UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-K 

(Mark One) 

☒     Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 

For the fiscal year ended December 31, 2019 

OR 

☐         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	(I.R.S. Employer
incorporation or organization)	Identification No.)

 

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

(Address of principal executive offices)                              (Zip Code)

Registrant’s telephone number, including area code:  (925) 560-9000 

Securities registered pursuant to Section 12(b) of the Act: 

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.01	SSD	New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: 

None

(Title of class) 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý  No  o 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes  o  No  ý

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ý  No  o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected has elected not to use the extended transition period for complying with the new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ý 

The aggregate market value of the shares of common stock, par value $0.01 per share, which is the only outstanding class of voting and non-voting equity, held by non-affiliates of the registrant (based on the closing price for the common stock on the New York Stock Exchange on June 28, 2019) was approximately $2,969,079,897.

As of February 21, 2020, 44,365,526 shares of the registrant’s common stock were outstanding. 

1

Documents Incorporated by Reference 

Portions of the registrant's definitive Proxy Statement for its 2020 annual meeting of stockholders (the "2020 Annual Meeting") are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such Proxy Statement will be filed with the Securities and Exchange Commission (the "SEC") within 120 days of the registrant's fiscal year ended December 31, 2019.

2

SIMPSON MANUFACTURING CO., INC.

TABLE OF CONTENTS

 

		Page
	PART I
Item 1.	Business	5
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	23
Item 3.	Legal Proceedings	23
Item 4.	Mine Safely Disclosure	23
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	25
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 8.	Consolidated Financial Statements and Supplementary Data	43
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	80
Item 9A.	Controls and Procedures	80
Item 9B.	Other Information	81
	PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	82
Item 11.	Executive Compensation	82
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	82
Item 13.	Certain Relationship and Related Transactions, and Director Independence	82
Item 14.	Principal Accounting Fees and Services	82
	PART 1V
Item 15.	Exhibits, Financial Statement Schedules	82
Item 16.	Form 10-K Summary	85

3

NOTE ABOUT FORWARD-LOOKING STATEMENTS

In this filing we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. Such statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally can be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “target,” “continue,” “predict,” “project,” “change,” “result,” “future,” “will,” “could,” “can,” “may,” “likely,” “potentially,” or similar expressions. Although we believe that these forward-looking statements and the underlying assumptions are reasonable, we cannot assure you that they will prove to be correct.

Forward-looking statements involve a number of risks and uncertainties, and there are factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. Some of those factors (in addition to others described elsewhere in this Annual Report on Form 10-K and in subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”)) include:

• the impact, execution and effectiveness of the Company’s current strategic plan, the 2020 Plan, and initiatives the realization of the assumptions made under the plan and the efforts and costs to implement the plan and initiatives;

• general economic cycles and construction business conditions including changes in U.S. housing starts;

• customer acceptance of our products;

• product liability claims, contractual liability, engineering and design liability and similar liabilities or claims,

• relationships with partners, suppliers and customers and their financial condition;

• materials and manufacturing costs;

• technological developments, including system updates and conversions;

• increased competition;

• changes in laws or industry practices;

• litigation risks and actions by activist shareholders;

• changes in market conditions;

• governmental and business conditions in countries where our products are manufactured and sold;

• natural disasters and other factors that are beyond the Company’s reasonable control;

• changes in trade regulations, treaties or agreements or in U.S. and international taxes, tariffs and duties including those imposed on the Company’s income, imports, exports and repatriation of funds;

• effects of merger or acquisition activities;

• actual or potential takeover or other change-of-control threats; and

• changes in our plans, strategies, objectives, expectations or intentions.

These factors in addition to others described elsewhere in this Annual Report on Form 10-K, including those described under Item 1A-Risk Factors, and in subsequent filings with the SEC, should not be construed as a comprehensive listing of factors that could cause results to vary from our forward-looking information.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. If one or more forward-looking statements are updated, no inference should be drawn that additional updates will be made with respect to those or other forward-looking statements.

4

PART I

Item 1. Business.

Company Background

We, through our wholly-owned subsidiary, Simpson Strong-Tie Company Inc. ("SST"), design, engineer and are a leading manufacturer of high quality wood and concrete building construction products designed to make structures safer and more secure that perform at high levels and are easy to use and cost-effective for customers. Our wood construction products are used in light-frame construction and include connectors, truss plates, fastening systems, fasteners and pre-fabricated lateral systems. Our concrete construction products are used in concrete, masonry and steel construction and include adhesives, chemicals, mechanical anchors, carbide drill bits, powder actuated tools, fiber reinforced materials and other repair products used for protection and strengthening. We market our products to the residential construction, light industrial and commercial construction, remodeling and do-it-yourself (“DIY”) markets. We also provide engineering services in support of some of our products and increasingly offer design and other software that facilitates the specification, selection and use of our products. The Company has continuously manufactured structural connectors since 1956 and believes that the Simpson Strong-Tie brand benefits from strong brand name recognition in residential, light industrial and commercial applications among architects and engineers who frequently request the use of our products.

Business Strategy

The Company attracts and retains customers by designing, manufacturing and selling high quality products that perform well, are easy to use and cost-effective for customers. The Company manufactures and warehouses its products in geographic proximity to its markets to provide availability and rapid delivery of products to customers and prompt response to customer requests for specially designed products and services. The Company maintains levels of inventory intended to operate with little backlog and fill most customer orders within a few days. High levels of manufacturing automation and flexibility allow the Company to maintain its quality standards while continuing to provide prompt delivery.

The Company intends to continue efforts to increase market share in both the wood construction and concrete construction product groups by:

• maintaining frequent customer contacts and service levels;

• continuing to sponsor seminars to inform architects, engineers, contractors and building officials on appropriate use, proper installation and identification of the Company’s products;

• continuing to invest in mobile, web and software applications for customers to help them do their jobs more efficiently and connect with customers utilizing social media, blog posts and videos;

• continuing to invest in Building Information Modeling ("BIM") software services and solutions for home builders and lumber-building material suppliers; and

• continuing to innovate and diversify our product offerings.

The Company’s long-term strategy is to develop, acquire or invest in product lines or businesses that have the potential to increase the Company’s earnings per share and return on invested capital over time and that:

• complement the Company’s existing product lines;

• can be marketed through the Company’s existing distribution channels;

• might benefit from use of the Company’s brand names and expertise;

• are responsive to needs of the Company’s customers;

• expand the Company’s markets geographically; and

• reduce the Company’s dependence on the United States residential construction market.

New Products. The Company commits substantial resources to new product development. The majority of SST’s products have been developed through its internal research and development program. The Company believes it is the only United States manufacturer with the capability to internally test multi-story wall systems, thus enabling full scale testing rather than analysis alone to prove system performance. The Company’s engineering, sales, product management, and marketing teams work together with architects, engineers, building inspectors, code officials, builders and customers in the new product development process.

The Company’s product research and development is based largely on products or solutions that are identified within the Company, feedback or requests from customers for new or specialty products and in connection with the Company’s strategic initiatives to expand into new markets and/or develop new product lines. The Company’s strategy is to develop new products on a proprietary

5

basis, to seek patents when appropriate and to rely on trade secret protection for others. The Company typically develops 15 to 25 new products each year.

In 2019, through our research and development efforts, the Company expanded its product offerings by adding:

• new connectors and lateral products for wood framing applications;

• new connectors for timber & offsite constructions;

• new steel connections for mid-rise steel construction;

• new connectors for cold formed steel applications;

• new fastener products for wood construction; and

• new mechanical anchors for concrete and masonry construction.

The Company intends to continue to expand its product offering.

Distribution channels. The Company seeks to expand its product and distribution coverage through several channels:

• Distributors. The Company regularly evaluates its distribution coverage and the service levels provided by its distributors, and from time to time implements changes. The Company evaluates distributor product mix and conducts promotions to encourage distributors to add the Company’s products that complement the mix of product offerings in their markets.

• Home Centers. The Company intends to increase penetration of the DIY markets by continuing to expand its product offerings through home centers. The Company’s sales force maintains on-going contact with home centers to work with them in a broad range of areas, including inventory levels, retail display maintenance and product knowledge training. The Company’s strategy is to ensure that the home center retail stores are fully stocked with adequate supplies of the Company’s products carried by those stores. The Company has further developed extensive bar coding and merchandising aids and has devoted a portion of its research and development efforts to DIY products. The Company’s sales to home centers increased year-over-year in 2019, 2018 and 2017.

• Dealers. In some markets, the Company sells its products directly to lumber dealers and cooperatives.

• OEM Relationships. The Company works closely with manufacturers of engineered wood, Composite Laminated Timber and OEMs for off-site construction to develop and expand the application and sales of its engineered wood connector, fastener, anchor and truss products. The Company has relationships with many of the leaders in these industries.

• International Sales. The Company has established a presence in the European Community through acquisition of companies with existing customer bases and through servicing United States-based customers operating in Europe. The Company also distributes connector, anchor and epoxy products in Mexico, Chile, Australia, New Zealand, and the Middle East.

See “Item 1A — Risk Factors,” “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Note 18 — Segment Information” to the accompanying audited consolidated financial statements included in Part II, Item 8 — "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K (the "Company’s Consolidated Financial Statements").

Operating Segments and Geographic Areas

The Company is organized into three operating segments consisting of the North America, Europe and Asia/Pacific segments. The North America segment includes operations primarily in the United States and Canada. The Europe segment includes operations primarily in France, the United Kingdom, Germany, Denmark, Switzerland, Portugal, Poland, The Netherlands, Belgium, Spain, Sweden and Norway. The Asia/Pacific segment includes operations primarily in Australia, New Zealand, China, Taiwan, and Vietnam. These segments are similar in several ways, including similarities in the products manufactured and distributed, the types of materials used, the production processes, the distribution channels and the product applications.

Products and Services

Historically, the Company’s product lines historically have encompassed connectors, anchors, fasteners, lateral resistive systems, truss plates, as well as repair and strengthening product lines for the marine, industrial and transportation markets. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Note 18 — Segment Information” to the Company’s Consolidated Financial Statements for financial information regarding revenues by product category.

Most of the Company’s products are approved by building code evaluation agencies. To achieve these approvals, the Company conducts extensive product testing, which is witnessed and certified by independent testing laboratories. The tests also provide

6

the basis of load ratings for the Company’s structural products. This test and load information is used by architects, engineers, contractors, building officials, and homeowners and is useful across all applications of the Company’s products, ranging from the deck constructed by a homeowner to a multi-story structure designed by an architect or engineer.

Wood Construction Products. The Company produces and markets over 15,000 standard and custom wood construction products. These products are used primarily to strengthen, support and connect wood applications in residential and commercial construction and DIY projects. The Company’s wood construction products contribute to structural integrity and resistance to seismic, wind and gravity forces. As described below, the Company’s wood construction products include:

• Connectors - Connectors are prefabricated metal products that attach wood, concrete, masonry or steel together and are essential for tying wood construction elements together and create safer and stronger buildings;

• Truss Connector Plates - Truss connector plates are toothed metal plates that join wood members together to form a truss and are marketed under the name Integrated Component Systems. The Company continues to develop software to assist truss and component manufacturers in modeling, designing trusses and selecting the appropriate truss plates for the applicable jobs;

• Fastening Line - The fastening line includes various nails, screws and staples, which are complemented by the Company's Quik Drive auto-feed screw driving system, which is used in numerous applications such as decking, subfloors, drywall and roofing; and

• Lateral Resistive System - Lateral resistive systems are assemblies used to resist earthquake or wind forces and include steel and wood shearwalls, Anchor Tiedown Systems and steel moment frames.

Concrete Construction Products. The Company produces and markets over 1,000 standard and custom concrete construction products. The Company’s concrete construction products are composed of various materials including steel, chemicals and carbon fiber. They are used primarily to anchor, protect and strengthen concrete, brick and masonry applications in industrial, infrastructure, residential, commercial and DYI projects. The Company’s concrete construction products contribute to structural integrity and resistance to seismic, wind and gravity forces. These products are sold in all segments of the Company. As described below, the Company’s concrete construction products include:

• Anchor Products - Anchor products include adhesives, mechanical anchors, carbide drill bits and powder-actuated pins and tools used for numerous applications of anchoring or attaching elements onto concrete, brick, masonry and steel; and

• Construction, Repair, Protection and Strengthening Products - Concrete construction repair, protection and strengthening products include grouts, coatings, sealers, mortars, fiberglass and fiber-reinforced polymer systems and asphalt products.

Engineering and Design Services. The Company’s engineers not only design and test products, but also provide engineering support for customers in connection with a number of products that the Company manufactures and sells. This support might range from the discussion of a load value in a catalog to testing the suitability of an existing product in a unique application. For the truss product line, the Company’s engineers review the output of the Company’s software to assist customers in ensuring that trusses are properly designed and specified, and in some instances seal design diagrams. Generally, in connection with any engineering services the Company provides, the Company’s engineers serve as a point of reference and support for the customer’s engineers and other service professionals, who ultimately determine and are responsible for the engineering approach and design loads to any project.

Sales, Marketing and Customers

The Company’s sales and marketing programs are implemented through its branch system. The Company currently maintains branches in California, Texas, Ohio, Canada, England, France, Germany, Denmark, Switzerland, Poland, Portugal, The Netherlands, Ireland, Belgium, Sweden, Norway, Spain, Australia, New Zealand, and Chile. Each branch is served by its own sales force, warehouse and office facilities, while some branches have their own manufacturing facilities. Each branch is responsible for setting and executing sales and marketing strategies that are consistent both with the markets in the geographic area that the branch serves and with the goals of the Company. Branch sales forces in North America are supported by marketing managers in the home office in Pleasanton, California. The home office also coordinates issues affecting customers that operate in multiple regions. The sales force maintains close working relationships with customers, develops new business, calls on architects, engineers and building officials and participates in a range of educational seminars.

The Company dedicates substantial resources to customer service. The Company produces numerous publications and point-of-sale marketing aids to serve specifiers, distributors, retailers and users for the various markets that it serves. These publications include general catalogs, as well as various specific catalogs, such as those for its fastener products. The catalogs and publications describe the products and provide load and installation information. The Company also maintains several linked websites centered on www.strongtie.com, which include catalogs, product and technical information, code reports, installation videos, web

7

applications and other general information related to the Company, its product lines and promotional programs. We include our website addresses throughout this report for reference only. The information contained on our websites is not incorporated by reference into this report.

We market our products to the residential construction, light industrial and commercial construction, remodeling and DIY markets through distributors, dealers, OEMs and home centers and have developed long-standing relationships with numerous customers domestically in the United States and internationally. Overall, we believe that in the long-term we are not dependent on any single customer. However, The Home Depot, Inc. (“Home Depot”) accounted for approximately 11.1% percent of our total consolidated net sales in fiscal 2019. No other customer accounted for 10 percent or more of our total sales in fiscal year 2019.

While the loss of any substantial customer, including Home Depot, could have a material short-term impact on our business, we believe that our diverse distribution channels and customer base should reduce the long-term impact of any such loss.

Manufacturing Process

The Company designs and manufactures most of its products. The Company has developed and uses automated manufacturing processes for many of its products. The Company’s innovative manufacturing systems and techniques have allowed it to control manufacturing costs, even while developing both new products and products that meet customized requirements and specifications. The Company’s development of specialized manufacturing processes has also permitted increased operating flexibility and enhanced product design innovation. As part of ongoing continuous improvement processes in its factories, the Company’s major North American and European manufacturing facilities initiated Lean manufacturing practices to improve efficiency and customer service. The Company sources some products from third-party vendors, both domestically and internationally. The Company has 13 major manufacturing locations in the United States, Canada, France, Denmark, Germany, Switzerland, Poland, Portugal, Belgium, Sweden, China, England and The Netherlands.

Quality Control. The Company has developed a quality system that manages defined procedures to ensure consistent product quality and also meets the requirements of product evaluation reports such as the International Code Council Evaluation Services (ICC-ES) and the International Association of Plumbers and Mechanical Officials Uniform Evaluation Services (IAPMO-UES). Since 1996, the Company’s quality system has been registered under ISO 9001, an internationally recognized set of quality-assurance standards. The Company believes that ISO registration is a valuable tool for maintaining and promoting its high quality standards. As the Company establishes new business locations through expansion or acquisitions, projects are established to integrate the Company’s quality systems and achieve ISO 9001 registration. In addition, the Company has six testing laboratories accredited to ISO standard 17025, an internationally accepted standard that provides requirements for the competence of testing and the further specialized accreditation for various Acceptance Criteria. The Company implements testing requirements through systematic control of its processes, enhancing the Company’s standard for quality products, whether produced by the Company or purchased from others.

Wood Construction Products Manufacturing. Most of the Company’s wood construction products are produced with a high level of automation. The Company has significant press capacity and has multiple dies for some of its high volume products to enable production of these products close to the customer and to provide back-up capacity. The balance of production is accomplished through a combination of manual, blanking and numerically controlled (NC) processes that include robotic welders, lasers and turret punches. This capability allows the Company to produce products with little redesign or set-up time, facilitating rapid turnaround for customers. The Company also has smaller specialty production facilities, which primarily use batch production with some automated lines.

Concrete Construction Products Manufacturing. Mechanical anchor products are produced with a high level of automation. Some products, such as epoxy and adhesive anchors, are mixed in batches and are then loaded into one-part or two-part dispensers, which mix the product on the job site because set-up times are usually very short. In addition, the Company purchases a number of products, powder actuated pins, tools and accessories and certain of its mechanical anchoring products, from various sources around the world. These purchased products undergo inspections on a sample basis for conformance with ordered specifications and tolerances before being distributed.

Regulation

Environmental Regulation. The Company itself is subject to environmental laws and regulations governing emissions into the air, discharges into water, and generation, handling, storage, transportation, treatment and disposal of waste materials. The Company is also subject to other federal and state laws and regulations regarding health and safety matters. The Company believes that it has obtained all material licenses and permits required by environmental, health and safety laws and regulations in connection

8

with the Company’s operations and that its policies and procedures comply in all material respects with existing environmental, health and safety laws and regulations. See “Item 1A — Risk Factors.”

Other. The Company’s product lines are subject to federal, state, county, municipal and other governmental and quasi-governmental regulations that affect product development, design, testing, analysis, load rating, application, marketing, sales, exportation, installation and use.

The Company considers product evaluation, recognition and listing to the building code as a significant tool that facilitates and expedites the use of the Company’s products by design professionals, building officials, inspectors, builders, home centers and contractors. Industry members are more likely to use building products that have the appropriate recognition and listing than products that lack this acceptance. The Company devotes considerable time and testing resources to obtaining and maintaining appropriate listings for its products. The Company actively participates in industry related professional associations and building code committees both to keep abreast of regulatory changes and to provide comments and expertise to these regulatory agencies.

A substantial portion of the Company’s products have been evaluated and are recognized by governmental and product evaluation agencies. Some of the entities that recognize the Company’s products include the ICC-ES, IAPMO-UES, the City of Los Angeles Research Reports (LARR’s), California Division of the State Architect Interpretation of Regulations (DSA IR’s), the State of Florida, Underwriters Laboratory (UL), Factory Mutual (FM) and state departments of transportation. In Europe, the Company’s structural products meet European Technical Agreement (ETA) regulations.

Competition

The Company faces a variety of competition in all of the markets in which it participates. This competition ranges from subsidiaries of large national or international corporations to small regional manufacturers. While price is an important factor, the Company also competes on the basis of quality, breadth of product line, proprietary technology, technical support, availability of inventory, service (including custom design and manufacturing), field support and product innovation. As a result of differences in structural design and building practices and codes, the Company’s markets tend to differ by region. Within these regions, the Company competes with companies of varying size, several of which also distribute their products nationally or internationally. See “Item 1A — Risk Factors.”

Raw Materials

The principal raw material used by the Company is steel, including stainless steel. The Company also uses materials such as carbon fiber, fiberglass, mortars, grouts, epoxies and acrylics in the manufacture of its chemical anchoring and reinforcing products. The Company purchases raw materials from a variety of commercial sources. The Company’s practice is to seek cost savings and enhanced quality by purchasing from a limited number of suppliers.

The steel industry is highly cyclical and prices for the Company’s raw materials are influenced by numerous factors beyond the Company’s control. The steel market continues to be dynamic, with a high degree of uncertainty about future pricing trends. Given current conditions, including significant import tariffs and duties, and unsettled international trade disputes, the Company currently expects that the high degree of uncertainty regarding steel prices will continue. Numerous factors may cause steel prices to increase in the future. In addition to increases in steel prices, steel mills may add surcharges for zinc, energy and freight in response to increases in their costs. See “Item 1A — Risk Factors” and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company historically has not attempted to hedge against changes in prices of steel or other raw materials. However, the Company may purchase and carry more steel or other raw materials in inventory to meet projected sales demand in a tight raw materials market.

Patents and Proprietary Rights

The Company has United States and foreign patents, the majority of which cover products that the Company currently manufactures and markets. These patents, and applications for new patents, cover various design aspects of the Company’s products, as well as processes used in their manufacture. The Company continues to develop new potentially patentable products, product enhancements and product designs. Although the Company does not intend to apply for additional foreign patents covering existing products, the Company has developed an international patent program to protect new products that it may develop. In addition to seeking patent protection, the Company relies on unpatented proprietary technology to maintain its competitive position. See “Item 1A — Risk Factors.”

9

Acquisitions and Expansion into New Markets

Approximately 40% of our connector and truss plate sales are derived from selling wood engineered product solutions. In support of this effort, in 2017, we acquired CG Visions, Inc. (“CG Visions”), and in 2018 completed our purchase of the LotSpec software asset and entered into a strategic software partnership with Hyphen Solutions ("Hyphen").

The combination of these software applications, services and partnerships provide solutions to Builders and suppliers to efficiently manage and determine material takeoffs and estimates. Solutions typically utilize BIM technology to model a structure based on open platforms customized for the customer’s needs. We believe this direction aligns well with our strategy to continue strengthening our value proposition by being the industry's trusted partner in construction solutions and building systems software.

In January 2017, the Company acquired Gbo Fastening Systems AB ("Gbo Fastening Systems"), a Sweden limited company, for $10.2 million. Gbo Fastening Systems manufactures and sells a complete line of CE-marked structural fasteners as well as fastener dimensioning software for wood construction applications, currently sold mostly in northern and Eastern Europe, which are expected to complement the Company’s line of wood construction products in Europe.

As part of our current strategy, we will continue to develop new products and technology that allow us to expand our product offerings and enter into new markets. In the past, we have grown acquisitively and may, in the future, evaluate potential acquisitions and other transactions that align with our strategic objectives.

Seasonality and Cyclicality

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

Employees and Labor Relations

As of December 31, 2019, the Company had 3,337 full-time employees, of whom 1,646 were hourly employees and 1,691 were salaried employees. The Company believes that its overall compensation and benefits for the most part meet or exceed industry averages and that its relations with its employees are good.

As of December 31, 2019, approximately 14% of the Company’s employees are represented by labor unions and are covered by collective bargaining agreements. We have two-facility locations with collective bargaining agreements covering tool and die craftsmen, maintenance workers, and sheet-metal workers. In Stockton, California, two union contracts will expire in June 2023 and September 2023, respectively. Also, we have two contracts in San Bernardino County, California that will expire in June 2022 and February 2021, respectively. Based on current information and subject to future events and circumstances, we believe that, even if new agreements are not reached before the existing labor union contracts expire, it is not expected to have a material adverse effect on the Company’s ability to provide products to customers or on the Company’s profitability. See “Item 1A — Risk Factors.”

Available Information

The Company's website address is www.simpsonmfg.com. We file or furnish annual, quarterly and current reports, proxy statements and other information with the Unites States Securities and Exchange Commission (the “SEC”). You may obtain a copy of any of these reports, free of charge, on the "Investor Relations" page our website, as soon as reasonably practicable after we file such material with, or furnish it to the SEC. Printed copies of any of these materials will also be provided free of charge on request.

The SEC maintains an Internet site that also contains these reports at www.sec.gov.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. You should carefully review the following discussion of the risks that may affect our business, results of operations and financial condition, as well as our consolidated financial statements and notes thereto and the other information appearing in this report, for important information regarding risks that affect us. Current global economic events and conditions may amplify many of these risks. These risks are not the only risks that may affect us. Additional risks that we are not aware of or do not believe are material at the time of this filing, may also become important factors that adversely affect our business.

10

General Business Risks

Business cycles and uncertainty regarding the housing market, economic conditions, political climate and other factors beyond our control could adversely affect demand for our products and services, our costs of doing business, and our business, financial condition and results of operations.

A significant portion of our total product sales is dependent on housing starts. Accordingly, our business, financial condition and results of operations depends significantly on the stability of the housing and residential construction and home improvement markets, which are affected by general economic and other factors that are beyond our control. These conditions include, but are not limited to, the following:

• uncertainty about the housing and residential construction and home improvement markets;

• changes in economic conditions or the political climate that adversely impact our customers’ confidence or financial condition;

• unemployment and foreclosure rates;

• inventory loss;

• interest rate fluctuations;

• raw material and energy costs;

• labor and healthcare costs;

• the availability of financing, or lack thereof, to builders, developers, and consumers;

• the state of the credit markets, including mortgages and home equity loans;

• weather; natural disasters; and

• acts of terrorism.

These factors could adversely affect demand for our products and services, our costs of doing business, and our business, financial condition and results of operations. Further, many of our customers in the construction industry are small and medium-sized businesses that are more likely to be adversely affected by economic downturns than larger, more established businesses. Uncertainty about current global economic conditions may cause these consumers to postpone or refrain from spending or may cause them to switch to lower-cost alternative products, which could reduce demand for our products and materially and adversely affect our financial condition and operating results.

Additionally, declines in commercial and residential construction, such as housing starts and home improvement projects, which generally occur during economic downturns, have in the past significantly reduced, and in the future can be expected to reduce, the demand for our products and our stock price.

We may not be effective in achieving our stated strategic and operating objectives under our 2020 Plan.

We have been implementing a strategic plan, the 2020 Plan, centered on focusing on our organic growth, rationalizing our cost structure to improve profitability, improving our working capital management primarily through the reduction of inventory levels and other working capital items such as accounts payable and accounts receivable. While the strategy calls for increased emphasis on certain operational targets, such as growing our net sales, reducing our company-wide operating expenses as a percentage of net sales and decreasing our inventory levels, it moderates focus on other aspects of our operations that used to be part of our prior strategy, such as acquisitive growth (especially in the concrete space).

There can be no guarantee that the 2020 Plan will yield the results that we currently anticipate or results that will exceed those that might have been obtained under our prior strategy if we fail to successfully execute on one or more prongs of the 2020 Plan, even if we successfully implement one or more other prongs.

The successful execution of the 2020 Plan depends on, among other things, our ability to:

•Maintain our top-line growth and achieve a net sales compound annual growth rate of approximately 8%

from fiscal 2016 through the end of fiscal 2020 by gaining market share in certain products lines;

•Carry out effective cost reduction measures in Europe and our concrete product line and by fiscal 2020,

reduce our company-wide operating expenses as a percent of net sales to be below or at 27%;

◦ Eliminate at least 25% to 30% of our product SKUs, implement Lean principles in our factories, and achieve an additional 30% reduction of our raw materials and finished goods inventory by fiscal 2020.

11

Although we have made progress on meeting 2020 Plan targets, we may not be able to achieve all of our goals of the 2020 Plan due to any number of reasons. We revised several objectives of the 2020 Plan in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. Going forward, we may choose to further refine our strategic and operating objectives, update our current strategic goals under the 2020 Plan, and pursue strategies outside the 2020 Plan that we believe represent great opportunities due to changes in our business, operations, financial conditions and other factors beyond our control.

Our sales are seasonal and we have little control over the timing of customer purchases. If we miss seasonal forecasts or customers purchase our products in different quarters than we or analysts expect, our stock price could materially decline.

Our sales are seasonal, with operating results varying from quarter to quarter. With some exceptions, our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters, as customers tend to purchase construction materials in the late spring and summer months for the construction season. In addition, weather conditions, such as unseasonably warm, cold or wet weather, which affect, and sometimes delay or accelerate installation of some of our products, may significantly affect our results of operations. Sales that we anticipate in one quarter may occur in another quarter, affecting both quarters’ results and potentially our stock price.

In addition, we typically ship orders as we receive them and maintain inventory levels to allow us to operate with little backlog. The efficiency of our inventory system, and our ability to avoid backlogs and potential loss of customers, is closely tied to our ability to accurately predict seasonal and quarterly variances. Further, our planned expenditures are also based primarily on sales forecasts. When sales do not meet our expectations, our operating results will be reduced for the relevant quarters, as we will have already incurred expenses based on those expectations. This could result in a material decline in our stock price.

We operate in a competitive industry, and if we fail to anticipate and react appropriately to competitors, technological changes, changing industry trends and other competitive forces, our sales and profit margins will decline.

In order to effectively compete, we must be able to meet changing market conditions and develop enhancements to our existing products or new products on a timely basis in order to maintain our competitive advantage. Our continued growth depends upon our ability to develop additional products, services and technologies that meet our customers’ expectation of our brand and quality. There can be no assurance that we will be successful in developing and marketing new products, product enhancements and additional technologies, that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products, or that our new products and product enhancements will adequately meet the requirements of the marketplace or will achieve market acceptance.

Further, one of the core elements of our strategy is to provide high quality products and a high level of customer services. Many of our competitors are dedicating increasing resources to competing with us, especially as our products and services become more affected by technological advances and software innovations. Some of our competitors have more experience producing software and other technology-driven solutions. As a result, we are dedicating increasing resources to research and development in new and changing technologies in order to stay competitive and provide high quality and innovative products and services. These increased expenditures could reduce our operating results.

Additionally, our ability to compete effectively depends, to a significant extent, on the specification or approval of our products by architects, engineers, building inspectors, building code officials and customers and their acceptance of our premium brand. If a significant segment of those communities were to decide that the design, materials, manufacturing, testing or quality control of our products is inferior to that of any of our competitors or the cost differences between our products and any competitors are not justifiable, our sales and profits would be materially reduced.

Our future growth may depend on our ability to develop new products and penetrate new markets, which could reduce our profitability.

Our future success depends upon our continued investment in research and development and our ability to continue to develop new products that allow us to expand our product offerings and enter into new markets. Expansion into new markets and the development of new products may involve considerable costs and may not generate sufficient revenue to be profitable or cover the costs of development. We might not be able to penetrate these product markets and any market penetration that occurs might not be timely or profitable. We may be unable to recoup part or all of the significant investments we make in attempting to develop new products and penetrate new markets.

12

Product, Services and Sales Risks

Product liability claims and litigation could affect our business, reputation, financial condition, results of operations and cash flows.

The products that we design and/or manufacture, and/or the services we provide, can lead to product liability claims or other legal claims being filed against us. To the extent that plaintiffs are successful in showing that a defect in a product’s design, manufacture or warnings led to personal injury or property damage, or that our provision of services resulted in similar injury or damage, we may be subject to claims for damages. Although we are insured for damages above a certain amount, we bear the costs and expenses associated with defending claims, including frivolous lawsuits, and are responsible for damages up to the insurance retention amount. In addition to claims concerning individual products, as a manufacturer, we can be subject to costs, potential negative publicity and lawsuits related to product recalls, which could adversely impact our results of operations and damage our reputation.

Design defects, labeling defects, product formula defects, inaccurate chemical mixes, product recalls and/or product liability claims could harm our business, reputation, financial condition and results of operations.

We have on occasion found flaws and deficiencies in the design, manufacturing, assembling, labeling, product formulations, chemical mixes or testing of our products. We also have on occasion found flaws and deficiencies in raw materials and finished goods produced by others and used with or incorporated into our products. Some flaws and deficiencies have not been apparent until after the products were installed or used by customers.

Many of our products are integral to the structural soundness or safety of the structures in which they are used. If any flaws or deficiencies exist in our products and if such flaws or deficiencies are not discovered and corrected before our products are incorporated into structures, the structures could be unsafe or could suffer severe damage, such as collapse or fire, and personal injury or death could result. Errors in the installation of our products, even if the products are free of flaws and deficiencies, could also cause personal injury or death and unsafe structural conditions. To the extent that such damage or injury is not covered by our product liability insurance and we are held to be liable, we could be required to correct such damage and to compensate persons who might have suffered injury or death, and our business, reputation, financial condition, results of operations and cash flows could be materially and adversely affected.

Even if a flaw or deficiency is discovered before any damage or injury occurs, we may need to refund customers and/or repair or recall products (to the extent possible), and we may be liable for any costs necessary to replace recalled products or retrofit or remedy the affected structures. Any such recall, retrofit or other remedy could entail substantial costs and adversely affect our reputation, sales and financial condition. We do not carry insurance against recall costs or the adverse business effect of a recall, and our product liability insurance may not cover retrofit or other remedy costs.

As a result of the nature of many of our products and their use in construction projects, claims (including product warranty claims and claims resulting from a natural disaster) may be made against us with regard to damage or destruction of structures incorporating our products whether or not our products failed. Any such claims, if asserted, could require us to expend material time and efforts defending the claim and may materially and adversely affect our business, reputation, financial condition, results of operations and cash flows. Costs associated with resolving such claims (such as repair or replacement of the affected parts) could be material and may exceed any amounts reserved in our consolidated financial statements.

While we generally attempt to limit our contractual liability and our exposure to price or expense increases, we may have uncapped liabilities or significant exposure under some contracts, and could suffer material losses under such contracts.

We enter into many types of contracts with our customers, suppliers and other third parties, including in connection with our expansion into new markets and new product lines. Under some of these contracts, our overall liability may not be limited to a specified maximum amount or we may have significant potential exposure to price or expense increases. If we receive claims under these contracts or experience significant price increases or comparable expense increases, we may incur liabilities significantly in excess of the revenues associated with such contracts, which could have a material adverse effect on our results of operations.

Some of our technology offerings provide planning and design functions to customers, and we are involved both in product sales and engineering services. Any software errors or deficiencies or failures in our engineering services could have material adverse effects on our business, reputation, financial condition, results of operations and cash flows

13

Our planning/design software applications facilitate the creation by customers of complex construction and building designs. Our software is extremely complex and is continually being modified and improved. As a result, it may contain defects or errors and new versions may introduce new defects and errors. While we have attempted to limit our potential liability for the failure of any planning/designs created with the use of our software applications, as a result of defects in our software, the structures could be unsafe or could suffer severe damage, such as collapse or fire, and personal injury or death could result. Errors in construction not related to the plans/designs created with the use of our software applications could also cause personal injury or death and unsafe structural conditions, even if our software functioned properly. To the extent that a structure designed by our software suffers any failure or deficiency, we could be required to correct deficiencies and may become involved in litigation, even if our software was not the cause of such deficiency. Further, if any damage or injury is not covered by our insurance and we are held to be liable, we could be required to correct such damage and to compensate persons who might have suffered injury, and our business, reputation, financial condition, results of operations and cash flows could be materially and adversely affected.

While we engage in testing and upgrades, there can be no assurance that, despite our testing and upgrades, errors will not be found in new and existing products resulting in loss of revenues or delay in market acceptance, diversion of development resources, damage to our reputation, adverse litigation, or increased service and warranty costs, any of which would have a material adverse effect upon our business, operating results and financial condition.

We are also involved in providing engineering solutions to our clients. The risks associated with providing these services are materially different than the risks we historically faced when we only manufactured products. If our engineers prepare, approve or seal drawings that contain defects or otherwise are involved in any design or construction that contains flaws, regardless of whether our engineers caused such flaws, we may be held liable for professional negligence or other damages, which could involve material claims. Although we are insured for damages above a certain amount, we bear the costs and expenses associated with defending claims, including frivolous lawsuits, and are responsible for damages up to the insurance retention amount. In addition to claims concerning individual engineering solutions, as a service provider, we can be subject to costs, potential negative publicity and lawsuits related to construction design or engineering defects, which could adversely impact our results of operations and damage our reputation.

We have a few large customers, the loss of any one of which could negatively affect our sales and profits.

Our largest customers accounted for a significant portion of net sales for the years ended December 31, 2019, 2018, and 2017. Any reduction in, or termination of, our sales to these customers would at least temporarily, and possibly on a longer term basis, cause a material reduction in our net sales, income from operations and net income. Such a reduction in or elimination of our sales to any of our largest customers would increase our relative dependence on our remaining large customers.

In addition, our distributor customers and builders have increasingly consolidated over time, which has increased the material adverse effect of losing any one of them and may increase their bargaining power in negotiations with us. These trends could negatively affect our sales and profitability.

Increases in prices of raw materials and energy could negatively affect our sales and profits.

Steel is the principal raw material used in the manufacture of our products. Import tariffs and/or other mandates imposed by the current presidential administration could potentially lead to a trade war with other foreign governments, and could significantly increase the prices on raw materials that are critical to our business, such as steel. In addition, even in the absence of the current tariffs the price of steel has historically fluctuated on a cyclical basis and has often depended on a variety of factors over which we have no control. The cost of producing our products is also sensitive to the price of energy. The selling prices of our products have not always increased in response to raw material, energy or other cost increases, and we are unable to determine to what extent, if any, we will be able to pass future cost increases through our customers. Our inability to pass increased costs through to our customers could materially and adversely affect our financial condition or results of operations.

We depend on third parties for transportation services and the lack of availability of transportation and/or increases in cost could materially and adversely affect our business and operations.

Our business depends on the transportation of both finished goods to our customers and distributors and the transportation of raw materials to us. We rely on third parties for transportation services of these items, which services are occasionally in high demand (especially at the end of calendar quarters) and/or subject to price fluctuations.

If the required supply of transportation services is unavailable when needed, our manufacturing processes may be interrupted if we are not able to receive raw materials or we may be unable to sell our products at full value, or at all. This could harm our reputation,

14

negatively impact our customer relationships and have a material adverse effect on our financial condition and results of operations. In addition, a material increase in transportation rates or fuel surcharges could have a material adverse effect on our profitability.

Technological and Intellectual Property Risks

Our recent efforts to increase our technology offerings and integrate new software and application offerings may prove unsuccessful and may affect our future prospects.

Our industry has experienced increased complexity in some home design and builders are more aggressively trying to reduce their costs. One of our responses has been to develop and market sophisticated software and applications to facilitate the specification and marketing of our product systems. We have continued to commit substantial resources to our software development endeavors in recent years and expect that trend to continue in 2020.

We have a limited operating history in the technology space and may not be able to create commercially successful software and applications. Even if we are able to create initially successful ideas, the technology industry is subject to rapid changes. We may not be able to adapt quickly enough to keep up with changing demands, and our software may become obsolete.

While we see having a software interface with the construction industry as a potential growth area, we also face competition from other companies that are focused solely or primarily on the development of software and applications. These companies may have significantly greater expertise and resources to devote to software development, and we may be unable to compete with them in that space.

If we cannot protect our technology, we will not be able to compete effectively.

Our ability to compete effectively with other companies depends in part on our ability to maintain the proprietary nature of our technology, in part through patents, copyrights, trade secrets and other intellectual property protections. We might not be able to protect or rely on our patents and copyrights. Patents might not issue pursuant to pending patent applications. Our software copyright and other protections might not be adequate to protect our software and application code. Others might independently develop the same or similar technology, develop around the patented aspects of any of our products or proposed products, or otherwise obtain access to or circumvent our proprietary technology. We also rely on unpatented proprietary technology to maintain our competitive position. We might not be able to protect our trade secrets, our know-how or other proprietary information. If we are unable to maintain the proprietary nature of our intellectual property, our sales and profits are likely to be materially reduced.

In attempting to protect our intellectual property, we sometimes initiate lawsuits against competitors and others that we believe have infringed or are infringing our intellectual property rights. In such an event, the defendant may assert counterclaims to complicate or delay the litigation or for other reasons. Litigation may be very costly and may result in adverse judgments that affect our sales and profits materially and adversely.

Claims that we infringe intellectual property rights of others may materially increase our expenses and reduce our profits.

Other parties have in the past and may in the future claim that our products or processes infringe their intellectual property rights. We may incur substantial costs and liabilities in investigating, defending and resolving such claims, whether or not they are meritorious, which may materially reduce our profitability and materially and adversely affect our business and financial condition. Litigation can be disruptive to normal business operations and may result in adverse rulings or decisions. If any such infringement claim is asserted against us, we may be required to obtain a license or cross-license, modify our existing technology or design a new non-infringing technology, any of which could be costly and time-consuming. A ruling against us in an infringement lawsuit could include an injunction barring our production or sale of any infringing product. A damages award against us could include an award of royalties or lost profits and, if the court finds willful infringement, treble damages and attorneys’ fees.

We are subject to cyber security risks and may incur increasing costs in efforts to minimize those risks and to comply with regulatory standards.

We employ information technology systems and operate websites which allow for the secure storage and transmission of proprietary or confidential information regarding our customers, employees and others. We make significant efforts to secure our computer network to mitigate the risk of possible cyber-attacks, including, but not limited to, data breaches, and are continuously working to upgrade our existing information technology systems to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches. Despite these efforts security of our computer networks could be compromised which could impact operations and

15

confidential information could be misappropriated, which could lead to negative publicity, loss of sales and profits or cause us to incur significant costs to reimburse third- parties for damages, which could adversely impact profits.

Additionally, we must comply with increasingly complex and rigorous regulatory standards enacted to protect businesses and personal data, including the General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act. GDPR is a comprehensive European Union privacy and data protection reform, effective in 2018, which applies to companies that are organized in the European Union or otherwise provide services to consumers who reside in the European Union, and imposes strict standards regarding the sharing, storage, use, disclosure and protection of end user data and significant penalties (monetary and otherwise) for non-compliance. The California Consumer Privacy Act creates new data privacy rights, effective in 2020. Any failure to comply with GDPR, the California Consumer Privacy Act, or other regulatory standards, could subject the Company to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage to our reputation and credibility, and could have a material adverse effect on our business and results of operations.

We have experienced and may in the future experience delays, outages, cyber-based attacks or security breaches in relation to our information systems and computer networks, which have disrupted and may in the future disrupt our operations and may result in data corruption. As a result, our profitability, financial condition and reputation could be negatively affected. In addition, data privacy statements and laws could subject us to liability.

We depend on information technology networks and systems, including the Internet, to process, transmit and store electronic information. We depend on our information technology infrastructure for electronic communications among our locations around the world and between our personnel and our subsidiaries, customers and suppliers. We collect and retain large volumes of internal and customer, vendor and supplier data, including some personally identifiable information, for business purposes. We also maintain personally identifiable information about our employees. The integrity and protection of our customer, vendor, supplier, employee and other Company data is critical to our business. The regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining compliance with applicable security and privacy regulations may increase our operating costs or adversely affect our business operations.

Despite the security and maintenance measures we have in place, our facilities and systems, and those of the retailers, dealers, licensees and other third-parties with which we do business, we remain vulnerable to security breaches, cyber-attacks, acts of vandalism, computer viruses, malware, data corruption, delays, disruptions, programming and/or human errors or other similar events, such as those accomplished through fraud, trickery or other forms of deceiving our employees, contractors or other agents or representatives and those due to system updates, natural disasters, malicious attacks, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins or similar events. Such incidents have occurred, continue to occur, and may occur in the future.

Security breaches of our infrastructure could create system disruptions, shutdowns or unauthorized disclosures of confidential information. Despite the security measures we have in place, our facilities and systems, and those of the retailers, dealers, licensees and other third parties with which we do business, we may be vulnerable to security breaches, cyber-attacks, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Such incidents may involve misappropriation, loss or other unauthorized disclosure of confidential data, materials or information, including those concerning our customers, employees or suppliers, whether by us or by the retailers, dealers, licensees and other third-party distributors with which we do business, disrupt our operations, result in losses, damage our reputation, and expose us to the risks of litigation and liability (including regulatory liability); and may have a material adverse effect on our business, results of operations and financial condition.

We publicly post our privacy policies and practices concerning our processing, use, and disclosure of personally identifiable information on our website. If we fail to adhere to our privacy policy and other published statements or applicable laws concerning our processing, use, transmission and disclosure of protected information, or if our statements or practices are found to be deceptive or misrepresentative, we could face regulatory actions, fines and other liability.

We may experience delays or outages in our information technology system and computer networks.

We may be subject to information technology system failures and network disruptions. These may be caused by delays or disruptions due to system updates, natural disasters, malicious attacks, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins or similar events or disruptions.

Despite our security measures, our systems could be vulnerable to disruption, and any such disruption could negatively affect our business, reputation, financial condition, results of operations and cash flows.

16

Some of our agreements for software and software-as-services products have limited terms, and we may be unable to renew such agreements and may lose access to such products.

We have various agreements with a number of third parties that provide software and software-as-service products to us. These agreements often require reoccurring payments for online access to the products and have limited terms. In the future, we will be required to renegotiate the terms of these agreements, and may be unable to renew such agreements on favorable terms. If any such agreement cannot be renewed or can only be renewed on terms that are materially worse for us, we may be unable to access the applicable software, and our business and operating results may be adversely affected.

Regulatory Risks

Failure to comply with industry regulations could result in reduced sales and increased costs.

We are subject to environmental laws and regulations governing emissions into the air, discharges into water, and generation, handling, storage, transportation, treatment and disposal of waste materials. We are also subject to other federal and state laws and regulations regarding health and safety matters.

Our manufacturing operations involve the use of solvents, chemicals, oils and other materials that are regarded as hazardous or toxic. We also use complex and heavy machinery and equipment that can pose severe safety hazards, especially if not properly and carefully used. Some of our products also incorporate materials that are hazardous or toxic in some forms, such as:

•zinc and lead used in some steel galvanizing processes;

•chemicals used in our acrylic and epoxy anchoring products, and our concrete repair, strengthening and

protecting products; and

•gun powder used in our powder-actuated tools, which is explosive.

We have in the past, and may in the future, need to take steps to remedy our failure to properly label, store, transport, use and manufacture such toxic and hazardous materials.

If we do not obtain all material licenses and permits required by environmental, health and safety laws and regulations, we may be subject to regulatory action by governmental authorities. If our policies and procedures are flawed, or our employees fail or neglect to follow our policies and procedures in all respects, we might incur liability. Relevant laws and regulations could change or new ones could be adopted that require us to incur substantial expense to comply.

Complying or failing to comply with conflict minerals regulations could materially and adversely affect our supply chain, our relationships with customers and suppliers and our financial results.

We are currently subject to conflict mineral disclosure regulations in the U.S. and may be affected by new regulations concerning conflict and similar minerals adopted by other jurisdictions where we operate. While we have been successful to date in adapting to such regulations, we have and will continue to incur added costs to comply with the disclosure requirements, including costs related to determining the source of such minerals used in our products. We may not be able to ascertain the origins of such minerals that we use and may not be able to satisfy requests from customers to certify that our products are free of conflict minerals. These requirements also could constrain the pool of suppliers from which we source such minerals. We may be unable to obtain conflict-free minerals at competitive prices. Such consequences will increase costs and may materially and adversely affect our manufacturing operations and profitability.

When we provide engineering services we are subject to various local, state and federal rules and regulations which can increase our potential liability.

As part of our product offerings, we may provide engineering and design-related services to our clients. Some of these services require us to stamp drawings or otherwise be involved in the engineering process. While we generally attempt to limit our liability through our internal processes and through our legal agreements with third parties to which we provide such services, under various local, state and federal rules and regulations these limitations may not be effective and we may be held liable for engineering failures. Any such liability could materially and adversely affect our profitability.

17

Capital Expenditures, Expansions, Acquisitions and Divestitures Risks

Our acquisition activities, if any, present unique risks for our business, and any acquisition could materially and adversely affect our business and operating results.

Although it is not as important to our strategy as it has been in the past, we may consider and evaluate acquisitions and we compete for acquisitions with other potential acquirers, some of which may have greater financial or operational resources than we do. As a result, we may not be able to identify suitable acquisition candidates or strategic opportunities. Any acquisitions we undertake involve numerous risks, including, for example:

•inadequate access to information and/or due diligence of acquired businesses;

•diversion of management’s attention from other business concerns;

•overvaluation of acquired businesses;

•difficulties integrating the operations and products of acquired businesses, including expensive and time

consuming integration costs such as employee redeployment, relocation or severance, combining teams and processes in various functional areas, reorganization or closures of facilities, and relocation or disposition of excess equipment;

•inaccurate accounting or public reporting arising from integration of the financial statements and disclosures of

acquired businesses;

•undisclosed existing or potential liabilities of acquired businesses;

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

•risks of entering markets in which we have little or no prior experience;

•litigation involving activities, properties or products of acquired businesses;

•increased cost of regulatory compliance and enforcement;

•consumer and other claims related to products of acquired businesses; and

•the potential loss of key employees of acquired businesses.

In addition, future acquisitions may involve issuance of additional equity securities that dilute the value of our existing equity securities, increase our debt, cause impairment related to goodwill and cause impairment of, and amortization expenses related to, other intangible assets, which could materially and adversely affect our profitability. Any acquisition could materially and adversely affect our business and operating results, and as a result, our business and operating results may differ from any guidance that we may provide.

Our capital expenditures may not be adequate to maintain our competitive position and may not be implemented in a timely or cost-effective manner.

Our capital expenditures are limited by our liquidity and capital resources and the amount we have available for capital spending is limited by the need to pay our other expenses and to maintain adequate cash reserves and borrowing capacity to meet unexpected demands that may arise. Productivity improvements through process re-engineering, design efficiency and manufacturing cost improvements may be required to offset potential increases in labor and raw material costs and competitive price pressures. If we are unable to make sufficient capital expenditures, or to maximize the efficiency of the capital expenditures we do make, our competitive position may be harmed and we may be unable to manufacture the products necessary to compete successfully in our targeted market segments.

Additional financing, if needed, to fund our working capital, growth or other business requirements may not be available on reasonable terms, or at all.

If the cash needed for working capital or to fund our growth or other business requirements increases to a level that exceeds the amount of cash that we generate from operations and have available through our current credit arrangements, we will need to seek additional financing. Additional or new borrowings may not be available on reasonable terms, or at all. Our ability to raise money by issuing and selling shares of our common or preferred stock depends on general market conditions and the demand for our stock. If we sell stock, our existing stockholders could experience substantial dilution. Our inability to secure additional financing could prevent the expansion of our business, internally and through acquisitions.

International Operations Risks

International operations and our financial results in those markets may be affected by legal, regulatory, political, currency exchange and other economic risks.

18

During 2019, revenue from sales outside of the United States was $214.8 million, representing approximately 19% of consolidated sales. In addition, a significant amount of our manufacturing and production operations are located outside the United States. As a result, our business is subject to risks associated with international operations. These risks include the burdens of complying with foreign laws and regulations, unexpected changes in tariffs, taxes or regulatory requirements, political unrest and corruption, local acceptance of our products, fluctuations in foreign exchange rates, currency controls, and cash repatriation restrictions. Regulatory changes could occur in the countries in which we sell, produce or source our products or significantly increase the cost of operating in or obtaining materials originating from certain countries. Restrictions imposed by such changes can have a particular impact on our business when, after we have moved our operations to a particular location, new unfavorable regulations are enacted in that area or favorable regulations currently in effect are changed.

Countries in which our products are manufactured or sold may from time to time impose additional new regulations, or modify existing regulations, including:

• changes in duties, taxes, tariffs and other charges on imports;

• requirements as to where products and/or inputs are manufactured or sourced;

• creation of export licensing requirements, imposition of restrictions on export quantities or specifications of minimum export pricing/and or export prices or duties;

• limitations on foreign owned business; or

• government actions to cancel contracts, re-denominate the official currency, renounce or default on obligations, renegotiate terms unilaterally or expropriate assets.

In addition, political and economic changes or volatility, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, public corruption and other economic or political uncertainties could interrupt and negatively affect our business operations. All of these factors could result in increased costs or decreased revenues and could materially and adversely affect our product sales, financial condition and results of operations. Additionally, international construction standards, techniques and methods differ from those in the United States and as a result, we may need to redesign our products, or invent or design new products, to compete effectively and profitably in international markets. Inflation in emerging markets may also make our products more expensive there and increases the market and credit risks that we are exposed to.

We are also subject to the U.S. Foreign Corrupt Practices Act, in addition to the anti-corruption laws of the foreign countries in which we operate. Although we implement policies and procedures designed to promote compliance with these laws, our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations, may take actions in violation of our policies. Any such violation could result in sanctions or other penalties and have an adverse effect on our business, reputation and operating results.

Failure to comply with export, import, and sanctions laws and regulations could affect us materially and adversely.

We are subject to a number of export, import and economic sanction regulations, including the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”) and U.S. sanction regulations administered by the U.S. Department of Treasury, Office of Foreign Assets (“OFAC”). Foreign governments where we have operations also implement export, import and sanction laws and regulations, some of which may be inconsistent or conflict with ITAR and EAR. Where we face such inconsistencies, it may be impossible for us to comply with all applicable regulations.

If we do not obtain all necessary import and export licenses required by applicable export and import regulations, including ITAR and EAR, or do business with sanctioned countries or individuals, we may be subject to fines, penalties and other regulatory action by governmental authorities, including, among other things, having our export or import privileges suspended. Even if our policies and procedures for exports, imports and sanction regulations comply, but our employees fail or neglect to follow them in all respects, we might incur similar liability.

Any changes in applicable export, import or sanction laws or regulations or any legal or regulatory violations could materially and adversely affect our business and financial condition.

Our manufacturing facilities in China complicate our supply and inventory management.

We maintain manufacturing capability in various parts of the world, including Jiangsu, China, in part to allow us to serve our customers with prompt delivery of needed products. In recent years, we have significantly expanded our manufacturing capabilities in China. Substantially all of our manufacturing output in China was and is currently intended for export to other parts of the world. If a widespread outbreak of an illness or other health issues, such as the Wuhan Coronavirus outbreak occurred in the area where our

19

Jiangsu, China manufacturing facility is located, it could substantially interfere with our general commercial activity related to our supply chain and customer base, which could have a material adverse effect on our financial condition, results of operations, business or prospects. If this outbreak causes us to curtail our operations, we may need to seek alternative sources of supply for products for our customers, which may increase the costs to manufacture and deliver our products.

Customer service is a significant component in our efforts to compete with larger companies that have greater resources than we have. Because of the great distances between our manufacturing facilities in China and the markets to which our products will be shipped, any factors that adversely impact our ability to timely deliver products to our customers, including but not limited to government-imposed work restrictions and restrictions on travel, may delay delivery to our customers, which will put us at a competitive disadvantage. Our attempts to provide prompt delivery may necessitate that in China, we produce and keep on hand substantially more inventory of finished products than would otherwise be needed. Inventory fluctuations can materially and adversely affect our margins, cash flow and profits. Any tariffs, duties, taxes, penalties imposed by the United States on imports from China would negatively affect our inventory management and profits.

If significant tariffs or other restrictions are placed on our imports or any related counter-measures are taken by other countries, our costs of doing business, revenue and results of operations may be negatively impacted.

If significant tariffs or other restrictions are placed on Chinese or other imports or any related counter-measures are taken by China or other countries, our costs of doing business, revenue and results of operations may be materially harmed. If duties are imposed on our imports, we may be required to raise our prices, which may result in the loss of customers and harm our operating performance. Alternatively, we may seek to shift production outside of China, resulting in significant costs and disruption to our operations as we would need to pursue the time-consuming processes of recreating a new supply chain, identifying substitute components and establishing new manufacturing locations. .

We are subject to U.S. and international tax laws that could affect our financial results.

We generally conduct international operations through our wholly-owned subsidiaries. Our income tax liabilities in the different countries where we operate depend in part on internal settlement prices and administrative charges among us and our subsidiaries. These arrangements require us to make judgments with which tax authorities may disagree. Tax authorities may impose additional tariffs, duties, taxes, penalties and interest on us. Transactions that we have arranged in light of current tax rules could have material and adverse consequences if tax rules change, and changes in tax rules or imposition of any new or increased tariffs, duties and taxes could materially and adversely affect our sales, profits and financial condition.

Tax laws are dynamic and subject to change as new laws are passed and new interpretations are issued or applied. If the U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, and our business, financial condition or results of operations may be adversely impacted.

Capital Structure Risks

Any issuance of preferred stock may dilute your investment and reduce funds available for dividends.

Our Board of Directors is authorized by our Certificate of Incorporation to determine the terms of one or more series of preferred stock and to authorize the issuance of shares of any such series on such terms as our Board of Directors may approve. Any such issuance could be used to impede an acquisition of our business that our Board of Directors does not approve, further dilute the equity investments of holders of our common stock and reduce funds available for the payment of dividends to holders of our common stock.

Delaware law and our corporate governance documents could deter takeover attempts that might otherwise be beneficial to our stockholders.

Provisions of Delaware law could make it more difficult for a third party to acquire us. Section 203 of the Delaware General Corporation Law may make the acquisition of the Company more difficult for potential acquirers by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring us without the consent of our Board of Directors for at least three years from the date they first hold 15% or more of the voting stock.

Pursuant to the Company’s current corporate governance documents, our stockholders cannot call special meetings and cannot take action by written consent. In addition, a change in the composition of our Board of Directors that is not approved by the existing Board of Directors could trigger a default under our existing credit facilities.

20

These provisions may discourage, delay or make difficult a merger or acquisition of the Company, including a transaction that may offer a premium price for our common stock.

Employee Risks

We depend on executives and other key employees, the loss of whom could harm our business.

We depend, in part, on the efforts and skills of our executives and other key employees, including members of our sales force. Our executives and key employees are experienced and highly qualified. The loss of any of our executive officers or other key employees could harm the business and the Company’s ability to timely achieve its strategic initiatives. Our success also depends on our ability to identify, attract, hire and retain our key personnel. We face strong competition for such personnel and may not be able to attract or retain such personnel. In addition, when we experience periods with little or no profits, a decrease in compensation based on our profits may make it difficult to attract and retain highly qualified personnel. We may not be able to attract and retained key personnel or may incur significant costs in order to do so.

Our work force could become increasingly unionized in the future and our unionized or union-free work force could strike, which could adversely affect the stability of our production and reduce our profitability.

A significant number of our employees are represented by labor unions and covered by collective bargaining agreements that will expire between 2021 and 2023. Generally, collective bargaining agreements that expire may be terminated after notice by the union. After termination, the union may authorize a strike similar to the strike which was initiated at our Stockton, California facility in the third quarter of 2019. Although we believe that our relations with our employees are generally good, no assurance can be given that we will be able to successfully extend or renegotiate our collective bargaining agreements as they expire. If we fail to extend or renegotiate our collective bargaining agreements, if disputes with our unions arise, or if the workers covered by one or more of the collective bargaining agreements engage in a strike, lockout, or other work stoppage, we could have a material adverse effect on production at one or more of our facilities, incur higher labor costs, and, depending upon the length of such dispute or work stoppage, on our business, results of operations, financial position and liquidity.

Other Risks

Natural disasters could decrease our manufacturing capacity.

Some of our current manufacturing facilities are located in geographic regions that have experienced major natural disasters, such as earthquakes, floods and hurricanes. Our disaster recovery plan may not be adequate or effective. We do not carry earthquake insurance. Other insurance that we carry is limited in the risks covered and the amount of coverage. Our insurance would not be adequate to cover all of our resulting costs, business interruption and lost profits when a major natural disaster occurs. A natural disaster rendering one or more of our manufacturing facilities totally or partially inoperable, whether or not covered by insurance, would materially and adversely affect our business and financial condition.

Climate change could materially and adversely affect our business.

We cannot predict the effects that climate change may have on our business. They might, for example:

•depress or reverse economic development,

•reduce the demand for construction,

•increasing the cost and reducing the availability of wood products used in construction,

•increase the cost and reduce the availability of raw materials and energy,

•increase the cost and reduce the availability of insurance covering damage from natural disasters, and

•lead to new laws and regulations that increase our expenses and reduce our sales.

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

Significant judgment and certain estimates are required in determining our worldwide provision for income taxes. Future tax law changes may materially increase the Company’s prospective income tax expense.

We are subject to income taxation in the U.S. as well as numerous foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision and, there are many transactions and calculations where the ultimate tax determination is uncertain.

21

Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) was signed into law. The impact of the Tax Reform Act and any future Treasury rules, regulations or guidance thereunder on our business and our stockholders is uncertain and could be adverse and cause our future results of operations and financial condition to differ materially from our expectations, estimates and assumptions disclosed in this Annual Report on Form 10-K.

Impairment charges on goodwill or other intangible assets adversely affect our financial position and results of operations.

We are required to perform impairment tests on our goodwill, indefinite-lived intangible assets and definite-lived intangible assets annually or at any time when events occur that could affect the value of such assets. To determine whether a goodwill impairment has occurred, we compare fair value of each of our reporting units with its carrying value. In the past, these tests have led us to incur significant impairment charges. Significant and unanticipated changes in circumstances, such as significant adverse changes in business climate, adverse actions by regulatory authorities, unanticipated competition, loss of key customers or changes in technology or markets, can require a charge for impairment that can materially and adversely affect our reported net income and our stockholders’ equity.

We rely on complex software systems and hosted applications to operate our business, and our business may be disrupted if we are unable to successfully/efficiently update these systems or convert to new systems.

We are increasingly dependent on technology systems to operate our business, reduce costs, and enhance customer service. These systems include complex software systems and hosted applications that are provided by third parties such as financial management and human capital management platforms from SAP America, Inc. and Workday, Inc. Software systems need to be updated on a regular basis with patches, bug fixes and other modifications. Hosted applications are subject to service availability and reliability of hosting environments. We also migrate from legacy systems to new systems from time to time. Maintaining existing software systems, implementing upgrades and converting to new systems are costly and require a significant allocation of personnel and other resources. The implementation of these systems upgrades and conversions is a complex and time-consuming project involving substantial expenditures for implementation activities, consultants, system hardware and software, often requires transforming our current business and financial processes to conform to new systems, and therefore, may take longer, be more disruptive, and cost more than forecast and may not be successful. If the implementation is delayed or otherwise is not successful, it may hinder our business operations and negatively affect our financial condition and results of operations. There are many factors that may materially and adversely affect the schedule, cost, and execution of the implementation process, including, without limitation, problems during the design and testing phases of new systems; system delays and malfunctions; the deviation by suppliers and contractors from the required performance under their contracts with us; the diversion of management attention from our daily operations to the implementation project; reworks due to unanticipated changes in business processes; difficulty in training employees in the operation of new systems and maintaining internal control while converting from legacy systems to new systems; and integration with our existing systems. Some of such factors may not be reasonably anticipated or may be beyond our control.

Failure of our internal control over financial reporting or our accounting systems could harm our business and financial results.

Because of the inherent limitations of internal control, our internal control over financial reporting might not detect or prevent misstatements of our consolidated financial statements on a timely basis. We have used accounting and other financial management software systems in connection with our operations. Defects in such systems or their implementation could result in errors in our consolidated financial statements. Our growth and entry into globally dispersed markets as well as periodic conversions from legacy software systems to new software systems puts significant additional pressure on our internal control. Failure to maintain an effective internal control could limit our ability to report our financial results accurately or to detect and prevent deficiencies timely, cause investors to lose confidence in the accuracy and completeness of our financial reports, and subject us to regulatory investigations and litigation. As a result, our business and the market price of our common stock could be materially and adversely affected.

Changes in accounting standards could materially and adversely affect our financial results.

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

Item 1B. Unresolved Staff Comments.

22

None.

Item 2. Properties.

Our headquarters and principal executive offices in Pleasanton, California, and our principal United States manufacturing facilities in Stockton and San Bernardino County, California, McKinney, Texas, West Chicago, Illinois, Columbus, Ohio, and Gallatin, Tennessee are located in owned premises. The principal manufacturing facilities located outside the United States, the majority of which we own, are in France, Denmark, Germany, Poland, Switzerland, Sweden, Portugal and China. We also own and lease smaller manufacturing facilities, warehouses, research and development facilities and sales offices in the United States, Canada, the United Kingdom, Europe, Asia, Australia, New Zealand, and Chile. As of February 25, 2020, the Company’s owned and leased facilities were as follows:

	Number
	Of	Approximate Square Footage
	Properties	Owned	Leased	Total
		(in thousands of square feet)
North America	28	2,287	683	2,970
Europe	18	533	342	875
Asia/Pacific	10	175	41	216
Administrative and all other	1	89	—	89
Total	57	3,084	1,066	4,150

We believe that our properties are maintained in good operating condition. Our manufacturing facilities are equipped with specialized equipment and use extensive automation. Our leased facilities typically have renewal options and have expiration dates through 2028. We believe we will be able to extend leases on our various facilities as necessary, or as they expire. Currently, our manufacturing facilities are being operated with at least one full-time shift. Based on current information and subject to future events and circumstances, we anticipate that we may require additional facilities to accommodate possible future growth.

In November 2019, we sold our real estate in Maple Ridge, British Columbia, Canada and received $9.4 million, after closing costs. This property is classified under the “North America” segment. In November 2018, we sold our real estate in Vacaville, California and received net proceeds of $17.5 million, after closing costs and sales price adjustments. These properties are classified under the “Administrative & All other” segment.

Item 3. Legal Proceedings.

From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. Refer to Note 14, “Commitments and Contingencies,” to the Company’s Consolidated Financial Statements included in this Annual Report on Form 10-K for a discussion of recent developments related to certain of the legal proceedings in which we are involved.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

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

Market Information for Common Stock

The Company’s common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “SSD.”

As of February 18, 2020, there were 24,154 holders of record of the Company’s common stock although we believe that there are a significantly larger number of beneficial owners of our common stock.

23

Dividends

During 2019 the Company paid a total of $40.3 million in cash dividends. In January 2020, we declared a quarterly cash dividend of $0.23 per share of common stock to be paid on April 23, 2020 to stockholders of record as of April 2, 2020. Future dividends, if any, will be determined by the Company’s Board of Directors, based on the Company’s future earnings, cash flows, financial condition and other factors deemed relevant by the Board of Directors. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Stock Performance Graph

The following graph compares the cumulative total stockholder return on the Company’s common stock from December 31, 2014, through December 31, 2019, with the cumulative total return on the S&P 500 Index (a broad equity market index), the Dow Jones U.S. Building Materials & Fixtures Index (a published industry or line-of-business index) and a Peer Group Index over the same period (assuming the investment of $100 in the Company’s common stock and in each of the indices on December 31, 2014, and reinvestment of all dividends into additional shares of the same class of equity securities at the frequency with which dividends are paid on such securities during the applicable fiscal year). To provide an additional comparison to our performance, we included an index consisting of companies in the building products or construction materials industries that are most comparable to us in terms of size and nature of operations, which group has also been referenced by us in connection with setting our executive compensation. The Peer Group Index below consisted of AAON, Inc., PGT Innovations, Inc., Continental Building Products, Inc., Trex Company, Inc., Insteel Industries, Inc., Quanex Building Products Corp., American Woodmark Corp, Patrick Industries, Inc., Apogee Enterprises, Inc., U.S. Concrete, Inc., Gibraltar Industries, Inc., Eagle Materials Corp., Summit Material, LLC., Advanced Drainage System, Armstrong World Industries, Inc., Masonite International Corp., Advanced Drainage System, and Armstrong World Industries, Inc. We added a Peer Group Index to the stock performance graph below to ensure that it continues to reflect an appropriate comparison to our business operations.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The table below presents the monthly repurchases of shares of our common stock in the fourth quarter of the fiscal year ended December 31, 2019.

24

	(a)	(b)			(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 1 - October 31, 2019	—	$	—	—	—	$48.6 million
November 1 - November 30, 2019	—	$	—		—	$48.6 million
December 1 - December 31, 2019	117,988	$	79.49		117,988	$39.2 million
Total	117,988

⁽¹⁾Pursuant to the $100.0 million repurchase authorization that was publicly announced on February 4, 2019, and expired on December 31,

2019.See “Note 3 — Net Income per Share” to the Company’s Consolidated Financial Statements.

On December 9, 2019, the Company’s Board of Directors authorized the Company to repurchase up to $100.0 million of the Company’s common stock. The authorization is in effect from January 1, 2020 through December 31, 2020.

Item 6. Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s Consolidated Financial Statements and the related Notes thereto appearing in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, including any discussion of presentation changes, accounting changes, business combinations or dispositions of business operations therein to fully understand factors that may affect the comparability of the information. Historical performance is not necessarily indicative of future results.

The consolidated statements of operations data for each of the years ended December 31, 2019, 2018 and 2017 and the consolidated balance sheets data as of December 31, 2019 and 2018 are derived from our audited consolidated financial statements of this Form 10-K. The consolidated statements of operations data for the years ended December 31, 2016 and 2015 and the consolidated balance sheets data as of December 31, 2017, 2016 and 2015 are derived from our audited consolidated financial statements, except as otherwise noted, that are not included in this Annual Report on Form 10-K. The information presented below is our historical data and not necessarily indicative of our future financial condition or results of operations. The financial data below includes the results of operations of acquired companies following their acquisition. The consolidated statements of operations data for the year ended December 31, 2015 include reclassification adjustments to gross profit, operating expenses and operating income, that had no affect on net income for the years therein. For a summary of acquisitions that took place during the fiscal years ended December 31, 2019, 2018 and 2017, see “Note 10 — Acquisitions and Dispositions” to the Company’s Consolidated Financial Statements.

25

	Years Ended December 31,
(in thousands, except per-share data)	2019			2018			2017			2016			2015
Statement of Operations Data:
Net sales	$	1,136,539		$	1,078,809		$	977,025		$	860,661		$	794,059
Gross profit	492,130			480,287			443,381			409,880			356,406
Gross profit margin	43.3		%	44.5		%	45.4		%	47.6		%	44.9		%
Total operating expenses	316,900			311,555			305,268			268,990			247,474
Percentage of sales	27.9		%	28.9		%	31.2		%	31.3		%	31.2		%
Income from operations	181,254			172,625			138,273			141,670			109,320
Percentage of sales	15.9		%	16.0		%	14.2		%	16.5		%	13.8		%
Net income	$	133,982		$	126,633		$	92,617		$	89,734		$	67,888
Percentage of sales	11.8		%	11.7		%	9.5		%	10.4		%	8.5		%
Earnings per share of common stock:
Basic	$	3.00		$	2.74		$	1.95		$	1.87		$	1.39
Diluted	$	2.98		$	2.72		$	1.94		$	1.86		$	1.38
Cash dividends declared per share of common stock	$	0.91		$	0.87		$	0.81		$	0.70		$	0.62

(in thousands)	2019		2018		2017		2016		2015
Balance Sheet Data:
Working capital	$	482,000	$	447,949	$	447,450	$	476,451	$	494,308
Property, plant and equipment, net	249,012		254,597		273,020		232,810		213,716
Goodwill	131,879		130,250		137,140		124,479		123,950
Total assets	1,095,366		1,021,663		1,037,523		979,974		961,309
Line of credit and long-term liabilities, including current portion	46,329		16,443		17,310		5,336		16,521
Total liabilities	203,409		166,149		152,745		114,132		111,485
Total stockholders’ equity	891,957		855,514		884,778		865,842		849,824

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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Note About Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements.

Overview

We design, engineer and are a leading manufacturer of high quality wood and concrete building construction products designed to make structures safer and more secure that perform at high levels and are easy to use and cost-effective for customers. We operate in three business segments determined by geographic region: North America, Europe and Asia/Pacific.

Our primary business strategy is to grow through:

• increasing our market share and profitability in Europe;

• increasing our market share in the concrete space; and

• continuing to develop our software to support our core wood products offering while leveraging our strengths in engineering, sales and distribution, and our strong brand name.

26

We believe these initiatives and objectives are crucial to not only offer a more complete solution to our customers and bolster our sales of core wood connector products, but also to mitigate the cyclicality of the U.S. housing market.

On October 30, 2017, we announced the 2020 Plan to provide additional transparency into the execution of our strategic plan and financial objectives. Under the 2020 Plan, we initially assumed (i) housing starts growing as a percentage in the mid-single digit, (ii) increasing our market share and profitability in Europe, and (iii) gaining market share in both our truss and concrete product offerings. At the time of the announcement, our 2020 Plan was centered on the following three key operational objectives.

• First, a continued focus on organic growth with a goal to achieve a net sales compounded annual growth rate of approximately 8% (from $860.7 million reported in fiscal 2016) through fiscal 2020.

• Second, rationalizing our cost structure to improve company-wide profitability by reducing total operating expenses as a percentage of net sales from 31.8% in fiscal 2016 to a range of 26.0% to 27.0% by the end of fiscal 2020. We expect to achieve this initiative, aside from top-line growth, through cost reduction measures in Europe and our concrete product line, zero-based budgeting for certain expense categories, a SKU reduction program to right-size our product offering and a commitment to remaining headcount neutral (except in the production and sales departments to meet demands from sales growth). These reductions were to be offset by the Company’s ongoing investment in its software initiatives as well as the expenses associated with our ongoing SAP implementation, which includes increasing headcount when necessary.

• Third, improving our working capital management and overall balance sheet discipline primarily through the reduction of inventory levels in connection with the implementation of Lean principles in many of our factories. This included improving our inventory turn rate from two-times a year for fiscal 2016 to four-times by the end of 2020. With these efforts, we believed we could achieve an additional 25% to 30% reduction of our raw materials and finished goods inventory through 2020 without adversely impacting day-to-day production and shipping procedures.

Since 2016, organic net sales has grown at a compound annual growth rate of 9.7%. Based on current trends and conditions, we expect to achieve our 8% net sales goal stated in our 2020 Plan.

We are continuing to work towards reducing our operating expenses to a range of 26% to 27% of net sales by the end of 2020. Operating expenses as a percentage of net sales were 27.9%, 28.9% and 31.3% for the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively. In dollars, operating expenses increased $5.3 million or 1.7% from the year ended December 31, 2018 to the year ended December 31, 2019 (mostly due to increased personnel costs) and increased $6.3 million or 2.1% from the year ended December 31, 2017 to the year ended December 31, 2018 (mostly due to increased consulting fees and legal fees, sales commissions and SAP implementation costs). In late 2017 and throughout 2018, we engaged a leading management consultant to perform an independent in-depth analysis of our operations, which contributed towards a reduction of expenses in 2018 and could result in initiatives that reduce expenses beyond the 2020 Plan as well as improvements to net working capital. We incurred additional success-based consulting expenses in 2018 and 2019 due to these initiatives. These fees concluded as of the end of September 30, 2019. We expect these related consulting fees incurred in 2018 and 2019 will have a one-year or less pay back.

When we initiated our 2020 Plan in October 2017, it did not factor in macro events out of our control such as a volatile steel market as well as steel tariffs and other trade events. Given increases in raw material cost and resulting degradation on our gross profit margins from 48% in 2016, we revised our 2020 target for improving our operating income margin to a range of 16% to 17% by the end of 2020. This is revised down from our initial 2020 target range of 21% to 22%, and in-line to slightly up compared to our operating margin of 16.4% in 2016. While these macro events have caused us to revise this goal, it’s important to note that rationalizing our cost structure has helped mitigate further downward pressure on our operating margins. We also revised operating margins for Europe from a target of 10% by the end of 2020, which includes approximately 2% of net sales in costs associated with the SAP implementation, to a range of 6% to 7%, including the same 2% of SAP implementation costs. Higher material costs have also contributed to this revision yet it still reflects a 700-800 basis point improvement from 2016 and substantial progress towards this target.

Since 2016, we have reduced our inventory in North America, which is the bulk of our total inventory, by nearly 8% in pounds on hand, including an approximate 17% reduction in finished goods, while total dollars on hand increased by over 5%.

We accomplished this reduction in inventory in pounds on hand even as three particular factors have transpired since October of 2017 when we released the 2020 Plan that have required us to build more inventory than expected:

• we pro-actively increased our anchor inventory in anticipation of potential tariffs on our mechanical anchor finished goods from China, as well as in anticipation of additional demand related to The Home Depot, Inc. (“Home Depot”) rollout;

• we bought an additional allotment of steel in order to mitigate the potential impact of availability; and

27

• we have inventory levels to ensure we can meet our customer needs as we continue our SAP roll-out.

Since 2016, our weighted average cost per pound of total inventory on hand and raw materials on hand in North America, which we cannot control, increased. As a result, there has not been a marked improvement in our inventory turns based on dollars and we no longer believe we can achieve a targeted inventory turn rate of four-times per year by the end of 2020. We continue to strive to effectively manage our inventory as a way of improving our use of working capital.

Through execution on the 2020 Plan, we target to achieve a return on invested capital ⁽¹⁾ by the end of fiscal 2020 within the range of 17% to 18% from 10.5% in 2016. Given the pressure on gross margins, we updated our expectation for return on invested capital to be in a range of 15% to 16% by 2020. The Company’s return on invested capital was 15.3% for the last four quarters ended December 31, 2019. Meeting the targeted return on invested capital is dependent on the Company’s ability to return capital to our stockholders, usually in the form of cash dividends or share repurchases of the Company’s common stock, which may or may not occur at the same levels as prior years. Nonetheless, we remain committed to returning 50% of our cash flows from operations through the end of fiscal 2020.

We believe our ability to achieve industry-leading gross profit margins and operating income margins is due to the high level of value-added services that we provide to our customers. Aside from our strong brand recognition and trusted reputation, the Company is unique due to our extensive product testing capabilities and our state-of-the-art test lab; strong customer support and education for engineers, builders and contractors; a deep 40-plus year relationships with engineers that get our products specified on the blueprint and pulled through to the job site; product availability with delivery, typically, in 24 hours to 48 hours; and an active involvement with code officials to improve building codes and construction practices. Based on current information, we expect the competitive environment to be relatively stable with U.S. single-family housing starts to grow in the low single digits for 2020 compared to 2019. For the purposes of re-defining our 2020 Plan objectives, during years 2017 to 2020 we assume U.S. single-family housing starts growing, as a percentage, in the low-single digits on average.

Prior to the 2020 Plan, acquisitions were part of a dual-fold approach to growth. Our strategy since has primarily focused on organic growth, supported by strategic capital investments in the business. As such, we have and will continue to focus less on acquisitions activities, especially in the concrete repair space. However, we will from time to time evaluate acquisition opportunities and if the right opportunity arises we are open to acquisitions in other areas of our business, such as in our core fastener space, which is an area where we believe it would be beneficial to gain additional production capacity to support our wood business or to enhance our wood and concrete product portfolio with additional value–added products, we may pursue the opportunities.

Factors Affecting Our Results of Operations

Unlike lumber or other products that have a more direct correlation to housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. Our products are generally used in a sequential process that follows the construction process. Residential, light industrial and commercial construction begins with the foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules.

Our sales also tend to be seasonal, with operating results varying from quarter to quarter. With some exceptions, our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year, as our customers tend to purchase construction materials in the late spring and summer months for the construction season. Weather conditions, such as extended cold or wet weather, which affect and sometimes delay installation of some of our products, could negatively affect our results of operations. Political, economic events such as tariffs and the possibility of additional tariffs on imported raw materials or finished goods or such as labor disputes can also have an effect on our gross and operating profits as well as the amount of inventory on-hand.

ERP Integration

In July 2016, our Board of Directors (the “Board”) approved a plan to replace our current in-house enterprise resource planning (“ERP”) and externally sourced accounting platforms with a fully integrated ERP platform from SAP America, Inc. (“SAP”) in multiple phases by location at all facilities plus our headquarters, with a focus on configuring, instead of customizing, the standard SAP modules.

We went live with our first wave of the SAP implementation project in February of 2018, and we implemented SAP at two additional locations in 2019. We are tracking toward rolling out SAP technology in our remaining U.S. branches by mid-2020, and company-wide completion of the SAP roll-out is currently targeted for the end of 2021. While we believe the SAP implementation will be beneficial to the Company over time, annual operating expenses have and are expected to continue to increase through 2024 as a

28

result of the SAP implementation, primarily due to increases in training costs and the depreciation of previously capitalized costs. As of December 31, 2019, we have capitalized $19.3 million and expensed $25.8 million of the costs, including depreciation of capitalized costs associated with the SAP implementation.

Business Segment Information

Historically our North America segment has generated more revenues from wood construction products compared to concrete construction products. During 2019, economic conditions and wet weather resulted in lower than projected single-family housing starts in the first half of the year, which decreased wood construction product sales volumes over the same time period. Wood construction product sales volume increased slightly compared to the year ended December 31, 2018, partly due to increased housing starts in the second half of 2019. Concrete construction product sales volume increased compared to 2018, which was primarily due to increased sales volumes. Our wood construction product net sales increased 5% for the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to both increased sales volumes and higher average sales prices. Our concrete construction product net sales increased 18% for the year ended December 31, 2019 compared to the year ended December 31, 2018 also mostly due to increased sales volumes and higher average prices.

Our Europe segment also generates more revenues from wood construction products than concrete construction products. In local currency, Europe net sales increased primarily due to increases in average product prices. In United States dollars, wood construction product sales decreased 3.3% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Concrete construction product sales are mostly project based, and net sales increased nearly 1.0% for the year ended 2019 compared to the year ended 2018. Europe net sales were negatively affected by foreign currency translations resulting from Europe currencies weakening against the United States dollar. Operating expenses decreased $4.8 million for the year ended December 31, 2019 compared to the year ended December 31, 2018, which was partly due the negative affect by foreign currency translations. See “Europe” below.

Our Asia/Pacific segment has generated revenues from both wood and concrete construction products. We believe that the Asia/Pacific segment is not significant to our overall performance.

⁽¹⁾When referred to above, the Company’s return on invested capital (“ROIC”) for a fiscal year is calculated based on (i) the net income of that year as presented in the Company’s consolidated statements of operations prepared pursuant to generally accepted accounting principles in the U.S. (“GAAP”), as divided by (ii) the average of the sum of total stockholders’ equity and total long-term interest bearing liabilities, (which for the Company are long-term capital lease obligations), at the beginning of and at the end of such year, as presented in the Company’s consolidated balance sheets prepared pursuant to GAAP for that applicable year. As such, the Company’s ROIC, a ratio or statistical measure, is calculated using exclusively financial measures presented in accordance with GAAP.

Business Outlook

Based on current information and subject to future events and circumstances the Company estimates that its full year 2020:

• Gross margin will be between approximately 43.5% and 44.5%.

• Effective tax rate will be approximately 25.0% and 26.0%, including both federal and state income tax rates.

29

Results of Operations

The following table sets forth, for the years indicated, the Company’s operating results as a percentage of net sales for the years ended December 31, 2019, 2018 and 2017, respectively:

	Years Ended December 31,
	2019		2018		2017
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	56.7	%	55.5	%	54.6	%
Gross profit	43.3	%	44.5	%	45.4	%
Research and development and other engineering	4.1	%	4.0	%	4.9	%
Selling expense	9.9	%	10.2	%	11.8	%
General and administrative expense	13.9	%	14.7	%	14.6	%
Total operating expense	27.9	%	28.9	%	31.3	%
Net gain on disposal of assets	(0.5	)%	(1.0	)%	—	%
Impairment of goodwill	—	%	0.6	%	—	%
Income from operations	15.9	%	16.0	%	14.1	%
Loss in equity investment, before tax	(0.2	)%	—	%	—	%
Foreign exchange gain (loss)	(0.1	)%	—	%	0.1	%
Interest expense, net	(0.2	)%	(0.1	)%	(0.1	)%
Gain on bargain purchase of a business	—	%	—	%	0.6	%
Income before taxes	15.7	%	15.9	%	14.8	%
Provision for income taxes	3.9	%	4.2	%	5.3	%
Net income	11.8	%	11.7	%	9.5	%

Comparison of the Years Ended December 31, 2019 and 2018

Unless otherwise stated, the below results, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the year ended December 31, 2019, against the results of operations for the year ended December 31, 2018. Unless otherwise stated, the results announced below, when referencing “both years,” refer to the year ended December 31, 2018 and the year ended December 31, 2019.

The Company changed its presentation of its consolidated statement of operations to display non–operating activities, including foreign exchange gain (loss), and certain other income or expenses as a separate item below income from operations. Foreign exchange gain (loss), and other income or expenses were previously included in general and administrative expenses, and in income from operations, respectively. Income before tax and net income for the year ended December 31, 2018 presented below were not affected by the change in presentation.

30

The following table shows the change in the Company’s operations from 2018 to 2019, and the increases or decreases for each category by segment:

 

				Increase (Decrease) in Operating Segment
				North America						Asia/ Pacific			Admin & All Other
(in thousands)	2018						Europe									2019
Net sales	$	1,078,809		$	62,262		$	(3,883	)	$	(649	)	$	—		$	1,136,539
Cost of sales	598,522			48,344			(1,638		)	(1,256		)	437			644,409
Gross profit	480,287			13,918			(2,245		)	607			(437		)	492,130
Operating expenses:
Research and development and other engineering expense	43,056			4,546			(191		)	(340		)	(13		)	47,058
Selling expense	109,931			4,006			(1,044		)	(391		)	66			112,568
General and administrative expense	158,568			1,624			(3,995		)	52			1,025			157,274
Operating expenses	311,555			10,176			(5,230		)	(679		)	1,078			316,900
Net gain (loss) on disposal of assets	(10,579		)	(4,448		)	198			(12		)	8,817			(6,024		)
Impairment of goodwill	6,686			—			(6,686		)	—			—			—
Income from operations	172,625			8,190			9,473			1,298			(10,332		)	181,254
Interest expense, net and other	(634		)	(1,451		)	(123		)	169			302			(1,737		)
Foreign exchange gain	137			(1,576		)	844			(1,041		)	476			(1,160		)
Income before income taxes	172,128			5,163			10,194			426			(9,554		)	178,357
Provision for income taxes	45,495			814			(1,013		)	463			(1,384		)	44,375
Net income	$	126,633		$	4,349		$	11,207		$	(37	)	$	(8,170	)	$	133,982

Net Sales increased 5.4% to $1,136.5 million from $1,078.8 million. Net sales to home centers, dealer distributors, lumber dealers and contractor distributors increased average net sales unit prices. Wood construction product net sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 84% of the Company’s total net sales in both years. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 16% of the Company’s total net sales in both years.

Gross profit increased to $492.1 million from $480.3 million. Gross profit margins decreased to 43.3% from 44.5%, which was lower than our expected gross profit margins of 43.5% to 44.0%. This was due to a shortfall in expected net sales and increased warehousing costs during the quarter ended December 31, 2019. The gross profit margins, including some intersegment expenses, which were eliminated in consolidation, and excluding other expenses that are allocated according to product group, decreased to 42.9% from 45.2% for wood construction products and increased to 42.2% from 37.2% for concrete construction products.

Research and development and other engineering expense increased 9.3% to $47.1 million from $43.1 million, primarily due to increases of $5.1 million in personnel costs, which was mostly due to reclassifying certain employees from general and administrative to research and development and engineering. This was partly offset by decreases of $0.6 million in supply expense,$0.5 million in cash profit sharing expense and $0.3 million in stock-based compensation.

Selling expense increased 2.4% to $112.6 million from $109.9 million, primarily due to increases of $4.9 million in personnel costs, $0.5 million in advertising and promotional costs and $0.5 million in professional fees, which was partly offset by decreases of $2.0 million in sales and agent commissions and $0.6 million in cash profit sharing expense.

General and administrative expense decreased 0.8% to $157.3 million from $158.6 million, primarily due to decreases of $2.1 million in consulting and legal expenses mostly due to a $3.8 million legal settlement reported in 2018, $2.1 million in cash profit sharing expense and $1.8 million in severance expense, which was partly offset by increases of $2.1 million in personnel costs, $1.4 million in facilities expense including a reduction of rental income, net of expenses, $0.8 million in computer costs including software subscription and licensing fees and $0.4 million in bad debt expense. Included in general and administrative expense are costs associated with the SAP implementation of $13.2 million, an increase of $3.8 million over the prior year. These expenses were primarily for professional fees and 2019 and 2018 included $2.1 million and $1.6 million, respectively, in incremental related amortization expense.

31

Gain on sale of assets - In November 2019, the Company sold a facility that was used for selling and distributing. The Company received net proceeds of $9.4 million, which resulted in a pre-tax gain of $5.6 million. In November 2018, the Company sold a facility that was previously leased exclusively to a third party. The Company received net proceeds of $17.5 million, which resulted in a pre-tax gain of $8.8 million.

Impairment of goodwill - The Company completed its 2018 annual goodwill impairment analysis in the fourth quarter of 2018 and it resulted in the impairment charge of $6.7 million associated with assets acquired in Denmark in 2001. The impairment was due to a reduction in expected future operating profits for the reporting unit alone, and not for the Company as a whole, and as a result, the goodwill of the Denmark reporting unit was fully impaired. The Company’s 2018 annual goodwill impairment analysis did not result in additional impairment of goodwill. See “Critical Accounting Policies and Estimates — Goodwill Impairment Testing."

Our effective income tax rate decreased to 24.9% from 26.4%. The effective income tax rate for the year ended December 31, 2019 decreased compared to the prior year due to a nonrecurring impairment of goodwill in 2018 related to the Europe segment which was not deductible, as well as a release of valuation allowances in 2019, also related to the Europe segment.

Net income was $134.0 million compared to $126.6 million. Diluted net income per share of common stock was $2.98 compared to $2.72.

Net Sales

The following table shows net sales by segment for the years ended December 31, 2018 and 2019, respectively:

(in thousands)	North America			Europe			Asia/ Pacific			Total
December 31, 2018	$	910,587		$	159,027		$	9,195		$	1,078,809
December 31, 2019	972,849			155,144			8,546			1,136,539
Increase (decrease)	$	62,262		$	(3,883	)	$	(649	)	$	57,730
Percentage increase (decrease)	6.8		%	(2.4		)%	(7.1		)%	5.4		%

The following table shows segment net sales as percentages of total net sales for the years ended December 31, 2018 and 2019, respectively:

	North America		Europe		Asia/ Pacific		Total
Percentage of total 2018 net sales	84	%	15	%	1	%	100	%
Percentage of total 2019 net sales	86	%	14	%	—	%	100	%

Gross Profit

The following table shows gross profit by segment for the years ended December 31, 2018 and 2019, respectively:

(in thousands)	North America			Europe			Asia/ Pacific		Admin & All Other			Total
December 31, 2018	$	421,820		$	56,151		$	2,085	$	231		$	480,287
December 31, 2019	435,738			53,906			2,692		(206		)	492,130
Increase (decrease)	$	13,918		$	(2,245	)	$	607	$	(437	)	$	11,843
Percentage increase (decrease)	3.3		%	(4.0		)%	*		*			2.5		%

* The statistic is not meaningful or material.

32

The following table shows gross profit percentages by segment for the years ended December 31, 2018 and 2019, respectively:

	North America		Europe		Asia/ Pacific		Admin & All Other	Total
2018 gross profit percentage	46.3	%	35.3	%	22.7	%	*	44.5	%
2019 gross profit percentage	44.8	%	34.7	%	31.5	%	*	43.3	%

* The statistic is not meaningful or material.

North America

• Net sales increased 6.8% primarily due to increased sales volume and average unit price in the United States. Canada's net sales were negatively affected by approximately $1.2 million due to foreign currency translation. In local currency, Canada net sales increased primarily due to increases in sales volume.

• Gross profit margin decreased to 44.8% from 46.3%, primarily due to increased raw material and labor costs.

• Research and development and engineering expense increased $4.5 million, primarily due to increases of $5.0 million in personnel costs, which was mostly due to moving certain employees, whose primary responsibilities changed during 2019, from general and administrative to research and development and engineering. This was partly offset by decreases of $0.5 million in cash profit sharing expense and $0.3 million in stock-based compensation.

• Selling expense increased $4.0 million, primarily due to increases of $5.5 million in personnel costs, $0.6 million in advertising and promotional costs and $0.5 million in professional fees, which was partly offset by decreases of $1.7 million in sales and agent commissions.

• General and administrative expense increased $1.6 million, primarily due to increases of $1.7 million in personnel costs, $1.0 million in computer costs including software subscription and licensing fees, $0.9 million in facilities expense and $0.5 million in bad debt expense, which was partly offset by decreases of $1.8 million in consulting and legal expenses and $0.9 million in cash profit sharing expense. Included in general and administrative expense are costs associated with the SAP implementation of $10.5 million, an increase of $2.9 million over the prior year.

• Gain on sale of assets - In November 2019, the Company sold a sales and distribution facility. The Company received proceeds net of closing costs of $9.4 million, which resulted in a gain of $5.6 million.

• Income from operations increased $8.2 million, mostly due to higher net sales and a gain on sale of assets, which was partially offset by higher operating expenses.

Europe

• Net sales decreased 2.4%, primarily due to approximately $9.2 million of negative foreign currency translations resulting from some Europe currencies weakening against the United States dollar. In local currency, Europe net sales increased primarily due to increases in both sales volume and average product prices.

• Gross profit margin decreased to 34.7% from 35.3%, primarily due to increased factory and overhead, labor and warehouse costs.

• Selling expense decreased $1.0 million primarily due to decreases of $0.4 million in personnel costs, $0.4 million in cash profit sharing expense and $0.2 million in sales and agent commission expense.

• General and administrative expense decreased $4.0 million, primarily due to decreases of $1.9 million in severance expense, $1.1 million in personnel expense, $0.4 million in cash profit sharing expense and $0.3 million in consulting and legal expenses. Included in general and administrative expense are costs associated with the SAP implementation of $2.4 million, an increase of $0.5 million over the prior year quarter. These expenses were primarily for professional fees.

• Impairment of goodwill - The impairment charge of $6.7 million taken in 2018 was associated with assets acquired in Denmark in 2001, and as a result, the goodwill of the Denmark reporting unit was fully impaired. See “Critical Accounting Policies and Estimates — Goodwill Impairment Testing."

33

• Income from operations increased $9.5 million, mostly due to a non-recurring $6.7 million impairment of goodwill taken in 2018 and decreased operating expenses.

Asia/Pacific

• For information about the Company’s Asia/Pacific segment, please refer to the table above setting forth changes in our operating results for the years ended December 31, 2019 and 2018.

Administrative and All Other

• General and administrative expense increased $1.0 million, primarily due to increases of $1.5 million in personal expense as well as a $0.6 million reduction of rental income, net of expenses, which was partly offset by a decrease of $0.7 million in cash profit sharing expense.

• Gain on sale of assets - In November 2018, the Company sold a facility that was previously leased exclusively to a third party. The Company received net proceeds of $17.5 million, which resulted in a gain of $8.8 million.

Comparison of the Years Ended December 31, 2018 and 2017

Unless otherwise stated, the below results, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the year ended December 31, 2018, against the results of operations for the year ended December 31, 2017. Unless otherwise stated, the results announced below, when referencing “both years,” refer to the year ended December 31, 2017 and the year ended December 31, 2018.

The Company changed its presentation of its consolidated statement of operations to display non–operating activities, including foreign exchange gain (loss), and certain other income or expenses as a separate item below income from operations. Foreign exchange gain (loss), and other income or expenses were previously included in general and administrative expenses, and in income from operations, respectively. Income before tax and net income for the three months and nine months ended September 30, 2018 presented below were not affected by the change in presentation.

34

The following table shows the change in the Company’s operations from 2017 to 2018, and the increases or decreases for each category by segment:

 

				Increase (Decrease) in Operating Segment
				North America						Asia/ Pacific			Admin & All Other
(in thousands)	2017						Europe									2018
Net sales	$	977,025		$	106,891		$	(6,128	)	$	1,021		$	—		$	1,078,809
Cost of sales	533,644			68,352			(3,307		)	(93		)	(74		)	598,522
Gross profit	443,381			38,539			(2,821		)	1,115			74			480,287
Operating expenses:
Research and development and other engineering expense	47,616			(3,728		)	(1,167		)	244			91			43,056
Selling expense	114,903			(1,418		)	(3,917		)	169			194			109,931
General and administrative expense	142,749			12,919			2,195			187			518			158,568
Operating expenses	305,268			7,773			(2,889		)	600			803			311,555
Net gain (loss) on disposal of assets	(160		)	(1,009		)	(624		)	32			(8,818		)	(10,579		)
Impairment of goodwill	—			—			6,686			—			—			6,686
Income from operations	138,273			31,775			(5,994		)	482			8,089			172,625
Interest income (expense), net and other	(874		)	(318		)	126			(185		)	617			(634		)
Foreign exchange gain (loss), net	894			2,042			(2,781		)	424			(442		)	137
Gain on bargain purchase of a business	6,336			—			(6,336		)	—			—			—
Loss on disposal of a business	(211		)	—			211			—			—			—
Income before income taxes	144,418			33,499			(14,774		)	721			8,264			172,128
Provision for income taxes	51,801			(7,796		)	822			(305		)	973			45,495
Net income	$	92,617		$	41,295		$	(15,596	)	$	1,026		$	7,291		$	126,633

Net Sales increased 10.4% to $1,078.8 million from $977.0 million. Net sales to contractor distributors, dealer distributors, home centers and lumber dealers increased primarily due to increased home construction activity and average net sales unit prices. Wood construction product net sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 85% of the Company’s total net sales in both years. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 15% of the Company’s total net sales in both years.

Gross profit increased to $480.5 million from $443.4 million. Gross profit margins decreased to 44.5% from 45.4%, which was lower than our expected gross profit margins of 45.5% to 46.5%. This was due to an unexpected sharp decline in net sales and increased labor and factory and tooling costs during December 2018 resulting in increases in factory, material and labor costs as a percentage of net sales. The gross profit margins, including some intersegment expenses, which were eliminated in consolidation, and excluding other expenses that are allocated according to product group, decreased to 45.2% from 46.5% for wood construction products and increased to 37.1% from 34.7%, respectively.

Research and development and engineering expense decreased 9.6% to $43.1 million from $47.6 million, primarily due to decreases of $2.1 million in personnel costs, $1.0 million in severance expenses, $0.6 million in cash profit sharing on lower operating income and $0.2 million in professional fees.

Selling expense decreased 4.3% to $109.9 million from $114.9 million primarily due to decreases of $2.4 million in personnel costs, $2.1 million in advertising and promotional costs, $1.9 million in severance expense and $1.0 million in stock-based compensation expense, which was partly offset by an increase of $2.6 million in sales and agent commissions.

General and administrative expense increased 11.1% to $158.6 million from $142.7 million, primarily due to increases of $13.2 million in consulting and legal expenses, $3.3 million in depreciation expense, $0.5 million in bad debt expense and $0.4 million in subscription, licensing, maintenance and hosting fees, which was partly offset by decreases of $1.0 million in personnel costs and $0.6 million in stock-based compensation. Included in general and administrative expense are costs associated with the SAP

35

implementation of $6.5 million, an increase of $3.3 million over the prior year. These expenses were primarily for professional fees and 2018 included $1.6 million in incremental related amortization expense.

Gain on sale of assets - In November 2018, the Company sold a facility that was previously leased exclusively to a third party. The Company received net proceeds of $17.5 million, which resulted in a gain of $8.8 million. In 2016, an eminent domain claim was exercised on land owned by the Company and included an offer for loss of property. The Company challenged the offer, which resulted in the Company receiving an additional $1.0 million in the first quarter of 2018 for the taking of the land, which occurred in 2016.

Impairment of goodwill - The Company completed its 2018 annual goodwill impairment analysis in the fourth quarter of 2018 and it resulted in the impairment charge of $6.7 million associated with assets acquired in Denmark in 2001. See “Critical Accounting Policies and Estimates — Goodwill Impairment Testing."

Our effective income tax rate decreased to 26.4% from 35.9%, primarily due to the Tax Reform Act, which reduced the United States statutory federal corporate tax rate from 35% to 21%. The effective income tax rate for the year ended December 31, 2017 was also reduced by a nonrecurring gain on a bargain purchase related to the Gbo Fastening Systems acquisition, which was not taxable. The effective income tax rate for the year ended December 31, 2018 was increased by a nonrecurring impairment of goodwill related to the Europe segment, which was also not deductible.

Net income was $126.6 million compared to $92.6 million. Diluted net income per share of common stock was $2.72 compared to $1.94. The $92.6 million consolidated net income for the year ended December 31, 2017 included a $6.3 million nonrecurring gain on a bargain purchase of a business, which increased diluted earnings per share for the same period by $0.13.

Net Sales

The following table shows net sales by segment for the years ended December 31, 2017 and 2018, respectively:

(in thousands)	North America			Europe			Asia/ Pacific			Total
December 31, 2017	$	803,697		$	165,155		$	8,173		$	977,025
December 31, 2018	910,588			159,027			9,195			1,078,809
Increase (decrease)	$	106,891		$	(6,128	)	$	1,022		$	101,784
Percentage increase (decrease)	13.3		%	(3.7		)%	12.5		%	10.4		%

The following table shows segment net sales as percentages of total net sales for the years ended December 31, 2017 and 2018, respectively:

	North America		Europe		Asia/ Pacific		Total
Percentage of total 2017 net sales	82	%	17	%	1	%	100	%
Percentage of total 2018 net sales	84	%	15	%	1	%	100	%

Gross Profit

The following table shows gross profit by segment for the years ended December 31, 2017 and 2018, respectively:

(in thousands)	North America			Europe			Asia/ Pacific		Admin & All Other		Total
December 31, 2017	$	383,282		$	58,973		$	971	$	155	$	443,381
December 31, 2018	421,821			56,152			2,085		229		480,287
Increase (decrease)	$	38,539		$	(2,821	)	$	1,114	$	74	$	36,906
Percentage increase (decrease)	10.1		%	(4.8		)%	*		*		8.3		%

* The statistic is not meaningful or material.

36

The following table shows gross profit percentages by segment for the years ended December 31, 2017 and 2018, respectively:

	North America		Europe		Asia/ Pacific		Admin & All Other	Total
2017 gross profit percentage	47.7	%	35.7	%	11.9	%	*	45.4	%
2018 gross profit percentage	46.3	%	35.3	%	22.7	%	*	44.5	%

* The statistic is not meaningful or material.

North America

• Net sales increased 13.3% primarily due to higher sales volume and average unit price in the United States. Canada's net sales increased primarily due to increased sales volumes and were not significantly affected by foreign currency translation.

• Gross profit margin decreased to 46.3% from 47.7%, primarily due to increased material, labor and shipping costs, as a percentage of net sales, partly offset by decreased factory and overhead costs as a percentage of net sales.

• Research and development and engineering expense decreased $3.7 million primarily due to decreases of $2.1 million in personnel costs, $0.5 million in severance expense, $0.5 million in cash profit sharing expense and $0.4 million in professional fees.

• Selling expense decreased $1.4 million, primarily due to decreases of $1.7 million in advertising expense, $0.8 million in stock-based compensation expense, $0.8 million in severance expense and $0.3 million in personnel costs, partly offset by an increase of $1.6 million in sales and agent commissions.

• General and administrative expense increased $12.9 million, primarily due to increases of $13.9 million in consulting and legal expenses, $3.3 million in depreciation expense, $1.1 million mostly in software subscription, licensing, maintenance and hosting fees and $0.2 million in bad debt expense, partly offset by decreases of $1.8 million in severance expense, $1.7 million in stock-based compensation and $1.1 million in personnel costs. Included in general and administrative expense are costs associated with the SAP implementation of $6.4 million, an increase of $4.1 million over the prior year quarter. These expenses were primarily for professional fees.

• Income from operations increased $31.5 million, mostly due to increased gross profit, which were partially offset by higher operating expenses. Severance expenses of $3.6 million were recorded in 2017.

Europe

• Net sales decreased 3.7% primarily due to reduced sales volume as a result of the late 2017 sale of Gbo Fastening Systems' Poland and Romania subsidiaries (acquired in January 2017), which contributed $12.8 million in net sales for the year ended December 31, 2017. Net sales were positively affected by approximately $4.9 million in foreign currency translations, primarily related to the strengthening of the Euro, British pound, Danish Kroner and Polish zloty against the United States dollar.

• Gross profit margin decreased to 35.3% from 35.7% primarily due to increased factory and overhead and warehousing costs, partly offset by decreased material and labor costs.

• Research and development and engineering expense decreased $1.2 million primarily due to decreases of $0.5 million in personnel costs and $0.5 million in severance expenses, partly offset by an increase of $0.2 million in professional fees.

• Selling expense decreased $3.9 million primarily due to decreases of $2.2 million in personnel costs, $1.2 million in severance expenses, $0.4 million mostly for advertising costs and $0.2 million in stock-based compensation expense.

• General and administrative expense increased $1.9 million primarily due to increases of $2.5 million in personnel costs, including $1.7 million in severance expense, $0.5 million in amortization expenses and $0.2 million in bad debt expense, partly offset by decreases of $1.1 million of consulting fees and $0.5 million mostly for software subscription, licensing, maintenance and hosting fees. Included in general and administrative expense are costs associated with the SAP implementation of $1.9 million, an increase of $0.8 million over the prior year quarter. These expenses were primarily for professional fees.

37

• Impairment of goodwill - The impairment charge of $6.7 million taken in the fourth quarter of 2018 was associated with assets acquired in Denmark in 2001, and as a result, the goodwill of the Denmark reporting unit was fully impaired. The impairment resulted from a reduction in expected future operating profits of the reporting unit, but not for Europe as a whole. The Company’s 2018 annual goodwill impairment analysis did not result in additional impairment of goodwill for other reporting units. See “Critical Accounting Policies and Estimates — Goodwill Impairment Testing."

• Income from operations decreased $5.8 million, mostly due to a $6.7 million impairment of goodwill.

Asia/Pacific

• For information about the Company’s Asia/Pacific segment, please refer to the table above setting forth changes in our operating results for the years ended December 31, 2018 and 2017.

Administrative and All Other

• Gain on sale of assets - In November 2018, the Company sold a facility that was previously leased exclusively to a third party. The Company received net proceeds of $17.5 million, which resulted in a gain of $8.8 million.

Critical Accounting Policies and Estimates

The critical accounting policies described below affect the Company’s more significant judgments and estimates used in the preparation of the Company’s Consolidated Financial Statements. If the Company’s business conditions change or if it uses different assumptions or estimates in the application of these and other accounting policies, the Company’s future results of operations could be adversely affected.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value (market). Cost includes all costs incurred in bringing each product to its present location and condition, as follows:

• Raw materials and purchased finished goods — principally valued at cost determined on a weighted average basis; and

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

The Company applies net realizable value and obsolescence to the gross value of inventory. The Company estimates net realizable value based on estimated selling price less further costs to completion and disposal. The Company impairs slow-moving products by comparing inventories on hand to projected demand. If on-hand supply of a product exceeds projected demand or if the Company believes the product is no longer marketable, the product is considered obsolete inventory. The Company revalues obsolete inventory to its net realizable value. The Company has consistently applied this methodology. The Company believes that this approach is prudent and makes suitable impairments for slow-moving and obsolete inventory. When impairments are established, a new cost basis of the inventory is created. Unexpected change in market demand, building codes or buyer preferences could reduce the rate of inventory turnover and require the Company to recognize more obsolete inventory.

Business Combinations and Asset Acquisitions

The assets acquired and liabilities assumed in a business combination are recorded at their estimated fair values at the date of acquisition. The excess purchase price over the fair value of net assets acquired is recognized as goodwill. The fair values of the assets acquired and the liabilities assumed are determined based on significant estimates and assumptions, including projected timing and amount of future cash flows and discount rates reflecting risk inherent in future market prices. In some cases, the Company engages independent third-party valuation firms to assist in determining the fair values. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are inherently uncertain and subject to refinement.

Although the Company believes that the assumptions and estimates it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may affect the accuracy or validity of such assumptions, estimates or actual results.

38

As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. At the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the Company records subsequent adjustments. None of the subsequent adjustments for the fiscal years ended 2017, 2018 and 2019 were material.

Goodwill and Other Intangible Assets

Our goodwill balance is not amortized to expense, and we may assess qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments. The Company evaluates the recoverability of goodwill in accordance with Accounting Standard Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other,” annually or more frequently if an event occurs or circumstances change in the interim that would more likely than not reduce the fair value of the asset below its carrying amount. In addition, Federal Accounting Standard Board (FASB) issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge or Step 2 of the goodwill impairment analysis.

The Company prospectively adopted as part of its review in 2018 and identified an impairment in one of our reporting units using quantitative methods. In 2019, we performed qualitative assessments, taking into consideration the current market value of the company, any changes in management, key personnel, strategy and any relevant macroeconomic conditions (e.g. general economic conditions, limiting access to capital). Based on our qualitative assessments we concluded that the fair value of the reporting units substantially exceeded the respective reporting unit's carrying value, including goodwill.

Intangible assets acquired are recognized at their fair value at the date of acquisition. Finite-lived intangibles are amortized over their applicable useful lives. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization or depreciation period. We test these assets for potential impairment annually and whenever management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable

Revenue from Contracts with Customers

On January 1, 2018, the Company adopted the New Revenue Standard ASC ("Topic 606") “Revenue from Contracts with Customers” using the modified retrospective method and recorded an $0.8 million, net of tax, increase to opening retained earnings on January 1, 2018 as the cumulative effect of adopting Topic 606 for estimated rights of return assets on product sales.

Generally, the Company’s revenue contract with a customer exists when the goods are shipped, and services are rendered; and its related invoice is generated. The duration of the contract does not extend beyond the promised goods or services already transferred. The transaction price of each distinct promised product or service specified in the invoice is based on its relative stated standalone selling price. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer at a point in time. The Company’s shipping terms provide the primary indicator of the transfer of control. The Company’s general shipping terms are F.O.B. shipping point, where title and risk and rewards of ownership transfer at the point when the products leave the Company’s warehouse. The Company recognizes revenue based on the consideration specified in the invoice with a customer, excluding any sales incentives, discounts, and amounts collected on behalf of third parties (i.e., governmental tax authorities).

Volume rebates, discounts and rights of return are accounted for as variable considerations because the transaction price is either uncertain until the customer completes or fails the specified volumes or returned product are not returned by the return period. Estimated allowances based on historical experience from prior periods and the customer’s historical purchasing pattern. These estimates are deducted from revenues and are reevaluated periodically during a fiscal year.

Effect of New Accounting Standards

See "Note 1 — Recently Adopted Accounting Standards" and "Note 1 — Recently Issued Accounting Standards Not Yet Adopted" to the Company’s Consolidated Financial Statements.

Liquidity and Sources of Capital

Our primary sources of liquidity are cash and cash equivalents, our cash flow from operation and our $300.0 million credit facility that expires on July 23, 2021. As of December 31, 2019, there were no amounts outstanding under this facility.

39

Our principal uses of liquidity include the costs and expenses associated with our operations, continuing our capital allocation strategy, which includes growing our business by internal improvements, repurchasing our common stock, paying cash dividends, and meeting other liquidity requirements for the next twelve months.

As of December 31, 2019, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions. Cash and cash equivalents of $71.2 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated to the United States. Due to changes resulting from the Tax Reform Act, the Company repatriated $63.5 million in cash held outside of the United States in 2018. We are maintaining a permanent reinvestment assertion on its foreign earnings relative to remaining cash held outside the United States after completion of the repatriation plan.

The following table presents selected financial information as of December 31, 2019, 2018 and 2017, respectively:

	At December 31,
(in thousands)	2019		2018		2017
Cash and cash equivalents	$	230,210	$	160,180	$	168,514
Property, plant and equipment, net	249,012		254,597		273,020
Equity investment, goodwill and intangible assets	159,430		157,139		169,015
Working capital	482,000		447,949		447,450

The following table provides cash flow indicators for the twelve months ended December 31, 2019, 2018 and 2017, respectively:

	Years Ended December 31,
(in thousands)	2019			2018			2017
Net cash provided by (used in):
Operating activities	$	205,662		$	160,080		$	119,065
Investing activities	(28,021		)	(10,249		)	(75,815		)
Financing activities	(108,154		)	(155,393		)	(106,671		)

Cash flows from operating activities result primarily from our earnings or losses, and are also affected by changes in operating assets and liabilities which consist primarily of working capital balances. As a building materials manufacturer, our operating cash flows are subject to seasonality and are cyclically associated with the volume and timing of construction project starts. For example, trade accounts receivable, net, is generally at its lowest at the end of the fourth quarter and increases during the first, second and third quarters.

In 2019, operating activities provided $205.7 million in cash and cash equivalents, as a result of $134.0 million from net income and $53.5 million from non-cash adjustments to net income which includes depreciation and amortization expense, stock-based compensation expense and non-cash lease expense, as well as an increase of $18.2 million in the net change in operating assets and liabilities due to decreases of $23.7 million in inventory and $6.1 million in trade accounts receivable, net, partly offset by a decrease of $6.8 million in accrued liabilities. Cash used in investing activities of $28.0 million during the year ended December 31, 2019, consisted primarily of $32.7 million for real estate improvements, machinery and equipment and software development, partly offset by $12.2 million in proceeds, mostly from the sale of real estate including the November 2019 sale of our selling and distribution facility in Canada for a net amount of $9.4 million. Cash used in financing activities of $108.2 million during the year ended December 31, 2019, consisted primarily of $60.8 million for the repurchase of the Company’s common stock and $40.2 million used to pay cash dividends.

In 2018, operating activities provided $160.1 million in cash and cash equivalents, as a result of $126.6 million from net income and $50.4 million from non-cash adjustments to net income which includes depreciation and amortization expense and stock-based compensation expense, partly offset by a decrease of $17.0 million in the net change in operating assets and liabilities due to increases of $26.4 million in inventory and $12.6 million in trade accounts receivable, net, partly offset by a decrease of $5.3 million in other current assets and increases of $9.1 million in accrued liabilities and $4.7 million in trade accounts payable. Cash used in investing activities of $10.2 million during the year ended December 31, 2018, consisted primarily of $29.3 million for ERP software, property, plant and equipment expenditures, primarily related to machinery and equipment purchases, and software

40

in development, partly offset by $21.1 million in proceeds, mostly the sale of real estate including the November 2018 sale of our commercial rental property in California a net amount of $17.5 million. Cash used in financing activities of $155.4 million during the year ended December 31, 2018, consisted primarily of $110.5 million for the repurchase of the Company’s common stock and $39.9 million used to pay cash dividends.

In 2017, operating activities provided $119.1 million in cash and cash equivalents, as a result of $92.6 million from net income and $48.5 million from non-cash adjustments to net income which includes depreciation and amortization expenses and stock-based compensation expenses, partly offset by a decrease of $22.0 million in the net change in operating assets and liabilities due to increases of $17.8 million in trade accounts receivable, net, $6.6 million in inventory and $5.6 million in income tax receivable, partly offset by an increase of $10.1 million in accrued liabilities. Cash used in investing activities of $75.8 million during the year ended December 31, 2017, consisted primarily of $58.0 million for property, plant and equipment expenditures, primarily related to real estate improvements, ERP software, machinery and equipment purchases, and software in development, and $27.9 million, net of acquired cash of $4.0 million, for the acquisitions of CG Visions and Gbo Fastening Systems, which was partly offset by $9.5 million, net of delivered cash of $0.8 million, for the sale of Gbo Poland and Gbo Romania (see "Note 10 — Acquisitions and Dispositions" to the Company’s Consolidated Financial Statements). Cash used in financing activities of $106.7 million during the year ended December 31, 2017, consisted primarily of $70.0 million for the repurchase of the Company’s common stock (see "Note 3 — Net Income per Share" to the Company’s Consolidated Financial Statements) and $37.0 million used to pay cash dividends.

Capital Allocation Strategy

We have a strong cash position and remain committed to seeking growth opportunities in our lines of building products where we can leverage our expertise in engineering, testing, manufacturing and distribution to invest in and grow our business. Those opportunities include internal improvements or acquisitions that fit within our strategic growth plan. Additionally, we have financial flexibility and are committed to providing returns to our stockholders. Below are highlights of our execution on our capital allocation strategy, first announced in August 2015 and updated in August 2016.

• Our asset acquisitions, net of cash acquired and proceeds from sales of businesses, in 2017, 2018 and 2019 were $27.9 million, $2.0 million and $2.7 million, respectively. In January 2017, we acquired Gbo Fastening Systems for approximately $10.2 million, and sold two of its subsidiaries in late 2017 for approximately $9.5 million, retaining the Gbo Fastening Systems operations in Sweden and Norway for less than $1.0 million in cash. Also in January 2017, we acquired CG Visions for approximately $20.8 million. The acquisitions in 2018 and 2019 were to extend product lines and acquire intellectual property.

• Our capital spending in 2017, 2018 and 2019 was $58.0 million, $29.3 million and $32.7 million, respectively, which was primarily used for real estate improvements, machinery and equipment purchases and software in development. Also in 2019, we purchased intellectual property of $4.8 million. Based on current information and subject to future events and circumstances, we estimate that our full-year 2020 capital spending will be approximately $40 million to $43 million, including $7 to $10 million on maintenance type capital expenditures, assuming all such projects will be completed by the end of 2020. Based on current information and subject to future events and circumstances, we estimate that our full-year 2020 depreciation and amortization expense to be approximately $39 million to $41 million, of which approximately $33 million to $35 million is related to depreciation.

• In April 2019, our Board of Directors raised the quarterly cash dividend by 4.5% to $0.23 per share. On January 21, 2020, the Board declared a cash dividend of $0.23 per share, estimated to be $10.1 million in total. Such dividend is scheduled to be paid on April 23, 2020, to stockholders of record on April 2, 2020.

• For 2019, we purchased and received 972,337 shares of the Company’s common stock on the open market at an average price of $62.55 per share, for a total of $60.8 million under a previously announced $100.0 million share repurchase authorization (which expired at the end of 2019).

• In total, as illustrated in the table below, we have repurchased over six million shares of the Company’s common stock, which represents approximately 13.6% of our shares of common stock outstanding at the beginning of 2015. Including dividends, we have returned cash of $521.2 million, which represents 74.3% of our total cash flow from operations during the same period.

• On December 9, 2019, our Board of Directors authorized the Company to repurchase up to $100.0 million of the Company’s common stock. The authorization is in effect from January 1, 2019 through December 31, in 2019.

41

The following table presents our dividends paid and share repurchases for the period from January 1, 2015 through December 31, 2019, in aggregated amounts:

(in thousands)	Number of Shares Repurchased	Cash Paid for Repurchases		Cash Paid for Dividends	Total
January 1 - December 31, 2019	972	$	60,816	$