SEC Filing - UFP Industries, Inc.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0‑22684

UNIVERSAL FOREST PRODUCTS, INC.

(Exact name of registrant as specified in its charter)


	Michigan		38‑1465835
	(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification Number)
	organization)

	2801 East Beltline NE, Grand Rapids, Michigan		49525
	(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (616) 364‑6161


	NONE
	(Former name or former address, if changed since last report.)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b‑2 of the Exchange Act.


Large Accelerated Filer ☒	Accelerated Filer ☐	Non-Accelerated Filer ☐	Smaller reporting company ☐
			Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with an new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


	Class		Outstanding as of July 1, 2017
	Common stock, no par value		20,421,775

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UNIVERSAL FOREST PRODUCTS, INC.

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION.	Page No.

	Item 1.	Financial Statements

		Consolidated Condensed Balance Sheets at July 1, 2017, December 31, 2016 and June 25, 2016	3

		Consolidated Condensed Statements of Earnings and Comprehensive Income for the Three Months Ended and Six Months Ended July 1, 2017 and June 25, 2016	4

		Consolidated Condensed Statements of Shareholders’ Equity for the Six Months Ended July 1, 2017 and June 25, 2016	5

		Consolidated Condensed Statements of Cash Flows for the Six Months Ended July 1, 2017 and June 25, 2016	6

		Notes to Unaudited Consolidated Condensed Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

	Item 4.	Controls and Procedures	28

PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings – NONE

	Item 1A.	Risk Factors – NONE	29

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

	Item 3.	Defaults upon Senior Securities – NONE

	Item 4.	Mine Safety Disclosures – NONE

	Item 5.	Other Information – NONE	29

	Item 6.	Exhibits	30

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UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)


(in thousands, except share data)
	July 1,		December 31,		June 25,
	2017		2016		2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	24,625	$	34,091	$	87,517
Restricted cash		905		398		909
Investments		10,401		10,348		9,740
Accounts receivable, net		398,529		282,253		318,505
Inventories:
Raw materials		218,356		198,954		165,857
Finished goods		220,079		198,273		131,939
Total inventories		438,435		397,227		297,796
Refundable income taxes		—		11,459		—
Other current assets		21,970		20,662		15,238
TOTAL CURRENT ASSETS		894,865		756,438		729,705
DEFERRED INCOME TAXES		1,981		1,546		2,541
RESTRICTED INVESTMENTS		7,911		—		—
OTHER ASSETS		7,842		8,617		7,470
GOODWILL		213,597		198,535		181,381
INDEFINITE-LIVED INTANGIBLE ASSETS		2,340		2,340		2,340
OTHER INTANGIBLE ASSETS, NET		37,547		26,731		14,170
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment		735,474		699,462		649,652
Less accumulated depreciation and amortization		(419,518)		(401,611)		(392,753)
PROPERTY, PLANT AND EQUIPMENT, NET		315,956		297,851		256,899
TOTAL ASSETS		1,482,039		1,292,058		1,194,506
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Cash overdraft	$	22,769	$	19,761	$	—
Accounts payable		160,250		124,660		126,095
Accrued liabilities:
Compensation and benefits		77,187		92,441		74,919
Income taxes		960		—		1,755
Other		48,063		32,281		35,321
Current portion of long-term debt		2,378		2,634		1,093
TOTAL CURRENT LIABILITIES		311,607		271,777		239,183
LONG-TERM DEBT		204,752		109,059		84,530
DEFERRED INCOME TAXES		20,360		20,817		25,092
OTHER LIABILITIES		28,959		29,939		26,066
TOTAL LIABILITIES		565,678		431,592		374,871
SHAREHOLDERS’ EQUITY:
Controlling interest shareholders’ equity:
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none	$	—	$	—	$	—
Common stock, no par value; shares authorized 80,000,000; issued and outstanding, 20,421,775, 20,342,069 and 20,307,463		20,422		20,342		20,307
Additional paid-in capital		199,092		185,333		182,710
Retained earnings		684,808		649,135		609,718
Accumulated other comprehensive income		(2,590)		(5,630)		(4,149)
Total controlling interest shareholders’ equity		901,732		849,180		808,586
Noncontrolling interest		14,629		11,286		11,049
TOTAL SHAREHOLDERS’ EQUITY		916,361		860,466		819,635
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,482,039	$	1,292,058	$	1,194,506

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(Unaudited)


(in thousands, except per share data)
	Three Months Ended				Six Months Ended
	July 1,		June 25,		July 1,		June 25,
	2017		2016		2017		2016
NET SALES	$	1,072,375	$	872,093	$	1,918,505	$	1,554,244
COST OF GOODS SOLD		924,135		740,606		1,649,526		1,320,018
GROSS PROFIT		148,240		131,487		268,979		234,226
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		94,341		77,822		181,259		148,651
EARNINGS FROM OPERATIONS		53,899		53,665		87,720		85,575
INTEREST EXPENSE		1,840		1,103		3,343		2,179
INTEREST INCOME		(329)		(208)		(411)		(312)
EQUITY IN EARNINGS OF INVESTEE		(21)		(110)		(26)		(192)
		1,490		785		2,906		1,675
EARNINGS BEFORE INCOME TAXES		52,409		52,880		84,814		83,900
INCOME TAXES		17,835		18,643		28,605		29,407
NET EARNINGS		34,574		34,237		56,209		54,493
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(932)		(839)		(1,505)		(1,882)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST	$	33,642	$	33,398	$	54,704	$	52,611

EARNINGS PER SHARE - BASIC	$	1.64	$	1.64	$	2.67	$	2.59
EARNINGS PER SHARE - DILUTED	$	1.64	$	1.64	$	2.66	$	2.58

OTHER COMPREHENSIVE INCOME:
NET EARNINGS		34,574		34,237		56,209		54,493
OTHER COMPREHENSIVE GAIN (LOSS)		1,387		(807)		4,422		(365)
COMPREHENSIVE INCOME		35,961		33,430		60,631		54,128
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(1,460)		(235)		(2,887)		(1,081)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	34,501	$	33,195	$	57,744	$	53,047

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


(in thousands, except share and per share data)
	Controlling Interest Shareholders’ Equity
							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Earnings		Interest		Total
Balance at December 26, 2015	$	20,142	$	171,562	$	565,636	$	(4,585)	$	13,654	$	766,409
Net earnings						52,611				1,882		54,493
Foreign currency translation adjustment								250		(801)		(551)
Unrealized gain (loss) on investment & foreign currency								186				186
Distributions to noncontrolling interest										(1,731)		(1,731)
Purchases of noncontrolling interest				855						(1,955)		(1,100)
Cash dividends $0.420 per share						(8,529)						(8,529)
Issuance of 3,708 shares under employee stock plans		3		287								290
Issuance of 114,132 shares under stock grant programs		114		5,134								5,248
Issuance of 47,914 shares under deferred compensation plans		48		(48)								—
Expense associated with share-based compensation arrangements				977								977
Accrued expense under deferred compensation plans				3,943								3,943
Balance at June 25, 2016	$	20,307	$	182,710	$	609,718	$	(4,149)	$	11,049	$	819,635
Balance at December 31, 2016		20,342		185,333		649,135		(5,630)		11,286		860,466
Net earnings						54,704				1,505		56,209
Foreign currency translation adjustment								2,817		1,382		4,199
Unrealized gain (loss) on investment & foreign currency								223				223
Distributions to noncontrolling interest										(1,953)		(1,953)
Additional purchases of noncontrolling interest										2,409		2,409
Cash dividends - $0.450 per share						(9,208)						(9,208)
Issuance of 4,233 shares under employee stock plans		5		327								332
Issuance of 142,145 shares under stock grant programs		142		7,068								7,210
Issuance of 44,208 shares under deferred compensation plans		44		(44)								—
Repurchase of 110,880 shares		(111)				(9,823)						(9,934)
Expense associated with share-based compensation arrangements				1,282								1,282
Accrued expense under deferred compensation plans				5,126								5,126
Balance at July 1, 2017	$	20,422	$	199,092	$	684,808	$	(2,590)	$	14,629	$	916,361

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


(in thousands)	Six Months Ended
	July 1,		June 25,
	2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	56,209	$	54,493
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		23,248		19,178
Amortization of intangibles		2,377		1,285
Expense associated with share-based compensation arrangements		1,282		977
Expense associated with stock grant plans		99		70
Deferred income taxes		355		55
Equity in earnings of investee		(26)		(192)
Net loss on disposition and impairment of assets		(328)		50
Changes in:
Accounts receivable		(101,239)		(95,198)
Inventories		(26,979)		7,564
Accounts payable and cash overdraft		38,146		31,320
Accrued liabilities and other		22,067		20,439
NET CASH FROM OPERATING ACTIVITIES		15,211		40,041
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(34,549)		(24,269)
Proceeds from sale of property, plant and equipment		1,039		309
Acquisitions, net of cash received		(59,658)		(1,682)
Purchase of remaining noncontrolling interest, net of cash received		—		(1,100)
Cash contributed from noncontrolling interest		464		—
Advances of notes receivable		(228)		(2,946)
Collections on notes receivable		1,041		3,731
Purchases of investments		(15,118)		(3,571)
Proceeds from sale of investments		7,247		901
Other		(125)		(736)
NET CASH USED IN INVESTING ACTIVITIES		(99,887)		(29,363)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities		444,601		3,162
Repayments under revolving credit facilities		(349,311)		(3,210)
Proceeds from issuance of common stock		331		290
Dividends paid to shareholders		(9,207)		(8,529)
Distributions to noncontrolling interest		(1,953)		(1,731)
Repurchase of common stock		(9,934)		—
Other		(6)		(15)
NET CASH FROM (USED IN) FINANCING ACTIVITIES		74,521		(10,033)
Effect of exchange rate changes on cash		1,196		(561)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(8,959)		84
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR		34,489		88,342
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	25,530	$	88,426

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents, beginning of period	$	34,091	$	87,756
Restricted cash, beginning of period		398		586
Cash, cash equivalents, and restricted cash, beginning of period	$	34,489	$	88,342

Cash and cash equivalents, end of period	$	24,625	$	87,517
Restricted cash, end of period		905		909
Cash, cash equivalents, and restricted cash, end of period	$	25,530	$	88,426

SUPPLEMENTAL INFORMATION:
Interest paid	$	3,049	$	2,220
Income taxes paid		15,895		19,789
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans		4,231		3,375

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

NOTES TO UNAUDITED

CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

A. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated condensed financial statements (the “Financial Statements”) include our accounts and those of our wholly-owned and majority-owned subsidiaries and partnerships, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the Financial Statements do not include all of the information and footnotes normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. All intercompany transactions and balances have been eliminated.

In our opinion, the Financial Statements contain all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. These Financial Statements should be read in conjunction with the annual consolidated financial statements, and footnotes thereto, included in our Annual Report to Shareholders on Form 10‑K for the fiscal year ended December 31, 2016.

Seasonality has a significant impact on our working capital from March to August which historically results in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which typically results in significant cash flow from operations in our third and fourth quarters. For comparative purposes, we have included the June 25, 2016 balances in the accompanying unaudited consolidated condensed balance sheets.

B. FAIR VALUE

We apply the provisions of ASC 820, Fair Value Measurements and Disclosures, to assets and liabilities measured at fair value. Assets measured at fair value are as follows:


	July 1, 2017						June 25, 2016
	Quoted		Prices with				Quoted		Prices with
	Prices in		Other				Prices in		Other
	Active		Observable				Active		Observable
	Markets		Inputs				Markets		Inputs
(in thousands)	(Level 1)		(Level 2)		Total		(Level 1)		(Level 2)		Total
Money market funds	$	64	$	891	$	955	$	65	$	506	$	571
Fixed income funds		1,495		6,451		7,946		1,935		2,383		4,318
Equity securities		9,822		—		9,822		4,944		—		4,944
Mutual funds:
Domestic stock funds		330		—		330		756		—		756
International stock funds		84		—		84		69		—		69
Target funds		254		—		254		231		—		231
Bond funds		206		—		206		199		—		199
Total mutual funds		874		—		874		1,255		—		1,255
Assets at fair value	$	12,255	$	7,342	$	19,597	$	8,199	$	2,889	$	11,088

We maintain money market, mutual funds, bonds, and/or stocks in our non-qualified deferred compensation plan and our wholly owned licensed captive insurance company. These funds are valued at prices quoted in an active exchange market and are included in “Cash and Cash Equivalents”, “Investments”, “Restricted Cash”, and

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UNIVERSAL FOREST PRODUCTS, INC.

“Restricted Investments”. We have elected not to apply the fair value option under ASC 825, Financial Instruments, to any of our financial instruments except for those expressly required by U.S. GAAP.

We did not maintain any Level 3 assets or liabilities at July 1, 2017 or June 25, 2016.

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-18, “Statement of Cash Flows (Topic 230)” (ASU 2016-18). Under ASU 2016-18, an entity will be required to explain changes in the statement of cash flows during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update should be applied using retrospective transition method to each period presented. Companies are required to adopt the new standard for fiscal years beginning after December 15, 2017. Early adoption of ASU 2016-18 is permitted, including adoption in an interim period. The Company has early adopted this standard during the first quarter of 2017.

In the first six months of 2017, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”) transferred $4.1 million in fixed income securities from its Investment Account and purchased an additional $3.8 million in fixed income securities which are held in a newly formed collateral trust account in line with regulatory requirements in the State of Michigan to allow Ardellis to act as an admitted carrier in the State. These funds are intended to safeguard the insureds of the Michigan Branch of Ardellis. The funds are classified as “Restricted Investments”.

In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”), maintains an investment portfolio, totaling $17.8 million as of July 1, 2017, consisting of domestic and international stocks, and fixed income bonds.

Ardellis’ available for sale investment portfolio, including funds held with the State of Michigan, consists of the following:


			Unrealized
	Cost		Gain/(Loss)		Fair Value
Fixed Income	$	7,939	$	8	$