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Table of Contents

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 September 28, 2019

OR

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 every Interactive Data File required to be submitted 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 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 a 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 September 28, 2019

Common stock, $1 par value

61,390,216

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange On Which Registered

Common Stock, no par value

UFPI

The Nasdaq Stock Market, LLC

Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION.

Page No.

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets at September 28, 2019, December 29, 2018 and September 29, 2018

3

Condensed Consolidated Statements of Earnings and Comprehensive Income for the Three and Nine Months Ended September 28, 2019 and September 29, 2018

4

Condensed Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 28, 2019 and September 29, 2018

5

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 28, 2019 and September 29, 2018

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings – NONE

Item 1A.

Risk Factors 

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults upon Senior Securities – NONE

Item 4.

Mine Safety Disclosures – NONE

Item 5.

Other Information – NONE

34

Item 6.

Exhibits

35

2

Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

September 28,

December 29,

September 29,

    

2019

    

2018

    

2018

ASSETS

  

  

CURRENT ASSETS:

  

  

Cash and cash equivalents

$

64,498

    

$

27,316

  

$

26,327

Restricted cash

 

729

 

882

  

 

1,024

Investments

 

17,028

 

14,755

  

 

15,809

Accounts receivable, net

 

474,648

 

343,450

  

 

454,935

Inventories:

  

  

Raw materials

 

239,585

 

271,871

  

 

257,983

Finished goods

 

239,771

 

284,349

  

 

252,074

Total inventories

 

479,356

 

556,220

  

 

510,057

Refundable income taxes

 

1,550

 

14,130

  

 

9,124

Other current assets

 

54,295

 

38,525

  

 

29,575

TOTAL CURRENT ASSETS

 

1,092,104

 

995,278

 

1,046,851

DEFERRED INCOME TAXES

 

2,284

 

2,668

  

 

2,176

RESTRICTED INVESTMENTS

16,082

 

13,267

  

 

13,117

RIGHT OF USE ASSETS

75,436

OTHER ASSETS

 

23,085

 

8,662

  

 

7,052

GOODWILL

 

232,411

 

224,117

  

 

218,631

INDEFINITE-LIVED INTANGIBLE ASSETS

 

7,339

 

7,360

  

 

7,373

OTHER INTANGIBLE ASSETS, NET

 

46,877

 

41,486

  

 

35,662

PROPERTY, PLANT AND EQUIPMENT:

  

  

Property, plant and equipment

880,274

814,645

807,023

Less accumulated depreciation and amortization

 

(495,267)

 

(459,935)

  

 

(460,714)

PROPERTY, PLANT AND EQUIPMENT, NET

385,007

354,710

346,309

TOTAL ASSETS

1,880,625

1,647,548

1,677,171

LIABILITIES AND SHAREHOLDERS’ EQUITY

  

  

CURRENT LIABILITIES:

  

  

Cash overdraft

$

$

27,367

  

$

31,115

Accounts payable

 

180,767

 

136,901

  

 

175,912

Accrued liabilities:

  

  

Compensation and benefits

 

127,500

 

104,109

  

 

99,786

Other

 

61,463

 

41,645

  

 

51,316

Current portion of lease liability

15,566

Current portion of long-term debt

 

152

 

148

  

 

149

TOTAL CURRENT LIABILITIES

 

385,448

 

310,170

  

 

358,278

LONG-TERM DEBT

 

162,853

 

202,130

  

 

186,539

LEASE LIABILITY

59,870

DEFERRED INCOME TAXES

 

14,897

 

15,687

  

 

13,701

OTHER LIABILITIES

 

28,454

 

30,877

  

 

26,929

TOTAL LIABILITIES

 

651,522

 

558,864

  

 

585,447

SHAREHOLDERS’ EQUITY:

  

  

Controlling interest shareholders’ equity:

  

  

Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none

$

$

  

$

Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,390,216, 60,883,749, and 61,656,181

 

61,390

 

60,884

  

 

61,656

Additional paid-in capital

 

189,820

 

178,540

  

 

176,671

Retained earnings

 

969,564

 

839,917

  

 

841,431

Accumulated other comprehensive income

 

(5,315)

 

(5,938)

  

 

(3,638)

Total controlling interest shareholders’ equity

 

1,215,459

 

1,073,403

  

 

1,076,120

Noncontrolling interest

 

13,644

 

15,281

  

 

15,604

TOTAL SHAREHOLDERS’ EQUITY

 

1,229,103

 

1,088,684

  

 

1,091,724

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

1,880,625

$

1,647,548

  

$

1,677,171

See notes to consolidated condensed financial statements.

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Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 28,

September 29,

September 28,

September 29,

    

2019

    

2018

    

2019

    

2018

    

NET SALES

$

1,163,026

    

$

1,212,702

  

$

3,417,969

    

$

3,500,999

    

COST OF GOODS SOLD

 

975,756

 

1,054,029

  

 

2,889,706

 

3,045,748

GROSS PROFIT

 

187,270

 

158,673

  

 

528,263

 

455,251

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

115,652

 

102,704

  

 

334,283

 

300,505

NET (GAIN) LOSS ON DISPOSITION OF ASSETS AND IMPAIRMENT OF ASSETS

1,151

(1,022)

830

(7,079)

EARNINGS FROM OPERATIONS

 

70,467

 

56,991

  

 

193,150

 

161,825

INTEREST EXPENSE

 

1,900

 

1,945

  

 

6,767

 

5,971

INTEREST AND INVESTMENT INCOME

 

(410)

 

(211)

  

 

(2,685)

 

(1,109)

NET INTEREST EXPENSE

 

1,490

 

1,734

  

 

4,082

 

4,862

EARNINGS BEFORE INCOME TAXES

 

68,977

 

55,257

  

 

189,068

 

156,963

INCOME TAXES

 

16,396

 

13,189

  

 

45,340

 

36,183

NET EARNINGS

 

52,581

 

42,068

  

 

143,728

 

120,780

LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST

 

(722)

 

(849)

  

 

(1,814)

 

(2,684)

NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST

$

51,859

$

41,219

  

$

141,914

$

118,096

EARNINGS PER SHARE - BASIC

$

0.84

$

0.67

  

$

2.30

$

1.91

EARNINGS PER SHARE - DILUTED

$

0.84

$

0.66

  

$

2.30

$

1.91

OTHER COMPREHENSIVE INCOME:

NET EARNINGS

 

52,581

 

42,068

  

 

143,728

 

120,780

OTHER COMPREHENSIVE GAIN (LOSS)

 

(1,200)

 

1,174

  

 

644

 

(3,170)

COMPREHENSIVE INCOME

 

51,381

 

43,242

  

 

144,372

 

117,610

LESS COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

 

(358)

 

(1,583)

  

 

(1,835)

 

(3,296)

COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST

$

51,023

$

41,659

  

$

142,537

$

114,314

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED 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 30, 2017

$

61,192

$

161,928

  

$

736,212

$

144

  

$

14,547

  

$

974,023

Net earnings

  

  

 

118,096

 

  

 

2,684

  

 

120,780

Foreign currency translation adjustment

  

  

  

 

(3,562)

 

612

  

 

(2,950)

Unrealized gain (loss) on investment & foreign currency

  

  

  

 

(220)

 

  

 

(220)

Distributions to noncontrolling interest

  

  

  

  

 

(2,239)

 

(2,239)

Cash dividends - $0.180 per share

  

  

 

(11,090)

 

  

 

  

 

(11,090)

Issuance of 25,449 shares under employee stock plans

 

25

 

731

  

  

  

  

 

756

Issuance of 348,140 shares under stock grant programs

 

348

 

4,911

  

  

  

  

 

5,259

Issuance of 147,188 shares under deferred compensation plans

 

147

 

(147)

  

  

  

  

 

Repurchase of 56,484 shares

(56)

(1,787)

(1,843)

Expense associated with share-based compensation arrangements

  

 

2,613

 

  

 

  

 

  

 

2,613

Accrued expense under deferred compensation plans

  

 

6,635

 

  

 

  

 

  

 

6,635

Balance at September 29, 2018

$

61,656

$

176,671

  

$

841,431

$

(3,638)

  

$

15,604

  

$

1,091,724

Balance at December 29, 2018

$

60,884

$

178,540

  

$

839,917

$

(5,938)

  

$

15,281

  

$

1,088,684

Net earnings

  

  

 

141,914

 

  

 

1,814

  

 

143,728

Foreign currency translation adjustment

  

  

  

 

170

 

21

  

 

191

Unrealized gain on debt securities

  

  

  

 

453

 

  

 

453

Distributions to noncontrolling interest

  

  

  

  

 

(1,634)

 

(1,634)

Additional purchase of noncontrolling interest

(5,015)

(1,838)

(6,853)

Cash dividends - $0.200 per share

  

  

 

(12,270)

 

  

 

  

 

(12,270)

Issuance of 26,869 shares under employee stock purchase plans

 

27

 

785

  

  

  

  

 

812

Issuance of 310,320 shares under stock grant programs

 

310

 

5,766

  

3

  

  

  

 

6,079

Issuance of 169,278 shares under deferred compensation plans

 

169

 

(169)

  

  

  

  

 

Expense associated with share-based compensation arrangements

  

 

2,968

 

  

 

  

 

  

 

2,968

Accrued expense under deferred compensation plans

  

 

6,945

 

  

 

  

 

  

 

6,945

Balance at September 28, 2019

$

61,390

$

189,820

  

$

969,564

$

(5,315)

  

$

13,644

  

$

1,229,103

See notes to consolidated condensed financial statements.

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Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

Nine Months Ended

September 28,

September 29,

    

2019

    

2018

    

CASH FLOWS FROM OPERATING ACTIVITIES:

  

Net earnings

$

143,728

    

$

120,780

Adjustments to reconcile net earnings to net cash from operating activities:

  

Depreciation

 

44,652

 

40,490

Amortization of intangibles

 

4,690

 

4,274

Expense associated with share-based and grant compensation arrangements

 

3,105

 

2,762

Deferred income taxes credits

 

(367)

 

(583)

Unrealized gain on investments

 

(1,611)

 

Net (gain) loss on disposition of assets and impairment of assets

 

830

 

(7,079)

Changes in:

  

Accounts receivable

 

(127,841)

 

(121,067)

Inventories

 

80,178

 

(39,448)

Accounts payable and cash overdraft

 

14,293

 

38,611

Accrued liabilities and other

 

36,423

 

21,361

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

198,080

 

60,101

CASH FLOWS FROM INVESTING ACTIVITIES:

  

Purchases of property, plant and equipment

 

(66,338)

 

(74,541)

Proceeds from sale of property, plant and equipment

 

1,180

 

37,612

Acquisitions, net of cash received

 

(38,710)

 

(38,963)

Purchases of investments

 

(6,475)

 

(12,401)

Proceeds from sale of investments

 

4,159

 

3,298

Other

 

199

 

(620)

NET CASH USED IN INVESTING ACTIVITIES

 

(105,985)

 

(85,615)

CASH FLOWS FROM FINANCING ACTIVITIES:

  

Borrowings under revolving credit facilities

 

421,464

 

636,798

Repayments under revolving credit facilities

 

(460,537)

 

(668,941)

Borrowings of debt

927

Repayment of debt

(3,099)

(5,511)

Issuance of long-term debt

75,000

Proceeds from issuance of common stock

 

812

 

756

Dividends paid to shareholders

 

(12,270)

 

(11,090)

Distributions to noncontrolling interest

(1,634)

(2,239)

Repurchase of common stock

 

 

(1,843)

Other

 

41

 

(55)

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

 

(55,223)

 

23,802

Effect of exchange rate changes on cash

 

157

 

247

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

37,029

 

(1,465)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR

 

28,198

 

28,816

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD

$

65,227

$

27,351

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:

Cash and cash equivalents, beginning of period

$

27,316

$

28,339

Restricted cash, beginning of period

882

477

Cash, cash equivalents, and restricted cash, beginning of period

$

28,198

$

28,816

Cash and cash equivalents, end of period

$

64,498

$

26,327

Restricted cash, end of period

729

1,024

Cash, cash equivalents, and restricted cash, end of period

$

65,227

$

27,351

SUPPLEMENTAL INFORMATION:

  

Interest paid

$

5,287

$

4,955

Income taxes paid

 

33,106

 

38,675

NON-CASH FINANCING ACTIVITIES:

Common stock issued under deferred compensation plans

 

5,620

 

5,312

See notes to consolidated condensed financial statements.

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Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

NOTES TO UNAUDITED

CONDENSED CONSOLIDATED 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 29, 2018.

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 September 29, 2018 balances in the accompanying unaudited condensed consolidated balance sheets.

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Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

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:

September 28, 2019

September 29, 2018

Quoted

Prices with

Quoted

Prices with

Prices in

Other

Prices with

Prices in

Other

Prices with

Active

Observable

Unobservable

Active

Observable

Unobservable

Markets

Inputs

Inputs

Markets

Inputs

Inputs

(in thousands)

    

(Level 1)

    

(Level 2)

(Level 3)

Total

    

(Level 1)

    

(Level 2)

(Level 3)

    

Total

Money market funds

$

56,781

    

$

843

$

    

$

57,624

    

$

56

    

$

1,381

    

$

1,437

Fixed income funds

 

733

 

14,566

 

 

15,299

 

2,846

 

9,484

 

 

12,330

Equity securities

 

8,840

 

 

 

8,840

 

8,203

 

 

 

8,203

Alternative investments

1,895

1,895

1,725

1,725

Mutual funds:

  

 

  

  

 

Domestic stock funds

 

2,630

 

 

 

2,630

 

2,970

 

 

 

2,970

International stock funds

 

2,054

 

 

 

2,054

 

948

 

 

 

948

Target funds

 

268

 

 

 

268

 

255

 

 

 

255

Bond funds

 

825

 

 

 

825

 

208

 

635

 

 

843

Alternative funds

1,531

1,531

1,364

1,364

Total mutual funds

 

7,308

 

 

 

7,308

 

5,745

 

635

 

 

6,380

Total

$

73,662

$

15,409

1,895

$

90,966

$

16,850

$

11,500

1,725

$

30,075

Assets at fair value

$

73,662

$

15,409

1,895

 

$

90,966

$

16,850

$

11,500

1,725

 

$

30,075

From the assets measured at fair value as of September 28, 2019, listed in the table above, $56.8 million of money market funds are held in Cash and Cash Equivalents, $17.0 million of mutual funds, equity securities, and alternative investments are held in Investments, $1.1 million of money market and mutual funds are held in Other Assets for our deferred compensation plan, and $15.3 million of fixed income funds and $0.8 million of money markets funds are held in Restricted Investments.

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

During 2018, we purchased a private real estate income trust which is valued as a Level 3 asset and is categorized as an “Alternative Investment”.  

In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”), maintains an investment portfolio, totaling $32.3 million as of September 28, 2019, consisting of domestic and international stocks, alternative investments, and fixed income bonds.  

8

Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

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

September 28, 2019

Unrealized

    

Cost

    

Gain/(Loss)

    

Fair Value

Fixed Income

$

14,969

    

$

330

  

$

15,299

Equity

 

7,584

 

1,256

  

 

8,840

Mutual Funds

6,391

(98)

  

6,293

Alternative Investments

1,790

105

  

1,895