Report to Shareholders
2008
Dear Shareholders:
It’s not always easy to “manage forward”; to look at your business today and make decisions
based on where you think you’re going to be six, nine or 12 months down the road. You have
to embark on strategies that might not make sense for the moment, but that you believe will
positively affect your performance in the months and years ahead. Fortunately, that’s what we
did in 2008: We did our best to forecast our challenges and opportunities, and to manage to
those forecasts. We made tough decisions to consolidate operations, to do more and more with
less, to redirect resources and energy to new opportunities, and to focus on adjusting
appropriately to the tough realities of this new economy.
It paid off. We ended the year with a $4.3 million profit, and don’t know of another company in
our industry that can make that claim. We generated $116 million in cash and used it to reduce
our debt to $101 million by the end of the year. We maintained a strong balance sheet and
positioned our company well for 2009 and beyond.
This is a source of great pride for us and for the people of Universal, who fought hard and well to
do what we call “picking up quarters”—saving money wherever we can. They helped identify and
pursue new opportunities; they tightened their belts; they focused on eliminating waste and on
finding new and better ways to do the things we do; and they kept a positive attitude even when
we scaled back operations, consolidated facilities, and sometimes bid farewell to loved and
valued co-workers.
On Jan. 1, 2009, our executive leadership team was enhanced by the addition of Pat Webster
as President and Chief Operating Officer. Pat joined Universal 24 years ago and progressed
through many positions over the years. He was most recently President of our Western Division,
before being appointed COO. As Bill Currie prepares to step down from full-time employment
in July 2009 (he will remain Chairman of the Board), the Company is in good hands with Pat,
CEO Mike Glenn and the rest of Mike’s leadership team, which continues to push for success
in these toughest of times.
A Letter to our Shareholders
- ii -
These times have been humbling for a company that knew nothing but growth and success for
53 years. They also have allowed us to show our true colors. Anyone can make money in good
times; making money in times like these illustrates the strengths of our business model, our
strategies and our people. Let’s take a look at our 2008 results and our outlook:
In 2008, Do-It-Yourself/retail (DIY) sales were $911 million, an 8% decrease from 2007.
Historically low consumer confidence levels kept people from opening their pocketbooks even |
for the smallest purchases, hurting retailers large and small alike. While growth in this market is
dependent on economic recovery, Universal has reasons for optimism:
• We picked up market share with big box and independent retailers in new markets that
will drive healthy new sales.
• We continue to add products to our portfolio (our expanding lines of wood and wood-
composite decking, balusters, decorative post caps and other products can be seen at
http://www.ufpi.com/product/decking.htm) and embarked on a lawn and garden
initiative that allows us to offer more new products, such as trellises and planter boxes.
• Our operating efficiencies continue to improve and remain among the best in the
business.
• We remain at the cutting edge of wood-treating technology, treating our lumber with the
only wood preservative in the world recognized as an Environmentally Preferred Product.
Our industrial sales for the year were $605 million, an increase of more than 2% over 2007.
Despite an overall decline in U.S. manufacturing activity, we gained market share and grew sales
in industrial. Given the ongoing success and opportunity in this market, it represents a growing
importance in our future:
• We intend to grow our capacity and offerings in the packaging arena, focusing not just on
the unusual and difficult products, but leveraging our competitive advantages and skills
to meet the everyday packaging needs of industries from coast to coast.
•
This industry remains highly fragmented, providing many opportunities for growth.
• Our concrete forming initiative, launched in 2007, is quickly growing and mirrors the
overall industrial market in many positive ways: It is highly fragmented, customers are
seeking a large national supplier that can meet needs in multiple locations, and it
requires many of the same skills, capital and knowledge we employ in our other markets.
• New road construction and infrastructure will likely rely heavily on concrete construction.
In 2008, our site-built construction sales were $455 million, down 23% from 2007, largely due
to a 41% decline in single-family housing starts. Additionally, multifamily housing and light
commercial construction, which were more promising areas in 2007 and early 2008, began to
soften as tighter credit conditions restricted activity.
• We believe housing will remain weak in 2009 and the pace of recovery will be modest,
when it begins.
A Letter to our Shareholders
- iii -
Manufactured housing sales in 2008 were $304 million, a decrease of 23% from 2007, due
to an overall decline in industry production. Universal maintains a commanding market share
and will continue to track with the industry.
• While we believe 2009 will see further declines in shipments, we believe sales of
HUD-code homes eventually will grow as credit conditions become more favorable
and consumers look for affordable housing alternatives.
The same holds true for the modular housing industry, which is being hurt by the
oversupply of single-family housing and tight credit conditions. As each of those
issues resolves, we believe the modular housing market, which provides builders
with components manufactured in a controlled environment, will begin to grow.
•
“THESE are the times that try men’s souls” wrote Thomas Paine on a cold winter day in 1776
while troops were fighting in unimaginable conditions for America’s freedom. While they’re fitting
words to describe 2008 (and, likely, 2009), they’re followed by prose that’s less famous but
perhaps an even more appropriate portrayal of our experience: “… the harder the conflict, the
more glorious the triumph. What we obtain too cheap, we esteem too lightly. … ”
In these challenging times, the success we’re seeing from our efforts and hard-fought battles
is particularly sweet because it was so difficult in the making. But we’re careful not to rest on
our laurels or to forget how important it is to remain conservative in our approach to business
and steadfast in our integrity. There are difficult times ahead and there’s a lot of hard work to
do—and we’re doing it: We’re focused on maintaining our solid foundation; creating stability for
customers, communities, employees and others who depend on us; and generating solid,
sustainable growth, for our stakeholders today and for those who will be with us in the years
and decades to come.
Sincerely,
William G. Currie
Executive Chairman
Michael B. Glenn
Chief Executive Officer
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
Table of Contents
Exhibit 13
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial Statements
Consolidated Balance Sheets as of
December 27, 2008 and December 29, 2007
Consolidated Statements of Earnings for the Years Ended
December 27, 2008, December 29, 2007, and December 30, 2006
Consolidated Statements of Shareholders’ Equity for the Years Ended
December 27, 2008, December 29, 2007, and December 30, 2006
Consolidated Statements of Cash Flows for the Years Ended
December 27, 2008, December 29, 2007, and December 30, 2006
Notes to Consolidated Financial Statements
Price Range of Common Stock and Dividends
Stock Performance Graph
Directors and Executive Officers
Shareholder Information
2
3
20
21
22
23
24
25
26
28
57
58
59
60
SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)
Consolidated Statement of Earnings
Data
Net sales
Gross profit
Earnings before income taxes and
minority interest
Net earnings
Diluted earnings per share
Dividends per share
Weighted average shares
outstanding with common stock
equivalents
Consolidated Balance Sheet Data
Working capital(1)
Total assets
Total debt and capital lease
obligations
Shareholders’ equity
Statistics
Gross profit as a percentage of net
sales
Net earnings as a percentage of net
sales
Return on beginning equity(2)
Current ratio
Debt to equity ratio
Book value per common share(3)
2008
2007
2006
2005
2004
$ 2,232,394
254,201
$ 2,513,178
309,029
$ 2,664,572
381,682
$ 2,691,522
359,256
$ 2,453,281
296,253
7,146
4,343
0.23
0.120
19,225
230,308
816,019
101,174
541,883
$
$
$
38,609
21,045
1.09
0.115
19,362
337,800
957,000
206,071
536,668
$
$
$
112,135
70,125
3.62
0.110
19,370
282,913
913,441
170,097
514,742
$
$
$
110,772
67,373
3.53
0.105
19,106
298,027
876,920
209,497
431,852
$
$
$
83,059
48,603
2.59
0.100
18,771
222,618
762,360
207,142
356,769
11.4%
12.3%
14.3%
13.3%
12.1%
0.2%
0.8%
2.53
0.19
28.39
$
0.8%
4.1%
3.08
0.38
28.38
$
2.6%
16.2%
2.47
0.33
27.29
$
2.5%
18.9%
2.46
0.49
23.47
$
2.0%
15.9%
2.21
0.58
19.82
$
$
$
$
(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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We advise you to read the issues discussed in Management’s 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 27, 2008. 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 2008.
Our results for 2008 were impacted by the following:
OVERVIEW
•
•
•
•
•
•
•
We experienced sales decreases in our site-built construction, manufactured housing, and DIY/retail markets, while we
continued to grow sales to the industrial market. We believe we have gained additional share in each of the markets we
serve except manufactured housing. We have been able to maintain our significant market share of manufactured housing
business.
Our overall unit sales decreased 9% in 2008 compared to 2007, as sales out of existing facilities and operations we closed
decreased by 12% and we experienced a 3% increase in unit sales as a result of acquisitions and new operations.
Lumber prices were 11% lower in 2008 compared to 2007, reducing our overall selling prices (see “Impact of the Lumber
Market on Our Operating Results” below) and sales dollars. In addition, competition for business was a challenge in 2008
as each of our markets we serve contracted and thus impacted our selling prices and margins.
Single-family housing starts decreased approximately 41% in 2008 compared to 2007 as a result of an excess supply of
homes, tighter credit conditions, and an increase in foreclosures. In addition, tight credit conditions in the second half of
2008 resulted in a decline in multi-family and light commercial construction activity.
Consumer spending for large repair/remodel projects decreased as many homeowners have lost equity in devalued homes
and had less disposable income as a result of higher costs for necessities such as food, fuel and utilities. The Consumer
Confidence Index has fallen from 87.3 at the beginning of the year to 38 at the end of December.
Shipments of HUD code manufactured homes were down 14% in 2008 and industry sales of modular homes have also
continued to decline due, in part, to an excess supply of site-built homes and tight credit conditions.
The industrial market is declining due to the general weakening of the U.S. economy. We gained additional share and
increased sales to this market due, in part, to acquisitions, adding new customers, and adding new concrete forming
business.
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
•
•
•
Our gross profits decreased approximately 18% compared to the same period of 2007 due to 1) a combination of lower unit
sales out of existing facilities and fixed manufacturing costs; 2) intense pricing pressure, particularly in the site-built
construction market; and 3) higher transportation costs in the second and third quarters of 2008 primarily due to an increase
in diesel fuel prices and a decline in the number of available carriers.
We recorded a $7.2 million expense for asset impairments and other exit costs associated with facilities and equipment we
decided to idle. We believe these actions will improve our cost structure, profitability and cash flow.
Since the beginning of this difficult economic cycle, we have focused on cash flow and working capital management. We
are pleased to have reduced our debt by approximately $105 million and our sale of receivables program by approximately
$27 million.
We expect the current challenging conditions to prevail throughout 2009; however, our strong financial position, solid business
model, diverse business opportunities and ability to adjust appropriately to our opportunities position us better than most to
endure challenging times. We believe that current economic conditions and uncertainties limit our ability to provide meaningful
guidance for ranges of likely financial performance; therefore, we will not provide sales or net earnings targets for the
foreseeable future.
The following table presents the Random Lengths framing lumber composite price for the years ended December 27, 2008,
December 29, 2007, and December 30, 2006.
HISTORICAL LUMBER PRICES
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
Random Lengths Composite
Average $/MBF
2007
2008
2006
249
244
240
255
281
268
267
282
272
234
224
213
252
(11.0%)
$
$
292
289
280
286
288
306
299
290
276
261
264
267
283
(12.9%)
$
$
382
377
368
369
341
326
309
296
292
274
276
288
325
(16.2%)
$
$
4
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.
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
Random Lengths SYP
Average $/MBF
2007
2006
2008
337
330
331
345
421
427
406
401
388
329
325
346
366
(3.7%)
$
$
414
405
396
397
390
410
412
374
347
337
331
347
380
(13.4%)
$
$
496
503
514
510
488
444
409
394
387
363
365
396
439
(10.6%)
$
$
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.
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.
5
•
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 17% of our total sales. This exposure is
less significant with remanufactured lumber, trusses sold to the manufactured housing market, and other similar products,
due to the higher rate of inventory turnover. We attempt to mitigate the risk associated with treated lumber through vendor
consignment inventory programs. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed with
the United States Securities and Exchange Commission.)
•
Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family
construction projects. We attempt to mitigate this risk through our purchasing practices by locking in costs.
In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in
gross margins when comparing operating results from period to period. This is explained in the following example, which
assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.
Lumber cost
Conversion cost
= Product cost
Adder
= Sell price
Gross margin
$
$
Period 1
Period 2
300
50
350
50
400
12.5%
$
$
400
50
450
50
500
10.0%
As is apparent from the preceding example, the level of lumber prices does not impact our overall profits but does impact our
margins. Gross margins are negatively impacted during periods of high lumber prices; conversely, we experience margin
improvement when lumber prices are relatively low.
6
BUSINESS COMBINATIONS AND ASSET PURCHASES
See Notes to Consolidated Financial Statements, Note B, “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.
Net sales
Cost of goods sold
Gross profit
Selling, general, and administrative expenses
Net loss on disposition of assets and other impairment and exit charges
Earnings from operations
Interest, net
Earnings before income taxes and minority interest
Income taxes
Earnings before minority interest
Minority interest
Net earnings
GROSS SALES
December 27,
2008
Years Ended
December 29,
2007
December 30,
2006
100.0%
88.6
11.4
10.2
0.3
0.9
(0.5)
0.4
0.1
0.3
(0.1)
0.2%
100.0%
87.7
12.3
9.8
0.4
2.1
(0.6)
1.5
0.6
0.9
(0.1)
0.8%
100.0%
85.7
14.3
9.7
4.6
(0.4)
4.2
1.5
2.7
(0.1)
2.6%
We market, manufacture and engineer wood and wood-alternative products for the do-it-yourself/retail (“D-I-Y/retail”) market,
structural lumber products for the manufactured housing market, engineered wood components for the site-built construction
market, and specialty wood packaging for various markets. We also provide framing services for the site-built construction
market and various forms for concrete construction. Our strategic long-term sales objectives include:
•
•
•
Diversifying our end market sales mix by increasing sales of specialty wood packing to industrial users, penetrating the
concrete forms market, and increasing our sales of engineered wood components for custom home, multi-family and light
commercial construction.
Expanding geographically in our core businesses.
Increasing sales of “value-added” products and framing services. Value-added product sales primarily consist of fencing,
decking, lattice, and other specialty products sold to the DIY/retail market, specialty wood packaging, engineered wood
components, and “wood alternative” products. Engineered wood components include roof trusses, wall panels, and floor
systems. Wood alternative products consist primarily of composite wood and plastics. Although we consider the treatment
of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included
in the value-added sales totals.
•
Maximizing unit sales growth while achieving return on investment goals.
7
The following table presents, for the periods indicated, our gross sales (in thousands) and percentage change in gross sales by
market classification.
Market Classification
DIY/Retail
Site-Built Construction
Industrial
Manufactured Housing
Total Gross Sales
Sales Allowances
Total Net Sales
December 27,
2008
%
Change
$
$
910,679
454,846
605,143
303,523
2,274,191
(41,797)
2,232,394
(7.8)
(22.7)
2.2
(22.6)
(11.2)
Years Ended
December 29,
2007
$
$
988,175
588,778
592,369
392,163
2,561,485
(48,307)
2,513,178
%
Change
December 30,
2.7
(27.5)
7.6
2.6
(5.4)
2006
962,240
811,923
550,669
382,203
2,707,035
(42,463)
2,664,572
$
$
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.
2008 versus 2007
2007 versus 2006
2006 versus 2005
in Sales
% Change
in Selling Prices
in Units
-11%
-5%
-1%
-2%
-5%
-4%
-9%
0%
+3%
Gross sales in 2008 decreased 11% compared to 2007. We estimate that our unit sales decreased by 9% and overall selling prices
decreased by 2% comparing the two periods. We estimate our unit sales increased 3% as a result of acquisitions and new
facilities, while unit sales from existing and closed facilities decreased 12%. Our overall selling prices fluctuate as a result of the
Lumber Market (see “Historical Lumber Prices”) and were negatively impacted by pricing pressure primarily in the site-built
construction market.
Gross sales in 2007 decreased 5% compared to 2006. We estimate that our unit sales remained flat while overall selling prices
decreased by 5% comparing the two periods. We estimate our unit sales increased 9% as a result of acquisitions and new
facilities, while unit sales from existing and closed facilities decreased 9%.
8
Changes in our sales by market are discussed below.
DIY/Retail:
Gross sales to the DIY/retail market decreased 8% in 2008 compared to 2007, as a result of an estimated 7% decrease in overall
unit sales combined with an estimated 1% decrease in overall selling prices. We estimate that our unit sales increased 2% as a
result of acquisitions, while unit sales from existing and closed facilities decreased 9%. 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 a decline in same store sales of our “big box” customers.
Gross sales to the DIY/retail market increased 3% in 2007 compared to 2006, as a result of a 7% increase in unit sales offset by a
4% decrease in selling prices due to a soft Lumber Market. We estimate that our unit sales increased as a result of our
acquisitions of GeoMatrix and Aljoma and the significant market share gains we realized with “big box” retail customers. Our
sales to these customers increased 12% (8% due to acquisitions and 4% due to existing facilities) while our sales to other
retailers whose business is more closely correlated with housing starts was off 17% (a 10% increase due to acquisitions offset by
a 27% decrease due to existing facilities). Our increase in sales to “big box” customers was less than expected, which we believe
was caused by a decline in consumer spending on large home improvement projects.
Site-Built Construction:
Gross sales to the site-built construction market decreased 23% in 2008 compared to 2007, due to an estimated 14% decrease in
unit sales out of existing facilities and an estimated 9% decrease in average selling prices primarily due to intense pricing
pressure and a soft Lumber Market. National single-family housing starts were off a reported 40.5% for 2008 compared to 2007.
In the first half of 2008, we were able to mitigate some of the decrease in the single-family market by pursuing multi-family and
light commercial business and increasing our turn-key framing activities. However, these markets have recently been impacted
by tight credit conditions as well as other economic factors.
Gross sales to the site-built construction market decreased 28% in 2007 compared to 2006, due to a 14% decrease in unit sales
out of existing facilities, a 4% decline due to our decision to exit the Las Vegas framing market, and a 10% decrease in selling
prices due to a soft Lumber Market and competitive pricing pressure, particularly in our third and fourth quarters. Single-family
housing starts have fallen approximately 29% in 2007 compared to 2006 as a result of an excess supply of homes, tighter credit
conditions, and an increase in foreclosures associated with sub-prime lending practices. These decreases were offset by market
share gains we have realized in the multi-family and light commercial market and a 1% increase in unit sales due to our
acquisitions of Dura-Bilt and Perfection.
Industrial:
Gross sales to the industrial market increased 2% in 2008 compared to 2007, due to an estimated 3% increase in unit sales and an
estimated 1% decrease in selling prices. Acquisitions and our continued focus on adding new customers, including concrete
forming, helped us mitigate the effect of a decline in sales to certain customers that supply the housing market or have been
impacted by the weakening U.S. economy.
Gross sales to the industrial market increased 8% in 2007 compared to 2006, due to an 8% increase in units shipped offset by a
slight decrease in selling prices. Our acquisitions of United and Aljoma and our continued focus on adding new customers,
including concrete forming, helped us mitigate the effect of a decline in sales to certain customers that supply the housing
market.
9
Manufactured Housing:
Gross sales to the manufactured housing market decreased 23% in 2008 compared to 2007, due to an estimated 21% decrease in
unit sales and an estimated 2% decrease in selling prices due to the Lumber Market. Our decline in unit sales from existing
facilities was the result of an overall decline in industry production. The industry most recently reported a 14% decrease in HUD
code production in 2008, while modular production was off a reported 28%.
Gross sales to the manufactured housing market increased 3% in 2007 compared to 2006, due to a 9% increase in unit sales
offset by a 6% decrease in selling prices primarily due to a soft Lumber Market. We estimate that our unit sales increased 21% as
a result of acquiring Banks, while unit sales from existing and closed facilities decreased 12% due to the continued decline in
industry production.
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.
2008
2007
2006
Value-Added
Commodity-Based
60.4%
60.5%
62.7%
39.6%
39.5%
37.3%
Value-added sales decreased 11% in 2008 compared to 2007, primarily due to decreased sales of trusses, engineered wood
products, wall panels, and manufactured brite and other lumber, offset partially by increases in sales of industrial packaging and
related components. Commodity-based sales decreased 11% in 2008 compared to 2007, primarily due to decreased sales of non-
manufactured brite and other lumber and non-manufactured treated lumber. See Notes to Consolidated Financial Statements,
Note P, “Segment Reporting.”
Value-added sales decreased 9% in 2007 compared to 2006, primarily due to decreased sales of trusses, turn-key framing
packages, and wall panels, offset partially by increased sales of fencing and lattice sold to the DIY/retail market. Commodity-
based sales remained flat in 2007 compared to 2006 in spite of difficult market conditions primarily due to our acquisitions of
Aljoma and Banks.
10
COST OF GOODS SOLD AND GROSS PROFIT
Our gross profit percentage decreased to 11.4% in 2008 from 12.3% in 2007 and gross profit dollars decreased 17.7% in 2008
compared to 2007. The decline in profitability was primarily due to a combination of:
•
•
•
•
Price pressure in all of our markets but particularly in our site-built construction market.
A significant increase in fuel and other transportation costs in the second and third quarter of 2008.
Missed buying opportunities as a result of stocking lower levels of lumber inventory.
Cost inefficiencies as a result of lower volumes combined with fixed manufacturing costs.
Our gross profit percentage decreased to 12.3% in 2007 from 14.3% in 2006 and gross profit dollars decreased 19% in 2007
compared to 2006. The decline in profitability was primarily due to a combination of:
•
•
•
•
Increased pricing pressure on sales to the site-built construction market due to the overall decline in market demand and
excess capacity of suppliers.
Cost inefficiencies as a result of the impact of decreased unit sales out of existing facilities and fixed manufacturing costs.
Sales incentives offered to customers to gain market share.
A change in sales mix whereby historically higher margin engineered wood components sold to site-built construction
customers comprised a lower percentage of our sales.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses decreased by approximately $18.8 million, or 7.6%, in 2008, while we
reported a 9% decrease in unit sales. Existing facilities decreased SG&A expenses by approximately $2.6 million, operations we
closed decreased expenses approximately $20.9 million, and business acquisitions added $4.7 million in expenses. The decrease
in SG&A expenses in our existing facilities was primarily due to a decline in wages and related benefits due to a reduction in
headcount and a reduction in bonus and other performance related compensation. These decreases were partially offset by an
increase in bad debt expense. We believe our cost reduction efforts will continue to drive down our costs and will have a more
significant impact in future reporting periods.
SG&A expenses decreased by approximately $10.4 million, or 4%, in 2007. Existing facilities and operations we closed had the
effect of decreasing our SG&A expenses approximately $17.4 million, while business acquisitions added $7.0 million to our
costs. The cost decrease in our existing facilities was primarily due to a decline in accrued bonus expense, which is tied to
operating profits and return on investment.
NET LOSS ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES
We incurred $7.2 million and $8.2 million of asset impairments and other costs associated with idled facilities and downsizing
efforts in 2008 and 2007, respectively. We believe these actions will improve our cost structure, profitability and cash flow. See
Notes to Consolidated Financial Statements, Note C, “Assets Held for Sale and Net Loss on Disposition of Assets and Other
Impairment and Exit Charges.”
11
INTEREST, NET
Net interest costs were lower in 2008 compared to 2007 due to lower debt balances combined with a decrease in short-term
interest rates.
Net interest costs were higher in 2007 compared to 2006 primarily due to an increase in borrowings on the revolving credit
facility as a result of acquisitions.
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 23.6% in 2008 compared to 39.9% in 2007. This year’s rate was
favorably impacted by certain state income tax credits we expect to receive and the impact of other permanent tax differences on
substantially lower pretax income. See Notes to Consolidated Financial Statements, Note L, “Income Taxes”.
Our effective tax rate increased to 39.9% in 2007 compared to 34.6% in 2006 primarily due to the impairment charge we
recorded for property, plant and equipment for our Canadian subsidiary, for which we recorded no related tax benefit.
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 27, 2008 (in thousands).
Contractual Obligation
Long-term debt and capital lease
obligations
Estimated interest on long-term debt
Operating leases
Capital project purchase obligations
Total
Less than
1 Year
Payments Due by Period
3 – 5
Years
After
5 Years
1 – 3
Years
Total
$
$
15,490
3,836
13,976
890
$
557
5,917
17,931
34,192
$
24,405
$
$
70,527
3,110
4,799
78,436
$
$
$
14,600
1,664
2,294
18,558
$
101,174
14,527
39,000
890
155,591
As of December 27, 2008, we also had $32.2 million in outstanding letters of credit issued during the normal course of business,
as required by some vendor contracts.
12
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
LIQUIDITY AND CAPITAL RESOURCES
Cash from operating activities
Cash from investing activities
Cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
88,551
(11,367)
(107,452)
(30,268)
43,605
13,337
$
$
$
December 27,
2008
December 29, December 30,
2007
87,078
(91,971)
(2,610)
(7,503)
51,108
43,605
$
$
2006
152,322
(111,705)
(35,724)
4,893
46,215
51,108
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 our 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 and 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 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 (excluding the impact of our sale of receivables program) increased to 46 days in 2008 from 45 days in 2007 due to a one
day increase in our days of sales outstanding as a one day decrease in our days supply of inventory was offset by a one day
decrease in our days of payables outstanding. The increase in our days of sales outstanding was primarily due to slower
payments with certain site-built and industrial customers.
Cash from operating activities was approximately $89 million in 2008. Our net earnings of $4.3 million included $48.3 million
of non-cash expenses and a $35.9 million decrease in working capital. Working capital decreased primarily due to a decline in
sales which caused a reduction in our inventory and receivables, offset by the effect of terminating of our sales of receivables
program at the end of September 2008. Terminating this program resulted in an operating cash outflow of $27 million in 2008.
Our sales of receivables program was terminated on September 26, 2008, due to the downgrade of the credit rating of certain
customers whose receivables were part of this program. This downgrade triggered a re-pricing of the program under the terms of
the agreement which made this program a less favorable source of liquidity.
13
We made the decision to limit our investing activities in 2008 and make debt repayment our first priority for use of our operating
cash flows. As a result, cash used for investing activities decreased by approximately $81 million. Our proceeds from the sale of
property, plant and equipment was approximately $30 million consisting primarily of vacant land we owned as a result of our
acquisition of Aljoma in 2007 and certain plants we previously closed for which we had no future use. (See Notes to
Consolidated Financial Statements, Note C, “Assets Held for Sale and Net Loss on Disposition of Assets and Other Impairment
and Exit Charges”.) Amounts spent for business acquisitions totaled approximately $23 million. (See Notes to Consolidated
Financial Statements, Note B, “Business Combinations”.) Finally, we curtailed our capital expenditures and spent approximately
$19 million in 2008.
On December 27, 2008, we had approximately $30 million outstanding on our $300 million revolving credit facility. The
revolving credit facility supports letters of credit totaling approximately $29.7 million on December 27, 2008. 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 27, 2008. If our profitability declines in the future it may adversely impact our ability to meet certain of these loan
covenants without further action on our part. Management will evaluate what, if any, action or actions may be available to
resolve any future non-compliance. A possible consequence of non-compliance may include an adjustment to increase our
interest rates to reflect current market conditions.
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.
14
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 27, 2008. 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. (See “Environmental
Considerations and Regulations.”)
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 for impairment by utilizing the discounted cash flow method.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Notes to Consolidated Financial Statements, Note A, “Summary of Significant Accounting Policies”.
15
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.
“GO 2010”
Since we announced our Growth & Opportunity 2010 Goals in our annual report on form 10-K for the period ended
December 30, 2006, industry and general economic conditions have significantly deteriorated. For example, the Lumber Market
has declined from an average of $388/mbf in 2005 to an average of $252/mbf in 2008; a 35% decline from when we first
announced our goals, which has adversely impacted our sales. We are currently reviewing these long-term goals and expect to
modify them when market conditions stabilize so new targets can be set using more current data and assumptions.
DIY/RETAIL MARKET
Harvard’s Joint Center for Housing Studies projects home improvement spending to decline at an annual rate of 12.1% by the
third quarter of 2009. A decline is forecasted due to a decrease in consumer spending, a continued decline in housing market
activity, and tight credit conditions in 2009. The Consumer Confidence Index fell to 38 in December, down from 87.3 at the
beginning of the year.
In 2009, we believe we will increase our market share with certain “big box” home improvement and other retailers, but will
continue to be impacted by the soft market conditions discussed above. 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 such as composite wood decking, which continues to 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 newly formed 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 through our Consumer Products Division.
Adding new products or new markets through strategic business acquisitions.
16
SITE-BUILT CONSTRUCTION MARKET
The Mortgage Bankers Association of America forecasts a 32% decline in single-family housing starts to an estimated
0.4 million starts in 2009 as the industry continues to recover from excess inventory levels of single-family homes, tighter credit
conditions, and an increase in foreclosures associated with sub-prime lending practices.
In 2009, we believe the decline in single-family housing starts will continue to adversely impact our sales and gross margins. Our
strategy during this downturn is to down-size our operations to current demand and increase our share with custom home
builders and multi-family and light commercial construction markets.
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.
MANUFACTURED HOUSING MARKET
The National Association of Home Builders forecasts a 16.6% decline in manufactured home shipments in 2009. It is our goal to
maintain our current market share of trusses produced for the HUD code market, which increased as a result of our acquisition of
Banks in November 2006. 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.
Sales of modular homes are expected 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.
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. However, we recognize that any market share gains we may realize in 2009 may be offset by a decline in demand due to
the rapidly deteriorating economy. On a long-term basis, we also plan to evaluate strategic acquisition opportunities and continue
to gain market share with concrete forming customers.
17
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2009:
•
•
•
•
•
•
•
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. If our customers are unwilling to
pay for these advantages, our sales and gross margins may be reduced.
In the first half of 2009 we expect to continue to experience a decline in demand in each of our markets, which in turn will
impact our sales prices, capacity utilization, and profitability.
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 planned cost reductions through plant consolidations and our Continuous Improvement
initiative. In January 2009, we temporarily closed facilities in Bunn, NC and Ooltewah, TN to better align manufacturing
capacity with the current business environment. In February 2009, we also temporarily closed a facility in White Pigeon,
MI.
We have a long-term goal of continuing to increase our ratio of value-added sales to total sales, which in turn should
increase gross margins. Our acquisition and internal sales growth strategies will help us continue to make progress toward
this objective. However, achievement of this goal is dependent, in part, upon certain factors that are beyond our control.
Organizational changes made to our lumber purchasing function to continue to enhance our buying advantage over
competitors.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
In the third quarter of 2008, as a result of deteriorating market conditions, we took actions to close plants to better align our
manufacturing capacity with the current business environment and reduce our headcount and certain overhead costs. We realized
most of these cost reductions in the fourth quarter of 2008 and we expect that these actions will favorably impact our SG&A
expenses in 2009. The decreases mentioned above are expected to be slightly offset by a stock grant made on February 1, 2009.
We estimate that we will recognize total expense of approximately $1.6 million over the next five years for this grant. In
addition, economic and credit conditions may significantly impact our bad debt expense. We continue to monitor our customer’s
credit profiles carefully and make changes in our terms where necessary in response to this heightened risk.
18
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 discussed above.
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 up to $10 million on capital expenditures in 2009 and incur depreciation of approximately
$35 million and amortization of intangible assets of approximately $10 million. On December 27, 2008, we had outstanding
purchase commitments on capital projects of approximately $0.9 million.
We have no present intention to change our dividend policy, which is currently $0.06 per share paid semi-annually.
Our Board of Directors has approved a share repurchase program under which we have authorization to buy back approximately
1.2 million shares as of December 27, 2008. 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.
The Series 2002-A Senior Notes totaling $15.0 million are due December 18, 2009, which we currently intend to pay-off through
cash flows generated from operations. We are also obligated to pay additional amounts due on long-term debt totaling
approximately $0.5 million in 2009.
We currently have assets held for sale totaling $8.3 million at December 27, 2008 that we intend to sell during 2009. On
February 6, 2009, we sold real estate located in Woodburn, Oregon. The net sales price was approximately $5.2 million resulting
in a gain of approximately $2.4 million.
19
Management’s 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 27, 2008. In making this
assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control — Integrated Framework. Based on our assessment, management has concluded that as of
December 27, 2008, our internal control over financial reporting was effective 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.
The effectiveness of the Company’s 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 20, 2009
20
Report of Independent Registered Public Accounting Firm
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 27,
2008, based on criteria established in Internal Control—Integrated 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 Management’s Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the company’s 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 company’s 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 company’s 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 company’s
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 27, 2008, 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 27, 2008 and the related
consolidated statements of income, shareholders’ equity, and cash flows for each of the three years the period ended
December 27, 2008 and our report dated February 20, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 20, 2009
21
Report of Independent Registered Public Accounting Firm
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 27, 2008 and December 29, 2007, and the related consolidated statements of earnings, shareholders’ equity, and cash
flows for each of the three years in the period ended December 27, 2008. These financial statements are the responsibility of the
Company’s 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 the 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 27, 2008 and December 29, 2007, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 27, 2008, 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 27, 2008, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 20, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 20, 2009
22
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net
Inventories:
Raw materials
Finished goods
Assets held for sale
Other current assets
Prepaid income taxes
Deferred income taxes
TOTAL CURRENT ASSETS
OTHER ASSETS
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS
OTHER INTANGIBLE ASSETS, net
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements
Building and improvements
Machinery, equipment and office furniture
Construction in progress
Less accumulated depreciation and amortization
PROPERTY, PLANT AND EQUIPMENT, NET
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued liabilities:
Compensation and benefits
Other
Current portion of long-term debt and capital lease obligations
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion
DEFERRED INCOME TAXES
MINORITY INTEREST
OTHER LIABILITIES
TOTAL LIABILITIES
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,
19,088,880 and 18,907,841
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings
Employee stock notes receivable
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
See notes to consolidated condensed financial statements.
23
December 27, December 29,
2008
2007
$
13,337
138,043
$
43,605
142,562
109,942
83,554
193,496
8,296
13,037
6,283
8,416
380,908
5,927
159,263
22,751
88,958
143,845
271,104
1,270
505,177
(258,007)
247,170
816,019
$
120,805
115,063
235,868
33,624
21,754
15,077
8,035
500,525
8,094
150,272
23,849
64,754
148,000
293,579
6,670
513,003
(238,743)
274,260
957,000
63,184
$
83,505
49,306
22,620
15,490
150,600
85,684
17,056
6,343
14,453
274,136
49,558
28,717
945
162,725
205,126
24,536
10,376
17,569
420,332
19,089
128,830
393,312
2,353
543,584
(1,701)
541,883
816,019
$
$
18,908
123,368
391,253
4,704
538,233
(1,565)
536,668
957,000
$
$
$
$
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
NET SALES
COST OF GOODS SOLD
GROSS PROFIT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NET LOSS ON DISPOSITION OF ASSETS AND OTHER
IMPAIRMENT AND EXIT CHARGES
EARNINGS FROM OPERATIONS
Interest expense
Interest income
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST
INCOME TAXES
EARNINGS BEFORE MINORITY INTEREST
MINORITY INTEREST
NET EARNINGS
EARNINGS PER SHARE — BASIC
EARNINGS PER SHARE — DILUTED
Year Ended
December 27, December 29, December 30,
2008
2007
2006
$
2,232,394
$
2,513,178
$
2,664,572
1,978,193
2,204,149
2,282,890
254,201
309,029
381,682
228,557
247,373
257,796
7,239
18,405
12,088
(829)
11,259
7,146
1,686
5,460
8,164
141
53,492
123,745
17,033
(2,150)
14,883
14,053
(2,443)
11,610
38,609
112,135
15,396
38,760
23,213
73,375
(1,117)
(2,168)
(3,250)
$
$
$
4,343
0.23
0.23
$
$
$
21,045
1.10
1.09
$
$
$
70,125
3.73
3.62
WEIGHTED AVERAGE SHARES OUTSTANDING
19,074
19,056
18,820
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON
STOCK EQUIVALENTS
19,225
19,362
19,370
See notes to consolidated condensed financial statements.
24
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share and per share data)
Additional Deferred
Common Paid-In
Stock Capital
$ 18,403 $
97,372 $
Stock
Compensation
4,212 $
Stock
Other
Retained Comprehensive Notes
Earnings
(2,117) $312,878 $
Earnings
2,408 $
Receivable Total
(1,304) $431,852
Deferred
Compensation
Rabbi
Trust
Accumulated Employees
70,125
(2,072)
43
70,168
(2,072)
Balance at December 31, 2005
Comprehensive earnings:
Net earnings
Foreign currency translation adjustment
Total comprehensive earnings
Cash dividends — $.110 per share
Reversal of deferred compensation upon adoption of
SFAS 123(R)
Issuance of 349,644 shares under employee stock plans
Issuance of 3,467 shares under stock grant programs
Issuance of 101,278 shares under deferred
compensation plans
Received 1,367 shares for the exercise of stock options
Tax benefits from non-qualified stock options
350
3
101
(1)
exercised
Expense associated with share-based compensation
arrangements
Accrued expense under deferred compensation plans
Issuance of 3,222 shares in exchange for employee
stock notes receivable
(4,212)
2,117
2,095
5,678
194
(101)
(89)
4,376
972
3,056
3
201
Payments received on employee stock notes receivable
Balance at December 30, 2006
Comprehensive earnings:
$ 18,859 $ 113,754 $
— $
— $380,931 $
2,451 $
2,253
21,045
(2,185)
(8,538)
— $
— $391,253 $
4,704 $
4,343
(2,284)
(2,351)
Net earnings
Foreign currency translation adjustment
Total comprehensive earnings
Cash dividends — $.115 per share
Issuance of 220,345 shares under employee stock plans
Issuance of 3,961 shares under stock grant programs
Issuance of 69,777 shares under deferred compensation
plans
Repurchase of 239,400 shares
Received 15,866 shares for the exercise of stock
options
Tax benefits from non-qualified stock options
exercised
Expense associated with share-based compensation
arrangements
Accrued expense under deferred compensation plans
Issuance of 10,132 shares in exchange for employee
220
4
3,683
170
70
(239)
(70)
(16)
(766)
1,867
505
3,733
stock notes receivable
10
492
Payments received on employee stock notes receivable
Balance at December 29, 2007
Comprehensive earnings:
$ 18,908 $ 123,368 $
Net earnings
Foreign currency translation adjustment
Total comprehensive earnings
Cash dividends — $.120 per share
Issuance of 174,528 shares under employee stock plans
Issuance of 3,706 shares under stock grant programs
Issuance of 15,288 shares under deferred compensation
plans
Received 19,857 shares for the exercise of stock
options
Tax benefits from non-qualified stock options
exercised
Expense associated with share-based compensation
arrangements
Accrued expense under deferred compensation plans
Issuance of 7,374 shares in exchange for employee
stock notes receivable
175
4
3,030
100
15
(15)
(20)
(622)
878
1,136
725
7
230
Payments received on employee stock notes receivable
Balance at December 27, 2008
$ 19,089 $ 128,830 $
— $
— $393,312 $
2,353 $
See notes to consolidated condensed financial statements.
25
—
6,028
197
—
(90)
4,376
972
3,056
(204)
255
—
255
(1,253) $514,742
23,298
(2,185)
3,903
174
—
(8,777)
(782)
1,867
505
3,733
(502)
190
—
190
(1,565) $536,668
1,992
(2,284)
3,205
104
—
(642)
878
1,136
725
(237)
101
—
101
(1,701) $541,883
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash from operating
activities:
Depreciation
Amortization of intangibles
Expense associated with share-based compensation arrangements
Expense associated with stock grant plans
Deferred income taxes
Minority interest
Gain on sale of interest in subsidiary
Gain on insurance settlement
Net loss on sale or impairment of property, plant and equipment
Excess tax benefits from share-based compensation arrangements
Changes in:
Accounts receivable
Inventories
Accounts payable
Accrued liabilities and other
NET CASH FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Acquisitions, net of cash received
Proceeds from sale of interest in subsidiary
Proceeds from sale of property, plant and equipment
Advances on notes receivable
Collections on notes receivable
Insurance proceeds
Other, net
NET CASH FROM INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit facilities
Repayment of long-term debt
Proceeds from issuance of common stock
Distributions to minority shareholders
Investment received from minority shareholder
Dividends paid to shareholders
Repurchase of common stock
Excess tax benefits from share-based compensation arrangements
Other, net
NET CASH FROM FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
Year Ended
December 27, December 29, December 30,
2008
2007
2006
$
4,343
$
21,045
70,125
37,570
9,797
1,136
104
(7,747)
1,117
(598)
7,062
(171)
4,287
42,922
(20,153)
8,882
88,551
(18,944)
(23,338)
30,367
(997)
556
800
189
(11,367)
(24,148)
(80,824)
2,957
(3,654)
419
(2,284)
171
(89)
(107,452)
(30,268)
43,605
39,547
8,034
505
174
(4,134)
2,168
(140)
6,755
(755)
19,538
27,795
(9,569)
(23,885)
87,078
(39,360)
(57,087)
400
4,769
(1,002)
347
(38)
(91,971)
34,648
(28,466)
3,539
(1,797)
(2,185)
(8,777)
755
(327)
(2,610)
(7,503)
51,108
33,771
5,751
972
197
(1,100)
3,250
141
(3,998)
41,912
22,262
(14,576)
(6,385)
152,322
(43,504)
(71,814)
1,245
1,614
754
(111,705)
(37,700)
(3,228)
5,938
(2,586)
(2,072)
3,998
(74)
(35,724)
4,893
46,215
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
13,337
$
43,605
$
51,108
26
431
53
721
1,379
550
204
2,225
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (CONTINUED)
December 27,
2008
Year Ended
December 29, December 30,
2007
2006
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest
Income taxes
NON-CASH OPERATING ACTIVITIES:
Assets exchanged for insurance receivable
Accounts receivable exchanged for note receivable
Deferred purchase price of acquisition exchanged for current payable
Deferred purchase price of acquisition exchanged for long-term liability
$
$
12,418
(8)
737
$
$
17,055
16,919
14,637
52,335
257
$
NON-CASH INVESTING ACTIVITIES:
Property, plant and equipment exchanged for long-term debt
Note receivable exchanged for property, plant and equipment
Stock acquired through employees’ stock notes receivable
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans
Stock received for the exercise of stock options, net
See notes to consolidated condensed financial statements.
237
99
352
502
3,452
418
27
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
We market, manufacture and engineer wood and wood-alternative products for the do-it-yourself/retail (“D-I-Y/retail”)
market, structural lumber products for the manufactured housing market, engineered wood components for the site-built
construction market, and specialty wood packaging for various markets. We also provide framing services for the site-built
construction market and various forms for concrete construction. Our 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.
MINORITY INTEREST IN SUBSIDIARIES
Minority interest in results of operations of consolidated subsidiaries represents the minority shareholders’ share of the
income or loss of various consolidated subsidiaries. The minority interest reflects the original investment by these minority
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
2008, 2007, and 2006 relate to the fiscal years ended December 27, 2008, December 29, 2007, and December 30, 2006,
respectively. Fiscal years 2008, 2007 and 2006 were comprised of 52 weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 107, Disclosures about Fair Value of Financial Instruments. Significant differences in
fair market values and recorded values are disclosed in Note E. 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.
28
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The fair value estimates presented herein are based on pertinent information available to management as of December 27,
2008. 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 $0.1 million and $33.8 million as of December 27, 2008 and
December 29, 2007, respectively.
As a result of our cash management system, checks issued but not presented to our bank for payment create negative cash
balances. These negative balances are included in accounts payable and accrued liabilities and totaled $18.2 million and
$21.3 million as of December 27, 2008 and December 29, 2007, 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.
29
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following table presents the activity in our accounts receivable allowances (in thousands):
Year Ended December 27, 2008:
Allowance for possible losses on
accounts receivable
Year Ended December 29, 2007:
Allowance for possible losses on
accounts receivable
Year Ended December 30, 2006:
Allowance for possible losses on
accounts receivable
$
$
$
Beginning
Balance
Additions
Charged to
Costs and
Expenses
Deductions*
Collections
Ending
Balance
2,403
$
24,734
$
(25,453)
$
756
$
2,440
3,576
$
23,686
$
(25,374)
$
515
$
2,403
3,396
$
23,787
$
(23,975)
$
368
$
3,576
*
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
Buildings and improvements
Machinery, equipment and office furniture
FOREIGN CURRENCY TRANSLATION
5 to 15 years
15 to 31.5 years
3 to 10 years
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.
30
UNIVERSAL FOREST PRODUCTS, INC.
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 27, 2008 and December 29, 2007. 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 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 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.
31
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following table presents the balances of percentage-of-completion accounts on December 27, 2008 and December 29,
2007 which are included in other current assets and other accrued liabilities, respectively (in thousands):
Cost and Earnings in Excess of Billings
Billings in Excess of Cost and Earnings
SHIPPING AND HANDLING OF PRODUCT
2008
$
7,934
5,882
$
2007
10,927
8,568
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 SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets (“SFAS No. 144”),
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 (see Note J) utilizing the “treasury
stock” method.
32
UNIVERSAL FOREST PRODUCTS, INC.
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):
2008
2007
2006
Per
Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Per
Share
Per
Share
Income
Income
Income
Shares
Shares
Shares
Net Earnings
$
4,343
$
21,045
$
70,125
EPS — Basic
Income available to
common stockholders
4,343
19,074 $
0.23
21,045
19,056 $
1.10
70,125
18,820 $
3.73
Effect of Dilutive
Securities
Options
EPS — Diluted
Income available to
common stockholders
and assumed options
exercised
151
306
550
$
4,343
19,225 $
0.23 $
21,045
19,362 $
1.09 $
70,125
19,370 $
3.62
Options to purchase 230,000 shares of common stock at exercise prices ranging from $22.88 to $36.01 were outstanding as
of December 27, 2008, but were not included in the computation of diluted EPS because the options’ exercise prices were
greater than the average market price of the common stock during the period and, therefore, would be antidilutive.
Options to purchase 30,000 shares of common stock at exercise prices ranging from $31.11 to $36.01 were outstanding as
of December 29, 2007, but were not included in the computation of diluted EPS because the options’ exercise prices were
greater than the average market price of the common stock during the period and, therefore, would be antidilutive.
No outstanding options were excluded from the computation of diluted EPS as of December 30, 2006.
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.
33
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective at the beginning of the fiscal year ending December 27, 2008, we adopted SFAS No. 157, Fair Value
Measurements (“SFAS No. 157”). This new standard establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under
various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157
also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the
effect of such measures on earnings. We have only adopted the provisions of SFAS No. 157 for financial assets and
liabilities for fiscal year ending December 27, 2008 and will adopt the provision for non-financial assets and liabilities for
fiscal year beginning December 28, 2008. The adoption has not had a material impact on our consolidated financial
statements. We are evaluating the impact of adopting the provisions of SFAS 157 for non-financial assets and liabilities and
do not expect them to have a material impact on our consolidated financial statements. SFAS No. 157 requires fair value
measurements be classified and disclosed in one of three designated categories.
The following table summarizes the valuation of our financial instruments as of December 27, 2008. These instruments are
classified as Level 1 which are financial instruments with unadjusted, quoted prices listed on active market exchanges.
(in millions)
Assets:
Cash and cash equivalents
Trading marketable securities
Liabilities:
Deferred compensation arrangements
Quoted Prices in
Active Markets
Total
(Level 1)
$
$
$
$
13.3
3.0
16.3
3.0
3.0
$
$
$
$
13.3
3.0
16.3
3.0
3.0
Effective at the beginning of the fiscal year ending December 27, 2008, we adopted SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 allows companies to choose to measure
certain financial instruments and certain other items at fair value. The statement requires that unrealized gains and losses are
reported in earnings for items measured using the fair value option and establishes presentation and disclosure
requirements. We have elected not to apply the fair value option to any of our financial instruments except for those
expressly required by U.S. GAAP.
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141(R), Business Combinations
(“SFAS 141(R)”), which replaces FAS 141. SFAS 141(R) establishes principles and requirements for how an acquirer in a
business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities
assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain
from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141(R) is effective for us for business combinations
closed on or after December 28, 2008.
34
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an
amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate
from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling
financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the
deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. SFAS 160 is effective for us for the fiscal year beginning December 28, 2008. We are currently
evaluating the impact SFAS No. 160 may have on our consolidated financial statements.
B. BUSINESS COMBINATIONS
We completed the following business combinations in 2008, 2007 and 2006, which were accounted for using the purchase
method (in millions).
Net
Company
Name
D-Stake Mill and
Manufacturing Country
(“D-Stake”)
Acquisition
Date
June 9, 2008
Purchase
Price
$7.1 (asset
purchase)
Intangible Tangible
Assets
2.0
Assets
5.1
$
$
Reportable
Segment
Western Division
Business Description
Manufactures kiln stickers,
lath, stakes,
decking, and pallets and pallet components
for a variety of
including
manufacturing, retail and agriculture. Plants
in McMinnville, OR and
are
Independence, OR. Combined 2007 sales
were $18.5 million.
industries
located
Shawnlee Construction,
LLC (“Shawnlee”)
April 1, 2008
$1.8 (asset
purchase)
April 2, 2007
April 3, 2006
Romano Construction
Company, Ltd.
(“Romano”)
March 15,
2008
$1.4 (asset
purchase)
$0.8 (asset
purchase)
$0.4 (asset
purchase)
$
$
$
$
1.0
$
0.8
Eastern Division
Purchased 100% of the inventory, property,
plant and equipment, and intangibles
Provides framing services for multi-family
construction in the northeast. Located in
Plainville, MA. We currently own a 90%
membership interest and have purchased and
additional 5% interest each year.
0.5
0.4
0.2
Eastern Division
Provides framing services and is located in
Middletown, NY.
Purchased 100% of the property, plant and
equipment, and intangibles
0.9
0.4
0.2
$
$
$
35
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Net
Business Description
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
Manufactures and distributes aluminum
railing systems. Located in Hastings, MN.
2006 sales were $1.9 million.
Purchased 100% voting interest
Manufactures and distributes roof and floor
trusses to the Eastern Florida market. The
company is located in Vero Beach, FL. 2006
sales were $3.9 million.
Purchased 100% voting interest
Manufactures, treats and distributes various
wood products, building materials and
is
specialty hardwoods. The company
located in Medley, FL. They serve Florida,
the Eastern United States and the Caribbean
islands. Aljoma has one of the largest
treating facilities in the country. 2006 sales
were $225.0 million.
Purchased 100% voting interest
Manufactures roof trusses and cut-to-size
structural lumber for manufactured housing
and recreational vehicle (RV) manufacturers
nationwide. The company had continuing
operations in Elkhart, IN, Edwardsburg, MI,
Morristown, TN, Auburndale, FL, Hillsboro,
TX and certain other operations we
consolidated into our existing plants. 2006
sales were $147.0 million.
Purchased 100% voting interest
Company
Name
International Wood
Industries, Inc. (“IWI”)
Acquisition
Date
February 4, 2008
Purchase
Price
$14.0 (stock
purchase)
Intangible Tangible
Assets
3.4
Assets
10.6
$
$
Reportable
Segment
Western Division
Deck Images
July 10, 2007
$0.9 (asset
purchase)
Perfection Trusses, Inc.
(“Perfection”)
March 5, 2007
$1.3 (asset
purchase)
$
$
0.6
$
0.3
Consumer Products
Division
0.8
$
0.5
Eastern Division
Aljoma Lumber Company
(“Aljoma”)
February 12, 2007
$53.5 (stock
purchase)
$
0.4
$
53.1
Eastern Division
Banks Lumber (“Banks”)
November 17,
2006
$44.7 (asset
purchase)
$
24.4
$
20.3
Primarily Eastern
Division
36
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Net
Company
Name
GeoMatrix, Inc.
(“GeoMatrix”)
Acquisition
Date
August 18, 2006
Purchase
Price
$11.3 (asset
purchase)
Intangible Tangible
Assets
2.2
Assets
9.1
$
$
Reportable
Segment
Consumer Products
Division
United Lumber & Reman,
LLC (“United”)
July 10, 2006
$4.6 (asset
purchase)
$
2.7
$
1.9
Eastern Division
Dura-Bilt Mfg. Co.
(“Dura-Bilt”)
June 5, 2006
$8.4 (asset
purchase)
$
6.6
$
1.8
Western Division
Classic Truss Company,
Inc. (“Classic”)
January 9, 2006
$2.0 (asset
purchase)
$
0.4
$
1.6
Eastern Division
Business Description
A developer and distributor of plastic lattice
products and other proprietary plastic
products located in Troy, MI. 2005 sales
were $19.0 million.
Purchased 100% voting interest
An industrial wood manufacturing plant
located in Muscle Shoals, AL. Acquired a
50% membership interest. 2005 sales were
$26.0 million.
Purchased 100% voting interest
Designs and manufactures roof and floor
trusses
for site-built construction. The
company is located in Riverbank, CA. 2005
sales were $16.0 million.
Purchased 100% voting interest
Manufactures and distributes engineered
wood components for site-built construction.
The company is located in Fort Pierce, FL.
2005 sales were $6.0 million.
Purchased 100% voting interest
The purchase price allocations for D-Stake and IWI are preliminary and will be revised as final estimates of intangible asset
values are made. The amounts assigned to major intangible classes for business combinations mentioned above are as
follows (in millions):
Non-compete
agreements
Customer
Relationships
Patents
Goodwill –
Total
Goodwill –
Tax
Deductible
D-Stake
Shawnlee
IWI
Deck Images
Perfection
Aljoma
Banks
GeoMatrix
United
Dura-Bilt
Classic
$2.6
0.3
0.3
0.1
5.4
0.3
0.4
4.3
0.3
1.4
0.9
0.4
$0.4
0.4
0.2
0.6
0.5
4.1
2.0
1.3
3.1
$3.0
$2.5
0.3
0.2
0.1
5.2
16.0
3.8
2.6
$2.5
0.3
0.2
0.1
0.0
16.0
3.8
2.6
The business combinations mentioned above were not significant to our operating results individually or in aggregate, and
thus pro forma results are not presented.
37
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
C. ASSETS HELD FOR SALE AND NET LOSS 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
$8.3 million on December 27, 2008 and $33.6 million on December 29, 2007. The assets held for sale consist of certain
vacant land and several facilities we closed to better align manufacturing capacity with the current business environment.
The fair values were determined based on appraisals or recent offers to acquire the assets. These and other idle assets were
evaluated based on the requirements of SFAS No. 144, which resulted in an impairment and other exit charges totaling
approximately $7.2 million and $8.2 million included in “Net loss on disposition of assets and other impairment and exit
charges” for the years ending December 27, 2008 and December 29, 2007, respectively. These amounts include the
following, separated by reporting segment (in millions):
Severances
Fixed assets
Notes receivable
Lease termination
Other intangibles
The changes in assets held for sale in 2008 are as follows (in millions):
Description
Assets held for sale as of December 29, 2007
Additions
Transfers to held for use
Sale of vacant land acquired as part of acquisition of Aljoma
Sale of certain real estate in Thorndale, Ontario
Sale of certain real estate in Fishersville, Virginia
Sale of certain real estate in Hohenwald, Tennessee
Assets held for sale as of December 27, 2008
December 27, 2008
December 29, 2007
Eastern and
Western
All
Other Divisions
$1.3
5.8
$0.3
0.8
All
Other
$0.1
1.0
Eastern and
Western
Divisions
$1.1
2.3
1.6
0.5
0.6
Net Book
Value
Date of Sale
Net Sales
Price
$
$
33.6
8.6
(4.2)
(24.5)
(2.7)
(1.5)
(1.0)
8.3
$
January 24, 2008
March 18, 2008
July 23, 2008
August 11, 2008
24.2
2.7
1.9
1.0
We have transferred certain assets back to held for use because we do not believe we will sell these assets within a year due
to deteriorating economic conditions.
D. GOODWILL AND OTHER INTANGIBLE ASSETS
We account for goodwill and other intangible assets in accordance with the provisions of SFAS No. 142 Goodwill and
Other Intangible Assets. Goodwill and intangible assets acquired in a purchase business combination and determined to
have an indefinite useful life are not amortized, but instead tested for impairment at least annually or when a triggering
event occurs. We tested for impairment in the fourth quarter by utilizing the discounted cash flow method and allocating
goodwill based on operating segments, which resulted in no impairment.
38
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following amounts were included in other intangible assets, net as of December 27, 2008 and December 29, 2007 (in
thousands):
Non-compete agreements
Licensing agreements
Customer relationships
Patents
Total
2008
Assets
$
26,899
Accumulated
Amortization
(13,481)
$
17,734
2,980
47,613
$
(10,326)
(1,055)
(24,862)
$
$
$
Assets
$
2007
Accumulated
Amortization
(10,764)
(871)
(5,601)
(630)
(17,866)
$
20,871
4,050
13,814
2,980
41,715
Amortization is computed principally by the straight-line method over the estimated useful lives of the intangible assets as
follows:
Non-compete agreements
Licensing agreements
Customer relationship
5 to 10 years
3 to 5 years
5 years
Amortization expense of intangibles totaled $9.8 million, $8.0 million and $5.8 million in 2008, 2007, and 2006,
respectively. The estimated amortization expense for intangibles for each of the five succeeding fiscal years is as follows (in
thousands):
2009
2010
2011
2012
2013
Thereafter
Total
$
$
8,166
6,778
4,753
2,106
553
395
22,751
The changes in the net carrying amount of goodwill and indefinite-lived intangible assets for the years ended December 27,
2008 and December 29, 2007, are as follows (in thousands):
Balance as of December 29, 2006
Acquisitions
Final purchase price allocations
Translation adjustment
Balance as of December 29, 2007
Final purchase price allocations
Acquisitions
Translation adjustment
Balance as of December 27, 2008
E. DEBT
Indefinite-
Lived
Intangible
Assets
2,340
2,340
Goodwill
$
$
152,837
1,860
(7,797)
1,032
147,932
$
$
1,226
8,013
(248)
$
156,923
$
2,340
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
$140 million. The average borrowing rate on this facility was 3.6% and 5.5% in 2008 and 2007, 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 totaling approximately $29.7 million on December 27, 2008.
39
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Outstanding letters of credit extended on our behalf aggregated $32.2 million on December 27, 2008, which includes
approximately $14.8 million related to industrial development revenue bonds. Outstanding letters of credit extended on our
behalf aggregated $33.7 million on December 29, 2007, which includes approximately $16.1 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 27, 2008 and December 29, 2007
(amounts in thousands):
Series 1998-A Senior Notes Tranche B, due on December 21, 2008, interest payable semi-
annually at 6.98%
2008
2007
$
59,500
Series 1998-A Senior Notes Tranche C, due on December 21, 2008, interest payable semi-
annually at 6.98%
Series 2002-A Senior Notes Tranche A, due on December 18, 2009, interest payable semi-
annually at 5.63%
$
15,000
Series 2002-A Senior Notes Tranche B, due on December 18, 2012, interest payable semi-
19,000
15,000
40,000
54,614
1,300
3,300
2,700
2,400
2,500
40,000
30,257
3,300
2,700
2,400
2,500
3,700
279
1,038
101,174
15,490
85,684
$
3,700
857
1,200
206,071
945
205,126
$
annually at 6.16%
Revolving credit facility totaling $300 million due on February 12, 2012, interest due
monthly at a floating rate (0.96% on December 27, 2008)
Series 1998 Industrial Development Revenue Bonds, due on December 1, 2018, interest
payable monthly at a floating rate
Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest
payable monthly at a floating rate (1.08% on December 27, 2008)
Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest
payable monthly at a floating rate (1.27% on December 27, 2008)
Series 2000 Industrial Development Revenue Bonds, due on November 1, 2020, interest
payable monthly at a floating rate (1.27% on December 27, 2008)
Series 2001 Industrial Development Revenue Bonds, due on November 1, 2021, interest
payable monthly at a floating rate (1.27% on December 27, 2008)
Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest
payable monthly at a floating rate (1.16% on December 27, 2008)
Capital lease obligations, interest imputed at 6.72%
Other
Less current portion
Long-term portion
40
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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 27, 2008.
On December 27, 2008, the principal maturities of long-term debt and capital lease obligations are as follows
(in thousands):
2009
2010
2011
2012
2013
Thereafter
$
$
15,490
303
254
70,527
14,600
101,174
On December 27, 2008, the estimated fair value of our long-term debt, including the current portion, was $101.7 million,
which was $0.5 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.
F. LEASES
Leased property included in the balance sheet on December 27, 2008 and December 29, 2007 is as follows (in thousands):
Machinery and equipment
Less accumulated amortization
2008
2007
2,589
(2,001)
588
$
$
2,498
(1,091)
1,407
$
$
41
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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 aircrafts under operating lease agreements for periods
of one to ten years. Future minimum payments under non-cancelable leases on December 27, 2008 are as follows
(in thousands):
2009
2010
2011
2012
2013
Thereafter
Total minimum lease payments
Less imputed interest
Present value of minimum lease payments
Capital
Leases
Operating
Leases
Total
$
$
$
$
$
223
75
298
(19)
279
13,976
11,153
6,778
3,315
1,484
2,294
39,000
$
$
14,199
11,228
6,778
3,315
1,484
2,294
39,298
Rent expense was approximately $19.9 million, $24.0 million, and $25.8 million in 2008, 2007, and 2006, respectively.
G. 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 $3.0 million and $4.7 million on
December 27, 2008 and December 29, 2007, respectively, and are included in “Other Assets.” Related liabilities totaled
$8.9 million and $10.5 million on December 27, 2008 and December 29, 2007, 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.
42
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
H. SALE OF ACCOUNTS RECEIVABLE
On March 8, 2006, we entered into an accounts receivable sale arrangement with a bank that was terminated on
September 26, 2008. Under the terms of this arrangement:
•
•
•
•
We sold specific receivables to the bank at an agreed-upon price at terms ranging from one month to one year.
We serviced the receivables sold and outstanding on behalf of the bank at a rate of 0.50% per annum.
We received an incentive servicing fee, which we accounted for as a retained interest in the receivables sold. Our
retained interest was determined based on the fair market value of anticipated collections in excess of the Agreed Base
Value of the receivables sold. Appropriate valuation allowances were recorded against the retained interest.
The maximum amount of receivables, net of retained interest, which were sold and outstanding at any point in time
under this arrangement was $50 million.
No receivables were sold and outstanding on December 27, 2008. On December 29, 2007 $29.0 million of receivables were
sold and outstanding, and we recorded $2.2 million of retained interest in other current assets. A summary of the
transactions we completed in 2008, 2007, and 2006 is presented below (in thousands).
Accounts receivable sold
Retained interest in receivables
Expense from sale
Servicing fee received
Net cash received from sale
I. COMMON STOCK
2008
2007
2006
$
$
369,242
(2,432)
(869)
119
366,060
$
$
624,448
(1,982)
(2,629)
212
620,049
$
$
460,859
(6,649)
(1,847)
150
452,513
On June 1, 1993, our shareholders approved the Incentive Stock Option Plan (the “Plan”) for our officers. Options for the
purchase of all 1,200,000 shares of our common stock authorized under the Plan have been granted. The Plan provides that
the options are exercisable only if the officer is employed by us at the time of exercise and holds at least seventy-five
percent of the individuals’ shares held on April 1, 1993. The Plan also requires the option shares to be held for periods of
six months to three years. 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 2008, 2007, and
2006, and recognized the market value of the shares at the date of issuance as an expense totaling approximately $45,000,
$68,000, and $55,000, respectively.
43
UNIVERSAL FOREST PRODUCTS, INC.
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 2008, 2007, and 2006, shares were issued under
this Plan for amounts totaling approximately $582,000, $617,000, and $811,000, respectively. The weighted average
discounted fair value of these shares was $25.92, $30.75, and $48.36, respectively. Upon adoption of FASB Statement
No. 123(R), Share-Based Payment, (“SFAS 123(R)”), we have expensed the fair value 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, is increased for dividends declared and
may only be distributed in kind. Shareholders’ equity includes approximately $1.4 million and $1.1 million on
December 27, 2008 and December 29, 2007, respectively, for obligations incurred under this Plan. There were no
distributions in 2008 or 2007.
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 2008, 2007, and 2006, we issued shares and recognized the market value of the shares on the date of issuance as an
expense totaling approximately $58,000, $106,000, and $142,000, respectively.
On April 28, 1999, our shareholders approved the Long Term Stock Incentive Plan (the “1999 Plan”). The 1999 Plan
reserved 1,000,000 additional shares, plus a balance of unissued shares from prior plans of 406,029 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 1999 Plan provides for the granting of stock options, reload options, stock appreciation rights, restricted stock,
performance shares and other stock-based awards. The term of the 1999 Plan is ten years. We intend to request shareholder
approval to restate this plan for an additional ten year period. No options were granted under the 1999 Plan in 2008 or 2007.
The following stock grants have been made under the 1999 Plan:
•
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 $159,000 and $135,000 on December 27, 2008 and December 29,
2007 respectively, for this grant.
44
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
•
•
•
•
•
On February 3, 2006, Performance Share Grants were made which will grant certain employees a total of
approximately 37,000 shares of common stock on February 3, 2009. Shareholders’ equity includes approximately
$2.1 million on December 27, 2008 and December 29, 2007 for this grant.
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 $32,000 and $16,000 on December 27, 2008 and December 29, 2007, 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 $1.9 million on December 27, 2008 and December 29, 2007.
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 $10,000 on December 27, 2008.
On February 8, 2008, Conditional Share Grants were made which will grant certain employees approximately
118,000 shares of common stock on February 8, 2011, subject to conditions set forth in the grant. Shareholders’
equity includes approximately $0.7 million on December 27, 2008.
As of December 27, 2008, a total of approximately 1.9 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. We repurchased 19,857 and 255,266
shares under this program in 2008 and 2007, respectively. As of December 27, 2008, cumulative total authorized shares
available for repurchase is approximately 1.2 million shares.
Common stock activity for 2008, 2007 and 2006 was as follows:
Note
2008
2007
2006
Shares issued under plan:
Employee Stock Purchase
Stock option
Employee stock plans
Stock gift
Directors’ Stock Grant
Stock grant plans
Deferred compensation
Stock notes receivable
Shares received for exercise of stock options
Stock repurchase
Beginning common stock outstanding
Ending common stock outstanding
I
J
I
I
G
I
22,474
152,054
174,528
1,606
2,100
3,706
15,288
7,374
(19,857)
181,039
18,907,841
19,088,880
20,079
200,266
220,345
1,661
2,300
3,961
69,777
10,132
(15,866)
(239,400)
48,949
18,858,892
18,907,841
16,763
332,881
349,644
967
2,500
3,467
101,278
3,222
(1,367)
456,244
18,402,648
18,858,892
45
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
J. STOCK-BASED COMPENSATION
We account for share-based compensation using the fair value recognition provisions of FASB Statement No. 123(R),
Share-Based Payment, (“SFAS 123(R)”), 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 various employee stock plans, the 2002
Employee Stock Purchase Plan, the Directors’ Retainer Stock Plan, the Directors’ Stock Grant Program and the Employee
Stock Gift Program.
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 plan, we have only issued options under the 1999 plan. 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 2008, 2007 or 2006 and therefore no specific valuation assumptions are presented.
The following summary presents information regarding outstanding options as of December 27, 2008 and changes during
the period then ended with regard to options under all stock option plans:
Outstanding at December 31, 2005
Exercised
Forfeited or expired
Outstanding at December 30, 2006
Exercised
Forfeited or expired
Outstanding at December 29, 2007
Exercised
Forfeited or expired
Outstanding at December 27, 2008
Vested or expected to vest at December 27, 2008
Exercisable at December 27, 2008
Weighted
Average
Exercise Price
Per Share
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
$
$
$
$
$
$
$
$
$
$
$
$
19.08
15.56
20.87
20.18
16.21
23.65
20.92
17.21
16.69
22.16
23.45
20.68
3.62
4.25
2.89
$ 2,686,949
$ 1,171,355
$ 1,515,594
Stock
Under
Option
1,384,879
(332,881)
(15,714)
1,036,284
(200,266)
(39,541)
796,477
(152,054)
(44,376)
600,047
321,500
278,547
46
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The total intrinsic value of options exercised during 2008, 2007 and 2006 was $2.4 million $6.5 million and $16.9 million,
respectively.
Employee Stock Purchase Plan
In 2008, 2007 and 2006, we issued shares under this plan totaling 22,474, 20,079, and 16,763 respectively. In 2008, 2007
and 2006, the weighted average fair values per share of employee stock purchase rights pursuant to this plan were $4.57,
$5.42 and $8.26, 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 2008, 2007
and 2006, we recognized approximately $268,000, $281,000 and $259,000, respectively, in expense for shares issued under
this program.
Directors’ Stock Grant Program
In 2008, 2007 and 2006, 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 $58,000, $106,000
and $142,000, respectively.
Conditional Share Grant Agreements
In 2008, 2007 and 2006, we recognized the fair value of the awards estimated as of the date of grant. We recognized
approximately $50,000, $39,000 and $112,000, 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 $820,000 and $255,000, respectively in 2008. The total share-based compensation cost and
the related total income tax benefit that has been recognized in results of operations was approximately $892,000 and
$299,000, respectively in 2007. The total share-based compensation cost and the related total income tax benefit that has
been recognized in results of operations was approximately $1.4 million and $481,000, respectively in 2006.
47
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
In 2008, 2007 and 2006, cash received from option exercises and share issuances under the Stock Purchase Plan was
$3.0 million, $3.5 million and $5.9 million, respectively. The actual tax benefit realized in 2008, 2007 and 2006 for the tax
deductions from option exercises totaled $0.9 million, $1.9 million and $4.4 million, respectively.
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 50% of employee contributions in 2008, 2007, and 2006, on a discretionary basis, totaling
$3.5 million, $4.1 million, and $3.9 million, respectively. The basis for matching contributions may not exceed the lesser of
6% of the employee’s annual compensation or the IRS limitation.
L. INCOME TAXES
Income tax provisions for the years ended December 27, 2008, December 29, 2007, and December 30, 3006 are
summarized as follows (in thousands):
2008
2007
2006
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
$
$
5,566
915
3,169
9,650
(5,768)
(1,951)
(245)
(7,964)
1,686
The components of earnings before income taxes consist of the following:
U.S.
Foreign
Total
2008
$
$
(702)
7,848
7,146
$
$
$
$
13,725
2,714
2,824
19,263
(3,734)
134
(267)
(3,867)
15,396
2007
37,641
968
38,609
$
$
$
$
32,288
4,947
2,649
39,884
(2,454)
(220)
1,550
(1,124)
38,760
2006
105,662
6,473
112,135
48
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The effective income tax rates are different from the statutory federal income tax rates for the following reasons:
Statutory federal income tax rate
State and local taxes (net of federal benefits)
Effect of minority owned interest in earnings of partnerships
Manufacturing deduction
Research & development tax credits
Change in valuation allowance
Amortization of goodwill
Other, net
Effective income tax rate
2008
2007
2006
35.0%
(1.3)
(2.2)
(4.0)
(14.0)
1.1
5.7
3.3
23.6%
35.0%
4.5
(1.0)
(1.9)
(3.2)
5.5
1.0
39.9%
35.0%
2.5
(0.6)
(0.8)
(4.1)
1.0
1.6
34.6%
For the year ended December 27, 2008 and December 29, 2007, the effective tax rate was favorably impacted by the federal
research & development (“R&D”) tax credits for 2008 and 2007, respectively. During 2006, we completed a project to
identify eligible expenditures for purposes of claiming R&D tax credits for 2001 — 2006, all of which was recognized in
2006 and for which amended tax returns for 2001 — 2005 have been filed.
Temporary differences which give rise to deferred tax assets and (liabilities) on December 27, 2008 and December 29, 2007
are as follows (in thousands):
Employee benefits
Foreign subsidiary net operating loss
Accrued expenses
Other, net
Gross deferred tax assets
Valuation allowance
Deferred tax assets
Depreciation
Intangibles
Inventory
Other, net
Deferred tax liabilities
Net deferred tax liability
2008
2007
$
$
$
7,044
2,454
4,748
3,511
17,757
(2,838)
14,919
(16,495)
(6,876)
(30)
(158)
(23,559)
(8,640)
$
$
$
7,711
2,967
4,565
3,455
18,698
(3,430)
15,268
(23,745)
(6,910)
(1,004)
(110)
(31,769)
(16,501)
The valuation allowance consists of a net operating loss carryforward we have for a wholly-owned subsidiary, Universal
Forest Products of Canada, Inc. We do not anticipate realizing a future benefit from this loss carryforward, therefore, we
established an allowance for the entire amount of the future benefit. This carryforward will expire at the end of 2027.
49
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
M. ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes.”
FIN 48 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. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, and disclosure requirements. FIN 48 is effective for fiscal years
beginning after December 15, 2006. Accordingly, we adopted FIN 48 beginning December 31, 2006. The adoption of FIN
48 did not have a significant impact on our financial position or results of operations.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Gross unrecognized tax benefits beginning of year
Increase in tax positions for prior years
Increase in tax positions for current year
Lapse in statute of limitations
Gross unrecognized tax benefits end of year
2008
2007
$
$
8,705
1,347
1,486
(504)
11,034
$
$
6,428
877
1,615
(215)
8,705
The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $11.0 million
and $8.7 million at December 27, 2008 and December 29, 2007, 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 $0.4 million and $0.3 million at December 27, 2008 and December 29, 2007, respectively.
We file income tax returns in the United States and in various state, local and foreign jurisdictions. For the majority of tax
jurisdictions, we are no longer subject to income tax examinations for years before 2004. A number of state and local
examinations as well as an examination by the Internal Revenue Service are currently ongoing. It is possible that these
examinations may be resolved within the next twelve months. Due to the potential for resolution of federal, state and
foreign 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 $0.2 million to $8.6 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; Medley, FL; and Ponce, PR. In addition, a reserve was established for
our affiliate’s facility in Thornton, CA to remove certain lead containing materials which existed on the property at the time
of purchase.
50
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
On a consolidated basis, we have reserved approximately $4.4 million on December 27, 2008 and December 29, 2007,
representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an
insurance receivable.
The manufacturers of CCA preservative voluntarily discontinued the registration of CCA for certain residential applications
as of December 31, 2003. Our wood preservation facilities have been converted to alternate preservatives, either ACQ,
borates or ProWood® Micro.
In November 2003, the EPA published its report on the risks associated with the use of CCA in children’s playsets. While
the study observed that the range of potential exposure to CCA increased by the continuous use of playsets, the EPA
concluded that the risks were not sufficient to require removal or replacement of any CCA treated structures. The results of
the EPA study are consistent with a prior Consumer Products Safety Commission (CPSC) study which reached a similar
conclusion. The EPA did refer a question on the use of sealants to a scientific advisory panel. The panel issued a report
which provides guidance to the EPA on the use of various sealants but does not mandate their use. In its final report issued
on April 30, 2008, the EPA does not require removal or replacement of CCA-treated structures, including decks and
playground equipment, and is not recommending that surrounding soils be removed or replaced.
From time to time, various special interest environmental groups have petitioned certain states requesting restrictions on the
use or disposal of CCA treated products. The wood preservation industry trade groups are working with the individual
states and their regulatory agencies to provide an accurate, factual background which demonstrates that the present method
of uses and disposal is scientifically supported.
We 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 27, 2008, 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 27, 2008, we had outstanding purchase commitments on capital projects of approximately $0.9 million.
51
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material.
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 27, 2008, we had approximately
$20.6 million in outstanding payment and performance bonds, which expire during the next two years. In addition,
approximately $26.9 million in payment and performance bonds are outstanding for completed projects which are still
under warranty.
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 five years. The estimated maximum
aggregate exposure of these guarantees is approximately $2.0 million.
Under our former sale of accounts receivable agreement, we guaranteed that a subsidiary, as accounts servicer, would remit
collections on receivables sold to the purchaser of the accounts receivable. (See Note H, “Sale of Accounts Receivable.”)
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 $17.4 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 $14.8 million related to our outstanding
industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the
issuing banks.
52
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products, Inc. in certain
debt agreements, including the Series 1998-A Senior Notes, 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 contamination
which requires removal from the wood treating operations. The ultimate cost of closure is dependent upon a number of
factors including, but not limited to, identification and removal of contamination, 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 $0.4 million. As a result, this amount is recorded
in other long-term liabilities on December 27, 2008.
We did not enter into any new guarantee arrangements during 2008 which would require us to recognize a liability on our
balance sheet.
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 will begin upon retirement from Universal Forest Products, Inc. The present
value of the vested portion of the non-compete payments totaling approximately $1.4 million and $0.3 million at December
27, 2008 and December 29, 2007, 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 totaling approximately $1.0 million has been recorded in other
liabilities.
53
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
P. SEGMENT REPORTING
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”) 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. Under the
definition of a segment, our Eastern, Western and Consumer Products Divisions may be considered an operating segment of
our business. Under SFAS 131, segments may be aggregated if the segments have similar economic characteristics and if
the nature of the products, distribution methods, customers and regulatory environments are similar. Based on this criteria,
we have aggregated our Eastern and Western divisions into one reporting segment. Our Consumer Products Division, which
was formed in 2006, is included in the “All Other” column in the table below. Our divisions operate manufacturing and
treating facilities throughout North America.
2008
Eastern
and
Western
All
Divisions Other
Total
2007
Eastern
and
Western
Divisions
All
Other
2006
Eastern
and
Total
Western All
Divisions Other Total
Net sales to outside
customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating
$2,130,437 $101,957 2,232,394 $2,405,830 $107,348 $2,513,178 $2,605,087 $59,485 $2,664,572
17,974
14,053
5,751
33,771
0 17,974
13
3,071 2,680
31,081 2,690
26,765
51
2,814
2,914
0
12,037
6,983
34,656
0
17,018
5,331
36,347
24,126
17,033
8,034
39,547
24,126
15
2,703
3,200
26,765
12,088
9,797
37,570
14,040
profit
Segment assets
Capital expenditures
21,310
746,335
18,409
(2,905)
18,405
69,684 816,019
18,944
535
48,399
864,546
37,571
5,093
92,454
1,789
53,492
957,000
39,360
118,942 4,803
831,160 82,281
40,908 2,596
123,745
913,441
43,504
In 2008, 2007, and 2006, 27%, 26%, and 22% of net sales, respectively, were to a single customer.
Information regarding principal geographic areas was as follows (in thousands):
United States
Foreign
Total
2008
Long-Lived
Assets
418,603
16,508
435,111
$
$
Net Sales
$2,170,933
61,461
$2,232,394
2007
Long-Lived
Assets
427,547
28,928
456,475
$
$
Net Sales
$2,442,676
70,502
$2,513,178
2006
Long-Lived
Net Sales
$2,590,951
73,621
$2,664,572
Assets
408,310
29,996
438,306
$
$
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.
2008
2007
2006
Value-Added
Commodity-Based
60.4%
60.5%
62.7%
39.6%
39.5%
37.3%
54
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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.
The following table presents, for the periods indicated, our gross sales (in thousands) by major product classification.
Value-Added Sales
Trusses — site-built, modular and manufactured housing
Fencing
Decking and railing — composite , wood and other
Turn-key framing and installed sales
Industrial packaging and components
Engineered wood products (eg. LVL; i-joist)
Manufactured brite and other lumber
Wall panels
Outdoor DIY products (eg. stakes; landscape ties)
Construction and building materials (eg. door packages; drywall)
Lattice — plastic and wood
Manufactured brite and other panels
Siding, trim and moulding
Hardware
Manufactured treated lumber
Manufactured treated panels
Other
Total Value-Added Sales
Commodity-Based Sales
Non-manufactured brite and other lumber
Non-manufactured treated lumber
Non-manufactured brite and other panels
Non-manufactured treated panels
Other
Total Commodity-Based Sales
Total Gross Sales
Sales allowances
Total Net Sales
December 27,
2008
Years Ended
December 29, December 30,
2007
2006
$
$
273,170
194,029
167,722
194,630
147,763
57,631
64,552
31,101
51,550
49,717
43,895
34,327
28,879
15,215
14,354
4,904
459
1,373,898
384,268
345,211
138,530
24,450
7,834
900,293
2,274,191
(41,797)
2,232,394
$
$
394,806
199,511
179,654
179,065
107,160
87,588
82,784
57,065
53,012
46,761
46,523
42,798
38,090
15,743
7,947
3,637
6,937
1,549,081
454,560
378,240
149,652
24,934
5,018
1,012,404
2,561,485
(48,307)
2,513,178
$
$
504,296
179,504
172,957
220,799
93,620
99,002
89,891
87,921
47,860
47,313
27,412
54,415
46,311
14,410
4,677
3,148
3,500
1,697,036
470,569
361,688
152,568
18,537
6,637
1,009,999
2,707,035
(42,463)
2,664,572
55
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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 27, 2008 and December 29, 2007 (in thousands, except per share data):
Net sales
Gross profit
Net earnings (loss)
Basic earnings (loss) per
share
Diluted earnings (loss)
per share
First
Second
Third
Fourth
2008
$489,512
54,820
(4,576)
2007
2008
$549,038 $708,485
84,878
73,520
11,663
3,886
2007
$773,105
101,705
16,800
2008
$610,744
64,650
(1,951)
2007
2008
2007
$678,398 $423,653 $512,637
51,639
49,853
(10,980)
(793)
82,165
11,339
(0.24)
(0.24)
0.20
0.20
0.61
0.61
0.88
0.86
(0.10)
0.59
(0.04)
(0.58)
(0.10)
0.59
(0.04)
(0.58)
R. SUBSEQUENT EVENTS
In January 2009, we temporarily closed facilities in Bunn, NC and Ooltewah, TN to better align manufacturing capacity
with the current business environment. In February 2009, we also temporarily closed a facility in White Pigeon, MI.
On February 1, 2009, a stock grant was made for eligible salaried employees 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 $1.6 million over the next five years for this grant.
On February 6, 2009, we sold real estate located in Woodburn, Oregon. The net sales price was approximately $5.2 million
resulting in a gain of approximately $2.4 million.
56
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 2008
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
34.91
37.37
35.80
37.35
Low
14.61
23.35
29.20
26.26
Fiscal 2007
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
37.10
44.90
52.70
54.61
Low
27.93
29.51
41.94
44.90
There were approximately 1,175 shareholders of record as of January 31, 2009.
In 2008, we paid dividends on our common stock of $.060 per share in June and December. In 2007, we paid dividends on our
common stock of $.055 per share in June and $.060 per share in December. We intend to continue with our current semi-annual
dividend policy for the foreseeable future.
57
STOCK PERFORMANCE GRAPH
The following graph depicts the cumulative total return on the 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 27, 2003, and reinvestment of dividends in all cases.
The companies included in our self-determined industry peer group are as follows:
BlueLinx Holdings, Inc.
Builders First Source
Building Materials Holding Co.
Champion Enterprises, Inc.
Louisiana Pacific Corp.
The returns of each company included in the self-determined peer group are weighted according to each respective company’s
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.
58
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Directors and Executive Officers
Peter F. Secchia
Chairman Emeritus
Universal Forest Products, Inc.
William G. Currie
Executive Chairman
Universal Forest Products, Inc.
Michael B. Glenn
President and Chief Executive Officer
Universal Forest Products, Inc.
Dan M. Dutton
Chairman of the Board
Stimson Lumber Co.
John M. Engler
President and Chief Executive Officer
National Association of Manufacturers
John W. Garside
President and Treasurer
Woodruff Coal Company
Gary F. Goode, CPA
Chairman
Titan Sales & Consulting, LLC
Mark A. Murray
President
Meijer, Inc.
William R. Payne
Chief of Staff
Alticor, Inc.
Louis A. Smith
President
Smith and Johnson, Attorneys, P.C.
William G. Currie
Executive Chairman
Michael B. Glenn
Chief Executive Officer
Patrick M. Webster
President and Chief Operating Officer
Michael R. Cole
Chief Financial Officer and Treasurer
Robert D. Coleman
Executive Vice President Manufacturing
C. Scott Greene
President
Universal Forest Products Eastern Division, Inc.
Richard C. Frazier
President
Universal Forest Products Western Division, Inc.
Ronald G. Klyn
Chief Information Officer
Matthew J. Missad
Executive Vice President and Secretary
Joseph F. Granger
Executive Vice President of Sales and Marketing
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ANNUAL MEETING
Shareholder Information
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 15, 2009, at 2880 East Beltline Lane
NE, Grand Rapids, MI 49525.
SHAREHOLDER INFORMATION
Shares of the Company’s stock are traded under the symbol UFPI on the NASDAQ Stock Market. The Company’s 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
SECURITIES COUNSEL
Varnum, LLP
Grand Rapids, MI
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
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
New York, NY 10005
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
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UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES
Locations:
Ashburn, GA
Auburn, NY
Auburndale, FL
Belchertown, MA
Berlin, NJ
Blanchester, OH
Bunn, NC
Burleson, TX
Burlington, NC
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Clinton, NY
Conway, SC
Crestwood, MO
Dallas, NC
Dallas, TX
Durango, Durango, Mexico
Eatonton, GA
Elizabeth City, NC
Emlenton, PA
Englewood, CO
Evans City, PA
Fontana, CA
Georgetown, DE
Gordon, PA
Grandview, TX
Grand Rapids, MI
Granger, IN
Guaynabo, Puerto Rico
Haleyville, AL
Harrisonville, MO
Hastings, MN
Hillsboro, TX
Houston, TX
Hudson, NY
Independence, OR
Indianapolis, OH
Janesville, WI
Jefferson, GA
Kyle, TX
Lacolle, Quebec, Canada
Lafayette, CO
Lansing, MI
Liberty, NC
Lodi, OH
McMinnville, OR
Medley, FL
Minneota, MN
Morristown, TN
Moultrie, GA
Muscle Shoals, AL
New London, NC
New Waverly, TX
New Windsor, MD
Ooltewah, TN
Parker, PA
Pearisburg, VA
Plainville, MA
Prairie du Chien, WI
Ranson, WV
Riverbank, CA
Riverside, CA
Saginaw, TX
Salisbury, NC
San Antonio, TX
Schertz, TX
Sidney, NY
Silsbee, TX
Stockertown, PA
Thorndale, Ontario, Canada
Thornton, CA
Turlock, CA
Union City, GA
Warrens, WI
White Bear Lake, MN
White Pigeon, MI
Windsor, CO
Winthrop, ME
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