UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10‑Q~~10-Q


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

For the quarterly period ended ~~September~~June 29, ~~2018~~2019


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

Commission File Number ~~0‑22684~~0-22684

UNIVERSAL FOREST PRODUCTS ~~INC.~~INC

(Exact name of registrant as specified in its charter)


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

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

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


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒⌧ No ☐◻

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


Large Accelerated Filer ☒⌧	Accelerated Filer ☐◻	Non-Accelerated Filer ☐◻	Smaller ~~reporting company~~ Reporting Company ☐
			Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with 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‑2~~12b-2 of the Exchange Act). Yes ☐ No ☒⌧

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


	Class		Outstanding as of ~~September~~June 29, ~~2018~~2019
	Common stock, $1 par value		~~61,656,181~~61,366,680


Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, no par value	UFPI	The Nasdaq Stock Market, LLC

Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED ~~CONDENSED~~ BALANCE SHEETS

(Unaudited)

~~(Unaudited)~~

(in thousands, except share data)

September 29,

December 30,

September 30,


2018

2017

2017

ASSETS





CURRENT ASSETS:





Cash and cash equivalents

$
26,327

$
28,339

$
22,044

Restricted cash

1,024

477


905

Investments

15,809

11,269


10,781

Accounts receivable, net

454,935

327,751


419,183

Inventories:





Raw materials

257,983

234,354


203,930

Finished goods

252,074

225,954


208,556

Total inventories

510,057

460,308


412,486

Refundable income taxes

9,124

7,228


763

Other current assets

29,575

28,115


22,438

TOTAL CURRENT ASSETS

1,046,851

863,487

888,600

DEFERRED INCOME TAXES

2,176

1,865


1,899

RESTRICTED INVESTMENTS

13,117

8,359


7,982

OTHER ASSETS

7,052

7,368


7,634

GOODWILL

218,631

212,644


212,029

INDEFINITE-LIVED INTANGIBLE ASSETS

7,373

7,415


7,580

OTHER INTANGIBLE ASSETS, NET

35,662

34,910


36,093

PROPERTY, PLANT AND EQUIPMENT:





  Property, plant and equipment

807,023

763,101

754,175

Less accumulated depreciation and amortization

(460,714)

(434,472)


(429,066)

       PROPERTY, PLANT AND EQUIPMENT, NET

346,309

328,629

325,109

TOTAL ASSETS

$
1,677,171

$
1,464,677

$
1,486,926

LIABILITIES AND SHAREHOLDERS’ EQUITY





CURRENT LIABILITIES:





Cash overdraft

$
31,115

$
25,851

$
26,617

Accounts payable

175,912

140,106


171,774

Accrued liabilities:





Compensation and benefits

99,786

97,556


88,185

Other

51,316

38,404


50,179

Current portion of long-term debt

149

1,329


2,197

TOTAL CURRENT LIABILITIES

358,278

303,246


338,952

LONG-TERM DEBT

186,539

144,674


145,884

DEFERRED INCOME TAXES

13,701

14,079


22,806

OTHER LIABILITIES

26,929

28,655


29,204

TOTAL LIABILITIES

585,447

490,654


536,846

SHAREHOLDERS’ EQUITY:





Controlling interest shareholders’ equity:





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

$
—

$
—

$
—

Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,656,181, 61,191,888 and 61,174,197

61,656

61,192


61,174

Additional paid-in capital

176,671

161,928


159,995

Retained earnings

841,431

736,212


715,497

Accumulated other comprehensive income

(3,638)

144


(871)

Total controlling interest shareholders’ equity

1,076,120

959,476


935,795

Noncontrolling interest

15,604

14,547


14,285

TOTAL SHAREHOLDERS’ EQUITY

1,091,724

974,023


950,080

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$
1,677,171

$
1,464,677

$
1,486,926


(in thousands, except share data)
	June 29,		December 29,		June 30,
	2019		2018		2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	20,497	$	27,316	$	27,501
Restricted cash		1,024		882		16,758
Investments		16,776		14,755		14,493
Accounts receivable, net		483,263		343,450		489,145
Inventories:
Raw materials		258,078		271,871		272,765
Finished goods		270,602		284,349		259,109
Total inventories		528,680		556,220		531,874
Refundable income taxes		—		14,130		2,396
Other current assets		46,868		38,525		30,464
TOTAL CURRENT ASSETS		1,097,108		995,278		1,112,631
DEFERRED INCOME TAXES		2,341		2,668		2,235
RESTRICTED INVESTMENTS		14,856		13,267		10,950
RIGHT OF USE ASSETS		70,650		—		—
OTHER ASSETS		23,328		8,662		7,081
GOODWILL		225,269		224,117		219,595
INDEFINITE-LIVED INTANGIBLE ASSETS		7,359		7,360		7,384
OTHER INTANGIBLE ASSETS, NET		41,176		41,486		36,045
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment		851,565		814,645		791,348
Less accumulated depreciation and amortization		(482,993)		(459,935)		(450,650)
PROPERTY, PLANT AND EQUIPMENT, NET		368,572		354,710		340,698
TOTAL ASSETS		1,850,659		1,647,548		1,736,619
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Cash overdraft	$	24,972	$	27,367	$	33,608
Accounts payable		189,649		136,901		197,408
Accrued liabilities:
Compensation and benefits		100,409		104,109		88,771
Income taxes		739		—		—
Other		48,746		41,645		50,038
Current portion of lease liability		14,918		—		—
Current portion of long-term debt		173		148		542
TOTAL CURRENT LIABILITIES		379,606		310,170		370,367
LONG-TERM DEBT		187,471		202,130		276,274
LEASE LIABILITY		55,875		—		—
DEFERRED INCOME TAXES		14,773		15,687		13,856
OTHER LIABILITIES		29,701		30,877		28,399
TOTAL LIABILITIES		667,426		558,864		688,896
SHAREHOLDERS’ EQUITY:
Controlling interest shareholders’ equity:
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none	$	—	$	—	$	—
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,366,680, 60,883,749, and 61,632,401		61,367		60,884		61,632
Additional paid-in capital		192,783		178,540		174,749
Retained earnings		917,704		839,917		800,237
Accumulated other comprehensive income		(4,479)		(5,938)		(4,077)
Total controlling interest shareholders’ equity		1,167,375		1,073,403		1,032,541
Noncontrolling interest		15,858		15,281		15,182
TOTAL SHAREHOLDERS’ EQUITY		1,183,233		1,088,684		1,047,723
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,850,659	$	1,647,548	$	1,736,619

See notes to consolidated condensed financial ~~statements.~~statements.

Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 29,

September 30,

September 29,

September 30,


2018

2017

2018

2017

NET SALES

$
1,212,702

$
1,056,586

$
3,500,999

$
2,975,091

COST OF GOODS SOLD

1,054,029

911,899


3,045,748

2,561,424

GROSS PROFIT

158,673

144,687


455,251

413,667

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

102,292

92,389


300,292

272,956

FOREIGN CURRENCY EXCHANGE LOSS

412

301

213

1,157

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

(1,022)

(274)

(7,079)

(437)

EARNINGS FROM OPERATIONS

56,991

52,271


161,825

139,991

INTEREST EXPENSE

1,945

1,481


5,971

4,825

INTEREST AND INVESTMENT INCOME

(211)

(130)


(1,109)

(541)

EQUITY IN EARNINGS OF INVESTEE

—

1


—

(25)

1,734

1,352


4,862

4,259

EARNINGS BEFORE INCOME TAXES

55,257

50,919


156,963

135,732

INCOME TAXES

13,189

16,250


36,183

44,855

NET EARNINGS

42,068

34,669


120,780

90,877

LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST

(849)

(976)


(2,684)

(2,480)

NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST

$
41,219

$
33,693

$
118,096

$
88,397

EARNINGS PER SHARE - BASIC

$
0.67

$
0.55

$
1.91

$
1.44

EARNINGS PER SHARE - DILUTED

$
0.66

$
0.55

$
1.91

$
1.44

OTHER COMPREHENSIVE INCOME:

NET EARNINGS

42,068

34,669


120,780

90,877

OTHER COMPREHENSIVE GAIN (LOSS)

1,174

1,719


(3,170)

6,141

COMPREHENSIVE INCOME

43,242

36,388


117,610

97,018

LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST

(1,583)

(975)


(3,296)

(3,862)

COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST

$
41,659

$
35,413

$
114,314

$
93,156


(in thousands, except per share data)
	Three Months Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2019		2018		2019		2018
NET SALES	$	1,239,817	$	1,294,440	$	2,254,943	$	2,288,297
COST OF GOODS SOLD		1,053,091		1,128,751		1,913,950		1,991,719
GROSS PROFIT		186,726		165,689		340,993		296,578
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		112,688		104,595		218,631		197,800
NET (GAIN) LOSS ON DISPOSITION OF ASSETS		(199)		477		(321)		(6,057)
EARNINGS FROM OPERATIONS		74,237		60,617		122,683		104,835
INTEREST EXPENSE		2,407		2,248		4,867		4,025
INTEREST AND INVESTMENT INCOME		(682)		(181)		(2,275)		(898)
NET INTEREST EXPENSE		1,725		2,067		2,592		3,127
EARNINGS BEFORE INCOME TAXES		72,512		58,550		120,091		101,708
INCOME TAXES		17,367		13,420		28,944		22,994
NET EARNINGS		55,145		45,130		91,147		78,714
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(630)		(1,086)		(1,092)		(1,836)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST	$	54,515	$	44,044	$	90,055	$	76,878

EARNINGS PER SHARE - BASIC	$	0.88	$	0.71	$	1.46	$	1.24
EARNINGS PER SHARE - DILUTED	$	0.88	$	0.71	$	1.46	$	1.24

OTHER COMPREHENSIVE INCOME:
NET EARNINGS		55,145		45,130		91,147		78,714
OTHER COMPREHENSIVE GAIN (LOSS)		471		(3,905)		1,844		(4,344)
COMPREHENSIVE INCOME		55,616		41,225		92,991		74,370
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(791)		(119)		(1,477)		(1,713)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	54,825	$	41,106	$	91,514	$	72,657

See notes to consolidated condensed financial statements.

Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


(in thousands, except share and per share data)
	Controlling Interest Shareholders’ Equity
							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Earnings		Interest		Total
Balance at December 30, 2017	$	61,192	$	161,928	$	736,212	$	144	$	14,547	$	974,023
Net earnings						76,878				1,836		78,714
Foreign currency translation adjustment								(3,669)		(123)		(3,792)
Unrealized gain (loss) on investment & foreign currency								(552)				(552)
Distributions to noncontrolling interest										(1,078)		(1,078)
Cash dividends - $0.180 per share						(11,090)						(11,090)
Issuance of 16,917 shares under employee stock plans		17		483								500
Issuance of 346,777 shares under stock grant programs		347		4,990								5,337
Issuance of 132,603 shares under deferred compensation plans		132		(132)								—
Repurchase of 55,784 shares		(56)				(1,763)						(1,819)
Expense associated with share-based compensation arrangements				1,817								1,817
Accrued expense under deferred compensation plans				5,663								5,663
Balance at June 30, 2018	$	61,632	$	174,749	$	800,237	$	(4,077)	$	15,182	$	1,047,723
Balance at December 29, 2018	$	60,884	$	178,540	$	839,917	$	(5,938)	$	15,281	$	1,088,684
Net earnings						90,055				1,092		91,147
Foreign currency translation adjustment								1,133		385		1,518
Unrealized gain (loss) on debt securities								326				326
Distributions to noncontrolling interest										(900)		(900)
Cash dividends - $0.200 per share						(12,271)						(12,271)
Issuance of 18,953 shares under employee stock purchase plans		19		523								542
Issuance of 309,250 shares under stock grant programs		309		5,839		3						6,151
Issuance of 154,728 shares under deferred compensation plans		155		(155)								—
Expense associated with share-based compensation arrangements				2,111								2,111
Accrued expense under deferred compensation plans				5,925								5,925
Balance at June 29, 2019	$	61,367	$	192,783	$	917,704	$	(4,479)	$	15,858	$	1,183,233

~~(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 31, 2016

$
61,026

$
144,649

$
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 - $0.150 per share

(9,208)

(9,208)
Issuance of 17,925 shares under employee stock plans

18

458








476
Issuance of 428,325 shares under stock grant programs

428

6,752








7,180
Issuance of 147,480 shares under deferred compensation plans

148

(148)








—
Repurchase of 445,740 shares

(446)

297

(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

$
61,174

$
159,995

$
715,497

$
(871)

$
14,285

$
950,080
Balance at December 30, 2017

61,192

161,928

736,212

144

14,547

974,023
Net earnings





118,096



2,684


120,780
Foreign currency translation adjustment







(3,562)

612


(2,950)
Unrealized gain (loss) on investment & foreign currency







(220)



(220)
Distributions to noncontrolling interest









(2,239)

(2,239)
Cash dividends - $0.180 per share





(11,090)





(11,090)
Issuance of 25,449 shares under employee stock plans

25

731








756
Issuance of 348,140 shares under stock grant programs

348

4,911








5,259
Issuance of 147,188 shares under deferred compensation plans

147

(147)








—
Repurchase of 56,484 shares

(56)

(1,787)

(1,843)
Expense associated with share-based compensation arrangements

2,613

2,613
Accrued expense under deferred compensation plans

6,635

6,635
Balance at September 29, 2018

$
61,656

$
176,671

$
841,431

$
(3,638)

$
15,604

$
1,091,724

See notes to consolidated condensed financial statements.

Table of Contents

UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF CASH FLOWS

(Unaudited)


(in thousands)	Six Months Ended
	June 29,		June 30,
	2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	91,147	$	78,714
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		29,200		26,144
Amortization of intangibles		2,946		2,702
Expense associated with share-based and grant compensation arrangements		2,209		1,924
Deferred income taxes credits		(536)		(565)
Unrealized gain on investments		(1,518)		—
Net gain on disposition of assets		(321)		(6,057)
Changes in:
Accounts receivable		(139,468)		(155,666)
Inventories		28,008		(61,828)
Accounts payable and cash overdraft		49,947		62,665
Accrued liabilities and other		9,334		15,895
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		70,948		(36,072)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(42,477)		(54,313)
Proceeds from sale of property, plant and equipment		977		36,724
Acquisitions, net of cash received		(5,034)		(37,960)
Purchases of investments		(4,859)		(9,348)
Proceeds from sale of investments		3,667		3,180
Other		(10)		(1,352)
NET CASH USED IN INVESTING ACTIVITIES		(47,736)		(63,069)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities		393,434		488,853
Repayments under revolving credit facilities		(408,027)		(431,657)
Borrowings of debt		—		1,639
Repayment of debt		(3,061)		(5,437)
Issuance of long-term debt		—		75,000
Proceeds from issuance of common stock		542		500
Dividends paid to shareholders		(12,271)		(11,090)
Distributions to noncontrolling interest		(900)		(1,078)
Repurchase of common stock		—		(1,819)
Other		28		(71)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(30,255)		114,840
Effect of exchange rate changes on cash		366		(256)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(6,677)		15,443
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR		28,198		28,816
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	21,521	$	44,259

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents, beginning of period	$	27,316	$	28,339
Restricted cash, beginning of period		882		477
Cash, cash equivalents, and restricted cash, beginning of period	$	28,198	$	28,816

Cash and cash equivalents, end of period	$	20,497	$	27,501
Restricted cash, end of period		1,024		16,758
Cash, cash equivalents, and restricted cash, end of period	$	21,521	$	44,259

SUPPLEMENTAL INFORMATION:
Interest paid	$	4,658	$	3,889
Income taxes paid		14,569		18,745
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans		5,041		4,779

~~(Unaudited)~~

(in thousands)

Nine Months Ended

September 29,

September 30,


2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:



Net earnings

$
120,780

$
90,877

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



Depreciation

40,490

36,010

Amortization of intangibles

4,274

3,549

Expense associated with share-based and grant compensation arrangements

2,762

2,122

Deferred income taxes (credits)

(583)

117

Equity in earnings of investee

—

(25)

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

(7,079)

(437)

Changes in:



Accounts receivable

(121,067)

(121,688)

Inventories

(39,448)

(820)

Accounts payable and cash overdraft

38,611

53,424

Accrued liabilities and other

21,361

34,221

NET CASH FROM OPERATING ACTIVITIES

60,101

97,350

CASH FLOWS FROM INVESTING ACTIVITIES:



Purchases of property, plant and equipment

(74,541)

(57,189)

Proceeds from sale of property, plant and equipment

37,612

2,121

Acquisitions, net of cash received

(38,963)

(59,859)

Purchases of investments

(12,401)

(12,155)

Proceeds from sale of investments

3,298

4,227

Other

(620)

1,480

NET CASH FROM (USED IN) INVESTING ACTIVITIES

(85,615)

(121,375)

CASH FLOWS FROM FINANCING ACTIVITIES:



Borrowings under revolving credit facilities

636,798

610,038

Repayments under revolving credit facilities

(668,941)

(573,829)

Borrowings of debt

927

—

Repayment of debt

(5,511)

—

Issuance of long-term debt

75,000

—

Proceeds from issuance of common stock

756

476

Dividends paid to shareholders

(11,090)

(9,207)

Distributions to noncontrolling interest

(2,239)

(3,272)

Repurchase of common stock

(1,843)

(12,976)

Other

(55)

—

NET CASH FROM FINANCING ACTIVITIES

23,802

11,230

Effect of exchange rate changes on cash

247

1,255

NET CHANGE IN CASH AND CASH EQUIVALENTS

(1,465)

(11,540)

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

28,816

34,489

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

$
27,351

$
22,949

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:

Cash and cash equivalents, beginning of period

$
28,339

$
34,091

Restricted cash, beginning of period

477

398

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

$
28,816

$
34,489

Cash and cash equivalents, end of period

$
26,327

$
22,044

Restricted cash, end of period

1,024

905

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

$
27,351

$
22,949

SUPPLEMENTAL INFORMATION:



Interest paid

$
4,955

$
3,910

Income taxes paid

38,675

34,108

NON-CASH FINANCING ACTIVITIES:

Common stock issued under deferred compensation plans

5,312

4,673

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

NOTES TO UNAUDITED

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‑K~~10-K for the fiscal year ended December ~~30, 2017.~~29, 2018.

Seasonality has a significant impact on our working capital from March to August which historically results in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which typically results in significant cash flow from operations in our third and fourth quarters. For comparative purposes, we have included the ~~September~~June 30, ~~2017~~2018 balances in the accompanying unaudited consolidated condensed balance sheets.

B. FAIR VALUE

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

September 29, 2018

September 30, 2017

Quoted

Prices with

Quoted

Prices with

Prices in

Other

Prices with

Prices in

Other

Active

Observable

Unobservable

Active

Observable

Markets

Inputs

Inputs

Markets

Inputs

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Total

(Level 1)

(Level 2)

Total
Money market funds

$
56

$
1,381

$
—

$
1,437

$
64

$
413

$
477
Fixed income funds

2,846

9,484

—

12,330

1,299

6,905

8,204
Equity securities

8,203

—

—

8,203

10,194

—

10,194
Hedge funds

—

—

1,725

1,725

Mutual funds:







Domestic stock funds

2,970

—

—

2,970

335

—

335
International stock funds

948

—

—

948

87

—

87
Target funds

255

—

—

255

260

—

260
Bond funds

208

635

—

843

208

—

208
Alternative funds

1,364

1,364

Total mutual funds

5,745

635

—

6,380

890

—

890
Total

$
16,850

$
11,500

$
1,725

$
30,075

$
12,447

$
7,318

$
19,765
Assets at fair value

$
16,850

$
11,500

$
1,725

$
30,075

$
12,447

$
7,318

$
19,765


	June 29, 2019								June 30, 2018
	Quoted		Prices with						Quoted		Prices with
	Prices in		Other			Prices with			Prices in		Other		Prices with
	Active		Observable			Unobservable			Active		Observable		Unobservable
	Markets		Inputs			Inputs			Markets		Inputs		Inputs
(in thousands)	(Level 1)		(Level 2)			(Level 3)	Total		(Level 1)		(Level 2)		(Level 3)	Total
Money market funds	$	57	$	1,051	$	—	$	1,108	$	56	$	1,513	—	$	1,569
Fixed income funds		2,709		11,222		—		13,931		2,879		7,968	—		10,847
Equity securities		8,651		—		—		8,651		7,892		—	—		7,892
Hedge funds		—		—		1,829		1,829					1,689		1,689
Mutual funds:															—
Domestic stock funds		2,472		—		—		2,472		413		—	—		413
International stock funds		2,059		—		—		2,059		3,951		—	—		3,951
Target funds		266		—		—		266		249		—	—		249
Bond funds		815		—		—		815		725		—	—		725
Alternative funds		1,696		—		—		1,696		—		—	—		—
Total mutual funds		7,308		—		—		7,308		5,338		—	—		5,338
Total	$	18,725	$	12,273		1,829	$	32,827	$	16,165	$	9,481	1,689	$	27,335
Assets at fair value	$	18,725	$	12,273		1,829	$	32,827	$	16,165	$	9,481	1,689	$	27,335

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UNIVERSAL FOREST PRODUCTS, INC.

We maintain money market, mutual funds, bonds, and/or stocks in our non-qualified deferred compensation plan and our wholly owned licensed captive insurance company. These funds are valued at prices quoted in an active exchange market and are included in “Cash and Cash Equivalents”, “Investments”, “Restricted Cash”, and “Restricted Investments”. We have elected not to apply the fair value option under ASC 825, Financial Instruments, to any of our financial instruments except for those expressly required by U.S. GAAP.

During 2018, we purchased a private real estate income trust which ~~will be~~are valued as a Level 3 asset. ~~We did not~~ ~~maintain any Level 3 assets or liabilities at September 30, 2017.~~

~~In 2017,~~ ~~our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”)~~ transferred fixed income securities to 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 ~~$27.6~~$30.7 million as of ~~September~~June 29, ~~2018,~~2019, consisting of domestic and international stocks, hedge funds, and fixed income bonds.

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


	September 29,2018
			Unrealized
	Cost		Gain/(Loss)		Fair Value

							June 29,2019
									Unrealized
							Cost		Gain/(Loss)		Fair Value
Fixed Income	$	12,575	$	(245)	$	12,330	$	13,694	$	237	$	13,931
Equity		6,975		1,228		8,203		7,531		1,120		8,651
Mutual Funds		5,416		(25)		5,391		6,376		(79)		6,297
Hedge Funds		1,715		10		1,725		1,766		63		1,829
Total	$	26,681	$	968	$	27,649	$	29,367	$	1,341	$	30,708

Our fixed income investments consist of a blend of US Government and Agency bonds and investment grade corporate bonds with varying maturities. Our equity investments consist of small, mid, and large cap growth and value funds, as well as international equity. Our hedge funds consist of the private real estate income trust which is valued as a Level 3 asset. The net unrealized gain was ~~$1.0~~$1.3 million. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of ~~September~~June 29, ~~2018. During the first nine months of 2018, Ardellis’ investments reported a net realized gain of $551 thousand, which was recorded in interest income on the statement of earnings.~~2019.

C. REVENUE RECOGNITION

On May 28, 2014, the FASB issued ASU No. 2014-09 (Accounting Standard Codification 606), Revenue from Contracts with Customers. Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange 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 has adopted the requirements of the new standard as of January 1, 2018, and utilized the modified retrospective method of transition which was applied to all contracts.

The Company completed the new revenue recognition standard assessment and determined that there was no material impact to our consolidated financial statements, aside from additional required disclosures, thus no needed adjustment to the opening retained earnings for the annual reporting period.

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

Within the three markets (retail, industrial, and construction) that the Company operates, there are a variety of written and oral contracts that are utilized to generate revenue from the sale of wood, wood composite and other products. 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 when this performance obligation is satisfied. Generally, title and control passes

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UNIVERSAL FOREST PRODUCTS, INC.

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.

Certain customer products that we provide require installation by the Company or a 3^rd party. Installation revenue is recognized upon completion, which is typically 2-3 days after receipt. If it is determined to utilize a 3^rd party for installation, the party will act as an agent to the Company until completion of the installation. Installation revenue represents an immaterial share of the Company’s total sales.

The Company utilizes rebates, credits, discounts and/or cash-based incentives with certain customers which are accounted for as variable consideration. We estimate these amounts based on 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, the volume 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 over time accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations, which is in accordance with ASC 606 as revenue is recognized when certain performance obligations are performed. Under over time accounting using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under over time accounting using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent.

Our construction contracts are generally entered into with a fixed price and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist.

The following table presents our gross revenues disaggregated by revenue source:

Three Months Ended

Nine Months Ended
(in thousands)

September 29,

September 30,


September 29,

September 30,


Market Classification

2018

2017

% Change

2018

2017

% Change
FOB Shipping Point Revenue

$
1,197,959

$
1,037,049

15.5%

$
3,461,208

$
2,922,701

18.4%
Construction Contract Revenue

35,731

36,597

-2.4%

104,518

101,997

2.5%
Total Gross Sales

1,233,690

1,073,646

14.9%

3,565,726

3,024,698

17.9%
Sales Allowances

(20,988)

(17,060)

23.0%

(64,727)

(49,607)

30.5%
Total Net Sales

$
1,212,702

$
1,056,586

14.8%

$
3,500,999

$
2,975,091

17.7%


	Three Months Ended					Six Months Ended
(in thousands)	June 29,		June 30,			June 29,		June 30,
Market Classification	2019		2018		% Change	2019		2018		% Change
FOB Shipping Point Revenue	$	1,220,844	$	1,281,557	-4.7%	$	2,217,667	$	2,263,248	-2.0%
Construction Contract Revenue		43,663		38,811	12.5%		78,445		68,787	14.0%
Total Gross Sales		1,264,507		1,320,368	-4.2%		2,296,112		2,332,035	-1.5%
Sales Allowances		(24,690)		(25,928)	-4.8%		(41,169)		(43,738)	-5.9%
Total Net Sales	$	1,239,817	$	1,294,440	-4.2%	$	2,254,943	$	2,288,297	-1.5%

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

In the ~~first nine months~~second quarter of ~~2018,~~2019, the North and West segments comprise the construction contract revenue above, ~~$72.0~~$28.1 million and ~~$32.5~~$15.6 million, ~~respectively.~~respectively, compared to $26.7 million and $12.1 million, respectively, during the same period of 2018. Similarly, in the first six months of 2019, the North and West segments comprise the construction contract revenue above, $47.5 million and $30.9 million, respectively, compared to $47.3 million and $21.5 million, respectively, during the same period of 2018. Construction contract revenue is primarily made up of site-built and framing customers.

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UNIVERSAL FOREST PRODUCTS, INC.

The following table presents the balances of over time accounting accounts which are included in “Other current assets” and “Accrued liabilities: Other”, respectively (in thousands):


	September 29,		December 30,		September 30,
	2018		2017		2017

							June 29,		December 29,		June 30,
							2019		2018		2018
Cost and Earnings in Excess of Billings	$	5,167	$	5,005	$	2,594	$	6,309	$	6,945	$	5,501
Billings in Excess of Cost and Earnings		4,955		4,435		4,802		5,222		3,245		4,616

D. EARNINGS PER SHARE

The computation of earnings per share (“EPS”) is as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 29,		September 30,		September 29,		September 30,
	2018		2017		2018		2017

									Three Months Ended				Six Months Ended
									June 29,		June 30,		June 29,		June 30,
									2019		2018		2019		2018
Numerator:
Net earnings attributable to controlling interest	$	41,219	$	33,693	$	118,096	$	88,397	$	54,515	$	44,044	$	90,055	$	76,878
Adjustment for earnings allocated to non-vested restricted common stock		(952)		(656)		(2,678)		(1,633)		(1,384)		(1,018)		(2,245)		(1,728)
Net earnings for calculating EPS	$	40,267	$	33,037	$	115,418	$	86,764	$	53,131	$	43,026	$	87,810	$	75,150
Denominator:
Weighted average shares outstanding		61,954		61,422		61,838		61,443		61,691		61,895		61,544		61,770
Adjustment for non-vested restricted common stock		(1,430)		(1,197)		(1,402)		(1,134)		(1,566)		(1,431)		(1,534)		(1,389)
Shares for calculating basic EPS		60,524		60,225		60,436		60,309		60,125		60,464		60,010		60,381
Effect of dilutive restricted common stock		90		123		84		111		23		85		21		80
Shares for calculating diluted EPS		60,614		60,348		60,520		60,420		60,148		60,549		60,031		60,461
Net earnings per share:
Basic	$	0.67	$	0.55	$	1.91	$	1.44	$	0.88	$	0.71	$	1.46	$	1.24
Diluted	$	0.66	$	0.55	$	1.91	$	1.44	$	0.88	$	0.71	$	1.46	$	1.24

~~No options were excluded from the computation of diluted EPS for the quarters ended September 29, 2018, or September 30, 2017.~~

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 was on October 31, 2017, and the eventual stock distribution to shareholders occurred on November 14, 2017. As a result of the stock split, all historical per share data and number of shares outstanding presented in future financial statements are retroactively adjusted.

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.

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,

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

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; and Auburndale, FL. In addition, a reserve was established for our facility in Thornton, CA to remove certain lead containing materials which existed on the property at the time of purchase.

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UNIVERSAL FOREST PRODUCTS, INC.

On a consolidated basis, we have reserved approximately $2.0 million and $2.5 million on June 29, 2019, and ~~$3.6 million on September 29,~~June 30, 2018, ~~and September 30, 2017,~~ 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 $0.1 million. As a result, this amount is recorded in other long-term liabilities on September 29, 2018.

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~~June 29, ~~2018,~~2019, 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~~June 29, ~~2018,~~2019, we had outstanding purchase commitments on commenced capital projects of approximately ~~$23.4~~$48.3 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.

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 that the products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety for claims made against ~~the~~

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

these bonds. As of ~~September~~June 29, ~~2018,~~2019, we had approximately ~~$19.7~~$14.8 million outstanding payment and performance bonds for open projects. We had approximately ~~$1.3~~$10.0 million in payment and performance bonds outstanding for completed projects which are still under warranty.

On ~~September~~June 29, ~~2018,~~2019, we had outstanding letters of credit totaling ~~$30.6~~$37.4 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 currently~~As of June 29, 2019, we have irrevocable letters of credit outstanding totaling approximately ~~$20.5~~$27.6 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 ~~$10.1~~$9.8 million related to our outstanding industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the issuing banks.

Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products, Inc. in certain debt agreements, including the Series 2012 and 2018 Senior Notes and our revolving credit facility. The maximum exposure of these guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire concurrent with the expiration of the debt agreements.

We did not enter into any new guarantee arrangements during the ~~third~~second quarter of ~~2018~~2019 which would require us to recognize a liability on our balance sheet.

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UNIVERSAL FOREST PRODUCTS, INC.

F. BUSINESS COMBINATIONS

We completed the following acquisitions in ~~nine months ended~~2019 and 2018, ~~and 2017~~ which were accounted for using the purchase method in thousands unless otherwise noted:

Net

Company
Acquisition

Intangible
Tangible
Operating
Name
Date
Purchase Price
Assets
Assets
Segment

July 31, 2018
$1,016
cash paid for 100% asset purchase
$
250
$
766
West
The Pallet Place, LLC ("Pallet Place")
A manufacturer and distributor of total packaging solutions in timber, crates, skids, and pallets. Pallet Place had annual sales of approximately $5 million. The acquisition of Pallet Place allows us to increase our industrial business and creates operating leverage by consolidating with another regional operation.

June 1, 2018
$23,866
cash paid for 100% asset purchase
$
7,123
$
16,743
South
North American Container Corporation ("NACC")
A manufacturer of structural packaging products, including steel, corrugated and hardwood packaging. NACC had annual sales of approximately $71 million. The acquisition of NACC allows us to enhance our presence in this region, expand our product offering, and serve customers more cost effectively.


					Net
Company	Acquisition		Intangible		Tangible		Operating
Name	Date	Purchase Price	Assets		Assets		Segment
	May 1, 2019	$5,034 cash paid for 100% asset purchase	$	4,046	$	988	North
Wolverine Wood Products, Inc. ("Wolverine")	A manufacturer of wood panel components for furniture, store fixtures and case goods. Wolverine had annual sales of approximately $5 million. The acquisition of Wolverine allows us to expand capacity to produce value-added wood components for customers in the Midwest.
	October 22, 2018	$15,115 cash paid for 100% asset purchase	$	8,592	$	6,523	North
Pak-Rite, LTD ("Pak-Rite")	A designer and manufacturer of packaging for high-value products, such as medical, aerospace and automation equipment. Pak-Rite had annual sales of approximately $15 million. The acquisition of Pak-Rite allows us to grow our portfolio of packaging products and our presence in this region.
	July 31, 2018	$1,016 cash paid for 100% asset purchase	$	250	$	766	West
The Pallet Place, LLC ("Pallet Place")	A manufacturer and distributor of total packaging solutions in timber, crates, skids, and pallets. Pallet Place had annual sales of approximately $5 million. The acquisition of Pallet Place allows us to increase our industrial business and creates operating leverage by consolidating with another regional operation.
	June 1, 2018	$23,866 cash paid for 100% asset purchase	$	12,497	$	11,369	South
North American Container Corporation ("NACC")	A manufacturer of structural packaging products, including steel, corrugated and hardwood packaging. NACC had annual sales of approximately $71 million. The acquisition of NACC allows us to enhance our presence in this region, expand our product offering, and serve customers more cost effectively.
	April 9, 2018	$3,890 cash paid for 100% asset purchase	$	2,235	$	1,655	West
Fontana Wood Products ("Fontana")	A manufacturer and distributor of lumber and trusses in the Southern California region. Fontana had annual sales of approximately $12 million. The acquisition of Fontana allows us to expand our manufactured housing business and creates operating leverage by consolidating with another regional operation.
	April 3, 2018	$1,347 cash paid for 100% asset purchase	$	1,287	$	60	All Other
Expert Packaging ("Expert")	A manufacturer and distributor of total packaging solutions in timber, crates, pallets, and skids. Expert had annual sales of approximately $3.6 million. The acquisition of Expert allows us to make progress on our goal of becoming a global provider of packaging solutions.
	January 23, 2018	$2,942 cash paid for 100% asset purchase	$	850	$	2,092	West
Spinner Wood Products, LLC ("Spinner")	A manufacturer and distributor of agricultural bin and various industrial packaging. Spinner had annual sales of approximately $8 million. The acquisition of Spinner allows us to expand our industrial packaging product offering and creates operating leverage by consolidating with other regional operations.
	January 15, 2018	$5,784 cash paid for 100% asset purchase	$	50	$	5,734	North
Great Northern Lumber, LLC	A manufacturer of industrial products as well as serving the concrete forming market in the Chicago area. Great Northern Lumber had annual sales of approximately $25 million. The acquisition of Great Northern Lumber enables us to expand our concrete forming product offering and regional coverage.

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

Net

Company
Acquisition

Intangible
Tangible
Operating
Name
Date
Purchase Price
Assets
Assets
Segment

April 9, 2018
$3,890
cash paid for 100% asset purchase
$
2,235
$
1,655
West
Fontana Wood Products ("Fontana")
A manufacturer and distributor lumber and trusses in the Southern California region.  Fontana had annual sales of approximately $12 million.  The acquisition of Fontana allows us to expand our manufactured housing business and creates operating leverage by consolidating with another regional operation.

April 3, 2018
$1,404
cash paid for 100% asset purchase
$
1,344
$
60
All Other
Expert Packaging ("Expert")
A manufacturer and distributor of total packaging solutions in timber, crates, pallets, and skids.  Expert had annual sales of approximately $3.6 million.  The acquisition of Expert allows us to make progress on our goal of becoming a global provider of packaging solutions.

January 23, 2018
$2,942
cash paid for 100% asset purchase
$
850
$
2,092
West
Spinner Wood Products, LLC ("Spinner")
A manufacturer and distributor of agricultural bin and various industrial packaging.  Spinner had annual sales of approximately $8 million.  The acquisition of Spinner allows us to expand our industrial packaging product offering and creates operating leverage by consolidating with other regional operations.

January 15, 2018
$5,845
cash paid for 100% asset purchase
$
50
$
5,795
North
Great Northern Lumber, LLC
A manufacturer of industrial products as well as serving the concrete forming market in the Chicago area.  Great Northern Lumber had annual sales of approximately $25 million.  The acquisition of Great Northern Lumber enables us to expand our concrete forming product offering and regional coverage.

October 16, 2017
$931
cash paid for 100% asset purchase
$
909
$
22
All Other
Silverwater Box
A manufacturer and distributor of total packaging solutions in timber, plastic, steel, fiberglass, and cardboard.  Silverwater Box had annual sales of approximately $2.8 million.  The acquisition of Silverwater Box allows us to make progress on our goal of becoming a global provider of packaging solutions.

May 26, 2017
$5,042
cash paid for 100% asset purchase
$
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 had annual sales of approximately $8 million.  The acquisition of Go Boy enables us to expand our industrial packaging product offering and lumber sourcing in this region.

March 6, 2017
$31,818
cash paid for 100% asset purchase
$
7,653
$
24,165
South
Robbins Manufacturing Co. ("Robbins")
A manufacturer of treated wood products with facilities in Florida, Georgia, and North Carolina.  Robbins had annual sales of approximately $86 million.  The acquisition of Robbins allows us to expand our presence in this region and serve customers more cost effectively.

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

Net

Company
Acquisition

Intangible
Tangible
Operating
Name
Date
Purchase Price
Assets
Assets
Segment

March 6, 2017
$22,789
cash paid for 100% asset purchase
$
14,341
$
8,448
North
Quality Hardwood Sales, LLC ("Quality")
A manufacturer and supplier of hardwood products, including components of cabinets used in homes and recreational vehicles. Quality had annual sales of approximately $30 million. The acquisition of Quality enables us to expand our product offering to include hardwood-based products.

The intangible assets for each acquisition were finalized and allocated to their respective identifiable intangible asset and goodwill accounts during 2018 ~~excluding~~and 2019, except for the ~~NACC and Pallet Place acquisitions.~~Wolverine acquisition. In aggregate, acquisitions completed since the end of ~~September 2017~~June 2018 and not consolidated with other operations contributed approximately ~~$21.1~~$20.3

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UNIVERSAL FOREST PRODUCTS, INC.

million and $48.9 million in revenue and a ~~$0.8~~$1.8 million and $3.0 million in operating ~~loss~~profit during the ~~third~~second quarter and first six months of ~~2018.~~2019, respectively.

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.

The Company operates manufacturing, treating and distribution facilities throughout North America, but primarily in the United States. The Company manages the operations of its individual locations primarily through a geographic reporting structure under which each location is included in a region and regions are included in our North, South, West, and International divisions. The exceptions to this geographic reporting and management structure are (a) the Company’s Alternative Materials Division, 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 facilities in the north, south, and west segments, these facilities generally supply the three markets the Company serves nationally - Retail, Industrial, and Construction. Also, substantially all of our facilities support customers in the immediate geographical region surrounding the facility.

Our Alternative Materials, International and idX division have been included in the “All Other” column of the table below. The “Corporate” column includes unallocated administrative costs and certain incentive compensation expense.

Three Months Ended September 29, 2018


      North

      South

      West

  All Other

  Corporate

      Total

Net sales to outside customers

$
341,334

$
270,077

$
434,123

$
167,168

$
—

$
1,212,702

Intersegment net sales

15,259

21,360

14,121

56,771

—

107,511

Segment operating profit

14,339

10,209

25,125

5,460

1,858

56,991

During the second quarter and the first six months of 2019, management retrospectively reallocated the related bonus expense from Corporate to their respective segment to better assess the reporting unit’s productivity.


	Three Months Ended September 30, 2017
	North		South		West		All Other		Corporate		Total

													Three Months Ended June 29, 2019
													North		South		West		All Other		Corporate		Total
Net sales to outside customers	$	310,384	$	206,050	$	378,714	$	161,438	$	—	$	1,056,586	$	380,242	$	258,802	$	421,273	$	179,500	$	—	$	1,239,817
Intersegment net sales		18,897		18,817		21,384		47,539		—		106,637		18,376		20,717		14,690		65,998		—		119,781
Segment operating profit		16,697		10,234		22,538		6,882		(4,080)		52,271		25,772		14,682		25,422		4,378		3,983		74,237


	Three Months Ended June 30, 2018
	North		South		West		All Other		Corporate		Total
Net sales to outside customers	$	390,821	$	291,320	$	456,825	$	155,474	$	—	$	1,294,440
Intersegment net sales		18,558		20,675		14,464		61,957		—		115,654
Segment operating profit		17,477		12,941		25,864		3,965		370		60,617


	Six Months Ended June 29, 2019
	North		South		West		All Other		Corporate		Total
Net sales to outside customers	$	658,575	$	503,043	$	781,370	$	311,955	$	—	$	2,254,943
Intersegment net sales		30,073		39,334		27,620		123,565		—		220,592
Segment operating profit		40,191		29,742		48,676		85		3,989		122,683

1413

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UNIVERSAL FOREST PRODUCTS, INC.


	Six Months Ended June 30, 2018
	North		South		West		All Other		Corporate		Total
Net sales to outside customers	$	661,007	$	533,340	$	819,293	$	274,657	$	—	$	2,288,297
Intersegment net sales		30,583		39,323		30,063		124,677		—		224,646
Segment operating profit		24,712		31,264		44,558		624		3,677		104,835

Nine Months Ended September 29, 2018


      North

      South

      West

  All Other

  Corporate

      Total
Net sales to outside customers

$
1,002,341

$
803,417

$
1,253,416

$
441,825

$
—

$
3,500,999
Intersegment net sales

45,841

60,683

44,183

181,450

—

332,157
Segment operating profit (loss)

42,862

44,659

76,030

6,679

(8,405)

161,825

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

42,921

31,152

65,547

13,285

(12,914)

139,991

H. INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and permanent tax differences. Our effective tax rate was ~~23.8%~~24.0% in the ~~third~~second quarter of ~~2018~~2019 compared to ~~31.9%~~22.9% for same period in ~~2017.~~ 2018. Our effective tax rate was ~~23.0%~~24.1% in the first ~~nine~~six months of ~~2018~~2019 compared to ~~33.0%~~22.6% for the same period in ~~2017. This decrease~~2018. The increase was primarily due ~~primarily~~ to ~~changes resulting from the Tax Act, which reduced the U.S. federal corporate~~recording certain discrete tax benefits in 2018 related to state income tax and stock-based compensation deduction, which lowered the effective tax rate ~~from 35 percent~~last year.

I. LEASES

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, “Leases (Topic 842)” (ASU 2016-02). Under ASU 2016-02, an entity will be required to ~~21 percent effective January 1, 2018, along with eliminating the domestic manufacturing deduction.~~ ~~Pursuant to SAB 118, the accounting~~recognize assets and liabilities for the ~~Tax Act was incomplete at December 30, 2017~~rights and ~~is still incomplete as~~obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term of ~~September 29, 2018.~~ ~~As noted at year-end, however, we were able~~12 months or less, an entity can elect to ~~reasonably estimate certain effects~~not recognize lease assets and ~~therefore, recorded provisional adjustments associated with~~lease liabilities and expense the ~~deemed repatriation transition tax,~~lease over a ~~provisional decrease~~straight-line basis for ~~certain~~the term of ~~our Deferred Tax Assets (DTAs)~~the lease. ASU 2016-02 requires new disclosures that depict the amount, timing, and ~~Deferred Tax Liabilities (DTLs) related~~uncertainty of cash flows pertaining to ~~the reduced corporate tax rate, and a provisional benefit related~~an entity’s leases. Companies are required to ~~our intent to fully expense all qualifying expenditures under~~adopt the new ~~cost recovery rules.~~

~~We have not made any additional measurement-period adjustments related~~standard for annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 is permitted. The FASB decided to these items during the quarter. However, we are continuing to gather additional information to complete our accounting for these items and expect to complete our accounting within the prescribed measurement period.

~~As noted at year-end, we were not yet able to reasonably estimate the effects for Global Intangible Low-Taxed Income (GILTI). Therefore, no provisional adjustment was recorded.~~

Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurementamend certain aspects of its ~~deferred taxes (the “deferred method”). Our selection~~new leasing standard in an attempt to provide a relief from implementation costs. Specifically, entities may elect not to restate their comparative periods in the period of ~~an accounting policy related~~adoption when transitioning to the new ~~GILTI tax rules will depend, in part, on analyzing our global income~~standard.

Upon adoption of ASC 842, there was no cumulative effect adjustment to ~~determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what~~retained earnings or other components of equity.

We elected the ~~impact is expected to be. Because whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on a number~~package of ~~different aspects or our estimated future results of global operations,~~practical expedients whereby we are not required to 1) reassess whether any expired or existing contracts contain leases, 2) reassess the lease classification of existing leases, and 3) reassess initial direct costs for any existing leases. Additionally, we did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. We did elect to account for lease and related non-lease components as a single lease component. We elected to not recognize leases with an original term of 12 months or less as they are not significant to our consolidated balance sheet and income statement. We have assessed and updated our business processes, systems, and controls to ensure compliance with the new accounting and disclosure requirements in accordance with the new standard.

We lease certain real estate under non-cancelable operating lease agreements with typical original terms ranging from one to ten years. We are required to pay real estate taxes and other occupancy costs under certain leases, which are variable in nature and not included in the right of use asset or lease liability. Certain leases carry renewal options of five to fifteen years. We believe that future leases will likely have similar terms. We also lease motor vehicles, equipment, and an aircraft under operating lease agreements for periods of one to ten years. We do not typically enter into leases with residual value guarantees.

We believe finance leases will have no significant impact to our consolidated balance sheet and income statement as of June 29, 2019.

As of June 29, 2019, we have no leases that have not yet ~~able to reasonably estimate~~commenced that would significantly impact the ~~long-term effects of this provision~~rights, obligations, and financial position of the ~~Act. Therefore,~~Company.

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UNIVERSAL FOREST PRODUCTS, INC.

The rates implicit in our leases are primarily not readily available. To determine the discount rate used to present value the lease payments, the Company utilized the 5-year treasury note rate plus a blend of rate spreads associated with our revolver and 10-12-year senior notes. We feel the determined rate is a reasonable collectively representation of our lease population.

Future minimum payments under non-cancelable operating leases on June 29, 2019 are as follows (in thousands):


	Operating
	Leases
2019 (remainder of year)	$	8,959
2020		16,165
2021		13,996
2022		11,958
2023		9,402
Thereafter		21,743
Total minimum lease payments	$	82,223
Less present value discount		(11,430)
Total lease liability	$	70,793

Rent expense was approximately $6.3 million and $7.8 million during the second quarter of 2019 and 2018, respectively.

For comparison purposes, we have ~~not recorded any potential deferred tax effects related to GILTI in our financial statements and have not made a policy decision regarding whether to record deferred taxes~~included the future minimum payments under non-cancelable operating leases on ~~GILTI or use~~December 29, 2018, (in thousands):


	Operating
	Leases
	12/29/2018
2019	$	17,242
2020		11,969
2021		9,784
2022		8,346
2023		6,382
Thereafter		22,498
Total minimum lease payments	$	76,221

During the ~~period cost method. We have however, included an estimate~~first quarter of ~~the estimated~~ 2018, ~~current GILTI impact in our Annual Effective Tax Rate (AETR) for 2018. We expect to complete our accounting within~~ the ~~prescribed measurement period.~~

I~~. PROPERTY SALE~~

~~The~~ Company completed a sale ~~of a property~~and leaseback transaction related to one facility in Medley, ~~Florida, during the first quarter of 2018.~~Florida. The sale price for the property was approximately $36 million and created a $7 million pre-tax ~~gain. The transaction is part of a strategy to~~

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

~~create efficiencies and advantages not possible with the current facility by optimizing the capacity of our other three Florida operations, including two acquired from Robbins Manufacturing~~gain, which was entirely recognized in ~~2017, and adding a state-of-the-art facility in South Florida.~~2018. The Company ~~will lease~~leased back the ~~Medley, Florida,~~ facility for two years as it executes its long-term plan for Florida and the Southeast ~~region. Since~~region, however, only a minor portion of the property sold was leased ~~back~~back.

As of June 29, 2019, the ~~entire gain~~weighted average lease term for operating leases is ~~included in income.~~6.96 years. Similarly, the weighted average discount rate for operating leases is 3.78%.

J~~. SUBSEQUENT EVENTS~~

On November 2, 2018, the Company renewed its five-year unsecured revolving credit facility and increased availability to $375 million with a syndicate of U.S. and Canadian banks led by JPMorgan Chase Bank, N.A., as administrative agent and Wells Fargo Bank, N.A., as syndication agent.

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UNIVERSAL FOREST PRODUCTS, INC.

J. COMMON STOCK

Below is a summary of common stock issuances for the first six months of 2019 and 2018:


	June 29, 2019
Share Issuance Activity	Common Stock		Average Share Price
Shares issued under the employee stock purchase plan	19	$	33.63

Shares issued under the employee stock gift program	3		31.94
Shares issued under the director retainer stock program	2		33.74
Shares issued under the long term stock incentive plan	211		30.83
Shares issued under the executive stock match grants	109		31.57
Forfeitures	(16)		-
Total shares issued under stock grant programs	309	$	31.11

Shares issued under the deferred compensation plans	155	$	32.58
Total	464	$	31.66


	June 30, 2018
Share Issuance Activity	Common Stock		Average Share Price
Shares issued under the employee stock purchase plan	17	$	34.78

Shares issued under the employee stock gift program	2		35.47
Shares issued under the director retainer stock program	97		16.57
Shares issued under the long term stock incentive plan	164		34.75
Shares issued under the executive stock match grants	94		32.94
Forfeitures	(10)		-
Total shares issued under stock grant programs	347	$	29.33

Shares issued under the deferred compensation plans	132	$	36.04
Total	479	$	31.27

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Universal Forest Products, Inc. is a holding company with subsidiaries throughout North America, Europe, Asia, and in Australia that supply wood, wood composite and other products to three robust markets: retail, industrial, and construction. The Company is headquartered in Grand Rapids, Mich. For more information about Universal Forest Products, Inc., or its 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; 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 ~~2018.~~2019.

OVERVIEW

Our results for the ~~third~~second quarter of ~~2018~~2019 were impacted by the following:

●

Our gross sales ~~increased~~decreased by ~~15%~~4% compared to the ~~third~~second quarter of ~~2017,~~2018, which was comprised of a 7%5% increase in unit sales, ~~and an 8% increase~~offset by a 9% decrease in selling prices primarily due to the commodity lumber market (see Historical Lumber Prices below). Organic growth contributed 5%4% of our unit sales increase, while acquisitions contributed 2%1%. We experienced favorable ~~organic~~unit growth to each of the primary markets we serve.

●

Our operating profits increased ~~by 9.0% compared to the third quarter of 2017,~~over 22%, which compares favorably with our 7%5% increase in unit sales. The improvement in our ~~profit per unit~~profitability was primarily due to a favorable change in our product mix to sales of more value-added products and the ~~favorable~~ impact of lower lumber costs on ~~gross profits of~~ products we sell with a fixed selling ~~price during a period of declining lumber~~ prices. ~~As described below, while the commodity lumber market was higher in 2018, relative to 2017, we experienced a decrease in lumber prices during the third quarter of this year.~~

●

Our ~~effective tax rate was approximately 23.8% due to the change in tax law.~~

~~Cash~~cash flow from operating activities improved by $107 million due, in ~~the first nine months~~part, to lower lumber prices which lowered our investment in working capital and opportunistic buying of ~~2018 were $37 million lower than the same period last year due to higher than targeted inventory levels at the end of September 2018. We anticipate further reductions in~~ inventory in the fourth quarter of 2018 ~~resulting~~which was sold in ~~a corresponding decrease in our revolving credit facility.~~

2019.

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UNIVERSAL FOREST PRODUCTS, INC.

HISTORICAL LUMBER PRICES

We experience significant fluctuations in the cost of commodity lumber products from primary producers (“Lumber Market”). The following table presents the Random Lengths framing lumber composite price:


	Random Lengths Composite
	Average $/MBF
	2018			2017

						Random Lengths Composite
						Average $/MBF
						2019			2018
January	$	449		$	356	$	331		$	449
February		496			393		370			496
March		505			401		365			505
April		496			424		354			496
May		554			416		346			554
June		572			399		329			572
July		525			411
August		449			417
September		443			416

Third quarter average	$	472		$	415

Second quarter average						$	343		$	541
Year-to-date average	$	499		$	404	$	349		$	512

Third quarter percentage change		13.7	%

Second quarter percentage change							(36.6)	%
Year-to-date percentage change		23.5	%				(31.8)	%

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%~~45% of total lumber purchases through the first ~~nine~~six months of ~~2018~~2019 and ~~2017.~~2018.


	Random Lengths SYP
	Average $/MBF
	2018			2017

						Southern Yellow Pine
						Average $/MBF
						2019			2018
January	$	418		$	397	$	370		$	418
February		459			420		403			459
March		480			433		408			480
April		483			438		401			483
May		535			416		383			535
June		562			399		344			562
July		512			381
August		449			383
September		440			387

Third quarter average	$	467		$	384

Second quarter average						$	376		$	527
Year-to-date average	$	482		$	406	$	385		$	490

Third quarter percentage change		21.6	%

Second quarter percentage change							(28.7)	%
Year-to-date percentage change		18.7	%				(21.4)	%

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UNIVERSAL FOREST PRODUCTS, INC.

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were ~~51.5%~~43.4% and ~~48.2%~~52.8% of our sales in the first ~~nine~~six months of 2019 and 2018, ~~and 2017,~~ respectively.

Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.

Below is a general description of the primary ways in which our products are priced.

●

Products with fixed selling prices. These products include value-added products such as deck components and fencing sold to retail customers, as well as trusses, wall panels and other components sold to the construction market, and most industrial packaging products. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time or are based upon a specific quantity. In order to maintain margins and reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs with our suppliers for these sales commitments. Also, the time period and quantity limitations eventually allow us to re-price our products for changes in lumber costs from our suppliers. We believe our sales of these products are at their highest relative level in our third and fourth quarter.

●

Products with selling prices indexed to the reported Lumber Market with a fixed dollar “adder” to cover conversion costs and profits. These products primarily include treated lumber, remanufactured lumber, and trusses sold to the manufactured housing industry. For these products, we estimate the customers’ needs and we carry anticipated levels of inventory. Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins. We believe our sales of these products are at their highest relative level in our second quarter, primarily due to treated lumber sold to the retail market.

For each of the product pricing categories above, our margins are exposed to changes in the trend of lumber prices.

The greatest risk associated with changes in the trend of lumber prices is on the following ~~products~~:products:

●

Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprises approximately ~~18%~~16% of our total sales. This exposure is less significant with remanufactured lumber, trusses sold to the manufactured housing market, and other similar products, due to the higher rate of inventory turnover. We attempt to mitigate the risk associated with treated lumber through vendor consignment inventory programs. (Please refer to the “Risk Factors” section of our annual report on form ~~10‑K,~~10-K, filed with the United States Securities and Exchange Commission.)

●

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 by locking in costs.

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UNIVERSAL FOREST PRODUCTS, INC.

In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.


	Period 1			Period 2

							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 are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low. In order to more effectively evaluate our profitability in such periods, we believe it is useful to compare our change in units shipped with our changes in costs and profits.

BUSINESS COMBINATIONS

We completed ~~six~~one business ~~acquisitions~~acquisition during the first ~~nine~~six months of ~~2018~~2019 and ~~four~~seven during all of ~~2017.~~2018. The annual historical sales attributable to acquisitions completed in the first ~~nine~~six months ~~2018~~of 2019 and all of ~~2017~~2018 were approximately ~~$125~~$5 million and ~~$127~~$140 million, respectively. These business combinations were not significant to our quarterly or year-to-date operating results individually or in aggregate and thus pro forma results for ~~2018~~2019 or ~~2017~~2018 are not presented.

See Notes to the Unaudited Condensed Consolidated Financial Statements, Note F, “Business Combinations” for additional information.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the components of our Unaudited Condensed Consolidated Statements of Earnings as a percentage of net sales.


	Three Months Ended				Nine Months Ended
	September 29,		September 30,		September 29,		September 30,
	2018		2017		2018		2017

									Three Months Ended				Six Months Ended
									June 29,		June 30,		June 29,		June 30,
									2019		2018		2019		2018
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	86.9		86.3		87.0		86.1		84.9		87.2		84.9		87.0
Gross profit	13.1		13.7		13.0		13.9		15.1		12.8		15.1		13.0
Selling, general, and administrative expenses	8.5		8.8		8.6		9.2		9.1		8.1		9.7		8.6
Net loss (gain) on disposition and impairment of assets	(0.1)		—		(0.2)		—
Net gain on disposition and impairment of assets									—		—		—		(0.3)
Earnings from operations	4.7		4.9		4.6		4.7		6.0		4.7		5.4		4.6
Other expense, net	0.1		0.1		0.1		0.1		0.1		0.2		0.1		0.1
Earnings before income taxes	4.6		4.8		4.5		4.6		5.8		4.5		5.3		4.4
Income taxes	1.1		1.5		1.0		1.5		1.4		1.0		1.3		1.0
Net earnings	3.5		3.3		3.4		3.1		4.4		3.5		4.0		3.4
Less net earnings attributable to noncontrolling interest	(0.1)		(0.1)		(0.1)		(0.1)		(0.1)		(0.1)		—		(0.1)
Net earnings attributable to controlling interest	3.4	%	3.2	%	3.4	%	3.0	%	4.4	%	3.4	%	4.0	%	3.4	%

Note: Actual percentages are calculated and may not sum to total due to rounding.

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UNIVERSAL FOREST PRODUCTS, INC.

The following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a percentage of sales, adjusted to restate 2019 sales and cost of goods sold at prior year lumber prices. The restated sales amounts were calculated by applying the decrease in lumber prices in 2019 to 2018 sales levels. By eliminating the “pass-through” impact of higher or lower lumber prices on sales and cost of goods sold from year to year, we believe this provides an enhanced view of our change in profitability and costs as a percentage of sales. The amount of the adjustment to 2019 sales was also applied to cost of goods sold so that gross profit remains unchanged.


	Adjusted for Lumber Market Change				Adjusted for Lumber Market Change
	Three Months Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2019		2018		2019		2018
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	86.2		87.2		86.0		87.0
Gross profit	13.8		12.8		14.0		13.0
Selling, general, and administrative expenses	8.3		8.1		9.0		8.6
Net gain on disposition and impairment of assets	—		—		—		(0.3)
Earnings from operations	5.5		4.7		5.0		4.6
Other expense, net	0.1		0.2		0.1		0.1
Earnings before income taxes	5.3		4.5		4.9		4.4
Income taxes	1.3		1.0		1.2		1.0
Net earnings	4.1		3.5		3.7		3.4
Less net earnings attributable to noncontrolling interest	—		(0.1)		—		(0.1)
Net earnings attributable to controlling interest	4.0	%	3.4	%	3.7	%	3.4	%

Note: Actual percentages are calculated and may not sum to total due to rounding.

GROSS SALES

We design, manufacture and market wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, specialty wood packaging, components and packing materials for various industries, and customized interior fixtures used in a variety of retail stores, commercial and other structures. Our strategic long-term sales objectives include:

●

Diversifying our end market sales mix by increasing sales of specialty wood and non-wood packaging to industrial users, increasing our penetration of the concrete forming market, increasing our sales of engineered wood components for custom home, multi-family, military and light commercial construction, increasing our market share with independent retailers, and increasing our sales of customized interior fixtures used in a variety of markets.

●

Expanding geographically in our core businesses, domestically and internationally.

●

Increasing sales of "value-added" products, which primarily consist of fencing, decking, lattice, and other specialty products sold to the retail market, specialty wood packaging, engineered wood components, customized interior fixtures, and "wood alternative" products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist primarily of composite wood and plastics. Although we consider the treatment of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals.

●

Maximizing unit sales growth while achieving return on investment goals.

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●

Developing new products and expanding our value-added product offering for existing customers. New product sales were ~~$138.3~~$175.3 million in the ~~third~~second quarter of ~~2018~~2019 compared to ~~$113.4~~$149.1 million during the ~~third quarter~~same period of ~~2017.~~2018. New ~~products~~product sales year-to-date for 2019 and 2018 ~~and 2017~~ were ~~$406.6~~$290.3 million and ~~$326.2~~$253.3 million, respectively.

Our goal is to achieve annual new product sales of at least $525 million in 2019.


	New Product Sales by Market					New Product Sales by Market
	Three Months Ended					Nine Months Ended
(in thousands)	September 29,		September 30,			September 29,		September 30,

											New Product Sales by Market					New Product Sales by Market
											Three Months Ended					Six Months Ended
											June 29,		June 30,		%	June 29,		June 30,		%
Market Classification	2018		2017		% Change	2018		2017		% Change	2019		2018		Change	2019		2018		Change
Retail	$	81,328	$	66,580	22.2	$	239,440	$	194,739	23.0	$	129,722		106,623	21.7%	$	204,828	$	175,033	17.0
Industrial		37,747		30,432	24.0		105,422		84,719	24.4		24,099		21,315	13.1%		46,604		37,839	23.2
Construction		19,264		16,430	17.2		61,707		46,716	32.1		21,527		21,209	1.5%		38,885		40,405	(3.8)
Total New Product Sales	$	138,339	$	113,442	21.9	$	406,569	$	326,174	24.6		175,348		149,147	17.6%		290,317		253,277	14.6

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.

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 than our commodity-based products.


	Three Months Ended				Nine Months Ended
	September 29,		September 30,		September 29,		September 30,
	2018		2017		2018		2017

									Three Months Ended				Six Months Ended
									June 29,		June 30,		June 29,		June 30,
									2019		2018		2019		2018
Value-Added	62.1	%	63.9	%	61.2	%	62.9	%	66.9	%	60.1	%	66.7	%	60.8	%
Commodity-Based	37.9	%	36.1	%	38.8	%	37.1	%	33.1	%	39.9	%	33.3	%	39.2	%

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The following table presents, for the periods indicated, our gross sales and percentage change in gross sales by market classification.


	Three Months Ended						Nine Months Ended

													Three Months Ended						Six Months Ended
(in thousands)	September 29,		September 30,				September 29,		September 30,				June 29,		June 30,				June 29,		June 30,
Market Classification	2018		2017		% Change		2018		2017		% Change		2019		2018		% Change		2019		2018		% Change
Retail	$	443,044	$	391,043	13.3	%	$	1,359,498	$	1,161,662	17.0	%	$	520,964	$	544,612	(4.3)	%	$	878,451	$	915,013	(4.0)	%
Industrial(1)		429,467		374,018	14.8	%		1,166,523		995,078	17.2	%		357,301		347,258	2.9	%		686,999		632,749	8.6	%
Construction(1)		361,179		308,585	17.0	%		1,039,705		867,958	19.8	%		386,242		428,498	(9.9)	%		730,662		784,273	(6.8)	%
Total Gross Sales		1,233,690		1,073,646	14.9	%		3,565,726		3,024,698	17.9	%		1,264,507		1,320,368	(4.2)	%		2,296,112		2,332,035	(1.5)	%
Sales Allowances		(20,988)		(17,060)	23.0	%		(64,727)		(49,607)	30.5	%		(24,690)		(25,928)	(4.8)	%		(41,169)		(43,738)	(5.9)	%
Total Net Sales	$	1,212,702	$	1,056,586	14.8	%	$	3,500,999	$	2,975,091	17.7	%	$	1,239,817	$	1,294,440	(4.2)	%	$	2,254,943	$	2,288,297	(1.5)	%

Note: During ~~2018,~~2019, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.

(1)

We reclassified idX from industrial to the construction market to better align idX's core business, design, manufacture, distribution and installation of customized interior fixtures for a variety of retail and commercial structures, with the commercial construction market. The reclassification was recorded retrospectively.

Gross sales in the ~~third~~second quarter of ~~2018 increased 15%~~2019 decreased 4% compared to the same period of ~~2017,~~2018, due to a 7%5% increase in unit sales, offset by a 9% decrease in selling prices primarily due to the Lumber Market. Acquired operations contributed 1% to our unit sales growth, and our organic unit sales growth was 4%.

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UNIVERSAL FOREST PRODUCTS, INC.

Gross sales in the first six months of 2019 decreased almost 2% compared to the same period of 2018, due to a 6% increase in unit sales, offset by an 8% ~~increase~~decrease in selling prices primarily due to the Lumber Market. Acquired operations contributed 2% to our unit sales growth, and our organic unit sales growth was 5%4%.

Gross sales in the first nine months of 2018 increased 18% compared to the same period of 2017, due to an 8% increase in unit sales and a 10% increase in selling prices primarily due to the Lumber Market. Acquired operations contributed 3% to our unit sales growth, and our organic unit sales growth was 5%.

Changes in our gross sales by market are discussed below.

Retail:

Gross sales to the retail market ~~increased 13%~~decreased over 4% in the ~~third~~second quarter of ~~2018~~2019 compared to the same period of ~~2017,~~2018, due to a 4%6% increase in unit sales, ~~and~~offset by a ~~9% increase~~10% decrease in selling prices. Within this market, sales to our big box customers increased ~~almost 11%~~over 2%, and sales to other independent retailers ~~increased over 17%~~decreased almost 16%. Our organic unit growth was ~~4% for the quarter~~6% primarily due to improved weather in the second quarter, an increase in ~~customer demand.~~new product sales, and market share gains we achieved in our Deckorators product category with one of our big box customers.

Gross sales to the retail market ~~increased almost 17%~~decreased 4% in the first ~~nine~~six months of ~~2018~~2019 compared to the same period of ~~2017,~~2018, due to a 6%5% increase in unit sales, ~~and~~offset by a ~~11% increase~~9% decrease in selling prices. Within this market, sales to our big box customers increased ~~14%~~over 2%, ~~while~~and sales to other independent retailers ~~increased almost 22%~~decreased over 13%. ~~Businesses we acquired contributed 2% to our growth in unit sales, primarily to independent retail customers, while~~Our organic unit growth was 5% year to date primarily due to increased consumer demand, new products sales, ~~growth increased 4% in~~and the ~~first nine months of 2018.~~market share gains mentioned above.

Industrial:

Gross sales to the industrial market increased almost ~~15%~~3% in the ~~third~~second quarter of ~~2018~~2019 compared to the same period of ~~2017,~~2018, resulting from an 8%7% increase in unit sales, ~~and an 7% increase~~offset by a 4% decrease in selling prices. Businesses we acquired since the second quarter of 2018 contributed 5%6% to our growth in unit sales. Our organic growth in unit sales of 3%1% was ~~lower~~primarily due to an increase in sales of new products and increasing our share of business with existing customers. Our organic unit growth was slower than previous quarters ~~primarily due to~~as a ~~$7 million, or 8.7%, decrease in sales~~result of ~~idX. Excluding idX, our industrial wood business reported a 7% organic growth rate due to~~ adding ~~nearly 90~~fewer new customers ~~140 new locations of existing customers,~~ and ~~$7 million of new~~emphasizing profitability and margin requirements over units sales growth ~~as our efforts to improve market share continue to gain traction.~~which resulted in eliminating less profitable business.

Gross sales to the industrial market increased ~~over 17%~~almost 9% in the first ~~nine~~six months of ~~2018~~2019 compared to the same period of ~~2017,~~2018, resulting from ~~a 9%~~an 11% increase in unit sales, ~~and~~offset by a ~~8% increase~~2% decrease in selling prices. Businesses we acquired ~~contributed~~

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

4%2018 contributed 7% to our growth in unit sales. Our organic growth in unit sales of 5%4% was primarily due our efforts to ~~the same factors discussed above.~~improve market share, which is continuing to produce positive results.

Construction:

Gross sales to the construction market ~~increased 17%~~decreased 10% in the ~~third~~second quarter of ~~2018~~2019 compared to ~~2017.~~2018. The ~~increase~~decrease was due to a 9%4% increase in unit sales, ~~and an 8% increase~~offset by a 14% decrease in our selling prices. Our increase in unit sales was driven by a 3%5% increase to ~~manufactured housing~~commercial construction customers, ~~an 11%~~a 5% increase to residential construction customers, and ~~an 18%~~a 1% increase to ~~commercial construction~~manufactured housing customers. ~~Acquired businesses contributed 1% to our growth in unit sales to the overall construction market and 4% to the commercial market.~~

By comparison (and based upon various industry publications):

●

Production of HUD-code manufactured homes in ~~July~~April and ~~August 2018,~~May 2019, the most recent period reported, was ~~up 11.9%~~down 3.2% compared to the same period of 2017. Our sales growth trailed the market as a result of losing certain high volume, low margin business with one of our customers and due to a significant percentage of our sales to the manufactured housing market going to modular home producers, which are experiencing lower growth rates.

2018.

●

Non-residential construction activity in ~~July~~April and ~~August increased~~May decreased approximately ~~6.1%~~1.1% compared to the same period of ~~2017.~~

2018.

●

~~National housing~~Housing starts ~~increased~~decreased by approximately ~~1.5%~~5.7% in the period from ~~June~~March through ~~August 2018~~May 2019 (our sales trail housing starts by about a month) compared to the same period of ~~2017.~~

2018.

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Our ability to achieve growth in excess of the market is due to a variety of factors including operating in regions that have more favorable market conditions.

Gross sales to the construction market ~~increased~~decreased almost ~~20%~~7% in the first ~~nine~~six months of ~~2018~~2019 compared to ~~2017.~~2018. The ~~increase~~decrease was due to ~~an 8%~~a 4% increase in unit sales, ~~and a 12% increase~~offset by an 11% decrease in our selling prices. Our increase in unit sales was driven by ~~a 7% increase to manufactured housing customers, a 13%~~an 9% increase to commercial construction customers and ~~an 8%~~a 6% increase to residential construction customers, ~~due~~offset by a 2% decrease to ~~the same factors discussed above.~~manufactured housing customers.

COST OF GOODS SOLD AND GROSS PROFIT

Our gross margin ~~decreased~~increased to ~~13.1%~~15.1% from ~~13.7%~~12.8% comparing the ~~third~~second quarter of ~~2018~~2019 to the same period of ~~2017~~2018 due to the ~~higher~~ lower level of lumber prices (See “Impact of the Lumber Market on Our Operating Results”)~~. More importantly,~~ and an improvement in our ~~$14~~sales mix of value-added products. Our $21 million, or ~~9.7%~~12.7%, increase in gross profit dollars compares favorably to our 7%5% increase in unit sales during the same ~~period. Acquired~~period due to the factors above. In addition, acquired operations contributed ~~$1.0~~$3 million of gross profit in the ~~third~~second quarter of ~~2018.~~2019. Excluding acquisitions, our gross profits increased by ~~$13.0~~$18 million, or ~~9.0%~~10.8%, over the same period last year primarily due to the following:

●

Our gross profit to the retail market increased by approximately $7 million.

●

Our gross profit on sales to the industrial market increased by approximately $6 million, due to a combination of growth and the impact of the falling lumber market on products we well with fixed prices. This increase was offset by a $2 million reduction in the gross profits of idX.

$5 million.

●

Our gross profit on sales to the construction market increased by approximately ~~$8 million, primarily due to organic growth and the impact of the falling lumber market on products we sell with fixed prices.~~

$5 million.

The favorable results above were offset by a decrease in gross profit on sales to the retail market of approximately $1 million, despite a 4% increase in unit sales. This was primarily due to the unfavorable impact of the declining lumber market on products we sell with variable selling prices.

Our gross margin ~~decreased~~increased to ~~13.0%~~15.1% from ~~13.9%~~13.0% comparing the first ~~nine~~six months of ~~2018~~2019 to the same period of ~~2017~~2018 due to the ~~higher~~ lower level of lumber prices (See “Impact of the Lumber Market on Our Operating Results”)~~. More importantly,~~, atypical buying opportunities when lumber prices were low in the fourth quarter of 2018, and an improvement in our ~~$42~~sales mix of value-added products. Our $44 million, or ~~10.0%~~15.0%, increase in gross profit dollars compares favorably to our 8%6% increase in unit sales during the same ~~period. Acquired~~period due to the factors above. In addition, acquired operations contributed ~~almost~~ $7 million of gross profit in the first ~~nine~~six months

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~~of 2018.~~2019. Excluding acquisitions, our gross profits increased by ~~$35~~$37 million, or ~~8.5%~~12.5%, over the same period last year primarily due to the following:

●

Our gross profit ~~on sales~~ to the retail market increased by approximately $9$10 million.

●

Our gross profit on sales to the industrial market increased by approximately $15 million.

●

Our gross profit on sales to the construction market increased by ~~over $14~~approximately $13 million.

~~Gross profit on sales to each of our markets improved due to the same factors discussed above.~~

Due to several factors, including the variety of species we buy, the variety and number of products we sell, and pricing methodologies, estimating the impact of market-favorable lumber buying on our gross profits is difficult. Nevertheless, we estimate this contributed approximately $6 million to $7 million in additional gross profits in the first quarter of 2019.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (“SG&A”) expenses increased by approximately ~~$9.9~~$8.1 million, or ~~10.7%~~7.7%, in the ~~third~~second quarter of ~~2018~~2019 compared to the same period of ~~2017,~~2018, while we reported a 7%5% increase in unit sales. Accrued bonus expense, which varies with our overall profitability and return on investment, totaled ~~$14.3~~$18.3 million in the ~~third~~second quarter of 2019 compared to $14.5 million in 2018. Acquired operations since the second quarter of 2018 ~~compared to $12.4 million in 2017. Acquired operations~~ contributed approximately ~~$1.8~~$1.6 million to our year over year increase in SG&A. The remaining increase was primarily due to an increase in ~~base~~ wages and benefits ~~($2.4 million),~~costs associated with headcount and rate increases, sales ~~incentive expenses ($1.7 million), professional services ($1.0 million),~~incentives, and ~~depreciation and amortization expense ($0.9 million).~~marketing costs.

Selling, general and administrative (“SG&A”) expenses increased by approximately ~~$27.3~~$20.8 million, or ~~10.0%~~10.5%, in the first ~~nine~~six months of ~~2018~~2019 compared to the same period of ~~2017,~~2018, while we reported ~~an 8%~~a 6% increase in unit sales. Accrued bonus expense, which varies with our overall profitability and return on investment, totaled ~~$37.9~~$30.7 million in the first ~~nine~~six months of ~~2018~~2019 compared to ~~$32.6~~$23.6 million in ~~2017.~~2018. Acquired operations since the second quarter of 2018 contributed approximately ~~$5.0~~$4.1 million to our year over year ~~increase.~~increase in SG&A. The remaining increase was primarily due to an

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UNIVERSAL FOREST PRODUCTS, INC.

increase in ~~base~~ wages and benefits ~~($7.4 million),~~costs associated with headcount and rate increases, sales ~~incentive expenses ($5.8 million), employee benefits ($2.1 million), professional services ($1.7 million),~~incentives, medical costs, and ~~idX’s lease termination ($0.7 million).~~ marketing expenses.

INTEREST, NET

~~Net interest costs were~~Interest expense was slightly higher in the ~~third~~second quarter and the first six months of ~~2018~~2019 compared to the same ~~period~~periods of ~~2017 primarily due~~2018. Our interest rate increased as a result of a long-term debt issuance that we completed in June 2018 and used the proceeds to ~~carrying~~pay down our revolving credit facility. The impact of a higher ~~amount of~~overall rate was offset by lower debt ~~and higher interest rates.~~levels in 2019.

INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and permanent tax differences. Our effective tax rate was ~~23.8%~~24.0% in the ~~third~~second quarter of ~~2018~~2019 compared to ~~31.9~~%22.9% for same period in ~~2017.~~ 2018. Our effective tax rate was ~~23.0%~~24.1% in the first ~~nine~~six months of ~~2018~~2019 compared to ~~33.0%~~22.6% for the same period in ~~2017. This decrease~~2018. The increase was primarily due to ~~changes resulting from the Tax Act, which reduced the U.S. federal corporate~~recording certain discrete tax benefits in 2018 related to state income tax ~~rate from 35 percent to 21 percent effective January 1, 2018, along with eliminating~~and stock-based compensation deduction, which lowered the ~~domestic manufacturing deduction. We currently anticipate an overall~~ effective tax rate ~~for the year of 23.5%.~~

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last year.

SEGMENT REPORTING


	Net Sales								Earnings from Operations
	Three Months Ended								Three Months Ended
	September 29,		September 30,		$		%		September 29,		September 30,		$		%

																	Net Sales								Earnings from Operations
																	Three Months Ended								Three Months Ended
																	June 29,		June 30,		$		%		June 29,		June 30,		$		%
(in thousands)	2018		2017		Change		Change		2018		2017		Change		Change		2019		2018		Change		Change		2019		2018		Change		Change
North	$	341,334	$	310,384	$	30,950	10.0	%	$	14,339	$	16,697	$	(2,358)	(14.1)	%	$	380,242	$	390,821	$	(10,579)	(2.7)	%	$	25,772	$	17,477	$	8,295	47.5	%
South		270,077		206,050		64,027	31.1	%		10,209		10,234		(25)	(0.2)	%		258,802		291,320		(32,518)	(11.2)	%		14,682		12,941		1,741	13.5	%
West		434,123		378,714		55,409	14.6	%		25,125		22,538		2,587	11.5	%		421,273		456,825		(35,552)	(7.8)	%		25,422		25,864		(442)	(1.7)	%
All Other		167,168		161,438		5,730	3.5	%		5,460		6,882		(1,422)	(20.7)	%		179,500		155,474		24,026	15.5	%		4,378		3,965		413	10.4	%
Corporate1		—		—		—	—			1,858		(4,080)		5,938	145.5	%
Corporate																		—		—		—	—			3,983		370		3,613	976.5	%
Total	$	1,212,702	$	1,056,586	$	156,116	14.8	%	$	56,991	$	52,271	$	4,720	9.0	%	$	1,239,817	$	1,294,440	$	(54,623)	(4.2)	%	$	74,237	$	60,617	$	13,620	22.5	%

Net Sales

Earnings from Operations

Nine Months Ended

Nine Months Ended


September 29,

September 30,

$

%


September 29,

September 30,

$

%

(in thousands)

2018

2017

    Change

Change

2018

2017

    Change

Change
North

$
1,002,341

$
857,858

$
144,483

16.8
%

$
42,862

$
42,921

$
(59)

(0.1)
%
South

803,417

616,376

187,041

30.3
%

44,659

31,152

13,507

43.4
%
West

1,253,416

1,088,744

164,672

15.1
%

76,030

65,547

10,483

16.0
%
All Other

441,825

412,113

29,712

7.2
%

6,679

13,285

(6,606)

(49.7)
%
Corporate1

—

—

—

—

(8,405)

(12,914)

4,509

34.9
%
Total

$
3,500,999

$
2,975,091

$
525,908

17.7
%

$
161,825

$
139,991

$
21,834

15.6
%


	Net Sales								Earnings from Operations
	Six Months Ended								Six Months Ended
	June 29,		June 30,		$		%		June 29,		June 30,		$		%
(in thousands)	2019		2018		Change		Change		2019		2018		Change		Change
North	$	658,575	$	661,007	$	(2,432)	(0.4)	%	$	40,191	$	24,712	$	15,479	62.6	%
South		503,043		533,340		(30,297)	(5.7)	%		29,742		31,264		(1,522)	(4.9)	%
West		781,370		819,293		(37,923)	(4.6)	%		48,676		44,558		4,118	9.2	%
All Other		311,955		274,657		37,298	13.6	%		85		624		(539)	(86.4)	%
Corporate		—		—		—	—			3,989		3,677		312	8.5	%
Total	$	2,254,943	$	2,288,297	$	(33,354)	(1.5)	%	$	122,683	$	104,835	$	17,848	17.0	%

(1)

~~(1)~~

Corporate primarily represents over (under) allocated administrative costs and accrued bonus expense.

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UNIVERSAL FOREST PRODUCTS, INC.

North


	Net Sales						Net Sales
	North Segment by Market						North Segment by Market
	Three Months Ended						Nine Months Ended

													Net Sales						Net Sales
													North Segment by Market						North Segment by Market
													Three Months Ended						Six Months Ended
(in thousands)	September 29,		September 30,				September 29,		September 30,				June 29,		June 30,				June 29,		June 30,
Market Classification	2018		2017		% Change		2018		2017		% Change		2019		2018		% Change		2019		2018		% Change
Retail	$	152,755	$	139,197	9.7	%	$	439,955	$	388,282	13.3	%	$	186,038	$	191,260	(2.7)	%	$	285,885	$	286,894	(0.4)	%
Industrial		52,417		40,276	30.1	%		159,859		114,814	39.2	%		65,549		56,157	16.7	%		126,956		107,986	17.6	%
Construction		143,834		137,618	4.5	%		423,897		373,200	13.6	%		137,439		152,646	(10.0)	%		259,301		280,061	(7.4)	%
Total Gross Sales		349,006		317,091	10.1	%		1,023,711		876,296	16.8	%		389,026		400,063	(2.8)	%		672,142		674,941	(0.4)	%
Sales Allowances		(7,672)		(6,707)	14.4	%		(21,370)		(18,438)	15.9	%		(8,784)		(9,242)	(5.0)	%		(13,567)		(13,934)	(2.6)	%
Total Net Sales	$	341,334	$	310,384	10.0	%	$	1,002,341	$	857,858	16.8	%	$	380,242	$	390,821	(2.7)	%	$	658,575	$	661,007	(0.4)	%

Note: During ~~2018,~~2019, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.

Net sales attributable to the North reportable segment ~~increased~~decreased in the ~~third~~second quarter of ~~2018~~2019 compared to ~~2017 to each of our markets,~~2018 primarily due to the ~~same factors previously discussed. Acquired~~impact of a falling lumber market. The increase to the industrial market was primarily due to acquired operations, which contributed ~~$4.0~~$5.0 million to sales, and ~~$1.7~~an increase in units sold to ~~our industrial and construction sales increases, respectively.~~existing customers.

Earnings from operations for the North reportable segment ~~decreased~~increased in the ~~third~~second quarter of ~~2018~~2019 by ~~$2.4~~$8.3 million, or ~~14.1%~~47.5%, due to a ~~$2.4~~$10.8 million increase in ~~SG&A expenses as~~ gross profits, remained flat compared to last year. Gross profits were flat despite higher unit sales due to unfavorable cost variances. Acquired operations contributed $0.3 million to our operating profits in the third quarter.

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

Net sales attributable to the North reportable segment increased in the first nine months of 2018 compared to 2017 as a result of increased sales to each of our markets, primarily due to the same factors previously discussed. Acquired operations contributed $20.5 million and $5.0 to our industrial and construction sales increase, respectively, in the first nine months of 2018.

~~Earnings from operations for the North reportable segment were flat comparing in the first nine months of 2018 with the same period of 2017, due to an increase in gross profit of $4.3 million~~ offset by a ~~$4.3~~$2.5 million increase in SG&A expenses compared to last year. ~~Acquired~~Gross profits were higher due to increases of $3.0 million, $3.0 million, and $4.8 million within the retail, industrial, and construction markets, respectively.

Net sales attributable to the North reportable segment decreased in the first six months of 2019 compared to 2018 primarily due to the lower lumber market. The increase in the industrial market was primarily due to acquired operations, $9.3 million, and the same factors previously discussed. The decrease in the retail and construction markets was due to the same factors previously discussed.

Earnings from operations for the North reportable segment increased in the first six months of 2019 by $15.5 million, or 62.6%, due to a $20.8 million increase in gross profits, offset by a $5.3 million increase in SG&A expenses compared to last year. Gross profits were higher due to increases of $5.6 million, $6.9 million, and $9.0 million within the retail, industrial, and construction markets, respectively. Opportunistic buying in the fourth quarter of 2018 also contributed ~~$1.4 million~~ to ~~our operating~~higher gross profits in the first ~~nine months.~~ three months of 2019.

South


	Net Sales						Net Sales
	South Segment by Market						South Segment by Market
	Three Months Ended						Nine Months Ended

													Net Sales						Net Sales
													South Segment by Market						South Segment by Market
													Three Months Ended						Six Months Ended
(in thousands)	September 29,		September 30,				September 29,		September 30,				June 29,		June 30,				June 29,		June 30,
Market Classification	2018		2017		% Change		2018		2017		% Change		2019		2018		% Change		2019		2018		% Change
Retail	$	109,337	$	91,808	19.1	%	$	355,465	$	282,362	25.9	%	$	111,684	$	130,851	(14.6)	%	$	212,784	$	246,059	(13.5)	%
Industrial		112,177		71,025	57.9	%		296,569		206,413	43.7	%		105,096		102,834	2.2	%		211,098		183,539	15.0	%
Construction		54,080		47,757	13.2	%		168,022		141,349	18.9	%		47,397		63,265	(25.1)	%		89,446		114,629	(22.0)	%
Total Gross Sales		275,594		210,590	30.9	%		820,056		630,124	30.1	%		264,177		296,950	(11.0)	%		513,328		544,227	(5.7)	%
Sales Allowances		(5,517)		(4,540)	21.5	%		(16,639)		(13,748)	21.0	%		(5,375)		(5,630)	(4.5)	%		(10,285)		(10,887)	(5.5)	%
Total Net Sales	$	270,077	$	206,050	31.1	%	$	803,417	$	616,376	30.3	%	$	258,802	$	291,320	(11.2)	%	$	503,043	$	533,340	(5.7)	%

Note: During ~~2018,~~2019, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.

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UNIVERSAL FOREST PRODUCTS, INC.

Net sales attributable to the South reportable segment ~~increased~~decreased in the ~~third~~second quarter of ~~2018~~2019 compared to ~~2017 due to increased sales to all markets,~~2018 primarily due to the ~~same factors previously discussed.~~impact of a lower lumber market. Acquired operations contributed ~~$14.8~~$15.3 million to our growth in industrial sales and sales to ~~the industrial market.~~

~~Earnings from operations for the South reportable segment remained flat~~our manufactured housing customers in the ~~third quarter of 2018 due to an increase~~Southeast and East Central regions decreased in gross profits and SG&A expenses of $3.4 million compared to the same period of 2017, due to the same factors previously discussed. Acquired operations had a $0.9 million operating loss in the third quarter due to the seasonality of their business. certain commodity product categories.

Net sales attributable to the South reportable segment increased in the first nine months of 2018 compared to 2017 due to increased sales to all markets, primarily due to the same factors previously discussed. Acquired operations contributed $33.4 million and $23.1 million to our growth in sales to the retail and industrial markets, respectively.

Earnings from operations for the South reportable segment increased in the second quarter of 2019 by $1.7 million, or 13.5%, due to a $4.0 million increase in gross profits, offset by a $2.3 million increase in SG&A expenses compared to last year. Gross profits were higher due to increases of $3.2 million and $1.0 million within the industrial and construction markets, respectively. Acquired acquisitions contributed $0.9 million to our earnings from operations during the second quarter of 2019.

Net sales attributable to the South reportable segment decreased in the first ~~nine~~six months of 2019 compared to 2018 ~~by $13.5~~primarily due to a lower lumber market. Acquired operations contributed $39.0 million to our growth in sales to the industrial market. The decrease in sales to the construction market was due to a $22.1 million decrease, or ~~43.4%~~26.5%, in sales to our manufactured housing customers in the Southeast and East Central regions in certain commodity product categories.

Earnings from operations for the South reportable segment decreased in the first six months of 2019 compared to the same period ~~in 2017.~~of 2018. Excluding the impact of the gain on the sale of our Medley, FL, plant in 2018, earnings from operations increased ~~during the first nine months of 2018 by $6.5~~$5.5 million due to an increase of $11.1 million in gross ~~profit dollars of $14.6 million,~~profits offset by an increase in SG&A expenses of ~~$8.1~~$5.6 million compared to the same period of ~~2017.~~2018. Gross profits were higher due to increases of $9.4 million and $1.7 million within the industrial and construction markets, respectively. Acquired operations contributed ~~$3.4~~$1.6 million to ~~gross profits, $3.2 million to SG&A, and $0.2 million to operating profits in~~our earnings from operations during the first ~~nine~~six months of ~~the year.~~ 2019.

West


	Net Sales						Net Sales
	West Segment by Market						West Segment by Market
	Three Months Ended						Six Months Ended
(in thousands)	June 29,		June 30,				June 29,		June 30,
Market Classification	2019		2018		% Change		2019		2018		% Change
Retail	$	140,844	$	155,558	(9.5)	%	$	244,235	$	266,187	(8.2)	%
Industrial		148,668		153,103	(2.9)	%		282,147		280,902	0.4	%
Construction		138,469		155,116	(10.7)	%		266,753		284,472	(6.2)	%
Total Gross Sales		427,981		463,777	(7.7)	%		793,135		831,561	(4.6)	%
Sales Allowances		(6,708)		(6,952)	(3.5)	%		(11,765)		(12,268)	(4.1)	%
Total Net Sales	$	421,273	$	456,825	(7.8)	%	$	781,370	$	819,293	(4.6)	%

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

~~West~~

Net Sales

Net Sales

West Segment by Market

West Segment by Market

Three Months Ended

Nine Months Ended

(in thousands)

September 29,

September 30,



September 29,

September 30,


Market Classification

2018

2017

% Change

2018

2017

% Change

Retail

$
126,321

$
114,642

10.2
%

$
393,573

$
346,236

13.7
%

Industrial

150,876

145,705

3.5
%

431,055

403,246

6.9
%

Construction

163,089

122,880

32.7
%

447,219

352,876

26.7
%

Total Gross Sales

440,286

383,227

14.9
%

1,271,847

1,102,358

15.4
%

Sales Allowances

(6,163)

(4,513)

36.6
%

(18,431)

(13,614)

35.4
%

Total Net Sales

$
434,123

$
378,714

14.6
%

$
1,253,416

$
1,088,744

15.1
%

Note: During ~~2018,~~2019, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.

Net sales attributable to the West reportable segment ~~increased~~decreased in the ~~third~~second quarter of ~~2018~~2019 compared to ~~2017 due to increases in sales to all markets~~2018 primarily due to ~~factors previously discussed.~~ the impact of a lower lumber market.

Earnings from operations for the West reportable segment decreased in the second quarter of 2019 by $0.4 million, or 1.7%, compared to the same period in 2018 due to a $1.3 million increase in gross profit, offset by a $1.7 million increase in SG&A expenses primarily due to losses of a small framing operation. Gross profits were higher due to an increase of $3.4 million within the industrial market, offset by decreases of $0.9 million and $1.2 million within the retail and construction markets, respectively.

Net sales attributable to the West reportable segment decreased in the first six months of 2019 compared to 2018 primarily due to the lower lumber market.

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UNIVERSAL FOREST PRODUCTS, INC.

Earnings from operations for the West reportable segment increased in the ~~third quarter~~first six months of ~~2018~~2019 by ~~$2.6~~$4.1 million, or ~~11.5%~~9.2%, compared to the same period in ~~2017~~2018 due to a ~~$6.1~~$8.2 million increase in gross profit, offset by a ~~$3.5~~$4.1 million increase in SG&A expenses due to the same factors previously discussed.

~~Net sales attributable to the West reportable segment increased in the first nine months of 2018 compared to 2017~~Gross profits were higher due to increases ~~in sales to all~~of $8.9 million and $1.8 million within the industrial and construction markets, ~~primarily due to factors previously discussed.~~

Earnings from operations for the West reportable segment increased in the first nine months of 2018 by $10.5 million, or 16.0%, compared to the same period in 2017 due to an $18.3 million increase in gross profit,respectively, offset by ~~a $7.8~~decreases of $2.1 million ~~increase in SG&A expenses due to~~within the ~~same factors previously discussed.~~ retail market.

All Other


	Net Sales						Net Sales
	All Other Segment by Market						All Other Segment by Market
	Three Months Ended						Nine Months Ended

													Net Sales						Net Sales
													All Other Segment by Market						All Other Segment by Market
													Three Months Ended						Six Months Ended
(in thousands)	September 29,		September 30,				September 29,		September 30,				June 29,		June 30,				June 29,		June 30,
Market Classification	2018		2017		% Change		2018		2017		% Change		2019		2018		% Change		2019		2018		% Change
Retail	$	54,631	$	45,396	20.3	%	$	170,505	$	144,782	17.8	%	$	82,397	$	66,943	23.1	%	$	135,547	$	115,874	17.0	%
Industrial(1)		113,998		117,011	(2.6)	%		279,040		270,605	3.1	%		37,987		35,164	8.0	%		66,797		60,322	10.7	%
Construction(1)		177		58	205.2	%		567		533	6.4	%		62,938		57,469	9.5	%		115,238		105,110	9.6	%
Total Gross Sales		168,806		162,465	3.9	%		450,112		415,920	8.2	%		183,322		159,576	14.9	%		317,582		281,306	12.9	%
Sales Allowances & Other		(1,638)		(1,027)	59.5	%		(8,287)		(3,807)	117.7	%		(3,822)		(4,102)	(6.8)	%		(5,627)		(6,649)	(15.4)	%
Total Net Sales	$	167,168	$	161,438	3.5	%	$	441,825	$	412,113	7.2	%	$	179,500	$	155,474	15.5	%	$	311,955	$	274,657	13.6	%

Note: During ~~2018,~~2019, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.

(1)

Our All Other reportable segment consists of our Alternative Materials, International, idX, and certain other segments which are not significant.

Net sales attributable to All Other reportable segments increased in the ~~third~~second quarter of ~~2018~~2019 compared to ~~2017~~2018 primarily due to ~~increases in~~our sales to the retail market ~~within~~by our ~~International segment.~~Alternative Materials segment, which won new sales of our Deckorators branded products with one of our big box customers. Our sales to the ~~industrial~~construction market ~~decreased~~increased primarily due to our idX ~~division.~~

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

business unit.

Earnings from operations for All Other reportable segments ~~decreased~~increased during the ~~third~~second quarter of ~~2018~~2019 by ~~$1.4~~$0.4 million primarily due to ~~the idX~~profits realized in our retail market within our Alternative Materials segment.

Net sales attributable to All Other reportable segments increased in the first ~~nine~~six months of ~~2018~~2019 compared to ~~2017~~2018 due to increases in sales to ~~the retail and industrial~~all our markets. ~~Our~~The increase in sales to the retail market was primarily due to a ~~$22.0 million and $5.1~~$41.4 million increase to one of our big-box customers within our Alternative Materials segment, offset by decreases in sales byto certain independent retailers. Our sales to the construction market increased primarily due to our ~~International and Alternative Materials segments, respectively.~~idX business unit.

Earnings from operations for All Other reportable segments decreased during the first ~~nine~~six months of ~~2018~~2019 by ~~$6.6~~$0.5 million primarily due ~~to the idX~~expenses associated with an advertising campaign launched in 2019 for our Deckorators brand within our Alternative Materials segment.

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UNIVERSAL FOREST PRODUCTS, INC.

OFF-BALANCE SHEET TRANSACTIONS

We have no significant off-balance sheet ~~transactions other than operating leases.~~transactions.

LIQUIDITY AND CAPITAL RESOURCES

The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):


	Nine Months Ended
	September 29,		September 30,
	2018		2017
Cash from operating activities	$	60,101	$	97,350

					Six Months Ended
					June 29,		June 30,
					2019		2018
Cash provided by (used in) operating activities					$	70,948	$	(36,072)
Cash used in investing activities		(85,615)		(121,375)		(47,736)		(63,069)
Cash from financing activities		23,802		11,230
Cash (used in) provided by financing activities						(30,255)		114,840
Effect of exchange rate changes on cash		247		1,255		366		(256)
Net change in all cash and cash equivalents		(1,465)		(11,540)		(6,677)		15,443
Cash, cash equivalents, and restricted cash, beginning of period		28,816		34,489		28,198		28,816
Cash, cash equivalents, and restricted cash, end of period	$	27,351	$	22,949	$	21,521	$	44,259

In general, we funded our growth in the past through a combination of operating cash flows, our revolving credit facility, industrial development bonds (when circumstances permit), and issuance of long-term notes payable at times when interest rates are favorable. We have not issued equity to finance growth except in the case of a large acquisition. We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe this is one of many important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.

Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to September. Consequently, our working capital increases during our first and second quarters ~~resulting~~which typically results in negative or modest cash flows from operations during those periods. Conversely, we experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows from operations in our third and fourth quarters.

Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital

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~~UNIVERSAL FOREST PRODUCTS, INC.~~

management. As indicated in the table below, our cash cycle increased to 5153 days from 49 days during the ~~third~~second quarter of ~~2018~~2019 compared to the prior periods.


	Three Months Ended				Nine Months Ended
	September 29,		September 30,		September 29,		September 30,
	2018		2017		2018		2017

									Three Months Ended				Six Months Ended
									June 29,		June 30,		June 29,		June 30,
									2019		2018		2019		2018
Days of sales outstanding		32		31		32		31		33		31		33		32
Days supply of inventory		39		38		41		41		41		38		46		42
Days payables outstanding		(20)		(20)		(21)		(20)		(21)		(20)		(21)		(21)
Days in cash cycle		51		49		52		52		53		49		58		53

The increase in days supply of inventory was primarily due to opportunistic buying when lumber prices were low during the fourth quarter of 2018 to improve 2019 gross profits and higher levels of “safety stock” we carried to address transportation challenges and ensure timely deliveries to our customers.

In the first ~~nine~~six months of ~~2018,~~2019, our cash ~~from~~provided by operating activities was ~~$60.1~~$70.9 million, which was comprised of net earnings of ~~$120.8~~$91.1 million and ~~$39.8~~$32.0 million of non-cash expenses, offset by a ~~$100.5~~$52.2 million seasonal increase in working

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UNIVERSAL FOREST PRODUCTS, INC.

capital since the end of December 2018. Comparatively, in the first six months of 2018, our cash used in operating activities was $36.1 million, which was comprised of net earnings of $78.7 million and $24.1 million of non-cash expenses, offset by a $138.9 million seasonal increase in working capital since the end of December 2017. ~~Comparatively i~~n the first nine months of 2017, our cash provided by operating activities was $97.3 million, which was comprised of net earnings of $90.9 million, and $41.3 million of non-cash expenses, offset by a $34.9 millionOur seasonal increase in working capital ~~since the end of December 2016. The increase~~was lower in ~~working capital compared to the same period last year was~~2019 due to ~~growth in our business, higher lumber prices, and~~opportunistic inventory ~~levels at many locations that exceed internal targets and will be addressed~~buying in the fourth ~~quarter.~~quarter of 2018, and lower lumber prices in 2019 helped mitigate the seasonal increase in our working capital.

Property, plant, and equipment comprised most of our cash used in investing activities during the first six months of 2019 and totaled $42.5 million. Acquisitions comprised approximately $5.0 million during the first six months of 2019. Outstanding purchase commitments on existing capital projects totaled approximately $48.3 million on June 29, 2019. We currently plan to spend up to $100 million for the year on capital expenditures. Major anticipated expenditures include projects to replace our capacity in South Florida resulting from the sale of our Medley facility last year, expand capacity and enhance the productivity of our Deckorators decking product line due to favorable demand trends and share gains we’ve achieved, and several projects to expand manufacturing capacity to serve industrial customers and achieve efficiencies through automation. We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year. The sale and purchase of investments totaling $4.9 million and $3.7 million, respectively, are due to investment activity in our captive insurance subsidiary. Comparatively, acquisitions and purchases of property, plant, and equipment comprised most of our cash used in investing activities during the first ~~nine~~six months of 2018 and totaled ~~$39.0~~$38.0 million and ~~$74.5~~$54.3 million, respectively. Proceeds from the sale of our Medley, FL, plant provided approximately $36 million in net cash proceeds. Outstanding purchase commitments on existing capital projects totaled approximately $23.4 million on September 29, 2018. We currently plan to spend up to $100 million for the year on capital expenditures. We intend to fund remaining capital expenditures and related purchase commitments through our operating cash flows for the balance of the year. Comparatively, capital expenditures and acquisitions were $57.1 million and $59.9 million, respectively, during the first nine months of 2017. The increase in our capital expenditures in 2018 is primarily due to the additional requirements of recently acquired operations, real estate purchases as we continue to grow our business and utilize the proceeds from the sale of our Medley plant to add replacement capacity, add capacity to produce new and value-added products, and our efforts to automate processes to combat labor shortages. The purchase and sale of investments totaling $12.4 million and $3.3 million, respectively, are due to investment activity in our captive insurance subsidiary.

Cash flows from financing activities primarily consisted of net repayments under our revolving credit facility of approximately ~~$32.1 million and the issuance of $75 million in Senior Notes under our shelf facility.~~$14.6 million. Additionally, we paid a semi-annual dividend totaling ~~$11.1~~$12.3 million or ~~$0.18~~$0.20 per ~~share, in~~share.

On June ~~2018, and in October 2018 approved another semi-annual dividend of $0.18 per share to be paid in December 2018.~~

~~On September~~ 29, ~~2018,~~2019, we had ~~$37.0~~$37.7 million outstanding on our ~~$295~~$375 million revolving credit facility. The amount outstanding on the revolving credit facility includes letters of credit totaling approximately $9.8 million on ~~September~~June 29, ~~2018;~~2019; as a result, we had approximately ~~$258.0~~$337.3 million in remaining availability on our revolver after considering letters of credit. Additionally, we have $150 million in availability under an amended “shelf agreement” for long term debt with a current lender after considering the second quarter 2018 issuance of long-term Senior Notes. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were in compliance with all our covenant requirements on ~~September~~June 29, ~~2018.~~2019.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Unaudited Consolidated Condensed Financial Statements, Note E, “Commitments, Contingencies, and Guarantees.”

~~Table of Contents~~

~~UNIVERSAL FOREST PRODUCTS, INC.~~

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. There have been no material changes in our policies or estimates since December ~~30, 2017.~~29, 2018.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risks related to fluctuations in interest rates on our variable rate debt, which consists of a revolving credit facility and industrial development revenue bonds. We do not currently use interest rate swaps, futures contracts or options on futures, or other types of derivative financial instruments to mitigate this risk.

For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect

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UNIVERSAL FOREST PRODUCTS, INC.

future earnings and cash flows. We do not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on such debt until we would be required to refinance it.

We are subject to fluctuations in the price of lumber. We experience significant fluctuations in the cost of commodity lumber products from primary producers (the “Lumber Market”). A variety of factors over which we have no control, including government regulations, transportation, environmental regulations, weather conditions, economic conditions, and natural disasters, impact the cost of lumber products and our selling prices. While we attempt to minimize our risk from severe price fluctuations, substantial, prolonged trends in lumber prices can affect our sales volume, our gross margins, and our profitability. We anticipate that these fluctuations will continue in the future. (See “Impact of the Lumber Market on Our Operating Results.”)

Our international operations have exposure to foreign currency rate risks, primarily due to fluctuations in their local currency, which is their functional currency, compared to the U.S. dollar. Additionally, certain of our operations enter into transactions that will be settled in a currency other than the U.S. Dollar. We entered into forward foreign exchange rate contracts in ~~2017,~~2018, which have since expired, and may enter into further forward contracts in the future associated with mitigating the foreign currency exchange risk. Historically, our hedge contracts are deemed immaterial to the financial statements, however any material hedge contract in the future will be disclosed.

Item 4. Controls and Procedures.

(a)

Evaluation of Disclosure Controls and Procedures. With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15e and 15d – 15e) as of the quarter ended ~~September~~June 29, ~~2018~~2019 (the “Evaluation Date”), have concluded that, as of such date, our disclosure controls and procedures were effective.

(b)

Changes in Internal Controls. During the quarter ended ~~September~~June 29, ~~2018,~~2019, there were no changes in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

3031

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UNIVERSAL FOREST PRODUCTS, INC.

PART II. OTHER INFORMATION

Item 1A. Risk Factors.

None.

~~We may be impacted by new tariffs and duties on U.S. imports and foreign export sales.~~ Instability of established free trade agreements may lead to raw material and finished goods price volatility. An increase in foreign tariffs on U.S. goods could curtail our export sales to other countries which was approximately $110.8 million in 2017. Increased tariffs and duties on U.S. imports will increase pricing by adding duty cost, where the duty is sustainable in light of overall unit price, or otherwise constrain supply by eliminating historical production sources by country or commodity type with unsustainable duties. UFP’s U.S. import of Canadian Softwood Lumber was approximately $243.0 million in 2017, which is the primary imported commodity. In addition, there is a risk that U.S. tariffs on imports and countering tariffs on U.S. exports could trigger broader international trade conflicts that could adversely impact our business.

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

(a)

None.

(b)

None.

(c)

Issuer purchases of equity securities.


Fiscal Month		(a)		(b)		(c)		(d)

March 31 - April 4, 2019		—		—		—		1,860,354
~~Fiscal Month~~April 5 - June 1, 2019		~~(a)~~—		—		~~(b)~~—		~~(c)~~1,860,354
June 2 - 29, 2019		~~(d)~~—
~~July 1 - August 4, 2018~~	—		—		—		—		~~2,665,239~~
~~August 5 - September 1, 2018~~		—		—		—		~~2,665,239~~
~~September 2 - 29, 2018~~		—		—		—		~~2,665,239~~1,860,354

(a)

~~(a)~~

Total number of shares purchased.

(b)

~~(b)~~

Average price paid per share.

(c)

~~(c)~~

Total number of shares purchased as part of publicly announced plans or programs.

(d)

~~(d)~~

Maximum number of shares that may yet be purchased under the plans or programs.

On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common stock. On October 14, ~~2011,~~2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of remaining shares that may be repurchased under the program is approximately ~~2.7~~1.9 million.

Item 5. Other Information.

None.

3132

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UNIVERSAL FOREST PRODUCTS, INC.

PART II. OTHER INFORMATION

Item 6. Exhibits.

The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:


31	Certifications.

	(a)	Certificate of the Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

	(b)	Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

32	Certifications.

	(a)	Certificate of the Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

	(b)	Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

101	Interactive Data ~~File.~~File formatted in iXBRL (Inline eXtensible Business Reporting Language).

	(INS)	~~XBRL~~iXBRL Instance Document.

	(SCH)	~~XBRL~~iXBRL Schema Document.

	(CAL)	~~XBRL~~iXBRL Taxonomy Extension Calculation Linkbase Document.

	(LAB)	~~XBRL~~iXBRL Taxonomy Extension Label Linkbase Document.

	(PRE)	~~XBRL~~iXBRL Taxonomy Extension Presentation Linkbase Document.

	(DEF)	~~XBRL~~iXBRL Taxonomy Extension Definition Linkbase Document.

3233

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UNIVERSAL FOREST PRODUCTS, INC.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNIVERSAL FOREST PRODUCTS, INC.

Date: ~~November~~August 7, ~~2018~~2019	By:	/s/ Matthew J. Missad
	Matthew J. Missad,
	Chief Executive Officer and Principal Executive Officer


Date: ~~November~~August 7, ~~2018~~2019	By:	/s/ Michael R. Cole
	Michael R. Cole,
	Chief Financial Officer,
	Principal Financial Officer and
	Principal Accounting Officer

3334

PART I.		FINANCIAL INFORMATION.	Page No.

	Item 1.	Financial Statements

		Condensed Consolidated ~~Condensed~~ Balance Sheets at ~~September~~June 29, 2019, December 29, 2018 ~~December~~and June 30, ~~2017 and September 30, 2017~~2018	3


		Condensed Consolidated ~~Condensed~~ Statements of Earnings and Comprehensive Income for the Three and Six Months Ended June 29, 2019 and ~~Nine Months Ended September 29,~~June 30, 2018 ~~and September 30, 2017~~	4


		Condensed Consolidated ~~Condensed~~ Statements of Shareholders’ Equity for the ~~Three~~Six Months Ended June 29, 2019 and ~~Nine Months Ended September 29,~~June 30, 2018 ~~and September 30, 2017~~	5


		Condensed Consolidated ~~Condensed~~ Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 29, ~~2018~~2019 and ~~September~~June 30, ~~2017~~2018	6


		Notes to Unaudited Condensed Consolidated ~~Condensed~~ Financial Statements	7


	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17


	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30


	Item 4.	Controls and Procedures	30
			31
~~PART II.~~		~~OTHER INFORMATION~~
PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings – NONE

	Item 1A.	Risk Factors	31
			32

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
			32

	Item 3.	Defaults upon Senior Securities – NONE

	Item 4.	Mine Safety Disclosures – NONE

	Item 5.	Other Information – NONE	31
			32

	Item 6.	Exhibits	32 33


(in thousands, except share data)
	September 29,		December 30,		September 30,
	2018		2017		2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	26,327	$	28,339	$	22,044
Restricted cash		1,024		477		905
Investments		15,809		11,269		10,781
Accounts receivable, net		454,935		327,751		419,183
Inventories:
Raw materials		257,983		234,354		203,930
Finished goods		252,074		225,954		208,556
Total inventories		510,057		460,308		412,486
Refundable income taxes		9,124		7,228		763
Other current assets		29,575		28,115		22,438
TOTAL CURRENT ASSETS		1,046,851		863,487		888,600
DEFERRED INCOME TAXES		2,176		1,865		1,899
RESTRICTED INVESTMENTS		13,117		8,359		7,982
OTHER ASSETS		7,052		7,368		7,634
GOODWILL		218,631		212,644		212,029
INDEFINITE-LIVED INTANGIBLE ASSETS		7,373		7,415		7,580
OTHER INTANGIBLE ASSETS, NET		35,662		34,910		36,093
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment		807,023		763,101		754,175
Less accumulated depreciation and amortization		(460,714)		(434,472)		(429,066)
PROPERTY, PLANT AND EQUIPMENT, NET		346,309		328,629		325,109
TOTAL ASSETS	$	1,677,171	$	1,464,677	$	1,486,926
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Cash overdraft	$	31,115	$	25,851	$	26,617
Accounts payable		175,912		140,106		171,774
Accrued liabilities:
Compensation and benefits		99,786		97,556		88,185
Other		51,316		38,404		50,179
Current portion of long-term debt		149		1,329		2,197
TOTAL CURRENT LIABILITIES		358,278		303,246		338,952
LONG-TERM DEBT		186,539		144,674		145,884
DEFERRED INCOME TAXES		13,701		14,079		22,806
OTHER LIABILITIES		26,929		28,655		29,204
TOTAL LIABILITIES		585,447		490,654		536,846
SHAREHOLDERS’ EQUITY:
Controlling interest shareholders’ equity:
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none	$	—	$	—	$	—
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,656,181, 61,191,888 and 61,174,197		61,656		61,192		61,174
Additional paid-in capital		176,671		161,928		159,995
Retained earnings		841,431		736,212		715,497
Accumulated other comprehensive income		(3,638)		144		(871)
Total controlling interest shareholders’ equity		1,076,120		959,476		935,795
Noncontrolling interest		15,604		14,547		14,285
TOTAL SHAREHOLDERS’ EQUITY		1,091,724		974,023		950,080
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,677,171	$	1,464,677	$	1,486,926


(in thousands, except per share data)
	Three Months Ended				Nine Months Ended
	September 29,		September 30,		September 29,		September 30,
	2018		2017		2018		2017
NET SALES	$	1,212,702	$	1,056,586	$	3,500,999	$	2,975,091
COST OF GOODS SOLD		1,054,029		911,899		3,045,748		2,561,424
GROSS PROFIT		158,673		144,687		455,251		413,667
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		102,292		92,389		300,292		272,956
FOREIGN CURRENCY EXCHANGE LOSS		412		301		213		1,157
NET (GAIN) ON DISPOSITION OF ASSETS AND IMPAIRMENT OF ASSETS		(1,022)		(274)		(7,079)		(437)
EARNINGS FROM OPERATIONS		56,991		52,271		161,825		139,991
INTEREST EXPENSE		1,945		1,481		5,971		4,825
INTEREST AND INVESTMENT INCOME		(211)		(130)		(1,109)		(541)
EQUITY IN EARNINGS OF INVESTEE		—		1		—		(25)
		1,734		1,352		4,862		4,259
EARNINGS BEFORE INCOME TAXES		55,257		50,919		156,963		135,732
INCOME TAXES		13,189		16,250		36,183		44,855
NET EARNINGS		42,068		34,669		120,780		90,877
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(849)		(976)		(2,684)		(2,480)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST	$	41,219	$	33,693	$	118,096	$	88,397

EARNINGS PER SHARE - BASIC	$	0.67	$	0.55	$	1.91	$	1.44
EARNINGS PER SHARE - DILUTED	$	0.66	$	0.55	$	1.91	$	1.44

OTHER COMPREHENSIVE INCOME:
NET EARNINGS		42,068		34,669		120,780		90,877
OTHER COMPREHENSIVE GAIN (LOSS)		1,174		1,719		(3,170)		6,141
COMPREHENSIVE INCOME		43,242		36,388		117,610		97,018
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(1,583)		(975)		(3,296)		(3,862)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	41,659	$	35,413	$	114,314	$	93,156


(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 31, 2016	$	61,026	$	144,649	$	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 - $0.150 per share						(9,208)						(9,208)
Issuance of 17,925 shares under employee stock plans		18		458								476
Issuance of 428,325 shares under stock grant programs		428		6,752								7,180
Issuance of 147,480 shares under deferred compensation plans		148		(148)								—
Repurchase of 445,740 shares		(446)		297		(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	$	61,174	$	159,995	$	715,497	$	(871)	$	14,285	$	950,080
Balance at December 30, 2017		61,192		161,928		736,212		144		14,547		974,023
Net earnings						118,096				2,684		120,780
Foreign currency translation adjustment								(3,562)		612		(2,950)
Unrealized gain (loss) on investment & foreign currency								(220)				(220)
Distributions to noncontrolling interest										(2,239)		(2,239)
Cash dividends - $0.180 per share						(11,090)						(11,090)
Issuance of 25,449 shares under employee stock plans		25		731								756
Issuance of 348,140 shares under stock grant programs		348		4,911								5,259
Issuance of 147,188 shares under deferred compensation plans		147		(147)								—
Repurchase of 56,484 shares		(56)				(1,787)						(1,843)
Expense associated with share-based compensation arrangements				2,613								2,613
Accrued expense under deferred compensation plans				6,635								6,635
Balance at September 29, 2018	$	61,656	$	176,671	$	841,431	$	(3,638)	$	15,604	$	1,091,724


	September 29, 2018								September 30, 2017
	Quoted		Prices with						Quoted		Prices with
	Prices in		Other		Prices with				Prices in		Other
	Active		Observable		Unobservable				Active		Observable
	Markets		Inputs		Inputs				Markets		Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		Total
Money market funds	$	56	$	1,381	$	—	$	1,437	$	64	$	413	$	477
Fixed income funds		2,846		9,484		—		12,330		1,299		6,905		8,204
Equity securities		8,203		—		—		8,203		10,194		—		10,194
Hedge funds		—		—		1,725		1,725
Mutual funds:
Domestic stock funds		2,970		—		—		2,970		335		—		335
International stock funds		948		—		—		948		87		—		87
Target funds		255		—		—		255		260		—		260
Bond funds		208		635		—		843		208		—		208
Alternative funds		1,364						1,364
Total mutual funds		5,745		635		—		6,380		890		—		890
Total	$	16,850	$	11,500	$	1,725	$	30,075	$	12,447	$	7,318	$	19,765
Assets at fair value	$	16,850	$	11,500	$	1,725	$	30,075	$	12,447	$	7,318	$	19,765


					Net
Company	Acquisition		Intangible		Tangible		Operating
Name	Date	Purchase Price	Assets		Assets		Segment
	July 31, 2018	$1,016 cash paid for 100% asset purchase	$	250	$	766	West
The Pallet Place, LLC ("Pallet Place")	A manufacturer and distributor of total packaging solutions in timber, crates, skids, and pallets. Pallet Place had annual sales of approximately $5 million. The acquisition of Pallet Place allows us to increase our industrial business and creates operating leverage by consolidating with another regional operation.
	June 1, 2018	$23,866 cash paid for 100% asset purchase	$	7,123	$	16,743	South
North American Container Corporation ("NACC")	A manufacturer of structural packaging products, including steel, corrugated and hardwood packaging. NACC had annual sales of approximately $71 million. The acquisition of NACC allows us to enhance our presence in this region, expand our product offering, and serve customers more cost effectively.


	Three Months Ended September 29, 2018
	North		South		West		All Other		Corporate		Total
Net sales to outside customers	$	341,334	$	270,077	$	434,123	$	167,168	$	—	$	1,212,702
Intersegment net sales		15,259		21,360		14,121		56,771		—		107,511
Segment operating profit		14,339		10,209		25,125		5,460		1,858		56,991


	Nine Months Ended September 29, 2018
	North		South		West		All Other		Corporate		Total
Net sales to outside customers	$	1,002,341	$	803,417	$	1,253,416	$	441,825	$	—	$	3,500,999
Intersegment net sales		45,841		60,683		44,183		181,450		—		332,157
Segment operating profit (loss)		42,862		44,659		76,030		6,679		(8,405)		161,825


	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		42,921		31,152		65,547		13,285		(12,914)		139,991


	Net Sales						Net Sales
	West Segment by Market						West Segment by Market
	Three Months Ended						Nine Months Ended
(in thousands)	September 29,		September 30,				September 29,		September 30,
Market Classification	2018		2017		% Change		2018		2017		% Change
Retail	$	126,321	$	114,642	10.2	%	$	393,573	$	346,236	13.7	%
Industrial		150,876		145,705	3.5	%		431,055		403,246	6.9	%
Construction		163,089		122,880	32.7	%		447,219		352,876	26.7	%
Total Gross Sales		440,286		383,227	14.9	%		1,271,847		1,102,358	15.4	%
Sales Allowances		(6,163)		(4,513)	36.6	%		(18,431)		(13,614)	35.4	%
Total Net Sales	$	434,123	$	378,714	14.6	%	$	1,253,416	$	1,088,744	15.1	%