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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
OR
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☐ |
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)
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Michigan |
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38‑1465835 |
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(State or other jurisdiction of incorporation or |
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(I.R.S. Employer Identification Number) |
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organization) |
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2801 East Beltline NE, Grand Rapids, Michigan |
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49525 |
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(Address of principal executive offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code (616) 364‑6161
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NONE |
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(Former name or former address, if changed since last report.) |
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Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
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Large Accelerated Filer ☒ |
Accelerated Filer ☐ |
Non-Accelerated Filer ☐ |
Smaller reporting company ☐ |
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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:
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Class |
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Outstanding as of September 30, 2017 |
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Common stock, $1 par value |
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20,391,399 |
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PART I. |
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FINANCIAL INFORMATION. |
Page No. |
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Item 1. |
Financial Statements |
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Notes to Unaudited Consolidated Condensed Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART II. |
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OTHER INFORMATION |
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Item 1. |
Legal Proceedings – NONE |
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Item 3. |
Defaults upon Senior Securities – NONE |
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Item 4. |
Mine Safety Disclosures – NONE |
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2
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
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(in thousands, except share data) |
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September 30, |
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December 31, |
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September 24, |
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2017 |
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2016 |
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2016 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
22,044 |
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$ |
34,091 |
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$ |
36,683 |
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Restricted cash |
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905 |
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398 |
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909 |
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Investments |
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10,781 |
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10,348 |
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10,453 |
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Accounts receivable, net |
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419,183 |
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282,253 |
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343,771 |
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Inventories: |
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Raw materials |
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203,930 |
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198,954 |
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180,740 |
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Finished goods |
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208,556 |
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198,273 |
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189,188 |
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Total inventories |
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412,486 |
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397,227 |
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369,928 |
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Refundable income taxes |
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763 |
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11,459 |
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7,407 |
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Other current assets |
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22,438 |
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20,662 |
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21,636 |
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TOTAL CURRENT ASSETS |
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888,600 |
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756,438 |
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790,787 |
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DEFERRED INCOME TAXES |
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1,899 |
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1,546 |
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2,416 |
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RESTRICTED INVESTMENTS |
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7,982 |
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— |
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— |
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OTHER ASSETS |
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7,634 |
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8,617 |
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8,757 |
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GOODWILL |
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212,029 |
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198,535 |
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207,832 |
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INDEFINITE-LIVED INTANGIBLE ASSETS |
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7,580 |
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2,340 |
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2,340 |
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OTHER INTANGIBLE ASSETS, NET |
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36,093 |
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26,731 |
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14,014 |
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PROPERTY, PLANT AND EQUIPMENT: |
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Property, plant and equipment |
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Less accumulated depreciation and amortization |
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(429,066) |
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(401,611) |
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(432,796) |
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PROPERTY, PLANT AND EQUIPMENT, NET |
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297,851 |
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284,491 |
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TOTAL ASSETS |
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1,486,926 |
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1,292,058 |
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1,310,637 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Cash overdraft |
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$ |
26,617 |
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$ |
19,761 |
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$ |
13,940 |
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Accounts payable |
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171,774 |
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124,660 |
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137,979 |
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Accrued liabilities: |
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Compensation and benefits |
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88,185 |
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92,441 |
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99,549 |
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Other |
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50,179 |
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32,281 |
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57,104 |
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Current portion of long-term debt |
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2,197 |
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2,634 |
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1,584 |
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TOTAL CURRENT LIABILITIES |
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338,952 |
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271,777 |
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310,156 |
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LONG-TERM DEBT |
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145,884 |
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109,059 |
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110,362 |
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DEFERRED INCOME TAXES |
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22,806 |
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20,817 |
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14,066 |
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OTHER LIABILITIES |
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29,204 |
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29,939 |
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28,963 |
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TOTAL LIABILITIES |
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536,846 |
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431,592 |
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463,547 |
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SHAREHOLDERS’ EQUITY: |
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Controlling interest shareholders’ equity: |
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Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none |
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$ |
— |
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$ |
— |
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$ |
— |
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Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 20,391,399, 20,342,069 and 20,330,939 |
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20,391 |
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20,342 |
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20,331 |
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Additional paid-in capital |
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200,778 |
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185,333 |
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183,962 |
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Retained earnings |
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715,497 |
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649,135 |
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637,536 |
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Accumulated other comprehensive income |
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(871) |
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(5,630) |
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(4,854) |
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Total controlling interest shareholders’ equity |
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935,795 |
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849,180 |
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836,975 |
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Noncontrolling interest |
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14,285 |
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11,286 |
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10,115 |
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TOTAL SHAREHOLDERS’ EQUITY |
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950,080 |
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860,466 |
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847,090 |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
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$ |
1,486,926 |
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$ |
1,292,058 |
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$ |
1,310,637 |
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See notes to consolidated condensed financial statements.
3
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited)
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(in thousands, except per share data) |
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 24, |
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September 30, |
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September 24, |
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2017 |
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2016 |
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2017 |
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2016 |
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NET SALES |
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$ |
1,056,586 |
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$ |
826,665 |
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$ |
2,975,091 |
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$ |
2,380,909 |
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COST OF GOODS SOLD |
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911,899 |
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708,611 |
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2,561,424 |
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2,028,629 |
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GROSS PROFIT |
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144,687 |
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118,054 |
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413,667 |
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352,280 |
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
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92,416 |
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74,502 |
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273,676 |
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223,153 |
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EARNINGS FROM OPERATIONS |
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52,271 |
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43,552 |
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139,991 |
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129,127 |
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INTEREST EXPENSE |
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1,481 |
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1,096 |
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4,825 |
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3,274 |
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INTEREST INCOME |
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(130) |
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(119) |
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(541) |
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(431) |
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EQUITY IN EARNINGS OF INVESTEE |
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1 |
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(50) |
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(25) |
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(241) |
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1,352 |
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927 |
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4,259 |
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2,602 |
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EARNINGS BEFORE INCOME TAXES |
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50,919 |
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42,625 |
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135,732 |
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126,525 |
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INCOME TAXES |
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16,250 |
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13,861 |
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44,855 |
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|
43,268 |
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NET EARNINGS |
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34,669 |
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28,764 |
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90,877 |
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83,257 |
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LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST |
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(976) |
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(945) |
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(2,480) |
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(2,828) |
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NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST |
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$ |
33,693 |
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$ |
27,819 |
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$ |
88,397 |
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$ |
80,429 |
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EARNINGS PER SHARE - BASIC |
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$ |
1.65 |
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$ |
1.36 |
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$ |
4.32 |
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$ |
3.95 |
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EARNINGS PER SHARE - DILUTED |
|
$ |
1.64 |
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$ |
1.36 |
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$ |
4.31 |
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$ |
3.94 |
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OTHER COMPREHENSIVE INCOME: |
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|
|
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NET EARNINGS |
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|
34,669 |
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|
28,764 |
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|
90,877 |
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|
83,257 |
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OTHER COMPREHENSIVE GAIN (LOSS) |
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|
1,719 |
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(1,156) |
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|
6,141 |
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|
(1,521) |
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COMPREHENSIVE INCOME |
|
|
36,388 |
|
|
27,608 |
|
|
97,018 |
|
|
81,736 |
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LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST |
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|
(975) |
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|
(495) |
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|
(3,862) |
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|
(1,576) |
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COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST |
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$ |
35,413 |
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$ |
27,113 |
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$ |
93,156 |
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$ |
80,160 |
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See notes to consolidated condensed financial statements.
4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
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|
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(in thousands, except share and per share data) |
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Controlling Interest Shareholders’ Equity |
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Accumulated |
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Additional |
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Other |
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Common |
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Paid-In |
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Retained |
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Comprehensive |
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Noncontrolling |
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Stock |
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Capital |
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Earnings |
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Earnings |
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Interest |
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Total |
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Balance at December 26, 2015 |
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$ |
20,142 |
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$ |
171,562 |
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$ |
565,636 |
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$ |
(4,585) |
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$ |
13,654 |
|
$ |
766,409 |
|
Net earnings |
|
|
|
|
|
|
|
|
80,429 |
|
|
|
|
|
2,828 |
|
|
83,257 |
|
Foreign currency translation adjustment |
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|
|
|
|
|
|
|
|
|
|
(620) |
|
|
(1,252) |
|
|
(1,872) |
|
Unrealized gain (loss) on investment & foreign currency |
|
|
|
|
|
|
|
|
|
|
|
351 |
|
|
|
|
|
351 |
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Distributions to noncontrolling interest |
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|
|
|
|
|
|
|
|
|
|
|
|
|
(3,160) |
|
|
(3,160) |
|
Purchases of noncontrolling interest |
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|
|
|
|
|
|
|
|
|
|
|
|
|
(1,955) |
|
|
(1,100) |
|
Cash dividends $0.420 per share |
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|
|
|
|
|
|
|
(8,529) |
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|
|
|
|
|
|
|
(8,529) |
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Issuance of 5,195 shares under employee stock plans |
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|
5 |
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
395 |
|
Issuance of 133,293 shares under stock grant programs |
|
|
133 |
|
|
5,143 |
|
|
|
|
|
|
|
|
|
|
|
5,276 |
|
Issuance of 50,742 shares under deferred compensation plans |
|
|
51 |
|
|
(51) |
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|
|
|
|
|
|
|
|
|
|
— |
|
Expense associated with share-based compensation arrangements |
|
|
|
|
|
1,568 |
|
|
|
|
|
|
|
|
|
|
|
1,568 |
|
Accrued expense under deferred compensation plans |
|
|
|
|
|
4,495 |
|
|
|
|
|
|
|
|
|
|
|
4,495 |
|
Balance at September 24, 2016 |
|
$ |
20,331 |
|
$ |
183,962 |
|
$ |
637,536 |
|
$ |
(4,854) |
|
$ |
10,115 |
|
$ |
847,090 |
|
Balance at December 31, 2016 |
|
|
20,342 |
|
|
185,333 |
|
|
649,135 |
|
|
(5,630) |
|
|
11,286 |
|
|
860,466 |
|
Net earnings |
|
|
|
|
|
|
|
|
88,397 |
|
|
|
|
|
2,480 |
|
|
90,877 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
4,325 |
|
|
1,382 |
|
|
5,707 |
|
Unrealized gain (loss) on investment & foreign currency |
|
|
|
|
|
|
|
|
|
|
|
434 |
|
|
|
|
|
434 |
|
Distributions to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,272) |
|
|
(3,272) |
|
Additional purchases of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,409 |
|
|
2,409 |
|
Cash dividends - $0.450 per share |
|
|
|
|
|
|
|
|
(9,208) |
|
|
|
|
|
|
|
|
(9,208) |
|
Issuance of 5,975 shares under employee stock plans |
|
|
6 |
|
|
470 |
|
|
|
|
|
|
|
|
|
|
|
476 |
|
Issuance of 142,775 shares under stock grant programs |
|
|
143 |
|
|
7,037 |
|
|
|
|
|
|
|
|
|
|
|
7,180 |
|
Issuance of 49,160 shares under deferred compensation plans |
|
|
49 |
|
|
(49) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
Repurchase of 148,580 shares |
|
|
(149) |
|
|
|
|
|
(12,827) |
|
|
|
|
|
|
|
|
(12,976) |
|
Expense associated with share-based compensation arrangements |
|
|
|
|
|
1,978 |
|
|
|
|
|
|
|
|
|
|
|
1,978 |
|
Accrued expense under deferred compensation plans |
|
|
|
|
|
6,009 |
|
|
|
|
|
|
|
|
|
|
|
6,009 |
|
Balance at September 30, 2017 |
|
$ |
20,391 |
|
$ |
200,778 |
|
$ |
715,497 |
|
$ |
(871) |
|
$ |
14,285 |
|
$ |
950,080 |
See notes to consolidated condensed financial statements.
5
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Nine Months Ended |
|
||||
|
|
|
September 30, |
|
September 24, |
|
||
|
|
|
2017 |
|
2016 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
90,877 |
|
$ |
83,257 |
|
|
Adjustments to reconcile net earnings to net cash from operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
36,010 |
|
|
29,014 |
|
|
Amortization of intangibles |
|
|
3,549 |
|
|
1,868 |
|
|
Expense associated with share-based compensation arrangements |
|
|
1,978 |
|
|
1,568 |
|
|
Expense associated with stock grant plans |
|
|
144 |
|
|
105 |
|
|
Deferred income taxes (credits) |
|
|
117 |
|
|
(53) |
|
|
Equity in earnings of investee |
|
|
(25) |
|
|
(241) |
|
|
Net (gain) loss on disposition and impairment of assets |
|
|
(437) |
|
|
94 |
|
|
Changes in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(121,688) |
|
|
(69,357) |
|
|
Inventories |
|
|
(820) |
|
|
21,683 |
|
|
Accounts payable and cash overdraft |
|
|
53,424 |
|
|
35,026 |
|
|
Accrued liabilities and other |
|
|
34,221 |
|
|
33,413 |
|
|
NET CASH FROM OPERATING ACTIVITIES |
|
|
97,350 |
|
|
136,377 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(57,189) |
|
|
(35,723) |
|
|
Proceeds from sale of property, plant and equipment |
|
|
2,121 |
|
|
516 |
|
|
Acquisitions, net of cash received |
|
|
(59,859) |
|
|
(66,615) |
|
|
Repayments of debt of acquiree |
|
|
— |
|
|
(92,830) |
|
|
Purchase of remaining noncontrolling interest, net of cash received |
|
|
— |
|
|
(1,100) |
|
|
Cash contributed from noncontrolling interest |
|
|
464 |
|
|
— |
|
|
Advances of notes receivable |
|
|
(234) |
|
|
(5,400) |
|
|
Collections on notes receivable |
|
|
1,334 |
|
|
5,819 |
|
|
Purchases of investments |
|
|
(12,155) |
|
|
(4,468) |
|
|
Proceeds from sale of investments |
|
|
4,227 |
|
|
1,395 |
|
|
Other |
|
|
(84) |
|
|
(1,733) |
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(121,375) |
|
|
(200,139) |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Borrowings under revolving credit facilities |
|
|
610,038 |
|
|
52,479 |
|
|
Repayments under revolving credit facilities |
|
|
(573,829) |
|
|
(27,177) |
|
|
Proceeds from issuance of common stock |
|
|
476 |
|
|
396 |
|
|
Dividends paid to shareholders |
|
|
(9,207) |
|
|
(8,529) |
|
|
Distributions to noncontrolling interest |
|
|
(3,272) |
|
|
(3,160) |
|
|
Repurchase of common stock |
|
|
(12,976) |
|
|
— |
|
|
Other |
|
|
— |
|
|
(28) |
|
|
NET CASH FROM (USED IN) FINANCING ACTIVITIES |
|
|
11,230 |
|
|
13,981 |
|
|
Effect of exchange rate changes on cash |
|
|
1,255 |
|
|
(969) |
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
(11,540) |
|
|
(50,750) |
|
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR |
|
|
34,489 |
|
|
88,342 |
|
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD |
|
$ |
22,949 |
|
$ |
37,592 |
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: |
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
$ |
34,091 |
|
$ |
87,756 |
|
|
Restricted cash, beginning of period |
|
|
398 |
|
|
586 |
|
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
$ |
34,489 |
|
$ |
88,342 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
22,044 |
|
$ |
36,683 |
|
|
Restricted cash, end of period |
|
|
905 |
|
|
909 |
|
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
22,949 |
|
$ |
37,592 |
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
3,910 |
|
$ |
2,587 |
|
|
Income taxes paid |
|
|
34,108 |
|
|
43,384 |
|
|
NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Common stock issued under deferred compensation plans |
|
|
4,673 |
|
|
3,657 |
|
See notes to consolidated condensed financial statements .
6
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 for the fiscal year ended December 31, 2016.
Seasonality has a significant impact on our working capital from March to August which historically results in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which typically results in significant cash flow from operations in our third and fourth quarters. For comparative purposes, we have included the September 24, 2016 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 30, 2017 |
|
September 24, 2016 |
||||||||||||||
|
|
|
Quoted |
|
Prices with |
|
|
|
|
Quoted |
|
Prices with |
|
|
|
||||
|
|
|
Prices in |
|
Other |
|
|
|
|
Prices in |
|
Other |
|
|
|
||||
|
|
|
Active |
|
Observable |
|
|
|
|
Active |
|
Observable |
|
|
|
||||
|
|
|
Markets |
|
Inputs |
|
|
|
|
Markets |
|
Inputs |
|
|
|
||||
|
(in thousands) |
|
(Level 1) |
|
(Level 2) |
|
Total |
|
(Level 1) |
|
(Level 2) |
|
Total |
||||||
|
Money market funds |
|
$ |
64 |
|
$ |
413 |
|
$ |
477 |
|
$ |
64 |
|
$ |
132 |
|
$ |
196 |
|
Fixed income funds |
|
|
1,299 |
|
|
6,905 |
|
|
8,204 |
|
|
2,049 |
|
|
2,335 |
|
|
4,384 |
|
Equity securities |
|
|
10,194 |
|
|
— |
|
|
10,194 |
|
|
5,592 |
|
|
— |
|
|
5,592 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic stock funds |
|
|
335 |
|
|
— |
|
|
335 |
|
|
760 |
|
|
— |
|
|
760 |
|
International stock funds |
|
|
87 |
|
|
— |
|
|
87 |
|
|
70 |
|
|
— |
|
|
70 |
|
Target funds |
|
|
260 |
|
|
— |
|
|
260 |
|
|
234 |
|
|
— |
|
|
234 |
|
Bond funds |
|
|
208 |
|
|
— |
|
|
208 |
|
|
203 |
|
|
— |
|
|
203 |
|
Total mutual funds |
|
|
890 |
|
|
— |
|
|
890 |
|
|
1,267 |
|
|
— |
|
|
1,267 |
|
Total |
|
$ |
12,447 |
|
$ |
7,318 |
|
$ |
19,765 |
|
$ |
8,972 |
|
$ |
2,467 |
|
$ |
11,439 |
|
Assets at fair value |
|
$ |
12,447 |
|
$ |
7,318 |
|
$ |
19,765 |
|
$ |
8,972 |
|
$ |
2,467 |
|
$ |
11,439 |
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
7
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.
We did not maintain any Level 3 assets or liabilities at September 30, 2017 or September 24, 2016.
In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-18, “Statement of Cash Flows (Topic 230)” (ASU 2016-18). Under ASU 2016-18, an entity will be required to explain changes in the statement of cash flows during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update should be applied using retrospective transition method to each period presented. Companies are required to adopt the new standard for fiscal years beginning after December 15, 2017. Early adoption of ASU 2016-18 is permitted, including adoption in an interim period. The Company has early adopted this standard during the first quarter of 2017.
In the first nine months of 2017, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”) transferred $4.1 million in fixed income securities from its Investment Account and purchased an additional $3.8 million in fixed income securities which are held in a newly formed collateral trust account in line with regulatory requirements in the State of Michigan to allow Ardellis to act as an admitted carrier in the State. These funds are intended to safeguard the insureds of the Michigan Branch of Ardellis. The funds are classified as “Restricted Investments”.
In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”), maintains an investment portfolio, totaling $18.4 million as of September 30, 2017, consisting of domestic and international stocks, and fixed income bonds.
Ardellis’ available for sale investment portfolio, including funds held with the State of Michigan, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
Cost |
|
Gain/(Loss) |
|
Fair Value |
|||
|
Fixed Income |
|
$ |
8,170 |
|
$ |
34 |
|
$ |
8,204 |
|
Equity |
|
|
9,123 |
|
|
1,071 |
|
|
10,194 |
|
Total |
|
$ |
17,293 |
|
$ |
1,105 |
|
$ |
18,398 |
Our Fixed Income investments consist of short, intermediate, and long term bonds, as well as fixed blend bonds. Within the fixed income investments, we maintain a specific mixture of US treasury notes, US agency mortgage backed securities, private label mortgage backed securities, and various corporate securities. Our equity investments consist of small, mid, and large cap growth and value funds, as well as international equity. The net pre-tax effected unrealized gain was $1.1 million. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of September 30, 2017. During the first nine months of 2017, Ardellis investments reported a net realized gain of $185 thousand, which was recorded in interest income on the statement of earnings.
8
C. REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped to the customer. Generally, title passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day.
On May 28, 2014, the FASB issued ASU No. 2014-09 (Accounting Standard Codification 606), Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The Company plans to adopt the guidance in the first quarter of fiscal 2018 and apply the modified retrospective method. The Company is in the process of finalizing contract reviews and the completion of the new standard’s impact on its Consolidated Financial Statements.
Earnings on construction contracts are reflected in operations using percentage-of-completion accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations. Under percentage-of-completion using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under percentage-of-completion using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent. Construction contract revenue increased to approximately $36.6 million, during the third quarter of 2017, from $31.9 million during the same period of 2016. Construction contract revenue was approximately $99.6 million and $95.2 million through the first nine months of 2017 and 2016, respectively.
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 the balances of percentage-of-completion accounts which are included in “Other current assets” and “Accrued liabilities: Other”, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
September 24, |
|
|||
|
|
|
2017 |
|
2016 |
|
2016 |
|
|||
|
Cost and Earnings in Excess of Billings |
|
$ |
2,594 |
|
$ |
2,573 |
|
$ |
2,788 |
|
|
Billings in Excess of Cost and Earnings |
|
|
4,802 |
|
|
4,748 |
|
|
6,222 |
|
9
D. EARNINGS PER SHARE
The computation of earnings per share (“EPS”) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 24, |
|
September 30, |
|
September 24, |
|
||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest |
|
$ |
33,693 |
|
$ |
27,819 |
|
$ |
88,397 |
|
$ |
80,429 |
|
|
Adjustment for earnings allocated to non-vested restricted common stock |
|
|
(656) |
|
|
(463) |
|
|
(1,633) |
|
|
(1,281) |
|
|
Net earnings for calculating EPS |
|
$ |
33,037 |
|
$ |
27,356 |
|
$ |
86,764 |
|
$ |
79,148 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
20,474 |
|
|
20,402 |
|
|
20,481 |
|
|
20,360 |
|
|
Adjustment for non-vested restricted common stock |
|
|
(399) |
|
|
(340) |
|
|
(378) |
|
|
(324) |
|
|
Shares for calculating basic EPS |
|
|
20,075 |
|
|
20,062 |
|
|
20,103 |
|
|
20,036 |
|
|
Effect of dilutive stock options |
|
|
41 |
|
|
33 |
|
|
37 |
|
|
32 |
|
|
Shares for calculating diluted EPS |
|
|
20,116 |
|
|
20,095 |
|
|
20,140 |
|
|
20,068 |
|
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.65 |
|
$ |
1.36 |
|
$ |
4.32 |
|
$ |
3.95 |
|
|
Diluted |
|
$ |
1.64 |
|
$ |
1.36 |
|
$ |
4.31 |
|
$ |
3.94 |
|
No options were excluded from the computation of diluted EPS for the quarters ended September 30, 2017 or September 24, 2016.
On October 17, 2017, our Board of Directors declared a three-for-one stock split effected in the form of a stock dividend. The record date of the stock split will be October 31, 2017, and the eventual stock distribution to shareholders will occur November 14, 2017. All references made to share or earnings per share amounts in the accompanying unaudited consolidated financial statements and applicable disclosures are presented on a pre-split basis. As a result of the stock split, all historical per share data and number of shares outstanding presented in future financial statements will be retroactively adjusted.
The following table provides pro forma earnings per share, giving retroactive effect to the stock split:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 24, |
|
September 30, |
|
September 24, |
|
||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Shares for calculating basic EPS - Post stock split basis |
|
|
60,225 |
|
|
60,186 |
|
|
60,309 |
|
|
60,108 |
|
|
Shares for calculating diluted EPS - Post stock split basis |
|
|
60,348 |
|
|
60,285 |
|
|
60,420 |
|
|
60,204 |
|
|
Net earnings per share (post stock split): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.55 |
|
$ |
0.45 |
|
$ |
1.44 |
|
$ |
1.32 |
|
|
Diluted |
|
$ |
0.55 |
|
$ |
0.45 |
|
$ |
1.44 |
|
$ |
1.31 |
|
E. COMMITMENTS, CONTINGENCIES, AND GUARANTEES
We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, Ardellis Insurance Ltd., a licensed captive insurance company.
10
We own and operate a number of facilities throughout the United States that chemically treat lumber products. In connection with the ownership and operation of these and other real properties, and the disposal or treatment of hazardous or toxic substances, we may, under various federal, state, and local environmental laws, ordinances, and regulations, be potentially liable for removal and remediation costs, as well as other potential costs, damages, and expenses. Environmental reserves, calculated with no discount rate, have been established to cover remediation activities at wood preservation facilities in Stockertown, PA; Elizabeth City, NC; Auburndale, FL; and Medley, FL. In addition, a reserve was established for our facility in Thornton, CA to remove certain lead containing materials which existed on the property at the time of purchase.
On a consolidated basis, we have reserved approximately $3.6 million and $3.4 million on September 30, 2017, and September 24, 2016, respectively, representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance receivable.
Many of our wood treating operations utilize “Subpart W” drip pads, defined as hazardous waste management units by the Environmental Protection Agency. The rules regulating drip pads require that a pad be “closed” at the point that it is no longer intended to be used for wood treating operations or to manage hazardous waste. Closure involves identification and disposal of contaminants which are required to be removed from the facility. The cost of closure is dependent upon a number of factors including, but not limited to, identification and removal of contaminants, cleanup standards that vary from state to state, and the time period over which the cleanup would be completed. Based on our present knowledge of existing circumstances, it is considered probable that these costs will approximate $0.2 million. As a result, this amount is recorded in other long-term liabilities on September 30, 2017.
In February 2014, one of our operations was served with a federal grand jury subpoena from the Southern District of New York. The subpoena was issued in connection with an investigation being conducted by the US Attorney’s Office for the Southern District of New York. The subpoena requested documents relating to a developer and construction projects for which our operation had provided materials and labor. Following receipt of the subpoena, the Audit Committee of the Company’s Board of Directors retained outside counsel to conduct an internal investigation and respond to the subpoena. The Company cooperated in all respects with the US Attorney’s Office, complied with this subpoena and voluntarily provided additional information. As a result of the internal investigation, in 2014, two Company employees were terminated for violating the Company’s Code of Business Conduct and Ethics. In May 2015, those ex-employees were indicted by the grand jury. In April 2016, one of the two former employees pled guilty to four of the charges included in the indictment. In May 2016, the other former employee was found guilty by a jury on four of the charges included in the indictment. The Company has not been named as a target and continues to cooperate with the US Attorney’s Office in this matter. Based upon prior communications with the US Attorney’s Office, we do not believe that the resolution of this matter will have a material adverse impact on our financial condition or the results of our operations.
In addition, on September 30, 2017, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims.
On September 30, 2017, we had outstanding purchase commitments on commenced capital projects of approximately $26.1 million.
We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material. We distribute products manufactured by other companies, some of which are no longer in business. While we do not warrant these products, we have received claims as a distributor of these products when the manufacturer no longer exists or has the ability to pay. Historically, these costs have not had a material effect on our consolidated financial statements.
11
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 bonds. As of September 30, 2017 we had approximately $8.8 million outstanding payment and performance bonds for open projects. We had approximately $1.7 million in payment and performance bonds outstanding for completed projects which are still under warranty.
On September 30, 2017, we had outstanding letters of credit totaling $26.5 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 have irrevocable letters of credit outstanding totaling approximately $16.7 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements.
We are required to provide irrevocable letters of credit in favor of the bond trustees for all industrial development revenue bonds that have been issued. These letters of credit guarantee principal and interest payments to the bondholders. We currently have irrevocable letters of credit outstanding totaling approximately $9.8 million related to our outstanding industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products, Inc. in certain debt agreements, including the Series 2012 Senior Notes and our revolving credit facility. The maximum exposure of these guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire concurrent with the expiration of the debt agreements.
We did not enter into any new guarantee arrangements during the third quarter of 2017 which would require us to recognize a liability on our balance sheet.
F. BUSINESS COMBINATIONS
We completed the following acquisitions in nine months ended 2017 and 2016 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 |
||
|
|
May 26, 2017 |
$5,042
|
$ |
4,880 |
$ |
162 |
South |
|
Go Boy Pallets, LLC ("Go Boy") |
A manufacturer and distributor of industrial pallets and packaging in Georgia and North Carolina. Go Boy has annual sales of approximately $8 million. The acquisition of Go Boy enabled us to expand our industrial packaging product offering and lumber sourcing in this region. |
||||||
|
|
March 6, 2017 |
$31,818
|
$ |
7,533 |
$ |
24,285 |
South |
|
Robbins Manufacturing Co. ("Robbins") |
A manufacturer of treated wood products with facilities in Florida, Georgia, and North Carolina. Robbins has annual sales of approximately $86 million. The acquisition of Robbins allowed us to expand our presence in this region and serve customers more cost effectively. |
||||||
|
|
March 6, 2017 |
$22,789
|
$ |
14,266 |
$ |
8,523 |
North |
12
|
Quality Hardwood Sales, LLC ("Quality") |
A manufacturer and supplier of hardwood products, including components of cabinets used in homes and recreational vehicles. Quality has annual sales of approximately $30 million. The acquisition of Quality enabled us to expand our product offering to include hardwood-based products. |
||||||
|
|
November 29, 2016 |
$9,455
|
$ |
7,314 |
$ |
2,141 |
All Other |
|
The UBEECO Group Pty. Ltd. ("Ubeeco") |
A manufacturer and distributor of a variety of wood packaging and alternative material products, including boxes, crates, pallets, skids, protective packaging, packaging accessories and loose lumber. Ubeeco has annual sales of approximately $20 million. The acquisition of Ubeeco allows us to make progress on our goal of becoming a global provider of packaging solutions. |
||||||
|
|
September 16, 2016 |
$66,691
|
$ |
17,455 |
$ |
49,236 |
All Other |
|
idX Holdings, Inc. ("idX") |
A designer, producer, and installer of customized interior fixtures and related products used in a variety of commercial structures. idX has annual sales of $300 million. The acquisition of idX enables us to enhance our design, product and service offering to become a tier 1 supplier of interior fixtures to retail customers, and continue to use idX's capabilities to continue to develop new markets for growth. Our goal is to achieve long-term synergies, including: |
||||||
|
|
a. |
Eliminating redundant administrative support costs. |
|||||
|
|
b. |
Using the scale advantage of the Company to reduce material costs of common raw materials. |
|||||
|
|
c. |
Utilizing manufacturing capacity of certain existing locations to supply idX. |
|||||
|
|
d. |
Utilizing idX’s international footprint to identify sourcing opportunities for certain products. |
|||||
|
|
e. |
Cross selling one another’s products and services with our respective customers. |
|||||
|
|
f. |
Collaborating on new product development. |
|||||
|
|
July 29, 2016 |
$1,246
|
$ |
405 |
$ |
841 |
North |
|
Seven D Truss, L.P. |
A manufacturer and distributor of roof and floor trusses. 7D had annual sales of approximately $4.0 million. The acquisition of 7D gave us the opportunity to consolidate operations with our Gordon, Pennsylvania location. |
||||||
The intangible assets for each acquisition were finalized and allocated to their respective identifiable intangible asset and goodwill accounts during 2017, excluding Go Boy. In aggregate, acquisitions completed since September of 2016 contributed approximately $292.1 million in revenue and $5.3 million in operating profit during 2017.
G. SEGMENT REPORTING
ASC 280, Segment Reporting (“ASC 280”), defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
13
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, and West 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 30, 2017 |
|||||||||||||||||
|
|
|
North |
|
South |
|
West |
|
All Other |
|
Corporate |
|
Total |
|
||||||
|
Net sales to outside customers |
|
$ |
310,384 |
|
$ |
206,050 |
|
$ |
378,714 |
|
$ |
161,438 |
|
$ |
— |
|
$ |
1,056,586 |
|
|
Intersegment net sales |
|
|
18,897 |
|
|
18,817 |
|
|
21,384 |
|
|
47,539 |
|
|
— |
|
|
106,637 |
|
|
Segment operating profit |
|
|
16,697 |
|
|
10,234 |
|
|
22,538 |
|
|
6,882 |
|
|
(4,080) |
|
|
52,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 24, 2016 |
|||||||||||||||||
|
|
|
North |
|
South |
|
West |
|
All Other |
|
Corporate |
|
Total |
|
||||||
|
Net sales to outside customers |
|
$ |
267,156 |
|
$ |
173,715 |
|
$ |
335,981 |
|
$ |
49,813 |
|
$ |
— |
|
$ |
826,665 |
|
|
Intersegment net sales |
|
|
14,318 |
|
|
9,642 |
|
|
22,054 |
|
|
4,574 |
|
|
— |
|
|
50,588 |
|
|
Segment operating profit |
|
|
14,630 |
|
|
9,900 |
|
|
19,962 |
|
|
2,959 |
|
|
(3,899) |
|
|
43,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017 |
||||||||||||||||
|
|
|
North |
|
South |
|
West |
|
All Other |
|
Corporate |
|
Total |
||||||
|
Net sales to outside customers |
|
$ |
857,858 |
|
$ |
616,376 |
|
$ |
1,088,744 |
|
$ |
412,113 |
|
$ |
— |
|
$ |
2,975,091 |
|
Intersegment net sales |
|
|
51,859 |
|
|
55,472 |
|
|
65,466 |
|
|
116,743 |
|
|
— |
|
|
289,540 |
|
Segment operating profit (loss) |
|
|
42,921 |
|
|
31,152 |
|
|
65,547 |
|
|
13,285 |
|
|
(12,914) |
|
|
139,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 24, 2016 |
||||||||||||||||
|
|
|
North |
|
South |
|
West |
|
All Other |
|
Corporate |
|
Total |
||||||
|
Net sales to outside customers |
|
$ |
758,066 |
|
$ |
533,239 |
|
$ |
940,188 |
|
$ |
149,416 |
|
$ |
— |
|
$ |
2,380,909 |
|
Intersegment net sales |
|
|
42,071 |
|
|
28,693 |
|
|
65,325 |
|
|
16,559 |
|
|
— |
|
|
152,648 |
|
Segment operating profit |
|
|
43,054 |
|
|
35,830 |
|
|
58,434 |
|
|
11,542 |
|
|
(19,733) |
|
|
129,127 |
H. INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and permanent tax differences. Our effective tax rate was 31.9 % in the third quarter of 201 7 compared to 32.5 % for same period in 201 6 . Our effective tax rate was 33.0 % in the first nine months of 201 7 compared to 34.2 % in 201 6 , primarily due to recording a tax deduction for certain share-based compensation and fees at fair market value.
14
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 .
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 2017.
OVERVIEW
Our results for the third quarter of 2017 were impacted by the following:
|
|
· |
|
Our gross sales increased by 28% compared to the third quarter of 2016, which was comprised of a 22% increase in unit sales and a 6% increase in selling prices primarily due to the commodity lumber market (see Historical Lumber Prices below). Acquired operations contributed 15% to our unit sales growth. Our 7% organic growth rate was primarily driven by our sales to industrial, retail, residential construction, and manufactured housing customers. Unit sales to commercial construction customers decreased. |
|
|
· |
|
Our operating profits increased by 20.0%, which is comparable with our 22% increase in unit sales. The shortfall in our profit growth was primarily due to the impact of volatile lumber prices on gross profits and the impact of acquired operations which contributed unit sales growth without a proportionate increase in operating profits. |
15
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 |
|
||||
|
|
|
2017 |
|
2016 |
|
||
|
January |
|
$ |
356 |
|
$ |
316 |
|
|
February |
|
|
393 |
|
|
310 |
|
|
March |
|
|
401 |
|
|
321 |
|
|
April |
|
|
424 |
|
|
345 |
|
|
May |
|
|
416 |
|
|
356 |
|
|
June |
|
|
399 |
|
|
353 |
|
|
July |
|
|
411 |
|
|
351 |
|
|
August |
|
|
417 |
|
|
367 |
|
|
September |
|
|
416 |
|
|
354 |
|
|
|
|
|
|
|
|
|
|
|
Third quarter average |
|
$ |
415 |
|
$ |
357 |
|
|
Year-to-date average |
|
$ |
404 |
|
$ |
341 |
|
|
|
|
|
|
|
|
|
|
|
Third quarter percentage change |
|
|
16.2 |
% |
|
|
|
|
Year-to-date percentage change |
|
|
18.5 |
% |
|
|
|
In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprised approximately 44% and 42% of total lumber purchases through the first nine months of 2017 and 2016, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
Random Lengths SYP |
|
||||
|
|
|
Average $/MBF |
|
||||
|
|
|
2017 |
|
2016 |
|
||
|
January |
|
$ |
397 |
|
$ |
358 |
|
|
February |
|
|
420 |
|
|
357 |
|
|
March |
|
|
433 |
|
|
366 |
|
|
April |
|
|
438 |
|
|
389 |
|
|
May |
|
|
416 |
|
|
397 |
|
|
June |
|
|
399 |
|
|
382 |
|
|
July |
|
|
381 |
|
|
380 |
|
|
August |
|
|
383 |
|
|
391 |
|
|
September |
|
|
387 |
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
Third quarter average |
|
$ |
384 |
|
$ |
382 |
|
|
Year-to-date average |
|
$ |
406 |
|
$ |
377 |
|
|
|
|
|
|
|
|
|
|
|
Third quarter percentage change |
|
|
0.5 |
% |
|
|
|
|
Year-to-date percentage change |
|
|
7.7 |
% |
|
|
|
16
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were 48.2% and 48.4% of our sales in the first nine months of 2017 and 2016, 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. |
|
|
· |
|
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. |
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 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 19% 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, 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. |
During the first nine months of 2017, volatility in the lumber market has impacted our gross profits on products sold under each of the general pricing methods described above. For example, the dramatic rise in lumber prices, which peaked in April, resulted in a decline in gross profit per unit on products sold with fixed prices primarily in the second
17
quarter. Additionally, the subsequent decline in lumber prices in May, June, and July resulted in a decline in gross profit per unit on products sold with a variable price indexed to the lumber market. We anticipate these trends may continue to impact our results into the fourth quarter until we reach a point of re-pricing products sold via a fixed price with our customers and selling through higher cost material sold on a variable price which is mitigated to some degree by stability of the SYP market.
Finally, hurricane Harvey and Irma as well as recent wildfires in British Columbia have resulted in sharp increases in lumber prices in the third quarter of 2017.
In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.
|
|
|
|
|
|
|
|
|
|
|
|
Period 1 |
|
Period 2 |
|
||
|
Lumber cost |
|
$ |
300 |
|
$ |
400 |
|
|
Conversion cost |
|
|
50 |
|
|
50 |
|
|
= Product cost |
|
|
350 |
|
|
450 |
|
|
Adder |
|
|
50 |
|
|
50 |
|
|
= Sell price |
|
$ |
400 |
|
$ |
500 |
|
|
Gross margin |
|
|
12.5 |
% |
|
10.0 |
% |
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 three business acquisitions during the first nine months of 2017 and six during all of 2016. The annual historical sales attributable to acquisitions completed in 2017 and 2016 was approximately $124 million and $324 million, respectively. These business combinations were not significant to our quarterly or year-to-date operating results individually or in aggregate and thus pro forma results for 2017 or 2016 are not presented.
See Notes to the Unaudited Condensed Consolidated Financial Statements, Note F, “Business Combinations” for additional information.
18
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our Unaudited Condensed Consolidated Statements of Earnings as a percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
||||
|
|
|
September 30, |
|
September 24, |
|
September 30, |
|
September 24, |
|
|
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
Net sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
|
Cost of goods sold |
|
86.3 |
|
85.7 |
|
86.1 |
|
85.2 |
|
|
|
Gross profit |
|
13.7 |
|
14.3 |
|
13.9 |
|
14.8 |
|
|
|
Selling, general, and administrative expenses |
|
8.8 |
|
9.1 |
|
9.2 |
|
9.3 |
|
|
|
Earnings from operations |
|
4.9 |
|
5.3 |
|
4.7 |
|
5.4 |
|
|
|
Other expense (income), net |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
|
|
Earnings before income taxes |
|
4.8 |
|
5.2 |
|
4.6 |
|
5.3 |
|
|
|
Income taxes |
|
1.5 |
|
1.7 |
|
1.5 |
|
1.8 |
|
|
|
Net earnings |
|
3.3 |
|
3.5 |
|
3.1 |
|
3.5 |
|
|
|
Less net earnings attributable to noncontrolling interest |
|
(0.1) |
|
(0.1) |
|
(0.1) |
|
(0.1) |
|
|
|
Net earnings attributable to controlling interest |
|
3.2 |
% |
3.4 |
% |
3.0 |
% |
3.4 |
% |
|
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 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. |
|
|
· |
|
Developing new products and expanding our product offering for existing customers. New product sales were $107.7 million in the third quarter of 2017 compared to $88.5 million during the third quarter of 2016. New product sales year-to-date for 2017 and 2016 were $313.6 million and $255.3 million, respectively. |
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Product Sales by Market |
|
New Product Sales by Market |
||||||||||||
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
(in thousands) |
|
September 30, |
|
September 24, |
|
|
|
September 30, |
|
September 24, |
|
|
||||
|
Market Classification |
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
||||
|
Retail |
|
$ |
65,383 |
|
|
53,252 |
|
|
|
$ |
192,194 |
|
$ |
153,966 |
|
|
|
Industrial |
|
|
26,738 |
|
|
23,374 |
|
|
|
|
76,125 |
|
|
65,642 |
|
|
|
Construction |
|
|
15,577 |
|
|
11,911 |
|
|
|
|
45,321 |
|
|
35,717 |
|
|
|
Total New Product Sales |
|
|
107,698 |
|
|
88,537 |
|
|
|
|
313,640 |
|
|
255,325 |
|
|
Note: Certain prior year product reclassifications and the change in designation of certain products as “new” resulted in a change in prior year’s sales.
The following table presents, for the periods indicated, our gross sales and percentage change in gross sales by market classification.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||
|
(in thousands) |
|
September 30, |
|
September 24, |
|
|
|
|
September 30, |
|
September 24, |
|
|
|
||||
|
Market Classification |
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
||||||
|
Retail |
|
$ |
391,895 |
|
$ |
339,275 |
|
15.5 |
% |
|
$ |
1,162,785 |
|
$ |
1,018,203 |
|
14.2 |
% |
|
Industrial |
|
|
369,506 |
|
|
232,017 |
|
59.3 |
% |
|
|
982,675 |
|
|
661,718 |
|
48.5 |
% |
|
Construction |
|
|
310,026 |
|
|
267,772 |
|
15.8 |
% |
|
|
872,997 |
|
|
740,393 |
|
17.9 |
% |
|
Total Gross Sales |
|
|
1,071,427 |
|
|
839,064 |
|
27.7 |
% |
|
|
3,018,457 |
|
|
2,420,314 |
|
24.7 |
% |
|
Sales Allowances |
|
|
(14,841) |
|
|
(12,399) |
|
19.7 |
% |
|
|
(43,366) |
|
|
(39,405) |
|
10.1 |
% |
|
Total Net Sales |
|
$ |
1,056,586 |
|
$ |
826,665 |
|
27.8 |
% |
|
$ |
2,975,091 |
|
$ |
2,380,909 |
|
25.0 |
% |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Gross sales in the third quarter of 2017 increased 28% compared to the same period of 2016, due to a 22% increase in unit sales and a 6% increase in selling prices primarily due to the Lumber Market. Acquired operations contributed 15% to our unit sales growth, and our organic unit sales growth was 7%.
Changes in our gross sales by market are discussed below.
Retail:
Gross sales to the retail market increased almost 16% in the third quarter of 2017 compared to the same period of 2016, due to a 12% increase in unit sales and a 4% increase in selling prices. Within this market, sales to our big box customers increased almost 13%, and sales to other independent retailers increased over 20%. Businesses we acquired contributed 7% to our growth in unit sales, primarily to independent retail customers. Our organic unit growth was 5% for the quarter. By comparison, “big box” same store sales growth during the third quarter has been reported at approximately 6.3%.
Gross sales to the retail market increased over 14% in the first nine months of 2017 compared to the same period of 2016, due to a 9% increase in unit sales and a 5% increase in selling prices. Within this market, sales to our big box customers increased almost 15%, and sales to other independent retailers increased almost 14%. Businesses we acquired contributed 6% to our growth in unit sales, primarily to independent retail customers. Our organic unit growth was 3% in the first nine months of 2017. By comparison, “big box” same store sales growth in the first nine months of 2017 has been reported at approximately 6.0%.
Industrial:
Gross sales to the industrial market increased over 59% in the third quarter of 2017 compared to the same period of 2016, resulting from a 54% increase in unit sales and a 5% increase in selling prices. Businesses we acquired contributed
20
43% to our growth in unit sales. Our organic growth in unit sales of 11% was primarily due to new operations, adding 578 new customers, and share gains with several existing customers.
Gross sales to the industrial market increased almost 49% in the first nine months of 2017 compared to the same period of 2016, resulting from a 43% increase in unit sales and a 6% increase in selling prices. Businesses we acquired contributed 34% to our growth in unit sales. Our organic growth in unit sales of 9% was primarily due to same factors discussed above.
Construction:
Gross sales to the construction market increased almost 16% in the third quarter of 2017 compared to 2016. The increase was due to an 8% increase in unit sales and an 8% increase in our selling prices. Our increase in unit sales was driven by a 12% increase to manufactured housing customers, and an 8% increase to residential construction customers, offset by a 5% decrease to commercial construction customers.
By comparison (and based upon various industry publications):
|
|
· |
|
Production of HUD-code manufactured homes in June, July, August 2017, the most recent period reported, was up 12.0% compared to the same period of 2016. |
|
|
· |
|
Non-residential construction activity in July and August increased approximately 10.2% compared to the same period of 2016. |
|
|
· |
|
National housing starts increased approximately 0.9% in the period from June through August 2017 (our sales trail housing starts by about a month) compared to the same period of 2016. Our sales growth exceeds national industry growth due to certain market share gains and organic sales growth in our eastern regions. |
Gross sales to the construction market increased almost 18% in the first nine months of 2017 compared to 2016. The increase was due to a 9% increase in unit sales and a 9% increase in our selling prices. Our increase in unit sales was driven by an 11% increase to manufactured housing customers, an 11% increase to residential construction customers, and a 1% increase to commercial construction customers due to the same factors discussed above.
Value-Added and Commodity-Based Sales:
The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales. Value-added products generally carry higher gross margins than our commodity-based products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
|
September 30, |
|
September 24, |
|
September 30, |
|
September 24, |
||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
|
Value-Added |
|
63.9 |
% |
|
61.1 |
% |
|
62.9 |
% |
|
61.5 |
% |
|
Commodity-Based |
|
36.1 |
% |
|
38.9 |
% |
|
37.1 |
% |
|
38.5 |
% |
COST OF GOODS SOLD AND GROSS PROFIT
Our gross margin decreased to 13.7% from 14.3% comparing the third quarter of 2017 to the same period of 2016 due to the higher level of lumber prices. Our 22.6% increase in gross profit dollars compares favorably with our 22% increase in unit sales during the same period. Acquired operations contributed $19.9 million of gross profit in the third quarter of 2017. Excluding acquisitions, our gross profits increased by $6.7 million, or 5.7%, over the same period last year as follows:
|
|
· |
|
Our gross profit on sales to the retail market increased by approximately $1 million. |
|
|
· |
|
Our gross profit on sales to the industrial market increased by approximately $1 million. |
21
|
|
· |
|
Our gross profit on sales to the construction market increased by over $3 million. |
Our gross margin decreased to 13.9% from 14.8% comparing the first nine months of 2017 to the same period of 2016. Our 17.4% increase in gross profit dollars compares unfavorably with our 19% increase in unit sales in the first nine months of 2017 compared to the same period last year. The increase in our gross profit dollars was primarily due to acquired operations which contributed $45.6 million of gross profit in the first nine months of 2017. Excluding acquisitions, our gross profits increased by $15.8 million over the same period last year as follows:
|
|
· |
|
Our gross profit on sales to the retail market increased by over $3 million. |
|
|
· |
|
Our gross profit on sales to the industrial market decreased by over $5 million. |
|
|
· |
|
Our gross profit on sales to the construction market increased by over $12 million. |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses increased by approximately $17.9 million, or 24.0%, in the third quarter of 2017 compared to the same period of 2016, while we reported a 22% increase in unit sales. Accrued bonus expense, which varies with our overall profitability and return on investment, totaled $12.4 million in the third quarter of 2017 compared to $12.0 million in 2016. Acquired operations contributed approximately $15 million to our year over year increase. The remaining increase was primarily due to an increase in compensation and benefit costs.
Selling, general and administrative (“SG&A”) expenses increased by approximately $50.5 million, or 22.6%, in the first nine months of 2017 compared to the same period of 2016, while we reported a 19% increase in unit sales. Accrued bonus expense totaled $32.6 million in the nine months of 2017 compared to $33.9 million in 2016. Acquired operations contributed approximately $41 million to our year over year increase. The remaining increase was primarily due to an increase in compensation and benefit costs and foreign currency exchange losses.
INTEREST, NET
Net interest costs were higher in the third quarter of 2017 compared to the same period of 2016 due to carrying a higher amount of debt and a slight increase in short-term borrowing rates.
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 31.9 % in the third quarter of 201 7 compared to 32.5 % for same period in 201 6 . Our effective tax rate was 33.0 % in the first nine months of 201 7 compared to 34.2 % in 201 6. The decrease in our effective tax rate is primarily due to recording a tax deduction for certain share-based compensation at fair market value.
22
SEGMENT REPORTING
The following table presents, for the periods indicated, our net sales and earnings from operations by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
|
Earnings from Operations |
||||||||||||||||||||
|
|
|
Three Months Ended |
|
|
Three Months Ended |
||||||||||||||||||||
|
|
|
September 30, |
|
September 24, |
|
$ |
|
% |
|
|
September 30, |
|
September 24, |
|
$ |
|
% |
||||||||
|
(in thousands) |
|
2017 |
|
2016 |
|
Change |
|
Change |
|
|
2017 |
|
2016 |
|
Change |
|
Change |
||||||||
|
North |
|
$ |
310,384 |
|
$ |
267,156 |
|
$ |
43,228 |
|
16.2 |
% |
|
|
$ |
16,697 |
|
$ |
14,630 |
|
$ |
2,067 |
|
14.1 |
% |
|
South |
|
|
206,050 |
|
|
173,715 |
|
|
32,335 |
|
18.6 |
% |
|
|
|
10,234 |
|
|
9,900 |
|
|
334 |
|
3.4 |
% |
|
West |
|
|
378,714 |
|
|
335,981 |
|
|
42,733 |
|
12.7 |
% |
|
|
|
22,538 |
|
|
19,962 |
|
|
2,576 |
|
12.9 |
% |
|
All Other |
|
|
161,438 |
|
|
49,813 |
|
|
111,625 |
|
224.1 |
% |
|
|
|
6,882 |
|
|
2,959 |
|
|
3,923 |
|
132.6 |
% |
|
Corporate |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
|
(4,080) |
|
|
(3,899) |
|
|
(181) |
|
4.6 |
% |
|
Total |
|
$ |
1,056,586 |
|
$ |
826,665 |
|
$ |
229,921 |
|
27.8 |
% |
|
|
$ |
52,271 |
|
$ |
43,552 |
|
$ |
8,719 |
|
20.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
|
Earnings from Operations |
||||||||||||||||||||
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
||||||||||||||||||||
|
|
|
September 30, |
|
September 24, |
|
$ |
|
% |
|
|
September 30, |
|
September 24, |
|
$ |
|
% |
|
|||||||
|
(in thousands) |
|
2017 |
|
2016 |
|
Change |
|
Change |
|
|
2017 |
|
2016 |
|
Change |
|
Change |
||||||||
|
North |
|
$ |
857,858 |
|
$ |
758,066 |
|
$ |
99,792 |
|
13.2 |
% |
|
|
$ |
42,921 |
|
$ |
43,054 |
|
$ |
(133) |
|
(0.3) |
% |
|
South |
|
|
616,376 |
|
|
533,239 |
|
|
83,137 |
|
15.6 |
% |
|
|
|
31,152 |
|
|
35,830 |
|
|
(4,678) |
|
(13.1) |
% |
|
West |
|
|
1,088,744 |
|
|
940,188 |
|
|
148,556 |
|
15.8 |
% |
|
|
|
65,547 |
|
|
58,434 |
|
|
7,113 |
|
12.2 |
% |
|
All Other |
|
|
412,113 |
|
|
149,416 |
|
|
262,697 |
|
175.8 |
% |
|
|
|
13,285 |
|
|
11,542 |
|
|
1,743 |
|
15.1 |
% |
|
Corporate |
|
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
|
(12,914) |
|
|
(19,733) |
|
|
6,819 |
|
34.6 |
% |
|
Total |
|
$ |
2,975,091 |
|
$ |
2,380,909 |
|
$ |
594,182 |
|
25.0 |
% |
|
|
$ |
139,991 |
|
$ |
129,127 |
|
$ |
10,864 |
|
8.4 |
% |
|
|
(1) |
|
Corporate primarily represents over (under) allocated administrative costs and accrued bonus expense. |
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
Net Sales |
||||||||||||||
|
|
|
North Segment by Market |
|
North Segment by Market |
||||||||||||||
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||
|
(in thousands) |
|
September 30, |
|
September 24, |
|
|
|
|
September 30, |
|
September 24, |
|
|
|
||||
|
Market Classification |
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
||||||
|
Retail |
|
$ |
139,284 |
|
$ |
131,333 |
|
6.1 |
% |
|
$ |
387,925 |
|
$ |
369,699 |
|
4.9 |
% |
|
Industrial |
|
|
40,192 |
|
|
27,524 |
|
46.0 |
% |
|
|
114,533 |
|
|
87,287 |
|
31.2 |
% |
|
Construction |
|
|
137,616 |
|
|
113,897 |
|
20.8 |
% |
|
|
373,838 |
|
|
316,204 |
|
18.2 |
% |
|
Total Gross Sales |
|
|
317,092 |
|
|
272,754 |
|
16.3 |
% |
|
|
876,296 |
|
|
773,190 |
|
13.3 |
% |
|
Sales Allowances |
|
|
(6,708) |
|
|
(5,598) |
|
19.8 |
% |
|
|
(18,438) |
|
|
(15,124) |
|
21.9 |
% |
|
Total Net Sales |
|
$ |
310,384 |
|
$ |
267,156 |
|
16.2 |
% |
|
$ |
857,858 |
|
$ |
758,066 |
|
13.2 |
% |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the North reportable segment increased in the third quarter of 2017 compared to 2016 as a result of increased sales to each of our markets primarily due to the same factors previously discussed. Acquired operations contributed $8.7 million to our industrial sales increase.
Earnings from operations for the North reportable segment increased in the third quarter of 2017 by $2.1 million, or 14.1%, due to an increase in gross profit of $2.7 million, offset by a $0.6 million increase in SG&A expenses compared to last year. Acquired operations contributed $0.4 million to our operating profits in the third quarter.
23
Net sales attributable to the North reportable segment increased in the first nine months of 2017 compared to 2016 due to an increase in sales to each of our markets primarily due to the same factors previously discussed. Acquired operations contributed $21.0 million to our industrial sales increase.
Earnings from operations for the North reportable segment decreased in the first nine months of 2017 by $0.1 million, or 0.3%, due to an increase in gross profit of $4.5 million offset by a $4.6 million increase in SG&A expenses compared to last year. Acquired operations contributed $1.4 million to our operating profits in the first nine months of 2017.
South
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
Net Sales |
||||||||||||||
|
|
|
South Segment by Market |
|
South Segment by Market |
||||||||||||||
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||||
|
(in thousands) |
|
September 30, |
|
September 24, |
|
|
|
|
September 30, |
|
September 24, |
|
|
|
||||
|
Market Classification |
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
||||||
|
Retail |
|
$ |
92,146 |
|
$ |
75,130 |
|
22.6 |
% |
|
$ |
282,809 |
|
$ |
240,175 |
|
17.8 |
% |
|
Industrial |
|
|
69,390 |
|
|
61,749 |
|
12.4 |
% |
|
|
201,928 |
|
|
185,529 |
|
8.8 |
% |
|
Construction |
|
|
49,054 |
|
|
40,385 |
|
21.5 |
% |
|
|
145,387 |
|
|
118,223 |
|
23.0 |
% |
|
Total Gross Sales |
|
|
210,590 |
|
|
177,264 |
|
18.8 |
% |
|
|
630,124 |
|
|
543,927 |
|
15.8 |
% |
|
Sales Allowances |
|
|
(4,540) |
|
|
(3,549) |
|
27.9 |
% |
|
|
(13,748) |
|
|
(10,688) |
|
28.6 |
% |
|
Total Net Sales |
|
$ |
206,050 |
|
$ |
173,715 |
|
18.6 |
% |
|
$ |
616,376 |
|
$ |
533,239 |
|
15.6 |
% |
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the South reportable segment increased in the third quarter of 2017 compared to 2016 due to increased sales to all markets primarily due to the same factors previously discussed. Acquired operations contributed $24.4 million and $1.8 million to our growth in sales to the retail and industrial market, respectively.
Earnings from operations for the South reportable segment increased in the third quarter of 2017 by $0.3 million, or 3.4%, due to a increase in gross profit of $0.7 million offset by a $0.4 million increase in SG&A expenses. Acquired operations contributed $0.6 million to our operating profits in the third quarter.
Net sales attributable to the South reportable segment increased in the first nine months of 2017 compared to 2016 due to increased sales to all markets primarily due to the factors previously discussed. Acquired operations contributed $59.9 million of sales growth to our retail market.
Earnings from operations for the South reportable segment decreased in the first nine months of 2017 by $4.7 million, or 13.1%, due to a decrease in gross profit of $3.1 million and an increase of $1.6 million in SG&A expenses. The decrease in gross profit was primarily due to the impact of the volatility in lumber prices. Acquired operations contributed $2.0 million to our operating profits in the first nine months of 2017.
24
West
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
Net Sales |
|
||||||||||||||
|
|
|
West Segment by Market |
|
West Segment by Market |
|
||||||||||||||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||||||||
|
(in thousands) |
|
September 30, |
|
September 24, |
|
|
|
|
September 30, |
|
September 24, |
|
|
|
|
||||
|
Market Classification |
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
|
||||||
|
Retail |
|
$ |
115,069 |
|
$ |
99,762 |
|
15.3 |
% |
|
$ |
347,270 |
|
$ |
298,723 |
|
16.3 |
% |
|
|
Industrial |
|
|
145,132 |
|
|
126,836 |
|
14.4 |
% |
|
|
401,850 |
|
|
347,902 |
|
15.5 |
% |
|
|
Construction |
|
|
123,026 |
|
|
113,488 |
|
8.4 |
% |
|
|
353,238 |
|
|
305,962 |
|
15.5 |
% |
|
|
Total Gross Sales |
|
|
383,227 |
|
|
340,086 |
|
12.7 |
% |
|
|
1,102,358 |
|
|
952,587 |
|
15.7 |
% |
|
|
Sales Allowances |
|
|
(4,513) |
|
|
(4,105) |
|
9.9 |
% |
|
|
(13,614) |
|
|
(12,399) |
|
9.8 |
% |
|
|
Total Net Sales |
|
$ |
378,714 |
|
$ |
335,981 |
|
12.7 |
% |
|
$ |
1,088,744 |
|
$ |
940,188 |
|
15.8 |
% |
|
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
Net sales attributable to the West reportable segment increased in the third quarter of 2017 compared to 2016 due to increases in sales to all markets primarily due to factors previously discussed.
Earnings from operations for the West reportable segment increased in the third quarter of 2017 by $2.6 million, or 12.9%, compared to the same period in 2016 due to a $2.5 million increase in gross profit combined with a $0.1 million decrease in SG&A expenses.
Net sales attributable to the West reportable segment increased in the first nine months of 2017 compared to 2016 due to an increase in sales to all markets due to the same factors previously discussed.
Earnings from operations for the West reportable segment increased in the first nine months of 2017 by $7.1 million, or 12.2%, compared to the same period in 2016 due to a $10.8 million increase in gross profit, offset by a $3.7 million increase in SG&A expenses.
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
Net Sales |
|
|
||||||||||||||
|
|
|
All Other Segment by Market |
|
All Other Segment by Market |
|
|
||||||||||||||
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
||||||||||||||
|
(in thousands) |
|
September 30, |
|
September 24, |
|
|
|
|
September 30, |
|
September 24, |
|
|
|
|
|
||||
|
Market Classification |
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
|
|
||||||
|
Retail |
|
$ |
45,396 |
|
$ |
33,049 |
|
37.4 |
% |
|
$ |
144,782 |
|
$ |
109,606 |
|
32.1 |
% |
|
|
|
Industrial |
|
|
114,792 |
|
|
15,907 |
|
621.6 |
% |
|
|
264,364 |
|
|
41,000 |
|
544.8 |
% |
|
|
|
Construction |
|
|
331 |
|
|
4 |
|
8,175.0 |
% |
|
|
533 |
|
|
4 |
|
13,225.0 |
% |
|
|
|
Total Gross Sales |
|
|
160,519 |
|
|
48,960 |
|
227.9 |
% |
|
|
409,679 |
|
|
150,610 |
|
172.0 |
% |
|
|
|
Sales Allowances & Other |
|
|
919 |
|
|
853 |
|
7.7 |
% |
|
|
2,434 |
|
|
(1,194) |
|
(303.9) |
% |
|
|
|
Total Net Sales |
|
$ |
161,438 |
|
$ |
49,813 |
|
224.1 |
% |
|
$ |
412,113 |
|
$ |
149,416 |
|
175.8 |
% |
|
|
Our All Other reportable segment consists of our Alternative Materials, International, idX, and certain other segments which are not significant.
Net sales attributable to All Other reportable segments increased in the third quarter of 2017 compared to 2016 due to increases in sales to the retail and industrial markets. Our increase in sales to the industrial market was primarily due to an $89.3 million increase from businesses we acquired since September of 2016.
25
Earnings from operations for All Other reportable segments increased during the third quarter of 2017 by $3.9 million, or 132.6%, compared to the same period of 2016. During the third quarter of 2017, gross profit dollars increased $20.6 million, offset by an increase in SG&A expenses of $16.1 million compared to the same period of 2016. Businesses we acquired contributed $3.7 million to our earnings from operations during the third quarter of 2017.
Net sales attributable to All Other reportable segments increased in the first nine months of 2017 compared to 2016 due to increases in sales to the retail and industrial markets. Our increase in sales to the industrial market was primarily due to a $203.1 million increase from businesses we acquired since September of 2016.
Earnings from operations for All Other reportable segments increased during the first nine months of 2017 by $1.7 million, or 15.1%, compared to the same period of 2016. During the first nine months of 2017, gross profit dollars increased $48.4 million, offset by an increase in SG&A expenses of $46.7 million compared to the same period of 2016. Businesses we acquired since September of 2016 contributed $1.1 million to the earnings from operations increase in the first nine months of 2017.
OFF-BALANCE SHEET TRANSACTIONS
We have no significant off-balance sheet transactions other than operating leases.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
||||
|
|
|
September 30, |
|
September 24, |
||
|
|
|
2017 |
|
2016 |
||
|
Cash from operating activities |
|
$ |
97,350 |
|
$ |
136,377 |
|
Cash used in investing activities |
|
|
(121,375) |
|
|
(200,139) |
|
Cash from (used in) financing activities |
|
|
11,230 |
|
|
13,981 |
|
Effect of exchange rate changes on cash |
|
|
1,255 |
|
|
(969) |
|
Net change in all cash and cash equivalents |
|
|
(11,540) |
|
|
(50,750) |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
34,489 |
|
|
88,342 |
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
22,949 |
|
$ |
37,592 |
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 August. Consequently, our working capital increases during our first and second quarters resulting 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 management. As indicated in the table below, our cash cycle increased to 49 days from 44 days during the third quarter and increased to 52 days from 47 in the first nine months of 2017 compared to the prior periods, due to the impact of
26
acquired operations which carry comparatively higher investments in inventory than our other operations. Excluding acquired operations our cash cycle was 44 days in the third quarter of 2017 and 47 days in the first nine months of 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 24, |
|
September 30, |
|
September 24, |
|
||||
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
||||
|
Days of sales outstanding |
|
|
31 |
|
|
31 |
|
|
31 |
|
|
31 |
|
|
Days supply of inventory |
|
|
38 |
|
|
34 |
|
|
41 |
|
|
37 |
|
|
Days payables outstanding |
|
|
(20) |
|
|
(21) |
|
|
(20) |
|
|
(21) |
|
|
Days in cash cycle |
|
|
49 |
|
|
44 |
|
|
52 |
|
|
47 |
|
In the first nine months of 2017, our cash from 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 million increase in cash invested in working capital since the end of December 2016 due to the strong sales growth and higher lumber prices. Comparatively, c ash from operating activities was $136.4 million in the first nine months of 2016, which was comprised of net earnings of $83.3 million and $32.3 million of non-cash expenses, offset by a $20.8 million seasonal decrease in working capital since the end of 2015. The increase in working capital compared to the same period last year was primarily due to significant increases in inventory and accounts receivable offset by increases in accounts payable which can be attributed to sales growth and higher lumber prices.
Acquisitions and purchases of property, plant, and equipment comprised most of our cash used in investing activities during the first nine months of 2017 and totaled $59.9 million and $57.2 million, respectively. Outstanding purchase commitments on existing capital projects totaled approximately $26.1 million on September 30, 2017. We currently plan to spend $70 million for the year in 2017 on capital expenditures. We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year. Comparatively, capital expenditures were $35.7 million during the first nine months of 2016. The increase in our capital expenditures in 2017 is primarily due to the additional requirements of our recently acquired operations and an increase in our “expansionary and efficiency” capital expenditures tied to initiatives including new products, value-added product capacity expansion, and automation. The sale and purchase of investments totaling $12.2 million and $4.2 million, respectively, are due to investment activity in our captive insurance subsidiary.
Cash flows from financing activities primarily consisted of net borrowings under our revolving credit facility of approximately $36.2 million, primarily to finance the $59.9 million of acquisitions we completed in the first nine months of 2017. Additionally, we had $9.2 million in dividend payments and $13.0 million in payments for stock repurchases.
On September 30, 2017, we had $70.8 million outstanding on our $295 million revolving credit facility. The outstanding revolving credit facility also includes letters of credit totaling approximately $9.8 million on September 30, 2017; as a result, we have approximately $224.2 million in remaining availability on our revolver after considering letters of credit. Additionally, we have $150 million in availability under a “shelf agreement” for long term debt with a current lender. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were in compliance with all our covenant requirements on September 30, 2017.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Unaudited Consolidated Condensed Financial Statements, Note E, “Commitments, Contingencies, and Guarantees.”
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and
27
results of operations. We continually review our accounting policies and financial information disclosures. There have been no material changes in our policies or estimates since December 31, 2016.
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 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 have entered into forward foreign exchange rate contracts in 2017 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 30, 2017 (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 30, 2017, 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. |
28
PART II. OTHER INFORMATION
Item 1A. Risk Factors .
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .
|
|
(a) |
|
None. |
|
|
(b) |
|
None. |
|
|
(c) |
|
Issuer purchases of equity securities. |
|
|
|
|
|
|
|
|
|
|
|
Fiscal Month |
|
(a) |
|
(b) |
|
(c) |
|
(d) |
|
July 2 - August 5, 2017 |
|
2,800 |
|
84.01 |
|
— |
|
2,755,923 |
|
August 6 - September 2, 2017 |
|
34,900 |
|
80.40 |
|
— |
|
2,721,023 |
|
September 3 - September 30, 2017 |
|
— |
|
— |
|
— |
|
2,721,023 |
|
|
(a) |
|
Total number of shares purchased. |
|
|
(b) |
|
Average price paid per share. |
|
|
(c) |
|
Total number of shares purchased as part of publicly announced plans or programs. |
|
|
(d) |
|
Maximum number of shares that may yet be purchased under the plans or programs. |
On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common stock. On October 14, 2011, 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 2.8 million.
Item 5. Other Information .
None.
29
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) |
|
|
|
|
|
|
|
(b) |
|
|
|
|
|
|
32 |
Certifications. |
|
|
|
|
|
|
|
(a) |
|
|
|
|
|
|
|
(b) |
|
|
|
|
|
|
101 |
Interactive Data File. |
|
|
|
|
|
|
|
(INS) |
XBRL Instance Document. |
|
|
|
|
|
|
(SCH) |
XBRL Schema Document. |
|
|
|
|
|
|
(CAL) |
XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
|
|
(LAB) |
XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
|
|
(PRE) |
XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
|
|
|
(DEF) |
XBRL Taxonomy Extension Definition Linkbase Document. |
30
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 1, 2017 |
By: |
/s/ Matthew J. Missad |
|
|
Matthew J. Missad, |
|
|
|
Chief Executive Officer and Principal Executive Officer |
|
|
|
|
|
|
|
|
|
|
Date: November 1, 2017 |
By: |
/s/ Michael R. Cole |
|
|
Michael R. Cole, |
|
|
|
Chief Financial Officer, |
|
|
|
Principal Financial Officer and |
|
|
|
Principal Accounting Officer |
|
31
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
Suppliers
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|