Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Simpson Manufacturing Co. Inc. Earnings Conference Call. In this conference call, the company may discuss forward-looking statements such as future plans and events. Forward-looking statements like any prediction of future events are subject to factors, which may vary, and actual results might well differ materially from the forward-looking statements. Some of such factors and cautionary statements are discussed in the company's public filings and reports. Those reports are available on the SEC's or company's website. Now I would like to turn the conference over to Tom Fitzmyers, the company's Chairman. Please proceed.

Thanks very much. Good morning, everyone, and welcome to Simpson Manufacturing Company Inc.'s Fourth Quarter 2011 Earnings Call. Our press release was issued yesterday and is available on our website at simpsonmfg.com. Today's call is also being webcast, and that webcast will be available on our website, as will a replay of this call. Our format's a little bit different today. I want you to know that our Chairman Emeritus, Bart Simpson, is listening. And he wanted me to be sure and tell you that even though we aren't blessed with his initials, he wants you to know that we're not going to give you any. Joining me in Pleasanton for today are Karen Colonias, our new Chief Executive Officer; and Brian Magstadt, Simpson's new Chief Financial Officer. I will lead off, followed by Karen and Brian, and then we will be happy to take your questions. Revenue for the quarter was up in most areas where the company operates. So I think we may have benefited from some relatively nice weather in many parts of our operations but mostly from the outstanding efforts of our people. Fourth quarter sales increased 9.3% with sales increases throughout the U.S. California was up 16%. The West, including California, was up 15%. Midwest was up 8%. The South -- Southwest was up 10%, and Northeast, up 10%. International sales were up 7%, with Canada up 3%, Europe up 8% and Asia Pacific up 9%. As a percent of sales, Q4 international sales were 28 versus 29 last year. With an actual dollars, international sales increased. But because the U.S. increased more, the relative international amount decreased. Q4 home center sales were up 13%, and our largest customer was up about 8.5% for the quarter. Q4 Anchor product sales were up 4%, while shearwalls…

Thanks, Tom. We've recently completed 3 acquisitions, which we believe are key to our long-term strategy. Two of those companies are in the concrete, repair and strengthening categories for infrastructure, commercial and industrial markets. Fox Industries was acquired for its chemical formulation and manufactured fiberglass jackets, which are used in a variety of applications. Fox's unaudited revenue for 2011 was approximately $8 million, and the company was profitable. S&P has a line of fibre-reinforced polymer products, asphalt reinforcement and other products to repair, protect and strengthen concrete structures and roadways. S&P's unaudited revenues for 2011 were approximately $20 million, and the company was profitable. These 2 acquisitions fit our long-term strategy being less dependent on U.S. housing starts. In addition, these products are highly specified, and in the case of S&P, have operations in several European countries. We plan to take both companies products in other parts of the world where there's the need for concrete repair and strengthening. The other acquisition was Automatic Stamping. They're a highly-efficient manufacturer of truss plates, and we are very excited about the prospects for the truss plate sales as we currently sell our core products to this customer base. They have a new facility, which we acquired in our deal, and the seller has a long history and experience in the truss business. We estimate the truss market for both truss plates and software to be around $300 million per year, and that's based at the current year's housing starts. Automatic Stamping had $6 million of sales in 2011 and was a profitable company. All 3 of these acquisitions include the management team, and we are very excited that they are on board with Simpson. We have recently launched our cold-formed steel product line, which was designed by our in-house research and development team, and it recently received a new code acceptance. These products are primarily used in commercial business in the U.S. market. I'd now like to turn the call over to Brian, who'll give you some of the financial information.

All right. First, let me start with the fourth quarter tax rate and some explanation as to why it was 14%. A few items contributed to the low tax rate. We released a valuation allowance related to net operating losses for our plant in China, had a tax loss carryback in Canada, and some other items, which were all nonrecurring. And we recorded an R&D tax credit in France related to our SOCOM facility. Without these items, the effective tax rate for the quarter would have been about 36%. And for the year, it would have been about 37% versus the 35.4%. So going forward into 2012, we expect the annual effective tax rate to be about 40%. 2012 capital, CapEx spending is expected to be about $27 million. And depreciation and amortization expense for the year is expected to be $22 million, of which $18 million is depreciation. While gross margin is not expected to be as good in 2012, Q4 2011 was 42% compared to about 40% last year, and the full-year of 2011 was 44.9%. Q1 2012 should be similar or slightly less than Q4 2011. We had a significant amount of acquisition-related professional fees in 2011 that hit the general and administrative line, as you see in the press release, $2.8 million in the quarter and $7.8 million for the year. We do not know if these will repeat or not. That depends on our acquisition activity. But we will have costs in integrating these new acquisitions. Speaking of acquisitions, I thought I'd provide a bit of information on a few of our recent past ones. Aginco, which we acquired in April of 2009 and which has been fully integrated into our operations in France, saw sales increased in 2011 as compared to 2010. SOCOM, our European chemical Anchor manufacturing acquisition from November 2010, has taken a little longer for us to roll out their chemical Anchor products throughout our European and Asian branches, but we are making progress. We have converted their product line to Strong-Tie brand. Our Asia sales operations didn't do as well as we were hoping for going into 2011, but from what we're hearing, we're not alone. We continue to be committed to that region, and with more of the right products, we feel we'll be successful. Although likely to not have an immediate impact -- effect on sales, we feel that some of the Fox and S&P products will do well there. Before we turn it over to questions, I'd like to remind you that if you'd like further information, please contact Tom at the phone number listed on the press release. We'd like to now open it up to your questions.

[Operator Instructions] Our first question will come from the side of Arnie Ursaner with CJS Securities.

You gave us the revenue on the 3 acquisitions, but these are in fairly high-growth markets. And in the case of automation stamping, you basically have distribution, which they didn't have. How should we think about the growth rates on these 3 acquisitions in the upcoming year?

I'll provide you that, Arnie. Right now, we are in the process of integrating all 3 of the acquisitions. We certainly think that there are very good market opportunities. If we discuss the Automatic Stamping, we do have customers that we call on daily that are in that market space. And we are really looking at the opportunities to be able to work with those customers on a truss program. And so that includes both the software program, as well as the place themselves. We believe we're probably around -- at the start of the second quarter, we'll have our plan in place, currently working on getting our sales force in place. So it will take a little bit more time through 2012 before we start to see some revenues from that, but we do anticipate that we'll have those starting to get in place around second quarter. The other 2 acquisitions, S&P in Europe, that's almost working as a stand-alone entities. We do have a Simpson employee who will be there full time, but we're not doing a lot of changes in their process right now. The main thing on their integration is putting their accounting systems in place. So their sales force will continue with their strategy plan just as they had for 2012. And on Fox, which is the U.S. company out of Baltimore, chemical company, again, from an integration standpoint, we're working on where the customer base is and how we take and train our sales force. We would anticipate that on Fox, that we should be ready, again, around second quarter. So when we look at market size, the S&P products are in the FRP market, which, for U.S. and North America, is about $175 million market. The Fox products are more in the specialty chemical area. And worldwide, that's about a $2 billion market. And of course, it'll take quite a while to be able to capture that, but it is a very, very large market opportunity. From the plated truss side, as I mentioned, we believe based on today's housing starts that, that's about a $300 million market size, and that is in North America only.

My final question is you have obviously highlighted the price of steel has gone up. You built your inventories in anticipation of that. Given the cost increases you have and the relationships you have with your customers, what type of price increases would you need just to maintain margin? And do you have current plans to put those in place to hold your margin up?

Arnie, the price of steel, of course, fluctuates a lot, and it really depends on the actual use of that steel by product category. At the present time, we are -- we evaluate that all the time, as you know. But at present time, we're not looking at price increases. It's a pretty competitive marketplace, and we are pretty comfortable with our inventory levels relative to our forecasted demand for at least, I'd say, through the third quarter of the year. But we evaluate that all the time and have taken in consideration our customers' needs. And most of the time, I think that we work out a plan that is mutually supportive of their profitability and ours, too.

If I can have one quick follow-up then. In putting the 2 pieces together, the fact that you're not going to put in steel price increases, the cost increases for your customer despite higher steel, and you've got quite a bit of integration expense on the 3 acquisitions, maybe Brian could speak to the waiting of both of those on the margin impact you're discussing for the first part of the year.

I think on the acquisitions, I'm not sure it's going to have a significant impact on the overall gross margin due to the relative size of their sales versus the rest of the company.

And we'll move next to the sight of Garik Shmois with Longbow Research.

I just wanted to dive in a little bit on Europe, the sales growth in the quarter. I was just wondering, if you could break it down, how much of that was market growth as a -- or how much of it was related to new products' introductions and share wins on your part.

This is Brian. I'll answer that one. So I think it's a combination of both. I mean, I don't know how much market share we gained. I would say -- but it's a combination of both of those factors. Our sales folks are out working hard every day, trying to find every bit of business they can, and we see that. I think we've seen the benefit of some nice weather even in that region, Q4 this year -- or Q4 2011 versus the prior Q4. So that may have had something to do with it as well.

Okay. And given that you've narrowed the losses in Europe by about half from 2010 to 2011, do you think that Europe could be profitable in 2012 given the improvements that you're seeing in that business?

We would think so. I mean, one of the things that you've seen there, of course, is the goodwill impairments in the region. And of course, that's -- those are big numbers in both quarters. Even taking those out, they still weren't profitable. But we would hope that they would start to turn that corner.

Okay. Great. And then just one more question…

For the year.

Yes. If you shift towards more nonresidential-focused end markets, is it possible to provide an estimate right now of your end market mix between residential and nonresidential infrastructure?

This is Karen. Today, it is definitely not possible to do that. Again, we've just acquired these companies, and you can see from the strategy that we’re going, it'll take us a little while to integrate. Certainly again, our goal is to be less tied to U.S. housing starts, and I think we've got some great acquisitions and some great people in place to help us get to that point. But it's a little early to be able to give you that detailed of information.

And our next question will come from the side of Robert Kelly with Sidoti.

Just had a question on the acquisitions. Just wanted to check the numbers. You said Fox had 2011 revenue of $8 million?

Yes.

S&P was revenue of $20 million?

Yes.

And the Automatic Stamping was $6 million?

Correct.

All 3 of those businesses were profitable. The margins were good. How do those margins compare to the Simpson corporate margins? If you can't give an exact number, higher or lower?

Yes, there's -- it's very difficult to do that just because of the way the accounting actually works. And what we -- I guess what we're really comfortable saying is that those have -- we have a lot of confidence in those businesses. Those businesses demonstrated an ability to make money, and we think we'll be able to do really well in them in the long run. It takes us a while to get things integrated, and there are different aspects of acquiring the business that we might need to look at changing right away. For example, in some cases, we want to expand the sales force. In another case, we want to expand some product lines. In another case, maybe we've got to change the manufacturing. So all of that, we cranked in to short-run issues. But look at it from a long-run standpoint, very favorably.

So once they're integrated, will they be absents in corporate margins? Above? I mean...

Well, we don't know. We’re hoping they will be. Income markets are great. We've done some analysis, and I think some of you have attended 1 or 2 of our presentations and have seen what we think, that the end markets might hold. But we have a ways to go to get there. We do have high hopes, though, that they will be real contributors.

Right. I just -- the markets that they plan, the question was asked earlier, I guess you don't want to give the forward look for their -- the growth metrics. Could you at least tell us how much they grew in 2011 versus 2010?

I don't think that we really want to get into that because they're different elements associated with that. But again, I would say that we are comfortable with the quality of these businesses and the capability of their management team, and we now have the integration issues associated with that. But we would be honored [ph] if we we're not really comfortable with the prospects even though they're long term.

No, I understand that. I just -- even if you get to the corporate average margin on these businesses, it's -- you paid a pretty penny, I'm just wondering, have your return profile or characteristics changed? What's your time frame to get a return on this investment?

Well, we were -- it just depends on how good where at integrating them. We think that the markets would demonstrate to us that there is potential for good margins. We just don't know how long it's going to take us. As you know, we spent years and years and years developing both product lines and countries. And it's just not possible for us to say how fast we can go, but we are going to be doing our best to go as fast as we can.

And our next question will come from the side of Barry Vogel with Barry Vogel & Associates.

I have a couple of questions. Let me just see here. Liebig, the -- have they -- where are they in terms of their facilities? Are they -- have they been closed and consolidated with your other facilities in Europe? And what's the plan for Liebig's operations in Ireland right now?

So Barry, I'll take that one. We are still making sure from the Liebig standpoint the plant is still open. We are concerned that we want to be sure we can meet our customers' needs, and so we are certainly taking slow steps to ensure that we are making the correct decision here and not having issues without being able to supply the customer products. So we are still looking at various sourcing solutions and possibilities from the Liebig standpoint. And as we look at those, we certainly need to be able to look at the standard cost to make sure that we're getting the most cost-effective products to our customers. So we are still reviewing the best way and the best opportunity to work with Liebig and resolve any customer issues that we may have.

Well, if you close the facilities, where would you produce the product?

It is possible we would still produce parts of the products at the Liebig facility and buy out other parts of the products and either do complete buyout or potential assembly. But those are some of the options that we were looking at.

Did you have in 2011 any goodwill impairments or write-offs at Liebig?

No.

We did not.

And did you lose money at Liebig?

Yes, we did.

Can you give us some idea of the losses?

We can, but we're not going to.

Where's the transparency? I mean, Liebig has been a difficult acquisition. And if they're losing money, that would affect the profitability of the company, and I think that's a reasonable question.

Yes, I would agree that Liebig has been a difficult acquisition, and that's exactly why we're looking at things we can do from the early operational standpoint. I think we've done a lot of improvements there. We can tell you that we lost less money in 2011 with Liebig than we did in 2012, and that was really based on -- sorry, less money in 2011 than we did in 2010. And that was based on a lot of work from the people there of trying to look at their costs and get the most efficient improvements possible. In many cases, it comes down to being -- to have enough sales to cover that. And certainly in the downturn of the market, we've had some struggle getting enough sales that cover the Liebig product. But we did buy that company because they have a very high-quality product, and so we don't want to -- we want to take a slow process and make sure again that we have the capabilities of providing that product to our customers as they need it. So we're looking at buyout opportunities. We are looking at different sourcing opportunities. And that's pretty much the stage that we're at. Again, continue looking to make sure that we can make the correct decision when we do finally make that decision.

Okay. I have a couple of questions to Brian. Could you tell us what CapEx was in 2011 and what D&A was in 2011?

Sure. D&A was $21 million; CapEx, $27 million.

And could you give us an idea what the goodwill is on Fox, S&P and Auto Stamping?

We haven't done the purchase price allocations on those yet. So there will be a significant amount of goodwill for each of those. But we do not have the final numbers on those.

And Brian, could you tell us approximately what your Asian, including China, revenues were and what the losses were this year?

Sure. Give me just a minute. So Asia revenues -- so we consider Asia Pacific to be Asia and Australia, and I could break them out for you but --

And separate from China?

China is included in the Asia Pacific region. So for the -- I'm sorry. Was it for the quarter or for the year?

For the year.

Okay. So about, for the year, $9.5 million in 2011 versus about $9.2 million in 2010. And operating, they had an operating loss of about $1.5 million in 2011 versus about $100,000 loss in 2010.

And what's your estimate -- what do you think is going to happen in 2012?

I don't have that number right in front of me. I'm sorry.

And our next question will come from the side of Steve Chercover with D.A. Davidson.

Two quick questions, please. First of all, the $3 million of stock compensation expense for the quarter, is that put in the SG&A bucket? And since it's up year-over-year, is this a new run rate?

So it is in the SG&A. It's actually in all of the lines. So wherever the employee works is where we record that expense. And one thing we're seeing there is that for our 2010 year, it was the first year in a number of years that we had issued equity compensation. And we expensed that out over a 4-year time period. So in 2011, we've also issued equity compensation. So just the nature of layering in another years’ worth of expense is showing the increase in the comparable because we, again, expensed those out over 4 years. So in 2010, we basically had 1 years’ worth. In 2011, now we're looking at 2 years' worth.

And do you anticipate that you'll continue to incent or compensate your employees with equity going forward?

Yes, yes. And if we meet our goals in 2012 and issue stock compensation, then we would add in the third grant. So then relative to the others, you would now have 3 years' worth versus 2.

So it's -- I mean, ultimately, if you do it year-in, year-out, we’re going to get to a run rate?

Ultimately, after 4 years, if we continue to issue equity compensation, we ought to be then flat compared to the prior year. But right now, we're basically layering in new years’ worth of equity compensation, and that's why we’re seeing the increase.

Got -- okay. That's fine. So we could we a couple more years of that.

Yes.

And then secondly, do you use the same channels to go to market with the concrete reinforcement and repair products as you do for your legacy products?

This is Karen. That's one of the things we're looking at as we work on our integration, is what are the channels to take these products to market. In the European, some of the products are taken, and so direct and many also go to distribution. And I think we have a similar process with how Fox currently takes their product to market. And so that is one of our key elements that we're looking at as we walk through our integration, is the customer base and how to take these products to market and certainly how to expand that customer base.

And we'll move next to the side of Peter Lisnic with Robert W. Baird.

First question, any inventory step-up charges related to the acquisitions in the fourth quarter? Or should there be any in the first quarter that you can quantify for us?

There were, but they were very small.

Okay. And any in the first quarter? Or still small?

We have not done that yet. If -- so when we do the purchase price allocations, typically we would step up inventory. But we need to engage our valuation firms to go out and do that work, and that work is just beginning. I wouldn't expect it to be material though.

Okay. All right. That's fine. And then on the Asia profitability outlook, can you give us a sense as to what the cost structure trends there are like? I'm particularly interested in labor inflation and what you're seeing there.

I think we're seeing higher cost, and we probably expected going into Asia. I think it would be fairly similar to the experience we've had here in 2011.

Meaning in '12, you expect to see comparable inflation or...

I would say comparable cost on a relative level based on sales.

Okay. All right. And so is there a plan there to -- I mean, obviously, you should get some volume leverage, hopefully if the market continues to grow for you. But are there any sort of leaning opportunities in those particular regions where you can take cost out to help offset some of that?

That's a great question. And we're looking at that every day to figure out how we can source those products in that region as competitively as possible for the rest of the company. So we're looking at it and trying to find every opportunity to do that.

Okay. All right. And then last question Karen, on these 3 acquisitions that you made, can you maybe give us a sense as to -- I mean, thank you for all the end market opportunity color. But I'm just wondering, how material are these in terms of your ability to capture the significant markets that are out there? In other words, do you think that these are adequate enough platforms? Or do you need to add to them in some sort of material way to kind of penetrate these market opportunities?

Well, we will continue looking at acquisitions in 2012, especially in the chemical standpoint. I think we have a very, very good platform with the Fox and S&P acquisition, but we will continue to see if there are bolt-on acquisitions that will help us get a larger footprint in this market. I mean, obviously, it's a very large market opportunity, and these are 2 fairly small companies. But our real interest is in that they provide high-quality, highly-specified products. And as we've mentioned before, that's what we're looking forward. We're not really looking for commodity-type products. We want to be sure we have something that our sales people can talk to specifiers and really differentiate. So we're very, very encouraged about that. And certainly, there's a lot of -- being a small player, there's some definite growth opportunities there. On the plated truss side, I think we have a very, very good platform with those, our software company and our plated truss provider, to be able to really go after the business in the North American market. And that's what we are positioning ourselves to do right now, really just trying to get all the pieces together so that we can provide a great customer service and a great customer experience in that market space.

[Operator Instructions] We'll move next to the side of Keith Johnson with Morgan Keegan.

I had a couple of questions maybe circling back up on the early comments on your prepared remarks on margins to make sure I understood right. Looking at the first quarter 2012, either flat to slightly down on a sequential basis, is that, I think with the opening remarks, you're suggesting?

Correct.

And when you look at the performance, gross margin performance in 2011, as you look ahead to 2012, you put up some pretty strong numbers of around 47% a couple of times. When you look ahead to 2012, I mean, is that doable? Or were there are some items that we need to think about when we try to model forward?

I think if you're modeling forward, I think it would be down slightly for the year.

Okay. It's -- when we look at maybe switching down to the operating income and operating margin line, I know you guys made -- highlighted some of the professional fees that occurred in some of the G&A accounts. You also made some investment in personnel and selling and R&D. So those categories all showed substantial year-over-year increases relative to 2010. Do you think you'll be able to begin to leverage some of those investments in R&D and selling as we move into 2012 or potential areas you would need to continue to invest in?

Well, let me add a little to that. Some of the costs that we're seeing in there are there are actual people cost increases because we're adding folks. But we're also seeing costs such as the stock compensation or the cash profit-sharing costs that as we meet our goals on an operating profit level, on a quarterly basis or an annual basis, those costs are built into those lines as well. And if we see similar operating profit levels, we would probably continue to see those costs there, too. I don't know, Karen, if you want to add anything on the R&D specifically, on maybe new products or the work that they're doing?

Yes. We've added some key people in areas R&D and certainly selling. I mentioned to you the project launch that we had on our cold-formed steel. We see that as a great market opportunity. It's not residential related. And so that was a project that our R&D team released last year. They're continuing to work now with some of these new chemical opportunities. And so we have added some resources to both R&D and sales, not only to help continue what we're doing in our core product line, but certainly look and expand what we're doing in both the truss area and the chemical front.

Okay. So when we start thinking about these accounts, I guess, going into 2012, would you expect some to continue at, I guess, double-digit-type, high single-digit-type growth rates in R&D spending, SG&A or those type of things?

I don't know that it would be double-digit, but I would expect it to be up. And we've done all those acquisitions at the end of 2011. So going into 2012, we're going to have a lot of folks on a lot of different P&L lines for the year where they weren't there last year.

And we'll move next to Barry Vogel with Barry Vogel & Associates.

Karen, no one has asked the question about recent business conditions, and I mean recent meaning over the last month, let's say, in U.S. connector business because the bottom line is that's the cause of the company's profitability. So I was wondering if you can tell us that and also what your outlook for the U.S. connector market is for 2012.

Sure. We have been blessed countrywide with some amazing weather, and our January sales were slightly up over what we saw last January in 2010. I think if we remember last year, I believe almost 48 states had received snow at that time. And so we're -- the fact that in the construction from the core standpoint is, as we all know, weather affects a lot of that. So we have -- had seen our January sales up. And really, after talking to the branch managers, that's really a function of what's going on with the weather. And jobs that were currently under process or currently under construction where we're able to continue. And in 2012, we are looking at things, not seeing a great uptick and housing starts. And certainly, we track that very closely. We will continue to have our sales force look at various opportunities to grow and get every piece of business that we can, certainly, our fastener line. We've some opportunities that we expanded our fastener line. We will be looking at the truss line. But I think our sales force has done an excellent job in 2011 and will continue in 2012 to find every source of sales that they can get with our product line. And they're very excited about the opportunities with some of the new acquisitions and the new products. But from the standpoint of residential housing, we are not seeing any big uptick in that business.

Now when you talk about residential housing, are you including the home centers?

Yes, yes.

And also, one other question. I know that you've restructured your company quite dramatically with the crash of the market. And because of that, you've been able to have reasonable profitability despite the fact that your main business has been -- has not been growing and it's had difficult times. Can you give us some idea of an estimated incremental margin opportunity for the U.S. connector business based upon your cost structure right now?

Yes. I think that would be a little bit difficult to estimate the incremental again. I think, Barry, as you mentioned, we've done quite a bit of restructuring that was necessary as we hit the downturn. We had to do some layoffs, which is unfortunate for us. I think what's happened in this time is that we have -- again, from a sales standpoint, this step-up we could do with fasteners and things that -- the Anchor Systems product and other products to try and get that revenue. I think it will be a little difficult right now to define -- to get a number for what we think that incremental might be.

And it appears that there are no further questions at this time.

Great. Thank you.

Thanks, everybody.

And this does conclude today's teleconference. Thank you for your participation. You may now disconnect.