   |
| State tax                                                |       | $                     | 1,061      |   | $ | 1,958 |   | $ | 2,760 |   |
| Workers’  compensation                              |       | 1,719                 |       | 1,685 |   | 1,624 |   |
| Health claims                                            |       | 391                   |       | 540 |   | 591 |   |
| Vacation  liability                                      |       | 843                   |       | 611 |   | 655 |   |
| Allowance for  doubtful accounts                         |       | 1,614                 |       | 1,450 |   | 806 |   |
| Inventories                                              |       | 7,150                 |       | 5,344 |   | 4,712 |   |
| Sales incentive  and advertising allowances              |       | 781                   |       | 683 |   | 813 |   |
| State tax credit  carry forward                          |       | 126                   |       | — |   | — |   |
| Accrued rent  reserves                                   |       | 5                     |       | — |   | 70 |   |
| Unrealized  foreign exchange gain or loss                |       | 96                    |       | — |   | — |   |
| Other, net                                               |       | 549                   |       | 75 |   | (108 | ) |
|                                                     |       | 14,335                |       | 12,346 |   | 11,923 |   |
| Less valuation  allowance                                |       | (365                  | )          | (351 | ) | (300 | ) |
|                                                     |       | $                     | 13,970     |   | $ | 11,995 |   | $ | 11,623 |   |
|                                                     |       |                  |       |   |   |   |   |
| Long-term  deferred tax assets (liabilities)             |       |                  |       |   |   |   |   |
| Depreciation                                             |       | $                     | 259        |   | $ | (535 | ) | $ | (402 | ) |
| Goodwill and  other intangibles amortization             |       | (3,704                | )          | (1,106 | ) | (795 | ) |
| Deferred  compensation related to stock options          |       | 6,562                 |       | 7,550 |   | 7,512 |   |
| State tax credit  carry forward                          |       | —                |       | 126 |   | 145 |   |
| Uncertain tax  positions’ unrecognized tax benefits |       | 1,250                 |       | 1,551 |   | 1,957 |   |
| Keymark  investments basis difference                    |       | 447                   |       | 593 |   | 506 |   |
| Non-United  States tax loss carry forward                |       | 5,011                 |       | 2,499 |   | 1,959 |   |
| Tax effect on  cumulative translation adjustment         |       | (799                  | )          | (850 | ) | (1,502 | ) |
| Other                                                    |       | 1,095                 |       | 952 |   | 857 |   |
|                                                     |       | 10,121                |       | 10,780 |   | 10,237 |   |
| Less valuation  allowance                                |       | (4,523                | )          | (2,025 | ) | (618 | ) |
|                                                     |       | $                     | 5,598      |   | $ | 8,755 |   | $ | 9,619 |   |

 

The total deferred tax assets for theyears ended December 31, 2009, 2008 and 2007, were $25.0 million, $24.3million and $25.3 million, respectively. The total deferred tax liabilities forthe years ended December 31, 2009, 2008, and 2007, were $5.5 million, $3.6million and $4.0 million, respectively.

 

At December 31, 2009, theCompany had $22.0 million of tax loss carryforwards in various non-UnitedStates taxing jurisdictions. Tax loss carryforwards of $41 thousand, $1.3million and $4.7 million will expire in 2012, 2013 and 2014, respectively, ifnot utilized. The remaining tax losses can be carried forward indefinitely.

 

At December 31, 2009 and 2008,the Company had deferred tax valuation allowances of $4.9 million and $2.4million, respectively. The changes in the valuation allowance for the yearsended December 31, 2009, 2008 and 2007, were $2.5 million, $1.5 millionand $0.5 million, respectively.

 

The Company does notprovide for federal income taxes on the undistributed earnings of itsinternational subsidiaries because such earnings are reinvested and, in theCompany’s opinion, will continue to be reinvested indefinitely. At December 31,2009, 2008 and 2007, the Company had not provided federal income taxes onundistributed earnings of $12.9 million, $16.2 million and $10.2 million, respectively,from its international subsidiaries. Should these earnings be distributed inthe form of dividends or otherwise, the Company would be subject to both UnitedStates income taxes and withholding taxes in various internationaljurisdictions. These taxes may be partially offset by United States foreign taxcredits. Determination of the related amount of unrecognized deferred UnitedStates income taxes is not practicable because of the complexities associatedwith this hypothetical calculation. United States federal income taxes areprovided on the earnings of the Company’s foreign branches, which are includedin the United States federal income tax return.

 

The Company adopted therevised guidance in the “Income Taxes” topic of the FASB ASC regarding uncertaintax positions on January 1, 2007. The topic prescribes a recognitionthreshold that a tax position is required to meet before being recognized inthe financial statements and provides guidance on derecognition, measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition issues.

 

65

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A reconciliation of thebeginning and ending amounts of unrecognized tax benefits in 2009, 2008 and2007 was as follows:*

 
| **(in  thousands)**                                       | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-----------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance at  January 1                                |       | $          | 6,705      |       | $          | 7,668      |       | $ | 7,497 |   |
| Additions based  on tax positions related to prior years  |       | 640        |       | 573        |       | 308        |       |
| Reductions based  on tax positions related to prior years |       | (632       | )          | (875       | )          | (749       | )          |
| Additions for  tax positions of the current year          |       | 902        |       | 801        |       | 1,432      |       |
| Settlements                                               |       | —     |       | —     |       | (413       | )          |
| Lapse of statute  of limitations                          |       | (1,193     | )          | (1,462     | )          | (407       | )          |
| Balance at  December 31                              |       | $          | 6,422      |       | $          | 6,705      |       | $ | 7,668 |   |

 

----

* Foreign currencytranslation amounts are included within each line as applicable.

 

Included in the balanceof unrecognized tax benefits at December 31, 2009, 2008 and 2007, are taxpositions of $1.5 million, $1.8 million and $2.0 million, respectively, which,if recognized, would reduce the effective tax rate. The Company does not believe it is reasonably possible that the totalamounts of unrecognized tax benefits will significantly increase or decreasewithin the next 12 months.

 

The Company recognizesaccrued interest and penalties related to unrecognized tax benefits in incometax expense, which is a continuation of the Company’s historical accountingpolicy. During the year ended December 31, 2009, accrued interestdecreased by $88 thousand as a result of the reversal of accrued interest,associated with the lapse of statutes of limitations.  During the years ended December 31, 2008and 2007, the Company recognized $0.2 million and $0.5 million, respectively,in potential interest payments before income tax benefits. At December 31,2009, 2008 and 2007, the Company had accrued $1.6 million, $1.7 million and$1.5 million, respectively, for the potential payment of interest, beforeincome tax benefits.

 

At December 31,2009, the Company remained subject to United States federal income taxexaminations for the tax years 2006 through 2009. In addition, the Company remainedsubject to state, local and foreign income tax examinations primarily for thetax years 2004 through 2009.

 

11.           Retirement Plans

 

The Company hassix defined contribution retirement plans covering substantially all salariedemployees and nonunion hourly employees. Two of the plans, covering UnitedStates employees, provide for annual contributions in amounts that the Company’sBoard of Directors may authorize, subject to certain limitations, but in noevent more than the amounts permitted under the Internal Revenue Code asdeductible expense. The other four plans, covering the Company’s European andCanadian employees, require the Company to make contributions ranging from 3%to 15% of the employees’ compensation. The total cost for these retirementplans for the years ended December 31, 2009, 2008 and 2007, was $7.8million, $10.5 million and $9.6 million, respectively.

 

The Company alsocontributes to various industry-wide, union-sponsored pension funds for hourlyemployees who are union members. Payments to these funds aggregated $1.7million, $2.6 million and $2.8 million for the years ended December 31,2009, 2008 and 2007, respectively.

 

12.           Related Party Transactions

 

The Company pays aairplane charter company standard hourly rates when an airplane is hired foruse by its Chief Executive Officer in travel between his home and Companyoffices or by him and other Company employees in travel on business. The totalcost to the Company for this and other airplanes that are used, including $27thousand, $21 thousand and $20 thousand paid to the Company’s Chief ExecutiveOfficer for compensation for the years ended December 31, 2009, 2008 and2007, was $409 thousand, $274 thousand and $345 thousand, respectively. Theindependent members of the Board unanimously approved this arrangement. TheCompany computes the compensation cost of the use of airplanes using theStandard Industrial Fare Level (“SIFL”) tables prescribed under applicableInternal Revenue Service regulations.

 

66

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InJanuary 2005, Michael Petrovic was appointed as an officer of SimpsonStrong-Tie Canada, Limited (“SSTC”), a wholly-owned subsidiary of SimpsonStrong-Tie. Mr. Petrovic was an owner of MGA Construction Hardware &Steel Fabricating Limited and MGA Connectors Limited (collectively, “MGA”),which SSTC acquired in 2003, and is a co-lessor of the property that SSTCleases in Maple Ridge, British Columbia. SSTC paid $170 thousand per year tolease the property from Mr. Petrovic and his associates. In February 2007,the Company purchased the building from Mr. Petrovic and his associatesfor $4.0 million.

 

In December 2007,the Company extended its lease on a property in Addison, Illinois, which isco-owned by Gerald Hagel, who was appointed as a vice president of the SimpsonStrong-Tie in March 2007. The renewal is for an additional five yearsthrough 2012. The Company paid $270 thousand per year to lease the propertyfrom Mr. Hagel and his wife Susan Hagel, a former employee of SimpsonStrong-Tie.

 

In October 2008, theCompany voluntarily contributed $0.7 million to Keymark, for which the Companyaccounts using the equity method, and lent $1.3 million to Keymark’s otherowner, which concurrently contributed that amount to Keymark’s capital. Of the$1.3 million loan, $0.7 million was outstanding at December 31, 2009,after the Company foreclosed on an additional 5.6% equity interest in Keymarkas a result of a default in payment in October 2009 by Keymark’s otherowner under terms of the loan and pledge agreement. The loan bears interest atthe annual rate of 6%, will mature in October 2010, is backed by a pledgeof an additional ownership interest in Keymark of 5% (subject to adjustment), andis non-recourse. See Note 6.

 

In 2009, the Company paidKeymark $0.2 million in professional fees related to software development. In December 2009,the Company lent $0.6 million to Keymark for working capital needs. This loanbears interest at an annual rate of 7%, payable monthly, and the principalamount will be due and payable in December 2012. This loan is backed theintellectual property of Keymark.

 

In December 2009 andJanuary 2010, the Company made loans of $0.7 million and $1.7 million totwo entities related to Keymark.  Both ofthese loans bear interest at an annual rate of 5.5%, payable monthly, and theprincipal amounts will be due and payable in February 2013, or earlier ifKeymark is sold. Each of these loans is backed by a real property deed oftrust.

 

13.           Stock Option and Stock Bonus Plans

 

The Company currently hastwo stock option plans (see Note 1 — *Accounting for Stock-BasedCompensation*). Participants are granted stock options only if theapplicable company-wide or profit-center operating goals, or both, establishedby the Compensation Committee of the Board at the beginning of the year, aremet.

 

The fair value of eachoption award is estimated on the date of grant using the Black-Scholes optionpricing model. Expected volatility is based on historical volatilities of theCompany’s common stock measured monthly over a term that is equivalent to theexpected life of the option. The expected terms of options granted areestimated based on the Company’s prior exercise experience and futureexpectations of the exercise and termination behavior of the grantees. Therisk-free rate is based on the yield of United States Treasury zero-couponbonds with maturities comparable to the expected life in effect at the time ofgrant. The dividend yield is based on the expected dividend rate on the grantdate.

 

Black-Scholes optionpricing model assumptions for options committed to be granted in 2010, and forthose granted in 2009, 2008 and 

2007, were as follows:

 
| **Number  of Options  Granted  (in thousands)** | ** ** | **Grant  Date** | ** ** | **Risk-  Free  Interest  Rate** | ** ** | **Dividend  Yield** | ** ** | **Expected  Life** | ** ** | **Volatility** | ** ** | **Exercise Price** | ** ** | **Fair  Value** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|---------------------------------|------------|---------------------|------------|--------------------|------------|----------------|------------|--------------------|------------|-----------------|------------|
| ** **                                      | ** ** | ** **      | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **         | ** ** | ** **     | ** ** | ** **         | ** ** | ** **      | ** ** |
| **1994 Plan**                                   |       |            |       |                            |       |                |       |               |       |           |       |               |       |            |       |
| 148                                             |       | 02/02/10        |       | 2.93                            | %          | 1.62                | %          | 6.5 years          |       | 36.0           | %          | $                  | 24.75      |            | $          | 8.46 |   |
| 24                                              |       | 02/23/09        |       | 2.08                            | %          | 2.48                | %          | 6.5 years          |       | 30.9           | %          | $                  | 16.10      |            | $          | 4.06 |   |
| 29                                              |       | 02/04/09        |       | 2.17                            | %          | 1.88                | %          | 6.5 years          |       | 30.9           | %          | $                  | 21.25      |            | $          | 5.86 |   |
| 14                                              |       | 04/23/08        |       | 3.15                            | %          | 1.55                | %          | 6.0 years          |       | 27.1           | %          | $                  | 25.74      |            | $          | 6.92 |   |
| 40                                              |       | 02/13/08        |       | 2.90                            | %          | 1.68                | %          | 6.0 years          |       | 27.1           | %          | $                  | 23.78      |            | $          | 6.16 |   |
| 123                                             |       | 02/02/07        |       | 4.84                            | %          | 1.19                | %          | 5.9 years          |       | 29.0           | %          | $                  | 33.62      |            | $          | 11.11 |   |

 

No options were grantedunder the 1995 Plan in 2009, 2008 or 2007.

 

67

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The following tablesummarizes the Company’s stock option activity for the year ended December 31,2009:

 
| **Non-Qualified  Stock Options**                            | ** ** | **Shares  (in thousands)** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Life** | ** ** | **Aggregate  Intrinsic  Value*  (in thousands)** | ** ** |
|-------------------------------------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                 | ** ** | ** **                              | ** ** | ** **                                           | ** ** | ** **                                       | ** ** |
| Outstanding at  January 1, 2009                        |       | 2,250                      |       | $                                       | 29.70      |                                                 | 2.8        |                                             | $          | 5,424 |   |
| Granted                                                     |       | 53                         |       | $                                       | 18.92      |                                                 |       |                                             |       |   |
| Exercised                                                   |       | (396                       | )          | $                                       | 19.26      |                                                 |       |                                             |       |   |
| Forfeited                                                   |       | (115                       | )          | $                                       | 35.61      |                                                 |       |                                             |       |   |
| Outstanding at  December 31, 2009                      |       | 1,792                      |       | $                                       | 31.31      |                                                 | 2.2        |                                             | $          | 1,680 |   |
| Outstanding and  expected to vest at December 31, 2009 |       | 1,786                      |       | $                                       | 31.34      |                                                 | 2.2        |                                             | $          | 1,649 |   |
| Exercisable at  December 31, 2009                      |       | 1,652                      |       | $                                       | 31.57      |                                                 | 1.9        |                                             | $          | 1,253 |   |

 

----

* Theintrinsic value represents the amount by which the fair market value of theunderlying common stock exceeds the exercise price of the option, using theclosing price per share of $26.89 on December 31, 2009.

 

The total intrinsic value of options exercised during thethree years ended December 31, 2009, 2008 and 2007, was $3.0 million, $3.7million and $3.5 million, respectively.

 

Asummary of the status of unvested options as of December 31, 2009, andchanges during the year ended December 31, 2009, is presented below:

 
| **Unvested  Options**               | ** ** | **Shares  (in thousands)** | ** ** | **Weighted-  Average  Grant-Date  Fair Value** | ** ** |
|-------------------------------------|------------|----------------------------|------------|------------------------------------------------|------------|
| ** **                          | ** ** | ** **                 | ** ** | ** **                                     | ** ** |
| Unvested at  January 1, 2009   |       | 258                        |       | $                                              | 11.58      |   |
| Granted                             |       | 53                         |       | $                                              | 5.04       |   |
| Vested                              |       | (166                       | )          | $                                              | 12.00      |   |
| Forfeited                           |       | (5                         | )          | $                                              | 13.27      |   |
| Unvested at  December 31, 2009 |       | 140                        |       | $                                              | 8.57       |   |

 

As of December 31, 2009, $1.8 million of total unrecognizedcompensation cost was related to unvested share-based compensation arrangementsgranted under the 1994 Plan. This cost is expected to be recognized over aweighted-average period of 0.6 years. Options granted under the 1995 Plan are fully vestedand recorded as expense on the date of grant.

 

The Company alsomaintains a Stock Bonus Plan whereby it awards shares to employees, who do nototherwise participate in one of the Company’s stock option plans. The number ofshares awarded, as well as the period of service, are considered by theCompensation Committee of the Board, at its discretion. In 2009, 2008 and 2007, the Company committed to issue 10thousand, 11 thousand and 9 thousand shares, respectively, which resulted inpre-tax compensation charges of $0.5 million for the year ended December 31,2009, and $0.4 million for each year ended December 31, 2008, and 2007.These employees are also awarded cash bonuses, which are included in thesecharges, to compensate for their income taxes payable as a result of the stockbonuses. Shares have been issued under this Plan in the year following the yearin which the employee reached the tenth anniversary of employment with theCompany.

 

68

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14.           Segment Information

 

The Company is organizedinto two primary operating segments. The segments are defined by types ofproducts manufactured, marketed and distributed to the Company’s customers. Thetwo product segments are connector products and venting products. Thesesegments are differentiated in several ways, including the types of materials,the production processes, the distribution channels and the productapplications. Transactions between the two segments were immaterial for each ofthe years presented.

 

The following tableillustrates certain measurements used by management to assess the performanceof the segments described above as of December 31, 2009, 2008 and 2007, orfor the years then ended:

** **

*(inthousands)*

* *
| **2009**                               | ** ** | **Connector  Products** | ** ** | **Venting  Products** | ** ** | **Administrative  and All Other** | ** ** | **Total**  | ** ** |
|----------------------------------------|------------|-------------------------|------------|-----------------------|------------|-----------------------------------|------------|------------|------------|
| ** **                             | ** ** | ** **              | ** ** | ** **            | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Net  sales                             |       | $                       | 526,544    |                  | $          | 58,526                            |       | $          | —     |   | $ | 585,070 |   |
| Income  (loss) from operations         |       | 33,832                  |       | (3,859                | )          | (1,363                            | )          | 28,610     |       |
| Depreciation  and amortization         |       | 23,040                  |       | 4,713                 |       | 1,634                             |       | 29,387     |       |
| Significant  non-cash charges          |       | 2,050                   |       | 60                    |       | 90                                |       | 2,200      |       |
| Income  tax expense (benefit)          |       | 15,631                  |       | (1,609                | )          | 2,252                             |       | 16,274     |       |
| Capital  expenditures and acquisitions |       | 37,861                  |       | 375                   |       | 1,251                             |       | 39,487     |       |
| Total  assets                          |       | 650,796                 |       | 71,587                |       | 121,422                           |       | 843,805    |       |
|                                        |            |                         |            |                       |            |                                   |            |            |            |  |  |  |  |

** **
| **2008**                               | ** ** | **Connector  Products** | ** ** | **Venting  Products** | ** ** | **Administrative  and All Other** | ** ** | **Total**  | ** ** |
|----------------------------------------|------------|-------------------------|------------|-----------------------|------------|-----------------------------------|------------|------------|------------|
| ** **                             | ** ** | ** **              | ** ** | ** **            | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Net  sales                             |       | $                       | 676,724    |                  | $          | 79,775                            |       | $          | —     |   | $ | 756,499 |   |
| Income  (loss) from operations         |       | 91,567                  |       | (2,616                | )          | (1,409                            | )          | 87,542     |       |
| Depreciation  and amortization         |       | 24,082                  |       | 4,903                 |       | 1,224                             |       | 30,209     |       |
| Significant  non-cash charges          |       | 3,289                   |       | 259                   |       | 275                               |       | 3,823      |       |
| Goodwill  impairment                   |       | 2,964                   |       | —                |       | —                            |       | 2,964      |       |
| Income  tax expense (benefit)          |       | 35,861                  |       | (1,046                | )          | 903                               |       | 35,718     |       |
| Capital  expenditures and acquisitions |       | 41,933                  |       | 9,968                 |       | 429                               |       | 52,330     |       |
| Total  assets                          |       | 612,733                 |       | 77,218                |       | 140,249                           |       | 830,200    |       |
|                                        |            |                         |            |                       |            |                                   |            |            |            |  |  |  |  |

** **
| **2007**                               | ** ** | **Connector  Products** | ** ** | **Venting  Products** | ** ** | **Administrative  and All Other** | ** ** | **Total**  | ** ** |
|----------------------------------------|------------|-------------------------|------------|-----------------------|------------|-----------------------------------|------------|------------|------------|
| ** **                             | ** ** | ** **              | ** ** | ** **            | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Net  sales                             |       | $                       | 745,692    |                  | $          | 71,296                            |       | $          | —     |   | $ | 816,988 |   |
| Income  (loss) from operations         |       | 114,433                 |       | (2,629                | )          | (955                              | )          | 110,849    |       |
| Depreciation  and amortization         |       | 23,044                  |       | 4,891                 |       | 49                                |       | 27,984     |       |
| Significant  non-cash charges          |       | 5,246                   |       | 444                   |       | 643                               |       | 6,333      |       |
| Goodwill  impairment                   |       | 10,666                  |       | —                |       | —                            |       | 10,666     |       |
| Long-lived  asset impairment           |       | 465                     |       | —                |       | —                            |       | 465        |       |
| Income  tax expense (benefit)          |       | 49,127                  |       | (878                  | )          | (416                              | )          | 47,833     |       |
| Capital  expenditures and acquisitions |       | 72,418                  |       | 5,664                 |       | 479                               |       | 78,561     |       |
| Total  assets                          |       | 575,707                 |       | 78,541                |       | 163,431                           |       | 817,679    |       |
|                                        |            |                         |            |                       |            |                                   |            |            |            |  |  |  |  |

 

Cash collected bythe Company’s subsidiaries is routinely transferred into the Company’s cashmanagement accounts, and therefore has been included in the total assets of “Administrativeand All Other.” Cash and short-term investment balances in the Administrativeand All Other segment were $205.1 million, $136.2 million and $159.8 million asof December 31, 2009, 2008 and 2007, respectively. The significantnon-cash charges comprise compensation related to the awards under the stockoption plans and the stock bonus plan. The Company’s measure of profit or lossfor its reportable segments is income (loss) from operations. The reconcilingamounts between consolidated income before tax and consolidated income fromoperations are net interest income, which is primarily attributed to “Administrativeand All Other,” and loss from equity method investment, which is attributed tothe connector products segment.

 

69

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The followingtable illustrates how the Company’s net sales and long-lived assets weredistributed geographically as of December 31, 2009, 2008 and 2007, or forthe years then ended:

* *
| ** **          | ** ** | **2009**       | ** ** | **2008**               | ** ** | **2007**       | ** ** |
|---------------------|------------|----------------|------------|------------------------|------------|----------------|------------|
| **(in  thousands)** | ** ** | **Net  Sales** | ** ** | **Long-Lived  Assets** | ** ** | **Net  Sales** | ** ** | **Long-Lived  Assets** | ** ** | **Net  Sales** | ** ** | **Long-Lived  Assets** | ** ** |
| ** **          | ** ** | ** **     | ** ** | ** **             | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| United  States      |       | $              | 451,604    |                   | $          | 157,228        |       | $ | 590,111 |   | $ | 172,185 |   | $ | 679,050 |   | $ | 185,685 |   |
| Denmark             |       | 18,893         |       | 4,658                  |       | 29,175         |       | 4,616 |   | 17,985 |   | 5,496 |   |
| Canada              |       | 34,121         |       | 5,818                  |       | 42,334         |       | 5,231 |   | 35,692 |   | 8,470 |   |
| United  Kingdom     |       | 18,157         |       | 2,150                  |       | 25,882         |       | 1,248 |   | 32,787 |   | 1,985 |   |
| France              |       | 31,897         |       | 13,634                 |       | 30,538         |       | 5,952 |   | 25,917 |   | 6,800 |   |
| Germany             |       | 21,269         |       | 1,434                  |       | 28,315         |       | 1,990 |   | 22,248 |   | 258 |   |
| Ireland             |       | 2,552          |       | 3,993                  |       | 3,637          |       | 4,177 |   | — |   | — |   |
| China/Hong  Kong    |       | 2,890          |       | 11,105                 |       | 2,659          |       | 9,056 |   | 90 |   | 60 |   |
| Australia           |       | 2,610          |       | 344                    |       | 2,685          |       | 72 |   | 2,488 |   | 9 |   |
| Other  countries    |       | 1,077          |       | 626                    |       | 1,163          |       | 495 |   | 731 |   | 621 |   |
|                |       | $              | 585,070    |                   | $          | 200,990        |       | $ | 756,499 |   | $ | 205,022 |   | $ | 816,988 |   | $ | 209,384 |   |

 

Net sales andlong-lived assets, net of intangible assets, are attributable to the countrywhere the operations are located.

 

The Company’slargest customer, attributable mostly to the connector productssegment, accounted for 11% of net sales for the year ended December 31,2009, and slightly less than 10% of net sales for the year ended December 31,2008. In August 2007, this customer sold a division, which is now aseparate customer of the Company attributable mostly to the connector productssegment. As a combined company in 2007, these two customers accounted for 15%of the Company’s net sales. As two separate customers, neither would haveaccounted for net sales greater than 10% of consolidated net sales for 2007.

 

15.           Subsequent Events

 

In February 2010,the Board declared a dividend of $0.10 per share, a total currently estimatedat $4.9 million, to be paid on April 29, 2010, to stockholders of recordon April 8, 2010.

 

In January 2010, theCompany made a loan to an entity related to Keymark. See Note 12.

 

70

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16.           Selected Quarterly Financial Data(Unaudited)

 

The followingtable sets forth selected quarterly financial data for each of the quarters in2009 and 2008:

* *
| ** **                                      | ** ** | **2009**              | ** ** | **2008**             | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|----------------------|------------|
| **(in  thousands, except  per share amounts)**  | ** ** | **Fourth****Quarter** | ** ** | **Third****Quarter** | ** ** | **Second****Quarter** | ** ** | **First****Quarter** | ** ** | **Fourth****Quarter** | ** ** | **Third****Quarter** | ** ** | **Second****Quarter** | ** ** | **First****Quarter** | ** ** |
| ** **                                      | ** ** | ** **            | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                       |       | $                     | 132,624    |                 | $          | 167,200 |   | $ | 165,923 |   | $ | 119,323 |   | $ | 149,756 |   | $ | 219,823 |   | $ | 219,263 |   | $ | 167,656 |   |
| Cost of sales                                   |       | 91,902                |       | 106,299              |       | 104,686 |   | 88,610 |   | 97,251 |   | 130,143 |   | 135,398 |   | 111,398 |   |
| Gross profit                                    |       | 40,722                |       | 60,901               |       | 61,237 |   | 30,713 |   | 52,505 |   | 89,680 |   | 83,865 |   | 56,258 |   |
|                                            |       |                  |       |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Research and  development and other engineering |       | 4,996                 |       | 4,971                |       | 5,161 |   | 4,864 |   | 4,951 |   | 5,662 |   | 5,610 |   | 5,103 |   |
| Selling expense                                 |       | 15,854                |       | 15,563               |       | 16,852 |   | 16,025 |   | 17,439 |   | 21,323 |   | 22,134 |   | 19,807 |   |
| General and administrative  expense             |       | 20,288                |       | 19,187               |       | 20,133 |   | 20,273 |   | 22,684 |   | 25,555 |   | 23,786 |   | 17,872 |   |
| Impairment of  goodwill                         |       | —                |       | —               |       | — |   | — |   | 2,964 |   | — |   | — |   | — |   |
| Loss (gain) on  sale of assets                  |       | 561                   |       | 164                  |       | 182 |   | (111 | ) | (66 | ) | (41 | ) | (19 | ) | 2 |   |
| Income (loss)  from operations                  |       | (977                  | )          | 21,016               |       | 18,909 |   | (10,338 | ) | 4,533 |   | 37,181 |   | 32,354 |   | 13,474 |   |
|                                            |       |                  |       |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) in  equity method Investment      |       | 20                    |       | —               |       | (21 | ) | (193 | ) | (486 | ) | — |   | — |   | — |   |
| Interest income  (expense), net                 |       | 11                    |       | —               |       | (38 | ) | 102 |   | 383 |   | 579 |   | 505 |   | 1,128 |   |
| Income (loss)  before income taxes              |       | (946                  | )          | 21,016               |       | 18,850 |   | (10,429 | ) | 4,430 |   | 37,760 |   | 32,859 |   | 14,602 |   |
|                                            |       |                  |       |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision for  (benefit from) income taxes      |       | 1,869                 |       | 8,258                |       | 8,167 |   | (2,020 | ) | 2,591 |   | 14,398 |   | 12,478 |   | 6,250 |   |
| Net income  (loss)                              |       | $                     | (2,815     | )                    | $          | 12,758 |   | $ | 10,683 |   | $ | (8,409 | ) | $ | 1,839 |   | $ | 23,362 |   | $ | 20,381 |   | $ | 8,352 |   |
|                                            |       |                  |       |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income  (loss) per common share             |       |                  |       |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                           |       | $                     | (0.06      | )                    | $          | 0.26 |   | $ | 0.22 |   | $ | (0.17 | ) | $ | 0.04 |   | $ | 0.48 |   | $ | 0.42 |   | $ | 0.17 |   |
| Diluted                                         |       | (0.06                 | )          | 0.26                 |       | 0.22 |   | (0.17 | ) | 0.04 |   | 0.48 |   | 0.42 |   | 0.17 |   |
|                                            |       |                  |       |                 |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash dividends  declared per common share       |       | $                     | 0.10       |                 | $          | 0.10 |   | $ | 0.10 |   | $ | 0.10 |   | $ | 0.10 |   | $ | 0.10 |   | $ | 0.10 |   | $ | 0.10 |   |

 

Basic and dilutedincome per common share for each of the quarters presented above is based onthe respective weighted average numbers of common and dilutive potential commonshares outstanding for each quarter, and the sum of the quarters may notnecessarily be equal to the full year basic and diluted net income per commonshare amounts.

 

In the fourthquarter of 2008, the Company recorded an impairment charge of goodwill of $3.0million. See Note 1 — *“Goodwill and IntangibleAssets.”*

 

71

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**SCHEDULE II**

 

**Simpson Manufacturing Co., Inc. andSubsidiaries**

 

**VALUATION AND QUALIFYING ACCOUNTS**

**for the years ended December 31, 2009, 2008and 2007**

 
| **Column A**                          | ** ** | **Column B**   | ** ** | **Column C**  | ** ** | **Column D**        | ** ** | **Column E**   | ** ** |
|---------------------------------------|------------|----------------|------------|---------------|------------|---------------------|------------|----------------|------------|
| ** **                            | ** ** | ** **     | ** ** | **Additions** | ** ** | ** **          | ** ** | ** **     | ** ** |
| ** **                            | ** ** | ** **     | ** ** | **Charged**   | ** ** | **Charged**         | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Balance at** | ** ** | **to Costs**  | ** ** | **to Other**        | ** ** | ** **     | ** ** | **Balance** | ** ** |
| **(in  thousands)**                   | ** ** | **Beginning**  | ** ** | **and**       | ** ** | **Accounts –** | ** ** | ** **     | ** ** | **at End** | ** ** |
| **Classification**                    | ** ** | **of Year**    | ** ** | **Expenses**  | ** ** | **Write-offs**      | ** ** | **Deductions** | ** ** | **of Year** | ** ** |
| ** **                            |       |           |       |          |       |                |       |           |       |   |   |
| **Year Ended December 31, 2009** |       |           |       |          |       |                |       |           |       |   |   |
| Allowance  for doubtful accounts      |       | $              | 4,368      |          | $          | 666                 |       | $              | —     |   | $ | 367 |   | $ | 4,667 |   |
| Allowance  for obsolete inventory     |       | 10,029         |       | 900           |       | —              |       | 47             |       | 10,882 |   |
| Allowance  for sales discounts        |       | 1,556          |       | 1,623         |       | —              |       | 1,271          |       | 1,908 |   |
| Allowance  for deferred tax assets    |       | 2,376          |       | 2,685         |       | —              |       | 173            |       | 4,888 |   |
| **Year Ended December 31, 2008** |       |           |       |          |       |                |       |           |       |   |   |
| Allowance  for doubtful accounts      |       | 2,724          |       | 2,431         |       | —              |       | 787            |       | 4,368 |   |
| Allowance  for obsolete inventory     |       | 10,338         |       | 440           |       | —              |       | 749            |       | 10,029 |   |
| Allowance  for sales discounts        |       | 1,815          |       | 1,600         |       | —              |       | 1,859          |       | 1,556 |   |
| Allowance  for deferred tax assets    |       | 918            |       | 1,507         |       | —              |       | 49             |       | 2,376 |   |
| **Year Ended December 31, 2007** |       |           |       |          |       |                |       |           |       |   |   |
| Allowance  for doubtful accounts      |       | 2,286          |       | 713           |       | —              |       | 275            |       | 2,724 |   |
| Allowance  for obsolete inventory     |       | 5,480          |       | 4,801         |       | —              |       | (57            | )          | 10,338 |   |
| Allowance  for sales discounts        |       | 1,920          |       | 1,604         |       | —              |       | 1,709          |       | 1,815 |   |
| Allowance  for deferred tax assets    |       | 459            |       | 489           |       | —              |       | 30             |       | 918 |   |
|                                       |            |                |            |               |            |                     |            |                |            |  |  |  |  |  |  |  |

 

72

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**Item 9.Changes in and Disagreements with Accountants on Accounting and FinancialDisclosures.**

 

None.

 

**Item 9A.Controls and Procedures.**

 

*DisclosureControls and Procedures.*As of December 31, 2009, an evaluation wasperformed under the supervision and with the participation of the Company’smanagement, including the chief executive officer (“CEO”) and the chieffinancial officer (“CFO”), of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures. Based on that evaluation, theCEO and the CFO concluded that the Company’s disclosure controls and procedureswere effective as of that date.

 

*Changesin Internal Control over Financial Reporting.* During the three months ended December 31, 2009,the Company made no changes to its internal controls over financial reporting(as defined in Rules 13a-15(f) and 15d-15(f) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), that havematerially affected, or are reasonably likely to materially affect, itsinternal controls over financial reporting.

 

*Management’sReport on Internal Control over Financial Reporting**.* Management is responsible for establishing and maintainingadequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)).Management assessed the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2009, using criteria established in*Internal Control-Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(“COSO”) and concluded that the Company maintained effective internal controlover financial reporting as of December 31, 2009.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. In addition, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies and procedures may deteriorate.

 

The Company’s management has excluded Aginco, adivision of Simpson Strong-Tie, from its assessment of internal control overfinancial reporting as of December 31, 2009, because it was acquired bythe Company during 2009. The total assets and total revenues of thisacquisition represents approximately 3% and 1%, respectively, of the relatedconsolidated financial statement amounts as of and for the year ended December 31,2009.

 

PricewaterhouseCoopersLLP, an independent registered public accounting firm that audited the Company’sconsolidated financial statements included in this Form 10-K, has issued areport on the Company’s internal control over financial reporting, which isincluded herein.

 

**Item 9B.Other Information.**

 

None

 

##### **PART III**

##### ** **

**Item 10.Directors, Executive Officers and Corporate Governance.**

 

Informationrequired by this Item will be contained in the Company’s proxy statement forthe annual meeting of its stockholders to be held on April 28, 2010, to befiled with the Securities and Exchange Commission not later than 120 daysfollowing the end of the Company’s fiscal year ended December 31, 2009,which information is incorporated herein by reference.

 

**Item 11.Executive Compensation.**

 

Informationrequired by this Item will be contained in the Company’s proxy statement forthe annual meeting of its stockholders to be held on April 28, 2010, to befiled with the Securities and Exchange Commission not later than 120 daysfollowing the end of the Company’s fiscal year ended December 31, 2009,which information is incorporated herein by reference.

 

73

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**Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.**

 

Certaininformation required by this Item will be contained in the Company’s proxystatement for the annual meeting of its stockholders to be held on April 28,2010, to be filed with the Securities and Exchange Commission not later than120 days following the end of the Company’s fiscal year ended December 31,2009, which information is incorporated herein by reference. The otherinformation required by this Item appears in this report under “Item 5 — Marketfor Company’s Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities,” which is incorporated herein by reference.

 

**Item 13.Certain Relationships and Related Transactions, and Director Independence.**

 

Informationrequired by this Item will be contained in the Company’s proxy statement forthe annual meeting of its stockholders to be held on April 28, 2010, to befiled with the Securities and Exchange Commission not later than 120 daysfollowing the end of the Company’s fiscal year ended December 31, 2009,which information is incorporated herein by reference.

 

**Item 14.Principal Accounting Fees and Services.**

 

Informationrequired by this Item will be contained in the Company’s proxy statement forthe annual meeting of its stockholders to be held on April 28, 2010, to befiled with the Securities and Exchange Commission not later than 120 daysfollowing the end of the Company’s fiscal year ended December 31, 2009,which information is incorporated herein by reference.

 

74

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**PART IV**

 

**Item 15.Exhibits and Financial Statement Schedules.**

 

(a)          The following documents are filed as part of thisAnnual Report:

 

1.               Consolidated financial statements

 

The following consolidated financial statements arefiled as a part of this report:

 

Report of Independent Registered Public AccountingFirm

 

Consolidated Balance Sheets as of December 31,2009 and 2008

 

Consolidated Statements of Operations for the yearsended December 31, 2009, 2008 and 2007

 

Consolidated Statements of Stockholders’ Equity forthe years ended December 31, 2007, 2008 and 2009

 

Consolidated Statements of Cash Flows for the yearsended December 31, 2009, 2008 and 2007

 

Notes to Consolidated Financial Statements

 

2.               Financial Statement Schedules

 

The following consolidated financial statementschedule for each of the years in the three-year period ended December 31,2009, is filed as part of this Annual Report:

 

Schedule II—Valuation and Qualifying Accounts—Yearsended December 31, 2009, 2008 and 2007

 

All other schedules have been omitted as the requiredinformation is not present or is not present in amounts sufficient to requiresubmission of the schedule, or because the information required is included inthe consolidated financial statements and notes thereto.

 

(b)         Exhibits

 

The following exhibitsare either incorporated by reference into this report or filed with thisreport, as indicated below.

 

3.1                     Certificate of Incorporation of Simpson ManufacturingCo., Inc., as amended, is incorporated by reference to Exhibit 3.1 ofits Quarterly Report on Form 10-Q for the quarter ended September 30,2007.

 

3.2                     Bylaws of Simpson Manufacturing Co., Inc., asamended through August 1, 2008, are incorporated by reference to Exhibit 3.2of its Current Report on Form 8-K dated August 4, 2008.

 

4.1                   Amended Rights Agreement dated as of June 15,2009, between Simpson Manufacturing Co., Inc. and Computershare TrustCompany, N.A., which includes as Exhibit B the form of Rights Certificate,is incorporated by reference to Exhibit 4.1 of Simpson Manufacturing Co., Inc.’sRegistration Statement on Form 8-A/A dated June 15, 2009.

 

4.2                   Certificate of Designation, Preferences and Rights of Series AParticipating Preferred Stock of Simpson Manufacturing Co., Inc., dated July 30,1999, is incorporated by reference to Exhibit 4.2 of its RegistrationStatement on Form 8-A dated August 4, 1999.

 

75

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10.1             Simpson Manufacturing Co., Inc. 1994 Stock OptionPlan, as amended through February 13, 2008, is incorporated by referenceto Exhibit 10.1 of Simpson Manufacturing Co., Inc.’s Quarterly Reporton Form 10-Q for the quarter ended June 30, 2008.

 

10.2             Simpson Manufacturing Co., Inc. 1995 IndependentDirector Stock Option Plan, as amended through November 18, 2004, isincorporated by reference to Exhibit 10.2 of Simpson Manufacturing Co., Inc.’sQuarterly Report on Form 10-Q for the quarter ended June 30, 2008.

 

10.3             Simpson Manufacturing Co., Inc. Executive OfficerCash Profit Sharing Plan, as amended through February 25, 2008, isincorporated by reference to Exhibit 10.3 of Simpson Manufacturing Co., Inc.’sQuarterly Report on Form 10-Q for the quarter ended June 30, 2008.

 

10.4             Credit Agreement dated as of October 10, 2007,among Simpson Manufacturing Co., Inc. as Borrower, the Lenders partythereto, Wells Fargo Bank as Agent, and Simpson Dura-Vent Company, Inc.,Simpson Strong Tie Company Inc., and Simpson Strong-Tie International, Inc.as Guarantors, is incorporated by reference to Exhibit 10.1 of SimpsonManufacturing Co., Inc.’s Current Report on Form 8-K dated October 15,2007.

 

10.5             Form of Indemnification Agreement between SimpsonManufacturing Co., Inc. and its directors and executive officers, as wellas the officers of Simpson Strong-Tie Company Inc. and Simpson Dura-VentCompany, Inc., is incorporated by reference to Exhibit 10.2 ofSimpson Manufacturing Co., Inc.’s Annual Report on Form 10-K for theyear ended December 31, 2004.

 

10.6               Compensation of Named Executive Officers of Simpson Manufacturing Co., Inc.is incorporated byreference to Exhibit 10 of Simpson Manufacturing Co., Inc.’s CurrentReport on Form 8-K dated October 2, 2009.

 

10.7               Compensation of Named Executive Officers is incorporated by reference to Exhibit 10 ofSimpson Manufacturing Co., Inc.’s Current Report on Form 8-K dated December 18,2009.

 

21.                     List of Subsidiaries of the Registrant is filedherewith.

 

23.                     Consent of Independent Registered Public AccountingFirm is filed herewith.

 

31.                     Rule 13a-14(a)/15d-14(a) Certifications arefiled herewith.

 

32.                     Section 1350 Certifications are filed herewith.

 

99.1               Simpson Manufacturing Co., Inc. 1994 EmployeeStock Bonus Plan, as amended through November 18, 2004, is incorporated byreference to Exhibit 99.1 of Simpson Manufacturing Co., Inc.’s AnnualReport on Form 10-K for the year ended December 31, 2007.

 

76

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**SIGNATURES**

 

Pursuant to therequirements Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
| Dated:  February 26, 2010 |   | **Simpson  Manufacturing Co., Inc.**     |
|--------------------------------|--------|-----------------------------------------------|
|                           |   | (Registrant)                                  |
|                           |   |                                          |
|                           |   |                                          |
|                           | By     | /s/Karen Colonias                             |
|                           |   | Karen Colonias                                |
|                           |   | Chief Financial  Officer                      |
|                           |   | and Duly  Authorized Officer                  |
|                           |   | of the  Registrant                            |
|                           |   | (principal  accounting and financial officer) |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated below.

 
| **Signature**                | ** **                                    | **Title**                   | ** ** | **Date**               |
|------------------------------|-----------------------------------------------|-----------------------------|------------|------------------------|
| ** **                   | ** **                                    | ** **                  | ** ** | ** **             |
| **Chief Executive Officer:** |                                          |                        |       |                   |
| ** **                   |                                          |                        |       |                   |
| /s/Thomas  J Fitzmyers       |                                          | President, Chief  Executive |       | February 26, 2010 |
| (Thomas  J Fitzmyers)        |                                          | Officer and Director        |       |                   |
|                         |                                          |                        |       |                   |
| **Chief Financial Officer:** |                                          |                        |       |                   |
| ** **                   |                                          |                        |       |                   |
| /s/Karen  Colonias           |                                          | Chief Financial  Officer,   |       | February 26, 2010 |
| (Karen Colonias)             |                                          | Treasurer and Secretary     |       |                   |
|                         | (principal accounting  and financial officer) |                        |       |
|                         |                                          |                        |       |                   |
| **Directors:**               |                                          |                        |       |                   |
| ** **                   |                                          |                        |       |                   |
| /s/Barclay  Simpson          |                                          | Chairman of the Board       |       | February 26, 2010 |
| (Barclay Simpson)            |                                          |                        |       |                   |
|                         |                                          |                        |       |                   |
| /s/Jennifer  A. Chatman      |                                          | Director                    |       | February 26, 2010 |
| (Jennifer A.  Chatman)       |                                          |                        |       |                   |
|                         |                                          |                        |       |                   |
| /s/Earl  F. Cheit            |                                          | Director                    |       | February 26, 2010 |
| (Earl F. Cheit)              |                                          |                        |       |                   |
|                         |                                          |                        |       |                   |
| /s/Gary  M. Cusumano         |                                          | Director                    |       | February 26, 2010 |
| (Gary M.  Cusumano)          |                                          |                        |       |                   |
|                         |                                          |                        |       |                   |
| /s/Peter  N. Louras          |                                          | Director                    |       | February 26, 2010 |
| (Peter N.  Louras)           |                                          |                        |       |                   |
|                         |                                          |                        |       |                   |
| /s/Robin  G. MacGillivray    |                                          | Director                    |       | February 26, 2010 |
| (Robin G.  MacGillivray)     |                                          |                        |       |                   |
|                         |                                          |                        |       |                   |
| /s/Barry  Lawson Williams    |                                          | Director                    |       | February 26, 2010 |
| (Barry Lawson  Williams)     |                                          |                        |       |                   |

 

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