| |
| |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q10-Q
For the quarterly period ended September 30, 2017June 25, 2022
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 | |
| Common stock, $1 par value | |
| |
UNIVERSAL FOREST PRODUCTS, INC.
|
|
| |||
Title of Each Class | Trading Symbol | Name of Each Exchange On Which Registered | |||
Common Stock, no par value |
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| |
TABLE OF CONTENTS
PART I. | | FINANCIAL INFORMATION. | Page No. | |
| | | | |
| 3 | |||
| | | | |
| | 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 | | |
| | | | |
| ||||
35 | ||||
| | | | |
| ||||
35 | ||||
| | | | |
| Item 3. | Defaults upon Senior Securities – NONE | | |
| | | | |
| Item 4. | Mine Safety Disclosures – NONE | | |
| | | | |
| ||||
35 | ||||
| | | | |
| 36 |
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) | | | | | | | | |||
| | June 25, | | December 25, | | June 26, | | |||
|
| 2022 |
| 2021 |
| 2021 | | |||
ASSETS | | | |
| | |
| | | |
CURRENT ASSETS: | | | |
| | |
| | | |
Cash and cash equivalents | | $ | 138,071 |
| $ | 286,662 |
| $ | 44,286 | |
Restricted cash | |
| 729 | |
| 4,561 |
|
| 629 | |
Investments | |
| 35,475 | |
| 36,495 |
|
| 33,827 | |
Accounts receivable, net | |
| 1,046,543 | |
| 737,805 |
|
| 980,571 | |
Inventories: | | | |
| | |
| | | |
Raw materials | |
| 490,923 | |
| 416,043 |
|
| 540,289 | |
Finished goods | |
| 615,379 | |
| 547,277 |
|
| 486,199 | |
Total inventories | |
| 1,106,302 | |
| 963,320 |
|
| 1,026,488 | |
Refundable income taxes | |
| 13,083 | |
| 4,806 |
|
| — | |
Other current assets | |
| 36,241 | |
| 39,827 |
|
| 36,699 | |
TOTAL CURRENT ASSETS | |
| 2,376,444 | |
| 2,073,476 | |
| 2,122,500 | |
DEFERRED INCOME TAXES | |
| 3,568 | |
| 3,462 |
|
| 2,362 | |
RESTRICTED INVESTMENTS | | | 19,885 | |
| 19,310 |
|
| 18,896 | |
RIGHT OF USE ASSETS | | | 107,825 | | | 96,703 | | | 97,597 | |
OTHER ASSETS | |
| 32,186 | |
| 31,876 |
|
| 29,631 | |
GOODWILL | |
| 320,532 | |
| 315,038 |
|
| 318,108 | |
INDEFINITE-LIVED INTANGIBLE ASSETS | |
| 7,350 | |
| 7,369 |
|
| 7,401 | |
OTHER INTANGIBLE ASSETS, NET | |
| 117,869 | |
| 109,017 |
|
| 98,601 | |
PROPERTY, PLANT AND EQUIPMENT: | | | |
| | |
| | | |
Property, plant and equipment | | | 1,286,037 | | | 1,212,113 | | | 1,120,381 | |
Less accumulated depreciation and amortization | |
| (660,873) | |
| (623,093) |
|
| (587,194) | |
PROPERTY, PLANT AND EQUIPMENT, NET | | | 625,164 | | | 589,020 | | | 533,187 | |
TOTAL ASSETS | | | 3,610,823 | | | 3,245,271 | | | 3,228,283 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| | |
| | | |
CURRENT LIABILITIES: | | | |
| | |
| | | |
Cash overdraft | | $ | 11,926 | | $ | 17,030 |
| $ | 34,229 | |
Accounts payable | | | 386,833 | | | 319,125 |
| | 359,484 | |
Accrued liabilities: | | | |
| | |
| | | |
Compensation and benefits | |
| 252,723 | |
| 289,196 |
|
| 213,655 | |
Income taxes | | | — | | | — | | | 11,188 | |
Other | |
| 107,112 | |
| 84,853 |
|
| 90,153 | |
Current portion of lease liability | | | 24,903 | | | 23,155 | | | 22,511 | |
Current portion of long-term debt | |
| 40,496 | |
| 42,683 |
|
| 97 | |
TOTAL CURRENT LIABILITIES | |
| 823,993 | |
| 776,042 |
|
| 731,317 | |
LONG-TERM DEBT | |
| 276,315 | |
| 277,567 |
|
| 571,856 | |
LEASE LIABILITY | | | 86,464 | | | 76,632 | | | 78,564 | |
DEFERRED INCOME TAXES | |
| 63,389 | |
| 60,964 |
|
| 34,983 | |
OTHER LIABILITIES | |
| 35,594 | |
| 37,497 |
|
| 52,000 | |
TOTAL LIABILITIES | |
| 1,285,755 | |
| 1,228,702 |
|
| 1,468,720 | |
SHAREHOLDERS’ EQUITY: | | | |
| | |
| | | |
Controlling interest shareholders’ equity: | | | |
| | |
| | | |
Preferred stock, 0 par value; shares authorized 1,000,000; issued and outstanding, NaN | | $ | — | | $ | — |
| $ | — | |
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,622,527, 61,901,851 and 61,850,733 | |
| 61,623 | |
| 61,902 |
|
| 61,851 | |
Additional paid-in capital | |
| 275,061 | |
| 243,995 |
|
| 235,309 | |
Retained earnings | |
| 1,950,922 | |
| 1,678,121 |
|
| 1,440,833 | |
Accumulated other comprehensive loss | |
| (7,458) | |
| (5,405) |
|
| (1,464) | |
Total controlling interest shareholders’ equity | |
| 2,280,148 | |
| 1,978,613 |
|
| 1,736,529 | |
Noncontrolling interest | |
| 44,920 | |
| 37,956 |
|
| 23,034 | |
TOTAL SHAREHOLDERS’ EQUITY | |
| 2,325,068 | |
| 2,016,569 |
|
| 1,759,563 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 3,610,823 | | $ | 3,245,271 |
| $ | 3,228,283 | |
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 | | Six Months Ended | | ||||||||
| | June 25, | | June 26, | | June 25, | | June 26, | | ||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
NET SALES | | $ | 2,900,874 |
| $ | 2,700,541 |
| $ | 5,390,187 |
| $ | 4,525,545 |
|
COST OF GOODS SOLD | |
| 2,397,422 | |
| 2,279,247 |
|
| 4,408,372 | |
| 3,817,697 | |
GROSS PROFIT | |
| 503,452 | |
| 421,294 |
|
| 981,815 | |
| 707,848 | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | |
| 214,538 | |
| 184,539 |
|
| 434,688 | |
| 334,637 | |
OTHER GAINS, NET | | | 3,348 | | | (180) | | | 2,536 | | | (1,211) | |
EARNINGS FROM OPERATIONS | |
| 285,566 | |
| 236,935 |
|
| 544,591 | |
| 374,422 | |
INTEREST EXPENSE | |
| 3,395 | |
| 3,899 |
|
| 6,697 | |
| 7,050 | |
INTEREST AND INVESTMENT LOSS (INCOME) | |
| 4,154 | |
| (1,689) |
|
| 5,247 | |
| (3,985) | |
EQUITY IN EARNINGS OF INVESTEE | | | 1,017 | | | 835 | | | 1,532 | | | 1,465 | |
| |
| 8,566 | |
| 3,045 |
|
| 13,476 | |
| 4,530 | |
EARNINGS BEFORE INCOME TAXES | |
| 277,000 | |
| 233,890 |
|
| 531,115 | |
| 369,892 | |
INCOME TAXES | |
| 69,147 | |
| 58,530 |
|
| 130,131 | |
| 90,281 | |
NET EARNINGS | |
| 207,853 | |
| 175,360 |
|
| 400,984 | |
| 279,611 | |
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST | |
| (4,735) | |
| (1,978) |
|
| (8,163) | |
| (2,918) | |
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST | | $ | 203,118 | | $ | 173,382 |
| $ | 392,821 | | $ | 276,693 | |
| | | | | | | | | | | | | |
EARNINGS PER SHARE – BASIC | | $ | 3.24 | | $ | 2.79 |
| $ | 6.25 | | $ | 4.46 | |
EARNINGS PER SHARE – DILUTED | | $ | 3.23 | | $ | 2.78 |
| $ | 6.22 | | $ | 4.45 | |
| | | | | | | | | | | | | |
OTHER COMPREHENSIVE INCOME: | | | | | | | | | | | | | |
NET EARNINGS | |
| 207,853 | |
| 175,360 |
|
| 400,984 | |
| 279,611 | |
OTHER COMPREHENSIVE GAIN (LOSS) | |
| (4,383) | |
| 2,720 |
|
| (1,199) | |
| 524 | |
COMPREHENSIVE INCOME | |
| 203,470 | |
| 178,080 |
|
| 399,785 | |
| 280,135 | |
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST | |
| (4,640) | |
| (2,698) |
|
| (9,017) | |
| (3,112) | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST | | $ | 198,830 | | $ | 175,382 |
| $ | 390,768 | | $ | 277,023 | |
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 on December 26, 2021 | | $ | 61,902 | | $ | 243,995 | | $ | 1,678,121 | | $ | (5,405) | | $ | 37,956 |
| $ | 2,016,569 |
Net earnings | | | |
| | |
|
| 189,703 | |
|
| |
| 3,428 |
|
| 193,131 |
Foreign currency translation adjustment | | | |
| | |
| | |
|
| 2,930 | |
| 949 |
|
| 3,879 |
Unrealized loss on debt securities | | | |
| | |
| | |
|
| (695) | |
|
| |
| (695) |
Distributions to noncontrolling interest | | | |
| | |
| | |
| | |
|
| (2,053) | |
| (2,053) |
Cash dividends - $0.20 per share - quarterly | | | | | | | | | (12,541) | |
|
| |
|
| |
| (12,541) |
Issuance of 9,734 shares under employee stock purchase plan | |
| 10 | | | 653 | | | |
| | |
| | |
|
| 663 |
Issuance of 787,045 shares under stock grant programs | |
| 787 | | | 8,959 | | | |
| | |
| | |
|
| 9,746 |
Issuance of 79,973 shares under deferred compensation plans | |
| 80 | | | (80) | | | |
| | |
| | |
|
| — |
Repurchase of 44,442 shares | |
| (45) | | | | | | (3,499) |
| | |
|
|
| |
| (3,544) |
Expense associated with share-based compensation arrangements | | | | | | 6,883 | | | | |
|
| |
|
| |
| 6,883 |
Accrued expense under deferred compensation plans | | | | | | 6,134 | | | | |
|
| |
|
| |
| 6,134 |
Balance on March 26, 2022 | | $ | 62,734 | | $ | 266,544 |
| $ | 1,851,784 | | $ | (3,170) |
| $ | 40,280 |
| $ | 2,218,172 |
Net earnings | | | | | | | | | 203,118 | | | | | | 4,735 | |
| 207,853 |
Foreign currency translation adjustment | | | | | | | | | | | | (3,660) | | | (95) | |
| (3,755) |
Unrealized loss on debt securities | | | | | | | | | | | | (628) | | | | |
| (628) |
Cash dividends - $0.25 per share - quarterly | | | | | | | | | (15,474) | | | | | | | |
| (15,474) |
Issuance of 13,875 shares under employee stock plans | |
| 14 | | | 781 | | | | | | | | | | |
| 795 |
Issuance of 28,154 shares under stock grant programs | |
| 28 | | | 1,092 | | | | | | | | | | |
| 1,120 |
Issuance of 11,605 shares under deferred compensation plans | |
| 12 | | | (12) | | | | | | | | | | |
| — |
Repurchase of 1,165,268 shares | | | (1,165) | | | | | | (88,506) | | | | | | | | | (89,671) |
Expense associated with share-based compensation arrangements | | | | | | 5,556 | | | | | | | | | | |
| 5,556 |
Accrued expense under deferred compensation plans | | | | | | 1,100 | | | | | | | | | | |
| 1,100 |
Balance on June 25, 2022 | | $ | 61,623 | | $ | 275,061 |
| $ | 1,950,922 | | $ | (7,458) |
| $ | 44,920 |
| $ | 2,325,068 |
(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 |
5
| | | | | | | | | | | | | | | | | | |
(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 on December 27, 2020 | | $ | 61,206 | | $ | 218,224 | | $ | 1,182,680 | | $ | (1,794) | | $ | 22,836 |
| $ | 1,483,152 |
Net earnings | | | |
| | |
|
| 103,311 | |
|
| |
| 940 |
|
| 104,251 |
Foreign currency translation adjustment | | | |
| | |
| | |
|
| (374) | |
| (526) |
|
| (900) |
Unrealized loss on debt securities | | | |
| | |
| | |
|
| (1,296) | |
|
| |
| (1,296) |
Distributions to noncontrolling interest | | | |
| | |
| | |
| | |
|
| (2,914) | |
| (2,914) |
Cash dividends - $0.15 per share - quarterly | | | | | | | | | (9,274) | |
|
| |
|
|
|
| (9,274) |
Issuance of 5,816 shares under employee stock purchase plan | |
| 6 | | | 357 | | | |
| | |
| | |
|
| 363 |
Net issuance of 536,970 shares under stock grant programs | |
| 537 | | | 3,888 | | | 5 |
| | |
| | |
|
| 4,430 |
Issuance of 89,690 shares under deferred compensation plans | |
| 89 | | | (89) | | | |
| | |
| | | | | — |
Expense associated with share-based compensation arrangements | | | | | | 2,936 | | | | |
|
| |
|
| | | 2,936 |
Accrued expense under deferred compensation plans | | | | | | 5,795 | | | | |
|
| |
|
| |
| 5,795 |
Balance on March 27, 2021 | | $ | 61,838 | | $ | 231,111 |
| $ | 1,276,722 | | $ | (3,464) |
| $ | 20,336 |
| $ | 1,586,543 |
Net earnings | | | | | | | | | 173,382 | | | | | | 1,978 |
|
| 175,360 |
Foreign currency translation adjustment | | | | | | | | | | | | 1,759 | | | 720 |
|
| 2,479 |
Unrealized gain on debt securities | | | | | | | | | | | | 241 | | | | |
| 241 |
Distributions to noncontrolling interest | | | | | | | | | | | | | | | | |
| — |
Additional purchase of noncontrolling interest | | | | | | | | | | | | | | | | |
| — |
Cash dividends - $0.15 per share - quarterly | | | | | | | | | (9,276) | | | | | | | | | (9,276) |
Issuance of 9,282 shares under employee stock plans | |
| 9 | | | 564 | | | | | | | | | | | | 573 |
Net forfeitures of 5,718 shares under stock grant programs | |
| (6) | | | (224) | | | 5 | | | | | | | | | (225) |
Issuance of 8,913 shares under deferred compensation plans | |
| 10 | | | (10) | | | | | | | | | |
|
| — |
Expense associated with share-based compensation arrangements | | | | | | 2,728 | | | | | | | | | |
|
| 2,728 |
Accrued expense under deferred compensation plans | | | | | | 1,140 | | | | | | | | | | |
| 1,140 |
Balance on June 26, 2021 | | $ | 61,851 | | $ | 235,309 |
| $ | 1,440,833 | | $ | (1,464) |
| $ | 23,034 |
| $ | 1,759,563 |
See notes to consolidated condensed financial statements.
56
CONDENSED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | |
(in thousands) | | Six Months Ended | | ||||
| | June 25, | | June 26, | | ||
|
| 2022 |
| 2021 |
| ||
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: | | | |
| | | |
Net earnings | | $ | 400,984 |
| $ | 279,611 | |
Adjustments to reconcile net earnings to net cash from operating activities: | | | |
| | | |
Depreciation | |
| 44,034 | | | 38,342 | |
Amortization of intangibles | |
| 8,740 | | | 7,193 | |
Expense associated with share-based and grant compensation arrangements | |
| 12,542 | | | 5,742 | |
Deferred income taxes | |
| 179 | | | 177 | |
Unrealized loss (gain) on investments and other | |
| 6,181 | | | (2,784) | |
Equity in earnings of investee | | | 1,532 | | | 1,465 | |
Net loss (gain) on sale and disposition of assets | |
| 766 | | | (1,577) | |
Changes in: | | | | | | | |
Accounts receivable | |
| (304,715) | | | (336,094) | |
Inventories | |
| (134,653) | | | (329,577) | |
Accounts payable and cash overdraft | |
| 56,120 | | | 143,018 | |
Accrued liabilities and other | |
| (1,313) | | | 78,751 | |
NET CASH FROM (USED IN) OPERATING ACTIVITIES | |
| 90,397 | |
| (115,733) | |
CASH FLOWS USED IN INVESTING ACTIVITIES: | | | |
| | | |
Purchases of property, plant and equipment | |
| (71,675) | | | (79,028) | |
Proceeds from sale of property, plant and equipment | |
| 2,029 | | | 6,673 | |
Acquisitions and purchases of non-controlling interest, net of cash received | |
| (39,343) | | | (433,239) | |
Purchases of investments | |
| (15,166) | | | (14,581) | |
Proceeds from sale of investments | |
| 8,221 | | | 6,885 | |
Other | |
| (2,829) | | | (708) | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (118,763) | |
| (513,998) | |
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES: | | | |
| | | |
Borrowings under revolving credit facilities | |
| 570,700 | | | 849,944 | |
Repayments under revolving credit facilities | |
| (571,075) | | | (589,695) | |
Repayments of debt | | | (2,485) | | | — | |
Contingent consideration payments and other | | | (2,553) | | | (1,464) | |
Proceeds from issuance of common stock | |
| 1,457 | | | 936 | |
Dividends paid to shareholders | |
| (28,015) | | | (18,550) | |
Distributions to noncontrolling interest | | | (2,053) | | | (2,914) | |
Repurchase of common stock | |
| (90,805) | | | — | |
Other | |
| (184) | | | (331) | |
NET CASH (USED IN) FROM FINANCING ACTIVITIES | |
| (125,013) | |
| 237,926 | |
Effect of exchange rate changes on cash | |
| 956 | |
| 112 | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | |
| (152,423) | |
| (391,693) | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR | |
| 291,223 | |
| 436,608 | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD | | $ | 138,800 | | $ | 44,915 | |
| | | | | | | |
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | | | |
Cash and cash equivalents, beginning of period | | $ | 286,662 | | $ | 436,507 | |
Restricted cash, beginning of period | | | 4,561 | | | 101 | |
Cash, cash equivalents, and restricted cash, beginning of period | | $ | 291,223 | | $ | 436,608 | |
| | | | | | | |
Cash and cash equivalents, end of period | | $ | 138,071 | | $ | 44,286 | |
Restricted cash, end of period | | | 729 | | | 629 | |
Cash, cash equivalents, and restricted cash, end of period | | $ | 138,800 | | $ | 44,915 | |
| | | | | | | |
SUPPLEMENTAL INFORMATION: | | | |
| | | |
Interest paid | | $ | 7,008 | | $ | 7,107 | |
Income taxes paid | |
| 138,420 | |
| 73,174 | |
NON-CASH INVESTING ACTIVITIES | | | |
| | | |
Capital expenditures included in accounts payable | |
| 2,856 | |
| — | |
NON-CASH FINANCING ACTIVITIES: | | | | | | | |
Common stock issued under deferred compensation plans | |
| 7,563 | |
| 6,064 | |
(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, 2016.25, 2021.
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, 2016June 26, 2021 balances in the accompanying unaudited condensed consolidated condensed balance sheets.
In October 2021, the FASB issued ASU 2021-08,Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires that an acquirer recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
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:follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 25, 2022 | | June 26, 2021 | ||||||||||||||||||||
| | 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 | | | | ||||
|
| (Level 1) |
| (Level 2) |
| | (Level 3) | | Total |
| (Level 1) |
| (Level 2) |
| | (Level 3) |
| Total | ||||||
Money market funds | | $ | 19 |
| $ | 4,170 | | $ | — |
| $ | 4,189 |
| $ | 19 |
| $ | 2,840 | | $ | — |
| $ | 2,859 |
Fixed income funds | |
| 2,684 | |
| 16,654 | | | — |
|
| 19,338 | |
| 244 | |
| 17,610 | | | — |
|
| 17,854 |
Treasury securities | | | 342 | | | — | | | — | | | 342 | | | 307 | | | — | | | — | | | 307 |
Equity securities | |
| 17,249 | |
| — | | | — |
|
| 17,249 | |
| 19,014 | |
| — | | | — |
|
| 19,014 |
Alternative investments | | | — | | | — | | | 4,079 | | | 4,079 | | | — | | | — | | | 3,304 | | | 3,304 |
Mutual funds: | | | |
| | | | | |
| | |
| | |
| | | | | |
| | |
Domestic stock funds | |
| 12,723 | |
| — | | | — |
|
| 12,723 | |
| 10,037 | |
| — | | | — |
|
| 10,037 |
International stock funds | |
| 1,378 | |
| — | | | — |
|
| 1,378 | |
| 1,463 | |
| — | | | — |
|
| 1,463 |
Target funds | |
| 21 | |
| — | | | — |
|
| 21 | |
| 22 | |
| — | | | — |
|
| 22 |
Bond funds | |
| 134 | |
| — | | | — |
|
| 134 | |
| 145 | |
| — | | | — |
|
| 145 |
Alternative funds | | | 510 | | | — | | | — | | | 510 | | | 501 | | | — | | | — | | | 501 |
Total mutual funds | |
| 14,766 | |
| — | | | — |
|
| 14,766 | |
| 12,168 | |
| — | | | — |
|
| 12,168 |
Total | | $ | 35,060 | | $ | 20,824 | | $ | 4,079 | | $ | 59,963 | | $ | 31,752 | | $ | 20,450 | | $ | 3,304 | | $ | 55,506 |
Assets at fair value | | $ | 35,060 | | $ | 20,824 | | $ | 4,079 |
| $ | 59,963 | | $ | 31,752 | | $ | 20,450 | | $ | 3,304 |
| $ | 55,506 |
From the assets measured at fair value as of June 25, 2022, listed in the table above, $35.5 million of mutual funds, equity securities, and alternative investments are held in Investments, $4.0 million of money market funds are held in Cash and Cash Equivalents, $0.6 million of money market and mutual funds are held in Other Assets for our deferred compensation plan, and $19.7 million of fixed income funds and $0.2 million of money market funds are held in Restricted Investments.
We maintain money market, mutual funds, bonds, and/or stocksequity securities 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$55.2 million as of September 30, 2017, consistingJune 25, 2022, which has been included in the aforementioned table of total investments. This portfolio consists of domestic and international stocks,equity securities, 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 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||
| | June 25, 2022 | | June 26, 2021 | |||||||||||||||||||||||
| | | | Unrealized | | | | | | Unrealized | | | | ||||||||||||||
|
| Cost |
| Gain |
| Fair Value |
| Cost |
| Gain |
| Fair Value | |||||||||||||||
Fixed Income |
| $ | 8,170 |
| $ | 34 |
| $ | 8,204 | | $ | 20,875 |
| $ | (1,537) |
| $ | 19,338 | | $ | 17,066 | | $ | 788 |
| $ | 17,854 |
Treasury Securities | | | 342 | | | — | | | 342 | | | — | | | — | | | — | |||||||||
Equity |
|
| 9,123 |
|
| 1,071 |
|
| 10,194 | |
| 15,668 | |
| 1,581 |
|
| 17,249 | |
| 14,760 | |
| 4,254 |
| | 19,014 |
Mutual Funds | | | 13,405 | | | 742 |
| | 14,147 | | | 8,769 | | | 2,740 |
| | 11,509 | |||||||||
Alternative Investments | | | 3,053 | | | 1,026 |
| | 4,079 | | | 2,953 | | | 351 |
| | 3,304 | |||||||||
Total |
| $ | 17,293 |
| $ | 1,105 |
| $ | 18,398 | | $ | 53,343 | | $ | 1,812 |
| $ | 55,155 | | $ | 43,548 | | $ | 8,133 |
| $ | 51,681 |
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 a private real estate income trust which is valued as a Level 3 asset. The net pre-tax effected unrealized gain of the portfolio was $1.1$1.8 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.
June 25, 2022 and June 26, 2021.
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 third party. Installation revenue is recognized upon completion. If we use a third 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 theus until completion of the new standard’s impactinstallation. Installation revenue represents an immaterial share of our total net sales.
We utilize 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 relatedrelative 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 relatedrelative 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 net sales disaggregated by revenue source (in thousands):
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||||||
|
| June 25, |
| June 26, |
| | | June 25, |
| June 26, | | | ||||
| | 2022 | | 2021 | | % Change | | 2022 | | 2021 | | % Change | ||||
Point in Time Revenue | | $ | 2,850,409 | | $ | 2,669,159 |
| 6.8% | | $ | 5,300,690 | | $ | 4,466,558 | | 18.7% |
Over Time Revenue | |
| 50,465 | | | 31,382 |
| 60.8% | |
| 89,497 | | | 58,987 | | 51.7% |
Total Net Sales | |
| 2,900,874 | | | 2,700,541 |
| 7.4% | | $ | 5,390,187 | | $ | 4,525,545 | | 19.1% |
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 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | June 25, | | December 25, | | June 26, | | |||||||||||||
|
| 2022 |
| 2021 |
| 2021 |
| |||||||||||||
Cost and Earnings in Excess of Billings |
| $ | 2,594 |
| $ | 2,573 |
| $ | 2,788 |
| | $ | 6,413 |
| $ | 5,602 |
| $ | 4,201 |
|
Billings in Excess of Cost and Earnings |
|
| 4,802 |
|
| 4,748 |
|
| 6,222 |
| |
| 10,046 | |
| 10,744 |
|
| 8,239 | |
9
UNIVERSAL FOREST PRODUCTS, INC.
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 | | Six Months Ended | | |||||||||||||||||||||
|
| June 25, |
| June 26, |
| June 25, |
| June 26, |
| |||||||||||||||||
| | 2022 | | 2021 | | 2022 | | 2021 | | |||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Net earnings attributable to controlling interest |
| $ | 33,693 |
| $ | 27,819 |
| $ | 88,397 |
| $ | 80,429 |
| | $ | 203,118 | | $ | 173,382 | | $ | 392,821 | | $ | 276,693 | |
Adjustment for earnings allocated to non-vested restricted common stock |
|
| (656) |
|
| (463) |
|
| (1,633) |
|
| (1,281) |
| |
| (8,270) | |
| (5,670) | |
| (15,045) | |
| (8,807) | |
Net earnings for calculating EPS |
| $ | 33,037 |
| $ | 27,356 |
| $ | 86,764 |
| $ | 79,148 |
| | $ | 194,848 | | $ | 167,712 | | $ | 377,776 | | $ | 267,886 | |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Weighted average shares outstanding |
|
| 20,474 |
|
| 20,402 |
|
| 20,481 |
|
| 20,360 |
| |
| 62,766 | |
| 62,242 | |
| 62,889 | |
| 62,087 | |
Adjustment for non-vested restricted common stock |
|
| (399) |
|
| (340) |
|
| (378) |
|
| (324) |
| |
| (2,555) | |
| (2,035) | |
| (2,409) | |
| (1,976) | |
Shares for calculating basic EPS |
|
| 20,075 |
|
| 20,062 |
|
| 20,103 |
|
| 20,036 |
| |
| 60,211 | |
| 60,207 | |
| 60,480 | |
| 60,111 | |
Effect of dilutive stock options |
|
| 41 |
|
| 33 |
|
| 37 |
|
| 32 |
| |||||||||||||
Effect of dilutive restricted common stock | |
| 205 | |
| 156 | |
| 220 | |
| 121 | | |||||||||||||
Shares for calculating diluted EPS |
|
| 20,116 |
|
| 20,095 |
|
| 20,140 |
|
| 20,068 |
| |
| 60,416 | |
| 60,363 | |
| 60,700 | |
| 60,232 | |
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Basic |
| $ | 1.65 |
| $ | 1.36 |
| $ | 4.32 |
| $ | 3.95 |
| | $ | 3.24 | | $ | 2.79 | | $ | 6.25 | | $ | 4.46 | |
Diluted |
| $ | 1.64 |
| $ | 1.36 |
| $ | 4.31 |
| $ | 3.94 |
| | $ | 3.23 | | $ | 2.78 | | $ | 6.22 | | $ | 4.45 | |
No options were excluded from the computation
11
Table of diluted EPS for the quarters ended September 30, 2017 or September 24, 2016.Contents
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.UFP INDUSTRIES, INC.
The following table provides pro forma earnings per share, giving retroactive effect to the stock split:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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): |
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 million on September 30, 2017, and September 24, 2016, 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,June 25, 2022, 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,June 25, 2022, we had outstanding purchase commitments on commenced capital projects of approximately $26.1$80.4 million.
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, 2017June 25, 2022, we had approximately $8.8$13.8 million in outstanding payment and performance bonds for open projects. We had approximately $1.7$26.7 million in payment and performance bonds outstanding for completed projects which are still under warranty.
On September 30, 2017,June 25, 2022, we had outstanding letters of credit totaling $26.5$60.0 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 June 25, 2022, we have irrevocable letters of credit outstanding totaling approximately $16.7$50.1 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$7.1 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 thirdsecond quarter of 20172022 which would require us to recognize a liability on our balance sheet.
12
F. BUSINESS COMBINATIONS
We completed the following acquisitions in nine months ended 2017fiscal 2022 and 2016since the end of June 2021, which were accounted for using the purchase methodmethod. Dollars below are in thousands unless otherwise noted:
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| | | | | Net | | ||||||||
Company | Acquisition |
| Intangible | Tangible | Operating | Acquisition | | Intangible | Tangible | Operating | ||||
Name | Date | Purchase Price | Assets | Assets | Segment | 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 | |||||||
| May 9, 2022 | $15,386 | $ | 4,801 | $ | 10,585 | Retail | |||||||
Cedar Poly, LLC | Located in Tipton, Iowa, Cedar Poly is a full-service recycler of high-density and low-density polyethylene (HDPE and LDPE) flakes and pellets used in various products, including composite decking. The company also recycles corrugate and operates its own transportation fleet. Cedar Poly had 2021 sales of approximately $17.3 million and will operate in UFP’s Deckorators business unit. | |||||||||||||
| December 27, 2021 | $24,057 | $ | 17,484 | $ | 6,573 | Retail | |||||||
Ultra Aluminum Manufacturing, Inc. (Ultra) | Located in Howell, Michigan and founded in 1996, Ultra is a leading manufacturer of aluminum fencing, gates and railing. The company designs and produces an extensive selection of ornamental aluminum fence and railing products for contractors, landscapers, fence dealers and wholesalers. The Company had sales of approximately $45 million in 2021. | |||||||||||||
| December 20, 2021 | $20,754 | $ | 11,417 | $ | 9,337 | Industrial | |||||||
Advantage Labels & Packaging, Inc. (Advantage) | Based in Grand Rapids, Michigan, Advantage provides blank and customized labels, printers, label applicators and other packaging supplies. Key industries served by the company include beer and beverage; body armor; food production and processing; greenhouse and nursery; hobby and craft; manufacturing; and automotive. The company had trailing 12-month sales through November 2021 of approximately $19.8 million. | |||||||||||||
| November 22, 2021 | $11,155 | $ | 9,562 | $ | 1,593 | Other | |||||||
Ficus Pax Private Limited (Ficus) | Headquartered in Bangalore, India, Ficus manufactures mixed-material cases and crates, nail-less plywood boxes, wooden pallets and other packaging products through 10 facilities located in major industrial markets throughout southern India. Ficus also owns a majority stake in Wadpack, a manufacturer of corrugated fiber board containers, corrugated pallets and display solutions. The company had trailing 12-month sales through August 2021 of approximately $39 million USD. | |||||||||||||
| November 1, 2021 | $5,984 | $ | 5,681 | $ | 303 | Other | |||||||
Boxpack Packaging (Boxpack) | Based near Melbourne, Australia, Boxpack specializes in flexographic and lithographic cardboard packaging, using the latest CAD design and finishing techniques. Boxpack serves multiple industries, including food and beverage, confectionary, pharmaceutical, industrial and agricultural. The company had trailing 12-month sales through June 30, 2021, of $6.2 million USD ($8.2 million AUD). |
1213
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. |
| | | | | | | |
| | | | | Net | | |
Company | Acquisition | | Intangible | Tangible | Operating | ||
Name | Date | Purchase Price | Assets | Assets | Segment | ||
| September 27, 2021 | $6,443 | $ | 4,039 | $ | 2,404 | Construction |
Shelter Products, Inc. (Shelter) | Based in Haleyville, Alabama, Shelter operates its distribution and logistics business from an 87,800 sq.-ft. warehouse that specializes in manufactured housing industry customers. Shelter’s facility is adjacent to a UFP manufacturing facility that supplies trusses to manufactured housing builders, and the proximity will enable additional operational synergies. The Company had sales of approximately $11.4 million in 2020. |
The intangible assets for each acquisition werethe above 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 Septemberthe end of 2016June 2021 and not consolidated with other operations contributed approximately $292.1$53.7 million in revenuenet sales and $5.3$3.2 million in operating profitprofits during 2017.the first six months of 2022.
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 operatesWe operate manufacturing, treating and distribution facilities throughout North America,internationally, but primarily in the United States. TheOur business segments consist of UFP Retail Solutions, UFP Industrial and UFP Construction and align with the end markets we serve. This segment structure allows for a specialized and consistent sales approach among Company managesoperations, efficient use of resources and capital, and quicker introduction of new products and services. We manage the operations of itsour 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. In the case of locations which serve multiple segments, results are allocated and accounted for by segment.
The exceptionsexception to this geographicmarket-centered reporting and management structure are (a)is our International segment, which comprises our Mexico, Canada, Europe, India, and Australia operations and sales and buying offices in other parts of the Company’s Alternative Materials Division,world and our Ardellis segment, which offers a portfolio 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 North segment, and (c) the idX division, which designs, produces, and installs customized in-store environments, for customers world-wide.
With respect to the facilitiesrepresents our wholly owned fully licensed captive insurance company based 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.
Bermuda. Our Alternative Materials, International and idX divisionArdellis segments do not meet the quantitative thresholds in order to be separately reported and accordingly, the International and Ardellis segments have been includedaggregated in the “All Other” segment for reporting purposes.
“Corporate” includes purchasing, transportation and administrative functions that serve our operating segments. Operating results of Corporate primarily consist of net sales to external customers initiated by UFP Purchasing and UFP Transportation and over (under) allocated costs. The operating results of UFP Real Estate, Inc., which owns and leases real estate, and UFP Transportation Ltd., which owns, leases and operates transportation equipment, are also included in the Corporate column. Inter-company lease and service charges are assessed to our operating segments for the use of these assets and services at fair market value rates. Total assets in the Corporate column include unallocated cash and cash equivalents, certain prepaid assets, certain property, equipment and other assets pertaining to the centralized activities of theCorporate, UFP Real Estate, Inc., UFP Transportation, Inc., UFP Purchasing, Inc., and UFP RMS, LLC. The tables below are presented in thousands:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 25, 2022 | ||||||||||||||||
|
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers | | $ | 1,121,440 |
| $ | 676,333 | | $ | 975,376 | | $ | 124,416 | | $ | 3,309 | | $ | 2,900,874 |
Intersegment net sales | |
| 67,612 | | | 21,487 | | | 31,866 | | | 125,893 | | | (246,858) | |
| — |
Earnings from operations | | | 24,527 | | | 94,210 | | | 132,832 | | | 22,748 | | | 11,249 | | | 285,566 |
| | | | | | | | | | | | | | | | | | |
14
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 26, 2021 | ||||||||||||||||
|
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers | | $ | 1,259,218 |
| $ | 611,181 | | $ | 738,704 | | $ | 89,470 | | $ | 1,968 | | $ | 2,700,541 |
Intersegment net sales | |
| 65,147 | | | 24,985 | | | 20,034 | | | 126,054 | | | (236,220) | |
| — |
Earnings from operations | | | 62,051 | | | 79,526 | | | 67,107 | | | 16,304 | | | 11,947 | | | 236,935 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 25, 2022 | ||||||||||||||||
|
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers | | $ | 2,114,672 |
| $ | 1,287,702 | | $ | 1,761,847 | | $ | 219,983 | | $ | 5,983 | | $ | 5,390,187 |
Intersegment net sales | |
| 133,560 | | | 43,660 | | | 57,218 | | | 235,665 | | | (470,103) | |
| — |
Earnings from operations | | | 95,924 | | | 176,601 | | | 211,650 | | | 37,563 | | | 22,853 | | | 544,591 |
| | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 26, 2021 | ||||||||||||||||
|
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers | | $ | 2,018,239 |
| $ | 1,060,055 | | $ | 1,298,234 | | $ | 145,047 | | $ | 3,970 | | $ | 4,525,545 |
Intersegment net sales | |
| 112,733 | | | 42,891 | | | 34,495 | | | 223,450 | | | (413,569) | |
| — |
Earnings from operations | | | 115,596 | | | 119,936 | | | 100,125 | | | 24,282 | | | 14,483 | | | 374,422 |
The following table below. presents goodwill by segment as of June 25, 2022, and December 25, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | |
|
| Retail |
| Industrial |
| Construction |
| All Other |
| Corporate |
| Total | ||||||
Balance as of December 25, 2021 |
| $ | 73,376 |
| $ | 128,541 |
| $ | 89,000 |
| $ | 24,121 | | $ | — |
| $ | 315,038 |
2022 Acquisitions |
| | 11,938 | | | — | | | — | | | — | | | — |
| | 11,938 |
2022 Purchase Accounting Adjustments | | | 293 | | | (5,830) | | | (674) | | | 595 | | | — | | | (5,616) |
Foreign Exchange, Net |
| | — | | | — | | | (32) | | | (796) | | | — |
| | (828) |
Balance as of June 25, 2022 | | $ | 85,607 |
| $ | 122,711 | | $ | 88,294 | | $ | 23,920 | | $ | — | | $ | 320,532 |
The “Corporate” column includes unallocated administrative costsfollowing table presents total assets by segment as of June 25, 2022, and certain incentive compensation expense.December 25, 2021 (in thousands).
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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 |
|
| | | | | | | | |
| Total Assets by Segment | |||||||
| June 25, |
| December 25, |
| | | ||
Segment Classification | 2022 | | 2021 | | % Change | |||
Retail | $ | 1,075,310 | | $ | 844,189 |
| 27.4 | % |
Industrial |
| 835,735 | |
| 741,672 |
| 12.7 | |
Construction |
| 912,507 | |
| 736,157 |
| 24.0 | |
All Other | | 341,877 | | | 343,363 | | (0.4) | |
Corporate | | 445,394 | | | 579,890 | | (23.2) | |
Total Assets | $ | 3,610,823 | | $ | 3,245,271 |
| 11.3 | % |
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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 |
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| Nine Months Ended September 30, 2017 | ||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers |
| $ | 857,858 |
| $ | 616,376 |
| $ | 1,088,744 |
| $ | 412,113 |
| $ | — |
| $ | 2,975,091 |
Intersegment net sales |
|
| 51,859 |
|
| 55,472 |
|
| 65,466 |
|
| 116,743 |
|
| — |
|
| 289,540 |
Segment operating profit (loss) |
|
| 42,921 |
|
| 31,152 |
|
| 65,547 |
|
| 13,285 |
|
| (12,914) |
|
| 139,991 |
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| Nine Months Ended September 24, 2016 | ||||||||||||||||
|
| North |
| South |
| West |
| All Other |
| Corporate |
| Total | ||||||
Net sales to outside customers |
| $ | 758,066 |
| $ | 533,239 |
| $ | 940,188 |
| $ | 149,416 |
| $ | — |
| $ | 2,380,909 |
Intersegment net sales |
|
| 42,071 |
|
| 28,693 |
|
| 65,325 |
|
| 16,559 |
|
| — |
|
| 152,648 |
Segment operating profit |
|
| 43,054 |
|
| 35,830 |
|
| 58,434 |
|
| 11,542 |
|
| (19,733) |
|
| 129,127 |
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%25.0% in the thirdsecond quarter of 2017 compared to 32.5% for same period in 2016. Our effective tax rate2022 and 2021 and was 33.0%24.5% in the first ninesix months of 20172022 compared to 34.2%24.4% for the same period in 2016, primarily due2021.Permanent tax differences and credits have remained relatively consistent from 2021 to recording a tax deduction for certain share-based compensation and fees at fair market value.2022, which is the primary reason the rate increased only slightly.
1415
I. COMMON STOCK
Below is a summary of common stock issuances for the first six months of 2022 and 2021 (in thousands, except average share price):
| | | | | |
|
| June 25, 2022 | |||
Share Issuance Activity |
| Common Stock | | | Average Share Price |
Shares issued under the employee stock purchase plan | | 24 | | $ | 72.58 |
| | | | | |
Shares issued under the employee stock gift program | | 2 | | | 78.57 |
Shares issued under the director retainer stock program | | 2 | | | 79.46 |
Shares issued under the bonus plan | | 755 | | | 82.73 |
Shares issued under the executive stock match plan | | 62 | | | 82.87 |
Forfeitures | | (6) | | | |
Total shares issued under stock grant programs | | 815 | | $ | 82.72 |
| | | | | |
Shares issued under the deferred compensation plans | | 92 | | $ | 82.59 |
| | | | | |
|
| June 26, 2021 | |||
Share Issuance Activity |
| Common Stock | | | Average Share Price |
Shares issued under the employee stock purchase plan | | 15 | | $ | 72.94 |
| | | | | |
Shares issued under the employee stock gift program | | 1 | | | 79.64 |
Shares issued under the director retainer stock program | | 3 | | | 67.77 |
Shares issued under the bonus plan | | 468 | | | 53.68 |
Shares issued under the executive stock grants plan | | 77 | | | 60.24 |
Forfeitures | | (18) | | | |
Total shares issued under stock grant programs | | 531 | | $ | 54.71 |
| | | | | |
Shares issued under the deferred compensation plans | | 99 | | $ | 61.50 |
During the first six months of 2022, we repurchased approximately 1,210,000 shares of our common stock at an average share price of $77.06.
During the first six months of 2021, we did not repurchase any of our shares of common stock.
16
J. INVENTORIES
Inventories are stated at the lower of cost or net realizable value. The cost of inventories includes raw materials, direct labor, and manufacturing overhead. Cost is determined on a weighted average FIFO basis. Raw materials consist primarily of unfinished wood products and other materials expected to be manufactured or treated prior to sale, while finished goods represent various manufactured and treated wood products ready for sale.
We write down the value of inventory, the impact of which is reflected in cost of goods sold in the Condensed Consolidated Statement of Earnings and Comprehensive Income, if the cost of specific inventory items on hand exceeds the amount we expect to realize from the ultimate sale or disposal of the inventory. These estimates are based on management's judgment regarding future demand and market conditions and analysis of historical experience. The lower of cost or net realizable value adjustment to inventory as of June 25, 2022 and June 26, 2021 was $9.3 million and $23.2 million, respectively.
K. SUBSEQUENT EVENTS
On June 27, 2022, we acquired 50% of the equity of Dempsey Wood Products, LLC, for $66.0 million. Based in Orangeburg, South Carolina, Dempsey Wood Products produces kiln-dried lumber, pallet lumber, and other industrial wood products.
17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Universal Forest Products,UFP Industries, 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 isWe are headquartered in Grand Rapids, Mich.Michigan. For more information about Universal Forest Products,UFP Industries, Inc., or itsour affiliated operations, go to www.ufpi.com.www.ufpi.com.
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 second quarter of 2022.
OVERVIEW
Our results for the thirdsecond quarter of 2017 were impacted by2022 include the following:following highlights:
| Our |
● | Our gross profits increased by $82.2 million, or 19.5%, compared to the |
|
|
● | Our operating profits increased $48.6 million, or 20%, compared to the second quarter of 2021. This increase resulted from a variety of factors including improved leveraging of our fixed costs in business units that experienced organic growth, increased sales of new and value-added products which have higher gross |
1518
● | Our cash flows from operations for the first six months of 2022 increased to $90 million compared to $116 million of cash used in operations during the first six months of 2021. The improved cash flows resulted from net earnings and non-cash expenses totaling $475 million, compared to $328 million last year, offset by a $385 million increase in net working capital since the end of last year, compared to a $444 million increase in the prior year. Last year, our inventories increased more significantly from the beginning of the year until the end of June, primarily due to the increase in lumber prices, as reflected in the table below, which remained elevated at the end of the second quarter. |
● | Our net debt (debt and cash overdraft less cash) at the end of June 2022 was $190.7 million compared to $561.9 million at the end of June 2021. Our unused borrowing capacity under revolving credit facilities and a shelf agreement with certain lenders along with our cash surplus resulted in total liquidity of approximately $1.2 billion at the end of the second quarter of 2022. |
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 |
| ||||
|
| 2022 |
| 2021 |
| ||
January | | $ | 1,112 | | $ | 890 | |
February | |
| 1,225 | |
| 954 | |
March | |
| 1,321 | |
| 1,035 | |
April | |
| 1,051 | |
| 1,080 | |
May | |
| 948 | |
| 1,428 | |
June | |
| 670 | |
| 1,344 | |
| | | | | | | |
Second quarter average | | $ | 890 | | $ | 1,284 | |
Year-to-date average | | $ | 1,055 | | $ | 1,122 | |
| | | | | | | |
Second quarter percentage change | |
| (30.7) | % |
| | |
Year-to-date percentage change | |
| (6.0) | % |
| | |
|
|
|
|
|
|
|
|
|
| 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.
| | | | | | | |
| | Southern Yellow Pine |
| ||||
| | Average $/MBF |
| ||||
|
| 2022 |
| 2021 |
| ||
January | | $ | 1,010 | | $ | 858 | |
February | |
| 1,115 | |
| 903 | |
March | |
| 1,198 | |
| 938 | |
April | |
| 902 | |
| 922 | |
May | |
| 732 | |
| 1,150 | |
June | |
| 574 | |
| 1,052 | |
| | | | | | | |
Second quarter average | | $ | 736 | | $ | 1,041 | |
Year-to-date average | | $ | 922 | | $ | 971 | |
| | | | | | | |
Second quarter percentage change | | | (29.3) | % | | | |
Year-to-date percentage change | | | (5.0) | % | | | |
The decrease in overall lumber prices for the first nine monthssecond quarter of 2017the year was primarily due to demand in the retail and 2016, respectively.
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|
| 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
products sold with fixed and variable prices, as discussed below.
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%54.8% and 48.4%63.7% of our sales in the first ninesix months of 20172022 and 2016,2021, respectively. The decrease from the prior year ratio reflects an improvement in our sales mix of value-added products as well as our value-based selling practices.
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 |
| 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.
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| |||||||
|
| Period 1 |
| Period 2 |
| |||||||||
| | | | | | | | |||||||
|
| Period 1 | | Period 2 |
| |||||||||
Lumber cost |
| $ | 300 |
| $ | 400 |
| | $ | 300 | | $ | 400 | |
Conversion cost |
|
| 50 |
|
| 50 |
| |
| 50 | |
| 50 | |
= Product cost |
|
| 350 |
|
| 450 |
| |
| 350 | |
| 450 | |
Adder |
|
| 50 |
|
| 50 |
| |
| 50 | |
| 50 | |
= Sell price |
| $ | 400 |
| $ | 500 |
| | $ | 400 | | $ | 500 | |
Gross margin |
|
| 12.5 | % |
| 10.0 | % | |
| 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 and operating 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.
21
BUSINESS COMBINATIONS
We completed threetwo business acquisitionsacquisition during the first ninesix months of 2017fiscal 2022 and sixnine during all of 2016.fiscal 2021. The annual historical sales attributable to acquisitions completed in 2017 and 2016 wasthe first six months of fiscal 2022 is approximately $124$62 million, and $324 million, respectively.while acquisitions completed during the last six months of 2021 have annual sales of approximately $76 million. 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 20162022 and 2021 are not presented.
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.
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| Three Months Ended |
| Nine Months Ended |
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| September 30, |
| September 24, |
| September 30, |
| September 24, |
|
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|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| |||||||||
| | | | | | | | | | ||||||||||
| Three Months Ended | | Six Months Ended | ||||||||||||||||
| June 25, |
| June 26, |
| | June 25, |
| June 26, |
| ||||||||||
| 2022 |
| 2021 |
| | 2022 |
| 2021 |
| ||||||||||
Net sales |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % | | 100.0 | % | 100.0 | % |
Cost of goods sold |
| 86.3 |
| 85.7 |
| 86.1 |
| 85.2 |
|
| 82.6 |
| 84.4 |
| | 81.8 |
| 84.4 |
|
Gross profit |
| 13.7 |
| 14.3 |
| 13.9 |
| 14.8 |
|
| 17.4 |
| 15.6 |
| | 18.2 |
| 15.6 |
|
Selling, general, and administrative expenses |
| 8.8 |
| 9.1 |
| 9.2 |
| 9.3 |
|
| 7.4 |
| 6.8 |
| | 8.1 |
| 7.4 |
|
Other (gains) losses, net | 0.1 |
| — |
| | — |
| — |
| ||||||||||
Earnings from operations |
| 4.9 |
| 5.3 |
| 4.7 |
| 5.4 |
|
| 9.8 |
| 8.8 |
| | 10.1 |
| 8.3 |
|
Other expense (income), net |
| 0.1 |
| 0.1 |
| 0.1 |
| 0.1 |
|
| |||||||||
Other expense, net | 0.3 |
| 0.1 |
| | 0.3 |
| 0.1 |
| ||||||||||
Earnings before income taxes |
| 4.8 |
| 5.2 |
| 4.6 |
| 5.3 |
|
| 9.5 |
| 8.7 |
| | 9.9 |
| 8.2 |
|
Income taxes |
| 1.5 |
| 1.7 |
| 1.5 |
| 1.8 |
|
| 2.4 |
| 2.2 |
| | 2.4 |
| 2.0 |
|
Net earnings |
| 3.3 |
| 3.5 |
| 3.1 |
| 3.5 |
|
| 7.2 |
| 6.5 |
| | 7.4 |
| 6.2 |
|
Less net earnings attributable to noncontrolling interest |
| (0.1) |
| (0.1) |
| (0.1) |
| (0.1) |
|
| (0.2) |
| (0.1) |
| | (0.2) |
| (0.1) |
|
Net earnings attributable to controlling interest |
| 3.2 | % | 3.4 | % | 3.0 | % | 3.4 | % |
| 7.0 | % | 6.4 | % | | 7.3 | % | 6.1 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
GROSSAs a result of the impact of the level of lumber prices on the percentages displayed in the table above (see Impact of the Lumber Market on Our Operating Results), we believe it is useful to compare our change in units sold with our change in gross profits, selling, general, and administrative expenses, and operating profits as presented in the following table. The percentages displayed below represent the percentage change from the prior year comparable period.
| | | | | | | | | | | | |
| | Percentage Change | ||||||||||
| | Three Months Ended | | Six Months Ended | ||||||||
|
| June 25, | | June 26, | | June 25, | | June 26, | ||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Units sold |
| 3.0 | % | | 47.0 | % | | 6.0 | % | | 41.0 | % |
Gross profit | | 19.5 | | | 105.6 | | | 38.7 | | | 90.2 | |
Selling, general, and administrative expenses | | 16.3 | | | 62.2 | | | 29.9 | | | 50.0 | |
Earnings from operations | | 20.5 | | | 156.5 | | | 45.4 | | | 148.0 | |
22
The following table presents, for the periods indicated, our selling, general, and administrative expenses (SG&A) as a percentage of gross profit. Given our strategies to enhance our capabilities and improve our value-added product offering, and recognizing the higher relative level of SG&A these strategies require, we believe this ratio provides an enhanced view of our effectiveness in managing these costs and mitigates the impact of changing lumber prices.
| | | | | | | | | | | |
| | | | | | | | | |||
| Three Months Ended | | Six Months Ended | ||||||||
|
| June 25, | |
| June 26, | |
| June 25, | |
| June 26, |
|
| 2022 | |
| 2021 | |
| 2022 | |
| 2021 |
Gross profit | $ | 503,452 | | $ | 421,294 | | $ | 981,815 | | $ | 707,848 |
Selling, general, and administrative expenses | $ | 214,538 | | $ | 184,539 | | $ | 434,688 | | $ | 334,637 |
SG&A as percentage of gross profit |
| 42.6% | |
| 43.8% | |
| 44.3% | |
| 47.3% |
Bonus expense, which is a component of SG&A, decreased in the second quarter to $55 million from $61 million in the prior year due to modifications made to our bonus plan intended to reduce the payout rate when higher levels of pre-bonus earnings from operations are achieved. The adjustment to reduce bonus expense based on the new parameters was recorded in the second quarter and totaled $17 million. As a result of this change, our year to date bonus accrual rate has decreased to 17.5% of pre-bonus earnings from operations from a historical rate of approximately 20.0%. Bonus rates continue to be derived based on return on investment achieved. Bonus expense in the first six months of 2022 totaled $124 million compared to $98 million in the prior year.
Operating Results by Segment:
Our business segments consist of UFP Retail Solutions, UFP Industrial and UFP Construction, and align with the end markets we serve. Among other things, this structure 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. We manage the operations of our 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 our International segment, which comprises our Mexico, Canada, Europe, Asia, and Australia operations and sales and buying offices in other parts of the world. Our International segment and Ardellis (our insurance captive) are 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, leases, and operates transportation equipment, are also included in the Corporate column. Inter-company lease and services charges are assessed to our operating segments for the use of these assets and services at fair market value rates.
The following tables present our operating results, for the periods indicated, by segment (in thousands).
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 25, 2022 | ||||||||||||||||
|
| |
| |
| | | | | | |
| | |||||
| | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 1,121,440 | | | 676,333 | | $ | 975,376 | | $ | 124,416 | | $ | 3,309 | | $ | 2,900,874 |
Cost of goods sold | |
| 1,048,260 | |
| 514,216 | |
| 748,060 | |
| 83,336 | | | 3,549 | | | 2,397,421 |
Gross profit | | | 73,180 | | | 162,117 | | | 227,316 | | | 41,080 | | | (240) | | | 503,453 |
Selling, general, administrative expenses | | | 48,387 | | | 67,235 | | | 94,638 | | | 16,356 | | | (12,078) | | | 214,538 |
Other | |
| 266 | | | 672 | | | (154) | | | 1,976 | | | 589 | | | 3,349 |
Earnings from operations | | $ | 24,527 | | $ | 94,210 | | $ | 132,832 | | $ | 22,748 | | $ | 11,249 | | $ | 285,566 |
23
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 26, 2021 | ||||||||||||||||
|
| |
| |
| | | | | | | |
| | ||||
| | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 1,259,218 |
| $ | 611,181 | | $ | 738,704 | | $ | 89,470 | | $ | 1,968 | | $ | 2,700,541 |
Cost of goods sold | |
| 1,136,887 | |
| 476,731 | |
| 604,414 | | | 59,745 | | | 1,470 | | | 2,279,247 |
Gross profit | | | 122,331 | | | 134,450 | | | 134,290 | | | 29,725 | | | 498 | | | 421,294 |
Selling, general, administrative expenses | | | 60,376 | | | 54,903 | | | 66,936 | | | 13,604 | | | (11,280) | | | 184,539 |
Other | |
| (96) | |
| 21 | |
| 247 | | | (183) | | | (169) | | | (180) |
Earnings from operations | | $ | 62,051 | | $ | 79,526 | | $ | 67,107 | | $ | 16,304 | | $ | 11,947 | | $ | 236,935 |
| | | | | | | | | | | | | | | | | | |
| | | ||||||||||||||||
| | Six Months Ended June 25, 2022 | ||||||||||||||||
| | | | | | | | | | | | | | |||||
| | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 2,114,672 | | $ | 1,287,702 | | $ | 1,761,847 | | $ | 219,983 | | $ | 5,983 | | $ | 5,390,187 |
Cost of goods sold | |
| 1,907,155 | |
| 976,031 | |
| 1,373,119 | | | 147,360 | | | 4,707 | | | 4,408,372 |
Gross profit | | | 207,517 | | | 311,671 | | | 388,728 | | | 72,623 | | | 1,276 | | | 981,815 |
Selling, general, administrative expenses | | | 111,055 | | | 134,466 | | | 176,975 | | | 32,981 | | | (20,789) | | | 434,688 |
Other | | | 538 | | | 604 | | | 103 | | | 2,079 | | | (788) | | | 2,536 |
Earnings from operations | | $ | 95,924 | | $ | 176,601 | | $ | 211,650 | | $ | 37,563 | | $ | 22,853 | | $ | 544,591 |
| | | | | | | | | | | | | | | | | | |
| | | ||||||||||||||||
| | Six Months Ended June 26, 2021 | ||||||||||||||||
| | | | | | | | | | | | | | |||||
| | Retail | | Industrial | | Construction | | All Other | | Corporate | | Total | ||||||
Net sales | | $ | 2,018,239 | | $ | 1,060,055 | | $ | 1,298,234 | | $ | 145,047 | | $ | 3,970 | | $ | 4,525,545 |
Cost of goods sold | |
| 1,795,435 | |
| 845,280 | |
| 1,075,260 | | | 97,771 | | | 3,951 | | | 3,817,697 |
Gross profit | | | 222,804 | | | 214,775 | | | 222,974 | | | 47,276 | | | 19 | | | 707,848 |
Selling, general, administrative expenses | | | 107,476 | | | 95,016 | | | 122,481 | | | 24,025 | | | (14,361) | | | 334,637 |
Other | | | (268) | | | (177) | | | 368 | | | (1,031) | | | (103) | | | (1,211) |
Earnings from operations | | $ | 115,596 | | $ | 119,936 | | $ | 100,125 | | $ | 24,282 | | $ | 14,483 | | $ | 374,422 |
24
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 June 25, 2022 | | ||||||||||
|
| |
| |
| | | | | | | |
|
| | 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 | | 93.5 | | 76.0 | | 76.7 | | 67.0 | | — | | 82.6 | |
Gross profit | | 6.5 | | 24.0 | | 23.3 | | 33.0 | | — | | 17.4 | |
Selling, general, administrative expenses | | 4.3 | | 9.9 | | 9.7 | | 13.1 | | — | | 7.4 | |
Other | | — | | — | | — | | 1.6 | | — | | — | |
Earnings from operations | | 2.2 | % | 13.9 | % | 13.6 | % | 18.3 | % | — | | 9.8 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
| | | | | | | | | | | | | |
| | Three Months Ended June 26, 2021 | | ||||||||||
|
| |
| |
| | | | | | | |
|
| | 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 | | 90.3 | | 78.0 | | 81.8 | | 66.8 | | — | | 84.4 | |
Gross profit | | 9.7 | | 22.0 | | 18.2 | | 33.2 | | — | | 15.6 | |
Selling, general, administrative expenses | | 4.8 | | 9.0 | | 9.1 | | 15.2 | | — | | 6.8 | |
Other | | — | | — | | — | | (0.2) | | — | | — | |
Earnings from operations | | 4.9 | % | 13.0 | % | 9.1 | % | 18.2 | % | — | | 8.8 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
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| | Six Months Ended June 25, 2022 | | ||||||||||
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| | 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 | | 90.2 | | 75.8 | | 77.9 | | 67.0 | | — | | 81.8 | |
Gross profit | | 9.8 | | 24.2 | | 22.1 | | 33.0 | | — | | 18.2 | |
Selling, general, administrative expenses | | 5.3 | | 10.4 | | 10.0 | | 15.0 | | — | | 8.1 | |
Other | | 0.3 | | — | | — | | 0.9 | | — | | — | |
Earnings from operations | | 4.5 | % | 13.7 | % | 12.0 | % | 17.1 | % | — | | 10.1 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
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| | Six Months Ended June 26, 2021 | | ||||||||||
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| | 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 | | 79.7 | | 82.8 | | 67.4 | | — | | 84.4 | |
Gross profit | | 11.0 | | 20.3 | | 17.2 | | 32.6 | | — | | 15.6 | |
Selling, general, administrative expenses | | 5.3 | | 9.0 | | 9.4 | | 16.6 | | — | | 7.4 | |
Other | | — | | — | | — | | (0.7) | | — | | — | |
Earnings from operations | | 5.7 | % | 11.3 | % | 7.7 | % | 16.7 | % | — | | 8.3 | % |
Note: Actual percentages are calculated and may not sum to total due to rounding.
25
NET SALES
We design, manufacture and market wood and wood-alternative products, primarily used to enhance outdoor living environments, 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, commercial, and other structures.structures, and specialty wood packaging, components and packing materials for various industries. Our strategic long-term sales objectives include:
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| | % Change | |||||||||
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| in Sales |
| in Selling |
| in Units |
| Acquisition Unit Change |
| Organic Unit Change |
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Second quarter 2022 versus Second quarter 2021 | | 7.4 | % | 4.4 | % | 3.0 | % | 1.0 | % | 2.0 | % |
Year-to-date 2022 versus Year-to-date 2021 | | 19.1 | % | 13.1 | % | 6.0 | % | 4.0 | % | 2.0 | % |
● | Diversifying our end market sales mix by increasing sales of |
● |
| Expanding geographically in our core businesses, domestically and internationally. |
● |
| Increasing our sales of "value-added" products |
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19
UNIVERSAL FOREST PRODUCTS, 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 |
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| 26,738 |
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| 23,374 |
| 14.39% |
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| 76,125 |
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| 65,642 |
| 15.97% |
Construction |
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| 15,577 |
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| 11,911 |
| 30.78% |
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| 45,321 |
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| 35,717 |
| 26.89% |
Total New Product Sales |
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| 107,698 |
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| 88,537 |
| 21.64% |
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| 313,640 |
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| 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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| 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 |
| $ | 391,895 |
| $ | 339,275 |
| 15.5 | % |
| $ | 1,162,785 |
| $ | 1,018,203 |
| 14.2 | % |
Industrial |
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| 369,506 |
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| 232,017 |
| 59.3 | % |
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| 982,675 |
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| 661,718 |
| 48.5 | % |
Construction |
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| 310,026 |
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| 267,772 |
| 15.8 | % |
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| 872,997 |
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| 740,393 |
| 17.9 | % |
Total Gross Sales |
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| 1,071,427 |
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| 839,064 |
| 27.7 | % |
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| 3,018,457 |
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| 2,420,314 |
| 24.7 | % |
Sales Allowances |
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| (14,841) |
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| (12,399) |
| 19.7 | % |
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| (43,366) |
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| (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. Value-added products generally carry higher gross margins thansales by our commodity-based products.segments:
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| | Three Months Ended June 25, 2022 | | Three Months Ended June 26, 2021 | | ||||||||
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| Value-Added |
| Commodity-Based | | Value-Added |
| Commodity-Based | | ||||
Retail |
| 45.3 | % | | 54.7 | % | | 39.7 | % | | 60.3 | % | |
Industrial | | 70.5 | % | | 29.5 | % | | 63.8 | % | | 36.2 | % | |
Construction | | 74.7 | % | | 25.3 | % | | 67.9 | % | | 32.1 | % | |
All Other and Corporate | | 75.5 | % | | 24.5 | % | | 73.4 | % | | 26.6 | % | |
Total Sales | | 62.2 | % | | 37.8 | % | | 53.8 | % | | 46.2 | % | |
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30, |
| 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 | % |
26
| | Six Months Ended June 25, 2022 | | Six Months Ended June 26, 2021 | | ||||||||
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| Value-Added |
| Commodity-Based | | Value-Added |
| Commodity-Based |
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Retail |
| 43.2 | % | | 56.8 | % | | 41.5 | % | | 58.5 | % | |
Industrial | | 69.2 | % | | 30.8 | % | | 65.1 | % | | 34.9 | % | |
Construction | | 73.7 | % | | 26.3 | % | | 68.3 | % | | 31.7 | % | |
All Other and Corporate | | 73.9 | % | | 26.1 | % | | 72.7 | % | | 27.3 | % | |
Total Sales | | 60.5 | % | | 39.5 | % | | 55.5 | % | | 44.5 | % | |
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Note: Certain prior year product reclassifications and the change in designation of certain products as "value-added" resulted in a change in prior year's sales. |
Our gross margin decreased to 13.7% from 14.3% comparingoverall unit sales of value-added products increased approximately 6% in the thirdsecond quarter of 20172022 compared to 2021, comprised of a 2% contribution from acquisitions and 4% organic growth. Our overall unit sales of value-added products increased approximately 6% in the first six months of 2022 compared to the same period last year, comprised of a 3% contribution from acquisitions and 3% organic growth. Our organic unit sales of commodity-based products decreased approximately 1% quarter-over-quarter and our overall unit sales of commodity-based products increased approximately 5% in the first six months of 2022 compared to the same period last year, comprised of a 4% contribution from acquisitions and 1% organic growth.
● | Developing new products. We define new products as those that will generate sales of at least $1 million per year within 4 years of launch and are still growing and gaining market penetration. New product sales in the second quarter of 2022 increased 37%. Approximately $211 million of new product sales for the first six months of 2021, while still sold, were sunset in 2022 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 $525 million in 2022. |
The table below presents new product sales in thousands:
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| | New Product Sales by Segment | | | New Product Sales by Segment | |||||||||||||
| | Three Months Ended | | | Six Months Ended | |||||||||||||
|
| June 25, |
| June 26, |
| % |
| June 25, | | June 26, |
| % | ||||||
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | ||||||
Retail | | $ | 71,410 | | | 68,064 |
| 4.9 | % | | $ | 137,855 | | $ | 119,966 | | 14.9 | % |
Industrial | |
| 68,108 | | | 37,108 |
| 83.5 | % | |
| 130,945 | |
| 65,432 | | 100.1 | % |
Construction | | | 40,692 | | | 26,326 | | 54.6 | % | | | 77,499 | | | 42,200 | | 83.6 | % |
All Other and Corporate | |
| 623 | | | 594 |
| 4.9 | % | |
| 1,393 | |
| 907 | | 53.6 | % |
Total New Product Sales | |
| 180,833 | | | 132,092 |
| 36.9 | % | | $ | 347,692 | | $ | 228,505 | | 52.2 | % |
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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. |
Retail Segment
Net sales in the second quarter of 2022 decreased by 11% compared to the same period of 20162021, due to a 5% decrease in selling prices, a 2% decrease due to the higher leveltransfer of lumber prices. Our 22.6%certain sales to the Construction segment this year, and an organic unit decrease of 4%. These factors were offset by acquisition unit growth of 1%. The decline in organic unit sales was experienced in nearly all of our retail business units as consumer demand begins to return to more normalized levels. By business unit, we experienced organic unit growth of 3% in UFP Edge and this was offset by organic unit decreases in our ProWood (1%), Retail Building Products (2%), Sunbelt (8%), Deckorators (9%), Handprint (18%), and Outdoor Essentials (22%) business units. Capacity expansion contributed to our unit increase in gross profit dollars compares favorably withUFP Edge, and we believe investments we’ve made to expand capacity in our 22% increase in unitDeckorators and UFP Edge business units will add planned sales duringof nearly $100 million to the same period. Acquired operations contributed $19.9Retail segment for all of 2022. Finally, sales to big box customers were down 10%, while sales to independent retailers decreased 15%.
27
Gross profits decreased by $49.2 million, of gross profit inor 40.2% to $73.2 million for the thirdsecond quarter of 2017. Excluding acquisitions, our gross profits increased by $6.7 million, or 5.7%, over the same period last year as follows:
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21
UNIVERSAL FOREST PRODUCTS, INC.
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Our gross margin decreased to 13.9% from 14.8% comparing the first nine months of 2017 to the same period of 2016. Our 17.4% increase in gross profit dollars compares unfavorably with our 19% increase in unit sales in the first nine months of 20172022 compared to the same period last year. The increasedecrease in our gross profit dollars was attributable to the following: