Edgar Filing: UNIVERSAL FOREST PRODUCTS INC

ufpi_Current_Folio_10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

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

For the quarterly period ended March 30, 2019

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

Commission File Number 0‑22684

UNIVERSAL FOREST PRODUCTS, INC.

(Exact name of registrant as specified in its charter)


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

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

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


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

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

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

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


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

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

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

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


	Class		Outstanding as of March 30, 2019
	Common stock, $1 par value		61,352,372

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UNIVERSAL FOREST PRODUCTS, INC.

TABLE OF CONTENTS

PART I.		FINANCIAL INFORMATION.	Page No.

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets at March 30, 2019, December 29, 2018 and March 31, 2018	3

		Condensed Consolidated Statements of Earnings and Comprehensive Income for the Three Months Ended March 30, 2019 and March 31, 2018	4

		Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 30, 2019 and March 31, 2018	5

		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 30, 2019 and March 31, 2018	6

		Notes to Unaudited Condensed Consolidated 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	29

	Item 4.	Controls and Procedures	29

PART II.		OTHER INFORMATION

	Item 1.	Legal Proceedings – NONE

	Item 1A.	Risk Factors	30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

	Item 3.	Defaults upon Senior Securities – NONE

	Item 4.	Mine Safety Disclosures – NONE

	Item 5.	Other Information – NONE	30

	Item 6.	Exhibits	31

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UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands, except share data)
	March 30,		December 29,		March 31,
	2019		2018		2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	17,111	$	27,316	$	25,326
Restricted cash		1,024		882		32,425
Investments		16,197		14,755		10,701
Accounts receivable, net		444,111		343,450		430,251
Inventories:
Raw materials		279,265		271,871		261,808
Finished goods		300,898		284,349		259,898
Total inventories		580,163		556,220		521,706
Refundable income taxes		4,629		14,130		—
Other current assets		40,237		38,525		23,304
TOTAL CURRENT ASSETS		1,103,472		995,278		1,043,713
DEFERRED INCOME TAXES		2,364		2,668		2,273
RESTRICTED INVESTMENTS		13,580		13,267		10,238
RIGHT OF USE ASSETS		66,100		—		—
OTHER ASSETS		8,419		8,662		7,123
GOODWILL		224,247		224,117		212,596
INDEFINITE-LIVED INTANGIBLE ASSETS		7,364		7,360		7,407
OTHER INTANGIBLE ASSETS, NET		39,686		41,486		34,543
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment		828,837		814,645		754,603
Less accumulated depreciation and amortization		(472,671)		(459,935)		(441,032)
PROPERTY, PLANT AND EQUIPMENT, NET		356,166		354,710		313,571
TOTAL ASSETS		1,821,398		1,647,548		1,631,464
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Cash overdraft	$	18,732	$	27,367	$	30,026
Accounts payable		170,667		136,901		176,469
Accrued liabilities:
Compensation and benefits		70,867		104,109		61,976
Income taxes		—		—		1,600
Other		45,618		41,645		42,633
Current portion of lease liability		14,500		—		—
Current portion of long-term debt		185		148		425
TOTAL CURRENT LIABILITIES		320,569		310,170		313,129
LONG-TERM DEBT		266,428		202,130		261,327
LEASE LIABILITY		51,600		—		—
DEFERRED INCOME TAXES		14,622		15,687		13,894
OTHER LIABILITIES		29,813		30,877		26,192
TOTAL LIABILITIES		683,032		558,864		614,542
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, 61,352,372, 60,883,749, and 61,543,902		61,352		60,884		61,544
Additional paid-in capital		190,879		178,540		172,929
Retained earnings		875,457		839,917		768,223
Accumulated other comprehensive income		(4,789)		(5,938)		(1,140)
Total controlling interest shareholders’ equity		1,122,899		1,073,403		1,001,556
Noncontrolling interest		15,467		15,281		15,366
TOTAL SHAREHOLDERS’ EQUITY		1,138,366		1,088,684		1,016,922
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,821,398	$	1,647,548	$	1,631,464

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE INCOME

(Unaudited)


(in thousands, except per share data)
	Three Months Ended
	March 30,		March 31,
	2019		2018
NET SALES	$	1,015,125	$	993,857
COST OF GOODS SOLD		860,858		862,968
GROSS PROFIT		154,267		130,889
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		105,943		93,206
NET GAIN ON DISPOSITION OF ASSETS		(122)		(6,534)
EARNINGS FROM OPERATIONS		48,446		44,217
INTEREST EXPENSE		2,460		1,778
INTEREST AND INVESTMENT INCOME		(1,593)		(717)
		867		1,061
EARNINGS BEFORE INCOME TAXES		47,579		43,156
INCOME TAXES		11,577		9,574
NET EARNINGS		36,002		33,582
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(462)		(749)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST	$	35,540	$	32,833

EARNINGS PER SHARE - BASIC	$	0.58	$	0.53
EARNINGS PER SHARE - DILUTED	$	0.58	$	0.53

OTHER COMPREHENSIVE INCOME:
NET EARNINGS		36,002		33,582
OTHER COMPREHENSIVE GAIN (LOSS)		1,373		(439)
COMPREHENSIVE INCOME		37,375		33,143
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(686)		(1,594)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	36,689	$	31,549

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


(in thousands, except share and per share data)
	Controlling Interest Shareholders’ Equity
							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Earnings		Interest		Total
Balance at December 30, 2017	$	61,192	$	161,928	$	736,212	$	144	$	14,547	$	974,023
Net earnings						32,833				749		33,582
Foreign currency translation adjustment								(785)		845		60
Unrealized gain (loss) on investment & foreign currency								(499)				(499)
Distributions to noncontrolling interest										(775)		(775)
Issuance of 7,469 shares under employee stock plans		8		199								207
Issuance of 253,289 shares under stock grant programs		253		5,292								5,545
Issuance of 117,068 shares under deferred compensation plans		117		(117)								—
Repurchase of 25,812 shares		(26)				(822)						(848)
Expense associated with share-based compensation arrangements				1,034								1,034
Accrued expense under deferred compensation plans				4,593								4,593
Balance at March 31, 2018	$	61,544	$	172,929	$	768,223	$	(1,140)	$	15,366	$	1,016,922
Balance at December 29, 2018	$	60,884	$	178,540	$	839,917	$	(5,938)	$	15,281	$	1,088,684
Net earnings						35,540				462		36,002
Foreign currency translation adjustment								982		224		1,206
Unrealized gain (loss) on debt securities								167				167
Distributions to noncontrolling interest										(500)		(500)
Issuance of 10,259 shares under employee stock purchase plans		10		251								261
Issuance of 320,069 shares under stock grant programs		320		6,101								6,421
Issuance of 138,295 shares under deferred compensation plans		138		(138)								—
Expense associated with share-based compensation arrangements				1,226								1,226
Accrued expense under deferred compensation plans				4,899								4,899
Balance at March 30, 2019	$	61,352	$	190,879	$	875,457	$	(4,789)	$	15,467	$	1,138,366

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


(in thousands)	Three Months Ended
	March 30,		March 31,
	2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	36,002	$	33,582
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		14,475		12,712
Amortization of intangibles		1,852		1,228
Expense associated with share-based and grant compensation arrangements		1,287		1,094
Deferred income taxes credits		(742)		(519)
Unrealized gain on investments		(1,348)		—
Net gain on disposition of assets		(122)		(6,534)
Changes in:
Accounts receivable		(100,716)		(99,765)
Inventories		(23,649)		(57,403)
Accounts payable and cash overdraft		25,056		39,935
Accrued liabilities and other		(7,924)		(8,502)
NET CASH USED IN OPERATING ACTIVITIES		(55,829)		(84,172)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(15,883)		(24,362)
Proceeds from sale of property, plant and equipment		241		36,250
Acquisitions, net of cash received		—		(8,787)
Purchases of investments		(449)		(6,718)
Proceeds from sale of investments		340		5,045
Other		200		(124)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(15,551)		1,304
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities		237,560		296,342
Repayments under revolving credit facilities		(173,232)		(179,429)
Borrowings of debt		—		1,376
Repayment of debt		(3,029)		(5,232)
Proceeds from issuance of common stock		261		206
Distributions to noncontrolling interest		(500)		(775)
Repurchase of common stock		—		(848)
Other		9		(70)
NET CASH PROVIDED BY FINANCING ACTIVITIES		61,069		111,570
Effect of exchange rate changes on cash		248		233
NET CHANGE IN CASH AND CASH EQUIVALENTS		(10,063)		28,935
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR		28,198		28,816
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	18,135	$	57,751

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	$	17,111	$	25,326
Restricted cash, end of period		1,024		32,425
Cash, cash equivalents, and restricted cash, end of period	$	18,135	$	57,751

SUPPLEMENTAL INFORMATION:
Interest paid	$	570	$	843
Income taxes paid		2,801		1,245
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans		4,457		4,237

See notes to consolidated condensed financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

NOTES TO UNAUDITED

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A. BASIS OF PRESENTATION

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

In our opinion, the Financial Statements contain all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. These Financial Statements should be read in conjunction with the annual consolidated financial statements, and footnotes thereto, included in our Annual Report to Shareholders on Form 10‑K for the fiscal year ended December 29, 2018.

Seasonality has a significant impact on our working capital from March to August which historically results in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which typically results in significant cash flow from operations in our third and fourth quarters. For comparative purposes, we have included the March 31, 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:


	March 30, 2019								March 31, 2018
	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	$	549	$	—	$	605	$	65	$	4,744	$	4,809
Fixed income funds		3,860		9,763		—		13,623		2,159		7,111		9,270
Equity securities		8,258		—		—		8,258		7,202		—		7,202
Hedge funds		—		—		1,782		1,782
Mutual funds:
Domestic stock funds		2,151		—		—		2,151		1,158		—		1,158
International stock funds		2,085		—		—		2,085		1,159		—		1,159
Target funds		257		—		—		257		281		743		1,024
Bond funds		799		—		—		799		207		347		554
Alternative funds		1,344		—		—		1,344
Total mutual funds		6,636		—		—		6,636		2,805		1,090		3,895
Total	$	18,810	$	10,312		1,782	$	30,904	$	12,231	$	12,945	$	25,176
Assets at fair value	$	18,810	$	10,312		1,782	$	30,904	$	12,231	$	12,945	$	25,176

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

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UNIVERSAL FOREST PRODUCTS, INC.

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

During 2018, we purchased a private real estate income trust which are valued as a Level 3 asset. We did not maintain any Level 3 assets or liabilities at March 31, 2018.

In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”), maintains an investment portfolio, totaling $29.3 million as of March 30, 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):


	March 30,2019
			Unrealized
	Cost		Gain/(Loss)		Fair Value
Fixed Income	$	13,565	$	58	$	13,623
Equity		7,235		1,023		8,258
Mutual Funds		5,815		(150)		5,665
Hedge Funds		1,744		38		1,782
Total	$	28,359	$	969	$	29,328

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 million. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of March 30, 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.

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 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.