PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, unaudited)

	June 30,				December 31,
	2012		2011		2011

ASSETS
Current assets
Cash and cash equivalents	$	162,719	$	262,013	$	213,817
Trade accounts receivable, net	120,119		117,975		76,420
Inventories	185,217		166,934		180,129
Deferred income taxes	12,124		10,884		11,774
Assets held for sale	—		6,792		6,793
Other current assets	14,516		8,813		13,131
Total current assets	494,695		573,411		502,064

Property, plant and equipment, net	208,685		183,698		195,716
Goodwill	127,983		72,111		99,849
Intangible assets, net	41,529		22,051		27,856
Equity method investment	—		839		—
Other noncurrent assets	6,013		12,465		10,602
Total assets	$	878,905	$	864,575	$	836,087

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Line of credit and notes payable	$	4,837	$	—	$	—
Trade accounts payable	34,740		32,060		22,034
Accrued liabilities	41,491		36,067		36,156
Income taxes payable	1,396		3,054		—
Accrued profit sharing trust contributions	2,393		2,997		4,477
Accrued cash profit sharing and commissions	10,307		13,036		3,446
Accrued workers’ compensation	4,861		5,663		5,474
Total current liabilities	100,025		92,877		71,587

Long-term liabilities	5,936		7,246		6,137
Total liabilities	105,961		100,123		77,724

Commitments and contingencies (Note 7)

Stockholders’ equity
Common stock, at par value	482		482		481
Additional paid-in capital	176,809		167,862		170,483
Retained earnings	591,595		571,229		580,616
Accumulated other comprehensive income	4,058		24,879		6,783
Total stockholders’ equity	772,944		764,452		758,363
Total liabilities and stockholders’ equity	$	878,905	$	864,575	$	836,087

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

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands except per-share amounts, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012		2011
Net sales	$	181,703		$	177,812		$	340,437	$	310,348
Cost of sales	98,557			94,313			187,886		169,900
Gross profit	83,146			83,499			152,551		140,448

Operating expenses:
Research and development and other engineering	9,043			6,945			18,240		12,939
Selling	19,881			19,819			40,314		36,895
General and administrative	27,087			25,454			53,331		47,076
Loss (gain) on sale of assets	(13		)	73			10		48
	55,998			52,291			111,895		96,958

Income from operations	27,148			31,208			40,656		43,490

Loss in equity method investment, before tax	—			(69		)	—		(82		)
Interest income, net	58			108			123		179

Income before taxes	27,206			31,247			40,779		43,587

Provision for income taxes	11,347			11,754			17,719		17,016

Net income	$	15,859		$	19,493		$	23,060	$	26,571

Earnings per common share:

Basic	$	0.33		$	0.39		$	0.48	$	0.53
Diluted	$	0.33		$	0.39		$	0.48	$	0.53

Number of shares outstanding
Basic	48,340			49,404			48,307		49,753
Diluted	48,419			49,456			48,378		49,809

Cash dividends declared per common share	$	0.125		$	0.125		$	0.25	$	0.25

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

Simpson Manufacturing Co., Inc. and Subsidiaries

Statements of Comprehensive Income

(In thousands, unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012			2011		2012			2011

Net Income	$	15,859		$	19,493	$	23,060		$	26,571

Other comprehensive income
Translation adjustment, net of tax benefit (expense) of ($20), $2, $3 and $1, respectively	(9,951		)	3,395		(2,725		)	10,252
	(9,951		)	3,395		(2,725		)	10,252

Comprehensive income	$	5,908		$	22,888	$	20,335		$	36,823

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

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

for the six months ended June 30, 2011 and 2012 and December 31, 2011

(In thousands except per-share amounts, unaudited)

												Accumulated
						Additional						Other
	Common Stock					Paid-in			Retained			Comprehensive			Treasury
	Shares		Par Value			Capital			Earnings			Income (Loss)			Stock			Total
Balance, January 1, 2011	50,096		$	500		$	165,425		$	607,241		$	14,627		—			$	787,793
Net income	—		—			—			26,571			—			—			26,571
Translation adjustment, net of tax of $1	—		—			—			—			10,252			—			10,252
Stock options exercised	6		—			154			—			—			—			154
Stock compensation	—		—			2,118			—			—			—			2,118
Tax effect of options exercised	—		—			(39		)	—			—			—			(39		)
Repurchase of common stock	(1,828	)	—			—			—			—			(50,075		)	(50,075		)
Retirement of common stock	—		(18		)	—			(50,057		)	—			50,075			—
Cash dividends declared on common stock, $0.25 per share	—		—			—			(12,526		)	—			—			(12,526		)
Common stock issued at $30.91 per share for stock bonus	7		—			204			—			—			—			204
Balance, June 30, 2011	48,281		482			167,862			571,229			24,879			—			764,452
Net income	—		—			—			24,329			—			—			24,329
Translation adjustment, net of tax of ($2)	—		—			—			—			(18,096		)	—			(18,096		)
Stock options exercised	2		—			60			—			—			—			60
Stock compensation	—		—			4,076			—			—			—			4,076
Tax effect of options exercised	—		—			(1,515		)	—			—			—			(1,515		)
Repurchase of common stock	(120	)	—			—			—			—			(3,133		)	(3,133		)
Retirement of common stock	—		(1		)	—			(3,132		)	—			3,133			—
Cash dividends declared on common stock, $0.25 per share	—		—			—			(11,810		)	—			—			(11,810		)
Balance, December 31, 2011	48,163		481			170,483			580,616			6,783			—			758,363
Net income	—		—			—			23,060			—			—			23,060
Translation adjustment, net of tax of $3	—		—			—			—			(2,725		)	—			(2,725		)
Stock options exercised	82		1			1,982			—			—			—			1,983
Stock compensation	—		—			5,005			—			—			—			5,005
Tax effect of options exercised	—		—			(56		)	—			—			—			(56		)
Shares issued from release of Restricted Stock Units	61		—			(1,023		)	—			—			—			(1,023		)
Cash dividends declared on common stock, $0.25 per share	—		—			—			(12,081		)	—			—			(12,081		)
Common stock issued at $33.71 per share for stock bonus	12		—			418			—			—			—			418
Balance, June 30, 2012	48,318		$	482		$	176,809		$	591,595		$	4,058		$	—		$	772,944

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

Simpson Manufacturing Co., Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

	Six Months
	Ended June 30,
	2012			2011
Cash flows from operating activities
Net income	$	23,060		$	26,571
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Loss on sale of assets	10			48
Depreciation and amortization	13,813			10,055
Impairment loss on assets held for sale	461			1,094
Deferred income taxes	(681		)	(1,026		)
Noncash compensation related to stock plans	5,300			2,377
Loss in equity method investment	—			82
Excess tax benefit of options exercised	(99		)	4
Provision for doubtful accounts	225			179
Accrued interest earned from related party	—			(58		)
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable	(40,837		)	(48,234		)
Inventories	(47		)	(12,404		)
Trade accounts payable	10,694			(2,386		)
Income taxes payable	4,462			7,890
Accrued profit sharing trust contributions	(2,085		)	(2,611		)
Accrued cash profit sharing and commissions	6,873			10,160
Other current assets	3,537			410
Accrued liabilities	(4,775		)	3,215
Long-term liabilities	(250		)	(42		)
Accrued workers’ compensation	(613		)	979
Other noncurrent assets	(2,168		)	352
Net cash provided by (used in) operating activities	16,880			(3,345		)

Cash flows from investing activities
Capital expenditures	(9,629		)	(14,095		)
Asset acquisitions, net of cash acquired	(56,044		)	—
Proceeds from sale of property and equipment	6,958			3,156
Loans repaid by related parties	—			26
Net cash used in investing activities	(58,715		)	(10,913		)

Cash flows from financing activities
Repurchase of common stock	—			(50,075		)
Debt and line of credit borrowings	2,146			—
Repayment of debt and line of credit borrowings	(954		)	—
Debt issuance costs	(25		)	—
Issuance of common stock	1,983			154
Excess tax benefit of options exercised	99			(4		)
Dividends paid	(12,059		)	(11,274		)
Net cash used in financing activities	(8,810		)	(61,199		)

Effect of exchange rate changes on cash and cash equivalents	(453		)	2,421

Net decrease in cash and cash equivalents	(51,098		)	(73,036		)
Cash and cash equivalents at beginning of period	213,817			335,049
Cash and cash equivalents at end of period	$	162,719		$	262,013

Noncash activity during the period
Noncash capital expenditures	$	258		$	1,587
Dividends declared but not paid	6,044			6,263
Issuance of Company’s common stock for compensation	418			204
Non-cash contingent consideration	786			—

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

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share amounts)	2012		2011		2012		2011

Net income available to common stockholders	$	15,859	$	19,493	$	23,060	$	26,571

Basic weighted average shares outstanding	48,340		49,404		48,307		49,753

Dilutive effect of potential common stock equivalents — stock options	79		52		71		56

Diluted weighted average shares outstanding	48,419		49,456		48,378		49,809

Earnings per common share:
Basic	$	0.33	$	0.39	$	0.48	$	0.53
Diluted	0.33		0.39		0.48		0.53

Potentially dilutive securities excluded from earnings per diluted share because their effect is anti-dilutive	1,711		1,743		1,711		1,743

Accounting for Stock-Based Compensation

With the approval of the Company’s stockholders on April 26, 2011, the Company adopted the Simpson Manufacturing Co., Inc. 2011 Incentive Plan (the “2011 Plan”). The 2011 Plan amended and restated in their entirety, and incorporated and superseded, both the Simpson Manufacturing Co., Inc. 1994 Stock Option Plan (the “1994 Plan”), which was principally for the Company’s employees, and the Simpson Manufacturing Co., Inc. 1995 Independent Director Stock Option Plan (the “1995 Plan”), which was for its independent directors. Options previously granted under the 1994 Plan or the 1995 Plan will not be affected by the adoption of the 2011 Plan and will continue to be governed by the 1994 Plan or the 1995 Plan, respectively.

Under the 1994 Plan, the Company could grant incentive stock options and non-qualified stock options. The Company has, however, granted only non-qualified stock options under both the 1994 Plan and the 1995 Plan. The Company generally granted options under each of the 1994 Plan and the 1995 Plan once each year. The exercise price per share of each option granted in February 2011 under the 1994 Plan equaled the closing market price per share of the Company’s common stock as reported by the New York Stock Exchange on the day preceding the day that the Compensation and Leadership Development Committee of the Company’s Board of Directors met to approve the grant of the options. The exercise price per share under each option granted under the 1995 Plan was at the fair market value on the date specified in the 1995 Plan. Options vest and expire according to terms established at the grant date. Options granted under the 1994 Plan typically vest evenly over the requisite service period of four years and have a term of seven years. The vesting of options granted under the 1994 Plan will be accelerated if the grantee ceases to be employed by the Company after reaching age 60 or if there is a change in control of the Company. Options granted under the 1995 Plan were fully vested on the date of grant. Shares of common stock issued on exercise of stock options under the 1994 Plan and the 1995 Plan are registered under the Securities Act of 1933.

Under the 2011 Plan, the Company may grant incentive stock options, non-qualified stock options, restricted stock and restricted stock units, although the Company currently intends to award primarily restricted stock units and to a lesser extent, if at all, non-qualified stock options. The Company does not currently intend to award incentive stock options or restricted stock. Under the 2011 Plan, no more than 16.3 million shares of the Company’s common stock may be issued (including shares already sold) pursuant to all awards under the 2011 Plan, including on exercise of options previously granted under the 1994 Plan and the 1995 Plan. Shares of common stock to be issued pursuant to the 2011 Plan are registered under the Securities Act of 1933.

The following table represents the Company’s stock option and restricted stock unit activity for the three and six months ended June 30, 2012 and 2011:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(in thousands)	2012			2011		2012			2011

Stock-based compensation expense recognized in operating expenses	$	2,052		$	845	$	5,120		$	2,293

Tax benefit of stock-based compensation expense in provision for income taxes	705			297		1,771			818

Stock-based compensation expense, net of tax	$	1,347		$	548	$	3,349		$	1,475

Fair value of shares vested	$	1,895		$	837	$	5,005		$	2,118

Proceeds to the Company from the exercise of stock-based compensation	$	225		$	—	$	1,983		$	154

Tax effect from exercise of stock-based compensation, including shortfall tax benefits	$	(54	)	$	—	$	(56	)	$	(39	)

	At June 30,
	2012		2011

Stock-based compensation cost capitalized in inventory	$	229	$	108

The amounts included in cost of sales, research and development and other engineering, selling, or general and administrative expense depend on the job functions performed by the employees to whom the stock options and restricted stock units were awarded.

The assumptions used to calculate the fair value of options or restricted stock units granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.

Fair Value of Financial Instruments

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

As of June 30, 2012, the Company’s investments consisted of only United States Treasury securities and money market funds aggregating $51.3 million, which are the primary financial instruments, maintained in cash equivalents and carried at cost, approximating fair value, based on Level 1 inputs. All other financial assets and financial liabilities, including lines of credit, accounts receivable, accounts payable and accrued liabilities, are carried at cost, approximating fair value, based on Level 3 inputs.

Income Taxes

The Company uses an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in each interim period.

The following table presents the Company’s effective tax rates and income tax expense for the three and six months ended June 30, 2012 and 2011:

	Three Months Ended						Six Months Ended
(in thousands, except	June 30,						June 30,
percentage amounts)	2012			2011			2012			2011

Effective tax rate	41.7		%	37.6		%	43.5		%	39.0		%

Provision for income taxes	$	11,347		$	11,754		$	17,719		$	17,016

Acquisitions

In January 2012, the Company purchased all of the shares of S&P Clever Reinforcement Company AG and S&P Clever International AG, both companies incorporated under the laws of Switzerland (collectively, “S&P Clever”), for $58.1 million, subject to post-closing adjustments. S&P Clever manufactures and sells engineered materials to repair, strengthen and restore concrete and masonry construction and has operations in Switzerland, Germany, Portugal, Poland, The Netherlands and Austria. Payments under the purchase agreement include cash payments of $57.5 million and contingent consideration of $0.6 million payable over a three-year period if sales goals are met. As a result of the acquisition, the Company has increased its presence in the infrastructure, commercial and industrial construction market in Europe. The Company’s provisional measurement of assets acquired and liabilities assumed included cash and cash equivalents of $6.8 million, other current assets of $9.9 million, non-current assets of $54.2 million, current liabilities of $12.6 million and non-current liabilities of $0.2 million. Included in non-current assets is goodwill of $26.1 million, which was assigned to the European segment and is not deductible for tax purposes, and intangible assets of $15.0 million, which is deductible for tax purposes.

In March 2012, the Company purchased substantially all of the assets of CarbonWrap Solutions, L.L.C. (“CarbonWrap”) for $5.5 million, subject to post-closing adjustments. CarbonWrap develops fiber-reinforced polymer products primarily for infrastructure and transportation projects. Payments under the purchase agreement totaled $5.3 million in cash and contingent consideration of $0.2 million to be paid on resolution of specified post-closing contingencies to the principal officer of CarbonWrap, who is now employed by the Company. Goodwill of $3.6 million was assigned to the North American segment and is deductible for tax purposes. Intangible assets were valued at $1.6 million and are subject to tax-deductible amortization. Net tangible assets consisting of accounts receivable, inventory, equipment and prepaid expenses accounted for the balance of the purchase price.

Under the business combinations topic of the FASB ASC, the Company accounted for these acquisitions as business combinations and ascribed acquisition-date fair values to the acquired assets and assumed liabilities. Provisional fair value measurements were made in the first quarter of 2012 for acquired assets and assumed liabilities. Adjustments to those measurements may be made in subsequent periods, up to one year from the acquisition date, as information necessary to complete the analysis is obtained. Fair value of intangible assets was based on Level 3 inputs. The Company expects the measurement process for each acquisition to be finalized within a year of its date.

Pro-forma financial information is not presented as it would not be materially different from the information presented in the Condensed Consolidated Statements of Operations.

Recently Adopted Accounting Standards

Effective January 1, 2012, the Company adopted the guidance codified in the “Comprehensive Income” topic of the FASB ASC, amending the comprehensive income guidance to eliminate the option to present components of other comprehensive income as part of the statement of stockholders’ equity. This amendment requires that all non-owner changes in stockholders’ equity be presented in a single continuous statement or in two separate but consecutive statements. The Company has chosen to present comprehensive income in two separate consecutive statements. The implementation of this amended accounting guidance did not have a material effect on the Company’s consolidated financial position and results of operations.

Recently Issued Accounting Standards

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants and the Securities and Exchange Commission did not or is not expected to have a material effect on the Company’s consolidated financial statements.

2. Trade Accounts Receivable, Net

Trade accounts receivable consisted of the following:

	At June 30,						At December 31,
(in thousands)	2012			2011			2011

Trade accounts receivable	$	123,531		$	121,414		$	78,642
Allowance for doubtful accounts	(1,343		)	(1,500		)	(991		)
Allowance for sales discounts and returns	(2,069		)	(1,939		)	(1,231		)
	$	120,119		$	117,975		$	76,420

3. Inventories

Inventories consisted of the following:

	At June 30,				At December 31,
(in thousands)	2012		2011		2011

Raw materials	$	75,580	$	66,016	$	77,364
In-process products	21,594		19,885		21,357
Finished products	88,043		81,033		81,408
	$	185,217	$	166,934	$	180,129

4. Property, Plant and Equipment, Net

Property, plant and equipment, net, consisted of the following:

	At June 30,						At December 31,
(in thousands)	2012			2011			2011

Land	$	32,100		$	29,459		$	28,996
Buildings and site improvements	166,767			155,251			153,597
Leasehold improvements	4,852			3,737			3,820
Machinery and equipment	210,560			190,202			208,292
	414,279			378,649			394,705
Less accumulated depreciation and amortization	(210,431		)	(198,461		)	(201,540		)
	203,848			180,188			193,165
Capital projects in progress	4,837			3,510			2,551
	$	208,685		$	183,698		$	195,716

5. Goodwill and Intangible Assets, Net

Goodwill was as follows:

	At June 30,				At December 31,
(in thousands)	2012		2011		2011
North America	$	77,501	$	41,887	$	73,901
Europe	48,529		28,179		24,000
Asia/Pacific	1,953		2,045		1,948
Total	$	127,983	$	72,111	$	99,849

Intangible assets, net, were as follows:

	At June 30, 2012
	Gross					Net
	Carrying		Accumulated			Carrying
(in thousands)	Amount		Amortization			Amount
North America	$	35,581	$	(15,350	)	$	20,231
Europe	27,832		(6,534		)	21,298
Total	$	63,413	$	(21,884	)	$	41,529

	At June 30, 2011
	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount
North America	$	24,022	$	(12,094	)	$	11,928
Europe	15,344		(5,221		)	10,123
Total	$	39,366	$	(17,315	)	$	22,051

	At December 31, 2011
	Gross					Net
	Carrying		Accumulated			Carrying
	Amount		Amortization			Amount
North America	$	32,912	$	(13,288	)	$	19,624
Europe	13,114		(4,882		)	8,232
Total	$	46,026	$	(18,170	)	$	27,856

Intangible assets consist primarily of customer relationships, patents, unpatented technology and non-compete agreements. Amortization expense for intangible assets during the three months ended June 30, 2012 and 2011, totaled $1.9 million and $1.1 million, respectively, and during the six months ended June 30, 2012 and 2011, totaled $3.7 million and $2.2 million, respectively.

At June 30, 2012, estimated future amortization of intangible assets was as follows:

(in thousands)
Final six months of 2012	$	3,358
2013	6,590
2014	6,380
2015	5,621
2016	5,568
2017	3,800
Thereafter	10,212
	$	41,529

The changes in the carrying amount of goodwill and intangible assets for the six months ended June 30, 2012, were as follows:

				Intangible
(in thousands)	Goodwill			Assets

Balance at December 31, 2011	$	99,849		$	27,856
Acquisitions	29,607			17,667
Amortization	—			(3,714		)
Foreign exchange	(1,473		)	(280		)
Balance at June 30, 2012	$	127,983		$	41,529

6. Debt

The Company has revolving lines of credit with various banks in the United States and Europe. Total available credit at June 30, 2012, was $206.3 million, including revolving credit lines and an irrevocable standby letter of credit in support of various insurance deductibles. The Company’s primary credit facility, a revolving line of credit with $200.0 million in available credit, charges interest at LIBOR plus 0.27% (at June 30, 2012, LIBOR plus 0.27% was 0.52%), expires in October 2012, and has commitment fees payable at the annual rate of 0.08% on the unused portion of the facility. The borrowing capacity of other revolving credit lines and a term note totaled $10.8 million at June 30, 2012. The other revolving credit lines and term note charge interest ranging from 1.5% to 7.25% have maturity dates from December 2012 to September 2020 and total outstanding balances of $4.8 million at June 30, 2012. There were no outstanding balances due on June 30, 2011, and December 31, 2011. The Company was in compliance with its financial covenants at June 30, 2012.

On July 27, 2012, the Company entered into an unsecured credit agreement with a syndicate of banks providing for a revolving credit facility of $300.0 million and terminated the $200.0 million revolving line of credit. See Note 10.

7. Commitments and Contingencies

Note 9 to the consolidated financial statements in the 2011 Annual Report provides information concerning commitments and contingencies. From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. The resolution of claims and litigation is subject to inherent uncertainty and could have a material adverse effect on the Company’s financial condition, cash flows and results of operations.

The Company’s policy with regard to environmental liabilities is to accrue for future environmental assessments and remediation costs when information becomes available that indicates that it is probable that the Company is liable for any related claims and assessments and the amount of the liability is reasonably estimable. The Company does not believe that these environmental matters will have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

Corrosion, hydrogen embrittlement, cracking, material hardness, wood pressure-treating chemicals, misinstallations, misuse, design and assembly flaws, manufacturing defects, environmental conditions or other factors can contribute to failure of fasteners, connectors, tools, anchors, adhesives and other products. On occasion, some of the fasteners and connectors that the Company sells have failed, although the Company has not incurred any material liability resulting from those failures. The Company attempts to avoid such failures by establishing and monitoring appropriate product specifications, manufacturing quality control procedures, inspection procedures and information on appropriate installation methods and conditions. The Company subjects its products to extensive testing, with results and conclusions published in Company catalogues and on its websites.

Pending Claims

Four lawsuits (the “Cases”) have been filed against the Company in the Hawaii First Circuit Court: Alvarez v. Haseko Homes, Inc. and Simpson Manufacturing, Inc., Civil No. 09-1-2697-11 (“Case 1”); Ke Noho Kai Development, LLC v. Simpson Strong-Tie Company, Inc., and Honolulu Wood Treating Co., LTD., Case No. 09-1-1491-06 SSM (“Case 2”); North American Specialty Ins. Co. v. Simpson Strong-Tie Company, Inc. and K.C. Metal Products, Inc., Case No. 09-1-1490-06 VSM (“Case 3”); and Charles et al. v. Haseko Homes, Inc. et al. and Third Party Plaintiffs Haseko Homes, Inc. et al. v. Simpson Strong-Tie Company, Inc., et al., Civil No. 09-1-1932-08 (“Case 4”). Case 1 was filed on November 18, 2009. Cases 2 and 3 were originally filed on June 30, 2009. Case 4 was filed on August 19, 2009. The Cases all relate to alleged premature corrosion of the Company’s strap tie holdown products installed in buildings in a housing development known as Ocean Pointe in Honolulu, Hawaii, allegedly causing property damage. Case 1 is a putative class action brought by the owners of allegedly affected Ocean Pointe houses. Case 1 was originally filed as Kai et al. v. Haseko Homes, Inc., Haseko Construction, Inc. and Simpson Manufacturing, Inc., Case No. 09-1-1476, but was voluntarily dismissed and then re-filed with a new representative plaintiff. Case 2 is an action by the builders and developers of Ocean Pointe against the Company, claiming that either the Company’s strap tie holdowns are defective in design or manufacture or the Company failed to provide adequate warnings regarding the products’ susceptibility to corrosion in certain environments. Case 3 is a subrogation action brought by the insurance company for the builders and developers against the Company claiming the insurance company expended funds to correct problems allegedly caused by the Company’s products. Case 4 is a putative class action brought, like Case 1, by owners of allegedly affected Ocean Pointe homes. In Case 4, Haseko Homes, Inc. (“Haseko”), the developer of the Ocean Pointe development, has brought a third party complaint against the Company alleging that any damages for which Haseko may be liable are actually the fault of the Company. None of the Cases alleges a specific amount of damages sought, although each of the Cases seeks compensatory damages, and Case 1 seeks punitive damages. Cases 1 and 4 have been consolidated. The Company is currently investigating the facts underlying the claims asserted in the Cases, including, among other things, the cause of the alleged corrosion; the severity of any problems shown to exist; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if needed. At this time, the likelihood that the Company will be found liable for any property damage allegedly suffered and the extent of such liability, if any, are unknown. Management believes the Cases may not be resolved for an extended period. The Company intends to defend itself vigorously in connection with the Cases.

Based on facts currently known to the Company, the Company believes that all or part of the claims alleged in the Cases may be covered by its insurance policies. On April 19, 2011, an action was filed in the United States District Court for the District of Hawaii, National Union Fire Insurance Company of Pittsburgh, PA v. Simpson Manufacturing Company, Inc., et al., Civil No. 11-00254 ACK. In this action, Plaintiff National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”), which issued certain Commercial General Liability insurance policies to the Company, seeks declaratory relief in the Cases with respect to its obligations to defend or indemnify the Company, Simpson Strong-Tie Company Inc., and a vendor of the Company’s strap tie holdown products. By Order dated November 7, 2011, all proceedings in the National Union action have been stayed. If the stay is lifted and the National Union action is not dismissed, the Company intends vigorously to defend all claims advanced by National Union.

On April 12, 2011, Fireman’s Fund Insurance Company (“Fireman’s Fund”), another of the Company’s general liability insurers, sued Hartford Fire Insurance Company (“Hartford”), a third insurance company from whom the Company purchased general liability insurance, in the United States District Court for the Northern District of California, Fireman’s Fund Insurance Company v. Hartford Fire Insurance Company, Civil No. 11 1789 SBA (the “Fireman’s Fund action”). The Company has intervened in the Fireman’s Fund action and has moved to stay all proceedings in that action as well, pending resolution of the underlying Ocean Pointe Cases.

On November 21, 2011, the Company commenced a lawsuit against National Union, Fireman’s Fund, Hartford and others in the Superior Court of the State of California in and for the City and County of San Francisco (the “San Francisco coverage action”). In the San Francisco coverage action, the Company alleges generally that the separate pendency of the National Union action and the Fireman’s Fund action presents a risk of inconsistent adjudications; that the San Francisco Superior Court has jurisdiction over all of the parties and should exercise jurisdiction at the appropriate time to resolve any and all disputes that have arisen or may in the future arise among the Company and its liability insurers; and that the San Francisco coverage action should also be stayed pending resolution of the underlying Ocean Pointe Cases. The Company intends to move for such a stay if necessary.

Nishimura v. Gentry Homes, Ltd; Simpson Manufacturing Co., Inc.; and Simpson Strong-Tie Company, Inc., Civil no. 11-1-1522-07, was filed in the Circuit Court of the First Circuit of Hawaii on July 20, 2011. The case alleges premature corrosion of the Company’s strap tie holdown products in a housing development at Ewa Beach in Honolulu, Hawaii. The case is a putative class action brought by owners of allegedly affected homes.

The Complaint alleges that the Company’s strap products and mudsill anchors are insufficiently corrosion resistant and/or fail to comply with Honolulu’s building code. The Company is currently investigating the claims asserted in the complaint, including, among other things: the existence and extent of the alleged corrosion, if any; the building code provisions alleged to be applicable and, if applicable, whether the products complied; the buildings affected; the responsibility of the general contractor, various subcontractors and other construction professionals for the alleged damages; the amount, if any, of damages suffered; and the costs of repair, if any are needed. At this time, the likelihood that the Company will be found liable for any damage allegedly suffered and the extent of such liability, if any, are unknown. The Company denies any liability of any kind and intends to defend itself vigorously in this case.

8. Stock-Based Incentive Plans

The Company currently has one stock-based incentive plan, which incorporates and supersedes its two previous plans (see Note 1 “Basis of Presentation — Accounting for Stock-Based Compensation”). Participants are granted stock-based awards only if the applicable Company-wide or profit-center operating goals, or both, established by the Compensation and Leadership Development Committee of the Board of Directors at the beginning of the year, are met. Certain participants may have additional goals based on strategic initiatives of the Company.

The fair value of each restricted stock unit award is estimated on the date of the award based on the closing market price of the underlying stock on the day preceding the date of the award. On January 30, 2012, 361,061 restricted stock units were awarded, including 8,550 awarded to the Company’s independent directors, at an estimated value of $33.23 per share, based on the closing price on January 27, 2012. The restrictions on these awards generally lapse one quarter on the date of the award and one quarter on each of the first, second and third anniversaries of the date of the award.

The following table summarizes the Company’s unvested restricted stock unit activity for the six months ended June 30, 2012:

					Aggregate
			Weighted-		Intrinsic
	Shares		Average		Value *
Unvested Restricted Stock Units (RSUs)	(in thousands)		Price		(in thousands)

Outstanding at January 1, 2012	—		$	—
Awarded	361		33.23
Vested	(93	)	33.23
Forfeited	(1	)	33.23
Outstanding at June 30, 2012	267		$	33.23	$	7,867
Outstanding and expected to vest at June 30, 2012	259		$	33.23	$	7,634

* The intrinsic value is calculated using the closing price per share of $29.51 as reported by the New York Stock Exchange on June 29, 2012.

The total intrinsic value of restricted stock units vested during the six months ended June 30, 2012, was $3.1 million, based on the market value on the award date.

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

No stock options were granted in 2012.

Black-Scholes option pricing model assumptions for stock options granted in 2011 are as follows:

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

1994 Plan
1,362	02/03/11	2.62	%	1.75	%	6.2 years	39.0	%	$29.66 to $32.63	$	10.33

1995 Plan
30	02/15/11	2.92	%	1.76	%	6.6 years	38.0	%	$29.58	$	10.49

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2012:

					Weighted-
			Weighted-		Average	Aggregate
			Average		Remaining	Intrinsic
	Shares		Exercise		Contractual	Value *
Non-Qualified Stock Options	(in thousands)		Price		Life (in years)	(in thousands)

Outstanding at January 1, 2012	2,134		$	31.15
Exercised	(82	)	24.12
Forfeited	(24	)	35.97
Outstanding at June 30, 2012	2,028		$	31.38	4.3	$	1,041
Outstanding and expected to vest at June 30, 2012	1,985		$	31.43	4.3	$	1,024
Exercisable at June 30, 2012	1,027		$	33.44	3.2	$	655

* The intrinsic value represents the amount, if any, by which the fair market value of the underlying common stock exceeds the exercise price of the stock option, using the closing price per share of $29.51 as reported by the New York Stock Exchange on June 29, 2012.

The total intrinsic value of stock options exercised during the six months ended June 30, 2012 and 2011, was $0.7 million and $40 thousand, respectively.

A summary of the status of unvested stock options as of June 30, 2012, and changes during the six months ended June 30, 2012, are presented below:

			Weighted-
			Average
	Shares		Grant-Date
Unvested Stock Options	(in thousands)		Fair Value

Unvested at January 1, 2012	1,242		$	10.11
Vested	(238	)	9.84
Forfeited	(3	)	10.33
Unvested at June 30, 2012	1,001		$	10.17

As of June 30, 2012, $22.0 million of total unrecognized compensation cost was related to unvested stock-based compensation arrangements under the 2011 Incentive Plan. The portions of this cost related to stock options, and restricted stock units awarded through January 2012, are expected to be recognized over a weighted-average period of 2.6 years.

9. Segment Information

The Company is organized into three reportable segments. The segments are defined by the regions where the Company’s products are manufactured, marketed and distributed to the Company’s customers. The three regional segments are the North American segment, comprising primarily the United States and Canada, the European segment, and the Asia/Pacific segment, comprising the Company’s operations in China, Hong Kong, the South Pacific and the Middle East. These segments are similar in several ways, including the types of materials, the production processes, the distribution channels and the product applications.

The following table illustrates certain measurements used by management to assess the performance as of or for the following periods:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2012			2011			2012			2011
Net Sales
North America	$	144,532		$	139,112		$	272,500		$	243,734
Europe	34,120			35,648			62,356			61,446
Asia/Pacific	2,735			2,815			5,107			4,692
Administrative and all other	316			237			474			476
Total	$	181,703		$	177,812		$	340,437		$	310,348

Sales to Other Segments*
North America	$	1,442		$	1,490		$	2,814		$	2,812
Europe	19			169			153			250
Asia/Pacific	4,573			2,044			8,297			4,155
Total	$	6,034		$	3,703		$	11,264		$	7,217

Income (Loss) from Operations
North America	$	26,583		$	30,793		$	44,456		$	45,843
Europe	2,088			2,650			(284		)	1,196
Asia/Pacific	(163		)	(552		)	(817		)	(1,265		)
Administrative and all other	(1,360		)	(1,683		)	(2,699		)	(2,284		)
Total	$	27,148		$	31,208		$	40,656		$	43,490

* The sales to other segments are eliminated on consolidation.

					At
	At June 30,				December 31,
(in thousands)	2012		2011		2011
Total Assets
North America	$	557,502	$	595,842	$	540,082
Europe	204,864		140,572		180,016
Asia/Pacific	31,734		25,461		29,306
Administrative and all other	84,805		102,700		86,683
Total	$	878,905	$	864,575	$	836,087

Cash collected by the Company’s United States subsidiaries is routinely transferred into the Company’s cash management accounts and, therefore, has been included in the total assets of “Administrative and all other.” Cash and cash equivalent balances in the “Administrative and all other” segment were $82.6 million, $191.5 million, and $68.5 million, as of June 30, 2012 and 2011, and December 31, 2011, respectively.

10. Subsequent Events

In July 2012, the Company’s Board of Directors declared a cash dividend of $0.125 per share, estimated to total $6.0 million, to be paid on October 25, 2012, to stockholders of record on October 4, 2012.

On July 27, 2012, the Company entered into an unsecured credit agreement with a syndicate of banks providing for a 5-year revolving credit facility of $300.0 million. The Company has the ability to increase the amount available under the credit agreement by an additional $200.0 million, to a maximum of $500.0 million, by obtaining additional commitments from existing lenders or new lenders and satisfying certain other conditions. The Company is required to pay an annual facility fee of 0.15% to 0.30% on the available commitments under the credit agreement, regardless of usage, with the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. Amounts borrowed under the credit agreement will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for the corresponding deposits of U.S. dollars appearing on Reuters LIBOR01screen page (the “LIBOR Rate”), adjusted for any reserve requirement in effect, plus a spread of from 0.60% to 1.45%, as determined on a quarterly basis based on the Company’s leverage ratio, or (b) a base rate, plus a spread of 0.00% to 0.45%, as determined on a quarterly basis based on the Company’s leverage ratio. The base rate is defined in a manner such that it will not be less than the LIBOR Rate. The Company will pay fees for standby letters of credit at an annual rate equal to the LIBOR Rate plus the applicable spreads described above, and will pay market-based fees for commercial letters of credit. Loans outstanding under the credit agreement may be prepaid at any time without penalty except for LIBOR Rate breakage costs and expenses. The Company is also required to pay customary fees as specified in a separate fee agreement between the Company and Wells Fargo Bank, National Association (“Wells Fargo”), in its capacity as the agent under the credit agreement.

In connection with the closing of the new credit agreement, the Company terminated its existing credit agreement dated October 10, 2007, among the Company, the lenders party thereto, Wells Fargo as agent, and Simpson Strong-Tie Company Inc., and Simpson Strong-Tie International, Inc., as guarantors thereunder.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This document contains forward-looking statements, based on numerous assumptions and subject to risks and uncertainties. Although the Company believes that the forward-looking statements are reasonable, it does not and cannot give any assurance that its beliefs and expectations will prove to be correct. Many factors could significantly affect the Company’s operations and cause the Company’s actual results to be substantially different from the Company’s expectations. See “Part II, Item 1A - Risk Factors.” Actual results might differ materially from results suggested by any forward-looking statements in this report. The Company does not have an obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events or otherwise.

The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three months and six months ended June 30, 2012. The following should be read in conjunction with the interim Condensed Consolidated Financial Statements and related Notes appearing elsewhere herein.

Results of Operations for the Three Months Ended June 30, 2012, Compared with the Three Months Ended June 30, 2011

Income from operations decreased 13.0% from $31.2 million in the second quarter of 2011 to $27.1 million in the second quarter of 2012. The following table illustrates the differences in the Company’s operating results in the three months ended June 30, 2012, from the three months ended June 30, 2011, and the increases or decreases for each category by segment.

	Three															Three
	Months															Months
	Ended			Increase (Decrease) in Operating Segment												Ended
	June 30,			North						Asia/			Admin &			June 30,
(in thousands)	2011			America			Europe			Pacific			All Other			2012

Net sales	$	177,812		$	5,420		$	(1,528	)	$	(80	)	$	79		$	181,703
Cost of sales	94,313			7,498			(2,681		)	(4		)	(569		)	98,557
Gross profit	83,499			(2,078		)	1,153			(76		)	648			83,146

Research and development and other engineering expense	6,945			2,249			(42		)	(109		)	—			9,043
Selling expense	19,819			122			(305		)	237			8			19,881
General and administrative expense	25,454			(241		)	2,155			(598		)	317			27,087
Loss (gain) on sale of assets	73			2			(94		)	6			—			(13		)
Income from operations	31,208			(4,210		)	(561		)	388			323			27,148

Loss in equity method investment, before tax	(69		)	69			—			—			—			—
Interest income, net	108			(91		)	8			24			9			58
Income before income taxes	31,247			(4,232		)	(553		)	412			332			27,206

Provision for income taxes	11,754			(1,262		)	(348		)	223			980			11,347
Net income	$	19,493		$	(2,970	)	$	(205	)	$	189		$	(648	)	$	15,859

The following table represents net sales by segment for the three months ended June 30, 2011 and 2012:

North

Asia/

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

Large accelerated filer x		Accelerated filer o

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