Form 10-Q
UNIVERSAL FOREST PRODUCTS, INC.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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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 25, 2010
OR
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o |
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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
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
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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) |
Registrants telephone number, including area code (616) 364-6161
NONE
(Former name or former address, if changed since last report.)
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
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 o
No o
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer þ |
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Accelerated Filer o |
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Non-Accelerated Filer o |
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Smaller reporting company o |
Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
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Class |
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Outstanding as of September 25, 2010 |
Common stock, no par value
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19,291,486 |
UNIVERSAL FOREST PRODUCTS, INC.
TABLE OF CONTENTS
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
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September 25, |
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December 26, |
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September 26, |
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2010 |
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2009 |
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2009 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
|
$ |
58,072 |
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$ |
82,219 |
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$ |
79,976 |
|
Accounts receivable, net |
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166,369 |
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107,383 |
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162,875 |
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Inventories: |
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Raw materials |
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104,736 |
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89,956 |
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80,326 |
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Finished goods |
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67,721 |
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72,192 |
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61,774 |
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|
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172,457 |
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162,148 |
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142,100 |
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Assets held for sale |
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|
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|
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3,057 |
|
Refundable income taxes |
|
|
|
|
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10,391 |
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|
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Other current assets |
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18,759 |
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21,208 |
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|
23,242 |
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|
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TOTAL CURRENT ASSETS |
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415,657 |
|
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383,349 |
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411,250 |
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OTHER ASSETS |
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6,069 |
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4,478 |
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3,439 |
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GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS |
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159,332 |
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157,058 |
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156,936 |
|
OTHER INTANGIBLE ASSETS, net |
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15,719 |
|
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16,693 |
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18,873 |
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PROPERTY, PLANT AND EQUIPMENT: |
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Property, plant and equipment |
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516,337 |
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510,774 |
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508,691 |
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Accumulated depreciation and amortization |
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(294,498 |
) |
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(280,675 |
) |
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(278,134 |
) |
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PROPERTY, PLANT AND EQUIPMENT, NET |
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221,839 |
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230,099 |
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230,557 |
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TOTAL ASSETS |
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$ |
818,616 |
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$ |
791,677 |
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$ |
821,055 |
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|
|
|
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LIABILITIES AND EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
78,683 |
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$ |
64,473 |
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$ |
70,817 |
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Accrued liabilities: |
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Compensation and benefits |
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47,023 |
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48,340 |
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54,585 |
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Income taxes |
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1,793 |
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|
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|
|
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1,673 |
|
Other |
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21,485 |
|
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|
21,698 |
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30,375 |
|
Current portion of long-term debt and capital lease obligations |
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|
702 |
|
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|
673 |
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3,064 |
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|
|
|
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TOTAL CURRENT LIABILITIES |
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149,686 |
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|
135,184 |
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160,514 |
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LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion |
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52,465 |
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53,181 |
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53,168 |
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DEFERRED INCOME TAXES |
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21,492 |
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21,707 |
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17,703 |
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OTHER LIABILITIES |
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12,884 |
|
|
|
12,659 |
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13,956 |
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|
|
|
|
|
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TOTAL LIABILITIES |
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|
236,527 |
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222,731 |
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245,341 |
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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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Common stock, no par value; shares authorized 40,000,000;
issued and outstanding
19,291,486, 19,284,587 and 19,355,748 |
|
$ |
19,291 |
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|
$ |
19,285 |
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|
$ |
19,356 |
|
Additional paid-in capital |
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136,400 |
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|
132,765 |
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|
132,156 |
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Retained earnings |
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|
417,842 |
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|
409,278 |
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|
416,853 |
|
Accumulated other comprehensive earnings |
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|
3,998 |
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|
3,633 |
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|
3,375 |
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|
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|
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577,531 |
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|
564,961 |
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571,740 |
|
Employee stock notes receivable |
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(1,721 |
) |
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(1,743 |
) |
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(1,780 |
) |
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|
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575,810 |
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|
563,218 |
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|
569,960 |
|
Noncontrolling interest |
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|
6,279 |
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|
5,728 |
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|
5,754 |
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TOTAL EQUITY |
|
|
582,089 |
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|
568,946 |
|
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575,714 |
|
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TOTAL LIABILITIES AND EQUITY |
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$ |
818,616 |
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|
$ |
791,677 |
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$ |
821,055 |
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|
|
|
|
|
|
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|
See notes to unaudited consolidated condensed financial statements.
3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(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 25, |
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September 26, |
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September 25, |
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September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
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|
|
|
|
|
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|
|
|
|
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NET SALES |
|
$ |
480,574 |
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$ |
457,768 |
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$ |
1,512,166 |
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$ |
1,334,435 |
|
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COST OF GOODS SOLD |
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|
426,159 |
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|
388,505 |
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1,328,232 |
|
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1,135,866 |
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|
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|
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|
|
|
|
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|
|
|
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GROSS PROFIT |
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|
54,415 |
|
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|
69,263 |
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|
183,934 |
|
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|
198,569 |
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|
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|
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
|
|
47,286 |
|
|
|
51,198 |
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|
149,815 |
|
|
|
156,310 |
|
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND
OTHER IMPAIRMENT AND EXIT CHARGES |
|
|
1,137 |
|
|
|
606 |
|
|
|
1,521 |
|
|
|
(1,246 |
) |
|
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|
|
|
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|
|
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EARNINGS FROM OPERATIONS |
|
|
5,992 |
|
|
|
17,459 |
|
|
|
32,598 |
|
|
|
43,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
INTEREST EXPENSE |
|
|
888 |
|
|
|
900 |
|
|
|
2,677 |
|
|
|
3,403 |
|
INTEREST INCOME |
|
|
(111 |
) |
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|
(79 |
) |
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|
(301 |
) |
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777 |
|
|
|
821 |
|
|
|
2,376 |
|
|
|
3,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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EARNINGS BEFORE INCOME TAXES |
|
|
5,215 |
|
|
|
16,638 |
|
|
|
30,222 |
|
|
|
40,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
INCOME TAXES |
|
|
2,017 |
|
|
|
6,378 |
|
|
|
10,836 |
|
|
|
14,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS |
|
|
3,198 |
|
|
|
10,260 |
|
|
|
19,386 |
|
|
|
25,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS NET EARNINGS ATTRIBUTABLE TO
NONCONTROLLING INTEREST |
|
|
(614 |
) |
|
|
(206 |
) |
|
|
(2,099 |
) |
|
|
(617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS ATTRIBUTABLE TO
CONTROLLING INTEREST |
|
$ |
2,584 |
|
|
$ |
10,054 |
|
|
$ |
17,287 |
|
|
$ |
24,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE BASIC |
|
$ |
0.13 |
|
|
$ |
0.52 |
|
|
$ |
0.90 |
|
|
$ |
1.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE DILUTED |
|
$ |
0.13 |
|
|
$ |
0.51 |
|
|
$ |
0.89 |
|
|
$ |
1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING |
|
|
19,201 |
|
|
|
19,307 |
|
|
|
19,239 |
|
|
|
19,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS |
|
|
19,416 |
|
|
|
19,585 |
|
|
|
19,488 |
|
|
|
19,442 |
|
See notes to unaudited consolidated condensed financial statements.
4
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
(Unaudited)
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Controlling Interest Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid- |
|
|
Retained |
|
|
Comprehensive |
|
|
Stock Notes |
|
|
Noncontrolling |
|
|
|
|
|
|
Common Stock |
|
|
In Capital |
|
|
Earnings |
|
|
Earnings |
|
|
Receivable |
|
|
Interest |
|
|
Total |
|
Balance at December 27, 2008 |
|
$ |
19,089 |
|
|
$ |
128,830 |
|
|
$ |
393,312 |
|
|
$ |
2,353 |
|
|
$ |
(1,701 |
) |
|
$ |
6,343 |
|
|
$ |
548,226 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
24,935 |
|
|
|
|
|
|
|
|
|
|
|
617 |
|
|
|
|
|
Foreign currency
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,022 |
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
Total comprehensive earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,541 |
|
Capital contribution from
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
14 |
|
Purchase of additional
noncontrolling interest |
|
|
|
|
|
|
(853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(917 |
) |
|
|
(1,770 |
) |
Distributions to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(270 |
) |
|
|
(270 |
) |
Cash dividends $0.060 per share |
|
|
|
|
|
|
|
|
|
|
(1,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,158 |
) |
Issuance of 118,267 shares under
employee stock plans |
|
|
118 |
|
|
|
1,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,109 |
|
Issuance of 79,084 shares under
stock grant programs |
|
|
79 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103 |
|
Issuance of 73,611 shares under
deferred compensation plans |
|
|
74 |
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of 6,213 shares |
|
|
(6 |
) |
|
|
|
|
|
|
(236 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242 |
) |
Received 1,602 shares for the
exercise of stock options |
|
|
(2 |
) |
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35 |
) |
Tax benefits from non-qualified
stock options exercised |
|
|
|
|
|
|
705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
705 |
|
Deferred income tax asset reversal
for deferred compensation plans |
|
|
|
|
|
|
(518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(518 |
) |
Expense associated with
share-based compensation
arrangements |
|
|
|
|
|
|
1,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,417 |
|
Accrued expense under
deferred compensation plans |
|
|
|
|
|
|
546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
546 |
|
Issuance of 3,721 shares in
exchange for employee stock
notes receivable |
|
|
4 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
(125 |
) |
|
|
|
|
|
|
|
|
Payments received on employee
stock notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 26, 2009 |
|
$ |
19,356 |
|
|
$ |
132,156 |
|
|
$ |
416,853 |
|
|
$ |
3,375 |
|
|
$ |
(1,780 |
) |
|
$ |
5,754 |
|
|
$ |
575,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 26, 2009 |
|
$ |
19,285 |
|
|
$ |
132,765 |
|
|
$ |
409,278 |
|
|
$ |
3,633 |
|
|
$ |
(1,743 |
) |
|
$ |
5,728 |
|
|
$ |
568,946 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
17,287 |
|
|
|
|
|
|
|
|
|
|
|
2,099 |
|
|
|
|
|
Foreign currency
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
365 |
|
|
|
|
|
|
|
78 |
|
|
|
|
|
Total comprehensive earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,829 |
|
Capital contribution from
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
250 |
|
Purchase of additional
noncontrolling interest |
|
|
|
|
|
|
(295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(932 |
) |
|
|
(1,227 |
) |
Distributions to
noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(944 |
) |
|
|
(944 |
) |
Cash dividends $0.200 per share |
|
|
|
|
|
|
|
|
|
|
(3,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,869 |
) |
Issuance of 66,384 shares under
employee stock plans |
|
|
66 |
|
|
|
1,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,439 |
|
Issuance of 76,710 shares under
stock grant programs |
|
|
77 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134 |
|
Issuance of 7,911 shares under
deferred compensation plans |
|
|
8 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of 144,900 shares |
|
|
(145 |
) |
|
|
|
|
|
|
(4,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,999 |
) |
Tax benefits from non-qualified
stock options exercised |
|
|
|
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379 |
|
Expense associated with
share-based compensation
arrangements |
|
|
|
|
|
|
1,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,495 |
|
Accrued expense under
deferred compensation plans |
|
|
|
|
|
|
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
627 |
|
Issuance of 1,298 shares in
exchange for employees stock
notes receivable |
|
|
1 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
Notes receivable adjustment |
|
|
(1 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(52 |
) |
Payments received on employee
stock notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 25, 2010 |
|
$ |
19,291 |
|
|
$ |
136,400 |
|
|
$ |
417,842 |
|
|
$ |
3,998 |
|
|
$ |
(1,721 |
) |
|
$ |
6,279 |
|
|
$ |
582,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated condensed financial statements.
5
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 25, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net earnings attributable to controlling interest |
|
$ |
17,287 |
|
|
$ |
24,935 |
|
Adjustments to reconcile net earnings attributable to controlling interest
to net cash from operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
22,305 |
|
|
|
24,604 |
|
Amortization of intangibles |
|
|
5,243 |
|
|
|
6,414 |
|
Expense associated with share-based compensation arrangements |
|
|
1,495 |
|
|
|
1,417 |
|
Excess tax benefits from share-based compensation arrangements |
|
|
(265 |
) |
|
|
(302 |
) |
Expense associated with stock grant plans |
|
|
134 |
|
|
|
103 |
|
Deferred income taxes (credit) |
|
|
(228 |
) |
|
|
151 |
|
Net earnings attributable to noncontrolling interest |
|
|
2,099 |
|
|
|
617 |
|
Net loss (gain) on sale or impairment of property, plant and
equipment |
|
|
1,053 |
|
|
|
(1,892 |
) |
Changes in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(58,151 |
) |
|
|
(24,342 |
) |
Inventories |
|
|
(7,103 |
) |
|
|
51,488 |
|
Accounts payable |
|
|
14,127 |
|
|
|
7,578 |
|
Accrued liabilities and other |
|
|
14,740 |
|
|
|
21,160 |
|
|
|
|
|
|
|
|
NET CASH FROM OPERATING ACTIVITIES |
|
|
12,736 |
|
|
|
111,931 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(15,679 |
) |
|
|
(9,497 |
) |
Acquisitions, net of cash received |
|
|
(6,529 |
) |
|
|
|
|
Proceeds from sale of property, plant and equipment |
|
|
540 |
|
|
|
10,408 |
|
Purchase of product technology and non-compete agreement |
|
|
(4,589 |
) |
|
|
|
|
Advances on notes receivable |
|
|
(1,000 |
) |
|
|
(14 |
) |
Collections of notes receivable |
|
|
143 |
|
|
|
134 |
|
Insurance proceeds |
|
|
|
|
|
|
1,023 |
|
Other, net |
|
|
17 |
|
|
|
16 |
|
|
|
|
|
|
|
|
NET CASH FROM INVESTING ACTIVITIES |
|
|
(27,097 |
) |
|
|
2,070 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net borrowings (repayments) under revolving credit facilities |
|
|
|
|
|
|
(30,257 |
) |
Repayment of long-term debt |
|
|
(719 |
) |
|
|
(16,830 |
) |
Borrowings of long-term debt |
|
|
|
|
|
|
800 |
|
Proceeds from issuance of common stock |
|
|
1,439 |
|
|
|
2,109 |
|
Purchase of additional noncontrolling interest |
|
|
(1,227 |
) |
|
|
(1,770 |
) |
Distributions to noncontrolling interest |
|
|
(944 |
) |
|
|
(270 |
) |
Capital contribution from noncontrolling interest |
|
|
250 |
|
|
|
14 |
|
Dividends paid to shareholders |
|
|
(3,869 |
) |
|
|
(1,158 |
) |
Repurchase of common stock |
|
|
(4,999 |
) |
|
|
(242 |
) |
Excess tax benefits from share-based compensation arrangements |
|
|
265 |
|
|
|
302 |
|
Other, net |
|
|
18 |
|
|
|
(60 |
) |
|
|
|
|
|
|
|
NET CASH FROM FINANCING ACTIVITIES |
|
|
(9,786 |
) |
|
|
(47,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
(24,147 |
) |
|
|
66,639 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
82,219 |
|
|
|
13,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
58,072 |
|
|
$ |
79,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid (refunded) during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
2,058 |
|
|
$ |
3,074 |
|
Income taxes |
|
|
(1,488 |
) |
|
|
5,964 |
|
6
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
(CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 25, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
NON-CASH INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Stock acquired through employees stock notes
receivable |
|
$ |
50 |
|
|
$ |
125 |
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Common stock issued under deferred compensation plans |
|
$ |
337 |
|
|
$ |
2,461 |
|
Stock received for the exercise of stock options, net |
|
|
|
|
|
|
35 |
|
See notes to unaudited consolidated condensed financial statements
7
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 26, 2009.
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 25, 2010 |
|
|
September 26, 2009 |
|
|
|
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 |
|
Recurring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
66 |
|
|
|
|
|
|
$ |
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
813 |
|
|
|
|
|
|
$ |
813 |
|
Domestic stock funds |
|
|
397 |
|
|
|
|
|
|
|
397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
International stock funds |
|
|
353 |
|
|
|
|
|
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Target funds |
|
|
105 |
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond funds |
|
|
51 |
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mutual funds |
|
|
972 |
|
|
|
|
|
|
|
972 |
|
|
|
813 |
|
|
|
|
|
|
|
813 |
|
Non-Recurring: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
$ |
165 |
|
|
|
165 |
|
|
|
|
|
|
$ |
1,350 |
|
|
|
1,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
972 |
|
|
$ |
165 |
|
|
$ |
1,137 |
|
|
$ |
813 |
|
|
$ |
1,350 |
|
|
$ |
2,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
UNIVERSAL FOREST PRODUCTS, INC.
Mutual funds are valued at prices quoted in an active exchange market.
Property, plant and equipment are valued based on active market prices and other relevant
information for sales of similar assets.
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.
Earnings on construction contracts are reflected in operations using either
percentage-of-completion accounting, which includes the cost to cost and units of delivery
methods, or completed contract accounting, 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. Under the
completed contract method, revenues and related earnings are recorded when the contracted work
is complete and losses are charged to operations in their entirety when such losses become
apparent.
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 25, |
|
|
December 26, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and Earnings in Excess of Billings |
|
$ |
4,602 |
|
|
$ |
9,998 |
|
|
$ |
11,117 |
|
Billings in Excess of Cost and Earnings |
|
|
3,275 |
|
|
|
8,954 |
|
|
|
11,185 |
|
9
UNIVERSAL FOREST PRODUCTS, INC.
A reconciliation of the changes in the numerator and the denominator from the calculation of
basic EPS to the calculation of diluted EPS follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 25, 2010 |
|
|
Three Months Ended September 26, 2009 |
|
|
|
Income |
|
|
Shares |
|
|
Per Share |
|
|
Income |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
Attributable to
Controlling
Interest |
|
$ |
2,584 |
|
|
|
|
|
|
|
|
|
|
$ |
10,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common stockholders |
|
|
2,584 |
|
|
|
19,201 |
|
|
$ |
0.13 |
|
|
|
10,054 |
|
|
|
19,307 |
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common
stockholders and
assumed options
exercised |
|
$ |
2,584 |
|
|
|
19,416 |
|
|
$ |
0.13 |
|
|
$ |
10,054 |
|
|
|
19,585 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 25, 2010 |
|
|
Nine Months Ended September 26, 2009 |
|
|
|
Income |
|
|
Shares |
|
|
Per Share |
|
|
Income |
|
|
Shares |
|
|
Per Share |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
Attributable to
Controlling
Interest |
|
$ |
17,287 |
|
|
|
|
|
|
|
|
|
|
$ |
24,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common stockholders |
|
|
17,287 |
|
|
|
19,239 |
|
|
$ |
0.90 |
|
|
|
24,935 |
|
|
|
19,244 |
|
|
$ |
1.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive
securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to
common
stockholders and
assumed options
exercised |
|
$ |
17,287 |
|
|
|
19,488 |
|
|
$ |
0.89 |
|
|
$ |
24,935 |
|
|
|
19,442 |
|
|
$ |
1.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
UNIVERSAL FOREST PRODUCTS, INC.
Options to purchase 130,000 and 10,000 shares of common stock were not included in the
computation of diluted EPS for the quarter and nine months ended September 25, 2010,
respectively, because the options exercise price was greater than the average market price of
the common stock during the period and, therefore would be antidilutive.
No options were excluded from the computation of diluted EPS for the quarter ended September
26, 2009. Options to purchase 10,000 shares of common stock were not included in the
computation of diluted EPS for the nine months ended September 26, 2009 because the options
exercise price was greater than the average market price of the common stock during the period
and, therefore would be antidilutive.
E. |
|
ASSETS HELD FOR SALE AND NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENTS AND
EXIT CHARGES |
Included in Assets held for sale on our Consolidated Condensed Balance Sheets are certain
property, plant and equipment totaling $3.1 million on September 26, 2009. The assets held for
sale consist of certain vacant land and several facilities we closed to better align
manufacturing capacity with the current business environment. The fair values were determined
based on appraisals or recent offers to acquire the assets. These and other idle assets were
evaluated based on the requirements of ASC 360, Property, Plant and Equipment, which resulted
in certain impairment and other exit charges. Net loss (gain) on disposition of assets and
other impairment and exit charges consists of the following amounts, separated by reporting
segment, for the periods presented below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 25, |
|
|
Three Months Ended September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Northern, |
|
|
|
|
|
|
Northern, |
|
|
|
|
|
|
Southern and |
|
|
|
|
|
|
Southern and |
|
|
|
|
|
|
Western |
|
|
All |
|
|
Western |
|
|
All |
|
|
|
Divisions |
|
|
Other |
|
|
Divisions |
|
|
Other |
|
Severances |
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
0.2 |
|
|
|
|
|
|
$ |
0.6 |
|
|
|
|
|
Other intangibles |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 25, |
|
|
Nine Months Ended September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Northern, |
|
|
|
|
|
|
Northern, |
|
|
|
|
|
|
Southern and |
|
|
|
|
|
|
Southern and |
|
|
|
|
|
|
Western |
|
|
All |
|
|
Western |
|
|
All |
|
|
|
Divisions |
|
|
Other |
|
|
Divisions |
|
|
Other |
|
Severances |
|
$ |
0.5 |
|
|
|
|
|
|
$ |
0.6 |
|
|
|
|
|
Property, plant and
equipment |
|
|
0.3 |
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
Other intangibles |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of
real estate |
|
|
|
|
|
|
|
|
|
|
(3.5 |
) |
|
|
|
|
11
UNIVERSAL FOREST PRODUCTS, INC.
F. |
|
COMMITMENTS, CONTINGENCIES, AND GUARANTEES |
We are self-insured for environmental impairment liability, including certain liabilities
which are insured through a wholly owned subsidiary, UFP Insurance Ltd., a licensed captive
insurance company.
We own and operate a number of facilities throughout the United States that chemically treat
lumber products. In connection with the ownership and operation of these and other real
properties, and the disposal or treatment of hazardous or toxic substances, we may, under
various federal, state, and local environmental laws, ordinances, 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 our affiliates wood preservation facilities in
Stockertown, PA; Elizabeth City, NC; Auburndale, FL; Gordon, PA; Janesville, WI; Medley, FL;
and Ponce, PR. In addition, a reserve was established for our affiliates 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 $4.2 million on September 25, 2010 and
$4.4 million on September 26, 2009, representing the estimated costs to complete future
remediation efforts. These amounts have not been reduced by an insurance receivable.
From time to time, various special interest environmental groups have petitioned certain
states requesting restrictions on the use or disposal of CCA treated products. The wood
preservation industry trade groups are working with the individual states and their regulatory
agencies to provide an accurate, factual background which demonstrates that the present method
of uses and disposal is scientifically supported. We market a modest amount of CCA treated
products for permitted, non-residential applications.
We have not accrued for any potential loss related to the contingencies above. However,
potential liabilities of this nature are not conducive to precise estimates and are subject to
change.
In addition, on September 25, 2010, 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 25, 2010, we had outstanding purchase commitments on capital projects of
approximately $2.6 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 affect on our consolidated
financial statements.
12
UNIVERSAL FOREST PRODUCTS, INC.
In certain cases 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 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 25, 2010,
we had approximately $21.5 million in outstanding payment and performance bonds for projects
in progress, which expire during the next two years. In addition, approximately $21.4 million
in payment and performance bonds are outstanding for completed projects which are still under
warranty.
We have entered into operating leases for certain personal property assets that include a
guarantee of a portion of the residual value of the leased assets. If at the expiration of
the initial lease term we do not exercise our option to purchase the leased assets and these
assets are sold by the lessor for a price below a predetermined amount, we will reimburse the
lessor for a certain portion of the shortfall. These operating leases will expire
periodically over the next five years. The estimated maximum aggregate exposure of these
guarantees is approximately $1.3 million.
On September 25, 2010, we had outstanding letters of credit totaling $31.9 million, primarily
related to certain insurance contracts and industrial development revenue bonds as further
described 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 $19.0 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
of the industrial development revenue bonds that we have issued. These letters of credit
guarantee principal and interest payments to the bondholders. We currently have irrevocable
letters of credit outstanding totaling approximately $12.4 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 2002-A 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.
13
UNIVERSAL FOREST PRODUCTS, INC.
Many of our wood treating operations utilize Subpart W drip pads, defined as hazardous waste
management units by the EPA. The rules regulating drip pads require that the 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 $0.3 million. As a result, this amount is recorded
in other long-term liabilities on September 25, 2010.
We did not enter into any new guarantee arrangements during the second quarter of 2010 which
would require us to recognize a liability on our balance sheet.
No business combinations were completed in fiscal 2009. We completed the following business
combinations in fiscal 2010 which were accounted for using the purchase method (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
Company |
|
Acquisition |
|
Purchase |
|
Intangible |
|
|
Tangible |
|
|
Operating |
|
|
Name |
|
Date |
|
Price |
|
Assets |
|
|
Assets |
|
|
Segment |
|
Business Description |
Shepherd Distribution Co.(Shepherd)
|
|
April 29, 2010
|
|
$5.9 (asset purchase)
|
|
$ |
2.6 |
|
|
$ |
3.3 |
|
|
Northern Division
|
|
Distributes shingle
underlayment,
bottom board, house
wrap, siding, poly
film and other
products to
manufactured
housing and RV
customers.
Headquartered in
Elkhart, Indiana,
it has distribution
capabilities
throughout the
United States. |
Service Supply Distribution, Inc.
(Service Supply)
|
|
March 8, 2010
|
|
$0.6 (asset purchase)
|
|
$ |
0.0 |
|
|
$ |
0.6 |
|
|
Southern Division
|
|
Distributes certain
plumbing,
electrical,
adhesives,
flooring, paint and
other products to
manufactured
housing and RV
customers.
Headquartered in
Cordele, Georgia,
it has distribution
capabilities
throughout the
United States. |
The business combinations mentioned above were not significant to our operating results
individually or in aggregate, and thus pro forma results are not presented.
14
UNIVERSAL FOREST PRODUCTS, INC.
The purchase price allocation for D-Stake Mill and Manufacturing Company (D-Stake) was
adjusted as follows (in millions) during the first quarter of fiscal 2010 as a result of a
change in the valuation of the intangible assets acquired. The impact of the adjustment on
earnings was negligible.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete |
|
|
Customer |
|
|
Goodwill - |
|
|
Goodwill - Tax |
|
|
|
agreements |
|
|
Relationships |
|
|
Total |
|
|
Deductible |
|
D-Stake initial purchase price
allocation |
|
$ |
2.6 |
|
|
|
|
|
|
$ |
2.5 |
|
|
$ |
2.5 |
|
Adjustments |
|
|
(1.6 |
) |
|
|
1.9 |
|
|
|
(0.3 |
) |
|
|
(0.3 |
) |
D-Stake final purchase price allocation |
|
|
1.0 |
|
|
|
1.9 |
|
|
|
2.2 |
|
|
|
2.2 |
|
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.
Beginning January 1, 2010, our Eastern Division was divided into two divisions: a Northern
Division and a Southern Division. This change was primarily made in order to drive faster
growth by allowing field leadership to concentrate on a smaller entity, thereby having a
bigger impact on growth. The presentation of the reportable segment amounts was not impacted.
Under the definition of a segment, our Northern, Southern, Western and Consumer Products
Divisions may be considered operating segments of our business. Under ASC 280, segments may
be aggregated if the segments have similar economic characteristics and if the nature of the
products, distribution methods, customers and regulatory environments are similar. Based on
these criteria, we have aggregated our Northern, Southern and Western Divisions into one
reporting segment, which have the same totals as our former Eastern and Western Divisions. Our
Consumer Products Division is included in the All Other column in the table below. Our
divisions operate manufacturing and treating facilities throughout North America. A summary of
results are presented below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 25, 2010 |
|
|
Nine Months Ended September 26, 2009 |
|
|
|
Northern, |
|
|
|
|
|
|
|
|
|
|
Northern, |
|
|
|
|
|
|
|
|
|
Southern and |
|
|
|
|
|
|
|
|
|
|
Southern and |
|
|
|
|
|
|
|
|
|
Western |
|
|
All |
|
|
|
|
|
|
Western |
|
|
All |
|
|
|
|
|
|
Divisions |
|
|
Other |
|
|
Total |
|
|
Divisions |
|
|
Other |
|
|
Total |
|
Net sales to outside customers |
|
$ |
1,401,600 |
|
|
$ |
110,566 |
|
|
$ |
1,512,166 |
|
|
$ |
1,242,119 |
|
|
$ |
92,316 |
|
|
$ |
1,334,435 |
|
Intersegment net sales |
|
|
0 |
|
|
|
41,716 |
|
|
|
41,716 |
|
|
|
0 |
|
|
|
29,239 |
|
|
|
29,239 |
|
Segment operating profit |
|
|
31,284 |
|
|
|
1,314 |
|
|
|
32,598 |
|
|
|
36,845 |
|
|
|
6,660 |
|
|
|
43,505 |
|
15
UNIVERSAL FOREST PRODUCTS, INC.
I. |
|
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES |
During the quarter, the Internal Revenue Service completed its examinations of our federal
returns through 2008. As a result of the completed examinations, our gross unrecognized tax benefits decreased to $1.3 million at September 25,
2010 compared to $10.3 million at December 26, 2009. This decrease did not result in an adjustment to our income tax provision, therefore, our effective tax rate was not impacted
by the examinations.
On October 14, 2010, our Board approved a semi-annual dividend of $0.20 per share, payable on
December 15, 2010 to shareholders of record on December 1, 2010.
On October 14, 2010, our board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of shares
that may be repurchased under the program is almost 3 million shares.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains certain forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act, as amended, that are based on managements 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, assumptions or events 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 conditions in
the markets we serve; government regulations, particularly involving environmental and safety
regulations; and our ability to make successful business acquisitions. We also encourage you to
read our Annual Report on Form 10-K, filed with the United States Securities and Exchange
Commission. That report includes Risk Factors that you should consider in connection with any
decision to buy or sell our securities. We are pleased to present this overview of 2010.
OVERVIEW
Our results for the third quarter of 2010 were impacted by the following:
|
|
Our overall unit sales were flat compared to the third quarter of 2009 as increased unit
sales to our industrial and manufactured housing customers was substantially offset by a
decline in unit sales to our DIY/retail customers. We believe we have gained additional share
of the industrial and manufactured housing markets we serve. Share gains in our industrial
market have been achieved by adding many new customers while share gains in manufactured
housing have been achieved by acquiring distribution operations. We believe we have
maintained our share of the DIY/retail market. Finally, we recently closed several plants
that supply the site-built housing market in order to achieve profitability and cash flow
goals; consequently, we believe that these actions may temporarily cause us to lose some
market share. |
|
|
After unusual volatility in the second quarter, the Lumber Market stabilized and was
approximately 5% higher, on average, in the third quarter of 2010 compared to the same period
of 2009. Consequently, the Lumber Market had the effect of slightly increasing our overall
selling prices for the quarter. |
17
UNIVERSAL FOREST PRODUCTS, INC.
|
|
The Leading Indicator for Remodeling Activity, released by Harvards Joint Center for
Housing Studies, estimated in its most recent report that spending in the third quarter of
2010 on homeowner remodeling improvements declined 4.1% for the period, which impacts our
DIY/retail market. Consumer spending for large repair/remodel projects has decreased due to
general economic conditions, among other factors, including weak home prices and high
unemployment levels. Consequently, the same store sales of our big box home improvement
retailers have declined. The Consumer Confidence Index recently decreased in September
causing concern about the level of consumer spending in future months. |
|
|
National housing starts decreased approximately 6% in the period from June through August
of 2010 (our sales trail housing starts by about a month), compared to the same period of
2009, likely due to the expiration of certain government tax credits which shifted customer
demand to earlier in the year. |
|
|
Shipments of HUD code manufactured homes were up 3% in July and August of 2010, compared to
the same period of 2009. Shipments of manufactured homes were also positively impacted by
certain tax credits that have now expired. |
|
|
The industrial market has improved as the U.S. economy slowly recovers. More
significantly, we gained additional share of this market due, in part, to adding many new
customers and continuing to penetrate the concrete forming business. |
|
|
Our gross margin decreased by 3.8% this quarter compared to the third quarter of 2009.
While lumber prices stabilized during the third quarter of 2010, inventories were built
earlier in the yearwhen lumber prices were up as much as 52% over the previous yearin
preparation for a solid selling season, which didnt materialize. At the end of June, our inventory consisted primarily of higher-cost lumber, which adversely affected
profits in the third quarter. We have since sold through this higher cost product and, by the end
of the third quarter, our inventories comprised lumber purchased at a much lower cost. At the
end of September of 2010, our average cost of lumber inventory was approximately 7% higher than our average cost at the end of September of 2009, which approximates
the year over year increase in the Lumber Market. |
|
|
Our cash flow from operating activities was only $13 million, reflecting higher inventory
levels due to softening demand. We anticipate strong cash flows for the balance of the year
as we reduce inventories to a level needed to support current demand. |
18
UNIVERSAL FOREST PRODUCTS, INC.
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price:
|
|
|
|
|
|
|
|
|
|
|
Random Lengths Composite |
|
|
|
Average $/MBF |
|
|
|
2010 |
|
|
2009 |
|
January |
|
$ |
264 |
|
|
$ |
198 |
|
February |
|
|
312 |
|
|
|
199 |
|
March |
|
|
310 |
|
|
|
195 |
|
April |
|
|
351 |
|
|
|
208 |
|
May |
|
|
333 |
|
|
|
198 |
|
June |
|
|
267 |
|
|
|
222 |
|
July |
|
|
251 |
|
|
|
238 |
|
August |
|
|
245 |
|
|
|
239 |
|
September |
|
|
250 |
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
Third quarter average |
|
$ |
249 |
|
|
$ |
238 |
|
Year-to-date average |
|
$ |
287 |
|
|
$ |
215 |
|
|
|
|
|
|
|
|
|
|
Third quarter percentage
change from 2009 |
|
|
4.6 |
% |
|
|
|
|
Year-to-date percentage
change from 2009 |
|
|
33.5 |
% |
|
|
|
|
In addition, a Southern Yellow Pine (SYP) composite price, which we prepare and use, is presented
below. Sales of products produced using this species, which primarily consists of our
preservative-treated products, may comprise up to 50% of our sales volume.
|
|
|
|
|
|
|
|
|
|
|
Random Lengths SYP |
|
|
|
Average $/MBF |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
January |
|
$ |
269 |
|
|
$ |
241 |
|
February |
|
|
331 |
|
|
|
233 |
|
March |
|
|
337 |
|
|
|
232 |
|
April |
|
|
382 |
|
|
|
241 |
|
May |
|
|
374 |
|
|
|
231 |
|
June |
|
|
293 |
|
|
|
236 |
|
July |
|
|
264 |
|
|
|
253 |
|
August |
|
|
249 |
|
|
|
241 |
|
September |
|
|
252 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
Third quarter average |
|
$ |
255 |
|
|
$ |
246 |
|
Year-to-date average |
|
$ |
306 |
|
|
$ |
239 |
|
|
|
|
|
|
|
|
|
|
Third quarter percentage
change from 2009 |
|
|
3.7 |
% |
|
|
|
|
Year-to-date percentage
change from 2009 |
|
|
28.0 |
% |
|
|
|
|
19
UNIVERSAL FOREST PRODUCTS, INC.
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
We experience significant fluctuations in the cost of commodity lumber products from primary
producers (Lumber Market). 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 are a significant
percentage of our cost of goods sold.
Our gross margins are impacted by both (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 decking and fencing sold to DIY/retail customers, as well as trusses,
wall panels and other components sold to the site-built 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 for these sales commitments with our suppliers. Also, the time
period and quantity limitations generally 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 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 these products, our
margins are exposed to changes in the trend of lumber prices. |
20
UNIVERSAL FOREST PRODUCTS, INC.
Changes in the trend of lumber prices have their greatest impact 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 17% 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. |
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.
BUSINESS COMBINATIONS
See Notes to Unaudited Consolidated Condensed Financial Statements, Note G, Business
Combinations.
21
UNIVERSAL FOREST PRODUCTS, INC.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our Consolidated
Condensed Statements of Earnings as a percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 25, |
|
|
September 26, |
|
|
September 25, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of goods sold |
|
|
88.7 |
|
|
|
84.9 |
|
|
|
87.8 |
|
|
|
85.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
11.3 |
|
|
|
15.1 |
|
|
|
12.2 |
|
|
|
14.9 |
|
Selling, general, and
administrative expenses |
|
|
9.8 |
|
|
|
11.2 |
|
|
|
9.9 |
|
|
|
11.7 |
|
Net loss (gain) on
disposition of assets and
other impairment and exit
charges |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations |
|
|
1.2 |
|
|
|
3.8 |
|
|
|
2.2 |
|
|
|
3.3 |
|
Interest, net |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes |
|
|
1.1 |
|
|
|
3.6 |
|
|
|
2.0 |
|
|
|
3.0 |
|
Income taxes |
|
|
0.4 |
|
|
|
1.4 |
|
|
|
0.7 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
0.7 |
|
|
|
2.2 |
|
|
|
1.3 |
|
|
|
1.9 |
|
Less net earnings
attributable to
non-controlling interest |
|
|
(0.1 |
) |
|
|
(0.0 |
) |
|
|
(0.1 |
) |
|
|
(0.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable
to controlling interest |
|
|
0.5 |
% |
|
|
2.2 |
% |
|
|
1.1 |
% |
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
Actual percentages are calculated and may not sum to total due to rounding. |
GROSS SALES
We market, manufacture and engineer wood and wood-alternative products for the DIY/retail market,
structural lumber products for the manufactured housing market, engineered wood components for the
site-built construction market, and specialty wood packaging for various markets. We also provide
framing services for the site-built construction market and various forms for concrete
construction. 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 forms market, increasing our sales of
engineered wood components for custom home, multi-family and light
commercial construction, and expanding our product lines in each
of the markets we serve. |
|
|
|
Expanding geographically in our core businesses. |
|
|
|
Increasing sales of value-added products and framing services.
Value-added product sales primarily consist of fencing, decking,
lattice, and other specialty products sold to the DIY/retail
market, specialty wood packaging, engineered wood components, 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. |
22
UNIVERSAL FOREST PRODUCTS, INC.
The following table presents, for the periods indicated, our gross sales (in thousands) and
percentage change in gross sales by market classification.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 25, |
|
|
September 26, |
|
|
% |
|
|
September 25, |
|
|
September 26, |
|
|
% |
|
Market Classification |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
DIY/Retail |
|
$ |
197,855 |
|
|
$ |
214,299 |
|
|
|
(7.7 |
) |
|
$ |
678,096 |
|
|
$ |
673,063 |
|
|
|
0.8 |
|
Site-Built Construction |
|
|
70,115 |
|
|
|
68,984 |
|
|
|
1.6 |
|
|
|
203,227 |
|
|
|
189,947 |
|
|
|
7.0 |
|
Industrial |
|
|
158,091 |
|
|
|
132,532 |
|
|
|
19.3 |
|
|
|
463,318 |
|
|
|
368,951 |
|
|
|
25.6 |
|
Manufactured Housing |
|
|
63,429 |
|
|
|
53,676 |
|
|
|
18.2 |
|
|
|
193,407 |
|
|
|
134,957 |
|
|
|
43.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Sales |
|
|
489,490 |
|
|
|
469,491 |
|
|
|
4.3 |
|
|
|
1,538,048 |
|
|
|
1,366,918 |
|
|
|
12.5 |
|
Sales Allowances |
|
|
(8,916 |
) |
|
|
(11,723 |
) |
|
|
|
|
|
|
(25,882 |
) |
|
|
(32,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
|
$ |
480,574 |
|
|
$ |
457,768 |
|
|
|
5.0 |
|
|
$ |
1,512,166 |
|
|
$ |
1,334,435 |
|
|
|
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
In the first quarter of 2010, we reviewed the classification of our customers and made
certain reclassifications. Prior year information has been restated to reflect these
reclassifications. |
Gross sales in the third quarter of 2010 increased 4% compared to the same period of 2009. We
estimate that our unit sales remained flat and overall selling prices increased by 4% comparing the
two periods. Our overall selling prices increased as a result of the Lumber Market (see
Historical Lumber Prices).
Gross sales in the first nine months of 2010 increased 13% compared to the same period of 2009. We
estimate that our unit sales increased by 4% and overall selling prices increased by 9% comparing
the two periods. We estimate that our unit sales increased 2% as a result of business acquisitions
and new plants, increased 4% as a result of existing operations, and declined 2% due to operations
we recently closed. Our overall selling prices increased as a result of the Lumber Market (see
Historical Lumber Prices).
Changes in our sales by market are discussed below.
DIY/Retail:
Gross sales to the DIY/retail market decreased 8% in the third quarter of 2010 compared to the same
period of 2009 primarily due to an estimated 10% decrease in our overall unit sales, offset by an
estimated 2% increase in our overall selling prices due to the Lumber Market. Unit sales declined
due to a decrease in consumer spending which is evidenced by a drop in same store sales reported by
our big box customers.
Gross sales to the DIY/retail market increased 1% in the first nine months of 2010 compared to the
same period of 2009 primarily due to an estimated 7% increase in overall selling prices due to the
Lumber Market, offset by an estimated 6% decrease in overall unit sales. Unit sales declined due
to the factors mentioned in the paragraph above.
23
UNIVERSAL FOREST PRODUCTS, INC.
Site-Built Construction:
Gross sales to the site-built construction market increased 2% in the third quarter of 2010
compared to the same period of 2009 due to an estimated 7% increase in unit sales out of existing
plants and an estimated 6% increase in selling prices primarily due to the Lumber Market, offset by
an 11% decrease in unit sales as a result of operations we have recently closed. National housing
starts decreased approximately 6% in the period from June through August of 2010 (our sales trail
housing starts by about a month), compared to the same period of 2009. We have taken several
recent plant closure actions in order to achieve profitability and cash flow objectives, which may
temporarily result in a loss of market share.
Gross sales to the site-built construction market increased 7% in the first nine months of 2010
compared to 2009 due to an estimated 10% increase in unit sales out of existing plants and an
estimated 6% increase in selling prices primarily due to the Lumber Market, offset by a 9% decrease
in unit sales as a result of operations we have recently closed. National single family and
multi-family housing starts decreased approximately 14% and 9%,
respectively, for the year-to-date through August of 2010.
Industrial:
Gross sales to the industrial market increased 19% in the third quarter of 2010 compared to the
same period of 2009, due to an estimated 12% increase in unit sales and an estimated 7% increase in
selling prices. The industrial market has improved as the U.S. economy continues to recover, but
more significantly, we have been able to continue to gain market share due, in part, to adding many
new customers and our continued penetration of the concrete forming market.
Gross sales to the industrial market increased 26% in the first nine months of 2010 compared to the
same period of 2009, due to an estimated 17% increase in unit sales and an estimated 9% increase in
selling prices. Unit sales increased due to the factors mentioned in the paragraph above.
Manufactured Housing:
Gross sales to the manufactured housing market increased 18% in the third quarter of 2010 compared
to 2009, primarily due to an estimated 12% increase in unit sales resulting from new operations we
acquired and an estimated 6% increase in selling prices due to the Lumber Market.
Shipments of HUD code manufactured homes were up 3% in July and August of 2010, compared to the
same period of 2009.
Gross sales to the manufactured housing market increased 43% in the first nine months of 2010
compared to 2009, primarily due to an estimated 12% increase in unit sales out of existing plants,
a 10% increase in unit sales due to acquisitions, and an estimated 21% increase in selling prices
due to the Lumber Market. Shipments of HUD code manufactured homes were up 7% for the year-to-date
through August of 2010, compared to the same period of 2009.
24
UNIVERSAL FOREST PRODUCTS, INC.
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 25, |
|
|
September 26, |
|
|
September 25, |
|
|
September 26, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value-Added |
|
|
59.0 |
% |
|
|
58.4 |
% |
|
|
58.6 |
% |
|
|
60.1 |
% |
Commodity-Based |
|
|
41.0 |
% |
|
|
41.6 |
% |
|
|
41.4 |
% |
|
|
39.9 |
% |
COST OF GOODS SOLD AND GROSS PROFIT
Our gross profit percentage decreased to 11.3% from 15.1% comparing the third quarter of 2010 with
the same period of 2009. In addition, our gross profit dollars decreased by 21% comparing the
third quarter of 2010 with the same period of 2009, which compares unfavorably to our trend in unit
sales, which were flat. After unusual volatility in the second quarter, the Lumber Market
stabilized in the third quarter of 2010 and was approximately 5% higher, on average, than the same
period of 2009. While lumber prices stabilized, inventories were built earlier in the yearwhen
lumber prices were up as much as 52% over the previous yearin preparation for a solid selling
season, which didnt materialize. At the end of June, our inventory consisted primarily
of higher-cost lumber, which adversely affected profits in the third quarter when this product was
shipped. Conversely, Lumber Market conditions in the third quarter of 2009 were more favorable and we were able to take advantage of opportunities in the market to buy at lower costs. As a result of these factors,
our material costs as a percentage of sales increased by approximately 4.6
percentage points comparing the third quarter of 2010 with the same period of 2009. We have since sold through this higher cost product and, by the end of the third quarter, our inventories comprised
lumber purchased at a much lower cost. At the end of September of 2010, our average cost of
lumber inventory was approximately 7% higher than our average cost at the end of September of 2009, which approximates the year over year increase in the Lumber Market. (See Impact of the Lumber Market
on Our Operating Results.) Additionally, we achieved lower labor and overhead costs as a percentage of sales
this quarter due to efficiency gains, which offset some the decline in gross margin discussed
above.
Our gross profit percentage decreased to 12.2% from 14.9% comparing the first nine months of 2010
with the same period of 2009. In addition, our gross profit dollars decreased by 4% comparing the
first nine months of 2010 with the same period of 2009, which compares unfavorably with our 4%
increase in unit sales. Our decline in gross margin was primarily due to the factors mentioned in
the paragraph above.
25
UNIVERSAL FOREST PRODUCTS, INC.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses decreased by approximately $3.9 million, or
7.6%, in the third quarter of 2010 compared to the same period of 2009, while we reported flat unit
sales. New operations added $1.5 million of expenses, operations we closed decreased expenses by
$3.4 million, and existing operations decreased expenses by $2.0 million. The decrease in SG&A
expenses at our existing operations was primarily due to decreases in bad debt expense and accrued
bonus, offset somewhat by an increase in wages and an accrued expense associated with an officer
retirement plan approved by our Board of Directors. Our SG&A expenses decreased as a percentage of
sales primarily due to the factors above.
Selling, general and administrative (SG&A) expenses decreased by approximately $6.5 million, or
4.2%, in the first nine months of 2010 compared to the same period of 2009, while we reported a 4%
increase in unit sales. New operations added $2.7 million of expenses, operations we closed
decreased expenses by $11.1 million, and existing operations increased expenses by $1.9 million.
The increase in SG&A expenses at our existing operations was primarily due to increases in wages,
in-store merchandising costs, and accrued expense associated with an officer retirement plan,
partially offset by decreases in bad debt expense and accrued bonus. Our SG&A expenses decreased
as a percentage of sales primarily due to the factors above plus efficiency gains from our
continuing efforts to control costs. The higher level of the Lumber Market also contributed to the
improvement in this ratio.
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES
We incurred $1.1 million of charges in the third quarter of 2010 and $0.6 million in the third
quarter of 2009 relating to asset impairments and other costs associated with idled facilities and
down-sizing efforts.
We incurred $1.5 million of charges in the first nine months of 2010 and $2.3 million in the first
nine months of 2009 relating to asset impairments and other costs associated with idled facilities
and down-sizing efforts. In 2009, these costs were offset by a $3.5 million gain on the sale of
certain real estate.
We regularly review the performance of each our operations and make decisions to permanently or
temporarily close operations based on a variety of factors including:
|
|
Current and projected earnings, cash flow and return on investment |
|
|
Current and projected market demand |
|
|
Future growth opportunities |
|
|
Personnel and management |
We currently have 8 operations which are experiencing operating losses and negative cash flow for
the first nine months of 2010. The net book value of the long-lived assets of these operations,
which could be subject to an impairment charge in the future, was $3.9 million at the end of
September of 2010. In addition, these operations had future fixed operating lease payments
totaling $0.7 million at the end of September of 2010.
26
UNIVERSAL FOREST PRODUCTS, INC.
INTEREST, NET
Net interest costs were generally flat in the third quarter and first nine months of 2010 compared
to the same periods of 2009 primarily due to comparable debt balances throughout 2010.
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 38.7% for
the third quarter of 2010 and 38.3% in the same period of 2009. Our effective tax rate was 35.9%
in the first nine months of 2010 and 36.7% in the same period of 2009.
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 25, 2010 |
|
|
September 26, 2009 |
|
Cash from operating activities |
|
$ |
12,736 |
|
|
$ |
111,931 |
|
Cash from investing activities |
|
|
(27,097 |
) |
|
|
2,070 |
|
Cash from financing activities |
|
|
(9,786 |
) |
|
|
(47,362 |
) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(24,147 |
) |
|
|
66,639 |
|
Cash and
cash equivalents, beginning of period |
|
|
82,219 |
|
|
|
13,337 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
58,072 |
|
|
$ |
79,976 |
|
|
|
|
|
|
|
|
In general, we financed 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. We are
currently below our internal targets but plan to manage our capital structure conservatively in
light of current economic conditions.
Seasonality has a significant impact on our working capital from March to August which historically
resulted 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 26, 2009 balances in the accompanying
unaudited consolidated condensed balance sheets.
27
UNIVERSAL FOREST PRODUCTS, INC.
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. Our cash cycle decreased to 43 days in the first
nine months of 2010 from 45 days in the first nine months of 2009, due to a 1 day decrease in our
receivables cycle combined with a 1 day decrease in our days supply of inventory, due to several
initiatives to improve our management of receivables and inventory. However, customer demand
softened during the third quarter which resulted in an increase in our inventory levels at the end
of September of 2010 compared to the end of September 2009.
Cash provided by operating activities was $12.7 million in the first nine months of 2010, which was
comprised of net earnings of $17.3 million and $31.8 million of non-cash expenses, offset by a
$36.4 million increase in working capital since the end of 2009. Working capital increased
primarily due to higher inventory levels at the end of September resulting from a softening of
customer demand in the third quarter. We anticipate strong cash flows for the balance of the year
due to our typical seasonal trend and as we reduce inventories to a level needed to support current
demand.
Capital expenditures were $15.7 million in the first nine months of 2010. We currently plan to
spend up to $28 million in 2010, which includes outstanding purchase commitments on
existing capital projects totaling approximately $2.6 million on September 25, 2010. We intend to
fund capital expenditures and purchase commitments through our operating cash flows for the balance
of the year.
Cash flows used in investing activities included $6.5 million spent to acquire assets of certain
operations that distribute a wide range of products to the manufactured housing industry. See
Notes to Unaudited Consolidated Condensed Financial Statements, Note G Business Combinations. In
addition, we purchased certain technology and certain intangibles to produce a new product for
approximately $4.6 million.
Cash flows used in financing activities included $3.9 million for dividends. Our Board of
Directors approved a dividend of $0.20 per share, which was paid in June of 2010. In addition, we
spent approximately $5.0 million for repurchases of our common stock. On October 14, 2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of shares that may be repurchased under
the program is almost 3 million shares. Our
practice has been to repurchase an appropriate number of shares each year to offset share issuances
occurring under certain of our employee benefit plans.
On September 25, 2010, we had no outstanding balance on our $300 million revolving credit facility,
which matures in February of 2012. The revolving credit facility also supports letters of credit
totaling approximately $31.9 million on September 25, 2010. Financial covenants on the unsecured
revolving credit facility and unsecured notes include a minimum net worth requirement, minimum
interest and fixed charge coverage 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 within all of our lending requirements on September 25, 2010.
28
UNIVERSAL FOREST PRODUCTS, INC.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Unaudited Consolidated Condensed Financial Statements, Note F, 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 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 26, 2009.
29
UNIVERSAL FOREST PRODUCTS, INC.
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.
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 25, 2010 (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 25, 2010, 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. |
30
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) |
|
Issuer purchases of equity securities. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Month |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, 2010 July 31, 2010(1) |
|
|
32,000 |
|
|
$ |
30.40 |
|
|
|
32,000 |
|
|
|
1,000,829 |
|
August 1 28, 2010 |
|
|
12,600 |
|
|
$ |
29.94 |
|
|
|
12,600 |
|
|
|
988,229 |
|
August 29 September 25, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
988,229 |
|
|
|
|
(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. |
|
(1) |
|
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, 2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of shares that may be repurchased under
the program is almost 3 million shares. |
Item 5. Other Information.
In the third quarter of 2010, the Audit Committee approved $120,000 for non-audit services to be
provided by our independent auditors, Ernst & Young LLP, for 2010.
31
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits.
The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in
Regulation S-K) are filed with this report:
|
|
|
|
|
31 |
|
Certifications. |
|
|
|
|
|
|
|
(a)
|
|
Certificate of the Chief Executive Officer of Universal Forest Products, Inc.,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
|
|
|
|
|
|
|
(b)
|
|
Certificate of the Chief Financial Officer of Universal Forest Products, Inc.,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
|
|
|
|
|
32 |
|
Certifications. |
|
|
|
|
|
|
|
(a)
|
|
Certificate of the Chief Executive Officer of Universal Forest Products, Inc.,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
|
|
|
|
|
|
|
(b)
|
|
Certificate of the Chief Financial Officer of Universal Forest Products, Inc.,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
|
|
|
* |
|
Indicates a compensatory arrangement. |
32
UNIVERSAL FOREST PRODUCTS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
UNIVERSAL FOREST PRODUCTS, INC.
|
|
Date: October 20, 2010 |
By: |
/s/ Michael B. Glenn
|
|
|
|
Michael B. Glenn, |
|
|
|
Chief Executive Officer and
Principal Executive Officer |
|
|
|
|
Date: October 20, 2010 |
By: |
/s/ Michael R. Cole
|
|
|
|
Michael R. Cole, |
|
|
|
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer |
|
33
EXHIBIT INDEX
|
|
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
|
31 |
|
Certifications. |
|
|
|
|
|
|
|
(a)
|
|
Certificate of the Chief Executive Officer of Universal
Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350). |
|
|
|
|
|
|
|
(b)
|
|
Certificate of the Chief Financial Officer of Universal
Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350). |
|
|
|
|
|
32 |
|
Certifications. |
|
|
|
|
|
|
|
(a)
|
|
Certificate of the Chief Executive Officer of Universal
Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350). |
|
|
|
|
|
|
|
(b)
|
|
Certificate of the Chief Financial Officer of Universal
Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350). |
|
|
|
* |
|
Indicates a compensatory arrangement. |