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 "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 years ended December 31, 2008, 2007 and 2006, and of certain factors that may affect the Company's prospective financial condition and results of operations. The following should be read in conjunction with the Consolidated Financial Statements and related Notes appearing elsewhere herein.

Overview

The Company's net sales decreased to $756.5 million in 2008 from $863.2 million in 2006, reflecting slower homebuilding activity. Net sales decreased in 2008 from 2006 in all regions of the United States with the exception of the northeast, with above average rates of decline in California and the western and southeastern portions of the country, and net sales to home centers decreased over the same period. Expansion into international markets helped to offset in part the sales decline in the United States over the last three years. Sales outside of the United States have increased significantly, due in part to the acquisitions of:

† Certain assets of Liebig International Ltd., an Irish company, Heinrich Liebig Stahldübelwerke GmbH, Liebig GmbH & Co. KG and Liebig International Verwaltungsgesellschaft GmbH, all German companies, Liebig Bolts Limited, an English company, and Liebig International Inc., a Virginia corporation (collectively "Liebig") in April 2008, and

† Ahorn-Geräte & Werkzeuge Vertriebs GmbH, a German company, and its subsidiaries Ahorn Upevnovaci Technika s.r.o., a Czech company, and Ahorn Pacific Fasteners (Kunshan) Co., Ltd., a Chinese company (collectively "Ahorn") in July 2008.

Gross profit margin decreased to 37.3% in 2008 from 40.0% in 2006 primarily due to increased costs of steel and other materials, a higher proportion of fixed overhead costs and higher distribution costs, partly offset by reduced labor costs.

In recent years, home centers have been one of the Company's fastest growing distribution channels. A large part of that growth was sales to The Home Depot, which exceeded 10% of the Company's consolidated net sales in the years ended December 31, 2007, and 2006, but not in the year ended December 31, 2008. (see "Item 1A - Risk Factors" and Note 14 to the Company's Consolidated Financial Statements). Consolidation of retailers and distributors has occurred over time. While the consolidation of these large retailers and distributors provides the Company with opportunities for growth, the increasing size and importance of individual customers exposes Simpson Strong-Tie to potential over-dependence. The loss of any of the larger home centers and distributors as customers would have a material adverse effect on SST, unless and until either such customers are replaced or SST makes the necessary adjustments (if possible) to compensate for the loss of business.

Results of Operations

The following table sets forth, for the years indicated, the percentage of net sales of certain items in the Company's Consolidated Statements of Operations.

                                                   Years Ended December 31,
                                                  2008        2007      2006
Net sales                                          100.0 %     100.0 %  100.0 %
Cost of sales                                       62.7 %      62.6 %   60.0 %
Gross profit                                        37.3 %      37.4 %   40.0 %
Research and development and other engineering       2.8 %       2.5 %    2.2 %
Selling expense                                     10.7 %       9.3 %    8.4 %
General and administrative expense                  11.9 %      10.8 %   10.7 %
Impairment of goodwill                               0.4 %       1.3 %      -
Loss (gain) on sale of assets                          -        (0.1 )%     -
Income from operations                              11.5 %      13.6 %   18.7 %
Income (loss) in equity method Investment           (0.1 )%        -        -
Interest income, net                                 0.4 %       0.7 %    0.4 %
Income before income taxes                          11.8 %      14.3 %   19.1 %
Provision for income taxes                           4.7 %       5.9 %    7.2 %
Net income                                           7.1 %       8.4 %   11.9 %

In December 2008, the Board of Directors authorized the Company to repurchase up to $50.0 million of the Company's common stock. The authorization will remain in effect through the end of 2009. This replaced the $50.0 million repurchase authorization from December 2007. The Company made no repurchases during 2008. In February 2007, the Company repurchased 122,500 shares of its common stock for $4.2 million, which the Company retired in March 2007. During 2006, the Company purchased 500,000 shares of its common stock for $17.2 million, which the Company retired in June 2006.

Comparison of the Years Ended December 31, 2008 and 2007

Net Sales

In 2008, net sales decreased 7.4% to $756.5 million compared to net sales of $817.0 million for 2007. In 2008, sales declined throughout the United States, with the exception of the northeastern region of the country. California and the western states had the largest decrease in sales. Sales during the year in continental Europe, Canada and Asia increased, while sales were down in the United Kingdom. Simpson Strong-Tie's sales to contractor distributors had the largest percentage rate decrease and sales to dealer distributors and home centers also decreased. Reflecting the deterioration of construction markets and economic conditions generally, sales decreased across all of Simpson Strong-Tie's major product lines, particularly those used in new home construction. Sales of the Swan Secure product line, acquired in July 2007, accounted for slightly more than 4% of Simpson Strong-Tie's 2008 sales. Anchor Systems sales, while down slightly, benefited from the acquisition of the Liebig companies as well as Simpson Strong-Tie's increasing presence in Asia and the Middle East. Sales of Simpson Dura-Vent's pellet vent, chimney, special gas vent and relining products increased, a significant portion of the increase having resulted from the ProTech acquisition. Sales of SDV's Direct-Vent and gas vent product lines decreased as a result of several factors, including the continuing weakness in new home construction.

Gross Profit

Gross profit decreased 7.6% from $305.5 million in 2007 to $282.3 million in 2008. As a percentage of net sales, gross profit decreased slightly to 37.3% in 2008 from 37.4% in 2007. The decrease in gross margins was primarily due to higher distribution costs, partly offset by lower manufacturing costs. The Company continues to face uncertainty in the cost and availability of steel. Several factors are contributing to this uncertainty. Steel prices have declined from their peak in July 2008, but management believes that they may have reached bottom and does not expect them to decrease further for the balance of the first quarter of 2009. The steel market continues to be dynamic, however, with a high degree of uncertainty about future pricing trends. Demand for steel has recently declined due to the weakening of the global economy and tightening of financial credit markets. If steel prices

increase and the Company is not able to maintain its prices or increase them sufficiently, the Company's margins could deteriorate further.

Selling Expense

Selling expenses increased 6.3% from $76.0 million in 2007 to $80.7 million in 2008. The increase was driven primarily by an increase in expenses associated with sales and marketing personnel of $7.4 million, including those at businesses acquired since July 2007. This increase was partly offset by decreases in promotional expenses of $1.6 million and donations of $0.5 million, primarily related to the gift made to Habitat for Humanity International, Inc. in 2007.

General and Administrative Expense

General and administrative expenses increased 1.4% from $88.6 million in 2007 to $89.9 million in 2008. The major components of the increase were increases in administrative personnel expenses of $8.5 million, including those at businesses acquired since July 2007, increased legal and professional service expenses of $2.8 million, higher amortization expense of $1.9 million and higher bad debt expense of $1.7 million. These increases were mostly offset by a decrease in cash profit sharing of $14.2 million, resulting primarily from decreased operating profit. The Company believes that the pre-tax stock option expense for 2009 will be $1.7 million related to stock options granted during 2006, 2007, 2008 and through February 2009.

Impairment of Goodwill

Impairment of goodwill decreased 72.2% from $10.7 million in 2007 to $3.0 million in 2008. The impairment charge taken in 2008, which was a result of the Company's annual impairment test in the fourth quarter of 2008, was associated with assets that were acquired in England in 1999 and is associated with the Company's U.K. reporting unit. The reporting unit's carrying value exceeded the fair value, primarily due to reduced future expected net cash flows. In 2007, the Company recorded a goodwill impairment charge of $10.7 million, primarily as a result of decreased expected future cash flows from its Canadian unit that resulted from the move of production from Canada to China. The method to determine the fair value of the U.K. reporting unit was a discounted cash flow model. The method to determine the fair value of the Canadian reporting unit was a discounted cash flow model supported by market approaches, which were based on earnings multiples realized by similar public companies and on representative merger and acquisition transactions of a similar nature and industry. These reporting units are associated with the connector products segment. See "Critical Accounting Policies and Estimates - Goodwill Impairment Testing."

Interest Income and Expense

Interest income is generated on the Company's cash and cash equivalents balances. Interest income decreased primarily as a result of lower interest rates. Interest expense includes interest, account maintenance fees and bank charges.

Provision for Income Taxes

The effective tax rate was 39.8% in 2008, down from 41.0 % in 2007. The decrease in the effective tax rate was caused primarily by the decrease of the impairment of goodwill charge taken in the fourth quarter of 2007, the majority of which was not deductible for tax purposes.

Connector Products - Simpson Strong-Tie (SST)

Simpson Strong-Tie's income from operations decreased 19.9% from $114.4 million in 2007 to $91.6 million in 2008.

Net Sales

In 2008, Simpson Strong-Tie's net sales decreased 9.2% from $745.7 million in 2007 to $676.7 million in 2008. SST accounted for 89.5% of the Company's total net sales in 2008, a decrease from 91.3% in 2007. The decrease in net sales at SST resulted from a decrease in sales volume, partly offset by an increase in average prices of 8.3%. In 2008, sales declined throughout the United States, with the exception of the northeastern region of the country,

which increased slightly. California and the western states had the largest decrease in sales. Sales during the year in continental Europe, Canada and Asia increased, while sales were down in the United Kingdom. Simpson Strong-Tie's sales to contractor distributors had the largest percentage rate decrease and sales to dealer distributors and home centers also decreased. Reflecting the deterioration of construction markets and economic conditions generally, sales decreased across all of Simpson Strong-Tie's major product lines, particularly those used in new home construction. Sales of the Swan Secure product line, acquired in July 2007, accounted for slightly more than 4% of Simpson Strong-Tie's 2008 sales. Anchor Systems sales, while down slightly, benefited from the acquisition of the Liebig companies as well as Simpson Strong-Tie's increasing presence in Asia and the Middle East.

Gross Profit

Simpson Strong-Tie's gross profit decreased 8.1% from $296.2 million in 2007 to $272.2 million in 2008. As a percentage of net sales, gross profit increased from 39.7% in 2007 to 40.2% in 2008. This slight increase was primarily due to lower manufacturing costs, including material and labor costs, offset by higher fixed overhead costs as a percentage of sales, as a result of the lower sales volume, and higher distribution costs.

Research and Development and Other Engineering Expense

Simpson Strong-Tie's research and development and other engineering expenses increased 6.2% from $19.0 million in 2007 to $20.1 million in 2008. The increase resulted primarily from a $1.5 million increase in expenses related to additional personnel from the acquisitions during 2008, partly offset by an overall reduction in other departmental overhead expenses.

Selling Expense

Simpson Strong-Tie's selling expense increased 6.7% from $68.8 million in 2007 to $73.4 million in 2008. The increase resulted primarily from a $7.3 million increase in expenses associated with sales and marketing personnel, including those at businesses acquired since July 2007, partly offset by decreases in promotional expenses of $1.5 million and donations of $0.5 million, primarily related to the gift made to Habitat for Humanity International, Inc. in 2007.

Impairment of Goodwill

Impairment of goodwill decreased 72.2% from $10.7 million in 2007 to $3.0 million in 2008. The impairment charge taken in 2008, which was a result of the Company's annual impairment test in the fourth quarter of 2008, was associated with assets that were acquired in England in 1999 and is associated with the Company's U.K. reporting unit. In 2007, the Company recorded a goodwill impairment charge of $10.7 million, primarily as a result of decreased expected future cash flows from its Canadian unit that resulted from the move of production from Canada to China.

European Operations

For its European operations, Simpson Strong-Tie recorded after-tax loss of $3.7 million in 2008 compared to after-tax net income of $2.4 million in 2007. The loss was primarily related to the goodwill impairment charge associated with the U.K. reporting unit.

Venting Products - Simpson Dura-Vent (SDV)

Simpson Dura-Vent's loss from operations was flat at $2.6 million in both 2007 and 2008.

Net Sales

In 2008, Simpson Dura-Vent's net sales increased 11.9% from $71.3 million in 2007 to $79.8 million in 2008. SDV accounted for 10.5% of the Company's total net sales in 2008, an increase from 8.7% in 2007. The increase in net sales at SDV resulted from an increase in sales volume, as well as price increases that averaged 4.0%. Sales were down in California and the western and southeastern regions of the United States and were up in the midwestern and northeastern regions of the United States in 2008 compared to 2007. Sales of Simpson Dura-Vent's pellet vent, chimney, special gas vent and relining products increased, a significant portion of the increase having resulted from

the ProTech acquisition. Sales of Direct-Vent and gas vent product lines decreased as a result of several factors, including the continuing weakness in new home construction.

Gross Profit

Simpson Dura-Vent's gross profit increased 10.5% from $9.4 million in 2007 to $10.4 million in 2008. As a percentage of net sales, gross profit decreased slightly to 13.0% in 2008 from 13.1% in 2007. This decrease was primarily due to higher fixed overhead costs as a percentage of net sales and higher distribution costs, offset by lower manufacturing costs, including material and labor costs.

Administrative Expense

Simpson Dura-Vent's administrative expense increased 16.7% from $4.0 million in 2007 to $4.6 million in 2008 primarily due to increases in administrative personnel expenses of $0.5 million, including those at businesses acquired in 2008.

Administrative and All Other (Company)

Interest Income and Expense

Interest income is generated on the Company's cash and cash equivalents balances. Interest income decreased primarily as a result of lower interest rates. Interest expense includes interest, account maintenance fees and bank charges.

Comparison of the Years Ended December 31, 2007 and 2006

Net Sales

In 2007, net sales decreased 5.4% to $817.0 million from $863.2 million in 2006. In 2007, sales declined throughout the United States, while sales in Europe and Canada increased. Simpson Strong-Tie's sales to contractor and dealer distributors had the largest percentage rate decreases in 2007, reflecting slower homebuilding activity, while sales to home centers were flat. Sales decreased in 2007 across most of Simpson Strong-Tie's major product lines, particularly those used in new home construction. Sales of all of Simpson Dura-Vent's product lines decreased in 2007 when compared to 2006.

Gross Profit

Gross profit decreased 11.5% from $345.3 million in 2006 to $305.5 million in 2007. As a percentage of net sales, gross profit decreased from 40.0% in 2006 to 37.4% in 2007. This decrease was primarily due to higher manufacturing costs and a higher proportion of fixed overhead costs to total costs, resulting primarily from the lower sales volume. The Company continued to face uncertainty in the cost and availability of steel. Several factors contributed to this uncertainty. Global demand and high raw material and energy prices led the Company to believe that steel prices were likely to increase further. In addition, major domestic integrated steel producers had consolidated over the preceding several years. To mitigate the effect of rising steel prices, the Company had sales price increases in 2007.

Research and Development and Other Engineering Expense

Research and development and other engineering expenses increased 4.5% from $19.3 million in 2006 to $20.1 million in 2007. This increase was primarily due to additional staff, incentive pay, and other personnel costs, totaling $0.5 million.

Selling Expense

Selling expenses increased 5.2% from $72.2 million in 2006 to $76.0 million in 2007. The increase was driven primarily by a $5.1 million increase in expenses associated with sales and marketing personnel, the payment of a one-time $1.0 million commitment as a co-sponsor of a new exhibit at INNOVENTIONS at Epcot® at the Walt Disney World® Resort in Florida and the donation of $0.6 million in cash and products (expensed at cost) primarily to Habitat for Humanity International, Inc. The INNOVENTIONS exhibit is intended to educate homeowners about

severe weather preparedness and mitigation, as well as to showcase various products and techniques they can use to build weather resistant housing. These increases were partly offset by a decrease in promotional expenses of $2.0 million and decreased agent commissions, primarily as a result of lower Simpson Dura-Vent sales, of $1.1 million.

General and Administrative Expense

General and administrative expenses decreased 3.7% from $92.0 million in 2006 to $88.6 million in 2007. The major components of the decrease were reduced cash profit sharing of $9.7 million and lower expenses related to the relocation of the Company's home office in the second quarter of 2006, of $0.9 million. These decreases were partly offset by an increase in depreciation and amortization charges totaling $2.3 million and higher administrative personnel costs of $2.1 million, both of which included incremental expenses associated with the acquisition of Swan Secure. Legal and professional services fees also increased by $0.9 million over the prior year.

Impairment of Goodwill

In 2007, the Company recorded a goodwill impairment charge of $10.7 million, primarily as a result of decreased future cash flows of its Canada unit that will result from the move of its production from Canada to its facility in China. The decision to move the production was made in October 2007. The method to determine the fair value of the Canadian reporting unit was a discounted cash flow model supported by market approaches, which were based on earnings multiples realized by similar public companies and on representative merger and acquisition transactions of a similar nature and industry. This reporting unit is associated with the connector products segment. See "Critical Accounting Policies and Estimates - Goodwill Impairment Testing."

Interest Income and Expense

Interest income is generated on the Company's cash and cash equivalents balances. Interest income increased primarily as a result of higher interest rates. Interest expense includes interest, account maintenance fees and bank charges.

Provision for Income Taxes

The Company's effective tax rate was 41.0% in 2007, up from 37.8% in 2006. The effective tax rate increased primarily because the majority of the $10.7 million goodwill impairment charge was not deductible for tax purposes.

Connector Products - Simpson Strong-Tie (SST)

Simpson Strong-Tie's income from operations decreased 26.6% from $155.7 million in 2006 to $114.4 million in 2007.

Net Sales

In 2007, Simpson Strong-Tie's net sales decreased 3.3% to $745.7 million from $771.2 million in 2006. SST accounted for 91.3% of the Company's total net sales in 2007, an increase from 89.3% in 2006. The decrease in net sales at SST resulted from a decrease in sales volume, partly offset by an increase in average prices of 6%. In 2007, sales declined throughout the United States, with the exception of the Midwest, which was up slightly and the Northeast, which was flat, while sales in Europe and Canada increased. Simpson Strong-Tie's sales to contractor and dealer distributors had the largest percentage rate decreases in 2007, reflecting slower homebuilding activity, while sales to home centers increased slightly. Sales decreased in 2007 across most of Simpson Strong-Tie's major product lines, particularly those used in new home construction.

Gross Profit

Simpson Strong-Tie's gross profit decreased 8.8% from $324.9 million in 2006 to $296.2 million in 2007. As a percentage of net sales, gross profit decreased to 39.7% in 2007 from 42.1% in 2006. This decrease was primarily due to higher manufacturing costs, including material costs, and to higher fixed overhead costs as a percentage of net sales as a result of the lower sales volume.

Selling Expense

Simpson Strong-Tie's selling expense increased 8.0% to $68.8 million in 2007 from $63.7 million in 2006. The increase resulted primarily from a $3.4 million increase in expenses associated with sales and marketing personnel, the INNOVENTIONS one-time $1.0 million commitment and the donation of $0.6 million in cash and products (expensed at cost) primarily to Habitat for Humanity International, Inc.

General and Administrative Expense

Simpson Strong-Tie's general and administrative expense decreased 3.1% from $86.8 million in 2006 to $84.2 million in 2007. The decrease was primarily due to reduced cash profit sharing expenses included in administrative expenses totaling $9.3 million, partly offset by increases in depreciation and amortization costs of $2.2 million, which included incremental expenses associated with the acquisition of Swan Secure in July 2007, bad debt expense of $0.6 million, and professional service expenses of $0.7 million.

European Operations

For its European operations, Simpson Strong-Tie recorded after-tax net income of $2.4 million in 2007 compared to after-tax net income of $4.4 million in 2006.

Venting Products - Simpson Dura-Vent (SDV)

Simpson Dura-Vent's income from operations decreased from $7.2 million in 2006 to a loss of $2.6 million in 2007.

Net Sales

In 2007, Simpson Dura-Vent's net sales decreased 22.5% to $71.3 million as compared to net sales of $92.0 million in 2006. SDV accounted for 8.7% of the Company's total net sales in 2007, a decrease from 10.7% in 2006. The decrease in net sales at SDV resulted from a decrease in sales volume, partly offset by price increases that averaged 6%. Sales were down in all regions of the United States in 2007 compared to 2006. Sales to all distribution channels were down in 2007 as compared to 2006. Sales of all of Simpson Dura-Vent's product lines decreased in 2007 when compared to 2006.

Gross Profit

Simpson Dura-Vent's gross profit decreased 54.4% from $20.5 million in 2006 to $9.4 million in 2007. As a percentage of net sales, gross profit decreased to 13.1% in 2007 from 22.3% in 2006. This decrease was primarily due to higher manufacturing costs and higher fixed overhead costs as a percentage of net sales as a result of the lower sales volume.

Selling Expense

Simpson Dura-Vent's selling expense decreased 15.2% from $8.2 million in 2006 to $6.9 million in 2007 primarily due to decreased agent commissions, on lower Simpson Dura-Vent sales, of $1.0 million.

Administrative and All Other (Company)

Interest Income and Expense

Interest income is generated on the Company's cash and cash equivalents balances. Interest income increased primarily as a result of higher interest rates. Interest expense includes interest, account maintenance fees and bank charges.

Critical Accounting Policies and Estimates

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

Inventory Valuation

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