**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

| **x**                                                                                                                                                                                                                                                                                  | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                   |                                                                                                     |
| **For the  quarterly period ended: June 30, 2009**                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                   |                                                                                                     |
| ** **                                                                                                                                                                                                                                                                             | **OR**                                                                                                   |
|                                                                                                                                                                                                                                                                                   |                                                                                                     |
| **o**                                                                                                                                                                                                                                                                                  | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| ** **                                                                                                                                                                                                                                                                             | ** **                                                                                               |
| **For the  transition period  from                    to                    ** |

 

**Commission file number: 1-13429**

 

**Simpson Manufacturing Co., Inc.**

(Exact name of registrant as specified in its charter)

 

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

 

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

(Address of principal executive offices)

 

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

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x  No o

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o  No o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-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  (Do not check if a smaller reporting company) |   | Smaller reporting company o |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes o  No x

 

The number ofshares of the registrant’s common stock outstanding as of June 30,2009:  49,049,791

 

 

 

----

 

PART I — FINANCIAL INFORMATION

 

**Item 1. Financial Statements.**

 

**Simpson Manufacturing Co., Inc.and Subsidiaries**

**Condensed Consolidated BalanceSheets**

*(In thousands, unaudited)*

 
| ** **                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2009**          | ** ** | **2008**              | ** ** | **2008** | ** ** |
|                                            |       |              |       |                  |       |   |   |
| **ASSETS**                                      |       |              |       |                  |       |   |   |
| Current assets                                  |       |              |       |                  |       |   |   |
| Cash and cash equivalents                       |       | $                 | 169,132    |                  | $          | 162,098 |   | $ | 170,750 |   |
| Trade accounts receivable, net                  |       | 118,646           |       | 139,162               |       | 76,005 |   |
| Inventories                                     |       | 190,153           |       | 232,575               |       | 251,878 |   |
| Deferred income taxes                           |       | 12,153            |       | 11,262                |       | 11,995 |   |
| Assets held for sale                            |       | 7,887             |       | 7,887                 |       | 8,387 |   |
| Other current assets                            |       | 10,686            |       | 6,335                 |       | 8,582 |   |
| Total current assets                            |       | 508,657           |       | 559,319               |       | 527,597 |   |
|                                            |       |              |       |                  |       |   |   |
| Property, plant and equipment, net              |       | 193,958           |       | 199,055               |       | 193,318 |   |
| Goodwill                                        |       | 79,858            |       | 69,500                |       | 68,619 |   |
| Intangible assets, net                          |       | 33,050            |       | 23,392                |       | 23,453 |   |
| Equity method investment                        |       | —            |       | —                |       | 214 |   |
| Other noncurrent assets                         |       | 14,374            |       | 18,817                |       | 16,999 |   |
| Total assets                                    |       | $                 | 829,897    |                  | $          | 870,083 |   | $ | 830,200 |   |
|                                            |       |              |       |                  |       |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**  |       |              |       |                  |       |   |   |
| Current liabilities                             |       |              |       |                  |       |   |   |
| Line of credit                                  |       | $                 | 27         |                  | $          | 3,177 |   | $ | 26 |   |
| Trade accounts payable                          |       | 22,574            |       | 46,362                |       | 21,675 |   |
| Accrued liabilities                             |       | 33,855            |       | 39,549                |       | 34,102 |   |
| Income taxes payable                            |       | 1,370             |       | 1,637                 |       | — |   |
| Accrued profit sharing trust contributions      |       | 3,718             |       | 5,228                 |       | 9,541 |   |
| Accrued cash profit sharing and commissions     |       | 4,436             |       | 10,581                |       | 2,264 |   |
| Accrued workers’ compensation              |       | 4,279             |       | 4,116                 |       | 4,286 |   |
| Total current liabilities                       |       | 70,259            |       | 110,650               |       | 71,894 |   |
|                                            |       |              |       |                  |       |   |   |
| Other long-term liabilities                     |       | 9,659             |       | 12,076                |       | 9,280 |   |
| Total liabilities                               |       | 79,918            |       | 122,726               |       | 81,174 |   |
|                                            |       |              |       |                  |       |   |   |
| Commitments and contingencies (Note 8)          |       |              |       |                  |       |   |   |
|                                            |       |              |       |                  |       |   |   |
| Stockholders’ equity                       |       |              |       |                  |       |   |   |
| Common stock, at par value                      |       | 491               |       | 486                   |       | 490 |   |
| Additional paid-in capital                      |       | 138,839           |       | 128,541               |       | 136,867 |   |
| Retained earnings                               |       | 598,412           |       | 590,510               |       | 605,950 |   |
| Accumulated other comprehensive income          |       | 12,237            |       | 27,820                |       | 5,719 |   |
| Total stockholders’ equity                 |       | 749,979           |       | 747,357               |       | 749,026 |   |
| Total liabilities and stockholders’ equity |       | $                 | 829,897    |                  | $          | 870,083 |   | $ | 830,200 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

 

2

----

 

**Simpson Manufacturing Co., Inc.and Subsidiaries**

**Condensed Consolidated Statementsof Operations**

*(In thousands except per-share amounts, unaudited)*

 
| ** **                                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------|------------|------------------------|------------|----------------------|------------|
|                                           | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
|                                           | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Net sales                                      |       | $                      | 165,923    |                 | $          | 219,263 |   | $ | 285,246 |   | $ | 386,919 |   |
| Cost of sales                                  |       | 104,686                |       | 135,398              |       | 193,295 |   | 246,796 |   |
| Gross profit                                   |       | 61,237                 |       | 83,865               |       | 91,951 |   | 140,123 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Operating expenses:                            |       |                   |       |                 |       |   |   |   |   |
| Research and development and other engineering |       | 5,161                  |       | 5,610                |       | 10,025 |   | 10,713 |   |
| Selling                                        |       | 16,852                 |       | 22,134               |       | 32,877 |   | 41,942 |   |
| General and administrative                     |       | 20,315                 |       | 23,767               |       | 40,478 |   | 41,641 |   |
|                                           |       | 42,328                 |       | 51,511               |       | 83,380 |   | 94,296 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Income from operations                         |       | 18,909                 |       | 32,354               |       | 8,571 |   | 45,827 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Loss in equity method investment, before tax   |       | (21                    | )          | —               |       | (214 | ) | — |   |
| Interest income (expense), net                 |       | (38                    | )          | 505                  |       | 64 |   | 1,634 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Income before income taxes                     |       | 18,850                 |       | 32,859               |       | 8,421 |   | 47,461 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Provision for income taxes                     |       | 8,167                  |       | 12,478               |       | 6,147 |   | 18,728 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Net income                                     |       | $                      | 10,683     |                 | $          | 20,381 |   | $ | 2,274 |   | $ | 28,733 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Net income per common share                    |       |                   |       |                 |       |   |   |   |   |
| Basic                                          |       | $                      | 0.22       |                 | $          | 0.42 |   | $ | 0.05 |   | $ | 0.59 |   |
| Diluted                                        |       | $                      | 0.22       |                 | $          | 0.42 |   | $ | 0.05 |   | $ | 0.59 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Cash dividends declared per common share       |       | $                      | 0.10       |                 | $          | 0.10 |   | $ | 0.20 |   | $ | 0.20 |   |
|                                           |       |                   |       |                 |       |   |   |   |   |
| Number of shares outstanding                   |       |                   |       |                 |       |   |   |   |   |
| Basic                                          |       | 49,016                 |       | 48,593               |       | 49,001 |   | 48,584 |   |
| Diluted                                        |       | 49,114                 |       | 48,936               |       | 49,099 |   | 48,933 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

3

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**Simpson Manufacturing Co., Inc. and Subsidiaries**

**Condensed**Consolidated Statements ofStockholders’ Equity

**for thesix months ended June 30, 2008 and 2009 and December 31, 2008**

*(In thousands except per-share amounts, unaudited)*

 
|                                                      |   |             |       |           |       | ** **     | ** ** | ** **        |       | **Accumulated**    |       |      |   |
|-----------------------------------------------------------|--------|------------------|------------|----------------|------------|----------------|------------|-------------------|------------|--------------------|------------|-----------|--------|
|                                                      |   |             |       |           |       | **Additional** | ** ** | ** **        |       | **Other**          |       |      |   |
|                                                      |   | **Common Stock** | ** ** | **Paid-in**    | ** ** | **Retained**   | ** ** | **Comprehensive** |       |               |       |
|                                                      |   | **Shares**       | ** ** | **Par  Value** | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income  (Loss)** | ** ** | **Total** |   |
| Balance, January 1, 2008                             |   | 48,552           |       | $              | 485        |           | $          | 126,119           |       | $                  | 571,499    |      | $      | 25,297 |   | $ | 723,400 |   |
| Comprehensive income:                                     |   |             |       |           |       |           |       |              |       |               |       |      |   |
| Net income                                                |   | —           |       | —         |       | —         |       | 28,733            |       | —             |       | 28,733    |   |
| Other comprehensive income:                               |   |             |       |           |       |           |       |              |       |               |       |      |   |
| Translation adjustment, netof tax of $5                   |   | —           |       | —         |       | —         |       | —            |       | 2,523              |       | 2,523     |   |
| Comprehensive income                                      |   |             |       |           |       |           |       |              |       |               |       | 31,256    |   |
| Stock options exercised                                   |   | 38               |       | 1              |       | 741            |       | —            |       | —             |       | 742       |   |
| Stock compensation                                        |   | —           |       | —         |       | 1,541          |       | —            |       | —             |       | 1,541     |   |
| Tax benefit of options exercised                          |   | —           |       | —         |       | (107           | )          | —            |       | —             |       | (107      | )      |
| Cash dividends declared oncommon stock ($0.20 per  share) |   | —           |       | —         |       | —         |       | (9,722            | )          | —             |       | (9,722    | )      |
| Common stock issued at $26.59per share for stock bonus    |   | 9                |       | —         |       | 247            |       | —            |       | —             |       | 247       |   |
| Balance, June 30, 2008                               |   | 48,599           |       | 486            |       | 128,541        |       | 590,510           |       | 27,820             |       | 747,357   |   |
| Comprehensive income:                                     |   |             |       |           |       |           |       |              |       |               |       |      |   |
| Net income                                                |   | —           |       | —         |       | —         |       | 25,201            |       | —             |       | 25,201    |   |
| Other comprehensive income:                               |   |             |       |           |       |           |       |              |       |               |       |      |   |
| Translation adjustment, netof tax of $707                 |   | —           |       | —         |       | —         |       | —            |       | (22,101            | )          | (22,101   | )      |
| Comprehensive income                                      |   |             |       |           |       |           |       |              |       |               |       | 3,100     |   |
| Stock options exercised                                   |   | 372              |       | 4              |       | 6,135          |       | —            |       | —             |       | 6,139     |   |
| Stock compensation                                        |   | —           |       | —         |       | 1,708          |       | —            |       | —             |       | 1,708     |   |
| Tax benefit of options exercised                          |   | —           |       | —         |       | 483            |       | —            |       | —             |       | 483       |   |
| Cash dividends declared oncommon stock ($0.20 per  share) |   | —           |       | —         |       | —         |       | (9,761            | )          | —             |       | (9,761    | )      |
| Balance, December 31, 2008                           |   | 48,971           |       | 490            |       | 136,867        |       | 605,950           |       | 5,719              |       | 749,026   |   |
| Comprehensive income:                                     |   |             |       |           |       |           |       |              |       |               |       |      |   |
| Net income                                                |   | —           |       | —         |       | —         |       | 2,274             |       | —             |       | 2,274     |   |
| Other comprehensive income:                               |   |             |       |           |       |           |       |              |       |               |       |      |   |
| Translation adjustment, netof tax of ($38)                |   | —           |       | —         |       | —         |       | —            |       | 6,518              |       | 6,518     |   |
| Comprehensive income                                      |   |             |       |           |       |           |       |              |       |               |       | 8,792     |   |
| Stock options exercised                                   |   | 69               |       | 1              |       | 1,125          |       | —            |       | —             |       | 1,126     |   |
| Stock compensation                                        |   | —           |       | —         |       | 791            |       | —            |       | —             |       | 791       |   |
| Tax benefit of options exercised                          |   | —           |       | —         |       | (244           | )          | —            |       | —             |       | (244      | )      |
| Cash dividends declared oncommon stock ($0.20 per  share) |   | —           |       | —         |       | —         |       | (9,812            | )          | —             |       | (9,812    | )      |
| Common stock issued at $27.76per share for stock bonus    |   | 10               |       | —         |       | 300            |       | —            |       | —             |       | 300       |   |
| Balance, June 30, 2009                               |   | 49,050           |       | $              | 491        |           | $          | 138,839           |       | $                  | 598,412    |      | $      | 12,237 |   | $ | 749,979 |   |

 

The accompanying notes are an integral part of thesecondensed consolidated financial statements.

 

4

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**Simpson Manufacturing Co., Inc.and Subsidiaries**

**Condensed Consolidated Statements of Cash Flows**

*(In thousands, unaudited)*

 
| ** **                                                                                    | ** ** | **Six Months**          | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                    | ** ** | **Ended June 30,** | ** ** |
| ** **                                                                                    | ** ** | **2009**                | ** ** | **2008** | ** ** |
| **Cash flows from operating activities**                                                      |       |                    |       |   |   |
| Net  income                                                                                   |       | $                       | 2,274      |   | $ | 28,733 |   |
| Adjustments  to reconcile net income to net cash provided by (used in) operating  activities: |       |                    |       |   |   |
| (Gain)  loss on sale of assets                                                                |       | 71                      |       | (17 | ) |
| Depreciation  and amortization                                                                |       | 14,599                  |       | 15,007 |   |
| Deferred  income taxes                                                                        |       | (448                    | )          | 177 |   |
| Noncash  compensation related to stock plans                                                  |       | 1,043                   |       | 1,856 |   |
| Loss  in equity method investment                                                             |       | 214                     |       | — |   |
| Excess  tax benefit of options exercised                                                      |       | (19                     | )          | (45 | ) |
| Provision  for (recovery of) doubtful accounts                                                |       | 1,594                   |       | (559 | ) |
| Provision  for obsolete inventory                                                             |       | 570                     |       | — |   |
| Changes  in operating assets and liabilities, net of effects of acquisitions:                 |       |                    |       |   |   |
| Trade  accounts receivable                                                                    |       | (39,970                 | )          | (48,164 | ) |
| Inventories                                                                                   |       | 64,612                  |       | (7,193 | ) |
| Trade  accounts payable                                                                       |       | (818                    | )          | 17,469 |   |
| Income  taxes payable                                                                         |       | 3,061                   |       | 3,027 |   |
| Accrued  profit sharing trust contributions                                                   |       | (5,853                  | )          | (3,414 | ) |
| Accrued  cash profit sharing and commissions                                                  |       | 2,142                   |       | 6,436 |   |
| Other  current assets                                                                         |       | (4,444                  | )          | (121 | ) |
| Accrued  liabilities                                                                          |       | (1,789                  | )          | 303 |   |
| Other  long-term liabilities                                                                  |       | 3,254                   |       | 1,802 |   |
| Accrued  workers’ compensation                                                           |       | (8                      | )          | — |   |
| Other  noncurrent assets                                                                      |       | (1,903                  | )          | (2,010 | ) |
| Net  cash provided by operating activities                                                    |       | 38,182                  |       | 13,287 |   |
|                                                                                          |       |                    |       |   |   |
| **Cash flows from investing activities**                                                      |       |                    |       |   |   |
| Capital  expenditures                                                                         |       | (9,509                  | )          | (6,745 | ) |
| Proceeds  from sale of capital assets                                                         |       | 612                     |       | 2,668 |   |
| Asset  acquisitions, net of cash acquired                                                     |       | (23,670                 | )          | (26,087 | ) |
| Net  cash used in investing activities                                                        |       | (32,567                 | )          | (30,164 | ) |
|                                                                                          |       |                    |       |   |   |
| **Cash flows from financing activities**                                                      |       |                    |       |   |   |
| Line  of credit borrowings                                                                    |       | 842                     |       | 3,242 |   |
| Repayment  of debt and line of credit borrowings                                              |       | (842                    | )          | (1,237 | ) |
| Issuance  of common stock                                                                     |       | 1,126                   |       | 742 |   |
| Excess  tax benefit of options exercised                                                      |       | 19                      |       | 45 |   |
| Dividends  paid                                                                               |       | (9,798                  | )          | (9,716 | ) |
| Net  cash used in financing activities                                                        |       | (8,653                  | )          | (6,924 | ) |
|                                                                                          |       |                    |       |   |   |
| Effect  of exchange rate changes on cash                                                      |       | 1,420                   |       | (243 | ) |
|                                                                                          |       |                    |       |   |   |
| Net  decrease in cash and cash equivalents                                                    |       | (1,618                  | )          | (24,044 | ) |
| Cash  and cash equivalents at beginning of period                                             |       | 170,750                 |       | 186,142 |   |
| Cash  and cash equivalents at end of period                                                   |       | $                       | 169,132    |   | $ | 162,098 |   |
|                                                                                          |       |                    |       |   |   |
| **Noncash activity during the period**                                                        |       |                    |       |   |   |
| Noncash  capital expenditures                                                                 |       | $                       | 194        |   | $ | 95 |   |
| Dividends  declared but not paid                                                              |       | $                       | 4,915      |   | $ | 4,860 |   |
| Issuance  of Company’s common stock for compensation                                     |       | $                       | 300        |   | $ | 247 |   |
| Noncash  asset acquisition                                                                    |       | $                       | —     |   | $ | 1,568 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

5

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

**Notes to Condensed Consolidated FinancialStatements**

**(Unaudited)**

 

1.             Basis of Presentation

 

### ***Principles ofConsolidation***

 

The consolidatedfinancial statements include the accounts of Simpson Manufacturing Co., Inc.and its subsidiaries (the “Company”). Investments in 50% or less ownedaffiliates are accounted for using either cost or the equity method. Allsignificant intercompany transactions have been eliminated.

 

*Interim Period Reporting*

 

The accompanyingunaudited interim condensed consolidated financial statements have beenprepared pursuant to the rules and regulations for reporting on Form 10-Q.Accordingly, certain information and footnotes required by accountingprinciples generally accepted in the United States of America (“GAAP”) havebeen condensed or omitted. These interim statements should be read inconjunction with the consolidated financial statements and the notes theretoincluded in the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2008 (the “2008 Annual Report”).

 

The unaudited quarterlycondensed consolidated financial statements have been prepared on the samebasis as the audited annual consolidated financial statements and, in theopinion of management, contain all adjustments (consisting of only normalrecurring adjustments) necessary to state fairly the financial information setforth therein, in accordance with GAAP. The year-end condensed consolidatedbalance sheet data were derived from audited financial statements, but do notinclude all disclosures required by GAAP. The Company’s quarterly resultsfluctuate. As a result, the Company believes the results of operations for theinterim periods are not necessarily indicative of the results to be expectedfor any future period.

 

*Subsequent Events*

 

The Company has evaluated thefinancial statements for subsequent events through August 7, 2009, thedate of the filing of this Form 10-Q. See Note 11 “Subsequent Events.”

 

*Revenue Recognition*

 

The Company recognizes revenue whenthe earnings process is complete, net of applicable provision for discounts,returns and incentives, whether actual or estimated based on the Company’sexperience. This generally occurs when products are shipped to the customer inaccordance with the sales agreement or purchase order, ownership and risk ofloss pass to the customer, collectibility is reasonably assured and pricing isfixed or determinable. The Company’s general shipping terms are F.O.B. shippingpoint, where title is transferred and revenue is recognized when the productsare shipped to customers. When the Company sells F.O.B. destination point,title is transferred and the Company recognizes revenue on delivery or customeracceptance, depending on terms of the sales agreement. Service sales,representing after-market repair and maintenance, engineering activities andsoftware sales and service, though significantly less than 1% of net sales andnot material to the consolidated financial statements, are recognized as theservices are completed or the software products and services are delivered. Ifactual costs of sales returns, incentives and discounts were to significantlyexceed the recorded estimated allowance, the Company’s sales would be adverselyaffected.

 

*Net Income Per Common Share*

 

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

 

6

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

 
| ** **                               | ** ** | **Three  Months Ended,** | ** ** | **Three  Months Ended,** |       |
|------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                               | ** ** | **June 30,  2009**  | ** ** | **June 30,  2008**  |       |
| **(in thousands, except**                | ** ** | ** **               | ** ** | ** **               | ** ** | **Per** | ** ** | ** ** | ** ** | ** ** | ** ** | **Per** |   |
| **per-share amounts)**                   | ** ** | **Income**               | ** ** | **Shares**               | ** ** | **Share** | ** ** | **Income** | ** ** | **Shares** | ** ** | **Share** |   |
| **Basic EPS**                            |       |                     |       |                     |       |   |   |   |   |   |   |   |   |
| Income  available to common stockholders |       | $                        | 10,683     |                     | 49,016     |   | $ | 0.22 |   | $ | 20,381 |   | 48,593 |   | $ | 0.42 |   |
|                                     |       |                     |       |                     |       |   |   |   |   |   |   |   |   |
| **Effect of Dilutive Securities**        |       |                     |       |                     |       |   |   |   |   |   |   |   |   |
| Stock  options                           |       | —                   |       | 98                       |       | — |   | — |   | 343 |   | — |   |
|                                     |       |                     |       |                     |       |   |   |   |   |   |   |   |   |
| **Diluted EPS**                          |       |                     |       |                     |       |   |   |   |   |   |   |   |   |
| Income  available to common stockholders |       | $                        | 10,683     |                     | 49,114     |   | $ | 0.22 |   | $ | 20,381 |   | 48,936 |   | $ | 0.42 |   |

** **

 
| ** **                               |   | **Six  Months Ended,**  |       | **Six  Months Ended,**  |       |
|------------------------------------------|--------|-------------------------|------------|-------------------------|------------|
| ** **                               |   | **June 30,  2009** |       | **June 30,  2008** |       |
| ** **                               |   | ** **              | ** ** | ** **              | ** ** | **Per** | ** ** | ** ** | ** ** | ** ** | ** ** | **Per** |   |
| ** **                               |   | **Income**              | ** ** | **Shares**              | ** ** | **Share** | ** ** | **Income** | ** ** | **Shares** | ** ** | **Share** |   |
| **Basic EPS**                            |   |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Income  available to common stockholders |   | $                       | 2,274      |                    | 49,001     |   | $ | 0.05 |   | $ | 28,733 |   | 48,584 |   | $ | 0.59 |   |
|                                     |   |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Effect of Dilutive Securities**        |   |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Stock  options                           |   | —                  |       | 98                      |       | — |   | — |   | 349 |   | — |   |
|                                     |   |                    |       |                    |       |   |   |   |   |   |   |   |   |
| **Diluted EPS**                          |   |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Income  available to common stockholders |   | $                       | 2,274      |                    | 49,099     |   | $ | 0.05 |   | $ | 28,733 |   | 48,933 |   | $ | 0.59 |   |

 

Anti-dilutiveshares attributable to outstanding stock options were excluded from thecalculation of diluted net income per share. For the three months ended June 30,2009 and 2008, 1.1 million shares and 1.0 million shares, respectively, subjectto stock options were anti-dilutive. For the six months ended June 30,2009 and 2008, 1.1 million shares subject to stock options were anti-dilutive.

 

*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. Therewere no options granted under the 1995 Plan in 2009 or 2008.

 

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. Shares of common stockissued on exercise of stock options under both of the plans are registeredunder the Securities Act of 1933. Options granted under the 1994 Plantypically vest evenly over the requisite service period of four years and havea term of seven years. The vesting of options granted under the 1994 Plan willbe accelerated if the grantee ceases to be employed by the Company afterreaching age 60 or if there is a change in control of the Company. Optionsgranted under the 1995 Plan are fully vested on the date of grant.

 

7

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The following tablerepresents the Company’s stock option activity for the three and six monthsended June 30, 2009 and 2008:

 
| ** **                                                                               | ** ** | **Three  Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------|------------|
| ** **                                                                               | ** ** | **June 30,**       | ** ** | **June 30,**    | ** ** |
| **(in thousands)**                                                                       | ** ** | **2009**                | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                     |       |                    |       |                 |       |   |   |   |   |
| Stock option expense recognized in operating  expenses                                   |       | $                       | 397        |                 | $          | 801 |   | $ | 845 |   | $ | 1,702 |   |
|                                                                                     |       |                    |       |                 |       |   |   |   |   |
| Tax benefit of stock option expense in provision for  income taxes                       |       | 135                     |       | 316                  |       | 283 |   | 672 |   |
|                                                                                     |       |                    |       |                 |       |   |   |   |   |
| Stock option expense, net of tax                                                         |       | $                       | 262        |                 | $          | 485 |   | $ | 562 |   | $ | 1,030 |   |
|                                                                                     |       |                    |       |                 |       |   |   |   |   |
| Fair value of shares vested                                                              |       | $                       | 398        |                 | $          | 776 |   | $ | 791 |   | $ | 1,541 |   |
|                                                                                     |       |                    |       |                 |       |   |   |   |   |
| Proceeds to the Company from the exercise of stock  options                              |       | $                       | 998        |                 | $          | 234 |   | $ | 1,126 |   | $ | 742 |   |
|                                                                                     |       |                    |       |                 |       |   |   |   |   |
| Tax benefit from exercise of stock options,  including windfall (shortfall) tax benefits |       | $                       | (59        | )                    | $          | 42 |   | $ | (244 | ) | $ | 113 |   |

 
| ** **                                 | ** ** | **At June 30,** | ** ** |
|--------------------------------------------|------------|----------------------|------------|
| ** **                                 | ** ** | **2009**             | ** ** | **2008** | ** ** |
|                                       |       |                 |       |   |   |
| Stock option cost capitalized in inventory |       | $                    | 47         |   | $ | 91 |   |
|                                            |            |                      |            |  |  |  |  |

 

The amounts included incost of sales, research and development and other engineering, selling, orgeneral and administrative expense depend on the job functions performed by theemployees to whom the stock options were granted.

 

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

 

*Fair Value of FinancialInstruments*

 

As of June 30, 2009, the Company’s investmentsconsisted of only United States Treasury securities and money market fundsaggregating $59.5 million, which are maintained in cash equivalents and arecarried at cost, approximating fair value, based on Level 1 inputs. Level 1inputs are quoted prices (unadjusted) in active markets for identical assets orliabilities, as defined in Statement of Financial Accounting Standards (“SFAS”)No. 157.

 

*Income Taxes*

 

In general, the Companyis required to use an estimated annual effective tax rate to measure the taxbenefit or tax expense recognized in an interim period. The income tax expensefor the first and second quarters of 2009, however, has been computed based onthose quarters as discrete periods due to the uncertainty regarding the Company’sability to reliably estimate pre-tax income for the remainder of the year. Theeffective tax rate was 19.4% in the first quarter of 2009, which, as a result of the loss before taxes in thefirst quarter of 2009, resulted in income tax benefit of $2.0 million.The effective tax rate was 43.3% in the second quarter of 2009 which resultedin income tax expense of $8.2 million. The Company cannot reliably estimatepre-tax income for the remainder of 2009 or for the full year, primarily due tothe continued uncertainty in the construction markets in which the Companyoperates. The income tax provision for the three months and six months ended June 30,2008, was calculated using estimated annual effective tax rates.

 

8

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*Acquisitions*

 

Effective January 1,2009, the Company adopted the provisions of SFAS No. 141(R), “BusinessCombinations.” SFAS No. 141(R) requires the acquiring entity in abusiness combination to recognize the full fair value of assets acquired andliabilities assumed in the transaction (whether a full or partial acquisition);establishes the acquisition-date fair value as the measurement objective forall assets acquired and liabilities assumed; requires expensing of mosttransaction and restructuring costs; and requires the acquirer to disclose toinvestors and other users the information needed to evaluate and understand thenature and financial effect of the business combination. SFAS No. 141(R) appliesto all transactions or other events in which the Company obtains control of oneor more businesses, including combinations achieved without the transfer ofconsideration, such as by contract alone or through the lapse of minority vetorights. SFAS No. 141(R) applies prospectively to businesscombinations for which the acquisition date is on or after January 1,2009, except that resolution of certaintax contingencies 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 thisstatement did not have a material effect on the Company’s consolidatedfinancial statements on adoption, the effects on future periods will depend onthe nature and significance of future business combinations subject to thisstatement.

 

In January 2009, theCompany acquired the business of RO Design Corp, a Florida corporation doingbusiness as DeckTools, which licenses deck design and estimation software. Thesoftware provides professional deck builders, home centers and lumber yards asimple, graphics-driven solution for designing decks and estimating materialand labor costs for the project. Payments under the purchase agreement total$4.0 million in cash, including $2.5 million to be paid in the future, whichwill be treated as compensation expense to the principal officer of RO Design Corp,who is now employed by the Company. As a result of the acquisition, the Companyrecorded goodwill of $0.4 million and intangible assets subject to amortizationof $1.1 million in the connector products segment.

 

In April 2009, the Company’ssubsidiary, Simpson Strong-Tie Europe EURL, purchased the equity of AgenceInternationale Commerciale et Industrielle, S.A.S. (“Aginco”). Agincomanufactures a line of high-quality builder products and distributes them inFrance. The purchase price (subject to post-closing adjustments) was $21.9million in cash. As a result of the acquisition, the Company recorded goodwillof $12.1 million and intangible assets subject to amortization of $7.4 millionin the connector products segment. Net tangible assets, including machinery andequipment, inventory and trade accounts receivable, accounted for the balanceof the purchase price. Through this acquisition, the Company increased itspresence in the connector market in France. The Company believes that theadditional presence will further its position in the construction productsmarket. This factor contributed to a purchase price in excess of fair marketvalue of Aginco’s net tangible and intangible assets acquired, and as a result,the Company has recorded goodwill in connection with the transaction.

 

The Company has notfinalized the purchase price allocation for the RO Design Corp and Agincoacquisitions, as the Company is still obtaining information and analyzing thefair value of certain acquired assets and liabilities. The results ofoperations of the businesses acquired in 2009 are included in the Company’sconsolidated results of operations since the dates of the acquisitions and, forperiods prior to 2009, were not material to the Company. Accordingly, pro formaresults of operations have not been presented.

 

*Recently Issued AccountingStandards*

 

In April 2009, theFinancial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)Financial Accounting Standard (“FAS”)  141(R)-1,“Accounting for Assets Acquired and Liabilities Assumed in a BusinessCombination That Arise from Contingencies.” FSP FAS 141(R)-1 applies to allassets and liabilities assumed in a business combination that would be withinthe scope of SFAS No. 5, “Accounting for Contingencies,” if not acquiredin a business combination, except for assets or liabilities arising fromcontingencies that are subject to specific guidance in SFAS No. 141(R). Anacquirer must recognize at fair value, at the acquisition date, an asset orliability assumed in a business combination that arises from a contingency ifthe acquisition-date fair value of that asset or liability can be determinedduring the measurement period.  If theacquisition-date fair value of an asset acquired or liability assumed in a businesscombination that arises from a contingency cannot be determined during themeasurement period, an asset or liability must be recognized at the acquisitiondate if both information is available before the end of the measurement periodindicates that it is probable that an asset existed or that a liability hadbeen incurred at the acquisition date and the amount of the assets or liabilitycan be reasonably estimated. FSP FAS 141(R)-1 became effective for the Companyfor business combinations for which the acquisition date was on or after January 1,2009, and is not expected to have a material effect on the Company’sconsolidated financial statements.

 

9

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In May 2009, theFASB issued SFAS No. 165, “Subsequent Events,” which establishes generalstandards of accounting for, and disclosures of, events that occur after thebalance sheet date but before the financial statements are issued or areavailable to be issued. SFAS No. 165 requires the disclosure of the datethrough which an entity has evaluated subsequent events and is effective forinterim and annual reporting periods ending after June 15,2009.  The Company adopted the new disclosure requirements in its June 30,2009, condensed consolidated financial statements and the adoption did not havea material effect on the Company’s consolidated financial statements.

 

In June 2009, theFASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities.” This statement clarifies thecharacteristics that identify a variable interest entity (“VIE”) and changeshow a reporting entity identifies a primary beneficiary that would consolidatethe VIE from a quantitative risks and rewards calculation to a qualitativeapproach based on which variable interest holder has controlling financialinterest and the ability to direct the most significant activities that affectthe VIE’s economic performance.  SFAS No. 167 requires theprimary beneficiary assessment to be performed on a continuous basis and alsorequires additional disclosures about an entity’s involvement with the VIE,restrictions on the VIE’s assets and liabilities that are included in thereporting entity’s consolidated balance sheet, significant risk exposures due tothe entity’s involvement with the VIE, and how its involvement with a VIEaffects the reporting entity’s consolidated financial statements. SFAS No.167is effective for fiscal years beginning after November 15,2009.  The Company will adopt SFAS No. 167 on January 1,2010, and has not yet determined the effect, if any, on its consolidatedfinancial statements.

 

In June 2009, the FASB issued SFAS No. 168,“The FASB Accounting Standards CodificationTM and the Hierarchy of GenerallyAccepted Accounting Principles — a replacement of FASB Statement No. 162*”*(“Codification”). The Codification doesnot change GAAP but becomes the sole source of authoritative GAAP for companiesthat are registered under section 12 of the Securities Exchange Act of 1934.This Statement is effective for financial statements issued for interim andannual periods ending after September 15, 2009. Once effective, theCodification will supersede existing GAAP and become the source ofauthoritative accounting principles recognized by the FASB. This Statement onlyrequires a change in disclosure and will not affect the Company’s consolidatedfinancial statements.

 

2.             Trade Accounts Receivable, Net

 

Trade accounts receivableconsist of the following:

 
| ** **                                | ** ** | **At June 30,** | ** **    | **At December 31,** | ** ** |
|-------------------------------------------|------------|----------------------|---------------|--------------------------|------------|
| **(in thousands)**                        | ** ** | **2009**             | ** **    | **2008**                 | ** ** | **2008** | ** ** |
|                                      |       |                 |          |                     |       |   |   |
| Trade accounts receivable                 |       | $                    | 126,686       |                     | $          | 144,313 |   | $ | 81,929 |   |
| Allowance for doubtful accounts           |       | (5,469               | )             | (2,080                   | )          | (4,368 | ) |
| Allowance for sales discounts and returns |       | (2,571               | )             | (3,071                   | )          | (1,556 | ) |
|                                      |       | $                    |  118,646 |                     | $          | 139,162 |   | $ | 76,005 |   |

 

10

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3.                                       Inventories

 

Inventories consist ofthe following:

 
| ** **              | ** ** | **At****June 30****,** | ** ** | **At  December 31,** | ** ** |
|-------------------------|------------|-----------------------------|------------|---------------------------|------------|
| **(in thousands)** | ** ** | **2009**                    | ** ** | **2008**                  | ** ** | **2008** | ** ** |
|                    |       |                        |       |                      |       |   |   |
| Raw materials           |       | $                           | 62,041     |                      | $          | 83,616 |   | $ | 92,638 |   |
| In-process products     |       | 23,670                      |       | 26,161                    |       | 26,371 |   |
| Finished products       |       | 104,442                     |       | 122,798                   |       | 132,869 |   |
|                    |       | $                           | 190,153    |                      | $          | 232,575 |   | $ | 251,878 |   |

 

4.                                       Property, Plant and Equipment, Net

 

Property, plant andequipment, net, consist of the following:

 
| ** **                                     | ** ** | **At****June 30****,** | ** ** | **At  December 31,** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| **(in thousands)**                        | ** ** | **2009**                    | ** ** | **2008**                  | ** ** | **2008** | ** ** |
|                                           |       |                        |       |                      |       |   |   |
| Land                                           |       | $                           | 23,489     |                      | $          | 21,305 |   | $ | 23,989 |   |
| Buildings and site improvements                |       | 140,431                     |       | 133,920                   |       | 135,992 |   |
| Leasehold improvements                         |       | 4,395                       |       | 4,523                     |       | 4,287 |   |
| Machinery and equipment                        |       | 224,752                     |       | 221,005                   |       | 219,641 |   |
|                                           |       | 393,067                     |       | 380,753                   |       | 383,909 |   |
| Less accumulated depreciation and amortization |       | (205,833                    | )          | (188,662                  | )          | (193,639 | ) |
|                                           |       | 187,234                     |       | 192,091                   |       | 190,270 |   |
| Capital projects in progress                   |       | 6,724                       |       | 6,964                     |       | 3,048 |   |
|                                           |       | $                           | 193,958    |                      | $          | 199,055 |   | $ | 193,318 |   |

 

The Company’s vacant facility in San Leandro,California, remained classified as an asset held for sale as of June 30,2009, consistent with the classification at December 31, 2008. Thisfacility is associated with the connector segment. In 2007 and 2008,environmental analyses of the San Leandro property indicated that it hadcontamination related to spilled fuel that would require an estimated $0.7million to remediate. The clean-up is expected to be completed in 2009. TheCompany expects to sell the San Leandro property after the remediation iscompleted.

 

5.                                       Investments

 

*Equity Method Investment*

 

The Company has a 35%equity interest in Keymark Enterprises, LLC (“Keymark”), for which the Companyaccounts using the equity method. Keymark develops software that assists indesigning and engineering residential structures. The Company’s relationshipwith Keymark includes the specification of the Company’s products in theKeymark software. The Company has no obligation to make any additional capitalcontributions to Keymark.

 

11

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6.                                       Goodwill and Intangible Assets, Net

 

Goodwill and intangibleassets, net, by segment were as follows:

 
| ** **              | ** ** | **Goodwill**      | ** ** | **Intangible Assets, net** | ** ** |
|-------------------------|------------|-------------------|------------|----------------------------|------------|
| ** **              | ** ** | **at**            | ** ** | **at**                     | ** ** | **at** | ** ** | **at** | ** ** |
| ** **              | ** ** | **June 30,** | ** ** | **December 31,**      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
| **(in thousands)** | ** ** | **2009**          | ** ** | **2008**                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| Connector  products     |       | $                 | 75,423     |                       | $          | 64,205 |   | $ | 30,599 |   | $ | 20,889 |   |
| Venting  products       |       | 4,435             |       | 4,414                      |       | 2,451 |   | 2,564 |   |
| Total                   |       | $                 | 79,858     |                       | $          | 68,619 |   | $ | 33,050 |   | $ | 23,453 |   |

 

Intangible assets,net, were as follows:

 
| ** **              | ** ** | **At June 30, 2009** | ** ** | **At December 31, 2008** | ** ** |
|-------------------------|------------|---------------------------|------------|-------------------------------|------------|
| ** **              | ** ** | **Gross**                 | ** ** | ** **                    | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **              | ** ** | **Carrying**              | ** ** | **Accumulated**               | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** |
| **(in thousands)** | ** ** | **Amount**                | ** ** | **Amortization**              | ** ** | **Amount** | ** ** | **Amortization** | ** ** |
| Connector  products     |       | $                         | 45,194     |                          | $          | 14,595 |   | $ | 32,669 |   | $ | 11,780 |   |
| Venting  products       |       | 3,291                     |       | 840                           |       | 2,962 |   | 398 |   |
| Total                   |       | $                         | 48,485     |                          | $          | 15,435 |   | $ | 35,631 |   | $ | 12,178 |   |

 

Intangible assetsconsist primarily of customer relationships, patents, unpatented technology andnon-compete agreements. Amortization expense for intangible assets during thethree months ended June 30, 2009 and 2008, was $2.1 million and $1.2million, respectively, and during the six months ended June 30, 2009 and2008, was $3.3 million and $2.3 million, respectively.

 

At June 30, 2009,estimated future amortization of intangible assets, including the second halfof 2009, was as follows:

 
| **(in thousands)** | ** ** | ** ** | ** ** |
|-------------------------|------------|------------|------------|
|                    |       |       |       |
| 2009                    |       | $          | 2,720      |   |
| 2010                    |       | 4,327      |       |
| 2011                    |       | 4,289      |       |
| 2012                    |       | 3,530      |       |
| 2013                    |       | 2,508      |       |
| 2014                    |       | 2,381      |       |
| Thereafter              |       | 13,295     |       |
|                    |       | $          | 33,050     |   |

 

The changes in thecarrying amount of goodwill and intangible assets from December 31, 2008to June 30, 2009, were as follows:

 
| ** **                                             | ** ** | ** **   | ** ** | **Intangible** | ** ** |
|--------------------------------------------------------|------------|--------------|------------|----------------|------------|
| **(in thousands)**                                | ** ** | **Goodwill** | ** ** | **Assets**     | ** ** |
|                                                   |       |         |       |           |       |
| Balance  at December 31, 2008                     |       | $            | 68,619     |           | $          | 23,453 |   |
| Acquisitions                                           |       | 10,209       |       | 8,493          |       |
| Amortization                                           |       | —       |       | (3,258         | )          |
| Reclassifications                                      |       | (4,144       | )          | 3,891          |       |
| Adjustments  due to recognition of deferred tax assets |       | 3,706        |       | —         |       |
| Foreign  exchange                                      |       | 1,468        |       | 471            |       |
| Balance  at June 30, 2009                         |       | $            | 79,858     |           | $          | 33,050 |   |

 

12

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7.                                       Debt

 

Outstanding debt at June 30,2009 and 2008, and December 31, 2008, and the available lines of credit atJune 30, 2009, consisted of the following:

 
| ** **                                                                                                                                                                                                                     | ** ** | **Available**      | ** ** | **Debt Outstanding** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                                                                     | ** ** | **Credit at** | ** ** | **at**               | ** ** | **at** | ** ** |
| ** **                                                                                                                                                                                                                     | ** ** | **June 30,**  | ** ** | **June 30,**    | ** ** | **December 31,** | ** ** |
| **(dollar amounts in thousands)**                                                                                                                                                                               | ** ** | **2009**           | ** ** | **2009**             | ** ** | **2008** | ** ** | **2008** | ** ** |
|                                                                                                                                                                                                                           |       |               |       |                 |       |   |   |   |   |
| Revolving  line of credit, interest at LIBOR plus 0.27% (at June 30, 2009, LIBOR plus  0.27% was 0.57%), expires 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 June 30, 2009,  the bank’s base rate plus 3% was 3.50%), expires October 2009                                                      |       | 415                |       | —               |       | — |   | — |   |
|                                                                                                                                                                                                                           |       |               |       |                 |       |   |   |   |   |
| Revolving  lines of credit, interest rates between 1.48% and 3.86%                                                                                                                                                             |       | 5,448              |       | 27                   |       | 3,177 |   | 26 |   |
| Line  of credit                                                                                                                                                                                                                |       |               |       | $                    | 27         |   | $ | 3,177 |   | $ | 26 |   |
| Available  credit                                                                                                                                                                                                              |       | $                  | 205,863    |                 |       |   |   |   |   |   |

 

8.                                       Commitments and Contingencies

 

Note 9 to the consolidated financialstatements in the 2008 Annual Report provides information concerningcommitments and contingencies. From time to time, the Company is involved in variouslegal proceedings and other matters arising in the normal course of business.The resolution of claims and litigation is subject to inherent uncertainty andcould have a material adverse effect on the Company’s financial condition, cashflows and results of operations.

 

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. See Note 4 “Property, Plant and Equipment, Net.”

 

Corrosion, hydrogenenbrittlement, cracking, material hardness, wood pressure-treating chemicals,misinstallations, misuse, environmental conditions or other factors cancontribute to failure of fasteners, connectors, tools and venting products. Onoccasion, some of the fasteners and connectors that the Company sells havefailed, although the Company has not incurred any material liability resultingfrom those failures. The Company attempts to avoid such failures byestablishing and monitoring appropriate product specifications, manufacturingquality control procedures, inspection procedures and information onappropriate installation methods and conditions. The Company subjects itsproducts to extensive testing, with results and conclusions published inCompany catalogues and on its websites. Based on test results to date, theCompany believes that, generally, if its products are appropriately selected,installed and used in accordance with the Company’s guidance, they may bereliably used in appropriate applications.

 

9.                                       Stock Option Plans

 

The Company currently hastwo stock option plans (see Note 1 “Basis of Presentation — *Accounting for Stock-Based Compensation”*). Participants aregranted stock options only if the applicable Company-wide or profit-centeroperating goals, or both, established by the Compensation Committee of theBoard of Directors at the beginning of the year, are met.

 

13

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The fair value of each optionaward was estimated on the date of grant using the Black-Scholes option pricingmodel. Expected volatility is based on historical volatilities of the Company’scommon stock measured monthly over a term that is equivalent to the expectedlife of the option. The expected term of options granted is estimated based onthe Company’s prior exercise experience and future expectations of the exerciseand termination behavior of the grantees. The risk-free rate is based on theyield of United States Treasury zero-coupon bonds with maturities comparable tothe expected life in effect at the time of grant. The dividend yield is basedon the expected dividend yield on the grant date.

 

Black-Scholes optionpricing model assumptions for options granted in 2009 and 2008 are as follows:

 
| **Number**              | ** ** | ** ** | ** ** | **Risk-**    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **     | ** ** | ** **              | ** ** | **Weighted** | ** ** |
|-------------------------|------------|------------|------------|--------------|------------|--------------|------------|--------------|------------|----------------|------------|-------------------------|------------|--------------|------------|
| **of Options**     | ** ** | ** ** | ** ** | **Free**     | ** ** | ** **   | ** ** | ** **   | ** ** | ** **     | ** ** | ** **              | ** ** | **Average**  | ** ** |
| **Granted**             | ** ** | **Grant**  | ** ** | **Interest** | ** ** | **Dividend** | ** ** | **Expected** | ** ** | ** **     | ** ** | ** **              | ** ** | **Fair**     | ** ** |
| **(in thousands)** | ** ** | **Date**   | ** ** | **Rate**     | ** ** | **Yield**    | ** ** | **Life**     | ** ** | **Volatility** | ** ** | **Exercise Price** | ** ** | **Value**    | ** ** |
|                    |       |       |       |         |       |         |       |         |       |           |       |                    |       |         |       |
| **1994 Plan**           |       |       |       |         |       |         |       |         |       |           |       |                    |       |         |       |
| 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 |   |

 

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

 

The following tablesummarizes the Company’s stock option activity for the six months ended June 30,2009:

 
| ** **                                              | ** ** | ** **              | ** ** | ** **    | ** ** | **Weighted-**                 | ** ** | ** **              | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|---------------|------------|-------------------------------|------------|-------------------------|------------|
| ** **                                              | ** ** | ** **              | ** ** | **Weighted-** | ** ** | **Average**                   | ** ** | **Aggregate**           | ** ** |
| ** **                                              | ** ** | ** **              | ** ** | **Average**   | ** ** | **Remaining**                 | ** ** | **Intrinsic**           | ** ** |
| ** **                                              | ** ** | **Shares**              | ** ** | **Exercise**  | ** ** | **Contractual**               | ** ** | **Value ***             | ** ** |
| **Non-Qualified Stock Options**               | ** ** | **(in thousands)** | ** ** | **Price**     | ** ** | **Life (in years)** | ** ** | **(in thousands)** | ** ** |
|                                                    |       |                    |       |          |       |                          |       |                    |       |
| Outstanding at  January 1, 2009                    |       | 2,250                   |       | $             | 29.70      |                          |       |                    |       |   |
| Granted                                                 |       | 53                      |       | 18.92         |       |                          |       |                    |       |
| Exercised                                               |       | (69                     | )          | 16.45         |       |                          |       |                    |       |
| Forfeited                                               |       | (55                     | )          | 36.83         |       |                          |       |                    |       |
| Outstanding at  June 30, 2009                      |       | 2,179                   |       | $             | 29.67      |                          | 2.4        |                    | $          | 1,222 |   |
| Outstanding and  expected to vest at June 30, 2009 |       | 2,168                   |       | $             | 29.68      |                          | 2.4        |                    | $          | 1,212 |   |
| Exercisable at  June 30, 2009                      |       | 1,965                   |       | $             | 29.53      |                          | 2.1        |                    | $          | 1,091 |   |

 

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* Theintrinsic value represents the amount, if any, by which the fair market valueof the underlying common stock exceeds the exercise price of the option, usingthe closing price per share of $21.62 as reported by the New York StockExchange on June 30, 2009.

 

The total intrinsic value of options exercised during the sixmonths ended June 30, 2009 and 2008, was $0.4 million and $0.3 million,respectively.

 

14

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Asummary of the status of unvested options as of June 30, 2009, and changesduring the six months ended June 30, 2009, are presented below:
| ** **                        | ** ** | ** **              | ** ** | **Weighted-**       | ** ** |
|-----------------------------------|------------|-------------------------|------------|---------------------|------------|
| ** **                        | ** ** | ** **              | ** ** | **Average**         | ** ** |
| ** **                        | ** ** | **Shares**              | ** ** | **Grant-Date**      | ** ** |
| **Unvested Options**         | ** ** | **(in thousands)** | ** ** | **Fair Value** | ** ** |
|                              |       |                    |       |                |       |
| Unvested at  January 1, 2009 |       | 258                     |       | $                   | 11.58      |   |
| Granted                           |       | 53                      |       | 5.04                |       |
| Vested                            |       | (94                     | )          | 12.08               |       |
| Forfeited                         |       | (3                      | )          | 13.68               |       |
| Unvested at  June 30, 2009   |       | 214                     |       | $                   | 9.71       |   |

 

As of June 30, 2009, $1.8 million of total unrecognized compensation cost was related tounvested share-based compensation arrangements under the 1994 Plan. This costis expected to be recognized over a weighted-average period of 1.28 years.Options granted under the 1995 Plan are fully vested and are expensed on thedate of grant.

 

 

10.                                 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 periods presented.

 

The following tableillustrates certain measurements used by management to assess the performanceof the segments described above as of or for the following periods:

 
| ** **                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(in thousands)**       | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| *Net Sales*                   |       |                             |       |                           |       |   |   |   |   |
| Connector  products           |       | $                                | 152,197    |                           | $          | 205,714 |   | $ | 261,341 |   | $ | 359,882 |   |
| Venting  products             |       | 13,726                           |       | 13,549                         |       | 23,905 |   | 27,037 |   |
| Total                         |       | $                                | 165,923    |                           | $          | 219,263 |   | $ | 285,246 |   | $ | 386,919 |   |
|                          |       |                             |       |                           |       |   |   |   |   |
| *Income from Operations*      |       |                             |       |                           |       |   |   |   |   |
| Connector  products           |       | $                                | 20,637     |                           | $          | 36,396 |   | $ | 13,552 |   | $ | 52,903 |   |
| Venting  products             |       | (1,011                           | )          | (2,813                         | )          | (4,271 | ) | (5,638 | ) |
| Administrative  and all other |       | (717                             | )          | (1,229                         | )          | (710 | ) | (1,438 | ) |
| Total                         |       | $                                | 18,909     |                           | $          | 32,354 |   | $ | 8,571 |   | $ | 45,827 |   |

 
| ** **                    | ** ** | ** **                | ** ** | **At**                | ** ** |
|-------------------------------|------------|---------------------------|------------|-----------------------|------------|
| ** **                    | ** ** | **At June 30,** | ** ** | **December 31,** | ** ** |
| **(in thousands)**       | ** ** | **2009**                  | ** ** | **2008**              | ** ** | **2008** | ** ** |
| *Total Assets*                |       |                      |       |                  |       |   |   |
| Connector  products           |       | $                         | 636,105    |                  | $          | 628,308 |   | $ | 612,733 |   |
| Venting  products             |       | 72,858                    |       | 77,494                |       | 77,218 |   |
| Administrative  and all other |       | 120,934                   |       | 164,281               |       | 140,249 |   |
| Total                         |       | $                         | 829,897    |                  | $          | 870,083 |   | $ | 830,200 |   |

 

15

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Cash collected by the Company’s subsidiaries is routinelytransferred into the Company’s cash management accounts and, therefore, hasbeen included in the total assets of “Administrative and all other.” Cash andcash equivalent balances in the “Administrative and all other” segment were$136.1 million, $137.2 million, and $136.2 million, as of June 30, 2009and 2008, and December 31, 2008, respectively.

 

11.                                 Subsequent Events

 

In July 2009, theCompany’s Board of Directors declared a cash dividend of $0.10 per share, atotal currently estimated at $4.9 million, to be paid on October 22, 2009,to stockholders of record on October 1, 2009.

 

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**Item 2.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 “Part II, Item 1A -**RiskFactors.**”**Actual results might differ materially from resultssuggested by any forward-looking statements in this report.**The Company does nothave an obligation to publicly update any forward-looking statements, whetheras a result of the receipt of new information, the occurrence of future eventsor otherwise.*

 

The following is a discussion andanalysis of the consolidated financial condition and results of operations forthe Company for the three and six months ended June 30, 2009 and 2008. Thefollowing should be read in conjunction with the interim Condensed ConsolidatedFinancial Statements and related Notes appearing elsewhere herein.

 

Resultsof Operations for the Three Months Ended June 30, 2009, Compared with theThree Months Ended June 30, 2008

 

Net sales decreased 24.3% from $219.3million in the second quarter of 2008 to $165.9 million in the second quarterof 2009. Net income decreased 47.6% from $20.4 million in the second quarter of2008 to $10.7 million in the second quarter of 2009. Diluted net income percommon share was $0.22 in the second quarter of 2009 compared to diluted netincome per common share of $0.42 in the second quarter of 2008.

 

In the second quarter of 2009, salesdeclined throughout the United States. California and the western andsoutheastern regions had the largest decreases in sales. Sales during thequarter also decreased throughout Europe, with the exception of France, anddecreased in the United Kingdom and Canada. Sales in France were flat,primarily due to the acquisition of Agence Internationale Commerciale etIndustrielle, S.A.S. (“Aginco”) in April 2009. Sales in Asia, althoughrelatively small, have increased as Simpson Strong-Tie has recently expandedits presence in the region. Simpson Strong-Tie’s second quarter sales decreased26.0% from the same quarter last year, while Simpson Dura-Vent’s salesincreased 1.3%. Simpson Strong-Tie’s sales to dealer distributors andcontractor distributors decreased significantly as homebuilding activity, andgeneral economic conditions, remain weak. Sales to home centers decreasedslightly. Sales decreased across all of Simpson Strong-Tie’s major productlines, particularly those used in new home construction. Sales of SimpsonDura-Vent’s Direct-Vent and gas vent product lines decreased, but the decreasewas offset by increases in sales of chimney and pellet vent products, as wellas an increase in sales of special gas vent and relining products resultingfrom the acquisition of ProTech Systems, Inc. (“ProTech”) in June 2008.

 

Income from operations decreased41.6% from $32.4 million in the second quarter of 2008 to $18.9 million in thesecond quarter of 2009. Gross margins decreased from 38.2% in the secondquarter of 2008 to 36.9% in the second quarter of 2009. The decrease in grossmargins was primarily due to reduced absorption of fixed overhead, as a resultof lower production volumes, as well as higher manufacturing costs, includinghigher costs of material and labor. The decline in steel prices slowed in thesecond quarter of 2009. The Company expects steel prices to increase as demandreturns to the market. Through the first half of 2009, the Company had focusedon reducing inventories, which decreased by 24.5%.

 

Research and development expensedecreased 8.0% from $5.6 million in the second quarter of 2008 to $5.2 millionin the second quarter of 2009. This decrease was primarily due to a $0.3million decrease in personnel-related expenses. Selling expense decreased 23.9%from $22.1 million in the second quarter of 2008 to $16.9 million in the secondquarter of 2009. The decrease resulted primarily from a $3.1 million decreasein expenses associated with sales and marketing personnel, most of which wasrelated to cost-cutting measures, and a $1.8 million decrease in promotionalexpenditures. General and administrative expense decreased 14.5% from $23.8million in the second quarter of 2008 to $20.3 million in the second quarter of2009. The decrease was the result of several factors, including a $3.0 milliondecrease in cash profit sharing, a $0.8 million decrease in administrativepersonnel expenses, related in part to cost-cutting measures, and a $0.7million decrease in legal and professional service expenses. These decreaseswere partly offset by a $0.9 million increase in amortization of intangibleassets, primarily related to the businesses acquired since June 2008. TheCompany had interest expense in excess of interest income, primarily related tomaintenance fees on its line of credit, in the second quarter of 2009, ascompared to interest income in the second quarter of 2008. Interest incomedecreased primarily due to lower interest rates. The effective tax rate was43.3% in the second quarter of 2009, up from 38.0% in the second quarter of2008. The effective tax rate is higher than the statutory rate primarily due tothe valuation allowances taken onforeign losses and a reduced 

 

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benefitfrom the reduction or loss of enterprise zone tax credits at two of the Company’sfacilities in California. In general, the Company is requiredto use an estimated annual effective tax rate to measure the tax benefit or taxexpense recognized in an interim period. The income tax expense for the threemonths ended June 30, 2009, however, has been computed based on the threemonths ended June 30, 2009, as a discrete period due to the uncertaintyregarding the Company’s ability to reliably estimate pre-tax income for theremainder of the year. The Company cannot reliably estimate pre-tax income forthe remainder of 2009 or for the full year, primarily due to the continueduncertainty in the construction markets in which the Company operates. The incometax provision for the three months ended June 30, 2008, was calculatedusing estimated annual effective tax rates.

 

***ConnectorProducts — Simpson Strong-Tie***

 

Simpson Strong-Tie’s netsales decreased 26.0% from $205.7 million in the second quarter of 2008 to$152.2 million in the second quarter of 2009.  Simpson Strong-Tie accountedfor 91.7% of the Company’s total net sales in the second quarter of 2009, downfrom 93.8% in the second quarter of 2008. The decrease in net sales at SimpsonStrong-Tie resulted primarily from a decrease in sales volume, some of whichwas offset by increases from newly acquired businesses, although average pricesincreased 18.0% as compared to the second quarter of 2008. In the secondquarter of 2009, Simpson Strong-Tie’s sales declined throughout the UnitedStates. California and the western and the southeastern regions had the largestdecrease in sales. Simpson Strong-Tie’s sales during the quarter also decreasedthroughout Europe, with the exception of France, and decreased in the UnitedKingdom and Canada. Sales in France were flat, primarily due to the acquisitionof Aginco in April 2009. Sales in Asia, although relatively small, haveincreased as Simpson Strong-Tie has recently expanded its presence in theregion. Simpson Strong-Tie’s sales to dealer distributors and contractordistributors decreased significantly as homebuilding activity, and generaleconomic conditions, remain weak. Sales decreased across all of SimpsonStrong-Tie’s major product lines, particularly those used in new homeconstruction.

 

SimpsonStrong-Tie’s income from operations decreased 43.3% from $36.4 million in thesecond quarter of 2008 to $20.6 million in the second quarter of 2009. Grossmargin decreased from41.0% in the second quarter of 2008 to38.8% in the second quarter of 2009. This decrease was primarily due to reducedabsorption of fixed overhead, as a result of lower production volumes, as wellas higher manufacturing costs, including higher costs of material and labor.

 

Simpson Strong-Tie’s researchand development expense decreased 9.5% from $5.4 million in the second quarterof 2008 to $4.9 million in the second quarter of 2009. This decrease wasprimarily due to a $0.3 million decrease in expenses related to personnel.  Simpson Strong-Tie’s selling expensedecreased 25.4% from $20.7 million in thesecond quarter of 2008 to $15.4 million in the second quarter of 2009. The decrease resulted primarily from a$3.0 million decrease in expenses associated with sales and marketingpersonnel, most of which was related to cost-cutting measures, and a $1.9million decrease in promotional expenditures. Simpson Strong-Tie’s general andadministrative expense decreased 17.9% from $21.9 million in the second quarterof 2008 to $18.0 million in the second quarter of 2009. The decrease wasprimarily due to a $2.2 million decrease in cash profit sharing, a $1.3 milliondecrease in administrative personnel expenses, a $0.5 million decrease ininformation technology expenditures and a $0.4 million decrease in home officeadministrative allocations. The decrease was partly offset by an increase of$0.7 million in amortization of intangible assets, primarily related to thebusinesses acquired since June 2008.

 

For its European operations, SimpsonStrong-Tie recorded losses from operationsof $1.4 million in the second quarter of 2009 compared to income fromoperations of $2.6 million in the second quarter of 2008.

 

SimpsonStrong-Tie has continued to adjust production levels downward at variousfacilities in the United States, and as a result, has reduced its labor forceat these facilities.

 

***VentingProducts — Simpson Dura-Vent***

 

Simpson Dura-Vent’s netsales increased 1.3% to $13.7 million in thesecond quarter of 2009 from $13.5 million in the second quarter of 2008.  SimpsonDura-Vent accounted for 8.3% of the Company’stotal net sales in the second quarter of 2009, an increase from 6.2% in thesecond quarter of 2008. The increase in net sales at Simpson Dura-Vent resulted primarily from average price increasesof 6.9% as compared to the second quarter of 2008, offset by a decrease insales volume even with the increase from ProTech. In the second quarter of2009, Simpson Dura-Vent’s sales increased primarily in the southeast andnortheast, but those increases were largely 

 

18

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offset by decreaseselsewhere, primarily in California, resulting from the weakness in new home construction.  Sales were mixed across Simpson Dura-Vent’s product lines, withsales increases of chimney, pellet vent, special gas vent and relining productsoffset by decreases in gas vent and Direct-Vent products.  The increase in special gas vent and reliningproducts was a result of the acquisition of ProTech in June 2008.

 

SimpsonDura-Vent’s loss from operations decreased from $2.8 million in the secondquarter of 2008 to $1.0 million in the second quarter of 2009. Simpson Dura-Vent’s gross profit increased to $2.2 million in thesecond quarter of 2009 from a loss of $0.2 million in the second quarter of2008. This increase was primarily due to lower fixed overhead, labor andshipping costs, offset slightly by higher costs of material.

 

Simpson Dura-Vent’sgeneral and administrative expense increased 48.1% to $1.5 million in thesecond quarter of 2009 from $1.0 million in the second quarter of 2008. Thisincrease was primarily due to a $0.1 million increase in expenses associatedwith administrative personnel, including those at businesses acquired in 2008,and a $0.3 million increase in intangible asset amortization expense.

 

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

 

Interestincome is generated on the Company’s cash and cash equivalents balances. Interest income decreased primarily as aresult of lower interest rates and was more than offset by interest expense, which includes interest, accountmaintenance fees and bank charges.

 

Resultsof Operations for the Six Months Ended June 30, 2009, Compared with theSix Months Ended June 30, 2008

 

Net sales decreased 26.3% from $386.9million in the first half of 2008 to $285.2 million in the first half of 2009.Net income decreased 92.1% from $28.7 million in the first half of 2008 to $2.3million in the first half of 2009. Diluted net income per common share was$0.05 in the first half of 2009 compared to diluted net income per common shareof $0.59 in the first half of 2008.

 

In the first half of 2009, salesdeclined throughout the United States. California and the western andsoutheastern regions had the largest decreases in sales. Sales during theperiod also decreased throughout Europe, the United Kingdom and Canada. SimpsonStrong-Tie’s first half sales decreased 27.4% from the same period last year,while Simpson Dura-Vent’s sales decreased 11.6%. Simpson Strong-Tie’s sales todealer distributors and contractor distributors decreased significantly as aresult of the weakness in the U.S. housing market. Sales to home centersdecreased slightly. Sales decreased across all of Simpson Strong-Tie’s majorproduct lines, particularly those used in new home construction. Sales ofSimpson Dura-Vent’s Direct-Vent and gas vent product lines decreased, but thedecrease was partly offset by an increase in sales of pellet vent products, aswell as an increase in sales of special gas vent and relining productsresulting from the acquisition of ProTech in June 2008.

 

Income from operations decreased81.3% from $45.8 million in the first half of 2008 to $8.6 million in the firsthalf of 2009. Gross margins decreased from 36.2% in the first half of 2008 to32.2% in the first half of 2009. The decrease in gross margins was primarilydue to reduced absorption of fixed overhead, as a result of lower productionvolumes, as well as higher manufacturing costs, including higher costs ofmaterial and labor.

 

Research and development expensedecreased 6.4% from $10.7 million in the first half of 2008 to $10.0 million inthe first half of 2009. This decrease was primarily due to a $0.4 milliondecrease in professional service fees and a $0.1 million decrease inpersonnel-related expenses. Selling expense decreased 21.6% from $41.9 millionin the first half of 2008 to $32.9 million in the first half of 2009. Thedecrease resulted primarily from a $5.1 million decrease in expenses associatedwith sales and marketing personnel, most of which was related to cost-cuttingmeasures, and a $2.8 million decrease in promotional expenditures. General andadministrative expense decreased 2.8% from $41.6 million in the first half of2008 to $40.5 million in the first half of 2009. The decrease resulted from a$4.5 million decrease in cash profit sharing, partly offset by a $2.2 millionincrease in bad debt charges in the first quarter of 2009 and a $1.0 millionincrease in amortization of intangible assets, primarily related to thebusinesses acquired since June 2008. Interest income decreased 96.1% from$1.6 million in the first half of 2008 to $0.1 million in the first half of2009, primarily due to lower interest rates and maintenance fees on the Company’sline of credit. The effective tax rate was 73.0% in the first half of 2009, upfrom 39.5% in the first half of 2008. The effective tax rate is higher than thestatutory rate primarily due to the valuationallowances taken on foreign losses and a reduced benefit from the reduction orloss of enterprise zone tax credits at two of the Company’s facilities inCalifornia. The income tax expense for the first half of 2009, however,has been computed based on the first and second quarters of 2009 as discreteperiods due to the uncertainty regarding the Company’s ability to reliablyestimate pre-tax income for the 

 

19

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remainder of the year. The effectivetax rate was 19.4% in the first quarter of 2009, which, as a result of the loss before taxes in the first quarter of 2009,resulted in income tax benefit of $2.0 million. The effective tax rate was43.3% in the second quarter of 2009 which resulted in income tax expense of$8.2 million. The Company cannot reliably estimate pre-tax income for theremainder of 2009 or for the full year, primarily due to the continueduncertainty in the construction markets in which the Company operates. Theincome tax provision for the six months ended June 30, 2008, wascalculated using estimated annual effective tax rates.

 

***ConnectorProducts — Simpson Strong-Tie***

 

Simpson Strong-Tie’s netsales decreased 27.4% from $359.9 million in the first half of 2008 to $261.3million in the first half of 2009.  SimpsonStrong-Tie accounted for 91.6% of theCompany’s total net sales in the first half of 2009, a decrease from 93.0% inthe first half of 2008. The decrease in net sales at Simpson Strong-Tieresulted primarily from a decrease in sales volume, partly offset by increasesfrom newly acquired businesses and increases in prices averaging 19.6% from thefirst half of 2008. In the first half of 2009, Simpson Strong-Tie’ssales declined throughout the United States. California, the western states andthe southeastern states had the largest decrease in sales. Simpson Strong-Tie’ssales during the first half of 2009 also decreased throughout Europe, theUnited Kingdom and Canada. Sales in Asia, although relatively small, haveincreased as Simpson Strong-Tie has recently expanded its presence in theregion. Simpson Strong-Tie’s sales to dealer distributors and contractordistributors decreased significantly as a result of the weakness in the U.S.housing market. Sales decreased across all of Simpson Strong-Tie’s majorproduct lines, particularly those used in new home construction.

 

SimpsonStrong-Tie’s income from operations decreased 74.4% from $52.9 million in thefirst half of 2008 to $13.6 million in the first half of 2009. Gross margin decreased from 39.0% in the first half of 2008 to 34.3% in thefirst half of 2009. This decrease was primarily due to reduced absorption offixed overhead, as a result of lower production volumes, as well as slightlyhigher manufacturing costs, including higher costs of material, labor anddistribution.

 

Simpson Strong-Tie’sresearch and development expense decreased 8.2% from $10.2 million in the firsthalf of 2008 to $9.4 million in the first half of 2009. This decrease wasprimarily due to a $0.5 million decrease in professional services and a $0.2million decrease in personnel-related expenses.  Simpson Strong-Tie’s selling expense decreased 22.4% from $38.8million in the first half of 2008 to$30.1 million in the first half of 2009.The decrease resulted primarily from a $4.9 million decrease in expensesassociated with sales and marketing personnel, most of which was related tocost-cutting measures, a $2.8 million decrease in promotional expenditures anda $0.4 million decrease in professional services. Simpson Strong-Tie’s generaland administrative expense decreased 4.7% from $38.4 million in the first halfof 2008 to $36.6 million in the first half of 2009. The decrease was primarilydue to a $3.7 million decrease in cash profit sharing that resulted from loweroperating income, a $0.9 million decrease in administrative personnel expenses,and a $0.7 million decrease in information technology expenditures, which werepartly offset by a $2.2 million increase in the provision for bad debt,primarily related to one customer, and a $0.9 million increase in home officeadministrative allocations.

 

For its European operations, SimpsonStrong-Tie recorded losses from operationsof $5.6 million in the first half of 2009 compared to income from operations of$1.6 million in the first half of 2008.

 

SimpsonStrong-Tie has continued to adjust production levels downward at variousfacilities in the United States and, as a result, has reduced its labor forceat these facilities.

 

***VentingProducts — Simpson Dura-Vent***

 

Simpson Dura-Vent’s net salesdecreased 11.6% from $27.0 million in the first half of 2008 to $23.9 millionin the first half of 2009. Simpson Dura-Vent accounted for 8.4% of the Company’stotal net sales in the first half of 2009, an increase from 7.0% in the firsthalf of 2008. The decrease in net sales at Simpson Dura-Vent resulted primarilyfrom a decrease in sales volume, partly offset by the addition of ProTech salesand increases in prices averaging 8.1% from the first half of 2008. In thefirst half of 2009, Simpson Dura-Vent’s sales decreased throughout the UnitedStates, with the largest decreases in California and the western region,resulting from the weakness in new home construction. These decreases wereoffset slightly by increases in the southeastern and northeastern regions.Sales of Simpson Dura-Vent’s Direct-Vent and gas vent product lines decreased,while sales of its pellet vent products increased, as did sales of its specialgas vent and relining products resulting from the acquisition of ProTech in June 2008.

 

20

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SimpsonDura-Vent’s loss from operations decreased from $5.6 million in the first halfof 2008 to $4.3 million in the first half of 2009. Simpson Dura-Vent’s gross profit increased to $2.3 million in the first half of 2009 from aloss of $55 thousand in the first half of 2008. This increase wasprimarily due to lower fixed overhead and labor costs, offset slightly byhigher material costs.

 

Simpson Dura-Vent’sresearch and development expense increased 33.8% to $0.7 million in the firsthalf of 2009 from $0.5 million in the first half of 2008, which resultedprimarily from an increase of $0.1 million in professional service expenses anda $0.1 million increase in personnel costs. Simpson Dura-Vent’s selling expense decreased 10.9% from $3.1 million inthe first half of 2008 to $2.8 millionin the first half of 2009. Thisdecrease resulted primarily from a $0.2 million decrease in agent commissionsand a $0.1 million decrease in expenses associated with sales and marketingpersonnel. Simpson Dura-Vent’s general and administrative expense increased58.2% to $3.1 million in the first half of 2009 from $2.0 million in the firsthalf of 2008. This increase was primarily due to a $0.3 million increase inexpenses associated with administrative personnel, including those atbusinesses acquired in 2008, and a $0.4 million increase in intangible assetamortization expense.

 

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

 

Interestincome is generated on the Company’s cash and cash equivalents balances. In thefirst half of 2009, interest income decreased primarily as a result of lower interest rates and wasnearly offset by interest expense, whichincludes interest, account maintenance fees and bank charges.

 

CriticalAccounting Policies and Estimates

 

The Company did not makeany significant changes to its critical accounting policies and estimatesduring the three or six months ended June 30, 2009, from those disclosedin “Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations,” included in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2008. See Note 1, “Basis of Presentation*— RecentlyIssued Accounting Standards,*”  tothe Company’s Condensed Consolidated Financial Statements regarding recentlyissued accounting standards.

 

Liquidity and Sources of Capital

 

As of June 30, 2009, working capital was $438.4million as compared to $448.7 million at June 30, 2008, and $455.7 millionat December 31, 2008. The decrease in working capital from December 31,2008, was primarily due to a $61.7 million decrease in inventories, a $1.6million decrease in cash and cash equivalents, a $2.2 million increase inaccrued cash profit sharing and commissions and a $1.4 million increase inincome taxes payable. Raw material inventories decreased 33.0% from December 31,2008, while in-progress and finished goods inventories decreased 19.5% over thesame period. The decrease in raw material inventories resulted from lowerpurchasing activity during the quarter, and the decreases in in-progress andfinished goods inventories resulted from higher sales and lower productionvolumes at the Company’s manufacturing facilities. Partly offsetting thedecreases in working capital were a $42.6 million increase in net tradeaccounts receivable, a $2.1 million increase in other current assets, and a$5.8 million decrease in accrued profit sharing contributions. Net tradeaccounts receivable increased 56.1% from December 31, 2008, as a result ofincreased sales in the latter part of the second quarter of 2009 compared tothe latter part of the fourth quarter of 2008. The balance of the change inworking capital was due to the fluctuation of various other asset and liabilityaccounts, none of which was individually material. The working capital changeand changes in noncurrent assets and liabilities, combined with net income of$2.3 million and noncash expenses, primarily depreciation, amortization andstock-based compensation charges totaling $15.6 million, resulted in net cashprovided by operating activities of $38.2 million. As of June 30, 2009,the Company had unused credit facilities available of $205.9 million.

 

In January 2009, theCompany acquired the business of RO Design Corp, a Florida corporation doingbusiness as DeckTools, which licenses deck design and estimation software. Thesoftware provides professional deck builders, home centers and lumber yards asimple, graphics-driven solution for designing decks and estimating materialand labor costs for the project. Payments under this agreement total $4.0million in cash, including $2.5 million to be paid in the future, which will betreated as compensation expense to the principal officer of RO Design Corp, whois now employed by the Company. The Company recorded goodwill of $0.4 millionand intangible assets subject to amortization of $1.1 million in the connectorproducts segment as a result of the acquisition, but the purchase priceallocation has not been finalized.

 

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In April 2009, the Company’ssubsidiary, Simpson Strong-Tie Europe EURL, purchased the equity of Aginco,which manufactures a line of high-quality builder products and distributes themin France. The purchase price (subject to post-closing adjustments) was $21.9million in cash. The Company recorded goodwill of $12.1 million and intangibleassets subject to amortization of $7.4 million in the connector productssegment as a result of the acquisition. Net tangible assets, includingmachinery and equipment, inventory and trade accounts receivable, accounted forthe balance of the purchase price, but the purchase price allocation has notbeen finalized.

 

The Company used $32.6 million in its investing activities,primarily for the acquisitions of the RO Design Corp and Aginco businesses andcapital expenditures mainly at its facilities in Europe and Asia. The Companyestimates that its full-year capital spending will total $16.0 million in 2009.

 

The Company hasclassified its vacant facility in San Leandro, California, as an asset held forsale. In 2007 and 2008, environmental analyses of the San Leandro propertyindicated that it had contamination related to spilled fuel that would requirean estimated $0.7 million to remediate. The clean-up is expected to becompleted in 2009. The Company expects to sell the San Leandro property afterthe remediation is completed.

 

The Company’s financingactivities used net cash of $8.7 million. The payment of cash dividends in theamount of $9.8 million was the primary financing activity use of cash. Cashprovided by financing activities was primarily from the issuance of the Company’scommon stock through the exercise of stock options totaling $1.1 million. In July 2009,the Company’s Board of Directors declared a cash dividend of $0.10 per share, atotal currently estimated at $4.9 million, to be paid on October 22, 2009,to stockholders of record on October 1, 2009.

 

The Company believes that cash generated by operations andborrowings available under its credit facility will be sufficient for theCompany’s working capital needs and planned capital expenditures for the next12 months. Depending, however, on the Company’s future growth and possibleacquisitions, it may become necessary to secure additional sources offinancing, which may not be available on reasonable terms, or at all.

 

The Company believes that the effect of inflation on theCompany has not been material in recent years, as general inflation rates haveremained relatively low. Because, however, the Company’s main raw material issteel, increases in steel prices may adversely affect the Company’s grossmargins if it cannot recover the higher costs through price increases.

 

**Item 3.Quantitative and Qualitative Disclosures About Market Risk.**

 

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 anyone country where the Company has operations, the change in net income would notbe material to the Company’s operations as a whole. The translation adjustmentresulted in an increase in accumulated other comprehensive income of $12.3million and $6.5 million for the three and six months ended June 30, 2009,primarily due to the effect of the weakening of the United States dollar inrelation to the Canadian dollar and most European currencies.

 

**Item 4.Controls and Procedures.**

 

*DisclosureControls and Procedures.*As of June 30, 2009, an evaluation of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures was performed under the supervision and with the participationof the Company’s management, including the chief executive officer (“CEO”) andthe chief financial officer (“CFO”). Based on that evaluation, the CEO and theCFO concluded that the Company’s disclosure controls and procedures wereeffective as of that date, at the reasonable assurance level, in ensuring thatinformation required to be disclosed is recorded, processed, summarized andreported within the time period specified in the rules and forms of theSecurities and Exchange Commission and in seasonably alerting them to materialinformation required to be included in this report.

 

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The Company’s management,including the CEO and the CFO, does not expect that the Company’s disclosurecontrols and procedures or the Company’s internal control over financialreporting will necessarily prevent all fraud and material errors.  An internal control system, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met.  In addition, the design of a control systemmust reflect the facts that there are resource constraints and that thebenefits of controls must be considered relative to their costs.  The inherent limitations in an internalcontrol system include the realities that judgments can be faulty and thatbreakdowns can occur because of simple error or mistake.  Controls also can be circumvented by theindividual acts of some persons, by collusion of two or more people, or bymanagement override of the control.  Thedesign of any system of internal control is also based in part on assumptionsabout the likelihood of future events, and there can be only reasonable, notabsolute, assurance that any design will succeed in achieving its stated goalsunder all potential future events and conditions.  Over time, controls may become inadequatebecause of changes in circumstances, or the degree of compliance with thepolicies and procedures may deteriorate.

 

*Changesin Internal Control over Financial Reporting.*During the three months ended June 30,2009, the Company made no changes to its internal control over financialreporting (as defined in Rules 13a-15(f) and 15d-15(f) under theSecurities Exchange Act of 1934) that have materially affected, or arereasonably likely to materially affect, its internal control over financialreporting.

 

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PART II — OTHERINFORMATION

 

**Item 1.Legal Proceedings.**

 

From time to time,the Company is involved in various legal proceedings and other matters arisingin the normal course of business. The Company is not engaged in any legalproceedings as of the date hereof, which the Company expects individually or inthe aggregate to have a material adverse effect on the Company’s financialcondition, cash flows or results of operations. The resolution of claims andlitigation is, however, subject to inherent uncertainty and could have amaterial adverse effect on the Company’s financial condition, cash flows orresults of operations.

 

**Item 1A.Risk Factors**

 

We are affected by risksspecific to us, as well as risks that affect all businesses operating inglobal markets. Some of the significant factors that could materially adverselyaffect our business, financial condition and operating results appear in “Item1A. Risk Factors” of our most recent Annual Report on Form 10-K(available at www.simpsonmfg.com/docs/10K-2008.pdf or www.sec.gov), but wehave changed the risk factor titled “Impairmentcharges on goodwill or other intangible assets would adversely affect ourfinancial position and results of operations,” to read as follows:

 

**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 agoodwill impairment has occurred, we compare fair value of each of ourreporting units with its carrying value. Significant and unanticipated changes in circumstances, such assignificant adverse changes in business climate, adverse actions by regulatoryauthorities, unanticipated competition, loss of key customers or changes intechnology or markets, can require a charge for impairment that can materiallyand adversely affect our reported net income and our stockholders’ equity.  For example, in 2008, our annual impairmenttest resulted in goodwill impairment charge of $3.0 million associated withassets acquired in England in 1999 as part of our U.K. reporting unit.  Our U.K. reporting unit’s carrying value exceededits fair value, primarily due to reduced future expected net cash flows. Ifcurrent adverse conditions in the home-building industry, the financial marketsor the economy generally should continue longer than we anticipate, we may needto take further charges for impairment, which we are not now able to estimate,but which may be substantial.

 

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.**

 

In December 2008,the Board of Directors authorized the Company to repurchase up to $50.0 millionof the Company’s common stock. This replaced the $50.0 million repurchaseauthorization from December 2007. The authorization will remain in effectthrough the end of 2009. The Company did not repurchase any of its common stockin the first half of 2009.

 

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

 

The Annual Meetingof Stockholders (“Annual Meeting”) was held on April 17, 2009. Thefollowing nominees were elected as directors by the votes indicated:

 
| ** **             | ** ** | **Total Votes** | ** ** | **Total Votes**   | ** ** | ** **   | ** ** |
|------------------------|------------|----------------------|------------|------------------------|------------|--------------|------------|
| ** **             | ** ** | **for Each**    | ** ** | **Withheld from** | ** ** | **Term**     | ** ** |
| **Name**               | ** ** | **Director**         | ** ** | **Each Director** | ** ** | **Expires*** | ** ** |
|                   |       |                 |       |                   |       |         |       |
| Barclay  Simpson       |       | 32,015,862           |       | 13,395,857             |       | 2012         |       |
| Jennifer  A. Chatman   |       | 45,052,436           |       | 359,282                |       | 2012         |       |
| Robin  G. MacGillivray |       | 44,911,009           |       | 500,709                |       | 2012         |       |

 

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* The term expireson the date of the Annual Meeting in the year indicated.

 

The terms asdirectors of Peter N. Louras, Jr., Gary M. Cusumano, Earl F. Cheit, ThomasJ Fitzmyers and Barry Lawson Williams continued after the meeting.

 

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The followingproposals were also adopted at the Annual Meeting by the votes indicated:

 
| **Proposal**                                                                                                                           | ** ** | **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|-------------|------------|
|                                                                                                                                   |       |       |       |        |       |        |       |
| To  ratify the correction of a clerical error in the previously approved  Company’s 1994 Stock Option Plan                        |       | 42,863,893 |       | 2,495,064   |       | 52,761      |       |
|                                                                                                                                   |       |       |       |        |       |        |       |
| To  ratify the appointment of PricewaterhouseCoopers LLP as the independent  registered public accounting firm of the Company for 2009 |       | 44,451,649 |       | 945,904     |       | 14,165      |       |

 

**Item 6.Exhibits.**

 

The following exhibitsare either incorporated by reference into this report or filed with thisreport, as indicated below. Any representation, warranty or other statement ofpurported fact in any such exhibit that is a contract, agreement or similarinstrument may not be true or complete, either at the date of such instrumentor at any later time.  Even if suchstatements were accurate when made, they may not be accurate now.  The parties to such instruments did notintend such statements to establish any facts, but intended such statements toallocate contractual risk between the parties. Such instruments may be subject to standards of materiality that differfrom the standards applicable to this report. No one other than the parties to the instrument is entitled to rely orshould rely on any statement in such instrument for any purpose.  Such statements were provided for the privatepurposes of the parties to the instruments and may have been qualified byschedules and other disclosures that have not been filed with (or incorporatedby reference into) this or any other report or document.  Only the parties to any such instrument areentitled to enforce it.

 

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.

 

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 Report on Form 10-Qfor 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.

 

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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               Stock Purchase Agreement dated as of July 23,2007, between Hobart K. Swan and Reliance Trust Company, solely in its capacityas independent trustee of the Swan Secure Products, Inc. Employee StockOwnership Plan and Trust, on the one hand, and Simpson Strong-Tie Company Inc.and Simpson Manufacturing Co., Inc., on the other hand, is incorporated byreference to Exhibit 10.1 of Simpson Manufacturing Co., Inc.’sCurrent Report on Form 8-K dated July 24, 2007.

 

31                        Rule 13a-14(a)/15d-14(a) Certificationsare filed herewith.

 

32                        Section 1350 Certifications arefiled 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.

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|      |                 |   | **Simpson Manufacturing Co., Inc.**     |
|-----------|----------------------|--------|----------------------------------------------|
|      |                 |   | (Registrant)                                 |
|      |                 |   |                                         |
|      |                 |   |                                         |
| **DATE:** | August 7,  2009 |   | By                                           | /s/Karen  Colonias |
|      |                 |   | Karen Colonias                               |
|      |                 |   | Chief Financial Officer                      |
|      |                 |   | (principal accounting and financial officer) |
|           |                      |        |                                              |  |

 

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