| |
| |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q10-Q
For the quarterly period ended September 30, 201726, 2020
OR
Commission File Number 0‑226840-22684
UNIVERSAL FOREST PRODUCTS,UFP INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
| | | | |
| Michigan |
|
| |
| (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) 364‑6161364-6161
| | | ||
| 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‑212b-2 of the Exchange Act.
| | | |
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filer | Smaller |
| | | 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 ana 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‑212b-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 | |
| Common stock, $1 par value | |
| |
UNIVERSAL FOREST PRODUCTS, INC.
TABLE OF CONTENTS
PART I. | | FINANCIAL INFORMATION. | Page No. |
| | | |
| Item 1. | Financial Statements | |
| | | |
| | 3 | |
| | | |
| | 4 | |
| | | |
| | 5 | |
| | | |
| | ||
7 | |||
| | | |
| | Notes to Unaudited Condensed Consolidated | |
8 | |||
| | | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
18 | |||
| | | |
| |||
34 | |||
| | | |
| |||
35 | |||
| |
| |
PART II. | | OTHER INFORMATION | |
| | | |
| Item 1. | Legal Proceedings – NONE | |
| | | |
| |||
36 | |||
| | | |
| |||
36 | |||
| | | |
| Item 3. | Defaults upon Senior Securities – NONE | |
| | | |
| Item 4. | Mine Safety Disclosures – NONE | |
| | | |
| |||
36 | |||
| | | |
| 37 |
2
CONDENSED CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share data) |
|
|
|
|
|
|
| |||
|
| September 30, |
| December 31, |
| September 24, |
| |||
|
| 2017 |
| 2016 |
| 2016 |
| |||
ASSETS |
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 22,044 |
| $ | 34,091 |
| $ | 36,683 |
|
Restricted cash |
|
| 905 |
|
| 398 |
|
| 909 |
|
Investments |
|
| 10,781 |
|
| 10,348 |
|
| 10,453 |
|
Accounts receivable, net |
|
| 419,183 |
|
| 282,253 |
|
| 343,771 |
|
Inventories: |
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
| 203,930 |
|
| 198,954 |
|
| 180,740 |
|
Finished goods |
|
| 208,556 |
|
| 198,273 |
|
| 189,188 |
|
Total inventories |
|
| 412,486 |
|
| 397,227 |
|
| 369,928 |
|
Refundable income taxes |
|
| 763 |
|
| 11,459 |
|
| 7,407 |
|
Other current assets |
|
| 22,438 |
|
| 20,662 |
|
| 21,636 |
|
TOTAL CURRENT ASSETS |
|
| 888,600 |
|
| 756,438 |
|
| 790,787 |
|
DEFERRED INCOME TAXES |
|
| 1,899 |
|
| 1,546 |
|
| 2,416 |
|
RESTRICTED INVESTMENTS |
|
| 7,982 |
|
| — |
|
| — |
|
OTHER ASSETS |
|
| 7,634 |
|
| 8,617 |
|
| 8,757 |
|
GOODWILL |
|
| 212,029 |
|
| 198,535 |
|
| 207,832 |
|
INDEFINITE-LIVED INTANGIBLE ASSETS |
|
| 7,580 |
|
| 2,340 |
|
| 2,340 |
|
OTHER INTANGIBLE ASSETS, NET |
|
| 36,093 |
|
| 26,731 |
|
| 14,014 |
|
PROPERTY, PLANT AND EQUIPMENT: |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
| 754,175 |
|
| 699,462 |
|
| 717,287 |
|
Less accumulated depreciation and amortization |
|
| (429,066) |
|
| (401,611) |
|
| (432,796) |
|
PROPERTY, PLANT AND EQUIPMENT, NET |
|
| 325,109 |
|
| 297,851 |
|
| 284,491 |
|
TOTAL ASSETS |
|
| 1,486,926 |
|
| 1,292,058 |
|
| 1,310,637 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Cash overdraft |
| $ | 26,617 |
| $ | 19,761 |
| $ | 13,940 |
|
Accounts payable |
|
| 171,774 |
|
| 124,660 |
|
| 137,979 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
|
|
Compensation and benefits |
|
| 88,185 |
|
| 92,441 |
|
| 99,549 |
|
Other |
|
| 50,179 |
|
| 32,281 |
|
| 57,104 |
|
Current portion of long-term debt |
|
| 2,197 |
|
| 2,634 |
|
| 1,584 |
|
TOTAL CURRENT LIABILITIES |
|
| 338,952 |
|
| 271,777 |
|
| 310,156 |
|
LONG-TERM DEBT |
|
| 145,884 |
|
| 109,059 |
|
| 110,362 |
|
DEFERRED INCOME TAXES |
|
| 22,806 |
|
| 20,817 |
|
| 14,066 |
|
OTHER LIABILITIES |
|
| 29,204 |
|
| 29,939 |
|
| 28,963 |
|
TOTAL LIABILITIES |
|
| 536,846 |
|
| 431,592 |
|
| 463,547 |
|
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, 20,391,399, 20,342,069 and 20,330,939 |
|
| 20,391 |
|
| 20,342 |
|
| 20,331 |
|
Additional paid-in capital |
|
| 200,778 |
|
| 185,333 |
|
| 183,962 |
|
Retained earnings |
|
| 715,497 |
|
| 649,135 |
|
| 637,536 |
|
Accumulated other comprehensive income |
|
| (871) |
|
| (5,630) |
|
| (4,854) |
|
Total controlling interest shareholders’ equity |
|
| 935,795 |
|
| 849,180 |
|
| 836,975 |
|
Noncontrolling interest |
|
| 14,285 |
|
| 11,286 |
|
| 10,115 |
|
TOTAL SHAREHOLDERS’ EQUITY |
|
| 950,080 |
|
| 860,466 |
|
| 847,090 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 1,486,926 |
| $ | 1,292,058 |
| $ | 1,310,637 |
|
| | | | | | | | | | |
(in thousands, except share data) | | | | | | | | |||
| | September 26, | | December 28, | | September 28, | | |||
|
| 2020 |
| 2019 |
| 2019 | | |||
ASSETS | | | |
| | |
| | | |
CURRENT ASSETS: | | | |
| | |
| | | |
Cash and cash equivalents | | $ | 346,154 |
| $ | 168,336 |
| $ | 64,498 | |
Restricted cash | |
| 724 | |
| 330 |
|
| 729 | |
Investments | |
| 20,530 | |
| 18,527 |
|
| 17,028 | |
Accounts receivable, net | |
| 583,079 | |
| 364,027 |
|
| 474,648 | |
Inventories: | | | |
| | |
| | | |
Raw materials | |
| 286,418 | |
| 236,283 |
|
| 239,585 | |
Finished goods | |
| 242,316 | |
| 250,591 |
|
| 239,771 | |
Total inventories | |
| 528,734 | |
| 486,874 |
|
| 479,356 | |
Refundable income taxes | |
| — | |
| 13,272 |
|
| 1,550 | |
Other current assets | |
| 32,888 | |
| 41,706 |
|
| 54,295 | |
TOTAL CURRENT ASSETS | |
| 1,512,109 | |
| 1,093,072 | |
| 1,092,104 | |
DEFERRED INCOME TAXES | |
| 2,070 | |
| 2,763 |
|
| 2,284 | |
RESTRICTED INVESTMENTS | | | 17,327 | |
| 16,214 |
|
| 16,082 | |
RIGHT OF USE ASSETS | | | 77,412 | | | 80,167 | | | 75,436 | |
OTHER ASSETS | |
| 24,216 | |
| 24,884 |
|
| 23,085 | |
GOODWILL | |
| 245,925 | |
| 229,536 |
|
| 232,411 | |
INDEFINITE-LIVED INTANGIBLE ASSETS | |
| 7,361 | |
| 7,354 |
|
| 7,339 | |
OTHER INTANGIBLE ASSETS, NET | |
| 58,205 | |
| 48,313 |
|
| 46,877 | |
PROPERTY, PLANT AND EQUIPMENT: | | | |
| | |
| | | |
Property, plant and equipment | | | 935,639 | | | 884,963 | | | 880,274 | |
Less accumulated depreciation and amortization | |
| (529,644) | |
| (497,789) |
|
| (495,267) | |
PROPERTY, PLANT AND EQUIPMENT, NET | | | 405,995 | | | 387,174 | | | 385,007 | |
TOTAL ASSETS | | | 2,350,620 | | | 1,889,477 | | | 1,880,625 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| | |
| | | |
CURRENT LIABILITIES: | | | |
| | |
| | | |
Accounts payable | | $ | 231,111 | | $ | 142,479 |
| $ | 180,767 | |
Accrued liabilities: | | | |
| | |
| | | |
Compensation and benefits | |
| 171,472 | |
| 141,892 |
|
| 127,500 | |
Income taxes | | | 3,024 | | | — | | | — | |
Other | |
| 69,888 | |
| 51,572 |
|
| 61,463 | |
Current portion of lease liability | | | 15,349 | | | 15,283 | | | 15,566 | |
Current portion of long-term debt | |
| 2,760 | |
| 2,816 |
|
| 152 | |
TOTAL CURRENT LIABILITIES | |
| 493,604 | |
| 354,042 |
|
| 385,448 | |
LONG-TERM DEBT | |
| 311,267 | |
| 160,867 |
|
| 162,853 | |
LEASE LIABILITY | | | 62,100 | | | 64,884 | | | 59,870 | |
DEFERRED INCOME TAXES | |
| 22,478 | |
| 22,880 |
|
| 14,897 | |
OTHER LIABILITIES | |
| 47,367 | |
| 29,071 |
|
| 28,454 | |
TOTAL LIABILITIES | |
| 936,816 | |
| 631,744 |
|
| 651,522 | |
SHAREHOLDERS’ EQUITY: | | | |
| | |
| | | |
Controlling interest shareholders’ equity: | | | |
| | |
| | | |
Preferred stock, 0 par value; shares authorized 1,000,000; issued and outstanding, none | | $ | — | | $ | — |
| $ | — | |
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,186,636, 61,408,589 and 61,390,216 | |
| 61,187 | |
| 61,409 |
|
| 61,390 | |
Additional paid-in capital | |
| 216,002 | |
| 192,173 |
|
| 189,820 | |
Retained earnings | |
| 1,127,375 | |
| 995,022 |
|
| 969,564 | |
Accumulated other comprehensive income | |
| (6,974) | |
| (4,889) |
|
| (5,315) | |
Total controlling interest shareholders’ equity | |
| 1,397,590 | |
| 1,243,715 |
|
| 1,215,459 | |
Noncontrolling interest | |
| 16,214 | |
| 14,018 |
|
| 13,644 | |
TOTAL SHAREHOLDERS’ EQUITY | |
| 1,413,804 | |
| 1,257,733 |
|
| 1,229,103 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 2,350,620 | | $ | 1,889,477 |
| $ | 1,880,625 | |
See notes to consolidated condensed financial statements.statements.
3
CONDENSED CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
| ||||
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
NET SALES |
| $ | 1,056,586 |
| $ | 826,665 |
| $ | 2,975,091 |
| $ | 2,380,909 |
|
COST OF GOODS SOLD |
|
| 911,899 |
|
| 708,611 |
|
| 2,561,424 |
|
| 2,028,629 |
|
GROSS PROFIT |
|
| 144,687 |
|
| 118,054 |
|
| 413,667 |
|
| 352,280 |
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
| 92,416 |
|
| 74,502 |
|
| 273,676 |
|
| 223,153 |
|
EARNINGS FROM OPERATIONS |
|
| 52,271 |
|
| 43,552 |
|
| 139,991 |
|
| 129,127 |
|
INTEREST EXPENSE |
|
| 1,481 |
|
| 1,096 |
|
| 4,825 |
|
| 3,274 |
|
INTEREST INCOME |
|
| (130) |
|
| (119) |
|
| (541) |
|
| (431) |
|
EQUITY IN EARNINGS OF INVESTEE |
|
| 1 |
|
| (50) |
|
| (25) |
|
| (241) |
|
|
|
| 1,352 |
|
| 927 |
|
| 4,259 |
|
| 2,602 |
|
EARNINGS BEFORE INCOME TAXES |
|
| 50,919 |
|
| 42,625 |
|
| 135,732 |
|
| 126,525 |
|
INCOME TAXES |
|
| 16,250 |
|
| 13,861 |
|
| 44,855 |
|
| 43,268 |
|
NET EARNINGS |
|
| 34,669 |
|
| 28,764 |
|
| 90,877 |
|
| 83,257 |
|
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST |
|
| (976) |
|
| (945) |
|
| (2,480) |
|
| (2,828) |
|
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST |
| $ | 33,693 |
| $ | 27,819 |
| $ | 88,397 |
| $ | 80,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE - BASIC |
| $ | 1.65 |
| $ | 1.36 |
| $ | 4.32 |
| $ | 3.95 |
|
EARNINGS PER SHARE - DILUTED |
| $ | 1.64 |
| $ | 1.36 |
| $ | 4.31 |
| $ | 3.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS |
|
| 34,669 |
|
| 28,764 |
|
| 90,877 |
|
| 83,257 |
|
OTHER COMPREHENSIVE GAIN (LOSS) |
|
| 1,719 |
|
| (1,156) |
|
| 6,141 |
|
| (1,521) |
|
COMPREHENSIVE INCOME |
|
| 36,388 |
|
| 27,608 |
|
| 97,018 |
|
| 81,736 |
|
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST |
|
| (975) |
|
| (495) |
|
| (3,862) |
|
| (1,576) |
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST |
| $ | 35,413 |
| $ | 27,113 |
| $ | 93,156 |
| $ | 80,160 |
|
| | | | | | | | | | | | | |
(in thousands, except per share data) | | | | | | | | | | ||||
| | Three Months Ended | | Nine Months Ended | | ||||||||
| | September 26, | | September 28, | | September 26, | | September 28, | | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
NET SALES | | $ | 1,486,227 |
| $ | 1,163,026 |
| $ | 3,760,290 |
| $ | 3,417,969 |
|
COST OF GOODS SOLD | |
| 1,245,153 | |
| 975,756 |
|
| 3,147,049 | |
| 2,889,706 | |
GROSS PROFIT | |
| 241,074 | |
| 187,270 |
|
| 613,241 | |
| 528,263 | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | |
| 134,649 | |
| 115,958 |
|
| 357,770 | |
| 334,165 | |
OTHER | | | (176) | | | 845 | | | (2,120) | | | 948 | |
EARNINGS FROM OPERATIONS | |
| 106,601 | |
| 70,467 |
|
| 257,591 | |
| 193,150 | |
INTEREST EXPENSE | |
| 2,486 | |
| 1,900 |
|
| 6,291 | |
| 6,767 | |
INTEREST INCOME | |
| (1,011) | |
| (317) |
|
| (1,541) | |
| (1,074) | |
UNREALIZED GAIN ON INVESTMENTS AND OTHER | | | (554) | | | (93) | | | (82) | | | (1,611) | |
| |
| 921 | |
| 1,490 |
|
| 4,668 | |
| 4,082 | |
EARNINGS BEFORE INCOME TAXES | |
| 105,680 | |
| 68,977 |
|
| 252,923 | |
| 189,068 | |
INCOME TAXES | |
| 26,819 | |
| 16,396 |
|
| 63,798 | |
| 45,340 | |
NET EARNINGS | |
| 78,861 | |
| 52,581 |
|
| 189,125 | |
| 143,728 | |
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST | |
| (1,657) | |
| (722) |
|
| (5,299) | |
| (1,814) | |
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST | | $ | 77,204 | | $ | 51,859 |
| $ | 183,826 | | $ | 141,914 | |
| | | | | | | | | | | | | |
EARNINGS PER SHARE - BASIC | | $ | 1.25 | | $ | 0.84 |
| $ | 2.98 | | $ | 2.30 | |
EARNINGS PER SHARE - DILUTED | | $ | 1.25 | | $ | 0.84 |
| $ | 2.98 | | $ | 2.30 | |
| | | | | | | | | | | | | |
OTHER COMPREHENSIVE INCOME: | | | | | | | | | | | | | |
NET EARNINGS | |
| 78,861 | |
| 52,581 |
|
| 189,125 | |
| 143,728 | |
OTHER COMPREHENSIVE GAIN (LOSS) | |
| 1,687 | |
| (1,200) |
|
| (4,030) | |
| 644 | |
COMPREHENSIVE INCOME | |
| 80,548 | |
| 51,381 |
|
| 185,095 | |
| 144,372 | |
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST | |
| (1,922) | |
| (358) |
|
| (3,354) | |
| (1,835) | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST | | $ | 78,626 | | $ | 51,023 |
| $ | 181,741 | | $ | 142,537 | |
See notes to consolidated condensed financial statements.
4
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 28, 2019 | | $ | 61,409 | | $ | 192,173 |
| $ | 995,022 | | $ | (4,889) |
| $ | 14,018 |
| $ | 1,257,733 |
Net earnings | | | |
| | |
|
| 40,159 | |
|
| |
| 411 |
|
| 40,570 |
Foreign currency translation adjustment | | | |
| | |
| | |
|
| (5,951) | |
| (2,335) |
|
| (8,286) |
Unrealized loss on debt securities | | | |
| | |
| | |
|
| (270) | |
|
| |
| (270) |
Distributions to noncontrolling interest | | | |
| | |
| | |
| | |
|
| (299) | |
| (299) |
Additional purchase of noncontrolling interest | | | | | | 130 | | | | | | | | | (225) | | | (95) |
Cash dividends - $0.125 per share - quarterly | | | |
| | |
|
| (7,730) | |
|
| |
|
| |
| (7,730) |
Issuance of 10,549 shares under employee stock plans | |
| 10 | |
| 309 |
| | |
| | |
| | |
|
| 319 |
Net issuance of 350,124 shares under stock grant programs | |
| 350 | |
| 12,454 |
| | 1 |
| | |
| | |
|
| 12,805 |
Issuance of 89,616 shares under deferred compensation plans | |
| 89 | |
| (89) |
| | |
| | |
| | |
|
| — |
Repurchase of 756,397 shares | |
| (756) | |
| | |
| (28,456) |
| | |
|
|
| |
| (29,212) |
Expense associated with share-based compensation arrangements | | | |
|
| 1,404 | |
|
| |
|
| |
|
| |
| 1,404 |
Accrued expense under deferred compensation plans | | | |
|
| 5,343 | |
|
| |
|
| |
|
| |
| 5,343 |
Balance at March 28, 2020 | | $ | 61,102 | | $ | 211,724 |
| $ | 998,996 | | $ | (11,110) |
| $ | 11,570 |
| $ | 1,272,282 |
Net earnings | | | |
| | |
|
| 66,463 | |
|
| |
| 3,231 |
|
| 69,694 |
Foreign currency translation adjustment | | | |
| | |
| | |
|
| 2,026 | |
| 125 |
|
| 2,151 |
Unrealized loss on debt securities | | | |
| | |
| | |
|
| 688 | |
|
| |
| 688 |
Cash dividends - $0.125 per share - quarterly | | | |
| | |
|
| (7,644) | |
|
| |
|
| |
| (7,644) |
Issuance of 9,714 shares under employee stock plans | |
| 10 | |
| 367 |
| | |
| | |
| | |
|
| 377 |
Net issuance of 42,880 shares under stock grant programs | |
| 43 | |
| (174) |
| | 2 |
| | |
| | |
|
| (129) |
Issuance of 14,106 shares under deferred compensation plans | |
| 14 | |
| (14) |
| | |
| | |
| | |
|
| — |
Expense associated with share-based compensation arrangements | | | |
|
| 824 | |
|
| |
|
| |
|
| |
| 824 |
Accrued expense under deferred compensation plans | | | |
|
| 1,082 | |
|
| |
|
| |
|
| |
| 1,082 |
Balance at June 27, 2020 | | $ | 61,169 | | $ | 213,809 |
| $ | 1,057,817 | | $ | (8,396) |
| $ | 14,926 |
| $ | 1,339,325 |
Net earnings | | | | | | | | | 77,204 | | | | | | 1,657 | | | 78,861 |
Foreign currency translation adjustment | | | | | | | | | | | | 1,319 | | | 265 | | | 1,584 |
Unrealized loss on debt securities | | | | | | | | | | | | 103 | | | | | | 103 |
Distributions to noncontrolling interest | | | | | | | | | | | | | | | (634) | | | (634) |
Cash dividends - $0.125 per share - quarterly | | | | | | | | | (7,646) | | | | | | | | | (7,646) |
Issuance of 7,511 shares under employee stock plans | | | 7 | | | 338 | | | | | | | | | | | | 345 |
Net forfeiture of 1,382 shares under stock grant programs | | | (1) | | | (56) | | | | | | | | | | | | (57) |
Issuance of 11,326 shares under deferred compensation plans | | | 12 | | | (12) | | | | | | | | | | | | — |
Expense associated with share-based compensation arrangements | | | | | | 826 | | | | | | | | | | | | 826 |
Accrued expense under deferred compensation plans | | | | | | 1,097 | | | | | | | | | | | | 1,097 |
Balance at September 26, 2020 | | $ | 61,187 | | $ | 216,002 | | $ | 1,127,375 | | $ | (6,974) | | $ | 16,214 | | $ | 1,413,804 |
See notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED
(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 |
|
|
|
|
|
|
|
| 80,429 |
|
|
|
|
| 2,828 |
|
| 83,257 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
| (620) |
|
| (1,252) |
|
| (1,872) |
Unrealized gain (loss) on investment & foreign currency |
|
|
|
|
|
|
|
|
|
|
| 351 |
|
|
|
|
| 351 |
Distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,160) |
|
| (3,160) |
Purchases of noncontrolling interest |
|
|
|
|
| 855 |
|
|
|
|
|
|
|
| (1,955) |
|
| (1,100) |
Cash dividends $0.420 per share |
|
|
|
|
|
|
|
| (8,529) |
|
|
|
|
|
|
|
| (8,529) |
Issuance of 5,195 shares under employee stock plans |
|
| 5 |
|
| 390 |
|
|
|
|
|
|
|
|
|
|
| 395 |
Issuance of 133,293 shares under stock grant programs |
|
| 133 |
|
| 5,143 |
|
|
|
|
|
|
|
|
|
|
| 5,276 |
Issuance of 50,742 shares under deferred compensation plans |
|
| 51 |
|
| (51) |
|
|
|
|
|
|
|
|
|
|
| — |
Expense associated with share-based compensation arrangements |
|
|
|
|
| 1,568 |
|
|
|
|
|
|
|
|
|
|
| 1,568 |
Accrued expense under deferred compensation plans |
|
|
|
|
| 4,495 |
|
|
|
|
|
|
|
|
|
|
| 4,495 |
Balance at September 24, 2016 |
| $ | 20,331 |
| $ | 183,962 |
| $ | 637,536 |
| $ | (4,854) |
| $ | 10,115 |
| $ | 847,090 |
Balance at December 31, 2016 |
|
| 20,342 |
|
| 185,333 |
|
| 649,135 |
|
| (5,630) |
|
| 11,286 |
|
| 860,466 |
Net earnings |
|
|
|
|
|
|
|
| 88,397 |
|
|
|
|
| 2,480 |
|
| 90,877 |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
| 4,325 |
|
| 1,382 |
|
| 5,707 |
Unrealized gain (loss) on investment & foreign currency |
|
|
|
|
|
|
|
|
|
|
| 434 |
|
|
|
|
| 434 |
Distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,272) |
|
| (3,272) |
Additional purchases of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,409 |
|
| 2,409 |
Cash dividends - $0.450 per share |
|
|
|
|
|
|
|
| (9,208) |
|
|
|
|
|
|
|
| (9,208) |
Issuance of 5,975 shares under employee stock plans |
|
| 6 |
|
| 470 |
|
|
|
|
|
|
|
|
|
|
| 476 |
Issuance of 142,775 shares under stock grant programs |
|
| 143 |
|
| 7,037 |
|
|
|
|
|
|
|
|
|
|
| 7,180 |
Issuance of 49,160 shares under deferred compensation plans |
|
| 49 |
|
| (49) |
|
|
|
|
|
|
|
|
|
|
| — |
Repurchase of 148,580 shares |
|
| (149) |
|
|
|
|
| (12,827) |
|
|
|
|
|
|
|
| (12,976) |
Expense associated with share-based compensation arrangements |
|
|
|
|
| 1,978 |
|
|
|
|
|
|
|
|
|
|
| 1,978 |
Accrued expense under deferred compensation plans |
|
|
|
|
| 6,009 |
|
|
|
|
|
|
|
|
|
|
| 6,009 |
Balance at September 30, 2017 |
| $ | 20,391 |
| $ | 200,778 |
| $ | 715,497 |
| $ | (871) |
| $ | 14,285 |
| $ | 950,080 |
| | | | | | | | | | | | | | | | | | |
(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 29, 2018 | | $ | 60,884 | | $ | 178,540 |
| $ | 839,917 | | $ | (5,938) |
| $ | 15,281 |
| $ | 1,088,684 |
Net earnings | | | |
| | |
|
| 35,540 | |
|
| |
| 462 |
|
| 36,002 |
Foreign currency translation adjustment | | | |
| | |
| | |
|
| 982 | |
| 224 |
|
| 1,206 |
Unrealized gain (loss) on investment & foreign currency | | | |
| | |
| | |
|
| 167 | |
|
| |
| 167 |
Distributions to noncontrolling interest | | | |
| | |
| | |
| | |
|
| (500) | |
| (500) |
Issuance of 10,259 shares under employee stock plans | |
| 10 | |
| 251 |
| | |
| | |
| | |
|
| 261 |
Net issuance of 320,069 shares under stock grant programs | |
| 320 | |
| 6,101 |
| | |
| | |
| | |
|
| 6,421 |
Issuance of 138,295 shares under deferred compensation plans | |
| 138 | |
| (138) |
| | |
| | |
| | |
|
| — |
Expense associated with share-based compensation arrangements | | | |
|
| 1,226 | |
|
| |
|
| |
|
| |
| 1,226 |
Accrued expense under deferred compensation plans | | | |
|
| 4,899 | |
|
| |
|
| |
|
| |
| 4,899 |
Balance at March 30, 2019 | | $ | 61,352 | | $ | 190,879 |
| $ | 875,457 | | $ | (4,789) |
| $ | 15,467 |
| $ | 1,138,366 |
Net earnings | | | |
| | |
|
| 54,515 | |
|
| |
| 630 |
|
| 55,145 |
Foreign currency translation adjustment | | | |
| | |
| | |
|
| 151 | |
| 161 |
|
| 312 |
Unrealized gain (loss) on investment & foreign currency | | | |
| | |
| | |
|
| 159 | |
|
| |
| 159 |
Distributions to noncontrolling interest | | | |
| | |
| | |
| | |
|
| (400) | |
| (400) |
Cash dividends - $0.200 per share - semiannually | | | |
| | |
|
| (12,271) | |
|
| |
|
| |
| (12,271) |
Issuance of 8,694 shares under employee stock plans | |
| 9 | |
| 272 |
| | |
| | |
| | |
|
| 281 |
Net forfeiture of 10,819 shares under stock grant programs | |
| (11) | |
| (262) |
| | 3 |
| | |
| | |
|
| (270) |
Issuance of 16,433 shares under deferred compensation plans | |
| 17 | |
| (17) |
| | |
| | |
| | |
|
| — |
Expense associated with share-based compensation arrangements | | | |
|
| 885 | |
|
| |
|
| |
|
| |
| 885 |
Accrued expense under deferred compensation plans | | | |
|
| 1,026 | |
|
| |
|
| |
|
| |
| 1,026 |
Balance at June 29, 2019 | | $ | 61,367 | | $ | 192,783 |
| $ | 917,704 | | $ | (4,479) |
| $ | 15,858 |
| $ | 1,183,233 |
Net earnings | | | | | | | | | 51,859 | | | | | | 722 | | | 52,581 |
Foreign currency translation adjustment | | | | | | | | | | | | (963) | | | (364) | | | (1,327) |
Unrealized gain (loss) on investment & foreign currency | | | | | | | | | | | | 127 | | | | | | 127 |
Distributions to noncontrolling interest | | | | | | | | | | | | | | | (734) | | | (734) |
Additional purchase of noncontrolling interest | | | | | | (5,015) | | | | | | | | | (1,838) | | | (6,853) |
Cash dividends - $0.200 per share - semiannually | | | | | | | | | 1 | | | | | | | | | 1 |
Issuance of 7,916 shares under employee stock plans | | | 8 | | | 262 | | | | | | | | | | | | 270 |
Net issuance of 1,070 shares under stock grant programs | | | 1 | | | (73) | | | | | | | | | | | | (72) |
Issuance of 14,550 shares under deferred compensation plans | | | 14 | | | (14) | | | | | | | | | | | | — |
Expense associated with share-based compensation arrangements | | | | | | 857 | | | | | | | | | | | | 857 |
Accrued expense under deferred compensation plans | | | | | | 1,020 | | | | | | | | | | | | 1,020 |
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.
56
CONDENSED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | |
(in thousands) | | Nine Months Ended | | ||||
| | September 26, | | September 28, | | ||
|
| 2020 |
| 2019 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| | | |
Net earnings | | $ | 189,125 |
| $ | 143,728 | |
Adjustments to reconcile net earnings to net cash from operating activities: | | | |
| | | |
Depreciation | |
| 47,226 | |
| 44,652 | |
Amortization of intangibles | |
| 5,863 | |
| 4,690 | |
Expense associated with share-based and grant compensation arrangements | |
| 3,152 | |
| 3,105 | |
Deferred income taxes (credit) | |
| 110 | |
| (367) | |
Unrealized loss (gain) on investments | |
| (81) | |
| (1,611) | |
Net (gain) loss on disposition of assets and impairment of assets | |
| (662) | |
| 830 | |
Changes in: | | | |
| | | |
Accounts receivable | |
| (211,238) | |
| (127,841) | |
Inventories | |
| (39,167) | |
| 80,178 | |
Accounts payable and cash overdraft | |
| 85,354 | |
| 14,293 | |
Accrued liabilities and other | |
| 105,401 | |
| 36,423 | |
NET CASH FROM OPERATING ACTIVITIES | |
| 185,083 | |
| 198,080 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
| | | |
Purchases of property, plant and equipment | |
| (67,024) | |
| (66,338) | |
Proceeds from sale of property, plant and equipment | |
| 2,588 | |
| 1,180 | |
Acquisitions and purchases of non-controlling interest, net of cash received | |
| (34,820) | |
| (38,710) | |
Purchases of investments | |
| (24,266) | |
| (6,475) | |
Proceeds from sale of investments | |
| 22,281 | |
| 4,159 | |
Other | |
| 314 | |
| 199 | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (100,927) | |
| (105,985) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
| | | |
Borrowings under revolving credit facilities | |
| 6,862 | |
| 421,464 | |
Repayments under revolving credit facilities | |
| (6,498) | |
| (460,537) | |
Contingent consideration payment and other | | | (3,087) | | | (3,099) | |
Issuance of long-term debt | | | 150,000 | | | — | |
Proceeds from issuance of common stock | |
| 1,042 | |
| 812 | |
Dividends paid to shareholders | |
| (23,020) | |
| (12,270) | |
Distributions to noncontrolling interest | | | (932) | | | (1,634) | |
Repurchase of common stock | |
| (29,212) | |
| — | |
Other | |
| 23 | |
| 41 | |
NET CASH FROM (USED IN) FINANCING ACTIVITIES | |
| 95,178 | |
| (55,223) | |
Effect of exchange rate changes on cash | |
| (1,122) | |
| 157 | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| 178,212 | |
| 37,029 | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR | |
| 168,666 | |
| 28,198 | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD | | $ | 346,878 | | $ | 65,227 | |
| | | | | | | |
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | | | |
Cash and cash equivalents, beginning of period | | $ | 168,336 | | $ | 27,316 | |
Restricted cash, beginning of period | | | 330 | | | 882 | |
Cash, cash equivalents, and restricted cash, beginning of period | | $ | 168,666 | | $ | 28,198 | |
| | | | | | | |
Cash and cash equivalents, end of period | | $ | 346,154 | | $ | 64,498 | |
Restricted cash, end of period | | | 724 | | | 729 | |
Cash, cash equivalents, and restricted cash, end of period | | $ | 346,878 | | $ | 65,227 | |
| | | | | | | |
SUPPLEMENTAL INFORMATION: | | | |
| | | |
Interest paid | | $ | 4,112 | | $ | 5,287 | |
Income taxes paid | |
| 47,301 | |
| 33,106 | |
NON-CASH FINANCING ACTIVITIES: | | | | | | | |
Common stock issued under deferred compensation plans | |
| 6,195 | |
| 5,620 | |
(Unaudited)
|
|
|
|
|
|
|
|
(in thousands) |
| Nine Months Ended |
| ||||
|
| September 30, |
| September 24, |
| ||
|
| 2017 |
| 2016 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net earnings |
| $ | 90,877 |
| $ | 83,257 |
|
Adjustments to reconcile net earnings to net cash from operating activities: |
|
|
|
|
|
|
|
Depreciation |
|
| 36,010 |
|
| 29,014 |
|
Amortization of intangibles |
|
| 3,549 |
|
| 1,868 |
|
Expense associated with share-based compensation arrangements |
|
| 1,978 |
|
| 1,568 |
|
Expense associated with stock grant plans |
|
| 144 |
|
| 105 |
|
Deferred income taxes (credits) |
|
| 117 |
|
| (53) |
|
Equity in earnings of investee |
|
| (25) |
|
| (241) |
|
Net (gain) loss on disposition and impairment of assets |
|
| (437) |
|
| 94 |
|
Changes in: |
|
|
|
|
|
|
|
Accounts receivable |
|
| (121,688) |
|
| (69,357) |
|
Inventories |
|
| (820) |
|
| 21,683 |
|
Accounts payable and cash overdraft |
|
| 53,424 |
|
| 35,026 |
|
Accrued liabilities and other |
|
| 34,221 |
|
| 33,413 |
|
NET CASH FROM OPERATING ACTIVITIES |
|
| 97,350 |
|
| 136,377 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (57,189) |
|
| (35,723) |
|
Proceeds from sale of property, plant and equipment |
|
| 2,121 |
|
| 516 |
|
Acquisitions, net of cash received |
|
| (59,859) |
|
| (66,615) |
|
Repayments of debt of acquiree |
|
| — |
|
| (92,830) |
|
Purchase of remaining noncontrolling interest, net of cash received |
|
| — |
|
| (1,100) |
|
Cash contributed from noncontrolling interest |
|
| 464 |
|
| — |
|
Advances of notes receivable |
|
| (234) |
|
| (5,400) |
|
Collections on notes receivable |
|
| 1,334 |
|
| 5,819 |
|
Purchases of investments |
|
| (12,155) |
|
| (4,468) |
|
Proceeds from sale of investments |
|
| 4,227 |
|
| 1,395 |
|
Other |
|
| (84) |
|
| (1,733) |
|
NET CASH USED IN INVESTING ACTIVITIES |
|
| (121,375) |
|
| (200,139) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Borrowings under revolving credit facilities |
|
| 610,038 |
|
| 52,479 |
|
Repayments under revolving credit facilities |
|
| (573,829) |
|
| (27,177) |
|
Proceeds from issuance of common stock |
|
| 476 |
|
| 396 |
|
Dividends paid to shareholders |
|
| (9,207) |
|
| (8,529) |
|
Distributions to noncontrolling interest |
|
| (3,272) |
|
| (3,160) |
|
Repurchase of common stock |
|
| (12,976) |
|
| — |
|
Other |
|
| — |
|
| (28) |
|
NET CASH FROM (USED IN) FINANCING ACTIVITIES |
|
| 11,230 |
|
| 13,981 |
|
Effect of exchange rate changes on cash |
|
| 1,255 |
|
| (969) |
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
| (11,540) |
|
| (50,750) |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR |
|
| 34,489 |
|
| 88,342 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD |
| $ | 22,949 |
| $ | 37,592 |
|
|
|
|
|
|
|
|
|
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 |
| $ | 22,044 |
| $ | 36,683 |
|
Restricted cash, end of period |
|
| 905 |
|
| 909 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 22,949 |
| $ | 37,592 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
Interest paid |
| $ | 3,910 |
| $ | 2,587 |
|
Income taxes paid |
|
| 34,108 |
|
| 43,384 |
|
NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Common stock issued under deferred compensation plans |
|
| 4,673 |
|
| 3,657 |
|
See notes to consolidated condensed financial statements.
67
CONDENSED 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‑K10-K for the fiscal year ended December 31, 2016.28, 2019.
On April 22, 2020, our shareholders approved changing the name of the Company from Universal Forest Products, Inc., to UFP Industries, Inc.
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 24, 201628, 2019 balances in the accompanying unaudited condensed consolidated condensed balance sheets.
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. We cannot reasonably estimate the length or severity of this pandemic and government restrictions on business activity, or the extent to which these restrictions may materially impact our consolidated financial position, consolidated results of operations, and consolidated cash flows in fiscal 2020.
8
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 30, 2017 |
| September 24, 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 |
| $ | 413 |
| $ | 477 |
| $ | 64 |
| $ | 132 |
| $ | 196 |
Fixed income funds |
|
| 1,299 |
|
| 6,905 |
|
| 8,204 |
|
| 2,049 |
|
| 2,335 |
|
| 4,384 |
Equity securities |
|
| 10,194 |
|
| — |
|
| 10,194 |
|
| 5,592 |
|
| — |
|
| 5,592 |
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic stock funds |
|
| 335 |
|
| — |
|
| 335 |
|
| 760 |
|
| — |
|
| 760 |
International stock funds |
|
| 87 |
|
| — |
|
| 87 |
|
| 70 |
|
| — |
|
| 70 |
Target funds |
|
| 260 |
|
| — |
|
| 260 |
|
| 234 |
|
| — |
|
| 234 |
Bond funds |
|
| 208 |
|
| — |
|
| 208 |
|
| 203 |
|
| — |
|
| 203 |
Total mutual funds |
|
| 890 |
|
| — |
|
| 890 |
|
| 1,267 |
|
| — |
|
| 1,267 |
Total |
| $ | 12,447 |
| $ | 7,318 |
| $ | 19,765 |
| $ | 8,972 |
| $ | 2,467 |
| $ | 11,439 |
Assets at fair value |
| $ | 12,447 |
| $ | 7,318 |
| $ | 19,765 |
| $ | 8,972 |
| $ | 2,467 |
| $ | 11,439 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 26, 2020 | | September 28, 2019 | ||||||||||||||||||||
| | 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 | | $ | 64 |
| $ | 3,133 | | $ | — |
| $ | 3,197 |
| $ | 56,781 |
| $ | 843 | | $ | — |
| $ | 57,624 |
Fixed income funds | |
| 248 | |
| 16,522 | | | — |
|
| 16,770 | |
| 733 | |
| 14,566 | | | — |
|
| 15,299 |
Equity securities | |
| 10,524 | |
| — | | | — |
|
| 10,524 | |
| 8,840 | |
| — | | | — |
|
| 8,840 |
Alternative investments | | | — | | | — | | | 1,926 | | | 1,926 | | | — | | | — | | | 1,895 | | | 1,895 |
Mutual funds: | | | |
| | | | | |
| | |
| | |
| | | | | |
| | |
Domestic stock funds | |
| 6,826 | |
| — | | | — |
|
| 6,826 | |
| 2,630 | |
| — | | | — |
|
| 2,630 |
International stock funds | |
| 1,243 | |
| — | | | — |
|
| 1,243 | |
| 2,054 | |
| — | | | — |
|
| 2,054 |
Target funds | |
| 260 | |
| — | | | — |
|
| 260 | |
| 268 | |
| — | | | — |
|
| 268 |
Bond funds | |
| 208 | |
| — | | | — |
|
| 208 | |
| 825 | |
| — | | | — |
|
| 825 |
Alternative funds | | | 433 | | | — | | | — | | | 433 | | | 1,531 | | | — | | | — | | | 1,531 |
Total mutual funds | |
| 8,970 | |
| — | | | — |
|
| 8,970 | |
| 7,308 | |
| — | | | — |
|
| 7,308 |
Total | | $ | 19,806 | | $ | 19,655 | | $ | 1,926 | | $ | 41,387 | | $ | 73,662 | | $ | 15,409 | | $ | 1,895 | | $ | 90,966 |
Assets at fair value | | $ | 19,806 | | $ | 19,655 | | $ | 1,926 |
| $ | 41,387 | | $ | 73,662 | | $ | 15,409 | | $ | 1,895 |
| $ | 90,966 |
From the assets measured at fair value as of September 26, 2020, listed in the table above, $20.5 million of mutual funds, equity securities, and alternative investments are held in Investments, $0.9 million of money market and mutual funds are held in Other Assets for our deferred compensation plan, and $16.8 million of fixed income funds and $3.2 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, and our wholly owned licensed captive insurance company.company, and assets held in financial institutions. These funds are valued at prices quoted in an active
7
UNIVERSAL FOREST PRODUCTS, INC.
exchange market and are included in “Cash and Cash Equivalents”, “Investments”, “Restricted Cash”“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.
We did not maintain any Level 3 assets or liabilities at September 30, 2017 or September 24, 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 nine 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 $18.4$37.3 million as of September 30, 2017, consisting26, 2020, which has been included in the aforementioned table of total investments. This portfolio consists of domestic and international stocks, alternative investments, and fixed income bonds.
9
Ardellis’ available for sale investment portfolio, including funds held with the State of Michigan, consists of the following:following (in thousands):
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
| Unrealized |
|
|
| |||||||||||||||||||
|
| Cost |
| Gain/(Loss) |
| Fair Value | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||
| | September 26, 2020 | | September 28, 2019 | |||||||||||||||||||||||
| | | | | Unrealized | | | | | | | | Unrealized | | | | |||||||||||
|
| Cost |
| Gain/(Loss) |
| Fair Value |
| Cost |
| Gain/(Loss) |
| Fair Value | |||||||||||||||
Fixed Income |
| $ | 8,170 |
| $ | 34 |
| $ | 8,204 | | $ | 15,750 |
| $ | 1,020 |
| $ | 16,770 | | $ | 14,969 |
| $ | 330 |
| $ | 15,299 |
Equity |
|
| 9,123 |
|
| 1,071 |
|
| 10,194 | |
| 9,121 | |
| 1,403 |
|
| 10,524 | |
| 7,584 | |
| 1,256 |
|
| 8,840 |
Mutual Funds | | | 7,228 | | | 852 |
| | 8,080 | | | 6,391 | | | (98) |
| | 6,293 | |||||||||
Alternative Investments | | | 1,881 | | | 45 |
| | 1,926 | | | 1,790 | | | 105 |
| | 1,895 | |||||||||
Total |
| $ | 17,293 |
| $ | 1,105 |
| $ | 18,398 | | $ | 33,980 | | $ | 3,320 |
| $ | 37,300 | | $ | 30,734 | | $ | 1,593 |
| $ | 32,327 |
Our Fixed Incomefixed income investments consist of short, intermediate, and long term bonds, as well as fixeda blend bonds. Within the fixed income investments, we maintain a specific mixture of US treasury notes, US agency mortgage backed securities, private label mortgage backed securities,Government and variousAgency bonds and investment grade corporate securities.bonds with varying maturities. Our equity investments consist of small, mid, and large cap growth and value funds, as well as international equity. Our mutual fund investments consist of domestic and international stock. Our alternative investments consist of the private real estate income trust which is valued as a Level 3 asset. The net pre-tax effected unrealized gain was $1.1$3.3 million. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of September 30, 2017. During the first nine months of 2017, Ardellis investments reported a net realized gain of $185 thousand, which was recorded in interest income on the statement of earnings.
8
UNIVERSAL FOREST PRODUCTS, INC.
26, 2020 and September 28, 2019.
C. REVENUE RECOGNITION
RevenueWithin the 3 primary segments (Retail, Industrial, and Construction) that the Company operates, there are a variety of written agreements governing the sale of our products and services. The transaction price is stated at the purchase order level, which includes shipping and/or freight costs and any applicable governmental authority taxes. The majority of our contracts have a single performance obligation concentrated around the delivery of goods to the carrier, Free On Board (FOB) shipping point. Therefore, revenue is recognized at the time the productwhen this performance obligation is shipped to the customer.satisfied. Generally, title and control passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day.
On May 28, 2014,Certain customer products that we provide require installation by the FASB issued ASU No. 2014-09 (Accounting Standard Codification 606), Revenue from Contracts with Customers, whichCompany or a 3rd party. Installation revenue is recognized upon completion. If the Company uses a 3rd party for installation, the party will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is thatact as an entity should recognize revenue for the transfer of goods or services equalagent to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The Company plans to adopt the guidance in the first quarter of fiscal 2018 and apply the modified retrospective method. The Company is in the process of finalizing contract reviews and theuntil completion of the new standard’s impactinstallation. Installation revenue represents an immaterial share of the Company’s total sales.
The Company utilizes rebates, credits, discounts and/or cash-based incentives with certain customers which are accounted for as variable consideration. We estimate these amounts based on its Consolidated Financial Statements.the expected amount to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration. The allocation of these costs are applied at the invoice level and recognized in conjunction with revenue. Additionally, returns and refunds are estimated on a historical and expected basis which is a reduction of revenue recognized.
Earnings on construction contracts are reflected in operations using percentage-of-completionover time accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations.operations, which is in accordance with ASC 606 as revenue is recognized when certain performance obligations are performed. Under percentage-of-completionover time accounting using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under percentage-of-completionover time accounting using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent. Construction contract revenue increased to approximately $36.6 million, during the third quarter
10
Our construction contracts are generally entered into with a fixed price and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist.
The following table presents our gross revenues disaggregated by revenue source:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||||||
(in thousands) |
| September 26, |
| September 28, |
| | | September 26, |
| September 28, |
| | ||||
Market Classification | | 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change | ||||
FOB Shipping Point Revenue | | $ | 1,490,050 | | $ | 1,140,853 |
| 30.6% | | $ | 3,749,122 | | $ | 3,358,520 |
| 11.6% |
Construction Contract Revenue | |
| 32,007 | | | 43,177 |
| -25.9% | |
| 97,150 | | | 121,622 |
| -20.1% |
Total Gross Sales | |
| 1,522,057 | | | 1,184,030 |
| 28.5% | |
| 3,846,272 | | | 3,480,142 |
| 10.5% |
Sales Allowances | | | (35,830) | | | (21,004) | | 70.6% | | | (85,982) | | | (62,173) | | 38.3% |
Total Net Sales | | $ | 1,486,227 | | $ | 1,163,026 | | 27.8% | | $ | 3,760,290 | | $ | 3,417,969 | | 10.0% |
The Construction segment comprises the construction contract revenue shown above. Construction contract revenue is primarily made up of site-built and framing customers.
The following table presents the balances of percentage-of-completionover time accounting accounts which are included in “Other current assets” and “Accrued liabilities: Other”, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| September 30, |
| December 31, |
| September 24, |
| |||||||||||||
|
| 2017 |
| 2016 |
| 2016 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | September 26, | | December 28, | | September 28, | | |||||||||||||
|
| 2020 |
| 2019 |
| 2019 |
| |||||||||||||
Cost and Earnings in Excess of Billings |
| $ | 2,594 |
| $ | 2,573 |
| $ | 2,788 |
| | $ | 4,130 |
| $ | 4,690 |
| $ | 6,815 |
|
Billings in Excess of Cost and Earnings |
|
| 4,802 |
|
| 4,748 |
|
| 6,222 |
| |
| 11,264 | |
| 6,622 |
|
| 6,666 | |
911
D. EARNINGS PER SHARE
The computation of earnings per share (“EPS”) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||||||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
| |||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Nine Months Ended | | |||||||||||||||||||||
|
| September 26, |
| September 28, |
| September 26, |
| September 28, |
| |||||||||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | |||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Net earnings attributable to controlling interest |
| $ | 33,693 |
| $ | 27,819 |
| $ | 88,397 |
| $ | 80,429 |
| | $ | 77,204 | | $ | 51,859 | | $ | 183,826 | | $ | 141,914 | |
Adjustment for earnings allocated to non-vested restricted common stock |
|
| (656) |
|
| (463) |
|
| (1,633) |
|
| (1,281) |
| |
| (2,195) | |
| (1,299) | |
| (5,110) | |
| (3,547) | |
Net earnings for calculating EPS |
| $ | 33,037 |
| $ | 27,356 |
| $ | 86,764 |
| $ | 79,148 |
| | $ | 75,009 | | $ | 50,560 | | $ | 178,716 | | $ | 138,367 | |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Weighted average shares outstanding |
|
| 20,474 |
|
| 20,402 |
|
| 20,481 |
|
| 20,360 |
| |
| 61,548 | |
| 61,717 | |
| 61,642 | |
| 61,609 | |
Adjustment for non-vested restricted common stock |
|
| (399) |
|
| (340) |
|
| (378) |
|
| (324) |
| |
| (1,750) | |
| (1,546) | |
| (1,713) | |
| (1,540) | |
Shares for calculating basic EPS |
|
| 20,075 |
|
| 20,062 |
|
| 20,103 |
|
| 20,036 |
| |
| 59,798 | |
| 60,171 | |
| 59,929 | |
| 60,069 | |
Effect of dilutive stock options |
|
| 41 |
|
| 33 |
|
| 37 |
|
| 32 |
| |||||||||||||
Effect of dilutive restricted common stock | |
| 20 | |
| 24 | |
| 19 | |
| 22 | | |||||||||||||
Shares for calculating diluted EPS |
|
| 20,116 |
|
| 20,095 |
|
| 20,140 |
|
| 20,068 |
| |
| 59,818 | |
| 60,195 | |
| 59,948 | |
| 60,091 | |
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Basic |
| $ | 1.65 |
| $ | 1.36 |
| $ | 4.32 |
| $ | 3.95 |
| | $ | 1.25 | | $ | 0.84 | | $ | 2.98 | | $ | 2.30 | |
Diluted |
| $ | 1.64 |
| $ | 1.36 |
| $ | 4.31 |
| $ | 3.94 |
| | $ | 1.25 | | $ | 0.84 | | $ | 2.98 | | $ | 2.30 | |
No options were excluded from the computation of diluted EPS for the quarters ended September 30, 2017 or September 24, 2016.
On October 17, 2017, our Board of Directors declared a three-for-one stock split effected in the form of a stock dividend. The record date of the stock split will be October 31, 2017, and the eventual stock distribution to shareholders will occur November 14, 2017. All references made to share or earnings per share amounts in the accompanying unaudited consolidated financial statements and applicable disclosures are presented on a pre-split basis. As a result of the stock split, all historical per share data and number of shares outstanding presented in future financial statements will be retroactively adjusted.
The following table provides pro forma earnings per share, giving retroactive effect to the stock split:
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| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Shares for calculating basic EPS - Post stock split basis |
|
| 60,225 |
|
| 60,186 |
|
| 60,309 |
|
| 60,108 |
|
Shares for calculating diluted EPS - Post stock split basis |
|
| 60,348 |
|
| 60,285 |
|
| 60,420 |
|
| 60,204 |
|
Net earnings per share (post stock split): |
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|
|
Basic |
| $ | 0.55 |
| $ | 0.45 |
| $ | 1.44 |
| $ | 1.32 |
|
Diluted |
| $ | 0.55 |
| $ | 0.45 |
| $ | 1.44 |
| $ | 1.31 |
|
E. COMMITMENTS, CONTINGENCIES, AND GUARANTEES
We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, Ardellis Insurance Ltd., a licensed captive insurance company.
10
UNIVERSAL FOREST PRODUCTS, INC.
We own and operate a number of facilities throughout the United States that chemically treat lumber products. In connection with the ownership and operation of these and other real properties, and the disposal or treatment of hazardous or toxic substances, we may, under various federal, state, and local environmental laws, ordinances, and regulations, be potentially liable for removal and remediation costs, as well as other potential costs, damages, and expenses. Environmental reserves, calculated with no discount rate, have been established to cover remediation activities at wood preservation facilities in Stockertown, PA; Elizabeth City, NC; Auburndale, FL; and Medley,Auburndale, FL. In addition, a reserve was established for our facility in Thornton, CA to remove certain lead containing materials which existed on the property at the time of purchase.
On a consolidated basis, we have reserved approximately $3.6 million and $3.4$1.9 million on September 30, 2017,26, 2020 and $2.0 million on September 24, 2016,28, 2019, respectively, representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance receivable.
Many of our wood treating operations utilize “Subpart W” drip pads, defined as hazardous waste management units by the Environmental Protection Agency. The rules regulating drip pads require that a pad be “closed” at the point that it is no longer intended to be used for wood treating operations or to manage hazardous waste. Closure involves identification and disposal of contaminants which are required to be removed from the facility. The cost of closure is dependent upon a number of factors including, but not limited to, identification and removal of contaminants, cleanup standards that vary from state to state, and the time period over which the cleanup would be completed. Based on our present knowledge of existing circumstances, it is considered probable that these costs will approximate $0.2 million. As a result, this amount is recorded in other long-term liabilities on September 30, 2017.
In February 2014, one of our operations was served with a federal grand jury subpoena from the Southern District of New York. The subpoena was issued in connection with an investigation being conducted by the US Attorney’s Office for the Southern District of New York. The subpoena requested documents relating to a developer and construction projects for which our operation had provided materials and labor. Following receipt of the subpoena, the Audit Committee of the Company’s Board of Directors retained outside counsel to conduct an internal investigation and respond to the subpoena. The Company cooperated in all respects with the US Attorney’s Office, complied with this subpoena and voluntarily provided additional information. As a result of the internal investigation, in 2014, two Company employees were terminated for violating the Company’s Code of Business Conduct and Ethics. In May 2015, those ex-employees were indicted by the grand jury. In April 2016, one of the two former employees pled guilty to four of the charges included in the indictment. In May 2016, the other former employee was found guilty by a jury on four of the charges included in the indictment. The Company has not been named as a target and continues to cooperate with the US Attorney’s Office in this matter. Based upon prior communications with the US Attorney’s Office, we do not believe that the resolution of this matter will have a material adverse impact on our financial condition or the results of our operations.
In addition, on September 30, 2017,26, 2020, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims.
On September 30, 2017,26, 2020, we had outstanding purchase commitments on commenced capital projects of approximately $26.1$21.3 million.
12
We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material. We also distribute products manufactured by other companies, some of which are no longer in business. While we do not warrant these products, we have received claims as a distributor of these products when the manufacturer no longer exists or has the ability to pay. Historically, these costs have not had a material effect on our consolidated financial statements.
11
UNIVERSAL FOREST PRODUCTS, INC.
As part of our operations, we supply building materials and labor to site-built construction projects or we jointly bid on contracts with framing companies for such projects. In some instances, we are required to post payment and performance bonds to insure the project owner thatensure the products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety for claims properly made against thethese bonds. As of September 30, 201726, 2020, we had approximately $8.8$7.0 million outstanding payment and performance bonds for open projects. We had approximately $1.7$7.6 million in payment and performance bonds outstanding for completed projects which are still under warranty.
On September 30, 2017,26, 2020, we had outstanding letters of credit totaling $26.5$43.8 million, primarily related to certain insurance contracts and industrial development revenue bonds described further below.
In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our performance under certain insurance contracts. We currentlyAs of September 26, 2020, we have irrevocable letters of credit outstanding totaling approximately $16.7$33.8 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements.
We are required to provide irrevocable letters of credit in favor of the bond trustees for all industrial development revenue bonds that have been issued. These letters of credit guarantee principal and interest payments to the bondholders. We currently have irrevocable letters of credit outstanding totaling approximately $9.8 million related to our outstanding industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products,UFP Industries, Inc. in certain debt agreements, including the Series 2012, 2018 and 2020 Senior Notes and our revolving credit facility. The maximum exposure of these guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire concurrent with the expiration of the debt agreements.
We did not enter into any new guarantee arrangements during the third quarter of 20172020 which would require us to recognize a liability on our balance sheet.
13
F. BUSINESS COMBINATIONS
We completed the following acquisitions in nine months ended 20172020 and 2016since the end of September 2019, which were accounted for using the purchase method in thousands unless otherwise noted:
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| Net |
| |
Company | Acquisition |
| Intangible | Tangible | Operating | ||
Name | Date | Purchase Price | Assets | Assets | Segment | ||
| May 26, 2017 | $5,042 | $ | 4,880 | $ | 162 | South |
Go Boy Pallets, LLC ("Go Boy") | A manufacturer and distributor of industrial pallets and packaging in Georgia and North Carolina. Go Boy has annual sales of approximately $8 million. The acquisition of Go Boy enabled us to expand our industrial packaging product offering and lumber sourcing in this region. | ||||||
| March 6, 2017 | $31,818 | $ | 7,533 | $ | 24,285 | South |
Robbins Manufacturing Co. ("Robbins") | A manufacturer of treated wood products with facilities in Florida, Georgia, and North Carolina. Robbins has annual sales of approximately $86 million. The acquisition of Robbins allowed us to expand our presence in this region and serve customers more cost effectively. | ||||||
| March 6, 2017 | $22,789 | $ | 14,266 | $ | 8,523 | North |
| | | | | | | |
| | | | | Net | | |
Company | Acquisition | | Intangible | Tangible | Operating | ||
Name | Date | Purchase Price | Assets | Assets | Segment | ||
| July 14, 2020 | $19,173 | $ | 13,098 | $ | 6,075 | Industrial |
T&R Lumber Company ("T&R") | A manufacturer and distributor of a range of products used primarily by nurseries, including plastic growing containers, pots and trays; wooden stakes; trellises; tree boxes; shipping racks; and other nursery supplies based in Rancho Cucamonga, California. T&R had annual sales of approximately $31 million. The acquisition of T&R will allow us to leverage their expertise using our national manufacturing capacity to grow our agricultural product offerings and customer base across the country. | ||||||
| March 13, 2020 | $21,787 | $ | 19,098 | $ | 2,689 | Construction |
Quest Design & Fabrication and Quest Architectural Millwork ("Quest") | A designer, fabricator, and installer of premium millwork and case goods for a variety of commercial uses. Quest had annual sales of approximately $22 million. The acquisition of Quest expands our architectural millwork capabilities and expertise in our commercial construction business unit, and will allow us to use our national manufacturing capacity to grow and diversify our sales to this end market |
12
UNIVERSAL FOREST PRODUCTS, INC.
Quality Hardwood Sales, LLC ("Quality") | A manufacturer and supplier of hardwood products, including components of cabinets used in homes and recreational vehicles. Quality has annual sales of approximately $30 million. The acquisition of Quality enabled us to expand our product offering to include hardwood-based products. | ||||||
| November 29, 2016 | $9,455 | $ | 7,314 | $ | 2,141 | All Other |
The UBEECO Group Pty. Ltd. ("Ubeeco") | A manufacturer and distributor of a variety of wood packaging and alternative material products, including boxes, crates, pallets, skids, protective packaging, packaging accessories and loose lumber. Ubeeco has annual sales of approximately $20 million. The acquisition of Ubeeco allows us to make progress on our goal of becoming a global provider of packaging solutions. | ||||||
| September 16, 2016 | $66,691 | $ | 17,455 | $ | 49,236 | All Other |
idX Holdings, Inc. ("idX") | A designer, producer, and installer of customized interior fixtures and related products used in a variety of commercial structures. idX has annual sales of $300 million. The acquisition of idX enables us to enhance our design, product and service offering to become a tier 1 supplier of interior fixtures to retail customers, and continue to use idX's capabilities to continue to develop new markets for growth. Our goal is to achieve long-term synergies, including: | ||||||
| a. | Eliminating redundant administrative support costs. | |||||
| b. | Using the scale advantage of the Company to reduce material costs of common raw materials. | |||||
| c. | Utilizing manufacturing capacity of certain existing locations to supply idX. | |||||
| d. | Utilizing idX’s international footprint to identify sourcing opportunities for certain products. | |||||
| e. | Cross selling one another’s products and services with our respective customers. | |||||
| f. | Collaborating on new product development. | |||||
| July 29, 2016 | $1,246 | $ | 405 | $ | 841 | North |
Seven D Truss, L.P. | A manufacturer and distributor of roof and floor trusses. 7D had annual sales of approximately $4.0 million. The acquisition of 7D gave us the opportunity to consolidate operations with our Gordon, Pennsylvania location. |
The intangible assets for each acquisition werethe T&R and Quest acquisitions have not been finalized and allocated to their respective identifiable intangible asset and goodwill accounts during 2017, excluding Go Boy.accounts. In aggregate, acquisitions completed since the end of September of 20162019 and not consolidated with other operations contributed approximately $292.1$10.8 million in revenuenet sales and $5.3$0.2 million in operating profitprofits during 2017.the third quarter of 2020 and $17.8 million in net sales and $1.5 million in operating profits in the first nine months of 2020.
G. SEGMENT REPORTING
ASC 280, Segment Reporting (“ASC 280”), defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
13
UNIVERSAL FOREST PRODUCTS, INC.
The Company operates manufacturing, treating and distribution facilities throughout North America,internationally, but primarily in the United States. Effective January 1, 2020, the Company re-organized around the markets it serves rather than geography. The prior periods have been recast to reflect the new segment structure. The business segments align with the following markets: UFP Retail Solutions, UFP Construction and UFP Industrial. This change allows for a more specialized and consistent sales approach among Company operations, more efficient use of resources and capital, and quicker introduction of new products and services. The Company manages the operations of its individual locations primarily through a geographicmarket-centered reporting structure under which each location is included in a regionbusiness unit and regionsbusiness units are included in our North, South,Retail, Industrial, and West divisions.Construction segments. The exceptionsexception to this geographicmarket-centered reporting and management structure are (a)is the Company’s Alternative Materials Division,International segment, which offers a portfoliocomprises our Mexico, Canada, and Australia operations and sales and buying offices in other parts of non-wood products and distributes those products nation-wide (b) the Company’s distribution unit (referred to as UFPD) which distributes a variety of products to the manufactured housing industry nation-wide and is accounted for as a reporting unit within the Northworld.
Our International segment and (c) the idX division, which designs, produces, and installs customized in-store environments, for customers world-wide.
With respect to the facilities in the north, south, and west segments, these facilities generally supply the three markets the Company serves nationally - Retail, Industrial, and Construction. Also, substantially all of our facilities support customers in the immediate geographical region surrounding the facility.
Our Alternative Materials, International and idX divisionArdellis (our insurance captive) have been included in the “All Other” column of the table below.
14
The “Corporate” column includes purchasing, transportation and administrative functions that serve our operating segments. Operating results of Corporate primarily consists of over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns and leases transportation equipment, are also included in the Corporate column. An inter-company lease charge is assessed to our operating segments for the use of these assets at fair market value rates. Total assets of the Corporate column include unallocated administrative costscash and cash equivalents, certain incentive compensation expense.
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| Three Months Ended September 30, 2017 | |||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total |
| ||||||
Net sales to outside customers |
| $ | 310,384 |
| $ | 206,050 |
| $ | 378,714 |
| $ | 161,438 |
| $ | — |
| $ | 1,056,586 |
|
Intersegment net sales |
|
| 18,897 |
|
| 18,817 |
|
| 21,384 |
|
| 47,539 |
|
| — |
|
| 106,637 |
|
Segment operating profit |
|
| 16,697 |
|
| 10,234 |
|
| 22,538 |
|
| 6,882 |
|
| (4,080) |
|
| 52,271 |
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| Three Months Ended September 24, 2016 | |||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total |
| ||||||
Net sales to outside customers |
| $ | 267,156 |
| $ | 173,715 |
| $ | 335,981 |
| $ | 49,813 |
| $ | — |
| $ | 826,665 |
|
Intersegment net sales |
|
| 14,318 |
|
| 9,642 |
|
| 22,054 |
|
| 4,574 |
|
| — |
|
| 50,588 |
|
Segment operating profit |
|
| 14,630 |
|
| 9,900 |
|
| 19,962 |
|
| 2,959 |
|
| (3,899) |
|
| 43,552 |
|
prepaid assets, certain property, equipment and other assets pertaining to the centralized activities of Corporate, UFP Real Estate, Inc., and UFP Transportation Ltd.
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| ||||||||||||||||||
|
| Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Three Months Ended September 26, 2020 | ||||||||||||||||||||||||||||||||||
(in thousands) |
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||||||||||||||||||||
Net sales to outside customers |
| $ | 857,858 |
| $ | 616,376 |
| $ | 1,088,744 |
| $ | 412,113 |
| $ | — |
| $ | 2,975,091 | | $ | 700,522 |
| $ | 282,124 | | $ | 447,103 | | $ | 56,700 | | $ | (222) | | $ | 1,486,227 |
Intersegment net sales |
|
| 51,859 |
|
| 55,472 |
|
| 65,466 |
|
| 116,743 |
|
| — |
|
| 289,540 | |
| 45,416 | | | 11,773 | | | 17,909 | | | 76,029 | | | (151,127) | |
| — |
Segment operating profit (loss) |
|
| 42,921 |
|
| 31,152 |
|
| 65,547 |
|
| 13,285 |
|
| (12,914) |
|
| 139,991 | ||||||||||||||||||
Segment operating profit | | | 62,181 | | | 22,037 | | | 16,513 | | | 7,449 | | | (1,579) | | | 106,601 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
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| ||||||||||||||||||
|
| Nine Months Ended September 24, 2016 | ||||||||||||||||||||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Three Months Ended September 28, 2019 | ||||||||||||||||||||||||||||||||||
(in thousands) |
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||||||||||||||||||||
Net sales to outside customers |
| $ | 758,066 |
| $ | 533,239 |
| $ | 940,188 |
| $ | 149,416 |
| $ | — |
| $ | 2,380,909 | | $ | 397,140 |
| $ | 271,667 | | $ | 445,505 | | $ | 48,066 | | $ | 648 | | $ | 1,163,026 |
Intersegment net sales |
|
| 42,071 |
|
| 28,693 |
|
| 65,325 |
|
| 16,559 |
|
| — |
|
| 152,648 | |
| 32,400 | | | 9,748 | | | 16,057 | | | 45,918 | | | (104,123) | |
| — |
Segment operating profit |
|
| 43,054 |
|
| 35,830 |
|
| 58,434 |
|
| 11,542 |
|
| (19,733) |
|
| 129,127 | | | 14,297 | | | 20,768 | | | 21,406 | | | 3,561 | | | 10,435 | | | 70,467 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 26, 2020 | ||||||||||||||||
|
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers | | $ | 1,661,873 |
| $ | 763,046 | | $ | 1,187,429 | | $ | 148,503 | | $ | (561) | | $ | 3,760,290 |
Intersegment net sales | |
| 109,378 | | | 32,788 | | | 49,685 | | | 196,908 | | | (388,759) | |
| — |
Segment operating profit | | | 122,082 | | | 53,837 | | | 50,544 | | | 20,573 | | | 10,555 | | | 257,591 |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 28, 2019 | ||||||||||||||||
|
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers | | $ | 1,212,330 |
| $ | 837,671 | | $ | 1,225,467 | | $ | 142,845 | | $ | (344) | | $ | 3,417,969 |
Intersegment net sales | |
| 101,203 | | | 34,406 | | | 42,393 | | | 155,637 | | | (333,639) | |
| — |
Segment operating profit | | | 47,597 | | | 60,208 | | | 56,263 | | | 9,490 | | | 19,592 | | | 193,150 |
15
Identifiable intangibles have been transferred and goodwill was re-allocated, based on their relative fair values, to our new segments and reporting units. The following table presents goodwill by segment as of September 26, 2020, and December 28, 2019 (in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Balance as of December 28, 2019 |
| $ | 58,098 |
| $ | 81,276 |
| $ | 82,911 |
| $ | 7,251 | | $ | — |
| $ | 229,536 |
2020 Acquisitions |
| | — | | | 6,549 | | | 9,953 | | | — | | | — |
| | 16,502 |
2020 Purchase Accounting Adjustments | | | 202 | | | 2 | | | — | | | — | | | — | | | 204 |
Foreign Exchange, Net |
| | — | | | — | | | 229 | | | (546) | | | — |
| | (317) |
Balance as of September 26, 2020 | | $ | 58,300 |
| $ | 87,827 | | $ | 93,093 | | $ | 6,705 | | $ | — | | $ | 245,925 |
The following table presents total assets by segment as of September 26, 2020, and December 28, 2019.
| | | | | | | | |
| Total Assets by Segment | |||||||
(in thousands) | September 26, |
| December 28, |
| | | ||
Segment Classification | 2020 | | 2019 | | % Change | |||
Retail | $ | 631,238 | | $ | 402,221 |
| 56.9 | % |
Industrial |
| 389,806 | |
| 377,329 |
| 3.3 | |
Construction |
| 525,596 | |
| 522,638 |
| 0.6 | |
All Other | | 161,945 | | | 136,990 | | 18.2 | |
Corporate | | 642,035 | | | 450,299 | | 42.6 | |
Total Assets | $ | 2,350,620 | | $ | 1,889,477 |
| 24.4 | % |
Note: During 2020, certain assets were reclassified to a different segment. Prior year information in this table has been restated to reflect these changes
H. INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for foreign, state and local income taxes and permanent tax differences. Our effective tax rate was 31.9%25.4% in the third quarter of 20172020 compared to 32.5%23.8% for same period in 2016. Our effective tax rate 2019 and was 33.0%25.2% in the first nine months of 20172020 compared to 34.2%24.0% for the same period in 2016, 2019. The increase was primarily due to recordingthe foreign tax rate differential on foreign income as well as a variety of other discrete tax deductionitems none of which are individually significant.
I. COMMON STOCK
Below is a summary of common stock issuances for certain share-based compensationthe first nine months of 2020 and fees at fair market value.2019 (in thousands, except average share price):
| | | | | |
|
| September 26, 2020 | |||
Share Issuance Activity |
| Common Stock | | | Average Share Price |
Shares issued under the employee stock purchase plan | | 28 | | $ | 44.14 |
| | | | | |
Shares issued under the employee stock gift program | | 2 | | | 45.93 |
Shares issued under the director retainer stock program | | 46 | | | 24.80 |
Shares issued under the long-term stock incentive plan | | 271 | | | 47.51 |
Shares issued under the executive stock match grants | | 79 | | | 47.60 |
Forfeitures | | (7) | | | |
Total shares issued under stock grant programs | | 391 | | $ | 44.92 |
| | | | | |
Shares issued under the deferred compensation plans | | 115 | | $ | 53.85 |
1416
During the first nine months of 2020, we repurchased approximately 756,000 shares of our common stock at an average share price of $38.62.
| | | | | |
|
| September 28, 2019 | |||
Share Issuance Activity |
| Common Stock | | | Average Share Price |
Shares issued under the employee stock purchase plan | | 27 | | $ | 35.52 |
| | | | | |
Shares issued under the employee stock gift program | | 3 | | | 33.91 |
Shares issued under the director retainer stock program | | 4 | | | 35.44 |
Shares issued under the long-term stock incentive plan | | 211 | | | 30.83 |
Shares issued under the executive stock match grants | | 109 | | | 31.57 |
Forfeitures | | (17) | | | |
Total shares issued under stock grant programs | | 310 | | $ | 31.17 |
| | | | | |
Shares issued under the deferred compensation plans | | 169 | | $ | 33.20 |
During the first nine months of 2019, we did not repurchase any of our common stock.
J. SUBSEQUENT EVENTS
On September 30, 2020, we entered into a joint venture with Atlante S.p.A. to create Enwrap Logistic & Packaging S.r.l. (Enwrap) and acquired a 50% ownership interest in Enwrap for $5.3 million. Enwrap is headquartered in Milan, Italy and is an industrial packaging business, which provides high-value, mixed material industrial packaging and logistics services through 14 facilities in Italy.
On October 1, 2020, we acquired the equity of Fire Retardant Chemical Technologies, LLC (FRCT), for $5.9 million. Founded in 2014 and based in Matthews, North Carolina, FRCT’s business includes a research and development laboratory specializing in developing and testing a wide range of high-performance chemicals, including fire retardants and water repellants.
17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UFP Industries, Inc. (formerly Universal Forest Products, Inc.) is a holding company with subsidiaries throughout North America, Europe, Asia, and in Australia that supply wood, wood composite and other products to three robust markets: retail, industrial, and construction. The Company is headquartered in Grand Rapids, Mich. For more information about Universal Forest Products,UFP Industries, Inc., or its affiliated operations, go to www.ufpi.com.www.ufpi.com.
On April 22, 2020, our shareholders approved changing the name of the Company from Universal Forest Products, Inc., to UFP Industries, Inc.
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. The Company does not undertake to update forward-looking statements to reflect facts, circumstances, events, or assumptions that occur after the date the forward-looking statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: fluctuations in the price of lumber; adverse or unusual weather conditions; adverse economic conditions in the markets we serve; government regulations, particularly involving environmental and safety regulations;regulations, government imposed “stay at home” orders and directives to cease or curtail operations; and our ability to make successful business acquisitions. Certain of these risk factors as well as other risk factors and additional information are included in the Company's reports on Form 10-K and 10-Q on file with the Securities and Exchange Commission. We are pleased to present this overview of 2017.the third quarter of 2020.
OVERVIEW
Our results for the third quarter of 2017 were impacted by2020 include the following:following highlights:
| Our |
|
|
● | Our operating profits increased 51% compared to the third quarter of 2019. The improvement in our profitability was driven by a number of factors, including strong organic growth in our retail segment and effectively leveraging fixed costs and the impact of |
18
● | Our cash flow from operations |
● | As a result of our strong operating cash flow, our cash surplus exceeded our debt by approximately $32 million at the end of the September 2020. |
● | Our available borrowing capacity under revolving credit facilities and cash surplus resulted in total liquidity of approximately $700 million at the end of September 2020. In August of 2020 we issued $150 million of long-term debt to finance our future growth. The average maturity of the notes is 13 years and have an average fixed rate of interest at 3.09%. |
15
UNIVERSAL FOREST PRODUCTS, INC.
HISTORICAL LUMBER PRICES
We experience significant fluctuations in the cost of commodity lumber products from primary producers (“Lumber Market”). The following table presents the Random Lengths framing lumber composite price:
| | | | | | | |
| | Random Lengths Composite | | ||||
| | Average $/MBF | | ||||
|
| 2020 |
| 2019 |
| ||
January | | $ | 377 | | $ | 331 | |
February | |
| 402 | |
| 370 | |
March | |
| 420 | |
| 365 | |
April | |
| 358 | |
| 354 | |
May | |
| 394 | |
| 346 | |
June | |
| 455 | |
| 329 | |
July | |
| 530 | |
| 356 | |
August | |
| 716 | |
| 346 | |
September | |
| 934 | |
| 364 | |
| | | | | | | |
Third quarter average | | $ | 727 | | $ | 355 | |
Year-to-date average | | $ | 510 | | $ | 351 | |
| | | | | | | |
Third quarter percentage change | |
| 104.8 | % |
| | |
Year-to-date percentage change | |
| 45.3 | % |
| | |
|
|
|
|
|
|
|
|
|
| Random Lengths Composite |
| ||||
|
| Average $/MBF |
| ||||
|
| 2017 |
| 2016 |
| ||
January |
| $ | 356 |
| $ | 316 |
|
February |
|
| 393 |
|
| 310 |
|
March |
|
| 401 |
|
| 321 |
|
April |
|
| 424 |
|
| 345 |
|
May |
|
| 416 |
|
| 356 |
|
June |
|
| 399 |
|
| 353 |
|
July |
|
| 411 |
|
| 351 |
|
August |
|
| 417 |
|
| 367 |
|
September |
|
| 416 |
|
| 354 |
|
|
|
|
|
|
|
|
|
Third quarter average |
| $ | 415 |
| $ | 357 |
|
Year-to-date average |
| $ | 404 |
| $ | 341 |
|
|
|
|
|
|
|
|
|
Third quarter percentage change |
|
| 16.2 | % |
|
|
|
Year-to-date percentage change |
|
| 18.5 | % |
|
|
|
19
In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprised approximately 44% and 42%comprise almost two-thirds of our total lumber purchases throughpurchases.
| | | | | | | |
| | Random Lengths SYP | | ||||
| | Average $/MBF | | ||||
|
| 2020 |
| 2019 |
| ||
January | | $ | 346 | | $ | 370 | |
February | |
| 345 | |
| 403 | |
March | |
| 360 | |
| 408 | |
April | |
| 333 | |
| 401 | |
May | |
| 412 | |
| 383 | |
June | |
| 494 | |
| 344 | |
July | |
| 552 | |
| 359 | |
August | |
| 729 | |
| 348 | |
September | |
| 886 | |
| 355 | |
| | | | | | | |
Third quarter average | | $ | 722 | | $ | 354 | |
Year-to-date average | | $ | 495 | | $ | 375 | |
| | | | | | | |
Third quarter percentage change | | | 104.0 | % | | | |
Year-to-date percentage change | | | 32.0 | % | | | |
The sequential increase in lumber prices above is due to a combination of mill production curtailments and demand for lumber much higher than expectations. We anticipate lumber prices will normalize to lower levels during the first nine monthsfourth quarter, which will impact our profitability of 2017products sold with fixed and 2016, respectively.variable prices as discussed below.
|
|
|
|
|
|
|
|
|
| Random Lengths SYP |
| ||||
|
| Average $/MBF |
| ||||
|
| 2017 |
| 2016 |
| ||
January |
| $ | 397 |
| $ | 358 |
|
February |
|
| 420 |
|
| 357 |
|
March |
|
| 433 |
|
| 366 |
|
April |
|
| 438 |
|
| 389 |
|
May |
|
| 416 |
|
| 397 |
|
June |
|
| 399 |
|
| 382 |
|
July |
|
| 381 |
|
| 380 |
|
August |
|
| 383 |
|
| 391 |
|
September |
|
| 387 |
|
| 375 |
|
|
|
|
|
|
|
|
|
Third quarter average |
| $ | 384 |
| $ | 382 |
|
Year-to-date average |
| $ | 406 |
| $ | 377 |
|
|
|
|
|
|
|
|
|
Third quarter percentage change |
|
| 0.5 | % |
|
|
|
Year-to-date percentage change |
|
| 7.7 | % |
|
|
|
16
UNIVERSAL FOREST PRODUCTS, INC.
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were 48.2%48.7% and 48.4%42.6% of our sales in the first nine months of 20172020 and 2016,2019, respectively.
Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.
Below is a general description of the primary ways in which our products are priced.
| Products with fixed selling prices. These products include value-added products, such as |
20
| Products with selling prices indexed to the reported Lumber Market with a fixed dollar “adder” to cover conversion costs and |
For each of the product pricing categories above, our margins are exposed to changes in the trend of lumber prices.
The greatest risk associated with changes in the trend of lumber prices is on the following products:products:
| Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprises approximately |
| Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices |
During the first nine months of 2017, volatility in the lumber market has impacted our gross profits on products sold under each of the general pricing methods described above. For example, the dramatic rise in lumber prices, which peaked in April, resulted in a decline in gross profit per unit on products sold with fixed prices primarily in the second
17
UNIVERSAL FOREST PRODUCTS, INC.
quarter. Additionally, the subsequent decline in lumber prices in May, June, and July resulted in a decline in gross profit per unit on products sold with a variable price indexed to the lumber market. We anticipate these trends may continue to impact our results into the fourth quarter until we reach a point of re-pricing products sold via a fixed price with our customers and selling through higher cost material sold on a variable price which is mitigated to some degree by stability of the SYP market.
Finally, hurricane Harvey and Irma as well as recent wildfires in British Columbia have resulted in sharp increases in lumber prices in the third quarter of 2017.
In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.
|
|
|
|
|
|
|
|
|
| Period 1 |
| Period 2 |
| ||
Lumber cost |
| $ | 300 |
| $ | 400 |
|
Conversion cost |
|
| 50 |
|
| 50 |
|
= Product cost |
|
| 350 |
|
| 450 |
|
Adder |
|
| 50 |
|
| 50 |
|
= Sell price |
| $ | 400 |
| $ | 500 |
|
Gross margin |
|
| 12.5 | % |
| 10.0 | % |
| | | | | | | |
|
| Period 1 | | Period 2 |
| ||
Lumber cost | | $ | 300 | | $ | 400 | |
Conversion cost | |
| 50 | |
| 50 | |
= Product cost | |
| 350 | |
| 450 | |
Adder | |
| 50 | |
| 50 | |
= Sell price | | $ | 400 | | $ | 500 | |
Gross margin | |
| 12.5 | % |
| 10.0 | % |
As is apparent from the preceding example, the level of lumber prices does not impact our overall profits, but does impact our margins. Gross margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low. In order to more effectively evaluate our profitability in such periods, we believe it is useful to compare our change in units shipped with our changes in costs and profits.
BUSINESS COMBINATIONS
We completed threetwo business acquisitions during the first nine months of 20172020 and sixthree during all of 2016.2019. The annual historical sales attributable to acquisitions completed in 2017the first nine months of 2020 and 2016 wasall of 2019 were approximately $124$38 million and $324$37 million, respectively. These business combinations were not significant to our quarterly or year-to-date operating results individually or in aggregate and thus pro forma results for 2017 or 20162020 and 2019 are not presented.
21
See Notes to the Unaudited Condensed Consolidated Financial Statements, Note F, “Business Combinations” for additional information.
18
UNIVERSAL FOREST PRODUCTS, INC.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our Unaudited Condensed Consolidated Statements of Earnings as a percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
|
| ||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
|
|
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
|
Net sales |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
|
Cost of goods sold |
| 86.3 |
| 85.7 |
| 86.1 |
| 85.2 |
|
|
Gross profit |
| 13.7 |
| 14.3 |
| 13.9 |
| 14.8 |
|
|
Selling, general, and administrative expenses |
| 8.8 |
| 9.1 |
| 9.2 |
| 9.3 |
|
|
Earnings from operations |
| 4.9 |
| 5.3 |
| 4.7 |
| 5.4 |
|
|
Other expense (income), net |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.1 |
|
|
Earnings before income taxes |
| 4.8 |
| 5.2 |
| 4.6 |
| 5.3 |
|
|
Income taxes |
| 1.5 |
| 1.7 |
| 1.5 |
| 1.8 |
|
|
Net earnings |
| 3.3 |
| 3.5 |
| 3.1 |
| 3.5 |
|
|
Less net earnings attributable to noncontrolling interest |
| (0.1) |
| (0.1) |
| (0.1) |
| (0.1) |
|
|
Net earnings attributable to controlling interest |
| 3.2 | % | 3.4 | % | 3.0 | % | 3.4 | % |
|
| | | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||
| September 26, |
| September 28, |
| | September 26, |
| September 28, |
|
| 2020 |
| 2019 |
| | 2020 |
| 2019 |
|
Net sales | 100.0 | % | 100.0 | % | | 100.0 | % | 100.0 | % |
Cost of goods sold | 83.8 |
| 83.9 |
| | 83.7 |
| 84.5 |
|
Gross profit | 16.2 |
| 16.1 |
| | 16.3 |
| 15.5 |
|
Selling, general, and administrative expenses | 9.1 |
| 9.9 |
| | 9.5 |
| 9.8 |
|
Other | — |
| 0.1 |
| | (0.1) |
| — |
|
Earnings from operations | 7.2 |
| 6.1 |
| | 6.9 |
| 5.7 |
|
Other expense, net | 0.1 |
| 0.1 |
| | 0.1 |
| 0.1 |
|
Earnings before income taxes | 7.1 |
| 5.9 |
| | 6.7 |
| 5.5 |
|
Income taxes | 1.8 |
| 1.4 |
| | 1.7 |
| 1.3 |
|
Net earnings | 5.3 |
| 4.5 |
| | 5.0 |
| 4.2 |
|
Less net earnings attributable to noncontrolling interest | (0.1) |
| (0.1) |
| | (0.1) |
| (0.1) |
|
Net earnings attributable to controlling interest | 5.2 | % | 4.5 | % | | 4.9 | % | 4.2 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
GROSSThe following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a percentage of net sales, adjusted to restate 2020 net sales and cost of goods sold at prior year lumber prices. The restated net sales amounts were calculated by adjusting 2020 sales for the change in our selling prices resulting primarily from underlying movements in commodity lumber prices in 2020 from 2019. By eliminating the “pass-through” impact of higher or lower lumber prices on net sales and cost of goods sold from year to year, we believe this provides an enhanced view of our change in profitability and costs as a percentage of sales. The amount of the adjustment to 2020 net sales was also applied to cost of goods sold so that gross profit remains unchanged.
| | | | | |
| Adjusted for Lumber Market Change | ||||
| Three Months Ended | | Nine Months Ended | ||
| September 26, | |
| September 26, | |
| 2020 | | | 2020 | |
Net sales | 100.0 | % | | 100.0 | % |
Cost of goods sold | 80.8 |
| | 82.6 |
|
Gross profit | 19.2 |
| | 17.4 |
|
Selling, general, and administrative expenses | 10.7 |
| | 10.2 |
|
Other | — |
| | (0.1) |
|
Earnings from operations | 8.5 |
| | 7.3 |
|
Other expense, net | 0.1 |
| | 0.1 |
|
Earnings before income taxes | 8.4 |
| | 7.2 |
|
Income taxes | 2.1 |
| | 1.8 |
|
Net earnings | 6.3 |
| | 5.4 |
|
Less net earnings attributable to noncontrolling interest | (0.1) |
| | (0.2) |
|
Net earnings attributable to controlling interest | 6.2 | % | | 5.2 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
22
Operating Results by Segment:
Effective January 1, 2020, the Company re-organized around the markets it serves rather than geography. Our new business segments align with the following markets: UFP Retail Solutions, UFP Construction and UFP Industrial. Among other things, this change allows for a more specialized and consistent sales approach among Company operations, more efficient use of resources and capital, and quicker introduction of new products and services. The Company manages the operations of its individual locations primarily through a market-centered reporting structure under which each location is included in a business unit and business units are included in our Retail, Industrial, and Construction segments. The exception to this market-centered reporting and management structure is the Company’s International segment, which comprises our Mexico, Canada, and Australia operations and sales and buying offices in other parts of the world. Our International segment and Ardellis (our insurance captive) have been included in the “All Other” column of the table below. The “Corporate” column includes purchasing, transportation and administrative functions that serve our operating segments. Operating results of Corporate primarily consists of over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns and leases transportation equipment, are also included in the Corporate column. An inter-company lease charge is assessed to our operating segments for the use of these assets at fair market value rates.
The following tables present our operating results, for the periods indicated, by segment.
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 26, 2020 | ||||||||||||||||
|
| |
| |
| | | | | | |
| | |||||
(in thousands) | | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 700,522 | | $ | 282,124 | | $ | 447,103 | | $ | 56,700 | | $ | (222) | | $ | 1,486,227 |
Cost of goods sold | |
| 594,896 | |
| 233,971 | |
| 385,028 | |
| 38,543 | | | (7,285) | | | 1,245,153 |
Gross profit | | | 105,626 | | | 48,153 | | | 62,075 | | | 18,157 | | | 7,063 | | | 241,074 |
Selling, general, administrative expenses | | | 43,515 | | | 26,080 | | | 45,411 | | | 10,499 | | | 9,144 | | | 134,649 |
Other | |
| (70) | |
| 36 | |
| 151 | | | 209 | | | (502) | | | (176) |
Earnings from operations | | $ | 62,181 | | $ | 22,037 | | $ | 16,513 | | $ | 7,449 | | $ | (1,579) | | $ | 106,601 |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 28, 2019 | ||||||||||||||||
|
| |
| |
| | | | | | | |
| | ||||
(in thousands) | | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 397,140 | | $ | 271,667 | | $ | 445,505 | | $ | 48,066 | | $ | 648 | | $ | 1,163,026 |
Cost of goods sold | |
| 353,291 | |
| 224,363 | |
| 373,181 | | | 35,532 | | | (10,611) | | | 975,756 |
Gross profit | | | 43,849 | | | 47,304 | | | 72,324 | | | 12,534 | | | 11,259 | | | 187,270 |
Selling, general, administrative expenses | | | 29,534 | | | 26,522 | | | 49,897 | | | 9,359 | | | 646 | | | 115,958 |
Other | |
| 18 | | | 14 | | | 1,021 | | | (386) | | | 178 | | | 845 |
Earnings from operations | | $ | 14,297 | | $ | 20,768 | | $ | 21,406 | | $ | 3,561 | | $ | 10,435 | | $ | 70,467 |
23
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 26, 2020 | ||||||||||||||||
| | | | | | | | | | | | | | |||||
(in thousands) | | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 1,661,873 | | $ | 763,046 | | $ | 1,187,429 | | $ | 148,503 | | $ | (561) | | $ | 3,760,290 |
Cost of goods sold | |
| 1,429,229 | |
| 635,424 | |
| 1,002,932 | | | 101,240 | | | (21,776) | | | 3,147,049 |
Gross profit | | | 232,644 | | | 127,622 | | | 184,497 | | | 47,263 | | | 21,215 | | | 613,241 |
Selling, general, administrative expenses | | | 110,596 | | | 73,662 | | | 134,098 | | | 28,228 | | | 11,186 | | | 357,770 |
Other | | | (34) | | | 123 | | | (145) | | | (1,538) | | | (526) | | | (2,120) |
Earnings from operations | | $ | 122,082 | | $ | 53,837 | | $ | 50,544 | | $ | 20,573 | | $ | 10,555 | | $ | 257,591 |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 28, 2019 | ||||||||||||||||
| | | | | | | | | | | | | | |||||
(in thousands) | | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 1,212,330 | | $ | 837,671 | | $ | 1,225,467 | | $ | 142,845 | | $ | (344) | | $ | 3,417,969 |
Cost of goods sold | |
| 1,076,672 | |
| 702,390 | |
| 1,024,647 | | | 107,101 | | | (21,104) | | | 2,889,706 |
Gross profit | | | 135,658 | | | 135,281 | | | 200,820 | | | 35,744 | | | 20,760 | | | 528,263 |
Selling, general, administrative expenses | | | 88,123 | | | 75,083 | | | 143,497 | | | 26,259 | | | 1,203 | | | 334,165 |
Other | | | (62) | | | (10) | | | 1,060 | | | (5) | | | (35) | | | 948 |
Earnings from operations | | $ | 47,597 | | $ | 60,208 | | $ | 56,263 | | $ | 9,490 | | $ | 19,592 | | $ | 193,150 |
The following tables present the components of our operating results, for the periods indicated, as a percentage of net sales by segment.
| | | | | | | | | | | | | |
| | Three Months Ended September 26, 2020 | | ||||||||||
|
| |
| |
| | | | | | | |
|
(in thousands) | | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | |
Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | N/A | | 100.0 | % |
Cost of goods sold | | 84.9 | | 82.9 | | 86.1 | | 68.0 | | — | | 83.8 | |
Gross profit | | 15.1 | | 17.1 | | 13.9 | | 32.0 | | — | | 16.2 | |
Selling, general, administrative expenses | | 6.2 | | 9.2 | | 10.2 | | 18.5 | | — | | 9.1 | |
Other | | — | | — | | — | | 0.4 | | — | | — | |
Earnings from operations | | 8.9 | % | 7.8 | % | 3.7 | % | 13.1 | % | — | | 7.2 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
| | | | | | | | | | | | | |
| | Three Months Ended September 28, 2019 | | ||||||||||
|
| |
| |
| | | | | | | |
|
(in thousands) | | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | |
Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | N/A | | 100.0 | % |
Cost of goods sold | | 89.0 | | 82.6 | | 83.8 | | 73.9 | | — | | 83.9 | |
Gross profit | | 11.0 | | 17.4 | | 16.2 | | 26.1 | | — | | 16.1 | |
Selling, general, administrative expenses | | 7.4 | | 9.8 | | 11.2 | | 19.5 | | — | | 9.9 | |
Other | | — | | — | | 0.2 | | (0.8) | | — | | 0.1 | |
Earnings from operations | | 3.6 | % | 7.6 | % | 4.7 | % | 7.5 | % | — | | 6.1 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
24
| | | | | | | | | | | | | |
| | | |||||||||||
| | Nine Months Ended September 26, 2020 | | ||||||||||
|
| |
| |
| | | | | | | |
|
(in thousands) | | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | |
Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | N/A | | 100.0 | % |
Cost of goods sold | | 86.0 | | 83.3 | | 84.5 | | 68.2 | | — | | 83.7 | |
Gross profit | | 14.0 | | 16.7 | | 15.5 | | 31.8 | | — | | 16.3 | |
Selling, general, administrative expenses | | 6.7 | | 9.7 | | 11.3 | | 19.0 | | — | | 9.5 | |
Other | | — | | — | | — | | (1.0) | | — | | (0.1) | |
Earnings from operations | | 7.3 | % | 7.1 | % | 4.3 | % | 13.9 | % | — | | 6.9 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
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| | Nine Months Ended September 28, 2019 | | ||||||||||
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(in thousands) | | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | |
Net sales | | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | N/A | | 100.0 | % |
Cost of goods sold | | 88.8 | | 83.9 | | 83.6 | | 75.0 | | — | | 84.5 | |
Gross profit | | 11.2 | | 16.1 | | 16.4 | | 25.0 | | — | | 15.5 | |
Selling, general, administrative expenses | | 7.3 | | 9.0 | | 11.7 | | 18.4 | | — | | 9.8 | |
Other | | — | | — | | 0.1 | | — | | — | | — | |
Earnings from operations | | 3.9 | % | 7.1 | % | 4.6 | % | 6.6 | % | — | | 5.7 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
NET SALES
We design, manufacture and market wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, specialty wood packaging, components and packing materials for various industries, and customized interior fixtures used in a variety of retail stores,and commercial applications, and other structures.specialty wood packaging, components and packaging materials for various industries. Our strategic long-term sales objectives generally include:
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1925
UNIVERSAL FOREST PRODUCTS,UFP INDUSTRIES, INC.
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| New Product Sales by Market |
| New Product Sales by Market | ||||||||||||
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| Three Months Ended |
| Nine Months Ended | ||||||||||||
(in thousands) |
| September 30, |
| September 24, |
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| September 30, |
| September 24, |
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Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||
Retail |
| $ | 65,383 |
|
| 53,252 |
| 22.78% |
| $ | 192,194 |
| $ | 153,966 |
| 24.83% |
Industrial |
|
| 26,738 |
|
| 23,374 |
| 14.39% |
|
| 76,125 |
|
| 65,642 |
| 15.97% |
Construction |
|
| 15,577 |
|
| 11,911 |
| 30.78% |
|
| 45,321 |
|
| 35,717 |
| 26.89% |
Total New Product Sales |
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| 107,698 |
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| 88,537 |
| 21.64% |
|
| 313,640 |
|
| 255,325 |
| 22.84% |
Note: Certain prior year product reclassifications and the change in designation of certain products as “new” resulted in a change in prior year’s sales.
The following table presents, for the periods indicated, our gross sales and percentage change in gross sales by market classification.
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| Nine Months Ended | ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
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| September 24, |
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Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||||
Retail |
| $ | 391,895 |
| $ | 339,275 |
| 15.5 | % |
| $ | 1,162,785 |
| $ | 1,018,203 |
| 14.2 | % |
Industrial |
|
| 369,506 |
|
| 232,017 |
| 59.3 | % |
|
| 982,675 |
|
| 661,718 |
| 48.5 | % |
Construction |
|
| 310,026 |
|
| 267,772 |
| 15.8 | % |
|
| 872,997 |
|
| 740,393 |
| 17.9 | % |
Total Gross Sales |
|
| 1,071,427 |
|
| 839,064 |
| 27.7 | % |
|
| 3,018,457 |
|
| 2,420,314 |
| 24.7 | % |
Sales Allowances |
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| (14,841) |
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| (12,399) |
| 19.7 | % |
|
| (43,366) |
|
| (39,405) |
| 10.1 | % |
Total Net Sales |
| $ | 1,056,586 |
| $ | 826,665 |
| 27.8 | % |
| $ | 2,975,091 |
| $ | 2,380,909 |
| 25.0 | % |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Gross sales in the third quarter of 2017 increased 28% compared to the same period of 2016, due to a 22% increase in unit sales and a 6% increase in selling prices primarily due to the Lumber Market. Acquired operations contributed 15% to our unit sales growth, and our organic unit sales growth was 7%.
Changes in our gross sales by market are discussed below.
Retail:
Gross sales to the retail market increased almost 16% in the third quarter of 2017 compared to the same period of 2016, due to a 12% increase in unit sales and a 4% increase in selling prices. Within this market, sales to our big box customers increased almost 13%, and sales to other independent retailers increased over 20%. Businesses we acquired contributed 7% to our growth in unit sales, primarily to independent retail customers. Our organic unit growth was 5% for the quarter. By comparison, “big box” same store sales growth during the third quarter has been reported at approximately 6.3%.
Gross sales to the retail market increased over 14% in the first nine months of 2017 compared to the same period of 2016, due to a 9% increase in unit sales and a 5% increase in selling prices. Within this market, sales to our big box customers increased almost 15%, and sales to other independent retailers increased almost 14%. Businesses we acquired contributed 6% to our growth in unit sales, primarily to independent retail customers. Our organic unit growth was 3% in the first nine months of 2017. By comparison, “big box” same store sales growth in the first nine months of 2017 has been reported at approximately 6.0%.
Industrial:
Gross sales to the industrial market increased over 59% in the third quarter of 2017 compared to the same period of 2016, resulting from a 54% increase in unit sales and a 5% increase in selling prices. Businesses we acquired contributed
20
UNIVERSAL FOREST PRODUCTS, INC.
43% to our growth in unit sales. Our organic growth in unit sales of 11% was primarily due to new operations, adding 578 new customers, and share gains with several existing customers.
Gross sales to the industrial market increased almost 49% in the first nine months of 2017 compared to the same period of 2016, resulting from a 43% increase in unit sales and a 6% increase in selling prices. Businesses we acquired contributed 34% to our growth in unit sales. Our organic growth in unit sales of 9% was primarily due to same factors discussed above.
Construction:
Gross sales to the construction market increased almost 16% in the third quarter of 2017 compared to 2016. The increase was due to an 8% increase in unit sales and an 8% increase in our selling prices. Our increase in unit sales was driven by a 12% increase to manufactured housing customers, and an 8% increase to residential construction customers, offset by a 5% decrease to commercial construction customers.
By comparison (and based upon various industry publications):
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Gross sales to the construction market increased almost 18% in the first nine months of 2017 compared to 2016. The increase was due to a 9% increase in unit sales and a 9% increase in our selling prices. Our increase in unit sales was driven by an 11% increase to manufactured housing customers, an 11% increase to residential construction customers, and a 1% increase to commercial construction customers due to the same factors discussed above.
Value-Added and Commodity-Based Sales:
The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales.net sales by our primary segments (Retail, Industrial, and Construction). Value-added products generallyare typically sold at fixed selling prices for a pre-determined time period and carry higher gross margins than our commodity-based products.
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| Nine Months Ended | ||||||||
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| September 24, |
| September 30, |
| September 24, | ||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Value-Added |
| 63.9 | % |
| 61.1 | % |
| 62.9 | % |
| 61.5 | % |
Commodity-Based |
| 36.1 | % |
| 38.9 | % |
| 37.1 | % |
| 38.5 | % |
COST OF GOODS SOLD AND GROSS PROFIT
Our gross margin decreased The increase in our ratio of commodity-based product sales to 13.7% from 14.3% comparingtotal sales reflected in the tables below is primarily due to the impact of dramatically higher lumber prices in the third quarter of 20172020 as the selling prices of these products are generally indexed to the current Lumber Market at the time they are shipped. For example, a majority of our commodity-based sales are sold through our ProWood business unit and selling prices were up 66% compared to the third quarter of 2019. Also, our Industrial and Construction segments primarily sell value-added products and their unit sales were down 2% and 9% from last year, respectively.
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| | Three Months Ended September 26, 2020 | | Three Months Ended September 28, 2019 | ||||||||
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| Value-Added |
| Commodity-Based |
| Value-Added |
| Commodity-Based | ||||
Retail |
| 49.6 | % | | 50.4 | % | | 57.5 | % | | 42.5 | % |
Industrial | | 63.9 | % | | 36.1 | % | | 67.1 | % | | 32.9 | % |
Construction | | 74.3 | % | | 25.7 | % | | 82.5 | % | | 17.5 | % |
Total Sales | | 60.6 | % | | 39.4 | % | | 70.0 | % | | 30.0 | % |
| | | | | | | | | | | | |
| | Nine Months Ended September 26, 2020 | | Nine Months Ended September 28, 2019 | ||||||||
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| Value-Added |
| Commodity-Based |
| Value-Added |
| Commodity-Based | ||||
Retail |
| 54.4 | % | | 45.6 | % | | 58.4 | % | | 41.6 | % |
Industrial | | 65.7 | % | | 34.3 | % | | 66.4 | % | | 33.6 | % |
Construction | | 77.3 | % | | 22.7 | % | | 81.1 | % | | 18.9 | % |
Total Sales | | 64.6 | % | | 35.4 | % | | 69.1 | % | | 30.9 | % |
● | Developing new products. We define new products as those that will generate sales of at least a $1 million per year within 4 years of launch and are still growing and gaining market penetration. New product sales and gross profits in the third quarter were up 41% and 27%, respectively. Approximately $37 million and $103 million of new product sales for the first three and nine months of 2019, respectively, while still sold, were sunset in 2020 and excluded from the table below because they no longer meet the definition above. Our goal is to achieve annual new product sales of at least $475 million in 2020. |
| | | | | | | | | | | | | | | | | | |
| | New Product Sales by Segment | | | New Product Sales by Segment | | ||||||||||||
| | Three Months Ended | | | Nine Months Ended | | ||||||||||||
|
| September 26, |
| September 28, |
| % |
| September 26, |
| September 28, |
| % | ||||||
Segment Classification | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | ||||||
Retail | | $ | 115,321 | | | 72,411 |
| 59.3 | % | | $ | 297,363 | | $ | 229,642 |
| 29.5 | % |
Industrial | |
| 20,207 | | | 17,789 |
| 13.6 | % | |
| 50,909 | |
| 50,274 |
| 1.3 | % |
Construction | | | 15,768 | | | 15,228 | | 3.5 | % | | | 41,923 | | | 44,708 | | (6.2) | % |
All Other | |
| 2,394 | | | 3,235 |
| (26.0) | % | |
| 7,895 | |
| 9,594 |
| (17.7) | % |
Total New Product Sales | |
| 153,690 | | | 108,663 |
| 41.4 | % | |
| 398,090 | |
| 334,218 |
| 19.1 | % |
| | | | | | | | | | | | | | | | | | |
Note: Certain prior year product reclassifications and the change in designation of certain products as "new" resulted in a change in prior year's sales. |
● | Selling to new customers and markets. |
26
Retail Segment
Net sales in the third quarter of 2020 increased approximately 76% compared to the same period of 20162019, due to the higher level of lumbera 34% increase in organic unit sales and a 42% increase in selling prices. Our 22.6%organic unit growth was primarily driven by a 57% increase in gross profit dollars compares favorably with our 22%Dimensions Home & Décor products including project panels and short lumber, a 50% increase in Deckorators composite decking and railing, a 30% increase in our ProWood pressure-treated products, and a 28% increase in Outdoor Essentials Fence, Lawn & Garden products. Our new product sales contributed to these increases and were up 59% for the quarter. Finally, our sales to big box customers increased 80%, and sales to other independent retailers increased 71%. Our unit sales duringincreases were primarily due to an increase in demand as consumers invested in home improvement activities over other alternatives. We believe that the same period. Acquired operationspandemic and related disruptions in the lives of consumers contributed $19.9to this increase in demand.
Gross profits increased by $61.8 million, of gross profit inor 140.9% to $105.6 million for the third quarter of 2017. Excluding acquisitions, our gross profits increased by $6.7 million, or 5.7%, over2020 compared to the same period last year as follows:
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21
UNIVERSAL FOREST PRODUCTS, INC.
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Our gross margin decreasedmargins increased to 13.9% from 14.8% comparing the first nine months of 201715.1% compared to 11.0% for the same period of 2016.2019. We estimate the higher level of lumber prices (see “Impact of the Lumber Market on Our 17.4%Operating Results”) reduced gross margin by 470 basis points. Our increase in gross profit dollars compares unfavorably with our 19% increase in unit sales in the first nine months of 2017 comparedprofits was due to the same period last year. The increase in our gross profit dollars was primarily due to acquired operations which contributed $45.6 million of gross profit in the first nine months of 2017. Excluding acquisitions, our gross profits increased by $15.8 million over the same period last year as follows:following factors:
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses increased by approximately $17.9$14.0 million, or 24.0%47.3%, in the third quarter of 20172020 compared to the same period of 2016,2019, while we reported a 22%34% increase in unit sales. Accrued bonus expense, which varies with our overall profitability and return on investment, increased approximately $10.7 million and totaled $12.4approximately $15.0 million infor the third quarter of 2017 compared to $12.0 million in 2016. Acquired operations contributed approximately $15 million to our year over year increase.quarter. The remaining increase was primarily due to anincreases in salaries and wages which were partially offset by decreases in advertising and travel and related costs.
Earnings from operations for the Retail reportable segment increased in the third quarter of 2020 compared to 2019 by $47.9 million, or 335%, well in excess of our 34% increase in compensationunit sales as a result of the factors above.
Net sales in the first nine months of 2020 increased 37% compared to the same period of 2019, due to a 22% increase in unit sales and benefit costs. a 15% increase in selling prices. Acquired operations contributed 1% to our unit sales growth, and organic unit sales growth was 21%. Our organic unit growth was primarily driven by a 53% increase in our Dimensions Home & Décor products including project panels and short lumber, a 25% increase in our ProWood pressure-treated products, a 21% increase in Outdoor Essentials Fence, Lawn & Garden products, and an 11% increase in Deckorators composite decking and railing. Our new product sales contributed to these increases and were up 29.5%. Sales to big box customers were up 42% and sales to other independent retailers increased 28%.
Gross profits in the first nine months of 2020 increased 71.5% to $232.6 million compared to the same period of 2019 as gross margins increased to 14.0% compared to 11.2% for the same period of 2019. The impact of higher lumber prices contributed to a 170 basis point decline in our gross margin. Improvements in our profitability were primarily due to:
● | The impact of effective inventory positioning, resulting in lower lumber costs early in the year. |
● | Growth in our sales of value-added products. |
27
● | Strong organic growth, which allowed us to leverage fixed costs. |
● | The sequential rise in lumber prices in the second and third quarters, which favorably impacted our gross profit per unit of products sold on a variable price such as ProWood pressure-treated lumber. |
Selling, general and administrative (“SG&A”) expenses increased by approximately $50.5$22.5 million, or 22.6%25.5%, in the first nine months of 20172020 compared to the same period of 2016,2019, while we reported a 19%22% increase in unit sales. Acquired operations since the third quarter of 2019 contributed approximately $1.9 million to this increase. Accrued bonus expense increased approximately $14.9 million and totaled $32.6 million inapproximately $26.9 for the first nine months of 2017 compared to $33.9 million in 2016. Acquired operations contributed approximately $41 million to our year over year increase.2020. The remaining increase was primarily due to anincreases in salaries and wages and in-store merchandising costs, offset by a decline in advertising and travel and related costs.
Earnings from operations for the Retail reportable segment increased in the first nine months of 2020 compared to 2019 by $74.5 million, or 156.5%, well in excess of our 22% increase in compensation and benefit costs and foreign currency exchange losses. unit sales as a result of the factors mentioned above.
INTEREST, NETIndustrial Segment
Net interest costs were highersales in the third quarter of 20172020 increased 4% compared to the same period of 20162019, due to carrying a higher amount of debt and a slight6% increase in short-term borrowing rates.selling prices attributable to the Lumber Market, offset by a 2% decrease in unit sales due to the impact of the pandemic and government imposed shutdowns.
Gross profits increased by 1.8% to $48.2 million for the third quarter of 2020 compared to the same period of 2019. We estimate the higher level of lumber prices (see “Impact of the Lumber Market on Our Operating Results”) caused a decline in margin of 100 basis points as our gross margins dropped to 17.1% from 17.4% last year. We experienced a 70 basis point improvement in our profitability due to the impact of favorable changes in product mix and effectively passing along increases in commodity lumber costs to our customers.
Selling, general and administrative (“SG&A”) expenses decreased by approximately $.4 million, or 1.7%, in the third quarter of 2020 compared to the same period of 2019. Acquired operations since the third quarter of 2019 contributed approximately $0.9 million to our costs. Accrued bonus expense, which varies with our pre-bonus operating profit and return on investment, decreased approximately $.9 million, and totaled $6.1 million for the quarter. The remaining decrease was due to a variety of factors.
Earnings from operations for the Industrial reportable segment increased in the third quarter of 2020 compared to 2019 by $1.3 million, or 6.1%, due to the factors discussed above.
Net sales in the first nine months of 2020 decreased 9% compared to the same period of 2019, due to a 10% decrease in unit sales, reflective of the impact of the pandemic on our Industrial business.
Gross profits in the first nine months of 2020 declined 5.7% to $127.6 million compared to the same period of 2019, while gross margins increased to 16.7% compared to 16.1% for the same period of 2019. We estimate the higher level of lumber prices caused a decline in margin of 20 basis points. The improvement in our gross margin was primarily due to the impact of effective inventory positioning resulting in lower lumber costs early in the year, favorable changes in product mix, and effectively passing along increases in commodity lumber costs to our customers.
Selling, general and administrative (“SG&A”) expenses decreased by approximately $1.4 million, or 1.9%, in the first nine months of 2020 compared to the same period of 2019. Acquired operations since the third quarter of 2019 contributed approximately $2.0 million to total SG&A expenses. Accrued bonus expense decreased approximately $4.2 million compared to the same period of 2019 and totaled approximately $12.5 for the first nine months of 2020. This reduction was partially offset by increases in salaries and wages, sales compensation, and amortization expense.
28
Earnings from operations for the Industrial reportable segment decreased in the first nine months of 2020 compared to 2019 by $6.4 million, or 10.6%, due to the factors mentioned above.
Construction Segment
Net sales in the third quarter of 2020 were flat compared to the same period of 2019, due to a 9% increase in selling prices attributable to the Lumber Market, offset by a 9% decrease in unit sales due to the impact of the pandemic. Unit changes within this segment consisted of declines of 2% in concrete forming, 8% in site-built construction, and 37% in commercial construction, offset by a 7% increase in factory-built housing.
Gross profits decreased by $10.2 million, or 14.2% to $62.1 million for the third quarter of 2020 compared to the same period of 2019. Gross margin decreased to 13.9% from 16.2% for the same period last year. We estimate the higher level of the lumber prices (see “Impact of the Lumber Market on Our Operating Results”) caused a 140 basis point decrease in our gross margin. The decrease in our gross profit was comprised of the following factors:
● | Gross profits in our site-built construction business unit decreased by $10.6 million due to a combination of lower unit sales and higher commodity lumber costs, which adversely impacted our profit per unit of products we sell on a fixed price to our customers for a period of time. |
● | A decline in unit sales in our commercial business unit, which has a more significant fixed cost structure, caused a decrease in gross profit of $6.8 million. |
● | The impact of rising lumber prices on variable priced products contributed $4.3 million in gross profit in our factory-built housing and concrete forming business units. |
● | Favorable cost variances contributed $1.2 million in gross profit. |
● | Acquired businesses contributed $1.7 million. |
Selling, general and administrative (“SG&A”) expenses decreased by approximately $4.5 million, or 8.9%, in the third quarter of 2020 compared to the same period of 2019, while we reported a 9% decrease in unit sales. Acquired operations since the third quarter of 2019 contributed approximately $1.7 million to total SG&A expenses for the quarter. Accrued bonus expense, which varies with our overall profitability and return on investment, decreased approximately $2.2 million, and totaled $4.7 million for the quarter. Decreases in salaries and wages, sales compensation, and travel expenses also contributed to the overall decrease in SG&A.
Earnings from operations for the Construction reportable segment decreased in the third quarter of 2020 compared to 2019 by $4.9 million, or 22.9%, due to the factors mentioned above.
Net sales in the first nine months of 2020 decreased 3% compared to the same period of 2019, due to an 8% decrease in unit sales due to the impact of the pandemic, offset by a 5% increase in selling prices primarily due to the Lumber Market. Unit changes within this segment consisted of declines of 1% in factory-built housing, 8% in site-built construction, and 20% in commercial construction. These declines were offset by unit increases of 2% in concrete forming.
Gross profits in the first nine months of 2020 declined 8.1% to $184.5 million compared to the same period of 2019. Gross margins decreased to 15.5% from 16.4% for the same period of 2019. We estimate the higher level of lumber prices caused an 80 basis point decrease in our gross margin. The decrease in our gross profits was primarily due to the same factors discussed above.
29
Selling, general and administrative (“SG&A”) expenses decreased by approximately $9.4 million, or 6.5%, in the first nine months of 2020 compared to the same period of 2019. Acquired operations since the third quarter of 2019 contributed approximately $2.7 million to total SG&A expenses. Accrued bonus expense decreased approximately $4.1 million compared to the same period of 2019 and totaled approximately $11.4 million for the first nine months of 2020. Decreases in salaries and wages, travel and medical expenses also contributed to the overall decrease in SG&A.
Earnings from operations for the Construction reportable segment decreased in the first nine months of 2020 compared to 2019 by $5.7 million, or 10.2%, due to the factors mentioned above.
All Other Segment
Our All Other reportable segment consists of our International and Ardellis (our insurance captive) segments that are not significant.
Corporate
The corporate segment consists of over (under) allocated costs that are not significant.
INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for foreign, state and local income taxes and permanent tax differences. Our effective tax rate was 31.9%25.4% in the third quarter of 20172020 compared to 32.5%23.8% for same period in 2016. Our effective tax rate 2019 and was 33.0%25.2% in the first nine months of 20172020 compared to 34.2% in 2016. The decrease in our effective tax rate is primarily due to recording a tax deduction for certain share-based compensation at fair market value.
22
UNIVERSAL FOREST PRODUCTS, INC.
SEGMENT REPORTING
The following table presents,24.0% for the periods indicated, our net sales and earnings from operations by reportable segment.
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| Net Sales |
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| Earnings from Operations | ||||||||||||||||||||
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| Three Months Ended |
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| Three Months Ended | ||||||||||||||||||||
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| September 30, |
| September 24, |
| $ |
| % |
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| September 30, |
| September 24, |
| $ |
| % | ||||||||
(in thousands) |
| 2017 |
| 2016 |
| Change |
| Change |
|
| 2017 |
| 2016 |
| Change |
| Change | ||||||||
North |
| $ | 310,384 |
| $ | 267,156 |
| $ | 43,228 |
| 16.2 | % |
|
| $ | 16,697 |
| $ | 14,630 |
| $ | 2,067 |
| 14.1 | % |
South |
|
| 206,050 |
|
| 173,715 |
|
| 32,335 |
| 18.6 | % |
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|
| 10,234 |
|
| 9,900 |
|
| 334 |
| 3.4 | % |
West |
|
| 378,714 |
|
| 335,981 |
|
| 42,733 |
| 12.7 | % |
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| 22,538 |
|
| 19,962 |
|
| 2,576 |
| 12.9 | % |
All Other |
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| 161,438 |
|
| 49,813 |
|
| 111,625 |
| 224.1 | % |
|
|
| 6,882 |
|
| 2,959 |
|
| 3,923 |
| 132.6 | % |
Corporate |
|
| — |
|
| — |
|
| — |
| — |
|
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|
| (4,080) |
|
| (3,899) |
|
| (181) |
| 4.6 | % |
Total |
| $ | 1,056,586 |
| $ | 826,665 |
| $ | 229,921 |
| 27.8 | % |
|
| $ | 52,271 |
| $ | 43,552 |
| $ | 8,719 |
| 20.0 | % |
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| Net Sales |
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| Earnings from Operations | ||||||||||||||||||||
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| Nine Months Ended |
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| Nine Months Ended | ||||||||||||||||||||
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| September 30, |
| September 24, |
| $ |
| % |
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| September 30, |
| September 24, |
| $ |
| % |
| |||||||
(in thousands) |
| 2017 |
| 2016 |
| Change |
| Change |
|
| 2017 |
| 2016 |
| Change |
| Change | ||||||||
North |
| $ | 857,858 |
| $ | 758,066 |
| $ | 99,792 |
| 13.2 | % |
|
| $ | 42,921 |
| $ | 43,054 |
| $ | (133) |
| (0.3) | % |
South |
|
| 616,376 |
|
| 533,239 |
|
| 83,137 |
| 15.6 | % |
|
|
| 31,152 |
|
| 35,830 |
|
| (4,678) |
| (13.1) | % |
West |
|
| 1,088,744 |
|
| 940,188 |
|
| 148,556 |
| 15.8 | % |
|
|
| 65,547 |
|
| 58,434 |
|
| 7,113 |
| 12.2 | % |
All Other |
|
| 412,113 |
|
| 149,416 |
|
| 262,697 |
| 175.8 | % |
|
|
| 13,285 |
|
| 11,542 |
|
| 1,743 |
| 15.1 | % |
Corporate |
|
| — |
|
| — |
|
| — |
| — |
|
|
|
| (12,914) |
|
| (19,733) |
|
| 6,819 |
| 34.6 | % |
Total |
| $ | 2,975,091 |
| $ | 2,380,909 |
| $ | 594,182 |
| 25.0 | % |
|
| $ | 139,991 |
| $ | 129,127 |
| $ | 10,864 |
| 8.4 | % |
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Sales |
| Net Sales | ||||||||||||||
|
| North Segment by Market |
| North Segment by Market | ||||||||||||||
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
|
|
|
| September 30, |
| September 24, |
|
|
| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||||
Retail |
| $ | 139,284 |
| $ | 131,333 |
| 6.1 | % |
| $ | 387,925 |
| $ | 369,699 |
| 4.9 | % |
Industrial |
|
| 40,192 |
|
| 27,524 |
| 46.0 | % |
|
| 114,533 |
|
| 87,287 |
| 31.2 | % |
Construction |
|
| 137,616 |
|
| 113,897 |
| 20.8 | % |
|
| 373,838 |
|
| 316,204 |
| 18.2 | % |
Total Gross Sales |
|
| 317,092 |
|
| 272,754 |
| 16.3 | % |
|
| 876,296 |
|
| 773,190 |
| 13.3 | % |
Sales Allowances |
|
| (6,708) |
|
| (5,598) |
| 19.8 | % |
|
| (18,438) |
|
| (15,124) |
| 21.9 | % |
Total Net Sales |
| $ | 310,384 |
| $ | 267,156 |
| 16.2 | % |
| $ | 857,858 |
| $ | 758,066 |
| 13.2 | % |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the North reportable segment increasedsame period in the third quarter of 2017 compared to 2016 as a result of increased sales to each of our markets primarily due to the same factors previously discussed. Acquired operations contributed $8.7 million to our industrial sales increase.
Earnings from operations for the North reportable segment increased in the third quarter of 2017 by $2.1 million, or 14.1%, due to an2019. The increase in gross profit of $2.7 million, offset by a $0.6 million increase in SG&A expenses compared to last year. Acquired operations contributed $0.4 million to our operating profits in the third quarter.
23
UNIVERSAL FOREST PRODUCTS, INC.
Net sales attributable to the North reportable segment increased in the first nine months of 2017 compared to 2016 due to an increase in sales to each of our markets primarily due to the same factors previously discussed. Acquired operations contributed $21.0 million to our industrial sales increase.
Earnings from operations for the North reportable segment decreased in the first nine months of 2017 by $0.1 million, or 0.3%, due to an increase in gross profit of $4.5 million offset by a $4.6 million increase in SG&A expenses compared to last year. Acquired operations contributed $1.4 million to our operating profits in the first nine months of 2017.
South
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Sales |
| Net Sales | ||||||||||||||
|
| South Segment by Market |
| South Segment by Market | ||||||||||||||
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
|
|
|
| September 30, |
| September 24, |
|
|
| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | ||||||
Retail |
| $ | 92,146 |
| $ | 75,130 |
| 22.6 | % |
| $ | 282,809 |
| $ | 240,175 |
| 17.8 | % |
Industrial |
|
| 69,390 |
|
| 61,749 |
| 12.4 | % |
|
| 201,928 |
|
| 185,529 |
| 8.8 | % |
Construction |
|
| 49,054 |
|
| 40,385 |
| 21.5 | % |
|
| 145,387 |
|
| 118,223 |
| 23.0 | % |
Total Gross Sales |
|
| 210,590 |
|
| 177,264 |
| 18.8 | % |
|
| 630,124 |
|
| 543,927 |
| 15.8 | % |
Sales Allowances |
|
| (4,540) |
|
| (3,549) |
| 27.9 | % |
|
| (13,748) |
|
| (10,688) |
| 28.6 | % |
Total Net Sales |
| $ | 206,050 |
| $ | 173,715 |
| 18.6 | % |
| $ | 616,376 |
| $ | 533,239 |
| 15.6 | % |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the South reportable segment increased in the third quarter of 2017 compared to 2016 due to increased sales to all markets primarily due to the same factors previously discussed. Acquired operations contributed $24.4 million and $1.8 million to our growth in sales to the retail and industrial market, respectively.
Earnings from operations for the South reportable segment increased in the third quarter of 2017 by $0.3 million, or 3.4%, due to a increase in gross profit of $0.7 million offset by a $0.4 million increase in SG&A expenses. Acquired operations contributed $0.6 million to our operating profits in the third quarter.
Net sales attributable to the South reportable segment increased in the first nine months of 2017 compared to 2016 due to increased sales to all markets primarily due to the factors previously discussed. Acquired operations contributed $59.9 million of sales growth to our retail market.
Earnings from operations for the South reportable segment decreased in the first nine months of 2017 by $4.7 million, or 13.1%, due to a decrease in gross profit of $3.1 million and an increase of $1.6 million in SG&A expenses. The decrease in gross profit was primarily due to the impactforeign tax rate differential on foreign income as well as a variety of the volatility in lumber prices. Acquired operations contributed $2.0 million to our operating profits in the first nine monthsother discrete tax items none of 2017.
24
UNIVERSAL FOREST PRODUCTS, INC.
West
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Sales |
| Net Sales |
| ||||||||||||||
|
| West Segment by Market |
| West Segment by Market |
| ||||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
|
|
|
| September 30, |
| September 24, |
|
|
|
| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change |
| ||||||
Retail |
| $ | 115,069 |
| $ | 99,762 |
| 15.3 | % |
| $ | 347,270 |
| $ | 298,723 |
| 16.3 | % |
|
Industrial |
|
| 145,132 |
|
| 126,836 |
| 14.4 | % |
|
| 401,850 |
|
| 347,902 |
| 15.5 | % |
|
Construction |
|
| 123,026 |
|
| 113,488 |
| 8.4 | % |
|
| 353,238 |
|
| 305,962 |
| 15.5 | % |
|
Total Gross Sales |
|
| 383,227 |
|
| 340,086 |
| 12.7 | % |
|
| 1,102,358 |
|
| 952,587 |
| 15.7 | % |
|
Sales Allowances |
|
| (4,513) |
|
| (4,105) |
| 9.9 | % |
|
| (13,614) |
|
| (12,399) |
| 9.8 | % |
|
Total Net Sales |
| $ | 378,714 |
| $ | 335,981 |
| 12.7 | % |
| $ | 1,088,744 |
| $ | 940,188 |
| 15.8 | % |
|
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the West reportable segment increased in the third quarter of 2017 compared to 2016 due to increases in sales to all markets primarily due to factors previously discussed.
Earnings from operations for the West reportable segment increased in the third quarter of 2017 by $2.6 million, or 12.9%, compared to the same period in 2016 due to a $2.5 million increase in gross profit combined with a $0.1 million decrease in SG&A expenses.
Net sales attributable to the West reportable segment increased in the first nine months of 2017 compared to 2016 due to an increase in sales to all markets due to the same factors previously discussed.
Earnings from operations for the West reportable segment increased in the first nine months of 2017 by $7.1 million, or 12.2%, compared to the same period in 2016 due to a $10.8 million increase in gross profit, offset by a $3.7 million increase in SG&A expenses.
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Sales |
| Net Sales |
|
| ||||||||||||||
|
| All Other Segment by Market |
| All Other Segment by Market |
|
| ||||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
|
| ||||||||||||||
(in thousands) |
| September 30, |
| September 24, |
|
|
|
| September 30, |
| September 24, |
|
|
|
|
| ||||
Market Classification |
| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change |
|
| ||||||
Retail |
| $ | 45,396 |
| $ | 33,049 |
| 37.4 | % |
| $ | 144,782 |
| $ | 109,606 |
| 32.1 | % |
|
|
Industrial |
|
| 114,792 |
|
| 15,907 |
| 621.6 | % |
|
| 264,364 |
|
| 41,000 |
| 544.8 | % |
|
|
Construction |
|
| 331 |
|
| 4 |
| 8,175.0 | % |
|
| 533 |
|
| 4 |
| 13,225.0 | % |
|
|
Total Gross Sales |
|
| 160,519 |
|
| 48,960 |
| 227.9 | % |
|
| 409,679 |
|
| 150,610 |
| 172.0 | % |
|
|
Sales Allowances & Other |
|
| 919 |
|
| 853 |
| 7.7 | % |
|
| 2,434 |
|
| (1,194) |
| (303.9) | % |
|
|
Total Net Sales |
| $ | 161,438 |
| $ | 49,813 |
| 224.1 | % |
| $ | 412,113 |
| $ | 149,416 |
| 175.8 | % |
|
|
Our All Other reportable segment consists of our Alternative Materials, International, idX, and certain other segments which are notindividually significant.
Net sales attributable to All Other reportable segments increased in the third quarter of 2017 compared to 2016 due to increases in sales to the retail and industrial markets. Our increase in sales to the industrial market was primarily due to an $89.3 million increase from businesses we acquired since September of 2016.
25
UNIVERSAL FOREST PRODUCTS, INC.
Earnings from operations for All Other reportable segments increased during the third quarter of 2017 by $3.9 million, or 132.6%, compared to the same period of 2016. During the third quarter of 2017, gross profit dollars increased $20.6 million, offset by an increase in SG&A expenses of $16.1 million compared to the same period of 2016. Businesses we acquired contributed $3.7 million to our earnings from operations during the third quarter of 2017.
Net sales attributable to All Other reportable segments increased in the first nine months of 2017 compared to 2016 due to increases in sales to the retail and industrial markets. Our increase in sales to the industrial market was primarily due to a $203.1 million increase from businesses we acquired since September of 2016.
Earnings from operations for All Other reportable segments increased during the first nine months of 2017 by $1.7 million, or 15.1%, compared to the same period of 2016. During the first nine months of 2017, gross profit dollars increased $48.4 million, offset by an increase in SG&A expenses of $46.7 million compared to the same period of 2016. Businesses we acquired since September of 2016 contributed $1.1 million to the earnings from operations increase in the first nine months of 2017.
OFF-BALANCE SHEET TRANSACTIONS
We have no significant off-balance sheet transactions other than operating leases.transactions.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
|
|
|
|
|
|
|
|
| Nine Months Ended | ||||
|
| September 30, |
| September 24, | ||
|
| 2017 |
| 2016 | ||
Cash from operating activities |
| $ | 97,350 |
| $ | 136,377 |
Cash used in investing activities |
|
| (121,375) |
|
| (200,139) |
Cash from (used in) financing activities |
|
| 11,230 |
|
| 13,981 |
Effect of exchange rate changes on cash |
|
| 1,255 |
|
| (969) |
Net change in all cash and cash equivalents |
|
| (11,540) |
|
| (50,750) |
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 34,489 |
|
| 88,342 |
Cash, cash equivalents, and restricted cash, end of period |
| $ | 22,949 |
| $ | 37,592 |
| | | | | | |
| | Nine Months Ended | ||||
|
| September 26, |
| September 28, | ||
| | 2020 | | 2019 | ||
Cash provided by operating activities | | $ | 185,083 | | $ | 198,080 |
Cash used in investing activities | |
| (100,927) | |
| (105,985) |
Cash used in financing activities | |
| 95,178 | |
| (55,223) |
Effect of exchange rate changes on cash | |
| (1,122) | |
| 157 |
Net change in all cash and cash equivalents | |
| 178,212 | |
| 37,029 |
Cash, cash equivalents, and restricted cash, beginning of period | |
| 168,666 | |
| 28,198 |
Cash, cash equivalents, and restricted cash, end of period | | $ | 346,878 | | $ | 65,227 |
In general, we funded our growth in the past through a combination of operating cash flows, our revolving credit facility, industrial development bonds (when circumstances permit), and issuance of long-term notes payable at times when interest rates are favorable. We have not issued equity to finance growth except in the case of a large acquisition. We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe this is one of many important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.
30
Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to August.September. Consequently, our working capital increases during our first and second quarters resultingwhich typically results in negative or modest cash flows from operations during those periods. Conversely, we typically experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows from operations in our third and fourth quarters. As explained in more detail below, the unusually large increase in lumber prices this year, as well as the significant increase in sales attributable to our Retail segment, resulted in an increase in net working capital this year.
Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle increasedimproved to 4943 days from 4452 days during the third quarter and increased to 5249 days from 47 in56 days during the first nine months of 20172020 compared to the prior periods,periods.
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 26, | | September 28, | | September 26, | | September 28, | ||||
| | 2020 | | 2019 | | 2020 | | 2019 | ||||
Days of sales outstanding |
| | 31 |
| | 33 |
| | 32 |
| | 33 |
Days supply of inventory | |
| 31 | |
| 40 | |
| 37 | |
| 44 |
Days payables outstanding | |
| (19) | |
| (21) | |
| (20) | |
| (21) |
Days in cash cycle | |
| 43 | |
| 52 | |
| 49 | |
| 56 |
The decrease in our days supply of inventory for the first nine months of 2020 was primarily due to opportunistic buying when lumber prices were low during the impactfourth quarter of
26
Table 2018 and early 2019 to improve gross profits and higher levels of Contents
UNIVERSAL FOREST PRODUCTS, INC.
acquired operations which carry comparatively“safety stock” we carried to address transportation challenges and ensure timely deliveries to our customers. We did not engage in this level of opportunistic buying in late 2019 and early 2020. Strong demand in our retail segment and shortages of supply contributed to higher investments in inventory than our other operations. Excluding acquired operations our cash cycle was 44 daysturns in the third quarter of 2017 and 47 days in the first nine months of 2017.2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| September 30, |
| September 24, |
| September 30, |
| September 24, |
| ||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
Days of sales outstanding |
|
| 31 |
|
| 31 |
|
| 31 |
|
| 31 |
|
Days supply of inventory |
|
| 38 |
|
| 34 |
|
| 41 |
|
| 37 |
|
Days payables outstanding |
|
| (20) |
|
| (21) |
|
| (20) |
|
| (21) |
|
Days in cash cycle |
|
| 49 |
|
| 44 |
|
| 52 |
|
| 47 |
|
In the first nine months of 2017,2020, our cash fromprovided by operating activities was $97.3$185.1 million, which was comprised of net earnings of $90.9$189.1 million and $41.3$55.6 million of non-cash expenses, offset by a $34.9$59.7 million seasonal increase in cash invested in working capital since the end of December 20162019. Our operating cash flow this year declined by $13.0 million compared to the same period of last year primarily due to the strong sales growth and higher lumber prices. Comparatively, cash from operating activities was $136.4 millionan increase in the first nine months of 2016, which was comprised ofour net earnings of $83.3 million and $32.3 million of non-cash expenses, offset by a $20.8 million seasonal decrease in working capital since the end of 2015. The increase in2019. Conversely, our net working capital at the end of the third quarter of 2019 decreased compared to the same period last year was primarilyend of 2018. Our net working capital at the end of the third quarter of 2020 increased due to significant increases in inventory and accounts receivable offset by increases in accounts payable which can be attributed tounusually high lumber prices as well the strong sales growth and higher lumber prices.of our retail segment, which resulted in an increase in our accounts receivable.
Acquisitions and purchases of property, plant, and equipment comprised most of our cash used in investing activities during the first nine months of 20172020 and totaled $59.9$34.8 million and $57.2$67.0 million, respectively. Outstanding purchase commitments on existing capital projects totaled approximately $26.1$21.3 million on September 30, 2017. We currently plan26, 2020. Notable areas of capital spending include projects to spend $70 million forexpand capacity and enhance the yearproductivity of our Deckorators product line, several projects to expand manufacturing capacity to serve industrial customers and achieve efficiencies through automation, improvements to a number of facilities, and an increase our transportation capacity (tractors, trailers) in 2017 on capital expenditures.order to meet higher volumes and replace old rolling stock. We intend to fund capital expenditures and purchase commitments through our operating cash flows or cash surplus for the balance of the year. Comparatively, capital expenditures were $35.7 million during the first nine months of 2016. The increase in our capital expenditures in 2017 is primarily due to the additional requirements of our recently acquired operationssales and an increase in our “expansionary and efficiency” capital expenditures tied to initiatives including new products, value-added product capacity expansion, and automation. The sale and purchasepurchases of investments totaling $12.2$22.3 million and $4.2$24.3 million, respectively, are due to investment activity in our captive insurance subsidiary.
Cash flows from financing activities primarily consisted of issuances of long-term debt of $150 million, net borrowings under our revolving credit facilityrepayments of debt of approximately $36.2$3.1 million, primarily to finance the $59.9payment of quarterly dividends totaling $23.0 million, or $0.125 per share, and repurchases of acquisitions we completedapproximately 756,000 shares of our common stock for $29.2 million resulting in the first nine monthsan average price paid of 2017. Additionally,$38.62.
31
On September 26, 2020, we had $9.2 million in dividend payments and $13.0 million in payments for stock repurchases.
On September 30, 2017, we had $70.8$4.4 million outstanding on our $295$375 million revolving credit facility. The outstanding revolving credit facility, also includes letters of credit totalingand we had approximately $9.8 million on September 30, 2017; as a result, we have approximately $224.2$360.6 million in remaining availability on our revolver after considering $9.8 million in outstanding letters of credit. Additionally, we have $150 million inThere is no availability remaining under aan existing “shelf agreement” for long term debt, withafter a current lender.$150 million note was issued in August 2020. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were in compliance with all our covenant requirements on September 30, 2017.26, 2020.
At the end of the third quarter of 2020 we have approximately $700 million in total liquidity, consisting of our cash surplus and remaining availability under our revolving credit facility. We plan to use a portion of this amount to fund our future growth.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Unaudited Consolidated Condensed Financial Statements, Note E, “Commitments, Contingencies, and Guarantees.”
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and
27
UNIVERSAL FOREST PRODUCTS, INC.
results of operations. We continually review our accounting policies and financial information disclosures. There have been no material changes in our policies or estimates since December 31, 2016.28, 2019.
Under the recent re-organization of our reportable segments now centered on our primary markets (retail, industrial, and construction), there were no indicators of impairment for any of the new reporting units. We continue to monitor the results of our commercial business unit (a reporting unit under the Construction segment), which primarily includes idX, as it has performed below expectations through 2019. While idX has faced challenging end market conditions resulting in this under-performance, we believe our growth and operating improvement strategies and related long-term projections for idX are still reasonable and attainable. Consequently, while the risk of impairment exists, management does not believe an impairment is currently required. Should the Company’s future analysis indicate a significant change in any of the triggering events for this reporting unit, it could result in impairment of the carrying value of goodwill to its implied fair value. There can be no assurance that the Company’s future goodwill impairment testing will not result in a charge to earnings. The total value of goodwill and identifiable intangibles associated with the commercial reporting unit is $12.3 million and $4.5 million, respectively, at the end of September 2020.
FORWARD OUTLOOK
Most recently, the Company’s long-term goals have been to:
● | Achieve long-term unit sales growth that exceeds positive U.S. GDP by 4 percent to 6 percent; |
● | Grow earnings from operations in excess of our unit sales growth; and |
● | Earn a return on invested capital in excess of our weighted average cost of capital. |
While we believe the effective execution of our strategies will allow us to continue to achieve these long-term goals in the future, our ability to achieve them over the next year may be adversely impacted by a variety of external factors such as continuing developments in the COVID-19 pandemic, trends in commodity lumber prices, the availability and cost of labor and materials, and general election results in the U.S. The following variables should be considered when evaluating our performance over the next year.
32
● | Earlier this year we experienced a decrease in customer demand and unit sales in our industrial and construction segments as a result of numerous stay at home orders issued by states in which we operate as some of our customers did not meet the requirements to be an “essential business” and were temporarily shut down. For those customers who remained operating, demand declined for the majority of them. As these orders were lifted and these customers resumed operations demand trends for our products improved significantly throughout the quarter. However, there can be no assurance that another “wave” of COVID-19 will not occur and result in additional “stay at home” and similar orders that would adversely impact the demand of our products. In addition, demand for our products in the retail segment has been exceptionally strong as consumers have increased their home improvement activities during the pandemic. There can be no assurance demand will continue at these levels in the future. Market indicators that should be considered when evaluating future demand for our products include: |
- | Same store sales growth of national home improvement retail customers, the leading indicator for remodeling activity and home improvement spending forecasts. Sales of our Retail Solutions segment comprises approximately 44% of our year-to-date total sales. |
- | Housing starts in the northeast and mid-Atlantic states, Colorado, and Texas. Sales of our Site Built business unit within our Construction segment comprises approximately 13% of our year-to-date total sales. |
- | Production of manufactured housing. Sales of our Factory Built business unit within our Construction segment comprises 11% of our year-to-date total sales. |
- | Non-residential construction spending. Sales of our Commercial and Concrete Forming business units within our Construction segment comprises approximately 8% of our year-to-date total sales. |
- | Industrial production, Purchasing Managers Index, and U.S. GDP. Sales of our Industrial segment comprises approximately 20% of our total year-to-date sales. |
● | We have over 150 geographically dispersed plant locations, many of which have the ability to serve multiple market segments. These capabilities enhance our ability to supply our customers from multiple locations in the event an operation is idled due to the pandemic. To date, one of our operations remains temporarily idled and one has been permanently idled. Depending on the length of any future “stay at home” orders and the severity of the impact on future customer demand, we could temporarily or permanently idle additional locations in the future. These actions could result in certain losses including asset impairment charges to property, plant and equipment, right of use leased assets, inventory, other long-lived assets, and certain exit costs. |
● | As a result of the pandemic and an anticipated reduction in demand, our suppliers significantly curtailed capacity through a variety of actions earlier this year. As the economy re-opened this summer, demand has recovered substantially and been much stronger than expected. Consequently, commodity lumber prices reached historically high levels by the end of the third quarter of 2020 (see Historical Lumber Prices). As our suppliers work through their backlog of orders and we reach the seasonally slower months of fall and winter in many areas of the country we anticipate commodity lumber prices will decrease to normalized levels. As lumber prices decline, we expect this may adversely impact our profit per unit of products we sell on a variable price formula. Conversely, this may benefit our profit per unit of products we sell at a fixed price for a period of time. See Impact of the Lumber Market on Our Operating Results. In addition, a decline in lumber prices will reduce our net investment in working capital and contribute to our cash flows from operations. |
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● | On a consolidated basis, and based on our 2019 results of operations and business mix, we believe our decremental operating margin is in a range of 10% to 15% of net sales. In other words, we believe for every dollar decrease in sales, relative to the prior year, our earnings from operations may decline by 10 cents to 15 cents. As a point of reference, our peak to trough decremental operating margin during the Great Recession was approximately 13.5% (2006 peak to 2011 trough). In addition to the variables above, factors that may cause our actual results to vary significantly from this range include: |
- | Changes in our selling prices |
- | Changes in our sales mix by market segment and product |
- | The impact and level of the Lumber Market and trends in the commodity costs of our products |
- | Changes in labor rates |
- | Our ability to reduce variable manufacturing, freight, selling, general, and administrative costs, particularly certain personnel costs, in line with net sales |
- | The results of our salaried bonus plan, which is based on pre-bonus profits and achieving minimum levels of pre-bonus return on investment over a required hurdle rate |
● | As a result of our strong cash flow and liquidity position our capital expenditures budget is $100 million for 2020 as we plan to capitalize on opportunities to grow and achieve operational efficiencies through automation. |
● | The CARES act allows us to defer certain payroll taxes from the end of March through the end of our 2020 fiscal year, which we estimate will total approximately $20 million. This liability must be paid in equal annual installments on December 31, 2021 and December 31, 2022. |
● | We believe our cash cycle will remain consistent with historical trends and result in a reduction in working capital and increase in cash as sales decline. |
● | As a result of the diversification of our business and execution of our people we’ve achieved strong earnings and operating cash flows, which has contributed to a strong balance sheet in which our cash surplus of $346 million exceeds our debt of $314 million and our shareholders’ equity is over $1.4 billion at the end of the third quarter of 2020. Additionally, we currently have approximately $700 million of liquidity. Our historical methodology for capital allocation has been to follow a return-based, balanced approach in which we maintain or increase our dividends in line with our growth in earnings and operating cash flows, repurchase our common stock in an amount which offsets issuances under our share-based compensation plans and at times when we believe it is under-valued, and invest in capital expenditures and business acquisitions that allow us to achieve our strategic objectives. We currently anticipate investments in growing our business through capital expenditures and business acquisitions will comprise the highest use of our capital availability. Finally, we manage our capital structure conservatively by attempting to maintain targeted ratios of debt to equity and debt to earnings before interest, taxes, depreciation and amortization while reserving sufficient levels of liquidity for unanticipated opportunities and events. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risks related to fluctuations in interest rates on our variable rate debt, which consists of a revolving credit facility and industrial development revenue bonds. We do not currently use interest rate swaps, futures contracts or options on futures, or other types of derivative financial instruments to mitigate this risk.
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For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect future earnings and cash flows. We do not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on such debt until we would be required to refinance it.
We are subject to fluctuations in the price of lumber. We experience significant fluctuations in the cost of commodity lumber products from primary producers (the “Lumber Market”). A variety of factors over which we have no control, including government regulations, transportation, environmental regulations, weather conditions, economic conditions, and natural disasters, impact the cost of lumber products and our selling prices. While we attempt to minimize our risk from severe price fluctuations, substantial, prolonged trends in lumber prices can affect our sales volume, our gross margins, and our profitability. We anticipate that these fluctuations will continue in the future. (See “Impact of the Lumber Market on Our Operating Results.”)
Our international operations have exposure to foreign currency rate risks, primarily due to fluctuations in their local currency, which is their functional currency, compared to the U.S. dollar.Dollar. Additionally, certain of our operations enter into transactions that will be settled in a currency other than the U.S. Dollar. We have entered into forward foreign exchange rate contracts in 20172018, which have since expired, and may enter into further forward contracts in the future associated with mitigating the foreign currency exchange risk. Historically, our hedge contracts are deemed immaterial to the financial statements, however any material hedge contract in the future will be disclosed.
Item 4. Controls and Procedures.
(a) | Evaluation of Disclosure Controls and Procedures. With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15e and 15d – 15e) as of the quarter ended September |
(b) | Changes in Internal Controls. During the quarter ended September |
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PART II. OTHER INFORMATION
Item 1A. Risk Factors.
We may be adversely affected by the impact of COVID-19 (Coronavirus) pandemic. Disease outbreaks, such as the COVID-19 pandemic, could have an adverse impact on the Company's operations and financial results.These outbreaks may adversely impact our business, consolidated results of operations and financial condition, such as the current COVID-19 pandemic. COVID-19, as well as measures taken by governmental authorities and businesses to limit the spread of this virus, may result in an adverse change in customer demand and our sales, interfere with the ability of our employees and suppliers to perform and function in a manner consistent with targeted objectives and otherwise adversely impact the efficiency of our operations. This has caused, and may continue to cause, us to materially curtail certain segments, and could have a material adverse effect on the results of our operations and cash flow.
Adverse economic conditions and our customers’ ability to operate may impact their ability to pay. This may result in higher write-offs of receivables than we normally experience. We continue to monitor our customers’ business activities, payment patterns, and credit profiles carefully and make changes in our terms when necessary in response to this risk. As a result, our accounts receivable aging at the end of September was approximately 95% current. Most recently our bad debt expense as a percentage of sales was 0.09%, 0.03%, and 0.03%, in 2019, 2018, and 2017, respectively. During the most difficult collection period of the Great Recession, from 2008 through 2010, our bad debt expense as a percentage of sales averaged 0.25%.
There could be limited future availability of materials from our suppliers. Many of our suppliers reduced their manufacturing capacity in response to the anticipated reduction in demand from the pandemic, which in turn impacted our ability to fulfill all of our customers’ orders. Our suppliers are currently taking actions to increase capacity to meet expectations of future demand.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) | None. |
(b) | None. |
(c) | Issuer purchases of equity securities. |
| | | | | | | | |
Fiscal Month | (a) | (b) | (c) | (d) | ||||
June 28 – August 1, 2020 | — | — | — | 1,103,957 | ||||
August 2 – 29, 2020 | — | | — | — | 1,103,957 | |||
August 30 – September 26, 2020 | — | | — | — | 1,103,957 |
|
|
|
|
|
|
|
|
|
Fiscal Month |
| (a) |
| (b) |
| (c) |
| (d) |
July 2 - August 5, 2017 |
| 2,800 |
| 84.01 |
| — |
| 2,755,923 |
August 6 - September 2, 2017 |
| 34,900 |
| 80.40 |
| — |
| 2,721,023 |
September 3 - September 30, 2017 |
| — |
| — |
| — |
| 2,721,023 |
(a) |
| Total number of shares purchased. |
(b) |
| Average price paid per share. |
(c) |
| Total number of shares purchased as part of publicly announced plans or programs. |
(d) |
| Maximum number of shares that may yet be purchased under the plans or programs. |
On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common stock. On October 14, 2011,2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of remaining shares that may be repurchased under the program is approximately 2.81.1 million.
None.
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PART II. OTHER INFORMATION
The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:
| | |
31 | Certifications. | |
| | |
| (a) | |
| | |
| (b) | |
| | |
32 | Certifications. | |
| | |
| (a) | |
| | |
| (b) | |
| | |
101 | Interactive Data | |
| | |
| (INS) |
|
| | |
| (SCH) |
|
| | |
| (CAL) |
|
| | |
| (LAB) |
|
| | |
| (PRE) |
|
| | |
| (DEF) |
|
| | |
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document). |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| |
| | |
Date: | By: | /s/ Matthew J. Missad |
| Matthew J. Missad, | |
| Chief Executive Officer and Principal Executive Officer | |
| | |
| | |
Date: | By: | /s/ Michael R. Cole |
| Michael R. Cole, | |
| Chief Financial Officer, | |
| Principal Financial Officer and | |
| Principal Accounting Officer |
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