Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. SIMPSON MANUFACTURING CO INC /CA/ (920371) 10-Q published on Nov 08, 2018 at 2:54 pm
Reporting Period: Sep 29, 2018
In the third quarter of 2018, the Company recorded an out-of-period adjustment for the third quarter of 2017, which increased cost of sales by $0.7 million and decreased general and administrative expenses by $0.7 million. Furthermore, the Company recorded an out-of-period adjustment for the nine months ended September 30, 2018 and for the nine months ended September 30, 2017, which also increased cost of sales and decreased general and administrative expenses both by $1.8 million for the nine months ended September 30, 2018 and increased cost of sales and decreased general and administrative expenses both by $2.1 million for the nine months ended September 30, 2017. Such adjustments only applied to the North America segment, which resulted from recording certain depreciation expense on company–owned real estate as general and administrative expense rather than cost of goods sold. Income from operations and net income for the three and nine months ended September 30, 2018 and 2017 were not affected by the adjustments.
The Company has developed a project team for the process of adopting this ASU 2016-02 and is currently reviewing the detail of the Company’s leasing arrangements, which consist primarily of building, auto and equipment leases. As of December 31, 2017, the Company had approximately $25.2 million operating lease commitments primarily related to lease arrangements for approximately 39 facilities globally, which are under review and will likely be recognized as operating lease liabilities with a corresponding recognition of right-of-use assets on the Company's balance sheets.
In March 2018, the FASB issued ASU 2018-15) "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract; Disclosures for Implementation Costs Incurred for Internal-Use Software and Cloud Computing Arrangements," ASC 2018-15 aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software under ASC 350-40 (and hosting arrangement that include an internal-use software license). ASU 2018-15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is evaluating the impact of the adoption of this new accounting guidance on its consolidated financial statements.
Unless otherwise stated, the results announced below, when providing comparisons (which are generally indicated by words such as “increased,” “decreased,” “unchanged” or “compared to”), compare the results of operations for the three months ended September 30, 2018, against the results of operations for the three months ended September 30, 2017. Unless otherwise stated, the results announced below, when referencing “both quarters,” refer to the three months ended September 30, 2017 and the three months ended September 30, 2018. In the third quarter of 2017, the Company reclassified year to date expenses associated with a recent acquisition from engineering and research and development to general and administrative and sales and marketing. The 2017 first and second quarter financial results were revised to reflect these changes with $2.6 million of costs being reclassified from research and development and engineering expense to general and administrative expense ($2.3 million) and selling expense ($0.3 million). The 2017 third quarter financial results were revised to reflect the changes made to the first and second quarter 2017 results. In the third quarter of 2018, the Company recorded an out-of-period adjustment, which increased cost of sales by $0.7 million and decreased general and administrative expenses by $0.7 million for the 2017 third quarter and only applied to the North America segment. Income from operations and net income for the 2017 third quarter were not affected by the adjustment. The adjustment resulted from under-stating depreciation expense in cost of sales and over-stating depreciation expense in general and administrative expense.
Some of our products or components are sourced from China and other countries. If significant tariffs or other restrictions are placed on Chinese or other imports or any related counter-measures are taken by China or other countries, our costs of doing business, revenue and results of operations may be materially harmed. The Trump Administration announced a list of thousands of categories of goods, that could face tariffs of up to 25% assessed on the cost of goods as imported. If these duties are imposed on our imports, we may be required to raise our prices, which may result in the loss of customers and harm our operating performance. Alternatively, we may seek to shift production outside of China, resulting in significant costs and disruption to our operations as we would need to pursue the time-consuming processes of recreating a new supply chain, identifying substitute components and establishing new manufacturing locations. Additionally, the Trump Administration continues to signal that it may alter trade agreements and terms between China and the United States, including limiting trade with China, and may impose additional tariffs on imports from China. Even if the currently proposed duties are not imposed on our imports, it is possible further tariffs will be imposed on our imports, or that our business will be impacted by retaliatory trade measures taken by China or other countries in response to existing or future tariffs, causing us to raise prices or make changes to our operations, any of which could materially harm our revenue or operating results.
Despite the security and maintenance measures we have in place, our facilities and systems, and those of the retailers, dealers, licensees and other third-party distributors with which we do business, remain vulnerable to security breaches, cyber-attacks, acts of vandalism, computer viruses, malware, data corruption, delays, disruptions, programming and/or human errors or other similar events, such as those accomplished through fraud, trickery or other forms of deceiving our employees, contractors, agents or representatives and those due to system updates, natural disasters, malicious attacks, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins or similar events. Such incidents have occurred, continue to occur, and may occur in the future. Such incidents may involve misappropriation, loss or other unauthorized disclosure of confidential data, materials or information, including those concerning our customers, employees or suppliers, whether by us or by the retailers, dealers, licensees and other third-party distributors with which we do business, disrupt our operations, result in losses, damage our reputation, and expose us to the risks of litigation and liability (including regulatory liability); and may have a material adverse effect on our business, results of operations and financial condition. In addition, if we fail to adhere to our privacy policy and other published statements or applicable laws concerning our processing, use, transmission and disclosure of protected information, or if our statements or practices are found to be deceptive or misrepresentative, we could face regulatory actions, fines and other liability.