The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated financial condition and results of operations. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto included in this report.

We design, manufacture and sell building construction products that are of high quality and performance, easy to use and cost-effective for customers. We operate in three business segments determined by geographic region: North America, Europe and Asia/Pacific.

On April 1, 2022, the Company successfully completed the acquisition of ETANCO, a manufacturer of fixing and fastener products headquartered in France, for $805.4 million (730 million euros(1)) net of cash.

We also highlighted our five-year ambitions during the March 2021 analyst and investor day, which are as follows:

We have executed on several key milestones since we first announced our key strategic initiatives back in 2021. Here are a few examples:

Factors Affecting Our Results of Operations

foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules.

Our Asia/Pacific segment has generated revenues from both wood and concrete construction products. We believe that the Asia/Pacific segment is not significant to our overall performance.

•The effective tax rate is expected to be in the range of 25.5% to 26.5%.

•Capital expenditures are expected to be in the range of $80.0 million to $90.0 million including amounts attributable to ETANCO and expansion of the Ohio facility.

(1) Reflects EUR to USD exchange rate as of April 1, 2022.

Results of Operations for the Three Months Ended June 30, 2022, Compared with the Three Months Ended June 30, 2021

Second Quarter 2022 Consolidated Financial Highlights

The following table shows the change in the Company's operations from the three months ended June 30, 2021 to the three months ended June 30, 2022, and the increases or decreases for each category by segment:

Research and development and engineering expense increased 19.6% to $16.9 million from $14.2 million, primarily due to increases of $2.4 million in personnel costs and $0.4 million in material and supplies consumption.

Our effective income tax rate decreased to 26.8% from 26.9%.

The following table shows net sales by segment for the three months ended June 30, 2022 and 2021, respectively:

The following table shows segment net sales as percentages of total net sales for the three months ended June 30, 2022 and 2021, respectively:

Percentage of total 2021 net sales 85 % 14 % 1 %

The following table shows gross profit by segment for the three months ended June 30, 2022 and 2021, respectively:

* The statistic is not meaningful or material.

The following table shows gross margin by segment for the three months ended June 30, 2022 and 2021, respectively:

* The statistic is not meaningful or material.

•Net sales increased 30.2%, primarily due to product price increases throughout 2021 in an effort to offset rising raw material costs on relatively flat volumes.

•General and administrative expense increased 1.6%, primarily due to $1.1 million in personnel costs offset by $0.5 million for cash profit sharing expense.

•Gross margin decreased to 29.3% from 36.0%. Europe gross profit of $39.0 million included $19.2 million from the acquisition of ETANCO, which is net of $9.2 million in fair-value adjustments for inventory costs as a result of purchase accounting, most of which is a non-recurring charge. The Company expects there will be an additional nominal amount recognized in the third quarter of 2022 for a fiscal year total of $10.5 million in fair value adjustments.

Results of Operations for the Six Months Ended June 30, 2022, Compared with the Six Months Ended June 30, 2021

Year-to-Date (6-month) 2022 Consolidated Financial Highlights

Research and development and engineering expense increased 14.1% to $32.8 million from $28.8 million primarily due to increases of $3.9 million in personnel costs, $0.4 million in material and supplies consumption, and $0.2 million in professional fees.

Our effective income tax rate decreased to 25.3% from 25.8%.

Consolidated net income was $188.1 million compared to $122.9 million. Diluted earnings per share was $4.34 compared to $2.82.

The following table represents net sales by segment for the six-month periods ended June 30, 2021 and 2022:

The following table represents segment sales as percentages of total net sales for the six-month periods ended June 30, 2021 and 2022, respectively:

Percentage of total 2020 net sales 86 % 13 % 1 %

The following table represents gross profit by segment for the six-month periods ended June 30, 2021 and 2022:

* The statistic is not meaningful or material

The following table represents gross margin by segment for the six-month periods ended June 30, 2021 and 2022:

* The statistic is not meaningful or material.

•Income from operations increased $102.2 million, mostly due to increased sales and gross profit, partly offset by higher operating expenses.

Effect of New Accounting Standards

See "Note 1 Basis of Presentation - Accounting Standards Not Yet Adopted " to the accompanying unaudited interim condensed consolidated financial statements.

Liquidity and Sources of Capital

We have historically met our capital needs through a combination of cash flows from operating activities and, when necessary borrowings under our credit agreements.

The following table shows selected financial information as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively:

Working capital less cash and cash

The following table provides cash flow indicators for the six-month periods ended June 30, 2022 and 2021, respectively:

On July 27, 2022, the Company's Board of Directors (the "Board") declared a quarterly cash dividend of $0.26 per share payable on October 27, 2022, to the Company's stockholders of record on October 6, 2022.

We did not have any off-balance sheet arrangements as of June 30, 2022.

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