Summary of SIMPSON MANUFACTURING CO INC /CA/

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

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

The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three and six months ended June 30, 2009 and 2008. The following should be read in conjunction with the interim Condensed Consolidated Financial Statements and related Notes appearing elsewhere herein.

Results of Operations for the Three Months Ended June 30, 2009, Compared with the Three Months Ended June 30, 2008

Net sales decreased 24.3% from $219.3 million in the second quarter of 2008 to $165.9 million in the second quarter of 2009. Net income decreased 47.6% from $20.4 million in the second quarter of 2008 to $10.7 million in the second quarter of 2009. Diluted net income per common share was $0.22 in the second quarter of 2009 compared to diluted net income per common share of $0.42 in the second quarter of 2008.

In the second quarter of 2009, sales declined throughout the United States. California and the western and southeastern regions had the largest decreases in sales. Sales during the quarter also decreased throughout Europe, with the exception of France, and decreased in the United Kingdom and Canada. Sales in France were flat, primarily due to the acquisition of Agence Internationale Commerciale et Industrielle, S.A.S. ("Aginco") in April 2009. Sales in Asia, although relatively small, have increased as Simpson Strong-Tie has recently expanded its presence in the region. Simpson Strong-Tie's second quarter sales decreased 26.0% from the same quarter last year, while Simpson Dura-Vent's sales increased 1.3%. Simpson Strong-Tie's sales to dealer distributors and contractor distributors decreased significantly as homebuilding activity, and general economic conditions, remain weak. Sales to home centers decreased slightly. Sales decreased across all of Simpson Strong-Tie's major product lines, particularly those used in new home construction. Sales of Simpson Dura-Vent's Direct-Vent and gas vent product lines decreased, but the decrease was offset by increases in sales of chimney and pellet vent products, as well as an increase in sales of special gas vent and relining products resulting from the acquisition of ProTech Systems, Inc. ("ProTech") in June 2008.

Income from operations decreased 41.6% from $32.4 million in the second quarter of 2008 to $18.9 million in the second quarter of 2009. Gross margins decreased from 38.2% in the second quarter of 2008 to 36.9% in the second quarter of 2009. The decrease in gross margins was primarily due to reduced absorption of fixed overhead, as a result of lower production volumes, as well as higher manufacturing costs, including higher costs of material and labor. The decline in steel prices slowed in the second quarter of 2009. The Company expects steel prices to increase as demand returns to the market. Through the first half of 2009, the Company had focused on reducing inventories, which decreased by 24.5%.

Research and development expense decreased 8.0% from $5.6 million in the second quarter of 2008 to $5.2 million in the second quarter of 2009. This decrease was primarily due to a $0.3 million decrease in personnel-related expenses. Selling expense decreased 23.9% from $22.1 million in the second quarter of 2008 to $16.9 million in the second quarter of 2009. The decrease resulted primarily from a $3.1 million decrease in expenses associated with sales and marketing personnel, most of which was related to cost-cutting measures, and a $1.8 million decrease in promotional expenditures. General and administrative expense decreased 14.5% from $23.8 million in the second quarter of 2008 to $20.3 million in the second quarter of 2009. The decrease was the result of several factors, including a $3.0 million decrease in cash profit sharing, a $0.8 million decrease in administrative personnel expenses, related in part to cost-cutting measures, and a $0.7 million decrease in legal and professional service expenses. These decreases were partly offset by a $0.9 million increase in amortization of intangible assets, primarily related to the businesses acquired since June 2008. The Company had interest expense in excess of interest income, primarily related to maintenance fees on its line of credit, in the second quarter of 2009, as compared to interest income in the second quarter of 2008. Interest income decreased primarily due to lower interest rates. The effective tax rate was 43.3% in the second quarter of 2009, up from 38.0% in the second quarter of 2008. The effective tax rate is higher than the statutory rate primarily due to the valuation allowances taken on foreign losses and a reduced

benefit from the reduction or loss of enterprise zone tax credits at two of the Company's facilities in California. In general, the Company is required to use an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in an interim period. The income tax expense for the three months ended June 30, 2009, however, has been computed based on the three months ended June 30, 2009, as a discrete period due to the uncertainty regarding the Company's ability to reliably estimate pre-tax income for the remainder of the year. The Company cannot reliably estimate pre-tax income for the remainder of 2009 or for the full year, primarily due to the continued uncertainty in the construction markets in which the Company operates. The income tax provision for the three months ended June 30, 2008, was calculated using estimated annual effective tax rates.

Connector Products - Simpson Strong-Tie

Simpson Strong-Tie's net sales decreased 26.0% from $205.7 million in the second quarter of 2008 to $152.2 million in the second quarter of 2009. Simpson Strong-Tie accounted for 91.7% of the Company's total net sales in the second quarter of 2009, down from 93.8% in the second quarter of 2008. The decrease in net sales at Simpson Strong-Tie resulted primarily from a decrease in sales volume, some of which was offset by increases from newly acquired businesses, although average prices increased 18.0% as compared to the second quarter of 2008. In the second quarter of 2009, Simpson Strong-Tie's sales declined throughout the United States. California and the western and the southeastern regions had the largest decrease in sales. Simpson Strong-Tie's sales during the quarter also decreased throughout Europe, with the exception of France, and decreased in the United Kingdom and Canada. Sales in France were flat, primarily due to the acquisition of Aginco in April 2009. Sales in Asia, although relatively small, have increased as Simpson Strong-Tie has recently expanded its presence in the region. Simpson Strong-Tie's sales to dealer distributors and contractor distributors decreased significantly as homebuilding activity, and general economic conditions, remain weak. Sales decreased across all of Simpson Strong-Tie's major product lines, particularly those used in new home construction.

Simpson Strong-Tie's income from operations decreased 43.3% from $36.4 million in the second quarter of 2008 to $20.6 million in the second quarter of 2009. Gross margin decreased from 41.0% in the second quarter of 2008 to 38.8% in the second quarter of 2009. This decrease was primarily due to reduced absorption of fixed overhead, as a result of lower production volumes, as well as higher manufacturing costs, including higher costs of material and labor.

Simpson Strong-Tie's research and development expense decreased 9.5% from $5.4 million in the second quarter of 2008 to $4.9 million in the second quarter of 2009. This decrease was primarily due to a $0.3 million decrease in expenses related to personnel. Simpson Strong-Tie's selling expense decreased 25.4% from $20.7 million in the second quarter of 2008 to $15.4 million in the second quarter of 2009. The decrease resulted primarily from a $3.0 million decrease in expenses associated with sales and marketing personnel, most of which was related to cost-cutting measures, and a $1.9 million decrease in promotional expenditures. Simpson Strong-Tie's general and administrative expense decreased 17.9% from $21.9 million in the second quarter of 2008 to $18.0 million in the second quarter of 2009. The decrease was primarily due to a $2.2 million decrease in cash profit sharing, a $1.3 million decrease in administrative personnel expenses, a $0.5 million decrease in information technology expenditures and a $0.4 million decrease in home office administrative allocations. The decrease was partly offset by an increase of $0.7 million in amortization of intangible assets, primarily related to the businesses acquired since June 2008.

For its European operations, Simpson Strong-Tie recorded losses from operations of $1.4 million in the second quarter of 2009 compared to income from operations of $2.6 million in the second quarter of 2008.

Simpson Strong-Tie has continued to adjust production levels downward at various facilities in the United States, and as a result, has reduced its labor force at these facilities.

Venting Products - Simpson Dura-Vent

Simpson Dura-Vent's net sales increased 1.3% to $13.7 million in the second quarter of 2009 from $13.5 million in the second quarter of 2008. Simpson Dura-Vent accounted for 8.3% of the Company's total net sales in the second quarter of 2009, an increase from 6.2% in the second quarter of 2008. The increase in net sales at Simpson Dura-Vent resulted primarily from average price increases of 6.9% as compared to the second quarter of 2008, offset by a decrease in sales volume even with the increase from ProTech. In the second quarter of 2009, Simpson Dura-Vent's sales increased primarily in the southeast and northeast, but those increases were largely

offset by decreases elsewhere, primarily in California, resulting from the weakness in new home construction. Sales were mixed across Simpson Dura-Vent's product lines, with sales increases of chimney, pellet vent, special gas vent and relining products offset by decreases in gas vent and Direct-Vent products. The increase in special gas vent and relining products was a result of the acquisition of ProTech in June 2008.

Simpson Dura-Vent's loss from operations decreased from $2.8 million in the second quarter of 2008 to $1.0 million in the second quarter of 2009. Simpson Dura-Vent's gross profit increased to $2.2 million in the second quarter of 2009 from a loss of $0.2 million in the second quarter of 2008. This increase was primarily due to lower fixed overhead, labor and shipping costs, offset slightly by higher costs of material.

Simpson Dura-Vent's general and administrative expense increased 48.1% to $1.5 million in the second quarter of 2009 from $1.0 million in the second quarter of 2008. This increase was primarily due to a $0.1 million increase in expenses associated with administrative personnel, including those at businesses acquired in 2008, and a $0.3 million increase in intangible asset amortization expense.

Administrative and All Other (Company)

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

Results of Operations for the Six Months Ended June 30, 2009, Compared with the Six Months Ended June 30, 2008

Net sales decreased 26.3% from $386.9 million in the first half of 2008 to $285.2 million in the first half of 2009. Net income decreased 92.1% from $28.7 million in the first half of 2008 to $2.3 million in the first half of 2009. Diluted net income per common share was $0.05 in the first half of 2009 compared to diluted net income per common share of $0.59 in the first half of 2008.

In the first half of 2009, sales declined throughout the United States. California and the western and southeastern regions had the largest decreases in sales. Sales during the period also decreased throughout Europe, the United Kingdom and Canada. Simpson Strong-Tie's first half sales decreased 27.4% from the same period last year, while Simpson Dura-Vent's sales decreased 11.6%. Simpson Strong-Tie's sales to dealer distributors and contractor distributors decreased significantly as a result of the weakness in the U.S. housing market. Sales to home centers decreased slightly. Sales decreased across all of Simpson Strong-Tie's major product lines, particularly those used in new home construction. Sales of Simpson Dura-Vent's Direct-Vent and gas vent product lines decreased, but the decrease was partly offset by an increase in sales of pellet vent products, as well as an increase in sales of special gas vent and relining products resulting from the acquisition of ProTech in June 2008.

Income from operations decreased 81.3% from $45.8 million in the first half of 2008 to $8.6 million in the first half of 2009. Gross margins decreased from 36.2% in the first half of 2008 to 32.2% in the first half of 2009. The decrease in gross margins was primarily due to reduced absorption of fixed overhead, as a result of lower production volumes, as well as higher manufacturing costs, including higher costs of material and labor.

Research and development expense decreased 6.4% from $10.7 million in the first half of 2008 to $10.0 million in the first half of 2009. This decrease was primarily due to a $0.4 million decrease in professional service fees and a $0.1 million decrease in personnel-related expenses. Selling expense decreased 21.6% from $41.9 million in the first half of 2008 to $32.9 million in the first half of 2009. The decrease resulted primarily from a $5.1 million decrease in expenses associated with sales and marketing personnel, most of which was related to cost-cutting measures, and a $2.8 million decrease in promotional expenditures. General and administrative expense decreased 2.8% from $41.6 million in the first half of 2008 to $40.5 million in the first half of 2009. The decrease resulted from a $4.5 million decrease in cash profit sharing, partly offset by a $2.2 million increase in bad debt charges in the first quarter of 2009 and a $1.0 million increase in amortization of intangible assets, primarily related to the businesses acquired since June 2008. Interest income decreased 96.1% from $1.6 million in the first half of 2008 to $0.1 million in the first half of 2009, primarily due to lower interest rates and maintenance fees on the Company's line of credit. The effective tax rate was 73.0% in the first half of 2009, up from 39.5% in the first half of 2008. The effective tax rate is higher than the statutory rate primarily due to the valuation allowances taken on foreign losses and a reduced benefit from the reduction or loss of enterprise zone tax credits at two of the Company's facilities in California. The income tax expense for the first half of 2009, however, has been computed based on the first and second quarters of 2009 as discrete periods due to the uncertainty regarding the Company's ability to reliably estimate pre-tax income for the

remainder of the year. The effective tax rate was 19.4% in the first quarter of 2009, which, as a result of the loss before taxes in the first quarter of 2009, resulted in income tax benefit of $2.0 million. The effective tax rate was 43.3% in the second quarter of 2009 which resulted in income tax expense of $8.2 million. The Company cannot reliably estimate pre-tax income for the remainder of 2009 or for the full year, primarily due to the continued uncertainty in the construction markets in which the Company operates. The income tax provision for the six months ended June 30, 2008, was calculated using estimated annual effective tax rates.

Connector Products - Simpson Strong-Tie

Simpson Strong-Tie's net sales decreased 27.4% from $359.9 million in the first half of 2008 to $261.3 million in the first half of 2009. Simpson Strong-Tie accounted for 91.6% of the Company's total net sales in the first half of 2009, a decrease from 93.0% in the first half of 2008. The decrease in net sales at Simpson Strong-Tie resulted primarily from a decrease in sales volume, partly offset by increases from newly acquired businesses and increases in prices averaging 19.6% from the first half of 2008. In the first half of 2009, Simpson Strong-Tie's sales declined throughout the United States. California, the western states and the southeastern states had the largest decrease in sales. Simpson Strong-Tie's sales during the first half of 2009 also decreased throughout Europe, the United Kingdom and Canada. Sales in Asia, although relatively small, have increased as Simpson Strong-Tie has recently expanded its presence in the region. Simpson Strong-Tie's sales to dealer distributors and contractor distributors decreased significantly as a result of the weakness in the U.S. housing market. Sales decreased across all of Simpson Strong-Tie's major product lines, particularly those used in new home construction.

Simpson Strong-Tie's income from operations decreased 74.4% from $52.9 million in the first half of 2008 to $13.6 million in the first half of 2009. Gross margin decreased from 39.0% in the first half of 2008 to 34.3% in the first half of 2009. This decrease was primarily due to reduced absorption of fixed overhead, as a result of lower production volumes, as well as slightly higher manufacturing costs, including higher costs of material, labor and distribution.

Simpson Strong-Tie's research and development expense decreased 8.2% from $10.2 million in the first half of 2008 to $9.4 million in the first half of 2009. This decrease was primarily due to a $0.5 million decrease in professional services and a $0.2 million decrease in personnel-related expenses. Simpson Strong-Tie's selling expense decreased 22.4% from $38.8 million in the first half of 2008 to $30.1 million in the first half of 2009. The decrease resulted primarily from a $4.9 million decrease in expenses associated with sales and marketing personnel, most of which was related to cost-cutting measures, a $2.8 million decrease in promotional expenditures and a $0.4 million decrease in professional services. Simpson Strong-Tie's general and administrative expense decreased 4.7% from $38.4 million in the first half of 2008 to $36.6 million in the first half of 2009. The decrease was primarily due to a $3.7 million decrease in cash profit sharing that resulted from lower operating income, a $0.9 million decrease in administrative personnel expenses, and a $0.7 million decrease in information technology expenditures, which were partly offset by a $2.2 million increase in the provision for bad debt, primarily related to one customer, and a $0.9 million increase in home office administrative allocations.

For its European operations, Simpson Strong-Tie recorded losses from operations of $5.6 million in the first half of 2009 compared to income from operations of $1.6 million in the first half of 2008.

Simpson Strong-Tie has continued to adjust production levels downward at various facilities in the United States and, as a result, has reduced its labor force at these facilities.

Venting Products - Simpson Dura-Vent

Simpson Dura-Vent's net sales decreased 11.6% from $27.0 million in the first half of 2008 to $23.9 million in the first half of 2009. Simpson Dura-Vent accounted for 8.4% of the Company's total net sales in the first half of 2009, an increase from 7.0% in the first half of 2008. The decrease in net sales at Simpson Dura-Vent resulted primarily from a decrease in sales volume, partly offset by the addition of ProTech sales and increases in prices averaging 8.1% from the first half of 2008. In the first half of 2009, Simpson Dura-Vent's sales decreased throughout the United States, with the largest decreases in California and the western region, resulting from the weakness in new home construction. These decreases were offset slightly by increases in the southeastern and northeastern regions. Sales of Simpson Dura-Vent's Direct-Vent and gas vent product lines decreased, while sales of its pellet vent products increased, as did sales of its special gas vent and relining products resulting from the acquisition of ProTech in June 2008.

Simpson Dura-Vent's loss from operations decreased from $5.6 million in the first half of 2008 to $4.3 million in the first half of 2009. Simpson Dura-Vent's gross profit increased to $2.3 million in the first half of 2009 from a loss of $55 thousand in the first half of 2008. This increase was primarily due to lower fixed overhead and labor costs, offset slightly by higher material costs.

Simpson Dura-Vent's research and development expense increased 33.8% to $0.7 million in the first half of 2009 from $0.5 million in the first half of 2008, which resulted primarily from an increase of $0.1 million in professional service expenses and a $0.1 million increase in personnel costs. Simpson Dura-Vent's selling expense decreased 10.9% from $3.1 million in the first half of 2008 to $2.8 million in the first half of 2009. This decrease resulted primarily from a $0.2 million decrease in agent commissions and a $0.1 million decrease in expenses associated with sales and marketing personnel. Simpson Dura-Vent's general and administrative expense increased 58.2% to $3.1 million in the first half of 2009 from $2.0 million in the first half of 2008. This increase was primarily due to a $0.3 million increase in expenses associated with administrative personnel, including those at businesses acquired in 2008, and a $0.4 million increase in intangible asset amortization expense.

Administrative and All Other (Company)

Interest income is generated on the Company's cash and cash equivalents balances. In the first half of 2009, interest income decreased primarily as a result of lower interest rates and was nearly offset by interest expense, which includes interest, account maintenance fees and bank charges.

Critical Accounting Policies and Estimates

The Company did not make any significant changes to its critical accounting policies and estimates during the three or six months ended June 30, 2009, from those disclosed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. See Note 1, "Basis of Presentation - Recently Issued Accounting Standards," to the Company's Condensed Consolidated Financial Statements regarding recently issued accounting standards.

Liquidity and Sources of Capital

As of June 30, 2009, working capital was $438.4 million as compared to $448.7 million at June 30, 2008, and $455.7 million at December 31, 2008. The decrease in working capital from December 31, 2008, was primarily due to a $61.7 million decrease in inventories, a $1.6 million decrease in cash and cash equivalents, a $2.2 million increase in accrued cash profit sharing and commissions and a $1.4 million increase in income taxes payable. Raw material inventories decreased 33.0% from December 31, 2008, while in-progress and finished goods inventories decreased 19.5% over the same period. The decrease in raw material inventories resulted from lower purchasing activity during the quarter, and the decreases in in-progress and finished goods inventories resulted from higher sales and lower production volumes at the Company's manufacturing facilities. Partly offsetting the decreases in working capital were a $42.6 million increase in net trade accounts receivable, a $2.1 million increase in other current assets, and a $5.8 million decrease in accrued profit sharing contributions. Net trade accounts receivable increased 56.1% from December 31, 2008, as a result of increased sales in the latter part of the second quarter of 2009 compared to the latter part of the fourth quarter of 2008. The balance of the change in working capital was due to the fluctuation of various other asset and liability accounts, none of which was individually material. The working capital change and changes in noncurrent assets and liabilities, combined with net income of $2.3 million and noncash expenses, primarily depreciation, amortization and stock-based compensation charges totaling $15.6 million, resulted in net cash provided by operating activities of $38.2 million. As of June 30, 2009, the Company had unused credit facilities available of $205.9 million.

In January 2009, the Company acquired the business of RO Design Corp, a Florida corporation doing business as DeckTools, which licenses deck design and estimation software. The software provides professional deck builders, home centers and lumber yards a simple, graphics-driven solution for designing decks and estimating material and labor costs for the project. Payments under this agreement total $4.0 million in cash, including $2.5 million to be paid in the future, which will be treated as compensation expense to the principal officer of RO Design Corp, who is now employed by the Company. The Company recorded goodwill of $0.4 million and intangible assets subject to amortization of $1.1 million in the connector products segment as a result of the acquisition, but the purchase price allocation has not been finalized.

In April 2009, the Company's subsidiary, Simpson Strong-Tie Europe EURL, purchased the equity of Aginco, which manufactures a line of high-quality builder products and distributes them in France. The purchase price (subject to post-closing adjustments) was $21.9 million in cash. The Company recorded goodwill of $12.1 million and intangible assets subject to amortization of $7.4 million in the connector products segment as a result of the acquisition. Net tangible assets, including machinery and equipment, inventory and trade accounts receivable, accounted for the balance of the purchase price, but the purchase price allocation has not been finalized.

The Company used $32.6 million in its investing activities, primarily for the acquisitions of the RO Design Corp and Aginco businesses and capital expenditures mainly at its facilities in Europe and Asia. The Company estimates that its full-year capital spending will total $16.0 million in 2009.

The Company has classified its vacant facility in San Leandro, California, as an asset held for sale. In 2007 and 2008, environmental analyses of the San Leandro property indicated that it had contamination related to spilled fuel that would require an estimated $0.7 million to remediate. The clean-up is expected to be completed in 2009. The Company expects to sell the San Leandro property after the remediation is completed.

The Company's financing activities used net cash of $8.7 million. The payment of cash dividends in the amount of $9.8 million was the primary financing activity use of cash. Cash provided by financing activities was primarily from the issuance of the Company's common stock through the exercise of stock options totaling $1.1 million. In July 2009, the Company's Board of Directors declared a cash dividend of $0.10 per share, a total currently estimated at $4.9 million, to be paid on October 22, 2009, to stockholders of record on October 1, 2009.

The Company believes that cash generated by operations and borrowings available . . .