Attached files
file | filename |
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EX-21 - EXHIBIT 21 - UFP INDUSTRIES INC | c12957exv21.htm |
EX-23 - EXHIBIT 23 - UFP INDUSTRIES INC | c12957exv23.htm |
EX-10.F - EXHIBIT 10(F) - UFP INDUSTRIES INC | c12957exv10wf.htm |
EX-31.B - EXHIBIT 31(B) - UFP INDUSTRIES INC | c12957exv31wb.htm |
EX-10.G - EXHIBIT 10(G) - UFP INDUSTRIES INC | c12957exv10wg.htm |
EX-14.A - EXHIBIT 14(A) - UFP INDUSTRIES INC | c12957exv14wa.htm |
EX-31.A - EXHIBIT 31(A) - UFP INDUSTRIES INC | c12957exv31wa.htm |
EX-10.J.2 - EXHIBIT 10(J)(2) - UFP INDUSTRIES INC | c12957exv10wjw2.txt |
EX-10.A.5 - EXHIBIT 10(A)(5) - UFP INDUSTRIES INC | c12957exv10waw5.txt |
EX-10.A.6 - EXHIBIT 10(A)(6) - UFP INDUSTRIES INC | c12957exv10waw6.txt |
10-K - FORM 10-K - UFP INDUSTRIES INC | c12957e10vk.htm |
EX-32.A - EXHIBIT 32(A) - UFP INDUSTRIES INC | c12957exv32wa.htm |
EX-32.B - EXHIBIT 32(B) - UFP INDUSTRIES INC | c12957exv32wb.htm |
Exhibit 13
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
FINANCIAL INFORMATION
Table of Contents
Selected Financial Data |
2 | |||
Managements Discussion and Analysis of Financial Condition
and Results of Operations |
3 | |||
Managements Annual Report on Internal Control
Over Financial Reporting |
21 | |||
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting |
22 | |||
Report of Independent Registered Public Accounting Firm
on Financial Statements |
23 | |||
Consolidated Balance Sheets as of December 25, 2010
and December 26, 2009 |
24 | |||
Consolidated Statements of Earnings for the Years Ended
December 25, 2010, December 26, 2009, and December 27, 2008 |
25 | |||
Consolidated Statements of Shareholders Equity for the Years Ended
December 25, 2010, December 26, 2009, and December 27, 2008 |
26 | |||
Consolidated Statements of Cash Flows for the Years Ended
December 25, 2010, December 26, 2009, and December 27, 2008 |
27 | |||
Notes to Consolidated Financial Statements |
29 | |||
Price Range of Common Stock and Dividends |
58 | |||
Stock Performance Graph |
59 | |||
Directors and Executive Officers |
60 | |||
Shareholder Information |
61 |
SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)
(In thousands, except per share and statistics data)
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Consolidated Statement of Earnings Data |
||||||||||||||||||||
Net sales |
$ | 1,890,851 | $ | 1,673,000 | $ | 2,232,394 | $ | 2,513,178 | $ | 2,664,572 | ||||||||||
Gross profit |
229,955 | 243,664 | 254,201 | 309,029 | 381,682 | |||||||||||||||
Earnings before income taxes |
27,041 | 38,597 | 7,146 | 38,609 | 112,135 | |||||||||||||||
Net earnings attributable to controlling
interest |
17,411 | 24,272 | 4,343 | 21,045 | 70,125 | |||||||||||||||
Diluted earnings per share |
$ | 0.89 | $ | 1.25 | $ | 0.23 | $ | 1.09 | $ | 3.62 | ||||||||||
Dividends per share |
$ | 0.400 | $ | 0.260 | $ | 0.120 | $ | 0.115 | $ | 0.110 | ||||||||||
Weighted average shares outstanding with
common stock equivalents |
19,476 | 19,468 | 19,225 | 19,362 | 19,370 | |||||||||||||||
Consolidated Balance Sheet Data |
||||||||||||||||||||
Working capital(1) |
$ | 262,105 | $ | 248,165 | $ | 230,308 | $ | 337,800 | $ | 282,913 | ||||||||||
Total assets |
788,580 | 776,868 | 816,019 | 957,000 | 913,441 | |||||||||||||||
Total debt and capital lease obligations |
55,291 | 53,854 | 101,174 | 206,071 | 170,097 | |||||||||||||||
Shareholders equity |
581,176 | 568,946 | 548,226 | 547,044 | 525,561 | |||||||||||||||
Statistics |
||||||||||||||||||||
Gross profit
as a percentage of net sales |
12.2 | % | 14.6 | % | 11.4 | % | 12.3 | % | 14.3 | % | ||||||||||
Net earnings attributable to controlling
interest as a percentage of net sales |
0.9 | % | 1.5 | % | 0.2 | % | 0.8 | % | 2.6 | % | ||||||||||
Return on beginning equity(2) |
3.1 | % | 4.4 | % | 0.8 | % | 4.0 | % | 15.9 | % | ||||||||||
Current ratio |
3.19 | 3.06 | 2.53 | 3.08 | 2.47 | |||||||||||||||
Debt to equity ratio |
0.10 | 0.09 | 0.18 | 0.38 | 0.32 | |||||||||||||||
Book value per common share(3) |
$ | 30.06 | $ | 29.50 | $ | 28.72 | $ | 28.93 | $ | 27.87 |
(1) | Current assets less current liabilities. |
|
(2) | Net earnings divided by beginning shareholders equity. |
|
(3) | Shareholders equity divided by common stock outstanding. |
2
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Universal Forest Products, Inc. (the Company) is a holding company that provides capital,
management and administrative resources to subsidiaries that design, manufacture and market wood
and wood-alternative products for DIY/retail home centers and other retailers, structural lumber
and other products for the manufactured housing industry, engineered wood components for the
site-built construction market, and specialty wood packaging and components and packing materials
for various industries. The Companys subsidiaries also provide framing services for the site-built
market and forming products for concrete construction. The Companys consumer products subsidiary
offers a large portfolio of outdoor living products, including wood composite decking, decorative
balusters, post caps and plastic lattice. Its lawn and garden group offers an array of products,
such as trellises and arches, to retailers nationwide. The Company is headquartered in Grand
Rapids, Michigan, and its subsidiaries operate facilities throughout North America. For more about
Universal Forest Products, Inc., go to www.ufpi.com.
We advise you to read the issues discussed in Managements Discussion and Analysis of Financial
Condition and Results of Operations in conjunction with our Consolidated Financial Statements and
the Notes to the Consolidated Financial Statements included in this Annual Report for the year
ended December 25, 2010. 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 2010 were impacted by the following:
| Our overall unit sales increased 5% primarily due to our manufactured housing and
industrial markets. During 2010, we believe we gained additional share of the manufactured
housing and industrial markets and maintained our share of the DIY/retail market. 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. 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 of 2010, the Lumber Market stabilized and
was approximately 27% higher, on average, in 2010 compared to the same period of 2009.
Consequently, the Lumber Market had the effect of increasing our overall selling prices for
2010. |
| The Leading Indicator for Remodeling Activity, released by Harvards Joint Center for
Housing Studies, estimated in its most recent report that consumer spending on homeowner
remodeling improvements increased 4% in 2010, which impacts our DIY/retail market. |
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
| National housing starts increased approximately 6% in 2010 compared to 2009, while
production of HUD code manufactured homes were up 2% and production of modular homes increased
by 12%. Housing starts and production of manufactured homes were positively impacted in the
first half of the year by certain government 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 to 12.2% in 2010 compared to 14.6% in 2009 primarily due to the
unusual Lumber Market volatility from January through the end of June of 2010. During this
period, prices increased 48% to a peak of $367/MBF in April and subsequently declined to
$247/MBF by the end of June. Since June, lumber prices stabilized for several months until
the end of 2010. In order to meet anticipated customer demand during the peak of the selling
season, our inventory purchases are generally very high from January through May, when lumber
prices happened to be at their highest level in 2010. The subsequent decline in lumber prices
resulted in a significant adverse impact on our gross margins from June through October on
products we purchase and produce for inventory to meet anticipated demand and whose selling
prices are indexed to the Lumber Market at the time they are shipped to the customer (such as
high-volume treated lumber). |
| Our cash flow from operating
activities was $29 million in 2010. Working capital increased primarily due to
higher inventory levels at the end of December as a result of our purchasing strategy to buy
inventory earlier at opportune times in order to protect margins on 2011 business, and higher
receivables due to increasing sales. |
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price for the years ended
December 25, 2010, December 26, 2009, and December 27, 2008.
Random Lengths Composite | ||||||||||||
Average $/MBF | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
January |
$ | 264 | $ | 198 | $ | 249 | ||||||
February |
312 | 199 | 244 | |||||||||
March |
310 | 195 | 240 | |||||||||
April |
351 | 208 | 255 | |||||||||
May |
333 | 198 | 281 | |||||||||
June |
267 | 222 | 268 | |||||||||
July |
251 | 238 | 267 | |||||||||
August |
245 | 239 | 282 | |||||||||
September |
250 | 236 | 272 | |||||||||
October |
254 | 235 | 234 | |||||||||
November |
275 | 245 | 224 | |||||||||
December |
279 | 252 | 213 | |||||||||
Annual average |
$ | 283 | $ | 222 | $ | 252 | ||||||
Annual percentage change |
27.5 | % | (11.9 | %) |
4
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
In addition, a Southern Yellow Pine (SYP) composite price, which we prepare and use, is
presented below. Sales of products produced using this species may comprise up to 50% of our sales
volume.
Random Lengths SYP | ||||||||||||
Average $/MBF | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
January |
$ | 269 | $ | 241 | $ | 269 | ||||||
February |
331 | 233 | 264 | |||||||||
March |
337 | 232 | 264 | |||||||||
April |
382 | 241 | 272 | |||||||||
May |
374 | 231 | 324 | |||||||||
June |
293 | 236 | 318 | |||||||||
July |
264 | 253 | 303 | |||||||||
August |
249 | 241 | 304 | |||||||||
September |
252 | 244 | 309 | |||||||||
October |
249 | 242 | 269 | |||||||||
November |
262 | 247 | 257 | |||||||||
December |
260 | 250 | 248 | |||||||||
Annual average |
$ | 294 | $ | 241 | $ | 283 | ||||||
Annual percentage change |
22.0 | % | (14.8 | %) |
IMPACT OF THE LUMBER MARKET ON OUR OPERATING PROFITS
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.
5
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
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. |
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 16% of our total sales. This exposure is less
significant with remanufactured lumber, trusses sold to the manufactured housing
market, and other similar products, due to the higher rate of inventory
turnover. We attempt to mitigate the risk associated with treated lumber
through vendor consignment inventory programs. (Please refer to the Risk
Factors section of our annual report on form 10-K, 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 | % |
6
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
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 AND ASSET PURCHASES
See Notes to Consolidated Financial Statements, Note C, Business Combinations.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our Consolidated
Statements of Earnings as a percentage of net sales.
Years Ended | ||||||||||||
December 25, 2010 | December 26, 2009 | December 27, 2008 | ||||||||||
Net sales |
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of goods sold |
87.8 | 85.4 | 88.6 | |||||||||
Gross profit |
12.2 | 14.6 | 11.4 | |||||||||
Selling, general, and
administrative expenses |
10.5 | 12.0 | 10.2 | |||||||||
Net loss (gain) on
disposition of assets and
other impairment and exit
charges |
0.1 | (0.0 | ) | 0.3 | ||||||||
Earnings from operations |
1.6 | 2.6 | 0.9 | |||||||||
Interest, net |
0.2 | 0.3 | 0.5 | |||||||||
Earnings before income taxes |
1.4 | 2.3 | 0.4 | |||||||||
Income taxes |
0.4 | 0.8 | 0.1 | |||||||||
Net earnings |
1.1 | 1.5 | 0.3 | |||||||||
Less net earnings
attributable to
noncontrolling interest |
(0.1 | ) | (0.0 | ) | (0.1 | ) | ||||||
Net earnings attributable
to controlling interest |
0.9 | % | 1.5 | % | 0.2 | % | ||||||
Note: Actual percentages are calculated and may not sum to total due to rounding.
GROSS SALES
We design, manufacture and market wood and wood-alternative products for DIY/retail home centers
and other retailers, structural lumber and other products for the manufactured housing industry,
engineered wood components for the site-built construction market, and specialty wood packaging and
components and packing materials for various industries. 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. |
7
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
| 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. |
|
| Developing new products and expanding our product offering for existing customers. |
|
| Maximizing unit sales growth while achieving return on investment goals. |
The following table presents, for the periods indicated, our gross sales (in thousands) and
percentage change in gross sales by market classification.
Years Ended | ||||||||||||||||||||
December 25, | % | December 26, | % | December 27, | ||||||||||||||||
Market Classification | 2010 | Change | 2009 | Change | 2008 | |||||||||||||||
DIY/Retail |
$ | 814,207 | 1.4 | $ | 803,269 | (12.6 | ) | $ | 919,200 | |||||||||||
Site-Built
Construction |
269,532 | 9.1 | 247,144 | (45.4 | ) | 452,689 | ||||||||||||||
Industrial |
595,354 | 24.5 | 478,137 | (20.2 | ) | 598,915 | ||||||||||||||
Manufactured Housing |
243,049 | 32.2 | 183,815 | (39.4 | ) | 303,387 | ||||||||||||||
Total Gross Sales |
1,922,142 | 12.3 | 1,712,365 | (24.7 | ) | 2,274,191 | ||||||||||||||
Sales Allowances |
(31,291 | ) | (39,365 | ) | (41,797 | ) | ||||||||||||||
Total Net Sales |
$ | 1,890,851 | 13.0 | $ | 1,673,000 | (25.1 | ) | $ | 2,232,394 | |||||||||||
The following table presents estimates, for the periods indicated, of our percentage change in
gross sales which were attributable to changes in overall selling prices versus changes in units
shipped.
% Change | ||||||||||||
in Sales | in Selling Prices | in Units | ||||||||||
2010 versus 2009 |
12 | % | 7 | % | 5 | % | ||||||
2009 versus 2008 |
-25 | % | -6 | % | -19 | % | ||||||
2008 versus 2007 |
-11 | % | -2 | % | -9 | % |
Gross sales in 2010 increased 12% compared to 2009 resulting from an estimated increase in
unit sales of approximately 5%, while overall selling prices increased by 7%. We estimate that our
unit sales increased 2% as a result of business acquisitions and new plants, increased 5% 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).
8
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
Gross sales in 2009 decreased 25% compared to 2008 resulting from an estimated decrease in unit
sales of approximately 19%, while overall selling prices decreased by 6%. We estimate that our
unit sales increased 1% as a result of business acquisitions and new plants, while our unit sales
from existing and closed operations decreased by 20% due to a decline in market demand. Our
overall selling prices
fluctuated as a result of the Lumber Market and were negatively impacted by pricing pressure in the
site-built construction market.
Changes in our sales by market are discussed below.
DIY/Retail:
Gross sales to the DIY/retail market increased 1% in 2010 compared to 2009 primarily due to an
estimated 5% increase in overall selling prices due to the Lumber Market, offset by an estimated 4%
decrease in overall unit sales. 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 decreased 13% in 2009 compared to 2008 primarily due to an
estimated 7% decrease in overall unit sales and an estimated 6% decrease in overall selling prices
due to the Lumber Market. We estimate that our unit sales increased 1% as a result of
acquisitions, while unit sales from existing and closed facilities decreased 8%. Unit sales
declined due to the impact of the housing market on our retail customers whose business is closely
correlated with single-family housing starts and a decline in consumer spending as evidenced by
declines in same store sales reported by our big box customers. We believe that we achieved
market share gains in 2009, which offset some of the impact of these adverse market conditions.
Site-Built Construction:
Gross sales to the site-built construction market increased 9% in 2010 compared to 2009, due to an
estimated 3% increase in unit sales and an estimated 6% increase in selling prices primarily due to
the Lumber Market. We estimate that our unit sales increased 2% as a result of business
acquisitions and new plants, increased 12% as a result of existing operations, and declined 11% due
to operations we recently closed. 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. National housing starts increased approximately 6% for 2010 compared to the same period of
2009.
Gross sales to the site-built construction market decreased 45% in 2009 compared to 2008, due to an
estimated 37% decrease in unit sales and an estimated 8% decrease in selling prices. National
housing starts were off a reported 39% for 2009 compared to the same period of 2008.
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
Industrial:
Gross sales to the industrial market increased 25% in 2010 compared to the same period of 2009, due
to an estimated 17% increase in unit sales and an estimated 8% 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 decreased 20% in 2009 compared to the same period of
2008, due to an estimated 14% decrease in unit sales and an estimated 6% decrease in selling
prices. We experienced a decline in sales to our customers that supply the housing market or have
been impacted by the weakening U.S. economy. We were able to offset some of the impact of a
decline in demand with market share gains and our continued penetration of the concrete forming
market.
Manufactured Housing:
Gross sales to the manufactured housing market increased 32% in 2010 compared to the same period of
2009 primarily due to an estimated 17% increase in selling prices due to the Lumber Market and an
estimated 15% increase in unit sales. The increase in unit sales was comprised of an estimated 6%
increase out of existing plants and an estimated 10% increase due to acquisitions, offset by a 1%
decline due to operations we recently closed. Shipments of HUD code manufactured homes were up 2%
for 2010 compared to 2009. Industry production of modular homes increased 12% for the year.
Gross sales to the manufactured housing market decreased 39% in 2009 compared to the same period of
2008 primarily due to a decline in unit sales as a result of weak demand. Industry production of
HUD code homes was off a reported 39% for 2009 compared to the same period of 2008. Modular home
production was down an estimated 44% in 2009.
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.
Value-Added | Commodity-Based | |||||||
2010 |
58.6 | % | 41.4 | % | ||||
2009 |
59.4 | % | 40.6 | % | ||||
2008 |
60.4 | % | 39.6 | % |
10
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
COST OF GOODS SOLD AND GROSS PROFIT
Our gross profit percentage decreased to 12.2% in 2010 from 14.6% in 2009. In addition, our gross
profit dollars decreased by 5.6%, which compares unfavorably with our 5% increase in unit sales.
The decrease was primarily due to unusual Lumber Market volatility
from January through the end of
June of 2010. During this period, prices increased 48% to a peak of $367/MBF in April and
subsequently declined to $247/MBF by the end of June. Since June, lumber prices stabilized for
several months until the end of 2010. In order to meet anticipated customer demand during the peak
of the selling season, our inventory purchases are generally very high
from January through May, when
lumber prices happened to be at their highest level in 2010. The subsequent decline in lumber
prices resulted in a significant adverse impact on our gross margins from June through October on
products we purchase and produce for inventory to meet anticipated demand and
whose selling prices are indexed to the Lumber Market at the time they are shipped to the customer
(such as high-volume treated lumber). (See Impact of the Lumber Market on Our Operating
Results.) Additionally, we achieved lower labor and overhead costs as a percentage of sales this
year due to efficiency gains, which offset some the decline in gross margin discussed above.
Our
gross profit percentage increased to 14.6% in 2009 from 11.4% in 2008. Our gross profit
dollars decreased by only 4.1%, which compares favorably with our 19% decrease in unit sales. Our
improved gross margin was primarily due to cost reductions consisting of:
| An improvement in material costs as a percentage of net sales as a
result of better buying and inventory management to protect
margins. |
|
| An improvement in labor and plant overhead as a percentage of net
sales due to plant consolidation and right-sizing efforts
previously taken. |
|
| Lower freight costs due to fuel prices. |
In addition, the lower level of the Lumber Market caused our gross margin to increase. (See
Impact of the Lumber Market on Our Operating Results.)
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses decreased by approximately $3.3 million, or
1.7%, in 2010 compared to 2009, while we reported a 5% increase in unit sales. New operations
added $4.8 million of expenses, operations we closed decreased expenses by $21.4 million, and
existing operations increased expenses by $13.3 million. The increase in SG&A expenses at our
existing operations was primarily due to increases in wages and other compensation related costs,
variable selling costs, and accrued expense associated with an officer retirement plan. These
increases were partially offset by decreases in bad debt expense and accrued bonus expense. Our
SG&A expenses decreased as a percentage of sales primarily due to the factors above. The higher
level of the Lumber Market also contributed to the improvement in this ratio.
Selling,
general and administrative (SG&A) expenses decreased
by approximately $27.6 million, or
12.1%, in 2009 compared to 2008, while we reported a 19% decrease in unit sales. New operations
added $0.6 million of expenses, operations we closed decreased expenses by $15.5 million, and
existing operations reduced expenses by $12.7 million. The decrease in SG&A expenses at our
existing operations was primarily due to a decline in wages and related costs due to a reduction in
headcount and a decline in many other account categories as a result of efforts to control costs.
These decreases were partially offset by an increase in accrued bonus and bad debt expense. Our
SG&A expenses increased as a percentage of sales primarily due to the lower level of the Lumber
Market, accrued bonus, and bad debt expense.
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES
We incurred $2.0 million, $4.1 million and $7.7 million of charges in 2010, 2009 and 2008,
respectively, relating to asset impairments and other costs associated with idled facilities and
down-sizing efforts. These costs were offset by gains on the sale of certain real estate totaling
$4.2 million and $0.5 million in 2009 and 2008, respectively. See Notes to Consolidated Financial
Statements, Note D Assets Held for Sale and Net Loss (Gain) on Disposition of Assets and Other
Impairment and Exit Charges.
We regularly review the performance of each of 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 |
| Market share |
| Competitive factors |
| Future growth opportunities |
| Personnel and management |
We currently have 6 operations which are experiencing operating losses and negative cash flow for
2010. The net book value of the long-lived assets of these operations, which could be subject to
an impairment charge in the future in the event a closure action is taken, was $1.7 million at the
end of 2010. In addition, these operations had future fixed operating lease payments totaling $0.2
million at the end of 2010.
INSURANCE PROCEEDS
In May, 2008 our plant in Windsor, CO was hit by a tornado. In accordance with Accounting
Standards Codification (ASC) 605, Accounting for Involuntary Conversions of Non-Monetary Assets
to Monetary Assets, we have written off the net book value of the destroyed inventory and property
totaling $0.7 million. The insured value of the property exceeded its net book value, which was
recorded as a gain in 2008. In 2008, we collected $0.8 million of the insurance receivable and in
2009 we collected $1.0 million. As of December 26, 2009, there was no remaining insurance
receivable.
INTEREST, NET
Net interest costs decreased $1.0 million in 2010 compared to 2009 primarily due to lower debt
balances throughout 2010 and payments to reduce long-term debt during 2009, which carried higher
rates of interest.
Net interest costs were lower in 2009 compared to 2008 due to lower debt balances combined with a
decrease in short-term interest rates upon which our variable rate debt is based.
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
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 decreased to
26.6% in 2010 compared to 35.9% in 2009. This decrease is primarily due to removing a valuation
allowance against a deferred tax asset for one of our wholly-owned subsidiaries. Our effective tax
rate differs from the federal statutory rate primarily due to estimated state and local income
taxes and certain permanent tax differences. See Notes to Consolidated Financial
Statements, Note L, Income Taxes.
Our effective tax rate increased to 35.9% in 2009 compared to 23.6% in 2008. Our pre-earnings
increased substantially in 2009 and the research and development tax credit and certain state
income tax credits represented a lower percentage of pre-tax earnings in 2009 than they did in
2008.
OFF-BALANCE SHEET TRANSACTIONS AND CONTRACTUAL OBLIGATIONS
We have no significant off-balance sheet transactions other than operating leases. The following
table summarizes our contractual obligations as of December 25, 2010 (in thousands).
Payments Due by Period | ||||||||||||||||||||
Less than | 1 3 | 3 5 | After | |||||||||||||||||
Contractual Obligation | 1 Year | Years | Years | 5 Years | Total | |||||||||||||||
Long-term debt and
capital lease obligations |
$ | 712 | $ | 42,379 | $ | 12,200 | $ | 55,291 | ||||||||||||
Estimated interest on
long-term debt |
2,546 | 2,610 | $ | 129 | 536 | 5,821 | ||||||||||||||
Operating leases |
7,276 | 5,984 | 2,624 | 727 | 16,611 | |||||||||||||||
Capital project purchase
obligations |
1,977 | 1,977 | ||||||||||||||||||
Total |
$ | 12,511 | $ | 50,973 | $ | 2,753 | $ | 13,463 | $ | 79,700 | ||||||||||
As of December 25, 2010, we also had $31.3 million in outstanding letters of credit issued during
the normal course of business, as required by some vendor contracts.
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in
thousands):
December 25, | December 26, | December 27, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Cash from operating activities |
$ | 29,337 | $ | 126,874 | $ | 75,214 | ||||||
Cash from investing activities |
(42,773 | ) | (3,329 | ) | (11,367 | ) | ||||||
Cash from financing activities |
(10,611 | ) | (56,135 | ) | (107,452 | ) | ||||||
Net change in cash and cash equivalents |
(24,047 | ) | 67,410 | (43,605 | ) | |||||||
Cash and cash equivalents, beginning
of year |
67,410 | 0 | 43,605 | |||||||||
Cash and cash equivalents, end of year |
$ | 43,363 | $ | 67,410 | $ | 0 | ||||||
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 issuances
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.
Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash
cycle (days sales outstanding plus days supply of inventory less days payables outstanding) is a
good indicator of our working capital management. Our cash cycle remained flat at 45 days in 2010
and 2009 due to a one day decrease in our receivables cycle offset by a one day decrease in our
payables cycle.
Cash provided by operating activities was approximately $29.3 million in 2010, which was comprised
of net earnings of $17.4 million and $40.5 million of non-cash expenses, offset by a $28.6 million
increase in working capital since the end of 2009. Working capital increased primarily due to
higher inventory levels at the end of December as a result of our purchasing strategy to buy
inventory earlier at opportune times in order to protect margins on 2011 business, and higher
receivables due to increasing sales.
Capital expenditures were $27.0 million in 2010 and we have outstanding purchase commitments on
existing capital projects totaling approximately $2.0 million on December 25, 2010. We intend to
fund capital expenditures and purchase commitments through our operating cash flows.
Cash flows used in investing activities also include $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 Consolidated Financial Statements, Note C, Business Combinations.) In addition, we
purchased certain technology and intangible assets to produce new products for approximately $4.6
million. Finally, we advanced $5.8 million of notes receivable to finance certain construction
projects that we believe will result in future sales of engineered wood components and framing
services.
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
Cash flows used in financing activities included $7.7 million for dividends. Our Board of
Directors approved two semi-annual dividends of $0.20 per share each, which were paid in June and
December 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 this 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, and to
purchase additional shares at times when the price is at a pre-determined level.
On December 25, 2010, we had $2.1 million outstanding on our $300 million revolving credit
facility, which matures in February of 2012. The revolving credit facility supports letters of
credit totaling approximately $31.3 million on December 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 December 25, 2010.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Consolidated Financial Statements, Note N, 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. Following is a summary of our more
significant accounting policies that require the use of estimates and judgments in preparing the
financial statements.
ACCOUNTS RECEIVABLE ALLOWANCES
We record provisions against gross revenues for estimated returns and cash discounts in the period
when the related revenue is recorded. These estimates are based on factors that include, but are
not limited to, historical discounts taken, analysis of credit memorandum activity, and customer
demand. We also evaluate the allowance for uncollectible accounts receivable and discounts based
on historical collection experience and specific identification of other potential problems,
including the economic climate. Actual collections can differ, requiring adjustments to the
allowances.
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
SELF-INSURANCE RESERVES
We are primarily self-insured for certain employee health benefits, and have self-funded retentions
for general liability, automobile liability, property and workers compensation. We are fully
self-insured for environmental liabilities. The general liability, automobile liability, property,
workers compensation, and certain environmental liabilities are managed through a wholly-owned
insurance captive; the related assets and liabilities of which are included in the consolidated
financial statements as of December 25, 2010. Our accounting policies with respect to the reserves
are as follows:
| General liability, automobile, workers compensation reserves
are accrued based on third party actuarial
valuations of the expected future liabilities. |
| Health benefits are self-insured by us up to our
pre-determined stop loss limits. These reserves, including
incurred but not reported claims, are based on internal
computations. These computations consider our historical
claims experience, independent statistics, and trends. |
| The environmental reserve is based on known remediation activities
at certain wood preservation facilities and the
potential for undetected environmental matters at other
sites. The reserve for known activities is based on expected
future costs and is computed by in-house experts responsible
for managing our monitoring and remediation activities. |
REVENUE RECOGNITION
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.
LONG-LIVED ASSETS AND GOODWILL
We evaluate long-lived assets for indicators of impairment when events or circumstances indicate
that this risk may be present. Our judgments regarding the existence of impairment are based on
market conditions, operational performance and estimated future cash flows. If the carrying value
of a long-lived asset is considered impaired, an impairment charge is recorded to adjust the asset
to its fair value. Changes in forecasted operations and changes in discounted rates can materially
affect these estimates. In addition, we test goodwill annually for impairment by utilizing the
discounted cash flow method.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
FORWARD OUTLOOK
The following section contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The forward-looking statements are based on the beliefs and assumptions of management,
together with information available to us when the statements were made. Future results could
differ materially from those included in such forward-looking statements as a result of, among
other things, the factors set forth in the Risk Factors section of our Annual Report on Form
10-K, filed with the United States Securities and Exchange Commission and certain economic and
business factors which may be beyond our control. Investors are cautioned that all forward-looking
statements involve risks and uncertainties.
Route 2012
Our four-year growth plan entitled Route 2012, included goals to be achieved by the end of our
fiscal year 2012 including:
| Increase sales to $3 billion as our markets recover from the current downturn and by
increasing our market share and expanding our product lines. |
| Improve productivity by 15% through our Continuous Improvement initiative. |
| Improve profitability by three hundred basis points through productivity improvements, cost
reductions, and growth. |
| Improve receivables cycles in our industrial, site-built and manufactured housing markets
by 10% by reducing the amount of our receivables that are paid past the agreed upon due date. |
| Improve inventory turnover by 10%. |
The pace of the economic recovery and in particular, the recovery of the housing market, has been
much slower than we or industry analysts anticipated. As a result, this has significantly impacted
our ability to achieve certain goals above. Therefore, we have lengthened our timeline for achieving
these goals until the end of 2014 in order to provide additional time for the anticipated economic
recovery and recovery in housing to take hold.
In the first half of 2010, our sales to the site-built construction and manufactured housing
markets were favorably impacted by government tax credits for housing which have now expired.
DIY/RETAIL MARKET
Harvards Joint Center for Housing Studies projects home improvement spending to show healthy gains
in 2011, reflecting favorable interest rates, increasing home sales and the strengthening economy.
Conversely, the Home Improvement Research Institute (HIRI) anticipates a continued delay in the
recovery of home improvement spending and has forecasted a 1.6% growth rate in 2011. HIRIs
long-term forecast is for spending to grow between 5.5% and 7.0% from 2012 to 2015.
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
In 2011, we believe we will maintain our overall market share with big box home improvement and
other retailers. We believe our product mix will change to include more sales of
preservative-treated products, offset by a decline in sales of composite decking.
On a long-term basis, it is our goal to achieve sales growth by:
| Increasing our market share of value-added wood products and preservative-treated products
as a result of our national presence, service capabilities that meet stringent customer
requirements, diversified product offering, and purchasing leverage. |
| Increasing our sales of wood alternative products, which may take market share from
preservative-treated products. Although we expect this trend to continue to some extent, we
believe wood products will continue to maintain a dominant market share for the foreseeable
future as a result of its cost advantages over wood alternative products. |
| Increasing our market penetration of products distributed by our Consumer Products
Division, including decorative balusters, accessories, and post caps, plastic lattice, and
other proprietary plastic products which have greatly enhanced our deck and fencing product
lines. |
| Developing new value-added products and services for this market. |
| Adding new products or new markets through strategic business acquisitions. |
SITE-BUILT CONSTRUCTION MARKET
The Mortgage Bankers Association of America forecasts a 9% increase in national housing starts to
an estimated 647,000 starts in 2011. The National Association of Home Builders forecasts starts of
708,000, a 20% increase from 2010. In 2011, we believe we are well-positioned to capture our share
of an increase that may occur in housing starts. However, due to recent plant closures to achieve
profitability targets our growth may trail the market in 2011.
On a long-term basis, we anticipate growth in our sales to the site-built construction market as
market conditions improve and as a result of market share gains as weaker competitors exit the
market. In addition, it is our goal to improve our diversification of sales to this market by
increasing our sales to the multi-family, light commercial, military and customer home building
markets.
MANUFACTURED HOUSING MARKET
The National Association of Home Builders forecasts a 26% increase in manufactured home shipments
in 2011. It is our goal to maintain our current market share of trusses produced for the HUD code
market. On a long-term basis, we believe the HUD code market will regain a greater share of the
single-family market as credit conditions normalize and as consumers seek more affordable housing
alternatives.
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
Sales of modular homes are expected to continue to be impacted by the current oversupply of
single-family housing and tight credit conditions. It is our goal to maintain our market share of
trusses produced for the modular market as a result of our strong relationships with modular
builders, design services and proprietary products. On a long-term basis, we anticipate modular
housing will gain additional share of the single-family market as a result of more developers
adopting the controlled building environment of modular construction as a method of cost control.
In addition, on a long-term basis, it is our goal to continue to expand our product offering to
manufactured housing customers. We may continue to use strategic business acquisitions to help us
achieve this goal.
INDUSTRIAL MARKET
One of our key strategic objectives is to increase our sales of wood packaging products to
industrial users. We believe the vast amount of hardwood and softwood lumber consumed for
industrial applications, combined with the highly fragmented nature of this market provides us with
significant market share growth opportunities as a result of our competitive cost advantages in
manufacturing, purchasing, and material utilization. To take advantage of these opportunities, we
plan to continue to obtain market share through an internal growth strategy utilizing our current
manufacturing capabilities and dedicated industrial sales force. On a long-term basis, we plan to
evaluate strategic acquisition opportunities and continue to gain market share with concrete
forming customers, and expand our product offering to customers.
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2011:
| Our ability to maintain sales and gross margins on products sold to our largest customers.
We believe our level of service, geographic diversity, and quality of products provides an
added value to our customers. However, if our customers are unwilling to pay for these
advantages, our sales and gross margins may be reduced. |
| Through at least the first half of 2011 we expect to continue to experience soft demand in
each of our markets, which, in turn, may impact our sales prices, capacity utilization, and
profitability. In the first half of 2010, our sales to site-built and manufactured housing
customers were favorably impacted by government tax credits for housing which have now
expired. |
| Fluctuations in the relative level of the Lumber Market and the trend in the market price
of lumber. (See Impact of the Lumber Market on our Operating Results.) |
| Fuel and transportation cost trends. |
| Our ability to continue to achieve productivity improvements and planned cost reductions
through our Continuous Improvement and other initiatives. |
19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Since the third quarter of 2008, as a result of weak market conditions, we have continuously taken
actions to close plants to better align our manufacturing capacity with the current business
environment and reduce our headcount and certain overhead costs to better align our cost structure
with current demand and sales. We expect that these actions will continue to favorably impact our
SG&A expenses in 2011. In addition, bonus expense for all salaried employees is based on operating
profits and return on investment and will continue to fluctuate based on our operating results.
On a long-term basis, we expect that our SG&A expenses will primarily be impacted by:
| Our growth in sales to the industrial market and, when industry conditions improve, the site-built construction market.
Our sales to these markets require a higher ratio of SG&A costs due, in part, to product design requirements. |
|
| Our incentive compensation program which is tied to pre-bonus operating profits and return on investment. |
|
| Our growth and success in achieving Continuous Improvement objectives. |
LIQUIDITY AND CAPITAL RESOURCES
Our cash cycle will continue to be impacted in the future based on our mix of sales by market.
Sales to the site-built construction and industrial markets require a greater investment in working
capital (inventory and accounts receivable) than our sales to the DIY/retail and manufactured
housing markets.
Management expects to spend $30 to $35 million on capital expenditures in 2011 and incur
depreciation of approximately $30 million and amortization of intangible assets of approximately $5
million. On December 25, 2010, we had outstanding purchase commitments on capital projects of
approximately $2.0 million. We intend to fund capital expenditures and purchase commitments
through our operating cash flows and cash.
We have no present intention to change our dividend policy, which is currently $0.20 per share paid
semi-annually.
Our Board of Directors has approved a share repurchase program, and as of December 25, 2010, we
have authorization to buy back approximately 3.0 million shares. In the past, we have repurchased
shares in order to offset the effect of issuances resulting from our employee benefit plans and at
times when our stock price falls to a pre-determined level.
We are also obligated to pay amounts due on long-term debt totaling approximately $0.7 million in
2011.
20
Managements Annual Report on Internal Control Over Financial Reporting
The management of Universal Forest Products, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting. Our internal control system was
designed to provide reasonable assurance to us and the Board of Directors regarding the preparation
and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
We assessed the effectiveness of our internal control over financial reporting as of December 25,
2010, and management has concluded that as of December 25, 2010, our internal control over
financial reporting was effective.
The effectiveness of the Companys internal control over financial reporting has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report,
which follows our report.
Universal Forest Products, Inc.
February 22, 2011
21
Report of Independent Registered Public Accounting Firm
On Internal Control over Financial Reporting
On Internal Control over Financial Reporting
The Board of Directors and Shareholders of Universal Forest Products, Inc.
We have audited Universal Forest Products, Inc. and subsidiaries internal control over financial
reporting as of December 25, 2010, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Universal Forest Products, Inc. and subsidiaries management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying
Managements Annual Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Universal Forest Products, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 25, 2010, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Universal Forest Products, Inc. and
subsidiaries as of December 25, 2010 and December 26, 2009 and the related consolidated statements
of income, shareholders equity, and cash flows for each of the three fiscal years in the period
ended December 25, 2010 and our report dated February 22, 2011 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 22, 2011
February 22, 2011
22
Report of Independent Registered Public Accounting Firm
On Financial Statements
On Financial Statements
The Board of Directors and Shareholders of Universal Forest Products, Inc.
We have audited the accompanying consolidated balance sheets of Universal Forest Products, Inc. and
subsidiaries as of December 25, 2010 and December 26, 2009, and the related consolidated statements
of earnings, shareholders equity, and cash flows for each of the three fiscal years in the period
ended December 25, 2010. These financial statements are the responsibility of Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Universal Forest Products, Inc. and subsidiaries
at December 25, 2010 and December 26, 2009, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended December 25, 2010, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Universal Forest Products, Inc. and subsidiaries internal control over
financial reporting as of December 25, 2010, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 22, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 22, 2011
February 22, 2011
23
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 25, | December 26, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 43,363 | $ | 67,410 | ||||
Accounts receivable, net |
126,780 | 107,383 | ||||||
Inventories: |
||||||||
Raw materials |
113,049 | 89,956 | ||||||
Finished goods |
77,341 | 72,192 | ||||||
Inventory |
190,390 | 162,148 | ||||||
Assets held for sale |
2,446 | |||||||
Other current assets |
9,742 | 13,528 | ||||||
Refundable income taxes |
10,391 | |||||||
Deferred income taxes |
9,278 | 7,680 | ||||||
TOTAL CURRENT ASSETS |
381,999 | 368,540 | ||||||
OTHER ASSETS |
11,455 | 4,478 | ||||||
GOODWILL |
154,702 | 154,718 | ||||||
INDEFINITE-LIVED INTANGIBLE ASSETS |
2,340 | 2,340 | ||||||
OTHER INTANGIBLE ASSETS, NET |
15,933 | 16,693 | ||||||
PROPERTY, PLANT AND EQUIPMENT: |
||||||||
Land and improvements |
105,857 | 107,115 | ||||||
Building and improvements |
162,995 | 161,861 | ||||||
Machinery, equipment and office furniture |
245,764 | 240,904 | ||||||
Construction in progress |
3,177 | 894 | ||||||
PROPERTY, PLANT AND EQUIPMENT, GROSS |
517,793 | 510,774 | ||||||
Less accumulated depreciation and amortization |
(295,642 | ) | (280,675 | ) | ||||
PROPERTY, PLANT AND EQUIPMENT, NET |
222,151 | 230,099 | ||||||
TOTAL ASSETS |
$ | 788,580 | $ | 776,868 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 59,481 | $ | 49,664 | ||||
Accrued liabilities: |
||||||||
Compensation and benefits |
43,909 | 48,340 | ||||||
Other |
15,792 | 21,698 | ||||||
Current portion of long-term debt and capital lease obligations |
712 | 673 | ||||||
TOTAL CURRENT LIABILITIES |
119,894 | 120,375 | ||||||
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion |
54,579 | 53,181 | ||||||
DEFERRED INCOME TAXES |
20,631 | 21,707 | ||||||
OTHER LIABILITIES |
12,300 | 12,659 | ||||||
TOTAL LIABILITIES |
207,404 | 207,922 | ||||||
SHAREHOLDERS EQUITY: |
||||||||
Controlling interest shareholders equity: |
||||||||
Preferred stock, no par value; shares authorized 1,000,000;
issued and outstanding, none |
||||||||
Common stock, no par value; shares authorized 40,000,000;
issued and outstanding, 19,333,122 and 19,284,587 |
$ | 19,333 | $ | 19,285 | ||||
Additional paid-in capital |
138,573 | 132,765 | ||||||
Retained earnings |
414,108 | 409,278 | ||||||
Accumulated other comprehensive earnings |
4,165 | 3,633 | ||||||
Employee stock notes receivable |
(1,670 | ) | (1,743 | ) | ||||
Total controlling interest shareholders equity |
574,509 | 563,218 | ||||||
Noncontrolling interest |
6,667 | 5,728 | ||||||
TOTAL SHAREHOLDERS EQUITY |
581,176 | 568,946 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 788,580 | $ | 776,868 | ||||
See notes to consolidated financial statements.
24
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Year Ended | ||||||||||||
December 25, | December 26, | December 27, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
NET SALES |
$ | 1,890,851 | $ | 1,673,000 | $ | 2,232,394 | ||||||
COST OF GOODS SOLD |
1,660,896 | 1,429,336 | 1,978,193 | |||||||||
GROSS PROFIT |
229,955 | 243,664 | 254,201 | |||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
197,617 | 200,939 | 228,557 | |||||||||
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER
IMPAIRMENT AND EXIT CHARGES |
2,049 | (92 | ) | 7,239 | ||||||||
EARNINGS FROM OPERATIONS |
30,289 | 42,817 | 18,405 | |||||||||
INTEREST EXPENSE |
3,549 | 4,611 | 12,088 | |||||||||
INTEREST INCOME |
(301 | ) | (391 | ) | (829 | ) | ||||||
NON-OPERATING EXPENSE |
3,248 | 4,220 | 11,259 | |||||||||
EARNINGS BEFORE INCOME TAXES |
27,041 | 38,597 | 7,146 | |||||||||
INCOME TAXES |
7,200 | 13,852 | 1,686 | |||||||||
NET EARNINGS |
19,841 | 24,745 | 5,460 | |||||||||
LESS NET EARNINGS ATTRIBUTABLE TO
NONCONTROLLING INTEREST |
(2,430 | ) | (473 | ) | (1,117 | ) | ||||||
NET EARNINGS ATTRIBUTABLE TO
CONTROLLING INTEREST |
$ | 17,411 | $ | 24,272 | $ | 4,343 | ||||||
EARNINGS PER SHARE BASIC |
$ | 0.91 | $ | 1.26 | $ | 0.23 | ||||||
EARNINGS PER SHARE DILUTED |
$ | 0.89 | $ | 1.25 | $ | 0.23 | ||||||
WEIGHTED AVERAGE SHARES OUTSTANDING |
19,232 | 19,256 | 19,074 | |||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK
EQUIVALENTS |
19,476 | 19,468 | 19,225 |
See notes to consolidated financial statements.
25
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share and per share data)
Controlling Interest Shareholders Equity | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||
Additional | Comprehen- | Employees | ||||||||||||||||||||||||||
Common | Paid-In | Retained | sive | Stock Notes | Noncontrolling | |||||||||||||||||||||||
Stock | Capital | Earnings | Earnings | Receivable | Interest | Total | ||||||||||||||||||||||
Balance at December 29, 2007 |
$ | 18,908 | $ | 123,368 | $ | 391,253 | $ | 4,704 | $ | (1,565 | ) | $ | 10,376 | $ | 547,044 | |||||||||||||
Comprehensive earnings: |
||||||||||||||||||||||||||||
Net earnings |
4,343 | 1,117 | ||||||||||||||||||||||||||
Foreign currency
translation adjustment |
(2,351 | ) | (1,071 | ) | ||||||||||||||||||||||||
Total comprehensive earnings |
2,038 | |||||||||||||||||||||||||||
Capital contribution from
noncontrolling interest |
419 | 419 | ||||||||||||||||||||||||||
Purchase of additional
noncontrolling interest |
(844 | ) | (844 | ) | ||||||||||||||||||||||||
Distributions to noncontrolling interest |
(3,654 | ) | (3,654 | ) | ||||||||||||||||||||||||
Cash dividends $0.120 per share |
(2,284 | ) | (2,284 | ) | ||||||||||||||||||||||||
Issuance of 174,528 shares under
employee stock plans |
175 | 3,030 | 3,205 | |||||||||||||||||||||||||
Issuance of 3,706 shares under
stock grant programs |
4 | 100 | 104 | |||||||||||||||||||||||||
Issuance of 15,288 shares under
deferred compensation plans |
15 | (15 | ) | | ||||||||||||||||||||||||
Received 19,857 shares for the
exercise of stock options |
(20 | ) | (622 | ) | (642 | ) | ||||||||||||||||||||||
Tax benefits from non-qualified
stock options exercised |
878 | 878 | ||||||||||||||||||||||||||
Expense associated with
share-based compensation
arrangements |
1,136 | 1,136 | ||||||||||||||||||||||||||
Accrued expense under
deferred compensation plans |
725 | 725 | ||||||||||||||||||||||||||
Issuance of 7,374 shares in
exchange for employee stock
notes receivable |
7 | 230 | (237 | ) | | |||||||||||||||||||||||
Payments received on employee
stock notes receivable |
101 | 101 | ||||||||||||||||||||||||||
Balance at December 27, 2008 |
$ | 19,089 | $ | 128,830 | $ | 393,312 | $ | 2,353 | $ | (1,701 | ) | $ | 6,343 | $ | 548,226 | |||||||||||||
Comprehensive earnings: |
||||||||||||||||||||||||||||
Net earnings |
24,272 | 473 | ||||||||||||||||||||||||||
Foreign currency
translation adjustment |
1,280 | 85 | ||||||||||||||||||||||||||
Total comprehensive earnings |
26,110 | |||||||||||||||||||||||||||
Capital contribution from
noncontrolling interest |
14 | 14 | ||||||||||||||||||||||||||
Purchase of additional
noncontrolling interest |
(853 | ) | (917 | ) | (1,770 | ) | ||||||||||||||||||||||
Distributions to noncontrolling interest |
(270 | ) | (270 | ) | ||||||||||||||||||||||||
Cash dividends $0.260 per share |
(5,017 | ) | (5,017 | ) | ||||||||||||||||||||||||
Issuance of 130,265 shares under
employee stock plans |
130 | 2,290 | 2,420 | |||||||||||||||||||||||||
Issuance of 79,216 shares under
stock grant programs |
80 | 29 | 109 | |||||||||||||||||||||||||
Issuance of 74,229 shares under
deferred compensation plans |
74 | (74 | ) | | ||||||||||||||||||||||||
Repurchase of 90,122 shares |
(90 | ) | (3,289 | ) | (3,379 | ) | ||||||||||||||||||||||
Received 1,602 shares for the
exercise of stock options |
(2 | ) | (33 | ) | (35 | ) | ||||||||||||||||||||||
Tax benefits from non-qualified
stock options exercised |
730 | 730 | ||||||||||||||||||||||||||
Deferred income tax asset reversal
for deferred compensation plans |
(518 | ) | (518 | ) | ||||||||||||||||||||||||
Expense associated with
share-based compensation
arrangements |
1,597 | 1,597 | ||||||||||||||||||||||||||
Accrued expense under
deferred compensation plans |
646 | 646 | ||||||||||||||||||||||||||
Issuance of 3,721 shares in
exchange for employee stock
notes receivable |
4 | 121 | (125 | ) | | |||||||||||||||||||||||
Payments received on employee
stock notes receivable |
83 | 83 | ||||||||||||||||||||||||||
Balance at December 26, 2009 |
$ | 19,285 | $ | 132,765 | $ | 409,278 | $ | 3,633 | $ | (1,743 | ) | $ | 5,728 | $ | 568,946 | |||||||||||||
Comprehensive earnings: |
||||||||||||||||||||||||||||
Net earnings |
17,411 | 2,430 | ||||||||||||||||||||||||||
Foreign currency
translation adjustment |
532 | 235 | ||||||||||||||||||||||||||
Total comprehensive earnings |
20,608 | |||||||||||||||||||||||||||
Capital contribution from
noncontrolling interest |
450 | 450 | ||||||||||||||||||||||||||
Purchase of additional
noncontrolling interest |
(295 | ) | (932 | ) | (1,227 | ) | ||||||||||||||||||||||
Distributions to noncontrolling interest |
(1,244 | ) | (1,244 | ) | ||||||||||||||||||||||||
Cash dividends $0.400 per share |
(7,727 | ) | (7,727 | ) | ||||||||||||||||||||||||
Issuance of 111,258 shares under
employee stock plans |
111 | 2,222 | 2,333 | |||||||||||||||||||||||||
Issuance of 73,857 shares under
stock grant programs |
74 | 140 | 214 | |||||||||||||||||||||||||
Issuance of 9,046 shares under
deferred compensation plans |
9 | (9 | ) | | ||||||||||||||||||||||||
Repurchase of 144,900 shares |
(145 | ) | (4,854 | ) | (4,999 | ) | ||||||||||||||||||||||
Tax benefits from non-qualified
stock options exercised |
598 | 598 | ||||||||||||||||||||||||||
Expense associated with
share-based compensation
arrangements |
2,418 | 2,418 | ||||||||||||||||||||||||||
Accrued expense under
deferred compensation plans |
776 | 776 | ||||||||||||||||||||||||||
Issuance of 1,298 shares in
exchange for employee stock
notes receivable |
1 | 49 | (50 | ) | | |||||||||||||||||||||||
Note receivable adjustment |
(2 | ) | (91 | ) | 42 | (51 | ) | |||||||||||||||||||||
Payments received on employee
stock notes receivable |
81 | 81 | ||||||||||||||||||||||||||
Balance at December 25, 2010 |
$ | 19,333 | $ | 138,573 | $ | 414,108 | $ | 4,165 | $ | (1,670 | ) | $ | 6,667 | $ | 581,176 | |||||||||||||
See notes to consolidated financial statements.
26
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended | ||||||||||||
December 25, | December 26, | December 27, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net earnings attributable to controlling interest |
$ | 17,411 | $ | 24,272 | $ | 4,343 | ||||||
Adjustments to reconcile net earnings attributable to controlling interest
to net cash from operating activities: |
||||||||||||
Depreciation |
30,429 | 32,917 | 37,570 | |||||||||
Amortization of intangibles |
6,919 | 8,308 | 9,797 | |||||||||
Expense associated with share-based compensation arrangements |
2,418 | 1,597 | 1,136 | |||||||||
Excess tax benefits from share-based compensation arrangements |
(430 | ) | (603 | ) | (171 | ) | ||||||
Expense associated with stock grant plans |
214 | 109 | 104 | |||||||||
Deferred income taxes (credit) |
(2,708 | ) | 4,744 | (7,747 | ) | |||||||
Net earnings attributable to noncontrolling interest |
2,430 | 473 | 1,117 | |||||||||
Gain on insurance settlement |
(598 | ) | ||||||||||
Net loss (gain) on sale or impairment of property, plant and
equipment |
1,239 | (773 | ) | 7,062 | ||||||||
Changes in: |
||||||||||||
Accounts receivable |
(18,428 | ) | 31,071 | 4,287 | ||||||||
Inventories |
(24,946 | ) | 31,522 | 42,922 | ||||||||
Accounts payable |
9,646 | (862 | ) | (33,490 | ) | |||||||
Accrued liabilities and other |
5,143 | (5,901 | ) | 8,882 | ||||||||
NET CASH FROM OPERATING ACTIVITIES |
29,337 | 126,874 | 75,214 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Purchases of property, plant and equipment |
(26,950 | ) | (15,604 | ) | (18,944 | ) | ||||||
Investment in joint venture |
(659 | ) | ||||||||||
Acquisitions, net of cash received |
(6,529 | ) | (23,338 | ) | ||||||||
Proceeds from sale of property, plant and equipment |
835 | 11,724 | 30,367 | |||||||||
Purchase of product technology and non-compete agreement |
(4,589 | ) | ||||||||||
Advances on notes receivable |
(5,780 | ) | (14 | ) | (997 | ) | ||||||
Collections on notes receivable |
227 | 171 | 556 | |||||||||
Insurance proceeds |
1,023 | 800 | ||||||||||
Other, net |
13 | 30 | 189 | |||||||||
NET CASH FROM INVESTING ACTIVITIES |
(42,773 | ) | (3,329 | ) | (11,367 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Net borrowings (repayments) under revolving credit facilities |
2,109 | (30,257 | ) | (24,148 | ) | |||||||
Repayment of long-term debt |
(744 | ) | (19,207 | ) | (80,824 | ) | ||||||
Borrowings of long-term debt |
800 | |||||||||||
Proceeds from issuance of common stock |
2,333 | 2,420 | 2,957 | |||||||||
Purchase of additional noncontrolling interest |
(1,227 | ) | (1,770 | ) | ||||||||
Distributions to noncontrolling interest |
(1,244 | ) | (270 | ) | (3,654 | ) | ||||||
Capital contribution from noncontrolling interest |
450 | 14 | 419 | |||||||||
Dividends paid to shareholders |
(7,727 | ) | (5,017 | ) | (2,284 | ) | ||||||
Repurchase of common stock |
(4,999 | ) | (3,379 | ) | ||||||||
Excess tax benefits from share-based compensation arrangements |
430 | 603 | 171 | |||||||||
Other, net |
8 | (72 | ) | (89 | ) | |||||||
NET CASH FROM FINANCING ACTIVITIES |
(10,611 | ) | (56,135 | ) | (107,452 | ) | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
(24,047 | ) | 67,410 | (43,605 | ) | |||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
67,410 | | 43,605 | |||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 43,363 | $ | 67,410 | $ | | ||||||
27
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -
(CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS -
(CONTINUED)
Year Ended | ||||||||||||
December 25, | December 26, | December 27, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: |
||||||||||||
Cash paid (refunded) during the period for: |
||||||||||||
Interest |
$ | 3,554 | $ | 4,905 | $ | 12,418 | ||||||
Income taxes |
(1,698 | ) | 12,346 | (8 | ) | |||||||
NON-CASH INVESTING ACTIVITIES: |
||||||||||||
Stock acquired through employees stock notes receivable |
50 | 125 | 237 | |||||||||
NON-CASH FINANCING ACTIVITIES: |
||||||||||||
Common stock issued under deferred compensation plans |
306 | 338 | 443 |
See notes to consolidated financial statements
28
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
OPERATIONS
We design, manufacture and market wood and wood-alternative products for DIY/retail home
centers and other retailers, structural lumber and other products for the manufactured
housing industry, engineered wood components for the site-built construction market, and
specialty wood packaging and components and packing materials for various industries. Our
principal products include preservative-treated wood, remanufactured lumber, lattice, fence
panels, deck components, specialty packaging, engineered trusses, wall panels, and other
building products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include our accounts and those of our wholly-owned and
majority-owned subsidiaries and partnerships. In addition, we consolidate 50% owned
entities over which we exercise control. Intercompany transactions and balances have been
eliminated.
NONCONTROLLING INTEREST IN SUBSIDIARIES
Noncontrolling interest in results of operations of consolidated subsidiaries represents the
noncontrolling shareholders share of the income or loss of various consolidated
subsidiaries. The noncontrolling interest reflects the original investment by these
noncontrolling shareholders combined with their proportional share of the earnings or losses
of these subsidiaries, net of distributions paid.
FISCAL YEAR
Our fiscal year is a 52 or 53 week period, ending on the last Saturday of December. Unless
otherwise stated, references to 2010, 2009, and 2008 relate to the fiscal years ended
December 25, 2010, December 26, 2009, and December 27, 2008, respectively. Fiscal years
2010, 2009, and 2008 were comprised of 52 weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined in accordance with
ASC 825, Financial Instruments. Significant differences in the fair market value and
recorded value of our debt is disclosed in Note F. The fair values of all other financial
instruments approximate their carrying values. The estimated fair value amounts have been
determined using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that we could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
29
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The fair value estimates presented herein are based on pertinent information available to
management as of December 25, 2010. Although we are not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from the amounts presented herein.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly-liquid investments purchased with an
original maturity of three months or less. Cash equivalents totaled approximately $44.1
million and $44.9 million as of December 25, 2010 and December 26, 2009, respectively.
ACCOUNTS RECEIVABLE
We perform periodic credit evaluations of our customers and generally do not require
collateral. Accounts receivable are due under a range of terms we offer to our customers.
Discounts are offered, in most instances, as an incentive for early payment.
ACCOUNTS RECEIVABLE ALLOWANCES
We base our allowances related to receivables on historical credit and collections
experience, and the specific identification of other potential problems, including the
general economic climate. Actual collections can differ, requiring adjustments to the
allowances. Individual accounts receivable balances are evaluated on a monthly basis, and
those balances considered uncollectible are charged to the allowance. Collections of
amounts previously written off are recorded as an increase to the allowance.
30
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The following table presents the activity in our accounts receivable allowances (in
thousands):
Additions | ||||||||||||||||||||
Charged to | ||||||||||||||||||||
Beginning | Costs and | Ending | ||||||||||||||||||
Balance | Expenses | Deductions* | Collections | Balance | ||||||||||||||||
Year Ended December 25, 2010: |
||||||||||||||||||||
Allowance for possible losses
on accounts receivable |
$ | 2,897 | $ | 12,412 | $ | (15,253 | ) | $ | 2,555 | $ | 2,611 | |||||||||
Year Ended December 26, 2009: |
||||||||||||||||||||
Allowance for possible losses
on accounts receivable |
$ | 2,440 | $ | 23,984 | $ | (24,600 | ) | $ | 1,073 | $ | 2,897 | |||||||||
Year Ended December 27, 2008: |
||||||||||||||||||||
Allowance for possible losses
on accounts receivable |
$ | 2,403 | $ | 24,734 | $ | (25,453 | ) | $ | 756 | $ | 2,440 |
* | Includes accounts charged off, discounts given to customers and actual customer
returns and allowances. |
We record estimated sales returns, discounts, and other applicable adjustments as a
reduction of net sales in the same period revenue is recognized.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of inventories includes raw
materials, direct labor, and manufacturing overhead. Cost is determined on a weighted
average basis. Raw materials consist primarily of unfinished wood products expected to be
manufactured or treated prior to sale, while finished goods represent various manufactured
and treated wood products ready for sale.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures for renewals and
betterments are capitalized, and maintenance and repairs are expensed as incurred.
Amortization of assets held under capital leases is included in depreciation and amortized
over the shorter of the estimated useful life of the asset or the lease term. Depreciation
is computed principally by the straight-line method over the estimated useful lives of the
assets as follows:
Land improvements |
5 to 15 years | |||
Buildings and improvements |
15 to 31.5 years | |||
Machinery, equipment and office furniture |
3 to 10 years |
FOREIGN CURRENCY TRANSLATION
Our foreign operations use the local currency as their functional currency. Accordingly,
assets and liabilities are translated at exchange rates as of the balance sheet date and
revenues and expenses are translated using weighted average rates, with translation
adjustments included as a separate component of shareholders equity.
31
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
SELF-INSURANCE RESERVES
We are primarily self-insured for certain employee health benefits, and have self-funded
retentions for general liability, automobile liability, property and workers compensation.
We are fully self-insured for environmental liabilities. The general liability, automobile
liability, property, workers compensation, and certain environmental liabilities are
managed through a wholly-owned insurance captive; the related assets and liabilities of
which are included in the consolidated financial statements as of December 25, 2010 and
December 26, 2009. Our policy is to accrue amounts equal to actuarially determined or
internally computed liabilities. The actuarial and internal valuations are based on
historical information along with certain assumptions about future events. Changes in
assumptions for such matters as legal actions, medical cost trends, and changes in claims
experience could cause these estimates to change in the future.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between the
financial statement and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future. Such deferred income tax asset and liability computations
are based on enacted tax laws and rates. Valuation allowances are established when
necessary to reduce deferred income tax assets to the amounts expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred income tax assets and liabilities.
REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped to the customer. Generally, title
passes at the time of shipment. In certain circumstances, the customer takes title when the
shipment arrives at the destination. However, our shipping process is typically completed
the same day.
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.
32
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The following table presents the balances of percentage-of-completion and completed contract
accounts on December 25, 2010 and December 26, 2009 which are included in other current
assets and other accrued liabilities, respectively (in thousands):
2010 | 2009 | |||||||
Cost and Earnings in Excess of Billings |
$ | 3,604 | $ | 9,998 | ||||
Billings in Excess of Cost and Earnings |
2,126 | 8,954 |
SHIPPING AND HANDLING OF PRODUCT
Shipping and handling costs that are charged to and reimbursed by the customer are
recognized as revenue. Costs incurred related to the shipment and handling of products are
classified in cost of goods sold.
LONG-LIVED ASSETS
In accordance with ASC 360, Property, Plant, and Equipment (ASC 360), when an indicator of
potential impairment exists, we evaluate the recoverability of our long-lived assets by
determining whether unamortized balances could be recovered through undiscounted future
operating cash flows over the remaining lives of the assets. If the sum of the expected
future cash flows was less than the carrying value of the assets, an impairment loss would
be recognized for the excess of the carrying value over the fair value.
EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated based on the weighted average number of
common shares outstanding during the periods presented. Diluted EPS is calculated based on
the weighted average number of common and common equivalent shares outstanding during the
periods presented, giving effect to stock options granted and conditional stock grants (see
Note I) utilizing the treasury stock method.
33
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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):
2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||||||
Income | Shares | Per | Income | Shares | Per | Income | Shares | Per | ||||||||||||||||||||||||||||
(Num- | (Denom- | Share | (Num- | (Denom- | Share | (Num- | (Denom- | Share | ||||||||||||||||||||||||||||
erator) | inator) | Amount | erator) | inator) | Amount | erator) | inator) | Amount | ||||||||||||||||||||||||||||
Net Earnings |
$ | 17,411 | $ | 24,272 | $ | 4,343 | ||||||||||||||||||||||||||||||
EPS Basic |
||||||||||||||||||||||||||||||||||||
Income available to common
stockholders |
17,411 | 19,232 | $ | 0.91 | 24,272 | 19,256 | $ | 1.26 | 4,343 | 19,074 | $ | 0.23 | ||||||||||||||||||||||||
Effect of Dilutive Securities |
||||||||||||||||||||||||||||||||||||
Options |
244 | 212 | 151 | |||||||||||||||||||||||||||||||||
EPS Diluted |
||||||||||||||||||||||||||||||||||||
Income available to common
stockholders and assumed
options exercised |
$ | 17,411 | 19,476 | $ | 0.89 | $ | 24,272 | 19,468 | $ | 1.25 | $ | 4,343 | 19,225 | $ | 0.23 | |||||||||||||||||||||
Options to purchase 10,000, 10,000 and 230,000 shares of common stock were not included
in the computation of diluted EPS for 2010, 2009 and 2008, respectively, because the
options exercise prices were greater than the average market price of the common stock
during the period and, therefore, would be antidilutive.
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. We believe our estimates to be
reasonable; however, actual results could differ from these estimates.
RECLASSIFICATIONS
Certain prior year information has been reclassified to conform to the current year
presentation.
34
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
B. | FAIR VALUE |
We apply the provisions of ASC 820, Fair Value Measurements and Disclosures, to assets and
liabilities measured at fair value. Assets and liabilities measured at fair value are as
follows:
December 25, 2010 | December 26, 2009 | |||||||||||||||||||||||
Prices | Prices | |||||||||||||||||||||||
Quoted | with | Quoted | 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 |
$ | 67 | $ | 67 | ||||||||||||||||||||
Mutual funds: |
$ | 883 | $ | 883 | ||||||||||||||||||||
Domestic stock funds |
459 | 459 | ||||||||||||||||||||||
International stock funds |
408 | 408 | ||||||||||||||||||||||
Target funds |
119 | 119 | ||||||||||||||||||||||
Bond funds |
55 | 55 | ||||||||||||||||||||||
Total mutual funds |
1,108 | 1,108 | 883 | 883 | ||||||||||||||||||||
Non-Recurring: |
||||||||||||||||||||||||
Property, plant and equipment |
$ | 1,071 | 1,071 | $ | 1,385 | 1,385 | ||||||||||||||||||
$ | 1,108 | $ | 1,071 | $ | 2,179 | $ | 883 | $ | 1,385 | $ | 2,268 | |||||||||||||
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.
We do not maintain any Level 3 assets or liabilities that would be based on significant
unobservable inputs.
35
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
C. | BUSINESS COMBINATIONS |
We completed the following business combinations in fiscal 2010 and 2008, which were
accounted for using the purchase method (in millions). No business combinations were
completed in fiscal 2009.
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) | $ | 2.2 | $ | 3.7 | Distribution 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. Purchased 100% of the inventory, property, plant and equipment, and intangibles |
||||||||
Service Supply
Distribution, Inc.
(Service Supply)
|
March 8, 2010 | $0.6 (asset purchase) | $ | 0.0 | $ | 0.6 | Distribution 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. Purchased 100% of the inventory, property, plant and equipment |
||||||||
D-Stake Mill and
Manufacturing
Country (D-Stake) |
June 9, 2008 | $7.1 (asset purchase) | $ | 5.1 | $ | 2.0 | Western Division | Manufactures kiln
stickers, lath,
stakes, decking,
and pallets and
pallet components
for a variety of
industries
including
manufacturing,
retail and
agriculture.
Plants are located
in McMinnville, OR
and Independence,
OR. Combined 2007
sales were $18.5
million. Purchased 100% of the inventory, property, plant and equipment, and intangibles |
||||||||
Shawnlee
Construction, LLC
(Shawnlee)
|
April 1, 2008 | $1.8 (asset purchase) | $ | 1.0 | $ | 0.8 | Atlantic Division |
Provides framing services for multi-family construction in the northeast. Located in Plainville, MA. As of April 1, 2008 we owned a 90% membership interest and have purchased an additional 5% interest each year. | ||||||||
Romano Construction
Company, Ltd.
(Romano)
|
March 15, 2008 | $0.4 (asset purchase) | $ | 0.2 | $ | 0.2 | Atlantic Division | Provides framing
services and is
located in
Middletown, NY. Purchased 100% of the property, plant and equipment and intangibles |
||||||||
International Wood
Industries, Inc.
(IWI)
|
February 4, 2008 | $14.0 (stock purchase) | $ | 10.6 | $ | 3.4 | Western Division | Manufactures and distributes industrial products, including specialty boxes, crates, pallets and skids. Headquartered in Turlock, CA with distribution sites in Hawaii and Alaska. 2007 sales were $40.0 million. | ||||||||
Purchased 100% voting interest |
36
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The amounts assigned to major intangible classes for business combinations mentioned
above are as follows (in millions):
Goodwill - | ||||||||||||||||
Non-compete | Customer | Goodwill | Tax | |||||||||||||
agreements | Relationships | - Total | Deductible | |||||||||||||
Shepherd |
$ | 0.5 | $ | 1.4 | $ | 0.3 | $ | 0.3 | ||||||||
D-Stake |
1.0 | 1.9 | 2.2 | 2.2 | ||||||||||||
Shawnlee |
0.3 | 0.4 | 0.3 | 0.3 | ||||||||||||
Romano |
0.2 | |||||||||||||||
IWI |
2.4 | 5.6 | 2.6 | 0.0 |
The business combinations mentioned above were not significant to our operating results
individually or in aggregate, and thus pro forma results are not presented.
D. | ASSETS HELD FOR SALE AND NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT
AND EXIT CHARGES |
Included in Assets held for sale on our Consolidated Balance Sheets is certain property,
plant and equipment totaling $2.4 million on December 25, 2010. The assets held for sale
consist of certain vacant land and 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 assets. These and other idle assets were evaluated
based on the requirements of ASC 360, which resulted in impairment and other exit charges
included in Net loss (gain) on disposition of assets and other impairment and exit charges
for the years ended December 25, 2010, December 26, 2009 and December 27, 2008,
respectively. These amounts include the following, separated by reporting segment (in
millions):
December 25, 2010 | December 26, 2009 | December 27, 2008 | ||||||||||||||||||||||||||||||||||
Eastern | Eastern | Eastern | ||||||||||||||||||||||||||||||||||
and | and | and | ||||||||||||||||||||||||||||||||||
Western | Atlantic | All | Western | Atlantic | All | Western | Atlantic | All | ||||||||||||||||||||||||||||
Divisions | Division | Other | Divisions | Division | Other | Divisions | Division | Other | ||||||||||||||||||||||||||||
Severances |
$ | 0.6 | $ | 0.2 | $ | 0.3 | $ | 0.4 | $ | 0.6 | $ | 0.5 | $ | 0.3 | ||||||||||||||||||||||
Property, plant and
equipment |
0.5 | 0.1 | 1.9 | 0.2 | $ | 0.4 | 2.1 | 0.7 | 0.8 | |||||||||||||||||||||||||||
Gain on sale of
real estate |
(3.4 | ) | (0.8 | ) | (0.5 | ) | ||||||||||||||||||||||||||||||
Notes receivable |
1.6 | |||||||||||||||||||||||||||||||||||
Lease termination |
0.1 | 0.5 | 0.5 | |||||||||||||||||||||||||||||||||
Other intangibles |
0.6 | 0.3 | 0.6 |
37
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The changes in assets held for sale are as follows (in thousands):
Net Book | Net Sales | |||||||||
Description | Value | Date of Sale | Price | |||||||
Assets held for sale as of December 27, 2008 |
$ | 8,296 | ||||||||
Additions |
1,030 | |||||||||
Transfers to held for use |
(3,057 | ) | ||||||||
Sale of certain real estate in Woodburn, Oregon |
(2,806 | ) | February 6, 2009 | $5.2 million | ||||||
Sale of certain real estate in Dallas, Texas |
(2,433 | ) | May 13, 2009 | $3.4 million | ||||||
Sale of certain real estate in Murrieta, California |
(1,030 | ) | June 10, 2009 | $0.9 million | ||||||
Assets held for sale as of December 26, 2009 |
| |||||||||
Additions |
2,446 | |||||||||
Assets held for sale as of December 25, 2010 |
$ | 2,446 | ||||||||
In 2009, we transferred certain assets back to held for use because we did not believe
we would sell these assets within a year due to difficult economic conditions and
competitive factors. Appropriate catch-up adjustments were recorded for depreciation
associated with the transfer of these assets to held for use.
E. | GOODWILL AND OTHER INTANGIBLE ASSETS |
Goodwill represents the excess of the purchase price over the fair value of net tangible and
identifiable intangible assets of acquired businesses. Goodwill and intangible assets
deemed to have indefinite lives are not amortized, but are subject to impairment tests at
least annually in accordance with ASC 350, Intangibles-Goodwill and Other. We review the
carrying amounts of goodwill and other non-amortizable intangibles by reporting unit to
determine if such assets may be impaired. As the carrying amount of these assets are
recoverable based upon a discounted cash flow and market approach analysis, no impairment
was recognized.
The following amounts were included in other intangible assets, net as of December 25, 2010
and December 26, 2009 (in thousands):
2010 | 2009 | |||||||||||||||
Accumulated | Accumulated | |||||||||||||||
Assets | Amortization | Assets | Amortization | |||||||||||||
Non-compete agreements |
$ | 12,569 | $ | (9,214 | ) | $ | 18,162 | $ | (11,182 | ) | ||||||
Customer relationships |
16,219 | (9,199 | ) | 19,813 | (11,643 | ) | ||||||||||
Licensing agreements |
4,589 | (229 | ) | |||||||||||||
Patents |
2,980 | (1,782 | ) | 2,980 | (1,437 | ) | ||||||||||
Total |
$ | 36,357 | $ | (20,424 | ) | $ | 40,955 | $ | (24,262 | ) | ||||||
38
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Amortization is computed principally by the straight-line method over the estimated
useful lives of the intangible assets as follows:
Non-compete agreements |
5 to 10 years | |||
Customer relationship |
5 to 8 years | |||
Licensing agreements |
10 years |
Amortization expense of intangibles totaled $6.9 million, $8.3 million and $9.8 million
in 2010, 2009 and 2008, respectively. The estimated amortization expense for intangibles
for each of the five succeeding fiscal years is as follows (in thousands):
2011 |
$ | 5,183 | ||
2012 |
2,918 | |||
2013 |
2,170 | |||
2014 |
1,836 | |||
2015 |
1,612 | |||
Thereafter |
2,214 | |||
Total |
$ | 15,933 | ||
The changes in the net carrying amount of goodwill and indefinite-lived intangible
assets for the years ended December 25, 2010 and December 26, 2009, are as follows (in
thousands):
Indefinite- | ||||||||
Lived | ||||||||
Intangible | ||||||||
Goodwill | Assets | |||||||
Balance as of December 27, 2008 |
$ | 156,923 | $ | 2,340 | ||||
Final purchase price allocations |
(2,326 | ) | ||||||
Deferred income tax adjustment |
121 | |||||||
Balance as of December 26, 2009 |
$ | 154,718 | $ | 2,340 | ||||
Acquisitions |
309 | |||||||
Final purchase price allocations |
(325 | ) | ||||||
Balance as of December 25, 2010 |
$ | 154,702 | $ | 2,340 | ||||
F. | DEBT |
We have a five-year, $300 million unsecured revolving credit facility, which includes
amounts reserved for letters of credit. Cash borrowings are charged interest based upon an
index equal to the Eurodollar rate (in the case of borrowings in US Dollars) or the bankers
acceptance rate quoted (in the case of borrowings in Canadian Dollars), plus a margin
(ranging from 27 to 90 basis points, based upon our financial performance). We are also
charged an annual facility fee on the entire amount of the lending commitment (ranging from
8 to 25 basis points, based upon our performance), and a usage premium (ranging from 5 to
12.5 basis points, based upon our performance) at times when borrowings in US Dollars exceed
$150 million. The average borrowing rate on this facility was 0.8% in both 2010 and 2009,
respectively. The amount outstanding on the revolving credit facility is included in the
long-term debt summary below. The revolving credit facility supports letters of credit that
we may be required to issue.
39
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Outstanding letters of credit extended on our behalf aggregated $31.3 million on December
25, 2010, which includes approximately $12.4 million related to industrial
development revenue bonds. Outstanding letters of credit extended on our behalf aggregated
$32.3 million on December 26, 2009, which includes approximately $12.4 million related to
industrial development revenue bonds. Letters of credit have terms ranging from one to
three years, and include an automatic renewal clause. The letters of credit are charged an
annual interest rate ranging from 27 to 90 basis points under the $300 million facility,
based upon our financial performance.
Long-term debt and capital lease obligations are summarized as follows on December 25, 2010
and December 26, 2009 (amounts in thousands):
2010 | 2009 | |||||||
Series 2002-A Senior Notes Tranche B, due on December 18,
2012, interest payable semi-annually at 6.16% |
$ | 40,000 | $ | 40,000 | ||||
Revolving credit facility totaling $300 million due on
February 12, 2012, interest due monthly at a floating rate
(1.2% on December 25, 2010) |
2,109 | |||||||
Series 1999 Industrial Development Revenue Bonds, due on
August 1, 2029, interest payable monthly at a floating rate
(0.55% on December 25, 2010) |
3,300 | 3,300 | ||||||
Series 2000 Industrial Development Revenue Bonds, due on
October 1, 2020, interest payable monthly at a floating rate
(0.52% on December 25, 2010) |
2,700 | 2,700 | ||||||
Series 2001 Industrial Development Revenue Bonds, due on
November 1, 2021, interest payable monthly at a floating rate
(0.53% on December 25, 2010) |
2,500 | 2,500 | ||||||
Series 2002 Industrial Development Revenue Bonds, due on
December 1, 2022, interest payable monthly at a floating rate
(0.51% on December 25, 2010) |
3,700 | 3,700 | ||||||
Capital lease obligations, interest imputed at 5.37% |
458 | 892 | ||||||
Other |
524 | 762 | ||||||
55,291 | 53,854 | |||||||
Less current portion |
712 | 673 | ||||||
Long-term portion |
$ | 54,579 | $ | 53,181 | ||||
Financial covenants on the unsecured revolving credit facility and unsecured notes
include a minimum net worth requirement, minimum interest 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 December 25, 2010 and December 26, 2009.
40
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
On December 25, 2010, the principal maturities of long-term debt and capital lease
obligations are as follows (in thousands):
2011 |
$ | 712 | ||
2012 |
42,379 | |||
2013 |
||||
2014 |
||||
2015 |
||||
Thereafter |
12,200 | |||
$ | 55,291 | |||
On December 25, 2010, the estimated fair value of our long-term debt, including the
current portion, was $55.9 million, which was $0.6 million greater than the carrying value.
The estimated fair value is based on rates anticipated to be available to us for debt with
similar terms and maturities.
G. | LEASES |
Leased
property included in the balance sheet on December 25, 2010 and
December 26, 2009 is
as follows (in thousands):
2010 | 2009 | |||||||
Machinery and equipment |
$ | 1,345 | $ | 1,345 | ||||
Less accumulated amortization |
(672 | ) | (224 | ) | ||||
$ | 673 | $ | 1,121 | |||||
We lease certain real estate under operating and capital lease agreements with original terms ranging from one to ten
years. We are required to pay real estate taxes and other occupancy costs under these leases. Certain leases carry renewal
options of five to fifteen years. We also lease motor vehicles, equipment, and an aircraft under operating lease agreements
for periods of one to ten years. Future minimum payments under non-cancelable leases on December 25, 2010 are as follows
(in thousands):
Capital | Operating | |||||||||||
Leases | Leases | Total | ||||||||||
2011 |
$ | 472 | $ | 7,276 | $ | 7,748 | ||||||
2012 |
3,950 | 3,950 | ||||||||||
2013 |
2,034 | 2,034 | ||||||||||
2014 |
1,423 | 1,423 | ||||||||||
2015 |
1,201 | 1,201 | ||||||||||
Thereafter |
727 | 727 | ||||||||||
Total minimum lease payments |
$ | 472 | $ | 16,611 | $ | 17,083 | ||||||
Less imputed interest |
(14 | ) | ||||||||||
Present value of minimum lease payments |
$ | 458 | ||||||||||
Rent expense was approximately $13.8 million, $16.7 million, and $19.9 million in 2010, 2009, and 2008, respectively.
41
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
H. | DEFERRED COMPENSATION |
We have a program whereby certain executives irrevocably elected to defer receipt of certain
compensation in 1985 through 1988. Deferred compensation payments to these executives will
commence upon their retirement. We purchased life insurance on such executives, payable to
us in amounts which, if assumptions made as to mortality experience, policy dividends, and
other factors are realized, will accumulate cash values adequate to reimburse us for all payments for insurance and deferred compensation
obligations. In the event cash values are not sufficient to fund such obligations, the
program allows us to reduce benefit payments to such amounts as may be funded by accumulated
cash values. The deferred compensation liabilities and related cash surrender value of life
insurance policies are included in Other Liabilities and Other Assets, respectively.
We also maintain a non-qualified deferred compensation plan (the Plan) for the benefit of
senior management employees who may elect to defer a portion of their annual bonus payments
and salaries. The Plan provides investment options similar to our 401(k) plan, including
our stock. The investment in our stock is funded by the issuance of shares to a Rabbi
trust, and may only be distributed in kind. Assets held by the Plan totaled approximately
$1.1 million and $0.9 million on December 25, 2010 and December 26, 2009, respectively, and
are included in Other Assets. Related liabilities totaled $5.3 million and $4.9 million
on December 25, 2010 and December 26, 2009, respectively, and are included in Other
Liabilities and Shareholders Equity. Assets of the Plan are recorded at fair market
value. The related liabilities are recorded at fair market value, with the exception of
obligations associated with investments in our stock which are recorded at the market value
on the date of deferral.
I. | COMMON STOCK |
On June 1, 1993, our shareholders approved the Incentive Stock Option Plan (the Plan) for
certain officers of the Company. The remaining options were exercisable within thirty days
of the anniversary of the Plan in 2008. There are no options outstanding under the Plan.
In January 1994, the Employee Stock Gift Program was approved by the Board of Directors
which allows us to gift shares of stock to eligible employees based on length of service.
We gifted shares of stock under this Plan in 2010, 2009, and 2008, and recognized the market
value of the shares at the date of issuance as an expense totaling approximately $38,000,
$45,000, and $45,000, respectively.
42
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
In April 2002, our shareholders approved the 2002 Employee Stock Purchase Plan (2002
Stock Purchase Plan) to succeed the Employee Stock Purchase Plan originally approved in
1994. In April 2008, our shareholders authorized additional shares to be allocated to the
2002 Stock Purchase Plan. The plan allows eligible employees to purchase shares of our
stock at a share price equal to 85% of fair market value on the purchase date. In 2010,
2009, and 2008, shares were issued under this Plan for amounts totaling approximately
$427,000, $454,000, and $582,000, respectively. The weighted average discounted per share
fair value of these shares was $28.56, $29.10, and $25.92, respectively. Upon adoption of
ASC 718, Compensation Stock Compensation, (ASC 718), we have expensed the
fair value of the compensation associated with these awards, which approximates the
discount.
In April 1994, our shareholders approved the Directors Retainer Stock Plan (Stock Retainer
Plan). In April 2007, our shareholders authorized additional shares to be distributed
pursuant to this plan. The Stock Retainer Plan allows eligible members of the Board of
Directors to defer their retainer fees and receive shares of our stock at the time of their
retirement, disability or death. The number of shares to be received is equal to the amount
of the retainer fee deferred multiplied by 110%, divided by the fair market value of a share
of our stock at the time of deferral. The number of shares is increased by the amount of
dividends paid on the Companys Common Shares Outstanding. Shareholders equity includes
approximately $1.5 million and $1.1 million on December 25, 2010 and December 26, 2009,
respectively, for obligations incurred under this Plan. In 2009, distributions totaled
approximately $600,000, all of which was paid in shares of our common stock. There were no
distributions in 2010 or 2008.
In January 1997, we instituted a Directors Stock Grant Program. In lieu of a cash increase
in the amount of Directors fees, each outside Director receives 100 shares of stock for
each board meeting attended up to a maximum of 400 shares per year. In 2010, 2009, and
2008, we issued shares and recognized the market value of the shares on the date of issuance
as an expense totaling approximately $102,000, $63,000, and $58,000, respectively.
On April 15, 2009, our shareholders approved an amended and restated Long Term Stock
Incentive Plan (the LTSIP). The LTSIP reserves 1,000,000 shares, plus a balance of unused
shares from prior plans of approximately 1.6 million shares, plus an annual increase of no
more than 200,000 shares per year which may be added on the date of the annual meeting of
shareholders. The LTSIP provides for the granting of stock options, reload options, stock
appreciation rights, restricted stock, performance shares and other stock-based awards. No
options were granted under the LTSIP in 2010, 2009 or 2008.
43
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The following stock grants are outstanding under the LTSIP:
| On April 17, 2002, a Conditional Share Grant was made which will grant our
Executive Chairman 10,000 shares of common stock immediately upon the satisfaction
of the terms and conditions set forth in the grant. Shareholders equity includes
approximately $245,000 and $245,000 on December 25, 2010 and December 26, 2009,
respectively, for this grant. |
||
| Shares of common stock were issued on February 9, 2009 for Performance Share
Grants made on February 3, 2006. |
||
| On January 16, 2007, Conditional Share Grants were made which will grant certain
employees 500 shares each of common stock immediately upon vesting in 2017, subject
to conditions set forth in the grant. Shareholders equity includes approximately
$66,000 and $49,000 on December 25, 2010 and December 26, 2009, respectively, for
this grant. |
||
| On February 23, 2007, shares were issued into a Deferred Stock Bonus Plan for
certain employees. These shares are distributable upon retirement, subject to
conditions set forth in the plan. Shareholders equity includes approximately $1.0
million on December 25, 2010 and $1.4 million December 26, 2009, respectively, for
this grant. |
||
| On January 16, 2008, Conditional Share Grants were made which will grant certain
employees 500 shares each of common stock immediately upon vesting in 2018, subject
to conditions set forth in the grant. Shareholders equity includes approximately
$32,000 and $21,000 on December 25, 2010 and December 26, 2009, respectively, for
this grant. |
||
| On February 8, 2008, Conditional Share Grants were made which granted certain
employees approximately 94,000 shares of common stock on February 15, 2011, subject
to conditions set forth in the grant. Shareholders equity includes approximately
$2.5 million and $1.3 million on December 25, 2010 and December 26, 2009,
respectively, for this grant. |
||
| On January 21, 2009, Conditional Share Grants were made which will grant certain
employees 500 shares each of common stock immediately upon vesting in 2019, subject
to conditions set forth in the grant. Shareholders equity includes approximately
$7,000 and $3,000 on December 25, 2010 and December 26, 2009, respectively, for
this grant. |
||
| On February 1, 2009, approximately 75,000 shares of common stock were issued
into a deferred compensation plan for certain employees and independent directors.
The shares will be vested on February 1, 2014, subject to conditions set forth in
the grant. Shareholders equity includes approximately
$0.7 million and $0.5 million on December 25, 2010 and December 26, 2009, respectively, for this
grant. |
||
| On January 14, 2010, Conditional Share Grants were made which will grant certain
employees 500 shares each of common stock immediately upon vesting in 2020, subject
to conditions set forth in the grant. Shareholders equity includes approximately
$7,000 on December 25, 2010, for this grant. |
||
| On February 1, 2010, approximately 73,000 shares of common stock were issued
into a deferred compensation plan for certain employees and independent directors.
The shares will be vested on February 1, 2015, subject to conditions set forth in
the grant. Shareholders equity includes approximately $0.7 million December 25,
2010, for this grant.
|
44
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
As of December 25, 2010, a total of approximately 3.1 million shares are reserved for
issuance under the plans mentioned above.
On November 14, 2001, the Board of Directors approved a share repurchase program (which
succeeded a previous program) allowing us to repurchase up to 2,500,000 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. We repurchased 144,900 and 91,724 shares
under this program in 2010 and 2009, respectively. As of December 25, 2010, cumulative
total authorized shares available for repurchase is approximately 3.0 million shares.
Common stock activity for 2010, 2009 and 2008 was as follows:
2010 | 2009 | 2008 | ||||||||||
Shares issued under plan: |
||||||||||||
Employee Stock Purchase |
14,948 | 15,614 | 22,474 | |||||||||
Stock Option Exercises |
96,310 | 114,651 | 152,054 | |||||||||
Employee stock plans |
111,258 | 130,265 | 174,528 | |||||||||
Stock gift |
1,154 | 1,466 | 1,606 | |||||||||
Executive Stock Grant |
67,692 | 74,750 | ||||||||||
Conditional Stock Grant |
2,011 | |||||||||||
Directors Retainer Stock |
23,413 | |||||||||||
Directors Stock Grant |
3,000 | 3,000 | 2,100 | |||||||||
Stock grant plans |
73,857 | 102,629 | 3,706 | |||||||||
Deferred compensation |
9,046 | 50,816 | 15,288 | |||||||||
Stock notes receivable, net |
(726 | ) | 3,721 | 7,374 | ||||||||
Shares received for exercise
of stock options |
(1,602 | ) | (19,857 | ) | ||||||||
Stock repurchase |
(144,900 | ) | (90,122 | ) | ||||||||
48,535 | 195,707 | 181,039 | ||||||||||
Beginning common stock |
19,284,587 | 19,088,880 | 18,907,841 | |||||||||
Ending common stock |
19,333,122 | 19,284,587 | 19,088,880 | |||||||||
45
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
J. | STOCK-BASED COMPENSATION |
We account for share-based compensation using the fair value recognition provisions of ASC
718, Compensation Stock Compensation, (ACS 718), which we have adopted using the
modified-prospective-transition method effective January 1, 2006. As discussed in Note I,
Common Stock, we provide compensation benefits to employees and non-employee directors under
several share-based payment arrangements including the Employee Stock Gift Program, the 2002
Employee Stock Purchase Plan, the Directors Retainer Stock Plan, the Directors Stock Grant
Program and the Long-Term Stock Incentive Plan.
Stock Option Plans
To date, other than certain, relatively nominal conditional share grants, performance share
awards and deferred share awards that are permitted under the LTSIP, we have only issued
options under the LTSIP. Vesting requirements for awards under this plan will vary by
individual grant and, as to outstanding awards, and are subject to time-based vesting. The
contractual life of all of the options granted under this plan is no greater than 15 years.
The fair value of each option award is estimated as of the date of grant using the
Black-Scholes option pricing model. Expected volatility assumptions used were based on
historical volatility of our stock. We utilize historical data to estimate option exercise
and employee termination behavior within the valuation model; separate groups of employees
that have similar historical exercise behavior are considered separately for valuation
purposes. The risk-free rate for the expected term of the option award was based on the U.S.
Treasury yield curve in effect at the time of the grant. No new option awards were granted in
2010, 2009 or 2008 and therefore no specific valuation assumptions are presented.
The following summary presents information regarding outstanding options as of December 25,
2010 and changes during the period then ended with regard to options under all stock option
plans:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Stock | Average | Remaining | Aggregate | |||||||||||||
Under | Exercise Price | Contractual | Intrinsic | |||||||||||||
Option | Per Share | Term | Value | |||||||||||||
Outstanding at December 26, 2009 |
473,878 | $ | 23.34 | |||||||||||||
Exercised |
(96,310 | ) | $ | 19.80 | ||||||||||||
Forfeited or expired |
(17,571 | ) | $ | 28.60 | ||||||||||||
Outstanding at December 25, 2010 |
359,997 | $ | 24.04 | 2.35 | $ | 5,012,758 | ||||||||||
Vested or expected to vest at December 25, 2010 |
197,000 | $ | 24.69 | 2.79 | $ | 2,613,885 | ||||||||||
Exercisable at December 25, 2010 |
162,997 | $ | 23.24 | 1.82 | $ | 2,398,873 | ||||||||||
The total intrinsic value of options exercised during 2010, 2009 and 2008 was $1.8
million $2.3 million and $2.4 million, respectively.
46
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Employee Stock Purchase Plan
In 2010, 2009 and 2008, we issued shares under this plan totaling 14,948, 15,614 and 22,474,
respectively. In 2010, 2009 and 2008, the weighted average fair values per share of employee
stock purchase rights pursuant to this plan were $5.04, $5.14 and $4.57, respectively. The
fair value of the stock purchase rights approximated the difference between the stock price
and the employee purchase price.
Directors Retainer Stock Plan
We recognized the fair market value of the shares issued under this plan, calculated using the
number of shares issued and the stock price on the issuance date, as expense and recorded the
related obligation in shareholders equity. In 2010, 2009 and 2008, we recognized
approximately $467,000, $317,000 and $268,000, respectively, in expense for shares issued
under this program.
Directors Stock Grant Program
In 2010, 2009 and 2008, we recognized the fair market value of the shares issued under this
plan, calculated using the number of shares issued and the stock price on the issuance date,
as an expense totaling approximately $102,000, $63,000 and $58,000, respectively.
Conditional Share Grant Agreements
In 2010, 2009 and 2008, we recognized the fair value of the awards estimated as of the date of
grant. We recognized approximately $112,000, $118,000 and $50,000, respectively, in expense
for shares issuable under this program.
All Share-Based Payment Arrangements
The total share-based compensation cost and the related total income tax benefit that has been
recognized in results of operations was approximately $1,920,000 and $1,140,000, respectively
in 2010. The total share-based compensation cost and the related total income tax benefit
that has been recognized in results of operations was approximately $1,252,000 and $724,000,
respectively in 2009. The total share-based compensation cost and the related total income
tax benefit that has been recognized in results of operations was approximately $820,000 and
$255,000, respectively in 2008.
In 2010, 2009 and 2008, cash received from option exercises and share issuances under our
plans was $2.3 million, $2.4 million and $3.0 million, respectively. The actual tax benefit
realized in 2010, 2009 and 2008 for the tax deductions from option exercises totaled $0.6
million, $0.7 million and $0.9 million, respectively.
47
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
K. | RETIREMENT PLANS |
We have a profit sharing and 401(k) plan for the benefit of substantially all of our
employees, excluding the employees of certain non-wholly-owned subsidiaries. Amounts
contributed to the plan are made at the discretion of the Board of Directors. We matched 25%
of employee contributions in 2010 and 2009, on a discretionary basis, totaling $1.4 million
and $1.4 million, respectively. We matched 50% of employee contributions in 2008, on a
discretionary basis, totaling $3.5 million. The basis for matching contributions may not
exceed the lesser of 6% of the employees annual compensation or the IRS limitation.
On July 14, 2010, the compensation committee of the board of directors approved a retirement
plan for officers whereby we will pay, upon retirement, benefits totaling 150% of the
officers highest base salary in the three years immediately preceding separation from
service plus health care benefits for a specified period of time if certain eligibility
requirements are met. Approximately $1.4 million is accrued in other liabilities for this
plan at December 25, 2010.
L. | INCOME TAXES |
Income tax provisions for the years ended December 25, 2010, December 26, 2009, and
December 27, 2008 are summarized as follows (in thousands):
2010 | 2009 | 2008 | ||||||||||
Currently Payable: |
||||||||||||
Federal |
$ | 4,762 | $ | 4,411 | $ | 5,566 | ||||||
State and local |
1,768 | 1,452 | 915 | |||||||||
Foreign |
3,344 | 2,602 | 3,169 | |||||||||
9,874 | 8,465 | 9,650 | ||||||||||
Net Deferred: |
||||||||||||
Federal |
384 | 4,868 | (5,768 | ) | ||||||||
State and local |
(689 | ) | 337 | (1,951 | ) | |||||||
Foreign |
(2,369 | ) | 182 | (245 | ) | |||||||
(2,674 | ) | 5,387 | (7,964 | ) | ||||||||
$ | 7,200 | $ | 13,852 | $ | 1,686 | |||||||
The components of earnings before income taxes consist of the following:
2010 | 2009 | 2008 | ||||||||||
U.S. |
$ | 16,115 | $ | 29,806 | $ | (702 | ) | |||||
Foreign |
10,926 | 8,791 | 7,848 | |||||||||
Total |
$ | 27,041 | $ | 38,597 | $ | 7,146 | ||||||
48
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The effective income tax rates are different from the statutory federal income tax rates for
the following reasons:
2010 | 2009 | 2008 | ||||||||||
Statutory federal income tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local taxes (net of federal benefits) |
2.4 | 1.9 | (1.3 | ) | ||||||||
Effect of noncontrolling owned interest in
earnings of partnerships |
(1.8 | ) | 0.1 | (2.2 | ) | |||||||
Manufacturing deduction |
(1.6 | ) | (0.8 | ) | (4.0 | ) | ||||||
Research and development tax credits |
(1.4 | ) | (1.8 | ) | (14.0 | ) | ||||||
Change in valuation allowance |
(10.5 | ) | (1.4 | ) | 1.1 | |||||||
Nondeductible amortization of goodwill |
1.6 | 1.2 | 5.7 | |||||||||
Meals and entertainment |
1.6 | 1.1 | 6.6 | |||||||||
Other, net |
1.3 | 0.6 | (3.3 | ) | ||||||||
Effective income tax rate |
26.6 | % | 35.9 | % | 23.6 | % | ||||||
Temporary differences which give rise to deferred income tax assets and (liabilities) on
December 25, 2010 and December 26, 2009 are as follows (in thousands):
2010 | 2009 | |||||||
Employee benefits |
$ | 6,626 | $ | 5,189 | ||||
Foreign subsidiary net operating loss |
1,350 | 1,782 | ||||||
Accrued expenses |
3,855 | 3,769 | ||||||
Other, net |
3,836 | 3,764 | ||||||
Gross deferred income tax assets |
15,667 | 14,504 | ||||||
Valuation allowance |
(2,712 | ) | ||||||
Deferred income tax assets |
15,667 | 11,792 | ||||||
Depreciation |
(17,762 | ) | (17,522 | ) | ||||
Intangibles |
(9,269 | ) | (7,799 | ) | ||||
Inventory |
148 | (421 | ) | |||||
Other, net |
(137 | ) | (77 | ) | ||||
Deferred income tax liabilities |
(27,020 | ) | (25,819 | ) | ||||
Net deferred income tax liability |
$ | (11,353 | ) | $ | (14,027 | ) | ||
At the end of 2009, the valuation allowance consists of a net operating loss carryforward we
have for a wholly-owned subsidiary. As a result of cumulative historical losses of this
subsidiary, our ability to realize a future benefit from this loss carryforward was in doubt,
therefore, we established an allowance for the entire amount of the future benefit. The
allowance was removed in 2010 as a result of increased profitability in this subsidiary. This
carryforward will expire at the end of 2027.
49
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
M. | ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES |
ASC 740, Income Taxes (ASC 740) clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. ASC 740 also provides guidance on
derecognition, measurement, classification, interest and penalties, and disclosure
requirements.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
2010 | 2009 | |||||||
Gross unrecognized tax benefits beginning of year |
$ | 10,311 | $ | 11,034 | ||||
(Decrease) Increase in tax positions for prior years |
(7,124 | ) | 116 | |||||
Increase in tax positions for current year |
278 | 512 | ||||||
Settlements with taxing authorities |
(1,565 | ) | (778 | ) | ||||
Lapse in statute of limitations |
(427 | ) | (573 | ) | ||||
Gross unrecognized tax benefits end of year |
$ | 1,473 | $ | 10,311 | ||||
The total amount of net unrecognized tax benefits that, if
recognized, would affect the effective tax rate was $1.5 million and
$10.3 million at December 25, 2010 and December 26, 2009,
respectively. We recognized interest and penalties for unrecognized
tax benefits in our provision for income taxes. The liability for
unrecognized tax benefits included accrued interest and penalties of
$0.2 million and $0.3 million at December 25, 2010 and December 26,
2009, respectively.
We file income tax returns in the United States and in various
state, local and foreign jurisdictions. During 2010, the Internal
Revenue Service examination for tax years 2004 2008 was resolved.
For the majority of state and foreign jurisdictions, we are no
longer subject to income tax examinations for years before 2004. A
number of state and local examinations are currently ongoing. It is
possible that these examinations may be resolved within the next
twelve months. Due to the potential for resolution of state
examinations, and the expiration of various statutes of limitation,
it is reasonably possible that our gross unrecognized tax benefits
may change within the next twelve months by a range of $0.3 million
to $1.0 million.
N. | 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; and Medley,
FL. 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. During 2009, a subsidiary entered into a consent order with the State of
Florida to conduct additional testing at the Auburndale, FL facility. We admitted no
liability and the costs are not expected to be material.
50
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
On a consolidated basis, we have reserved approximately $3.4 million on December 25, 2010 and
$4.3 million on December 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. Our affiliates 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 December 25, 2010, we were parties either as plaintiff or a 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 December 25, 2010, we had outstanding purchase commitments on capital projects of
approximately $2.0 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.
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 December 25, 2010, we
had approximately $13.5 million in outstanding payment and performance bonds, which expire
during the next two years. In addition, approximately $29.8 million in payment and
performance bonds are outstanding for completed projects which are still under warranty.
51
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
We have entered into operating leases for certain 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 three
years. The estimated maximum aggregate exposure of these guarantees is approximately $0.6
million.
On December 25, 2010 we had outstanding letters of credit totaling $31.3 million, primarily
related to certain insurance contracts and industrial development revenue bonds described
further below.
In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to
guarantee our performance under certain insurance contracts. We currently have irrevocable
letters of credit outstanding totaling approximately $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.
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 $0.7 million. As a result, this amount is recorded
in other long-term liabilities on December 25, 2010.
We did not enter into any new guarantee arrangements during 2010 which would require us to
recognize a liability on our balance sheet.
52
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
O. | CONSULTING & NON-COMPETE AGREEMENTS |
On December 17, 2007 we entered into a consulting and non-compete agreement with our former
CEO which provides for monthly payments for a term of three years that began upon retirement
from Universal Forest Products, Inc. The present value of the vested portion of the
non-compete payments totaling approximately $1.1 million and $1.8 million at December 25,
2010 and December 26, 2009, respectively, is accrued in other liabilities.
On December 31, 2007 the former President of Universal Forest Products Western Division,
Inc. retired as an employee of Universal Forest Products, Inc., and we entered into an
agreement with him which provides for monthly payments for a term of three years. The
present value of these payments totaled approximately $0.4 million at December 26, 2009 and
was recorded in other liabilities. This obligation has been paid in full at December 25,
2010.
P. | SEGMENT REPORTING |
ASC 280, Segment Reporting (ASC 280) defines operating segments as components of an
enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate resources and in
assessing performance. |
||
During 2010, we undertook a reorganization of our former Eastern division operating segment
that occurred in two stages. The first stage involved a management restructuring whereby
the division was divided into Northern and Southern operating segments during the first
quarter of fiscal 2010. This realignment was further refined commencing on December 25,
2010 with a reorganization of the Northern and Southern operating segments into newly
created Eastern and Atlantic divisions to better align management oversight with strategic
growth opportunities and operational initiatives. |
||
Our operating segments consist of the Eastern, Western, Atlantic, Consumer Products and
Distribution divisions. In accordance with ASC 280, due to the similar economic
characteristics, nature of products, distribution methods, and customers, we have aggregated
our Eastern and Western operating segments into one reportable segment. The Atlantic
division is considered a separate reportable segment. Our other divisions do not
collectively form a reportable segment because their respective operations are dissimilar
and they do not meet the applicable quantitative requirements. These operations have been
included in the All Other column of the table below. |
53
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2010 | ||||||||||||||||||||
Eastern | ||||||||||||||||||||
and | ||||||||||||||||||||
Western | Atlantic | All | ||||||||||||||||||
Divisions | Division | Corporate | Other | Total | ||||||||||||||||
Net sales to
outside customers |
$ | 1,282,294 | $ | 469,448 | $ | | $ | 139,109 | $ | 1,890,851 | ||||||||||
Intersegment net sales |
85,076 | 36,593 | | 45,173 | 166,842 | |||||||||||||||
Interest expense |
424 | 44 | 3,081 | | 3,549 | |||||||||||||||
Amortization expense |
4,492 | 96 | | 2,331 | 6,919 | |||||||||||||||
Depreciation expense |
17,147 | 5,501 | 4,710 | 3,071 | 30,429 | |||||||||||||||
Segment operating
profit |
23,389 | 6,654 | (1,155 | ) | 1,401 | 30,289 | ||||||||||||||
Segment assets |
459,048 | 152,711 | 96,245 | 80,576 | 788,580 | |||||||||||||||
Capital expenditures |
12,150 | 2,448 | 7,754 | 4,598 | 26,950 |
2009 | ||||||||||||||||||||
Eastern | ||||||||||||||||||||
and | ||||||||||||||||||||
Western | Atlantic | All | ||||||||||||||||||
Divisions | Division | Corporate | Other | Total | ||||||||||||||||
Net sales to
outside customers |
$ | 1,160,216 | $ | 409,661 | $ | | $ | 103,123 | $ | 1,673,000 | ||||||||||
Intersegment net sales |
75,347 | 35,501 | | 33,058 | 143,906 | |||||||||||||||
Interest expense |
523 | 30 | 4,005 | 53 | 4,611 | |||||||||||||||
Amortization expense |
4,874 | 750 | | 2,684 | 8,308 | |||||||||||||||
Depreciation expense |
18,948 | 6,301 | 4,588 | 3,080 | 32,917 | |||||||||||||||
Segment operating
profit |
34,870 | 4,194 | (2,092 | ) | 5,845 | 42,817 | ||||||||||||||
Segment assets |
442,138 | 152,570 | 113,990 | 68,170 | 776,868 | |||||||||||||||
Capital expenditures |
6,334 | 962 | 3,427 | 4,881 | 15,604 |
2008 | ||||||||||||||||||||
Eastern | ||||||||||||||||||||
and | ||||||||||||||||||||
Western | Atlantic | All | ||||||||||||||||||
Divisions | Division | Corporate | Other | Total | ||||||||||||||||
Net sales to
outside customers |
$ | 1,539,152 | $ | 575,823 | $ | | $ | 117,419 | $ | 2,232,394 | ||||||||||
Intersegment net sales |
88,877 | 60,618 | | 26,765 | 176,260 | |||||||||||||||
Interest expense |
1,235 | 110 | 10,685 | 58 | 12,088 | |||||||||||||||
Amortization expense |
4,755 | 2,105 | | 2,937 | 9,797 | |||||||||||||||
Depreciation expense |
22,166 | 6,796 | 5,024 | 3,584 | 37,570 | |||||||||||||||
Segment operating
profit |
9,704 | 4,614 | 5,462 | (1,375 | ) | 18,405 | ||||||||||||||
Segment assets |
503,531 | 180,590 | 58,762 | 73,136 | 816,019 | |||||||||||||||
Capital expenditures |
9,702 | 2,526 | 4,279 | 2,437 | 18,944 |
In 2010, 2009, and 2008, 28%, 32%, and 27% of net sales, respectively, were to a single customer.
54
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Information regarding principal geographic areas was as follows (in thousands):
2010 | 2009 | 2008 | ||||||||||||||||||||||
Long-Lived | Long-Lived | Long-Lived | ||||||||||||||||||||||
Net Sales | Assets | Net Sales | Assets | Net Sales | Assets | |||||||||||||||||||
United States |
$ | 1,844,289 | $ | 373,709 | $ | 1,630,763 | $ | 374,831 | $ | 2,170,933 | $ | 418,603 | ||||||||||||
Foreign |
46,562 | 16,076 | 42,237 | 18,688 | 61,461 | 16,508 | ||||||||||||||||||
Total |
$ | 1,890,851 | $ | 389,785 | $ | 1,673,000 | $ | 393,519 | $ | 2,232,394 | $ | 435,111 | ||||||||||||
Sales generated in Canada and Mexico are primarily to customers in the United States of America.
The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total
sales.
Value-Added | Commodity-Based | |||||||
2010 |
58.6 | % | 41.4 | % | ||||
2009 |
59.4 | % | 40.6 | % | ||||
2008 |
60.4 | % | 39.6 | % |
Value-added product sales 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. Commodity-based product sales consist primarily of
remanufactured lumber and preservative treated lumber.
55
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The following table presents, for the periods indicated, our gross sales (in thousands) by
major product classification.
Years Ended | ||||||||||||
December 25, | December 26, | December 27, | ||||||||||
2010 | 2009 | 2008 | ||||||||||
Value-Added Sales |
||||||||||||
Trusses site-built, modular and manufactured housing |
$ | 167,165 | $ | 160,242 | $ | 365,155 | ||||||
Fencing |
162,314 | 167,311 | 194,029 | |||||||||
Decking and railing composite, wood and other |
162,699 | 156,400 | 167,722 | |||||||||
Turn-key framing and installed sales |
117,340 | 98,785 | 103,149 | |||||||||
Industrial packaging and components |
142,369 | 130,593 | 147,605 | |||||||||
Engineered wood products (eg. LVL; i-joist) |
46,069 | 35,386 | 57,631 | |||||||||
Manufactured brite and other lumber |
50,540 | 40,224 | 64,552 | |||||||||
Wall panels |
26,093 | 25,774 | 31,101 | |||||||||
Outdoor DIY products (eg. stakes; landscape ties) |
46,610 | 42,745 | 51,565 | |||||||||
Construction and building materials (eg. door
packages; drywall) |
73,629 | 35,990 | 49,437 | |||||||||
Lattice plastic and wood |
45,819 | 47,304 | 43,895 | |||||||||
Manufactured brite and other panels |
37,046 | 28,427 | 34,326 | |||||||||
Siding, trim and moulding |
19,469 | 20,384 | 28,879 | |||||||||
Hardware |
12,204 | 11,544 | 15,134 | |||||||||
Manufactured treated lumber |
11,706 | 12,535 | 14,354 | |||||||||
Manufactured treated panels |
4,562 | 2,991 | 4,904 | |||||||||
Other |
92 | 135 | 459 | |||||||||
Total Value-Added Sales |
1,125,726 | 1,016,770 | 1,373,897 | |||||||||
Commodity-Based Sales |
||||||||||||
Non-manufactured brite and other lumber |
315,634 | 255,836 | 384,268 | |||||||||
Non-manufactured treated lumber |
305,756 | 296,936 | 345,211 | |||||||||
Non-manufactured brite and other panels |
147,845 | 116,645 | 138,448 | |||||||||
Non-manufactured treated panels |
21,330 | 21,373 | 24,534 | |||||||||
Other |
5,851 | 4,805 | 7,833 | |||||||||
Total Commodity-Based Sales |
796,416 | 695,595 | 900,294 | |||||||||
Total Gross Sales |
1,922,142 | 1,712,365 | 2,274,191 | |||||||||
Sales allowances |
(31,291 | ) | (39,365 | ) | (41,797 | ) | ||||||
Total Net Sales |
$ | 1,890,851 | $ | 1,673,000 | $ | 2,232,394 | ||||||
Q. | QUARTERLY FINANCIAL INFORMATION (UNAUDITED) |
The following table sets forth selected financial information for all of the quarters,
each consisting of 13 weeks) during the years ended December 25, 2010 and December 26, 2009
(in thousands, except per share data):
First | Second | Third | Fourth | |||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
Net sales |
$ | 392,958 | $ | 361,722 | $ | 638,635 | $ | 514,945 | $ | 480,574 | $ | 457,768 | $ | 378,685 | $ | 338,565 | ||||||||||||||||
Gross profit |
51,634 | 46,821 | 77,886 | 82,485 | 54,415 | 69,263 | 46,021 | 45,095 | ||||||||||||||||||||||||
Net earnings (loss) |
1,720 | (1,163 | ) | 14,468 | 16,455 | 3,198 | 10,260 | 455 | (807 | ) | ||||||||||||||||||||||
Net earnings (loss) attributable
to controlling interest |
987 | (1,207 | ) | 13,716 | 16,088 | 2,584 | 10,054 | 124 | (663 | ) | ||||||||||||||||||||||
Basic earnings (loss) per share |
0.05 | (0.06 | ) | 0.71 | 0.84 | 0.13 | 0.52 | 0.01 | (0.03 | ) | ||||||||||||||||||||||
Diluted earnings (loss) per share |
0.05 | (0.06 | ) | 0.70 | 0.83 | 0.13 | 0.51 | 0.01 | (0.03 | ) |
56
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
R. | SUBSEQUENT EVENTS |
On February 1, 2011, an approved stock grant was made for certain employees and independent
directors which will grant shares of common stock immediately upon the satisfaction of
certain terms and conditions. We estimate that we will recognize total expense of
approximately $2.6 million over the next five years for this grant.
57
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock trades on The Nasdaq Stock Market (NASDAQ) under the symbol UFPI. The following
table sets forth the range of high and low sales prices as reported by NASDAQ.
Fiscal 2010 | High | Low | ||||||
Fourth Quarter |
39.01 | 27.84 | ||||||
Third Quarter |
33.09 | 25.76 | ||||||
Second Quarter |
46.63 | 30.36 | ||||||
First Quarter |
40.00 | 31.84 |
Fiscal 2009 | High | Low | ||||||||
Fourth Quarter | 42.32 | 34.00 | ||||||||
Third Quarter | 47.78 | 30.24 | ||||||||
Second Quarter | 37.50 | 25.53 | ||||||||
First Quarter | 29.98 | 19.01 |
There were approximately 1,090 shareholders of record as of January 31, 2011.
In 2010, we paid dividends on our common stock of $0.200 per share each in June and December. In
2009, we paid dividends on our common stock of $0.060 per share in June and $0.200 per share in
December. We intend to continue with our current semi-annual dividend policy for the foreseeable
future.
58
STOCK PERFORMANCE GRAPH
The following graph depicts the cumulative total return on our common stock compared to the
cumulative total return on the indices for The Nasdaq Stock Market (all U.S. companies) and an
industry peer group we selected. The graph assumes an investment of $100 on December 31, 2005, and
reinvestment of dividends in all cases.
The companies included in our self-determined industry peer group are as follows:
Bluelinx Holdings Inc.
|
Louisiana-Pacific Corp. | |
Builders FirstSource, Inc. |
The returns of each company included in the self-determined peer group are weighted according to
each respective companys stock market capitalization at the beginning of each period presented in
the graph above. In determining the members of our peer group, we considered companies who
selected UFPI as a member of their peer group, and looked for similarly sized companies or
companies that are a good fit with the markets we serve.
59
Directors and Executive Officers
BOARD OF DIRECTORS | EXECUTIVE OFFICERS | |
William G. Currie
|
Michael B. Glenn | |
Chairman of the Board
|
Chief Executive Officer | |
Universal Forest Products, Inc. |
||
Michael B. Glenn
|
Patrick M. Webster | |
President and Chief Executive Officer
|
President and Chief Operating Officer | |
Universal Forest Products, Inc. |
||
Dan M. Dutton
|
Michael R. Cole | |
Chairman of the Board
|
Chief Financial Officer and Treasurer | |
Stimson Lumber Co. |
||
John M. Engler
|
Robert D. Coleman | |
President and Chief Executive Officer
|
Executive Vice President Manufacturing | |
National Association of Manufacturers |
||
John W. Garside
|
C. Scott Greene | |
President and Treasurer
|
President | |
Woodruff Coal Company
|
UFP Eastern Division | |
Gary F. Goode, CPA
|
Allen T. Peters | |
Chairman
|
President | |
Titan Sales & Consulting, LLC
|
UFP Western Division | |
Mark A. Murray
|
Robert W. Lees | |
President
|
President | |
Meijer, Inc.
|
UFP Atlantic Division | |
William R. Payne
|
Ronald G. Klyn | |
Chief of Staff
|
Chief Information Officer | |
Alticor, Inc. |
||
Louis A. Smith
|
Matthew J. Missad | |
President
|
Executive Vice President and Secretary | |
Smith and Johnson, Attorneys, P.C. |
||
Bruce A. Merino
|
Joseph F. Granger | |
Executive Vice President of Sales and Marketing | ||
Michael F. Mordell | ||
Executive Vice President of Purchasing |
60
Shareholder Information
ANNUAL MEETING
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 13, 2011,
at 2880 East Beltline Lane NE, Grand Rapids, MI 49525.
SHAREHOLDER INFORMATION
Shares of the Companys stock are traded under the symbol UFPI on the NASDAQ Stock Market. The
Companys 10-K report, filed with the Securities and Exchange Commission, will be provided free of
charge to any shareholder upon written request. For more information contact:
Investor Relations Department
Universal Forest Products, Inc.
2801 East Beltline NE
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Web: www.ufpi.com
Universal Forest Products, Inc.
2801 East Beltline NE
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Web: www.ufpi.com
SECURITIES COUNSEL
Varnum, LLP
Grand Rapids, MI
Grand Rapids, MI
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Grand Rapids, MI
Grand Rapids, MI
TRANSFER AGENT/SHAREHOLDER INQUIRIES
American Stock Transfer & Trust Company serves as the transfer agent for the Corporation. Inquiries
relating to stock transfers, changes of ownership, lost or stolen stock certificates, changes of
address, and dividend payments should be addressed to:
American Stock Transfer & Trust Co.
59 Maiden Lane
59 Maiden Lane
New York, NY 10005
Telephone: (718) 921-8210
Telephone: (718) 921-8210
UNIVERSAL FOREST PRODUCTS®, INC., CORPORATE HEADQUARTERS
2801 East Beltline NE
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Facsimile: (616) 364-5558
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Facsimile: (616) 364-5558
61
UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES
Locations:
Ashburn, GA
Auburndale, FL
Bayamon, Puerto Rico
Belchertown, MA
Berlin, NJ
Blanchester, OH
Burlington, NC
Burleson, TX
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Clinton, NY
Conway, SC
Cordele, GA
Denver, CO
Durango, Durango, Mexico
Eatonton, GA
Elizabeth City, NC
Elkhart, IN
Emlenton, PA
Evans City, PA
Gordon, PA
Grandview, TX
Grand Rapids, MI
Granger, IN
Greene, ME
Haleyville, AL
Harrisonville, MO
Hillsboro, TX
Houston, TX
Hudson, NY
Hutchinson, MN
Janesville, WI
Jefferson, GA
Lacolle, Quebec, Canada
Lafayette, CO
Lansing, MI
Liberty, NC
Lodi, OH
McMinnville, OR
Medley, FL
Minneota, MN
Morristown, TN
Ashburn, GA
Auburndale, FL
Bayamon, Puerto Rico
Belchertown, MA
Berlin, NJ
Blanchester, OH
Burlington, NC
Burleson, TX
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Clinton, NY
Conway, SC
Cordele, GA
Denver, CO
Durango, Durango, Mexico
Eatonton, GA
Elizabeth City, NC
Elkhart, IN
Emlenton, PA
Evans City, PA
Gordon, PA
Grandview, TX
Grand Rapids, MI
Granger, IN
Greene, ME
Haleyville, AL
Harrisonville, MO
Hillsboro, TX
Houston, TX
Hudson, NY
Hutchinson, MN
Janesville, WI
Jefferson, GA
Lacolle, Quebec, Canada
Lafayette, CO
Lansing, MI
Liberty, NC
Lodi, OH
McMinnville, OR
Medley, FL
Minneota, MN
Morristown, TN
Moultrie, GA
Muscle Shoals, AL
Naugatuck, CT
New London, NC
New Waverly, TX
New Windsor, MD
Parker, PA
Pearisburg, VA
Plainville, MA
Prairie du Chien, WI
Ranson, WV
Riverside, CA
Saginaw, TX
Salisbury, NC
San Antonio, TX
Schertz, TX
Sidney, NY
Silsbee, TX
Stockertown, PA
Thornton, CA
Turlock, CA
Union City, GA
Warrens, WI
White Bear Lake, MN
White Pigeon, MI
Windsor, CO
Woodburn, OR
62