Simpson Manufacturing Co., Inc.
Q2 2008 Earnings Call Transcript

Published: 30 Jul 2008

Operator:

Good day, and welcome to the Simpson Manufacturing Company second quarter 2008 earnings conference call. I would like to turn your meeting over to your Chairman, Mr. Barclay Simpson. Please go ahead, sir.
Barclay Simpson:

Good morning, everybody, and thanks for your interest in our Company. Mike Herbert, our CFO, and I will try to bring you up to date. Was the second quarter a good one? Well, no and yes. On the no side, we never are happy if our sales and earnings do not beat the prior years, and that's due to both pride and greed. We're winners, and we plan to remain so. Plus, the Company making large profits is the only way that our people make a lot of money themselves. On the yes side, sales were down but only 5.2%, a small fraction of the decline in U.S. housing starts. So, it looks like our program to reduce our dependency on them is making some progress. Profits down 28% certainly is a no. On the yes side, we still made a reasonably good return, despite putting substantial sums behind our long-range investment in China and Asia, which we feel to be a vital part of the future of this Company. Our 15-person sales office in Beijing is charged with discovering what products we need to manufacture in our new 175,000-square-foot plant near Shanghai. We expect to have the plant up and running in the first quarter of '09 and at an estimated cost of about $8 million. There's no question but what we need to become more and more of an international company, and we'll spend whatever is necessary to get there. In that connection, Europe is a plus. Sales went up 18% to $36.6 million, and it was profitable. Germany's sales were up 23% and profitable. So the expensive personnel change there in Germany, they're starting to pay off. A negative was the U.K., where we could not offset a tough economy. France, the home territory of our European manager, continues to do well, and Denmark was up also. Currently on the negative side is Dura-Vent. Sales in the quarter were down 10%, and the loss was $1.8 million. Obviously, this kind of performance cannot continue. The Vicksburg operation should stop being a drag by the end of this year, and the Protech acquisition adds products that provide superior venting for green, new products such as tankless water heaters. Will the last half of the year see Dura-Vent get ready to make money next year? Well, there are no sure things, but we think so. Canada came on strong, with sales up 30% and an excellent profit margin. In the second quarter, our sales outside of the U.S. went from 19% of total company sales to 23.8%. Home center sales were down 6% in the quarter, but Home Depot was up 3%. And that's, you may recall, quite a change from being down 19% in the first quarter. The increase may have been helped some by an innovative merchandising program. In May, we set up samples of collapsed decks and how to prevent such disasters in front of Home Depot stores in Seattle, Chicago, Atlanta, and New York. And two decks in Seattle collapsed during the time that we had our display up there, lots of free publicity. I suspect that Home Depot's 3% sales increase may have been partially due to more sales of deck connections. On a more general subject, I often get the question as to how have we been able to get such a high percentage of the market for structural connectors in the U.S. and now, have we become number one in Western Europe. And why do we think we can do the same thing in China? That's really not too bad a question. The major reason is that the culture of our Company enables us to attract and keep the best people. We're not a bus stop. People come here for a career to be part of a winner and one that is not for sale. And it's made clear to everyone that none of us has a job without a customer. And that feeling and our skills in marketing, engineering, manufacturing, sales, especially responding quickly to the needs of specifiers, distributors, and users, these skills have been developed and enhanced for over 50 years. And in the recent past, as software skills have become vital, so has our level of knowledge and creativity become enhanced. We believe, and our leading positions in both the U.S. and Europe seem to confirm it, that trust is a key item. The majority of our products still are structural connectors. Architects, engineers, and contractors need to trust the numbers in our catalogs. These connectors are crucial to putting a structure together, so it will not be leveled by strong winds, seismic forces, or other pressures. Our test facilities are by far the best in the industry, and that's a critical factor in developing trust in the solutions that we provide. Our total number of employees has varied some, and now it's back to about the same as a year ago, despite us having to lay off roughly 200 people. The acquisitions of Swan, Liebig, and Protech practically balanced the layoffs. So, questions?
Operator:

(Operator Instructions). Our first question comes from Arnie Ursaner of CJS Securities.
Barclay Simpson:

How are you Arnie?
Arnie Ursaner:

Barc, how are you? Good morning.
Barclay Simpson:

Good.
Arnie Ursaner:

The first question I have is, you indicated in your press release that you changed your compensation method a little bit of a shift away from the cash profit sharing to more salaried levels. And I guess, I'm trying to understand the accounting treatment of that, because, if I were to add that back into gross profit, your gross margin would have been well north of 40%. Mike, can you perhaps help us on the accounting treatment of that?
Mike Herbert:

There's really no difference in the accounting treatment. The person's salary and bonus is reflected in the appropriate category, and so you cannot-- there's nothing to consider there.
Arnie Ursaner:

Well, do you have it in SG&A, for example, because these seem to be more operating expenses for the manufacturing?
Mike Herbert:

I guess a good way to explain it is, if a person was making $80,000 and they now currently make $100,000, that $5,000 per quarter used to be part of CPS, cash profit sharing. That cash profit sharing also was reflected in admin. So, there's no difference.
Arnie Ursaner:

Okay. My second question, if I can, is on -- Barc, I know you've had a lot of industrial initiatives to try to offset the weakness in U.S. housing. Could you update us on, perhaps, some of the successes you're having in the industrial area?
Barclay Simpson:

No. Unfortunately, I don't have late information on that. But I do know we've been making progress. Now, exactly where and how I'm not sure. I'm sorry, Arnie. I will attempt to get some stuff together on that.
Arnie Ursaner:

That would be great. The final question I have is on the two small acquisitions you've made. I know they're more strategically important than the numbers would indicate, but can you give us a feel for what goals would have to be met to achieve the earn-outs in both of those?
Barclay Simpson:

Well, our goal is always that, within a year or, at the absolute most, two years that any acquisition contributes to our profits and also is making a good return on our investment.
Arnie Ursaner:

Right. But, specifically on Protech, there's a $2.25 million earn-out if certain performance targets are met. Can you share with us what those targets would be?
Mike Herbert:

It's based on revenue growth.
Arnie Ursaner:

Of what sort of level, Mike?
Mike Herbert:

We're not going to disclose that.
Arnie Ursaner:

Okay. Thank you very much.
Barclay Simpson:

Okay.
Operator:

Our next question comes from Garik Shmois of Longbow Research.
Garik Shmois:

I'm just wondering, first off, in Europe, you're still seeing strong demand on the continent. What's your visibility going forward? Are you still expecting to see it through the balance of this year and maybe even out into '09? If you could talk about what you're seeing over there and just how sustainable the strong demand is out there --
Barclay Simpson:

Well, I think that it's the same reasons that we've succeeded here. We now have built a brand name. And the definition there is, my definition is that you can get somebody to specify and/or use your product, even though it costs a little more, because it's worth more to them. They make money off it. And we are succeeding in that. It's not easy. It's not easy because each country is somewhat different in the products they use. And the volumes are not equivalent to the population like they are in the States because Western Europe does not have problems, except for Italy. Italy has seismic problems. But the rest of Western Europe, they don't have seismic problems. They don't have high winds. So, you don't have enforced codes to really help you in most places. So, we've had to do that. It's taken us longer. But we now are getting there, and now we're headed into Eastern Europe. That's the goal of our manager there to get significant business in Eastern Europe. And I think that's going to be a long-range future of the Company's sales.
Garik Shmois:

Is there a timetable to getting in and expanding Eastern Europe?
Barclay Simpson:

No. There is -- it's kind of, you know, when you set [for see] has goals, our manager there. And the Company always has goals. However, timetables depend a great deal on what happens in a particular country. Like, in the U.K. our objectives there aren't being met right now because the U.K. economy is not in good shape. So, you have to change your short-term goals. You don't change your long-term goals. And we have long-term goals that we don't publish.
Garik Shmois:

Thank you for that. And can you just talk about pricing trends in the quarter? I know you had a price increase announced. Can you just talk about the success of that? And in the press release, you mentioned the possibility for additional steel price increases. Can you just --?
Barclay Simpson:

Yes, the price of steel has gone up substantially. If our costs go up, why, so do everybody else's. And some go up more than ours do. We have very good relations with the steel mills -- have had for a long time. And so, we can get it back. We don't like to. And we don't raise prices unless our costs go up, because we have an excellent margin already. So, generally, we are constantly increasing our efficiency of manufacturing. And because of that, usually, we don't have to raise quite as much as our costs go up in relation to the raw material. In this case, that's true. We didn't quite raise it as much as our cost of raw material went up. And right now, no homebuilder wants to see any cost of his go up. So, any increases aren't welcome. And we have to justify them.
Garik Shmois:

Well, thank you for the answer, and good luck.
Barclay Simpson:

Thank you.
Operator:

We'll take our next question from Alan Robinson at RBC.
Barclay Simpson:

Good morning Alan.
Alan Robinson:

Good morning. I wonder if you could provide a little more detail regarding your gross margin improvement sequentially. Clearly, it's on much higher volume. But I wonder if you could sort of drill down into what caused the -- what were the main components of that improvement, whether you could discuss mix, pricing, operational improvements or whether it was just volume.
Mike Herbert:

Volume did have a big impact based on, as sales were up, we did take some advantage of the efficiency there. We were able to recover costs because of a price increase in June. That also helped. Those are the two primary components. We did see a little bit of pressure in the shipping area based on the cost of fuel.
Alan Robinson:

And in terms, again, regarding the price increase in June, can you discuss the way that orders fell during the quarter? Did you get a large bolus of orders in the final month? How did that pan out? Can you give us some color there perhaps?
Barclay Simpson:

No. It was surprisingly made -- surprisingly little difference
Alan Robinson:

Okay.
Barclay Simpson:

Less than unusual.
Alan Robinson:

Okay. And then, just finally, with the three acquisitions you announced in the press release, Protech, the Ventinox product, and Ahorn, could you give us an idea of the sort of revenue run rate you expect from the combination of those three acquisitions?
Barclay Simpson:

Not yet.
Alan Robinson:

That's all I have.
Barclay Simpson:

The next conference call, we'll have that.
Alan Robinson:

Okay. Thank you.
Barclay Simpson:

It's too early yet.
Operator:

Our next question comes from Barry Vogel at Barry Vogel & Associates.
Barclay Simpson:

How are you Barry?
Barry Vogel:

How are you Barc?
Barclay Simpson:

Good.
Barry Vogel:

Okay. The first question, can you give us the percentage changes, which I usually ask you, for the West, excluding California, California, the South, Southeast, Midwest, and Northeast?
Barclay Simpson:

Well, we had -- for the wrong reasons, California is becoming less and less of our sales. It actually you will see -- in the quarter, California sales went down 20%. And they're now down to 20.4% of our total in that quarter.
Barry Vogel:

And the West, excluding California?
Barclay Simpson:

Well, the West went down 20.6%.
Barry Vogel:

And the South/Southeast?
Barclay Simpson:

South/Southeast was minus 7.5%, and the Northeast was up 17.9%.
Barry Vogel:

And the Midwest?
Barclay Simpson:

The Midwest was practically flat; it was up 1.9%.
Barry Vogel:

And how about Texas and Florida, which have been very -- well, Florida's been very difficult, along with California.
Barclay Simpson:

Well, we had a switch between Texas and Florida. Texas now is second.
Barry Vogel:

Were they up in the quarter?
Barclay Simpson:

No. They're both down.
Barry Vogel:

Okay. And could you tell us roughly what the sales change or what the sales were of Strong-Wall anchoring systems?
Barclay Simpson:

Well let see, the Strong-Wall, because it depends on new housing, was down shear walls 35%.
Barry Vogel:

And how about anchoring systems?
Barclay Simpson:

Anchor systems was up a fraction -- a small fraction.
Barry Vogel:

Okay. Now, when you talked about Europe being $36 million in revenues on your introduction, you did acquire Liebig in April. Did they contribute to that $36 million?
Mike Herbert:

Let me check here. $1 million.
Barry Vogel:

That's it?
Mike Herbert:

Yes.
Barry Vogel:

Okay. And Mike, I have a couple of questions to you. Where are you in the sale of the property in San Leandro?
Mike Herbert:

We are still doing environmental remediation. We originally estimated that was going to cost us $300,000. Based on some further analysis, that's now going to cost $600,000. That remediation should take place in Q3 and Q4, and we are still actively marketing the property.
Barry Vogel:

So, until the -- do you have to wait for the remediation to be finalized before you can sell the property?
Mike Herbert:

Not necessarily. The contamination issue is not really serious.
Barry Vogel:

Okay. And I have a couple more questions to you, Mike. What was the operating rate in your U.S. plants in the quarter?
Mike Herbert:

I don't understand your question.
Barry Vogel:

The operating rate -- rate of utilization of capacity in the United States in the connector plants in the quarter?
Mike Herbert:

I do not have that data.
Barry Vogel:

You don't have that data. All right. And, Barc talked about an $8 million cost for China. Could you elaborate on that? Is that $8 million for the purchase of facilities?
Barclay Simpson:

No. That's what it will cost to build it.
Barry Vogel:

Okay, so you're building a facility. Okay. And as far as the acquisitions you announced on the press release, what will be produced in the Chinese plant of that company that I can't pronounce?
Barclay Simpson:

We don't know yet. We haven't really taken it apart, which we shall do here shortly.
Barry Vogel:

Okay, so why did you buy it?
Barclay Simpson:

Why?
Barry Vogel:

Yeah.
Barclay Simpson:

Well, because the products fit right in. It's the same reason, Barry, as almost any acquisition. Those products just work.
Barry Vogel:

Okay. Thanks. I'll go back in queue. Thank you, Barclay.
Barclay Simpson:

All right. Just one correction here. I made a mistake. Texas actually was up a little bit.
Barry Vogel:

How much?
Barclay Simpson:

About 10%.
Barry Vogel:

That's pretty good.
Barclay Simpson:

Yeah.
Barry Vogel:

All right. Thanks.
Operator:

And we'll go next to Steve Chercover of D.A. Davidson.
Barclay Simpson:

Hello Steve.
Steve Chercover:

Good morning, thank you. Two quick questions; first of all, with respect to steel prices, which you said are still going up. Is your philosophy to lay in abundant steel, in effect?
Barclay Simpson:

Well, that changes day-to-day. So, there is not a general philosophy because your estimate -- our steel buyer is very sharp and has very close connections with the steel mills. And yet, day-by-day, you get a different view as to what's going to happen. So, you either lay it in, or you don't.
Steve Chercover:

Sure. With a lot of commodity prices rolling over and, I guess, with the build for the Chinese Olympics now done, is there any sense that steel prices might roll over in the not-too-distant future?
Barclay Simpson:

Any sense that we gave you would not be as good as what you read.
Steve Chercover:

Okay.
Barclay Simpson:

We're not experts on that.
Steve Chercover:

Second question, the production capacity that came along with Ahorn -- for only an $8.5 million investment, are you actually getting plants in the Czech Republic and China, or is it some sort of contract manufacturing?
Mike Herbert:

We are getting production facilities in the Czech Republic and in China.
Steve Chercover:

So they must be rather small, I would expect.
Barclay Simpson:

Quite small.
Steve Chercover:

And will you, for instance, roll in the Chinese production capacity that you're buying now into what you're building in Shanghai once it's operational?
Barclay Simpson:

It's too soon to analyze that because, until, I think it's going to be the end of the year before our 15-person sales office in Beijing really knows what looks like it will sell and what we should make in that plant. And we just don't have that information yet.
Steve Chercover:

The last question, I hope it's not silly. But are they being told to curtail their activities in the lead up to the Olympics?
Barclay Simpson:

Say that again.
Steve Chercover:

Are they being told to curtail their activities? I realize they're not manufacturing or creating pollution.
Barclay Simpson:

No. We're a long ways from Beijing. Anyhow, we're not manufacturing.
Steve Chercover:

Okay. Thanks, Barc.
Barclay Simpson:

Okay.
Operator:

Robert Kelley from Sidoti, your line is open.
Barclay Simpson:

Hi Bob.
Robert Kelley:

Hi good morning, thanks for taking my question. Just, if you would, the total price increase that you guys have put through year to date, on the whole?
Barclay Simpson:

We don't discuss it.
Robert Kelley:

Okay. Is it in the single digits? The cost of steel is up…
Barclay Simpson:

Bob, we don't talk about it.
Robert Kelley:

I'm with you. Okay. The inventory gain, 6.5%, is that due to the acquisition acquired new products? A little help there.
Mike Herbert:

It is partially due to the acquisition and partially due to higher prices.
Robert Kelley:

Of your raw material?
Mike Herbert:

Yes.
Robert Kelley:

So what is the lag between, is there a lag between when you're buying your steel and raw materials and getting the increases, or is that also dynamic?
Mike Herbert:

We carry enough inventory that we are able to decide when we need to raise prices, because of our large inventory.
Robert Kelley:

Okay.
Barclay Simpson:

A basic principle of this Company has always been don't run out of inventory.
Robert Kelley:

Excellent. Thanks, guys.
Operator:

We'll go next to Scott Macke at [Add Capital].
Barclay Simpson:

Hello Scott.
Scott Macke:

Hi good morning gentlemen, thanks as always for taking my call.
Barclay Simpson:

All right.
Scott Macke:

Just to follow up on that, is there anything different in the way you purchase steel that would change that cycle time relative to what we would suspect just looking at inventory turnover; i.e., are you agreeing on steel prices ahead of when you're actually purchasing them?
Barclay Simpson:

Sometimes and sometimes not.
Scott Macke:

I mean, is it a common practice, or is it…
Barclay Simpson:

They're all over the place.
Scott Macke:

Okay. Can you remind us; are you on LIFO or FIFO?
Barclay Simpson:

Say that again.
Mike Herbert:

FIFO.
Scott Macke:

FIFO accounting? Okay. Thank you very much. Just then to follow up quickly on the earn-outs, what specific metrics are the earn-outs based on?
Mike Herbert:

We base our earn-outs on revenue growth, on new product introductions, acquisition integration. There are numerous factors.
Scott Macke:

Okay. Are there any that are predominantly more important within that list?
Barclay Simpson:

No, it depends on the acquisition.
Scott Macke:

Fair enough. And you gave us the Liebig contribution as about $1 million. Did I catch that on the call?
Mike Herbert:

That was the revenue.
Scott Macke:

The revenue? Thanks.
Mike Herbert:

They did not contribute to earnings in the quarter.
Scott Macke:

Okay. And then, just given the fluctuations up and then, now, down in residential construction, can you just take a step back, if there is such a thing as a normal year, just to kind of walk us through seasonality? Is the second quarter? Would that normally be your seasonally strongest quarter as people stock ahead of the peak construction season? Or is there something different to seasonality than we might otherwise expect?
Barclay Simpson:

Well, the second and the third quarters are, by far, our biggest quarters.
Scott Macke:

Guys, thank you very much for your time. Much appreciated.
Barclay Simpson:

Okay.
Operator:

Tom Zeifang of Lucrum Capital, your line is open.
Barclay Simpson:

Yes sir.
Tom Zeifang:

Good morning.
Barclay Simpson:

Good morning.
Tom Zeifang:

Can you give us some sense of what's going on in July in Canada and continental Europe?
Barclay Simpson:

Well, they look pretty good.
Tom Zeifang:

Since the second quarter, they're continuing the same trends?
Barclay Simpson:

Yes. Actually, I've been a little surprised at our sales being -- they're not down, they're kind of flat. And that's really considering the market, it's quite good.
Tom Zeifang:

You mean flat sequentially or flat year-over-year?
Barclay Simpson:

Flat year-to-year.
Tom Zeifang:

Okay. Thank you.
Operator:

We'll go next to Keith Johnson at Morgan Keegan.
Barclay Simpson:

Hello Keith.
Keith Johnson:

Hi, how are you guys?
Barclay Simpson:

Good.
Keith Johnson:

I apologize if I'm duplicating questions you may have already answered; I got in on the call a little late. On the Dura-Vent segment, you guys are still going through the process of closing and moving product from Vicksburg to California. Is that correct?
Barclay Simpson:

Yes.
Keith Johnson:

How much of a cost was that during the quarter?
Barclay Simpson:

Oh, boy, have you got that separated Mike?
Mike Herbert:

We don't have it separated.
Barclay Simpson:

I am sorry, we don't have it separated but it certainly has something to do with that large loss.
Keith Johnson:

Okay. I missed that earlier. What was the loss in Dura-Vent for the quarter operating?
Barclay Simpson:

$1.8. That's the after-tax loss.
Keith Johnson:

Okay. And is that process about completed with Vicksburg, or will that kind of continue for the third quarter?
Barclay Simpson:

It will continue some. But certainly, by the end of the year, it's going to be done. And our manager there has a goal ahead of that. But these things usually take a little longer than it looks like it will.
Keith Johnson:

I guess, kind of looking at the other initiatives that you guys have underway with China, and you may have already said this earlier, but how much did those initiatives cost you on the quarter as far as kind of a bottom-line earnings per share or a dollar amount?
Barclay Simpson:

We got a number on that.
Mike Herbert:

It cost us approximately $0.01.
Keith Johnson:

Okay. And Swan, did they contribute to the bottom line?
Barclay Simpson:

Swan did very well. Swan is an unusual acquisition in that, immediately, it contributed to profits.
Keith Johnson:

Okay.
Barclay Simpson:

And they're tough to integrate, for the best reason. They've been so successful all by themselves, this small company, and we don't want to break up anything that's been reasons for their success. So, integrating their sales into our branches is a more difficult process than usual, for the best reason.
Keith Johnson:

Okay. So then, I guess what you're saying is, where you stand now with Swan, there's still a good bit to go as far as integrating that product line throughout your distribution systems in the U.S.?
Barclay Simpson:

Well, we're starting to get it integrated.
Keith Johnson:

Okay.
Barclay Simpson:

And integrating doesn't necessarily mean that we take away from Swan what you usually take away from an acquisition because they aren't doing it well.
Keith Johnson:

Okay. Could you give a little color on your markets exposed to non-residential construction in the U.S. and what kind of trends you may have seen kind of through the quarter?
Barclay Simpson:

I really don't have that information.
Keith Johnson:

Okay.
Barclay Simpson:

We know we're doing a better merchandising job and a better sales job, and we think we're getting a larger share of the market in non-residential as well as residential. And we certainly expect that anchor systems, you know, those products are used in road building and high-rise.
Keith Johnson:

Right.
Barclay Simpson:

Where our products, our structural connectors are not. It looks like anchor systems is going to become a more important part of our future, also, because of Asia.
Keith Johnson:

Okay. All right. Well, that's all I had.
Barclay Simpson:

Okay.
Operator:

We'll go next to Jon Locker at Tiger Global.
Barclay Simpson:

Good morning Jon.
Jon Locker:

Good morning. Thanks for taking my call. Just a couple of quick questions. Can you breakout inventory in terms of raw materials in process and finished products? Do you have those numbers?
Barclay Simpson:

I haven't got them. Sorry.
Jon Locker:

Okay. And in terms of inventory management, you mentioned earlier that you're on LIFO. Is that true for steel as well, or is steel average cost?
Mike Herbert:

FIFO.
Jon Locker:

FIFO. So steel is FIFO as well?
Mike Herbert:

Yes.
Jon Locker:

Okay. Thank you. That's all I've got.
Operator:

And we have a follow-up question from Alan Robinson at RBC.
Alan Robinson:

Mike, could you give us a breakdown of your uses of cash during the quarter, please?
Mike Herbert:

No, it will take just a second. I don't have that easily available. We'll provide that in the 10-Q.
Alan Robinson:

Okay.
Operator:

And we have a follow-up from Tom Zeifang of Lucrum Capital.
Barclay Simpson:

Hi Tom.
Tom Zeifang:

Hi. Can you give us a sense of the FIFO layers or how the math's going to work on your cost of goods with gross margin, because if you're first-in/first-out, I have to assume that you're eating into all those layers and we're going to see gross margin pressure in the short run.
Mike Herbert:

Well, we turn our inventory not as much as other companies, but we turn ours within six months. So, it's not going to have any significant impact.
Tom Zeifang:

Can you give us some sense of margin hit if prices stay at the same trend rate on steel?
Mike Herbert:

We'll have those offset by price increases.
Tom Zeifang:

Okay. Thank you.
Operator:

And we'll go next to Harvey Hannerfeld at West Creek Capital.
Barclay Simpson:

Good morning Harvery.
Harvey Hannerfeld:

Good morning, thanks for taking my call. I had a quick question on something I read in your press release yesterday evening, and I was hopeful you could elaborate and explain what it means. I'll just read it. It's one little part of a sentence. It says, "and a shift begun in the second quarter of 2008 of some of the compensation of U.S.-based salaried employees from cash profit sharing to salary." Could you explain what that means?
Mike Herbert:

Historically, we've had low salaries in the Company, and so we made a shift to move some of the cash profit sharing to the people's base salaries, and we use that cash profit sharing bonus. So, in the case of Q2, people, on a dollar-for-dollar basis if someone was supposed to get a bonus of $10,000 and they received a $4,000 raise for the quarter, their bonus is now $6,000. So, it's giving the employees a little bit more certainty and enabling them to make sure they can pay their Pacific Gas and Electric bill.
Harvey Hannerfeld:

So, just so I understand, people are getting paid the same, irrespective of the profitability of the Company?
Barclay Simpson:

No. No. It's still, the only way that our people make a lot of money is if their branch makes a lot of profit. But we were concerned because we've been so profitable over the years. You know, every single year, except last year, every single year since we went public in 1994, we've been up in sales and earnings. So, they are used to making considerable money. And we felt that we had to make a little adjustment not a big one, but a little adjustment to help in these temporary down times.
Harvey Hannerfeld:

Okay. So it's not a change in philosophy in compensation.
Barclay Simpson:

No, it is not.
Harvey Hannerfeld:

Thank you very much.
Operator:

And our next question is a follow-up from Barry Vogel at Barry Vogel & Associates.
Barry Vogel:

Mike, can you tell us what your capital expenditures look like now for the year and your depreciation and amortization?
Mike Herbert:

For our capital, we expect to spend $21 million for the year. Depreciation and amortization is going to be around $31 million.
Barry Vogel:

Does that $21 million include your expenditures to build the plant in China?
Mike Herbert:

It does.
Barry Vogel:

So that $8 million, is that going to be spent, do you think, in '08?
Mike Herbert:

We spent approximately $3.2 million of that, and we look to spend the rest of it before the end of the year.
Barry Vogel:

So, basically, out of the $21 million, $8 million of it would be China.
Mike Herbert:

That's correct.
Barry Vogel:

Thank you very much.
Operator:

And, Mr. Simpson, we don't have any other questions.
Barclay Simpson:

Okay. Thank you, Chris.
Operator:

This concludes today's conference call. Thank you for joining, and have a great day.

Simpson Manufacturing Co., Inc. Q2 2008 Earnings Call Transcript

Other Simpson Manufacturing Co., Inc. earnings call transcripts:

Simpson Manufacturing Co., Inc.
Q2 2008 Earnings Call Transcript