Report to Shareholders
2009
Dear Shareholders:
Throughout its history, Universal Forest Products has anticipated and adapted well to change,
even when that has been difficult.
We started as a lumber supplier to the manufactured housing industry. When we saw the growth
potential that partnerships with then-new DIY retailers could produce, we ventured into the wood
treating business—and became the leading pressure-treater in the nation. At the beginning of the
building boom, we saw opportunity in housing, and through acquisitions we became the largest
residential truss and floor system manufacturer in the country.
When manufactured housing demand dropped in the early 2000s, we spread our wings into
industrial and agricultural packaging—and grew that business to a nearly half-billion-dollar
enterprise. Even within the industrial market, we have found opportunity for growth, branching
into forms and products for concrete construction customers, and into packaging material, such
as corrugated and banding, for industrial customers and others. That has helped us weather the
contraction of other markets and remain a solid company with a bright future.
Today, we find ourselves in an economic crisis that forces us to take a hard look at our company,
operations and markets, and to identify the means by which we can create sustainable growth.
We have sized our organization to our business opportunities. We have broadened our product
portfolio in each of our markets. We have taken on new markets and affiliated with new
companies to enhance our offering. Our continuous improvement journey, on which we
embarked about the time the bottom fell out of the housing market, has been transformative:
Our plants become more efficient by the day and are prepared to take on more business.
All of this in an effort to ensure Universal makes it solidly through this economic downturn and
creates avenues for long-term growth. It’s working. We ended 2009 with a profit of $24.3 million,
strong cash flow and cash reserves well in excess of what little debt we had. We believe it’s fair to
say we have the best balance sheet in the industry, which gives us the confidence and resources
to grow our company and success.
We are proud of what our people were able to accomplish in 2009:
DIY/Retail
Our gross sales to DIY customers in 2009 totaled $805 million, a decrease of 12 percent
from 2008. The decrease reflects the 12 percent decline in lumber prices in the year and
the fractured confidence consumers have in the economy and in their own financial security.
Despite the challenges, we had exciting progress in this market. We launched many new
products in our consumer products group and now have items such as stepping stones and
birdbaths in our portfolio. We reopened a plant in White Pigeon, Mich., to assemble a new line of
premium vinyl fencing for one of our most valued customers. That reopening gave us one of the
most rewarding experiences of 2009: rehiring many of the good employees we were forced to let
go just a year earlier.
All indications are that this arena will see modest growth in the coming years as consumer
confidence returns, as home maintenance projects become necessary (they can be delayed only
so long), as foreclosed homes are purchased and necessary repairs and upgrades are made, and
as pent-up demand for sprucing up homes and outdoor living spaces finally translates into action.
Universal remains a leading supplier to big-box and independent retailers, and we look forward to
growth in the years ahead.
Industrial
Our industrial/agricultural packaging and components business saw gross sales of $479 million.
This decrease of 20 percent from 2008 reflects the 12 percent drop in lumber prices as well as
anemic U.S. manufacturing output. We remain enthusiastic about this business and comfortable
with our position in what is a fragmented market, and we see nothing but opportunity for growth
in the market and our market share.
In addition to our traditional industrial business—in which we supply crates and packaging for
manufacturers nationwide as well as components for products such as doors and bed frames—
we focused on two new areas: concrete forming products, and packaging materials and
accessories. In the former, we manufacture the forms concrete construction companies use for
building their structures and ship them to their job site, sell the lumber those customers need to
build the forms themselves, or build the forms on-site for our customers. We continue to create
affiliations that allow us to enhance our offering with things like curing blankets for concrete
slabs. The latter arena—packaging products and accessories—is a natural extension of our
traditional industrial business as we add shrink wrap, banding, corrugated, corner protectors and
other items to the solutions we provide to industrial customers. These markets bring great
promise and opportunity to Universal, complementing our existing business well and providing
new areas for growth—and already adding sales.
ii
Site-built construction
Our housing markets continue to suffer; fortunately, we are sized right for our current opportunities.
There are companies in the marketplace still pricing their products marginally over cost simply to
stay alive or in an effort to increase market share; we have no need to do that—and won’t: It
offers no long-term benefit. We will take on business only with customers who understand the
benefits of focusing on mutual success and profitability. Our site-built construction sales were
$244 million, down 46 percent from 2008, which reflects the 39 percent drop in total housing
starts and the declining lumber market. Among our strategies is a focus on multifamily,
commercial and government projects. While we expect just modest growth in site-built in the
coming year, in the long term, certain and enduring demand for housing will support only the
best, most reliable players. We intend to be one of them.
Manufactured housing
Sales in manufactured housing amounted to $184 million in 2009, a decrease of 39 percent
from the previous year. That reflects the 39 percent drop in shipments of HUD-code homes in
2009 from 2008 and the estimated 44 percent decline in modular housing shipments for the
year. With our commanding share of this market, our performance will essentially track with the
industry. We foresee flat to modestly increased sales for 2010. We intend to continue helping
our customers create success and profitability, and seek ways we can increase the number of
products we offer to them. For example, we started a laminating line in one of our Texas
operations and are having success providing new products for inside the home.
We’re proud of all we achieved, but we’re not satisfied. By design, the Universal Forest Products
you’ll see in 2012 will look different than the Universal Forest Products of 2005. We’ll still be a
leading supplier to DIY retailers, but we’ll be known for decorative outdoor living items as well as
for lumber and decking, and we’ll develop new lines of outdoor living products. We’ll still be in the
site-built business, and will look to create balance in that business. We’ll be focused on growing
with new products and new customers in all areas of our industrial business. We’ll remain
committed to manufactured housing, and with fewer homes being produced in this market, we
will look to grow by supplying more products for each home that is built. We’ll increase our
collaborations with other companies to grow into new areas of business. And we’ll add value to
our customers by becoming a leaner, better company day by day.
We believe our markets hold strong opportunity for long-term growth, and we intend to remain
in each of them and grow our importance as a dominant supplier in an era when vendor lists
are being consolidated.
iii
We also intend to remain true to who and what we are: a company that holds the utmost respect
for its customer relationships and that values integrity, hard work and an entrepreneurial spirit.
We intend to continue finding enjoyment in what we do; that’s a big part of Universal—the love of
our company, business, partners and co-workers. These are the things that make us great and
grateful, and that will take us to new levels of success.
William G. Currie
Chairman of the Board
Michael B. Glenn
Chief Executive Officer
iv
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
Table of Contents
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 26, 2009 and December 27, 2008
Consolidated Statements of Earnings for the Years Ended December 26, 2009, December 27, 2008, and
December 29, 2007
Consolidated Statements of Shareholders’ Equity for the Years Ended December 26, 2009, December 27,
2008, and December 29, 2007
Consolidated Statements of Cash Flows for the Years Ended December 26, 2009, December 27, 2008, and
December 29, 2007
Notes to Consolidated Financial Statements
Price Range of Common Stock and Dividends
Stock Performance Graph
Directors and Executive Officers
Shareholder Information
2
3
21
22
23
24
25
26
28
30
59
60
61
62
SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)
2009
2008
2007
2006
2005
Consolidated Statement of Earnings Data
Net sales
Gross profit
Earnings before income taxes
Net earnings attributable to controlling interest
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
$ 1,673,000
242,751
38,597
24,272
1.25
0.260
$
$
$ 2,232,394
254,201
7,146
4,343
0.23
0.120
$
$
$ 2,513,178 $ 2,664,572
381,682
112,135
70,125
3.62
0.110
309,029
38,609
21,045
1.09 $
$
0.115
$
$
$ 2,691,522
359,256
110,772
67,373
3.53
0.105
$
$
19,468
19,225
19,362
19,370
19,106
$
$
248,165
791,677
53,854
568,946
230,308
816,019
101,174
548,226
$
$
337,800 $
957,000
206,071
547,044
282,913
913,441
170,097
525,561
298,027
876,920
209,497
440,429
Statistics
Gross profit as a percentage of net sales
Net earnings attributable to controlling interest as a
14.5%
11.4%
12.3%
14.3%
13.3%
percentage of net sales
Return on beginning equity(2)
Current ratio
Debt to equity ratio
Book value per common share(3)
1.5%
4.4%
2.84
0.09
29.50
$
0.2%
0.8%
2.53
0.18
28.72
$
0.8%
4.0%
3.08
0.38
$
28.93 $
2.6%
15.9%
2.47
0.32
27.87
$
2.5%
18.5%
2.46
0.48
23.93
(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
Universal Forest Products, Inc. (“the Company”) is a holding company that provides capital, management and administrative
resources to subsidiaries that design, manufacture and market wood and wood-alternative products for DIY/retail home centers
and other retailers, structural lumber products for the manufactured housing industry, engineered wood components for the site-
built construction market, and specialty wood packaging and components for various industries. The Company’s consumer
products subsidiary offers a large portfolio of outdoor living products, including wood composite decking, decorative balusters,
post caps and plastic lattice, and its garden group offers an array of products, such as trellises and arches, to retailers nationwide.
Our subsidiaries also provide framing services for the site-built market and forming products for concrete construction. The
Company is headquartered in Grand Rapids, Michigan, with facilities throughout North America. For more about Universal
Forest Products, Inc., go to www.ufpi.com.
We advise you to read the issues discussed in 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 26, 2009. 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 2009.
Our results for 2009 were impacted by the following:
OVERVIEW
•
•
•
•
•
Our overall unit sales decreased 19% due to weak demand in each of our markets. However, during 2009, we believe we
gained additional share of the D-I-Y/retail and industrial markets and maintained our share of the manufactured housing and
site-built markets.
National housing starts decreased approximately 39% in 2009 compared to 2008 as a result of an excess supply of homes,
tight credit conditions, and an increase in foreclosures.
Consumer spending for large repair/remodel projects decreased due to general economic conditions, among other factors,
including weak home prices and decreased cost recovery for most types of upper-end home improvement projects.
Consequently, the same store sales of “big box” home improvement retailers declined by approximately 9%.
Shipments of HUD code manufactured homes were down 39% in 2009. Industry sales of modular homes are estimated to
have declined by 44% in 2009. Weak market conditions are due to issues mentioned above affecting the site-built market
and tight credit conditions.
The industrial market declined due to the general weakening of the U.S. economy. We gained additional share of this
market due, in part, to adding new concrete forming business.
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS — CONTINUED
•
•
•
•
Our gross margin increased to 14.5% in 2009 from 11.4% in 2008 due to the implementation of various cost reduction
initiatives and the lower level of the Lumber Market.
Our selling, general and administrative (“SG&A”) expenses were down approximately $28.5 million, or 12.5%, from 2008,
due to our right-sizing efforts and plant consolidation actions we took last year, offset somewhat by an increase in bad debt
and incentive compensation expenses.
Our interest costs decreased by $7.5 million, or 61.9%, due to a reduction in our interest-bearing debt since the beginning of
2008.
Operating and investing cash flows were $125 million in 2009 due to improved profitability, effective working capital
management, and reduced working capital requirements due to weak demand. The strength of our cash flows allowed us to
reduce our debt to $54 million and increase our cash to $82 million at the end of 2009.
The following table presents the Random Lengths framing lumber composite price for the years ended December 26, 2009,
December 27, 2008, and December 29, 2007.
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
2008
2007
2009
$
$
198
199
195
208
198
222
238
239
236
235
245
252
222
(11.9%)
$
$
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
4
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Sales of products
produced using this species may comprise up to 50% of our sales volume.
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
Random Lengths SYP
Average $/MBF
2008
2007
2009
$
$
241
233
232
241
231
236
253
241
244
242
247
250
241
(14.8%)
$
$
269
264
264
272
324
318
303
304
309
269
257
248
283
(1.0%)
$
297
284
282
277
283
294
307
282
270
307
282
270
286
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
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
•
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
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
BUSINESS COMBINATIONS AND ASSET PURCHASES
See Notes to Consolidated Financial Statements, Note C, “Business Combinations.”
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a
percentage of net sales.
Net sales
Cost of goods sold
Gross profit
Selling, general, and administrative expenses
Net (gain) loss on disposition of assets and other impairment and exit
charges
Earnings from operations
Interest, net
Earnings before income taxes
Income taxes
Net earnings
Less net earnings attributable to noncontrolling interest
Net earnings attributable to controlling interest
GROSS SALES
December 26,
2009
Years Ended
December 27,
2008
December 29,
2007
100.0 %
85.5
14.5
11.9
(0.0)
2.6
(0.3)
2.3
0.8
1.5
(0.0)
1.5 %
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 %
We market, manufacture and engineer wood and wood-alternative products for the DIY/retail market, structural lumber products
for the manufactured housing market, engineered wood components for the site-built construction market, and specialty wood
packaging for various markets. We also provide framing services for the site-built construction market and various forms for
concrete construction. Our strategic long-term sales objectives include:
•
•
•
Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our
penetration of the concrete forms market, increasing our sales of engineered wood components for custom home, multi-
family and light commercial construction, and expanding our product lines in each of the markets we serve.
Expanding geographically in our core businesses.
Increasing sales of “value-added” products and framing services. Value-added product sales primarily consist of fencing,
decking, lattice, and other specialty products sold to the DIY/retail market, specialty wood packaging, engineered wood
components, and “wood alternative” products. Engineered wood components include roof trusses, wall panels, and floor
systems. Wood alternative products consist primarily of composite wood and plastics. Although we consider the treatment
of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included
in the value-added sales totals.
•
Maximizing unit sales growth while achieving return on investment goals.
7
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
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
$
$
805,052
244,117
479,284
183,912
1,712,365
(39,365)
1,673,000
December 26,
2009
%
Change
%
Change
December 29,
Years Ended
December 27,
$
(12.4)
(46.1)
(20.0)
(39.4)
(24.7)
2008
919,200
452,689
598,915
303,387
2,274,191
(41,797)
$
(7.0)
(23.1)
1.1
(22.6)
(11.2)
2007
988,175
588,778
592,369
392,163
2,561,485
(48,307)
2,513,178
(25.1)
$
2,232,394
(11.2)
$
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.
2009 versus 2008
2008 versus 2007
2007 versus 2006
in Sales
% Change
in Selling Prices
in Units
-25%
-11%
-5%
-6%
-2%
-5%
-19%
-9%
0%
Gross sales in 2009 decreased 25% compared to 2008 resulting from an estimated decrease in units shipped of approximately
19%, while overall selling prices decreased by 6%. We estimate that our unit sales increased 1% as a result of business
acquisitions and new plants, while our unit sales from existing and closed facilities decreased by 20% due to a decline in market
demand. 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 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%.
Changes in our sales by market are discussed below.
8
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
DIY/Retail:
Gross sales to the DIY/retail market decreased 12% in 2009 compared to 2008 primarily due to an estimated 6% decrease in
overall unit sales and an estimated 6% decrease in overall selling prices due to the Lumber Market. We estimate that our unit
sales increased 1% as a result of acquisitions, while unit sales from existing and closed facilities decreased 7%. Unit sales
declined due to the impact of the housing market on our retail customers whose business is closely correlated with single-family
housing starts and a decline in consumer spending as evidenced by declines in same store sales reported by our “big box”
customers. We believe that we achieved market share gains in 2009, which offset some of the impact of these adverse market
conditions.
Gross sales to the DIY/retail market decreased 7% in 2008 compared to 2007, as a result of an estimated 6% 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 8%. Unit sales declined due to the impact of
the housing market on our retail customers whose business is closely correlated with single-family housing starts and a decline in
consumer spending as evidenced by a decline in same store sales of our “big box” customers.
Site-Built Construction:
Gross sales to the site-built construction market decreased 46% in 2009 compared to 2008, due to an estimated 38% decrease in
unit sales and an estimated 8% decrease in selling prices. National housing starts were off a reported 39% for 2009 compared to
the same period of 2008.
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 41% 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 been impacted by tight
credit conditions as well as other economic factors.
Industrial:
Gross sales to the industrial market decreased 20% in 2009 compared to the same period of 2008, due to an estimated 14%
decrease in unit sales and an estimated 6% decrease in selling prices. We experienced a decline in sales to our customers that
supply the housing market or have been impacted by the weakening U.S. economy. We have been able to offset some of the
impact of a decline in demand with market share gains and our continued penetration of the concrete forming market.
Gross sales to the industrial market increased 1% in 2008 compared to 2007, due to an estimated 2% 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.
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
Manufactured Housing:
Gross sales to the manufactured housing market decreased 39% in 2009 compared to the same period of 2008 primarily due to a
decline in unit sales as a result of weak demand. Industry production of HUD code homes was off a reported 39% for 2009
compared to the same period of 2008. Modular home production was down an estimated 44% in 2009.
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 reported a 14% decrease in HUD code
production in 2008, while modular production was off a reported 28%.
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.
2009
2008
2007
Value-Added
Commodity-Based
59.4%
60.4%
60.5%
40.6%
39.6%
39.5%
Value-added sales decreased 26% in 2009 compared to 2008, primarily due to decreased sales of trusses, turn-key framing and
installed sales, fencing, engineered wood products and manufactured component lumber. Commodity-based sales decreased 25%
comparing 2009 with 2008, primarily due to decreased sales of non-manufactured lumber and panels and treated lumber. See
Notes to Consolidated Financial Statements, Note Q, “Segment Reporting.”
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.
COST OF GOODS SOLD AND GROSS PROFIT
Our gross profit percentage increased to 14.5% in 2009 from 11.4% in 2008. Our gross profit dollars decreased by only 5%,
which compares favorably with our 19% decrease in unit sales. Our improved gross margin is primarily due to cost reductions
consisting of:
•
•
•
An improvement in material costs as a percentage of net sales as a result of better buying and inventory management to
protect margins.
An improvement in labor and plant overhead as a percentage of net sales due to plant consolidation and right-sizing efforts
previously taken.
Lower freight costs due to fuel prices.
10
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
In addition, the lower level of the Lumber Market caused our gross margin to increase. See “Impact of the Lumber Market on
Our Operating Results”.
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.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (“SG&A”) expenses decreased by approximately $28.5 million, or 12.5%, in 2009 compared
to 2008, while we reported a 19% decrease in unit sales. New operations added $0.6 million of expenses, operations we closed
decreased expenses by $15.5 million, and existing operations reduced expenses by $13.6 million. The decrease in SG&A
expenses at our existing operations was primarily due to a decline in wages and related costs due to a reduction in headcount and
a decline in many other account categories as a result of efforts to control costs. These decreases were partially offset by an
increase in accrued bonus and bad debt expense. Our SG&A expenses increased as a percentage of sales primarily due to the
lower level of the Lumber Market, accrued bonus, and bad debt expense.
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.
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
NET (GAIN) LOSS ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES
We incurred $4.1 million of charges in 2009 and $7.7 million in 2008 relating to asset impairments and other costs associated
with idled facilities and down-sizing efforts. These costs were offset by gains on the sale of certain real estate totaling
$4.2 million in 2009 and $0.5 million in 2008. See Notes to Consolidated Financial Statements, Note D “Assets Held for Sale
and Net (Gain) Loss on Disposition of Assets and Other Impairment and Exit Charges.”
We regularly review the performance of each of our operations and make decisions to permanently or temporarily close
operations based on a variety of factors including:
•
•
•
•
•
•
Current and projected earnings, cash flow and return on investment
Current and projected market demand
Market share
Competitive factors
Future growth opportunities
Personnel and management
We currently have 9 operations which experienced operating losses and negative cash flow in 2009. The net book value of the
long-lived assets of these operations, which could be subject to an impairment charge in the future in the event a closure action is
taken, was $15.3 million at the end of 2009. In addition, these operations had future fixed operating lease payments totaling $1.8
million at the end of 2009.
We incurred $8.2 million of asset impairments and other costs associated with idled facilities in 2007.
INSURANCE PROCEEDS
In May, 2008 our plant in Windsor, CO was hit by a tornado. In accordance with Accounting Standards Codification (“ASC”)
605, Accounting for Involuntary Conversions of Non-Monetary Assets to Monetary Assets, we have written off the net book
value of the destroyed inventory and property totaling $0.7 million. The insured value of the property exceeded its net book
value, which was recorded as a gain in 2008. In 2008, we collected $0.8 million of the insurance receivable and in 2009 we
collected $1.0 million. As of December 26, 2009, there is no remaining insurance receivable.
INTEREST, NET
Net interest costs were lower in 2009 compared to 2008 due to lower debt balances combined with a decrease in short-term
interest rates upon which our variable rate debt is based.
Net interest costs were lower in 2008 compared to 2007 due to lower debt balances combined with a decrease in short-term
interest rates.
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and
permanent tax differences. Our effective tax rate increased to 35.9% in 2009 compared to 23.6% in 2008. Our effective tax rate
differs from the federal statutory rate primarily due to estimated state and local income taxes and certain permanent tax
differences. See Notes to Consolidated Financial Statements, Note M, “Income Taxes”.
Our effective tax rate decreased to 23.6% in 2008 compared to 39.9% in 2007. The 2008 rate was favorably impacted by certain
state income tax credits we received and the impact of other permanent tax differences on substantially lower pretax income.
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 26, 2009 (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
1 - 3
Years
Payments Due by Period
3 - 5
Years
After
5 Years
$
$
673
2,531
12,313
919
16,436
$
$
$
40,981
5,062
11,571
0
135
3,277
$
$
12,200
619
1,125
57,614
$
3,412
$
13,944
$
Total
53,854
8,347
28,286
919
91,406
As of December 26, 2009, we also had $32.3 million in outstanding letters of credit issued during the normal course of business,
as required by some vendor contracts.
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
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
$
$
128,346
(3,329)
(56,135)
68,882
13,337
82,219
$
$
December 26,
2009
December 27, December 29,
2008
88,551
(11,367)
(107,452)
(30,268)
43,605
13,337
$
$
2007
87,078
(91,971)
(2,610)
(7,503)
51,108
43,605
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) decreased to 45 days in 2009 from 46 days in 2008 due to a one
day decrease in our days of sales outstanding. The decrease was due to more focused efforts to make sure we are paid on time by
our customers.
Cash provided by operating activities was approximately $128 million in 2009 including net earnings of $24 million, $47 million
of non-cash expenses and a $57 million decrease in working capital since the end of 2008. Working capital decreased primarily
due to lower sales volumes associated with weak demand throughout 2009. In addition, there was approximately $27 million of
negative cash flow included in operating activities in 2008 related to our sale of receivables program. Specifically, at the end of
December 2007 we had approximately $27 million of receivables sold and outstanding under this program, while no amounts
were sold outstanding at the end of September of 2008 because the program was terminated in that month.
We made the decision to limit our investing activities in 2008 and 2009 and make debt repayment and building cash reserves our
first priority for use of our operating cash flows. As a result, we curtailed our capital expenditures for these years. In addition, we
sold certain equipment and real estate, for which we had no planned future use, for approximately $12 million. (See Notes to
Consolidated Financial Statements, Note D, “Assets Held for Sale and Net (Gain) Loss on Disposition of Assets and Other
Impairment and Exit Charges”.)
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
On December 26, 2009, we had no outstanding balance on our $300 million revolving credit facility, which matures in February
of 2012, and increased our cash reserves to over $82 million. The revolving credit facility supports letters of credit totaling
approximately $32.3 million on December 26, 2009. 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 26, 2009.
As a result of our strong financial position, in October 2009 our Board of Directors approved an increase in our dividend to a
semi-annual rate of $0.20 per share. It has been our practice to pay dividends on June 15 and December 15 of each year to
shareholders of record as of June 1 and December 1, respectively.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Consolidated Financial Statements, Note O, “Commitments, Contingencies, and Guarantees”.
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States.
These principles require us to make certain estimates and apply judgments that affect our financial position and results of
operations. We continually review our accounting policies and financial information disclosures. Following is a summary of our
more significant accounting policies that require the use of estimates and judgments in preparing the financial statements.
ACCOUNTS RECEIVABLE ALLOWANCES
We record provisions against gross revenues for estimated returns and cash discounts in the period when the related revenue is
recorded. These estimates are based on factors that include, but are not limited to, historical discounts taken, analysis of credit
memorandum activity, and customer demand. We also evaluate the allowance for uncollectible accounts receivable and
discounts based on historical collection experience and specific identification of other potential problems, including the
economic climate. Actual collections can differ, requiring adjustments to the allowances.
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
SELF-INSURANCE RESERVES
We are primarily self-insured for certain employee health benefits, and have self-funded retentions for general liability,
automobile liability, property and workers’ compensation. We are fully self-insured for environmental liabilities. The general
liability, automobile liability, property, workers’ compensation, and certain environmental liabilities are managed through a
wholly-owned insurance captive; the related assets and liabilities of which are included in the consolidated financial statements
as of December 26, 2009. 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”.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
FORWARD OUTLOOK
The following section contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are based on
the beliefs and assumptions of management, together with information available to us when the statements were made. Future
results could differ materially from those included in such forward-looking statements as a result of, among other things, the
factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K, filed with the United States Securities and
Exchange Commission and certain economic and business factors which may be beyond our control. Investors are cautioned that
all forward-looking statements involve risks and uncertainties.
“Route 2012”
Since we discussed our Growth & Opportunity 2010 (“GO 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. In addition, the Lumber Market
has declined from an average of $388/MBF in 2005 to an average of $222/MBF in 2009; a 43% decline from when we first set
our goals.
In place of our GO 2010 goals, we have a new four-year growth plan entitled “Route 2012,” which includes goals to be achieved
by the end of our fiscal year 2012 including:
•
•
•
•
•
Increase sales to $3 billion as our markets recover from the current downturn and by increasing our market share and
expanding our product lines.
Improve productivity by 15% through our Continuous Improvement initiative.
Improve profitability by three hundred basis points through productivity improvements, cost reductions, and growth.
Improve receivables cycles in our industrial, site-built and manufactured housing markets by 10% by reducing the amount
of our receivables that are paid past the agreed upon due date.
Improve inventory turnover by 10% through our Continuous Improvement initiative.
DIY/RETAIL MARKET
Harvard’s Joint Center for Housing Studies projects home improvement spending to continue to decline through the second
quarter of 2010, reflecting continuing challenges in housing, credit, and the general economy. However, the Consumer
Confidence Index increased to 52.9 in December 2009, up from 38.6 at the beginning of the year.
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
In 2010, we believe we will maintain our overall market share with “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 Consumer Products Division, including decorative
balusters, accessories, and post caps, plastic lattice, and other proprietary plastic products which have greatly enhanced our
deck and fencing product lines.
Developing new value-added products and services for this market.
Adding new products or new markets through strategic business acquisitions.
SITE-BUILT CONSTRUCTION MARKET
The Mortgage Bankers Association of America forecasts a 34% increase in national housing starts to an estimated 743,000 starts
in 2010. The National Association of Home Builders forecasts starts of 697,000, a 25% increase from 2009. In 2010, we believe
we are well-positioned to capture our share of an increase that may occur in housing starts. The excess supply of site-built
homes, foreclosures, and tight credit conditions still present significant challenges for the industry.
On a long-term basis, we anticipate growth in our sales to the site-built construction market as market conditions improve and as
a result of market share gains as weaker competitors exit the market. In addition, it is our goal to improve our diversification of
sales to this market by increasing our sales to the multi-family, light commercial, military and customer home building markets.
MANUFACTURED HOUSING MARKET
The National Association of Home Builders forecasts a 14% increase in manufactured home shipments in 2010, with year over
year increases primarily occurring in the second half of the year. 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 continue to be impacted by the current oversupply of single-family housing and tight
credit conditions. It is our goal to maintain our market share of trusses produced for the modular market as a result of our strong
relationships with modular builders, design services and proprietary products. On a long-term basis, we anticipate modular
housing will gain additional share of the single-family market as a result of more developers adopting the controlled building
environment of modular construction as a method of cost control.
In addition, on a long-term basis, it is our goal to expand our product offering to manufactured housing customers.
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
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 2010 may continue to be offset to some extent by a
decline in demand. On a long-term basis, we plan to evaluate strategic acquisition opportunities and continue to gain market
share with concrete forming customers, and expand our product offering to customers.
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2010:
•
•
•
•
•
•
Our ability to maintain sales and gross margins on products sold to our largest customers. We believe our level of service,
geographic diversity, and quality of products provides an added value to our customers. However, if our customers are
unwilling to pay for these advantages, our sales and gross margins may be reduced.
Through at least the first half of 2010 we expect to continue to experience soft demand in each of our markets, which, in
turn, may impact our sales prices, capacity utilization, and profitability.
Fluctuations in the relative level of the Lumber Market and the trend in the market price of lumber. (See “Impact of the
Lumber Market on our Operating Results.”)
Fuel and transportation cost trends.
Our ability to continue to achieve productivity improvements and planned cost reductions through our Continuous
Improvement and other initiatives.
Our ability to maintain productivity and material cost improvements achieved in 2009.
19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Since the third quarter of 2008, as a result of weak market conditions, we have continuously taken actions to close plants to
better align our manufacturing capacity with the current business environment and reduce our headcount and certain overhead
costs to better align our cost structure with current demand and sales. We expect that these actions will continue to favorably
impact our SG&A expenses in 2010. In addition, economic and credit conditions significantly impacted our bad debt expense in
2008 and 2009. As a result of actions taken in 2009 to reduce our credit exposure and improve the management of our
receivables, we believe we are well-positioned to reduce our bad debt expense in 2010. We continue to monitor our customers’
credit profiles carefully and make changes in our terms where necessary in response to this heightened risk.
On a long-term basis, we expect that our SG&A expenses will primarily be impacted by:
•
•
•
Our growth in sales to the industrial market and, when industry conditions improve, the site-built construction market. Our
sales to these markets require a higher ratio of SG&A costs due, in part, to product design requirements.
Our incentive compensation program which is tied to pre-bonus operating profits and return on investment.
Our growth and success in achieving Continuous Improvement objectives.
LIQUIDITY AND CAPITAL RESOURCES
Our cash cycle will continue to be impacted in the future based on our mix of sales by market. Sales to the site-built construction
and industrial markets require a greater investment in working capital (inventory and accounts receivable) than our sales to the
DIY/retail and manufactured housing markets.
Management expects to spend up to $32 million on capital expenditures in 2010 and incur depreciation of approximately
$33 million and amortization of intangible assets of approximately $8 million. On December 26, 2009, we had outstanding
purchase commitments on capital projects of approximately $0.9 million. We intend to fund capital expenditures and purchase
commitments through our operating cash flows and cash.
We have no present intention to change our dividend policy, which was recently increased to $0.20 per share paid semi-annually.
Our Board of Directors has approved a share repurchase program, and as of December 26, 2009, we have authorization to buy
back approximately 1.1 million shares. In the past, we have repurchased shares in order to offset the effect of issuances resulting
from our employee benefit plans and at times when our stock price falls to a pre-determined level.
We are also obligated to pay amounts due on long-term debt totaling approximately $0.7 million in 2010.
20
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 26, 2009. 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 26, 2009, 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 23, 2010
21
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 26,
2009, 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 26, 2009, 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 26, 2009 and the related
consolidated statements of income, shareholder’s equity, and cash flows for each of the three years then ended December 26,
2009 and our report dated February 23, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 23, 2010
22
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 26, 2009 and December 27, 2008, and the related consolidated statements of earnings, shareholders’ equity, and cash
flows for each of the three years in the period ended December 26, 2009. These financial statements are the responsibility of
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 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 26, 2009 and December 27, 2008, and the consolidated
results of their operations and their cash flows for each of the three years in the period ended December 26, 2009, 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 26, 2009, 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 23, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 23, 2010
23
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
Refundable 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
OTHER LIABILITIES
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY:
Controlling interest shareholders’ equity:
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding,
none
Common stock, no par value; shares authorized 40,000,000; issued and outstanding,
19,284,587 and 19,088,880
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings
Employee stock notes receivable
Noncontrolling interest
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
See notes to consolidated financial statements.
December 26, December 27,
2009
2008
$
82,219
107,383
$
13,337
138,043
89,956
72,192
162,148
13,528
10,391
7,680
383,349
4,478
157,058
16,693
96,559
140,505
272,816
894
510,774
(280,675)
230,099
791,677
$
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
64,473
$
63,184
48,340
21,698
673
135,184
53,181
21,707
12,659
222,731
49,306
22,620
15,490
150,600
85,684
17,056
14,453
267,793
19,285
132,765
409,278
3,633
564,961
(1,743)
563,218
5,728
568,946
791,677
$
$
19,089
128,830
393,312
2,353
543,584
(1,701)
541,883
6,343
548,226
816,019
$
$
$
$
24
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 (GAIN) LOSS ON DISPOSITION OF ASSETS AND OTHER
IMPAIRMENT AND EXIT CHARGES
Year Ended
December 26, December 27, December 29,
2009
2008
2007
$
1,673,000
$
2,232,394
$
2,513,178
1,430,249
1,978,193
2,204,149
242,751
254,201
309,029
200,026
228,557
247,373
(92)
7,239
8,164
EARNINGS FROM OPERATIONS
42,817
18,405
53,492
INTEREST EXPENSE
INTEREST INCOME
4,611
(391)
4,220
12,088
(829)
11,259
17,033
(2,150)
14,883
EARNINGS BEFORE INCOME TAXES
38,597
7,146
38,609
INCOME TAXES
NET EARNINGS
13,852
24,745
1,686
15,396
5,460
23,213
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING
INTEREST
(473)
(1,117)
(2,168)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST
EARNINGS PER SHARE — BASIC
EARNINGS PER SHARE — DILUTED
$
$
$
24,272
1.26
1.25
$
$
$
4,343
0.23
0.23
$
$
$
21,045
1.10
1.09
WEIGHTED AVERAGE SHARES OUTSTANDING
19,256
19,074
19,056
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON
STOCK EQUIVALENTS
19,468
19,225
19,362
See notes to consolidated financial statements.
25
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share and per share data)
Controlling Interest Shareholders’ Equity
Accumulated
Other
Additional
Employees
Common Paid-In Retained Comprehensive Stock Notes Noncontrolling
Stock
Capital
Earnings
Earnings
Receivable
Interest
Total
$ 18,859 $ 113,754 $ 380,931 $
2,451 $
(1,253) $
10,819 $ 525,561
Balance at December 30, 2006
Comprehensive earnings:
Net earnings
Foreign currency translation adjustment
Total comprehensive earnings
Purchase of additional noncontrolling interest
Distributions to noncontrolling interest
Cash dividends — $0.115 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 stock
21,045
2,253
(2,185)
(8,538)
220
4
3,683
170
70
(239)
(16)
(70)
(766)
1,867
505
3,733
notes receivable
10
492
Payments received on employee stock notes receivable
Balance at December 29, 2007
Comprehensive earnings:
Net earnings
Foreign currency translation adjustment
Total comprehensive earnings
Capital contribution from noncontrolling interest
Purchase of additional noncontrolling interest
Distributions to noncontrolling interest
Cash dividends — $0.120 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
Payments received on employee stock notes receivable
Balance at December 27, 2008
$ 18,908 $ 123,368 $ 391,253 $
4,704 $
4,343
(2,351)
(2,284)
175
4
15
(20)
3,030
100
(15)
(622)
878
1,136
725
7
230
$ 19,089 $ 128,830 $ 393,312 $
2,353 $
2,168
45
(859)
(1,797)
25,511
(859)
(1,797)
(2,185)
3,903
174
—
(8,777)
(782)
1,867
505
3,733
(502)
190
(1,565) $
—
190
10,376 $ 547,044
1,117
(1,071)
419
(844)
(3,654)
2,038
419
(844)
(3,654)
(2,284)
3,205
104
—
(642)
878
1,136
725
(237)
101
(1,701) $
—
101
6,343 $ 548,226
26
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY — (CONTINUED)
(in thousands, except share and per share data)
Controlling Interest Shareholders’ Equity
Accumulated
Other
Additional
Employees
Comprehensive earnings:
Net earnings
Foreign currency translation adjustment
Total comprehensive earnings
Capital contribution from noncontrolling interest
Purchase of additional noncontrolling interest
Distributions to noncontrolling interest
Cash dividends — $0.260 per share
Issuance of 130,265 shares under employee stock plans
Issuance of 79,216 shares under stock grant programs
Issuance of 74,229 shares under deferred compensation
plans
Repurchase of 90,122 shares
Received 1,602 shares for the exercise of stock options
Tax benefits from non-qualified stock options exercised
Deferred income tax asset reversal for deferred
compensation plans
Expense associated with share-based compensation
arrangements
Accrued expense under deferred compensation plans
Issuance of 3,721 shares in exchange for employee stock
notes receivable
Payments received on employee stock notes receivable
Balance at December 26, 2009
Common Paid-In Retained Comprehensive Stock Notes Noncontrolling
Stock
Capital
Earnings
Earnings
Receivable
Interest
Total
24,272
1,280
(5,017)
(3,289)
(853)
130
80
2,290
29
74
(90)
(2)
(74)
(33)
730
(518)
1,597
646
4
121
$ 19,285 $ 132,765 $ 409,278 $
3,633 $
473
85
14
(917)
(270)
26,110
14
(1,770)
(270)
(5,017)
2,420
109
—
(3,379)
(35)
730
(518)
1,597
646
(125)
83
(1,743) $
—
83
5,728 $ 568,946
See notes to consolidated financial statements.
27
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings attributable to controlling interest
Adjustments to reconcile net earnings to net cash from operating
activities:
Depreciation
Amortization of intangibles
Expense associated with share-based compensation arrangements
Excess tax benefits from share-based compensation arrangements
Expense associated with stock grant plans
Deferred income taxes (credit)
Net earnings attributable to noncontrolling interest
Gain on sale of interest in subsidiary
Gain on insurance settlement
Net (gain) loss on sale or impairment of property, plant and equipment
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
Investment in joint venture
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
Borrowings of long-term debt
Proceeds from issuance of common stock
Purchase of additional noncontrolling interest
Distributions to noncontrolling interest
Capital contribution from noncontrolling interest
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 26, December 27, December 29,
2009
2008
2007
$
24,272
$
4,343
$
21,045
32,917
8,308
1,597
(603)
109
4,744
473
(773)
31,071
31,522
610
(5,901)
128,346
(15,604)
(659)
—
11,724
(14)
171
1,023
30
(3,329)
(30,257)
(19,207)
800
2,420
(1,770)
(270)
14
(5,017)
(3,379)
603
(72)
(56,135)
68,882
13,337
37,570
9,797
1,136
(171)
104
(7,747)
1,117
(598)
7,062
4,287
42,922
(20,153)
8,882
88,551
39,547
8,034
505
(755)
174
(4,134)
2,168
(140)
6,755
19,538
27,795
(9,569)
(23,885)
87,078
(18,944)
(39,360)
(23,338)
30,367
(997)
556
800
189
(11,367)
(57,087)
400
4,769
(1,002)
347
(38)
(91,971)
(24,148)
(80,824)
34,648
(28,466)
2,957
3,539
(3,654)
419
(2,284)
171
(89)
(107,452)
(30,268)
43,605
(1,797)
(2,185)
(8,777)
755
(327)
(2,610)
(7,503)
51,108
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
82,219
$
13,337
$
43,605
28
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (CONTINUED)
(in thousands)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest
Income taxes
NON-CASH OPERATING ACTIVITIES:
Accounts receivable exchanged for property, plant and equipment
Assets exchanged for insurance receivable
Accounts receivable exchanged for note receivable
NON-CASH INVESTING ACTIVITIES:
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 financial statements
Year Ended
December 26, December 27, December 29,
2009
2008
2007
$
$
4,905
$
12,346
12,418
(8)
$
17,055
16,919
167
$
737
$
257
125
237
502
2,438
35
99
352
3,452
418
29
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.
NONCONTROLLING INTEREST IN SUBSIDIARIES
Noncontrolling interest in results of operations of consolidated subsidiaries represents the noncontrolling shareholders’
share of the income or loss of various consolidated subsidiaries. The noncontrolling interest reflects the original investment
by these noncontrolling shareholders combined with their proportional share of the earnings or losses of these subsidiaries,
net of distributions paid.
FISCAL YEAR
Our fiscal year is a 52 or 53 week period, ending on the last Saturday of December. Unless otherwise stated, references to
2009, 2008, and 2007 relate to the fiscal years ended December 26, 2009, December 27, 2008, and December 29, 2007,
respectively. Fiscal years 2009, 2008, and 2007 were comprised of 52 weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined in accordance with ASC 825, Financial
Instruments. Significant differences in the fair market value and recorded value of our debt is disclosed in Note F. The fair
values of all other financial instruments approximate their carrying values. The estimated fair value amounts have been
determined using available market information and appropriate valuation methodologies. However, considerable judgment
is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
30
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 26,
2009. Although we are not aware of any factors that would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ significantly from the amounts presented herein.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly-liquid investments purchased with an original maturity of three
months or less. Cash equivalents totaled approximately $44.9 million and $0.1 million as of December 26, 2009 and
December 27, 2008, 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 $14.8 million and
$18.2 million as of December 26, 2009 and December 27, 2008, 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.
31
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 26, 2009:
Allowance for possible losses on
accounts receivable
Year Ended December 27, 2008:
Allowance for possible losses on
accounts receivable
Year Ended December 29, 2007:
Allowance for possible losses on
accounts receivable
Beginning
Balance
Additions
Charged to
Costs and
Expenses
Deductions*
Collections
Ending
Balance
$
$
$
2,440
2,403
3,576
$
$
$
23,984
$
(24,600)
24,734
$
(25,453)
23,686
$
(25,374)
$
$
$
1,073
$
2,897
756
$
2,440
515
$
2,403
*
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
5 to 15 years
15 to 31.5 years
3 to 10 years
32
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
FOREIGN CURRENCY TRANSLATION
Our foreign operations use the local currency as their functional currency. Accordingly, assets and liabilities are translated
at exchange rates as of the balance sheet date and revenues and expenses are translated using weighted average rates, with
translation adjustments included as a separate component of shareholders’ equity.
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 26, 2009 and December 27, 2008. Our policy is to accrue amounts equal to actuarially
determined or internally computed liabilities. The actuarial and internal valuations are based on historical information along
with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical cost trends,
and changes in claims experience could cause these estimates to change in the future.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates. Valuation allowances are established when necessary to
reduce deferred income tax assets to the amounts expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities.
REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped to the customer. Generally, title passes at the time of shipment. In
certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process
is typically completed the same day.
Earnings on construction contracts are reflected in operations using either percentage-of-completion accounting, which
includes the cost to cost and units of delivery methods, or completed contract accounting, depending on the nature of the
business at individual operations. Under percentage-of-completion using the cost to cost method, revenues and related
earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated
costs. Under percentage-of-completion using the units of delivery method, revenues and related earnings on construction
contracts are measured by the relationships of actual units produced related to the total number of units. Revisions in
earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions
becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses
become apparent. Under the completed contract method, revenues and related earnings are recorded when the contracted
work is complete and losses are charged to operations in their entirety when such losses become apparent.
33
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following table presents the balances of percentage-of-completion and completed contract accounts on December 26,
2009 and December 27, 2008 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
2009
$
9,998
8,954
$
2008
7,934
8,656
Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenue. Costs incurred
related to the shipment and handling of products are classified in cost of goods sold.
LONG-LIVED ASSETS
In accordance with ASC 360, Property, Plant and Equipment (“ASC 360”), when an indicator of potential impairment
exists, we evaluate the recoverability of our long-lived assets by determining whether unamortized balances could be
recovered through undiscounted future operating cash flows over the remaining lives of the assets. If the sum of the
expected future cash flows was less than the carrying value of the assets, an impairment loss would be recognized for the
excess of the carrying value over the fair value.
EARNINGS PER SHARE
Basic earnings per share (“EPS”) is calculated based on the weighted average number of common shares outstanding during
the periods presented. Diluted EPS is calculated based on the weighted average number of common and common equivalent
shares outstanding during the periods presented, giving effect to stock options granted and conditional stock grants (see
Note K) utilizing the “treasury stock” method.
34
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
2009
Income Shares
Income Shares
(Num- (Denom- Share
(Num-
erator) inator) Amount erator)
Per
2007
Income Shares
Per
Per
(Denom- Share (Num- (Denom- Share
inator) Amount erator) inator) Amount
Net Earnings
$24,272
$ 4,343
$21,045
EPS — Basic
Income available to common stockholders 24,272 19,256 $
1.26
4,343
19,074 $
0.23 21,045 19,056 $
1.10
Effect of Dilutive Securities
Options
EPS — Diluted
Income available to common stockholders
212
151
306
and assumed options exercised
$24,272 19,468 $
1.25 $ 4,343
19,225 $
0.23 $21,045 19,362 $
1.09
Options to purchase 10,000, 230,000 and 30,000 shares of common stock were not included in the computation of diluted
EPS for 2009, 2008 and 2007, respectively, because the options’ exercise prices were greater than the average market price
of the common stock during the period and, therefore, would be antidilutive.
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. We believe our estimates to be reasonable; however, actual results could differ from
these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective at the beginning of the fiscal year ended December 26, 2009, we adopted ASC 805, Business Combinations
(“ASC 805”). ASC 805 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. ASC 805 will affect our accounting for any future business combinations.
35
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Effective at the beginning of the fiscal year ended December 26, 2009, we adopted ASC 810, Noncontrolling Interests in
Consolidated Financial Statements (“ASC 810”). ASC 810 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. ASC 810 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. ASC 810 also includes expanded disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The adoption of ASC 810 did not have a material impact on our consolidated financial statements
and related disclosures and financial reporting of noncontrolling interests presented herein.
Effective at the beginning of the fiscal year ended December 26, 2009, we adopted ASC 260, Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating Securities (“ASC 260”). ASC 260 clarifies
that unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities and
also provides guidance on how to allocate earnings to participating securities and compute basic earnings per share using
the two-class method. The adoption of ASC 260 impacts our Executive Stock Grant Plan and it had no impact on our
earnings per share calculation.
B. FAIR VALUE
Effective at the beginning of the fiscal year ended December 27, 2008, we adopted ASC 820, Fair Value Measurements
(“ASC 820”). 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. ASC 820 also expands
financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such
measures on earnings.
Effective at the beginning of the fiscal year ended December 26, 2009, we also adopted the nonfinancial asset and liability
provisions of ASC 820 that were previously deferred by the standard.
36
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Assets and liabilities measured at fair value are as follows:
December 26, 2009
Quoted
Prices in
Active
Markets
(Level 1)
Prices
with Other
Observable
Inputs
(Level 2)
Total
Total
(in thousands)
Assets:
Prices
December 27, 2008
Quoted
Prices in with Other
Active Observable
Markets
(Level 1)
Inputs
(Level 2)
Trading marketable securities
Assets held for sale
Property, plant and equipment
$
$
883
1,385
2,268
$
$
883
$
$
1,385
1,385
883
$
$
3,000
410
1,629
5,039
$
$
3,000
3,000
$
$
410
1,629
2,039
Effective at the beginning of the fiscal year ended December 27, 2008, we adopted ASC 825, The Fair Value Option for
Financial Assets and Financial Liabilities (“ASC 825”). ASC 825 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.
C. BUSINESS COMBINATIONS
No business combinations were completed in fiscal 2009. We completed the following business combinations in fiscal 2008
and 2007, which were accounted for using the purchase method (in millions).
Company
Name
D-Stake Mill and
Manufacturing
Country (“D-Stake”)
Acquisition
Date
June 9, 2008
Purchase
Price
$7.1 (asset
purchase)
Net
Intangible Tangible
Assets
$2.0
Assets
$ 5.1
Reportable
Segment
Western
Division
Shawnlee
Construction, LLC
(“Shawnlee”)
April 1, 2008
$1.8 (asset
purchase)
$ 1.0
$0.8
Eastern
Division
April 2, 2007
$1.4 (asset
purchase)
$ 0.9
$0.5
Business Description
Manufactures kiln stickers, lath, stakes, decking,
and pallets and pallet components for a variety of
industries including manufacturing, retail and
agriculture. Plants are located in McMinnville, OR
and Independence, OR. Combined 2007 sales
were $18.5 million.
Purchased 100% of the inventory, property, plant
and equipment, and intangibles.
Provides framing services for multi-family
construction in the northeast. Located in
Plainville, MA. As of April 1, 2008 we owned a
90% membership interest and have purchased an
additional 5% interest each year.
37
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Company
Name
Romano Construction
Company, Ltd.
(“Romano”)
Acquisition
Date
March 15,
2008
Purchase
Price
$0.4 (asset
purchase)
Intangible
Assets
$ 0.2
Net
Tangible
Assets
$ 0.2
Reportable
Segment
Eastern
Division
Business Description
Provides framing services and is located in
Middletown, NY.
International Wood
Industries, Inc.
(“IWI”)
February 4,
2008
$14.0 (stock
purchase)
$10.6
$ 3.4
Western
Division
Purchased 100% of the property, plant and
equipment and intangibles.
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.
Deck Images
July 10, 2007
$0.9 (asset
purchase)
$ 0.6
$ 0.3
Consumer
Products
Division
Manufactures and distributes aluminum railing
systems. Located in Hastings, MN. 2006 sales
were $1.9 million.
Perfection Trusses,
Inc. (“Perfection”)
March 5, 2007
$1.3 (asset
purchase)
$ 0.8
$ 0.5
Eastern
Division
Aljoma Lumber
Company (“Aljoma”)
February 12,
2007
$53.5 (stock
purchase)
$ 0.4
$53.1
Eastern
Division
Purchased 100% of the property, plant and
equipment and intangibles.
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% of the property, plant and
equipment and intangibles.
Manufactures, treats and distributes various wood
products, building materials and specialty
hardwoods. The company is 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.
38
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The amounts assigned to major intangible classes for business combinations mentioned above are as follows (in millions):
D-Stake
Shawnlee
Romano
IWI
Deck Images
Perfection
Aljoma
Non-compete
agreements Relationships
$
Customer
2.6
0.3
0.3
0.2
2.4
0.3
0.4
$
0.4
0.4
5.6
0.6
0.5
Patents
$
Goodwill
- Total
Goodwill - Tax
Deductible
$
2.5
0.3
0.2
2.6
2.5
0.3
0.2
0.0
The business combinations mentioned above were not significant to our operating results individually or in aggregate, and
thus pro forma results are not presented.
D. ASSETS HELD FOR SALE AND NET (GAIN) 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. The assets held for sale consist of certain vacant land and several facilities we closed to
better align manufacturing capacity with the current business environment. The fair values were determined based on
appraisals or recent offers to acquire the assets. These and other idle assets were evaluated based on the requirements of
ASC 360, which resulted in an impairment and other exit charges included in “Net (gain) loss on disposition of assets and
other impairment and exit charges” for the years ended December 26, 2009, December 27, 2008 and December 29, 2007,
respectively. These amounts include the following, separated by reporting segment (in millions):
December 26, 2009
December 27, 2008
December 29, 2007
Severances
Property, plant and equipment
Gain on sale of real estate
Notes receivable
Lease termination
Other intangibles
Eastern
and
Western
Divisions
0.7
$
2.5
(4.2)
0.6
Eastern
and
Western
Divisions
$
1.1
2.8
(0.5)
1.6
0.5
0.6
$
All
Other
0.3
All
Other
Eastern
and
Western
Divisions
1.3
$
5.8
0.3
0.8
All
Other
$
$
0.1
1.0
39
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The changes in assets held for sale in 2009 are as follows (in thousands):
Description
Assets held for sale as of December 27, 2008
Additions
Transfers to held for use
Sale of certain real estate in Woodburn, Oregon
Sale of certain real estate in Dallas, Texas
Sale of certain real estate in Murrieta, California
Assets held for sale as of December 26, 2009
Net Book
Value
Date of Sale
Net Sales
Price
$
$
8,296
1,030
(3,057)
(2,806)
(2,433)
(1,030)
—
February 6, 2009
May 13, 2009
June 10, 2009
$5.2 million
$3.4 million
$0.9 million
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 difficult economic conditions and competitive factors. Appropriate “catch-up” adjustments were recorded for
depreciation associated with the transfer of these assets to held for use.
E. GOODWILL AND OTHER INTANGIBLE ASSETS
We account for goodwill and other intangible assets in accordance with the provisions of ASC 350, Intangibles — Goodwill
and Other. Goodwill and other intangible assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead are 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 compared it against
other market indicators, allocating goodwill based on operating segments, which resulted in no impairment.
The following amounts were included in other intangible assets, net as of December 26, 2009 and December 26, 2008 (in
thousands):
Non-compete agreements
Customer relationships
Patents
Total
$
$
2009
Accumulated
Assets
$
Amortization
(11,182)
(11,643)
(1,437)
(24,262)
$
18,162
19,813
2,980
40,955
$
$
Assets
2008
Accumulated
Amortization
(13,481)
(10,326)
(1,055)
(24,862)
$
$
26,899
17,734
2,980
47,613
Amortization is computed principally by the straight-line method over the estimated useful lives of the intangible assets as
follows:
Non-compete agreements
Customer relationship
5 to 10 years
5 years
40
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Amortization expense of intangibles totaled $8.3 million, $9.8 million and $8.0 million in 2009, 2008 and 2007,
respectively. The estimated amortization expense for intangibles for each of the five succeeding fiscal years is as follows (in
thousands):
2010
2011
2012
2013
2014
Thereafter
Total
$
$
6,778
4,729
2,127
1,197
909
953
16,693
The changes in the net carrying amount of goodwill and indefinite-lived intangible assets for the years ended December 26,
2009 and December 27, 2008, are as follows (in thousands):
Balance as of December 29, 2007
Final purchase price allocations
Acquisitions
Translation adjustment
Balance as of December 27, 2008
Final purchase price allocations
Deferred income tax adjustment
Balance as of December 26, 2009
F. DEBT
Indefinite-
Lived
Intangible
Assets
Goodwill
$
$
$
$
147,932
1,226
8,013
(248)
156,923
(2,326)
121
2,340
2,340
$
154,718
$
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
150 million. The average borrowing rate on this facility was 0.8% and 3.6% in 2009 and 2008, 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 $32.3 million on December 26, 2009.
Outstanding letters of credit extended on our behalf aggregated $32.3 million on December 26, 2009, which includes
approximately $12.4 million related to industrial development revenue bonds. 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. 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.
41
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Long-term debt and capital lease obligations are summarized as follows on December 26, 2009 and December 27, 2008
(amounts in thousands):
Series 2002-A Senior Notes Tranche A, due on December 18, 2009, interest payable semi-
annually at 5.63%
Series 2002-A Senior Notes Tranche B, due on December 18, 2012, interest payable semi-
annually at 6.16%
Revolving credit facility totaling $300 million due on February 12, 2012, interest due
monthly at a floating rate
Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest
payable monthly at a floating rate (0.54% on December 26, 2009)
Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest
payable monthly at a floating rate (0.56% on December 26, 2009)
Series 2000 Industrial Development Revenue Bonds
Series 2001 Industrial Development Revenue Bonds, due on November 1, 2021, interest
payable monthly at a floating rate (0.56% on December 26, 2009)
Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest
payable monthly at a floating rate (0.55% on December 26, 2009)
Capital lease obligations, interest imputed at 5.37%
Other
Less current portion
Long-term portion
2009
2008
$
15,000
$
40,000
40,000
3,300
2,700
30,257
3,300
2,700
2,400
2,500
2,500
3,700
892
762
53,854
673
53,181
$
3,700
279
1,038
101,174
15,490
85,684
$
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 26, 2009.
On December 26, 2009, the principal maturities of long-term debt and capital lease obligations are as follows (in
thousands):
2010
2011
2012
2013
2014
Thereafter
$
$
673
711
40,270
12,200
53,854
On December 26, 2009, the estimated fair value of our long-term debt, including the current portion, was $54.7 million,
which was $0.8 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.
42
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
G. LEASES
Leased property included in the balance sheet on December 26, 2009 and December 27, 2008 is as follows (in thousands):
Machinery and equipment
Less accumulated amortization
2009
2008
$
$
1,345
(224)
1,121
$
$
2,589
(2,001)
588
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 26, 2009 are as follows (in
thousands):
2010
2011
2012
2013
2014
Thereafter
Total minimum lease payments
Less imputed interest
Present value of minimum lease payments
Capital
Leases
Operating
Leases
Total
$
$
$
$
$
472
472
944
(52)
892
12,313
7,689
3,882
1,950
1,327
1,125
28,286
$
$
12,785
8,161
3,882
1,950
1,327
1,125
29,230
Rent expense was approximately $16.7 million, $19.9 million, and $24.0 million in 2009, 2008, and 2007, respectively.
H. DEFERRED COMPENSATION
We have a program whereby certain executives irrevocably elected to defer receipt of certain compensation in 1985 through
1988. Deferred compensation payments to these executives will commence upon their retirement. We purchased life
insurance on such executives, payable to us in amounts which, if assumptions made as to mortality experience, policy
dividends, and other factors are realized, will accumulate cash values adequate to reimburse us for all payments for
insurance and deferred compensation obligations. In the event cash values are not sufficient to fund such obligations, the
program allows us to reduce benefit payments to such amounts as may be funded by accumulated cash values. The deferred
compensation liabilities and related cash surrender value of life insurance policies are included in “Other Liabilities” and
“Other Assets,” respectively.
43
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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 $0.9 million and $3.0 million on
December 26, 2009 and December 27, 2008, respectively, and are included in “Other Assets.” Related liabilities totaled
$4.9 million and $8.9 million on December 26, 2009 and December 26, 2008, respectively, and are included in “Other
Liabilities” and “Shareholders’ Equity.” Assets of the Plan are recorded at fair market value. The related liabilities are
recorded at fair market value, with the exception of obligations associated with investments in our stock which are recorded
at the market value on the date of deferral.
I. 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.
44
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
No receivables were sold and outstanding on December 26, 2009 and December 27, 2008. A summary of the transactions
we completed in 2008 and 2007 is presented below (in thousands).
Accounts receivable sold
Retained interest in receivables
Expense from sale
Servicing fee received
Net cash received from sale
J. COMMON STOCK
2008
2007
$
$
369,242
(2,432)
(869)
119
366,060
$
$
624,448
(1,982)
(2,629)
212
620,049
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 2009, 2008, and
2007, and recognized the market value of the shares at the date of issuance as an expense totaling approximately $45,000,
$45,000, and $68,000, respectively.
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 2009, 2008, and 2007, shares were issued under
this Plan for amounts totaling approximately $454,000, $582,000, and $617,000, respectively. The weighted average
discounted fair value of these shares was $29.10, $25.92, and $30.75, respectively. Upon adoption of ASC 718,
Compensation — Stock Compensation, (“ASC 718”), 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, and increased for dividends declared.
Shareholders’ equity includes approximately $1.1 million and $1.4 million on December 26, 2009 and December 26, 2008,
respectively, for obligations incurred under this Plan. In 2009, distributions totaled approximately $600,000, all of which
was paid in shares of our common stock. There were no distributions in 2008 or 2007.
45
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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 2009, 2008, and 2007, we issued shares and recognized the market value of the shares on the date of issuance as an
expense totaling approximately $63,000, $58,000, and $106,000, respectively.
On April 28, 1999, our shareholders approved our Long Term Stock Incentive Plan (the “LTSI Plan”), which was amended
and restated in 2009 to extend the term on the plan to 2019. The LTSI Plan reserves a maximum of 1,000,000 additional
shares, plus a balance of unused 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. No options were granted under the LTSI Plan in 2009 or 2008.
The following stock grants are outstanding under the LTSI 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 $245,000 and $159,000 on December 26, 2009 and December 27,
2008 respectively, for this grant.
Shares of common stock were issued on February 9, 2009 for Performance Share Grants made on February 3,
2006. Shareholders’ equity included approximately $2.1 million on December 27, 2008 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 $49,000 and $32,000 on December 26, 2009 and December 27, 2008, 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 $1.4 million on December 26, 2009 and $1.9 million December 27, 2008, respectively.
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 $21,000 and $10,000 on December 26, 2009 and December 27, 2008, respectively.
46
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
•
•
•
On February 8, 2008, Conditional Share Grants were made which will grant certain employees approximately
105,000 shares of common stock on February 8, 2010, subject to conditions set forth in the grant. Shareholders’
equity includes approximately $1.3 million and $0.7 million on December 26, 2009 and December 27, 2008,
respectively.
On January 21, 2009, Conditional Share Grants were made which will grant certain employees 500 shares each of
common stock immediately upon vesting in 2019, subject to conditions set forth in the grant. Shareholders’
equity includes approximately $3,000 on December 26, 2009.
On February 1, 2009, approximately 75,000 shares of common stock were issued into a deferred compensation
plan for certain employees and independent directors. The shares will be vested on February 1, 2014, subject to
conditions set forth in the grant. Shareholders’ equity includes approximately $0.5 million December 26, 2009.
As of December 26, 2009, a total of approximately 3.0 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 91,724 and 19,857 shares
under this program in 2009 and 2008, respectively. As of December 26, 2009, cumulative total authorized shares available
for repurchase is approximately 1.1 million shares.
47
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Common stock activity for 2009, 2008 and 2007 was as follows:
Shares issued under plan:
Employee Stock Purchase
Stock option
Employee stock plans
Stock gift
Executive Stock Grant
Directors’ Retainer Stock
Directors’ Stock Grant
Stock grant plans
Deferred compensation
Stock notes receivable
Shares received for exercise of stock options
Stock repurchase
Beginning common stock
Ending common stock
K. STOCK-BASED COMPENSATION
2009
2008
2007
15,614
114,651
130,265
1,466
74,750
23,413
3,000
102,629
50,816
3,721
(1,602)
(90,122)
195,707
19,088,880
19,284,587
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
We account for share-based compensation using the fair value recognition provisions of ASC 718, Compensation — Stock
Compensation, (“ACS 718”), which we have adopted using the modified-prospective-transition method effective January 1,
2006. As discussed in Note J, Common Stock, we provide compensation benefits to employees and non-employee directors
under several share-based payment arrangements including the Employee Stock Gift Program, the 2002 Employee Stock
Purchase Plan, the Directors’ Retainer Stock Plan, the Directors’ Stock Grant Program and the Long-Term Stock Incentive
Plan.
Stock Option Plans
To date, other than certain, relatively nominal conditional share grants, performance share awards and deferred share
awards that are permitted under the LTSI Plan, we have only issued options under the LTSI 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 2009, 2008 or 2007 and therefore no specific valuation assumptions are presented.
48
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following summary presents information regarding outstanding options as of December 26, 2009 and changes during
the period then ended with regard to options under all stock option plans:
Outstanding at December 27, 2008
Exercised
Forfeited or expired
Outstanding at December 26, 2009
Vested or expected to vest at December 26, 2009
Exercisable at December 26, 2009
Stock
Under
Option
Weighted
Average
Exercise Price
Per Share
600,047
(114,651)
(11,518)
473,878
260,000
213,878
$
$
$
$
$
$
22.16
17.14
23.48
23.34
25.14
21.16
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
2.97
3.49
2.33
$ 7,049,362
$ 3,399,745
$ 3,649,617
The total intrinsic value of options exercised during 2009, 2008 and 2007 was $2.3 million $2.4 million and $6.5 million,
respectively.
Employee Stock Purchase Plan
In 2009, 2008 and 2007, we issued shares under this plan totaling 15,614, 22,474 and 20,079, respectively. In 2009, 2008
and 2007, the weighted average fair values per share of employee stock purchase rights pursuant to this plan were $5.14,
$4.57 and $5.42, 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 2009, 2008
and 2007, we recognized approximately $317,000, $268,000 and $281,000, respectively, in expense for shares issued under
this program.
Directors’ Stock Grant Program
In 2009, 2008 and 2007, 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 $63,000, $58,000
and $106,000, respectively.
49
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Conditional Share Grant Agreements
In 2009, 2008 and 2007, we recognized the fair value of the awards estimated as of the date of grant. We recognized
approximately $118,000, $50,000 and $39,000, respectively, in expense for shares issuable under this program.
All Share-Based Payment Arrangements
The total share-based compensation cost and the related total income tax benefit that has been recognized in results of
operations was approximately $1,252,000 and $724,000, respectively in 2009. The total share-based compensation cost and
the related total income tax benefit that has been recognized in results of operations was approximately $820,000 and
$255,000, respectively in 2008. 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.
In 2009, 2008 and 2007, cash received from option exercises and share issuances under our plans was $2.4 million,
$3.0 million and $3.5 million, respectively. The actual tax benefit realized in 2009, 2008 and 2007 for the tax deductions
from option exercises totaled $0.7 million, $0.9 million and $1.9 million, respectively.
L. RETIREMENT PLANS
We have a profit sharing and 401(k) plan for the benefit of substantially all of our employees, excluding the employees of
certain non-wholly-owned subsidiaries. Amounts contributed to the plan are made at the discretion of the Board of
Directors. We matched 25% of employee contributions in 2009, on a discretionary basis, totaling $1.4 million. We matched
50% of employee contributions in 2008 and 2007, on a discretionary basis, totaling $3.5 million and $4.1 million,
respectively. The basis for matching contributions may not exceed the lesser of 6% of the employee’s annual compensation
or the IRS limitation.
M. INCOME TAXES
Income tax provisions for the years ended December 26, 2009, December 27, 2008, and December 29, 2007 are
summarized as follows (in thousands):
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
2009
2008
2007
$
$
4,411
1,452
2,602
8,465
4,868
337
182
5,387
13,852
$
$
5,566
915
3,169
9,650
(5,768)
(1,951)
(245)
(7,964)
1,686
$
$
13,725
2,714
2,824
19,263
(3,734)
134
(267)
(3,867)
15,396
50
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The components of earnings before income taxes consist of the following:
U.S
Foreign
Total
2009
2008
2007
$
$
29,806
8,791
38,597
$
$
(702)
7,848
7,146
$
$
37,641
968
38,609
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 noncontrolling 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
2009
2008
2007
35.0%
1.9
0.1
(0.8)
(1.8)
(1.4)
1.2
1.7
35.9%
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%
Temporary differences which give rise to deferred income tax assets and (liabilities) on December 26, 2009 and
December 27, 2008 are as follows (in thousands):
Employee benefits
Foreign subsidiary net operating loss
Accrued expenses
Other, net
Gross deferred income tax assets
Valuation allowance
Deferred income tax assets
Depreciation
Intangibles
Inventory
Other, net
Deferred income tax liabilities
Net deferred income tax liability
2009
2008
$
$
5,189
1,782
3,769
3,764
14,504
(2,712)
11,792
(17,522)
(7,799)
(421)
(77)
(25,819)
(14,027)
$
$
7,044
2,454
4,748
3,511
17,757
(2,838)
14,919
(16,495)
(6,876)
(30)
(158)
(23,559)
(8,640)
51
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The valuation allowance consists of a net operating loss carryforward we have for a wholly-owned subsidiary, Universal
Forest Products of Canada, Inc. As a result of cumulative historical losses of this subsidiary, our ability to realize a future
benefit from this loss carryforward is in doubt, therefore, we established an allowance for the entire amount of the future
benefit. This carryforward will expire at the end of 2027.
N. ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
ASC 740, Income Taxes (“ASC 740”) clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides
guidance on derecognition, measurement, classification, interest and penalties, and disclosure requirements. ASC 740 is
effective for fiscal years beginning after December 15, 2006.
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
Settlements with taxing authorities
Lapse in statute of limitations
Gross unrecognized tax benefits end of year
2009
2008
11,034
116
512
(778)
(573)
10,311
$
$
8,705
1,347
1,486
(504)
11,034
$
$
The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate was $10.3 million
and $11.0 million at December 26, 2009 and December 27, 2008, 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 $0.3 million and $0.4 million at December 26, 2009 and December 27, 2008, 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 $9.4 million.
52
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
O. 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. During 2009, a subsidiary entered into a consent
order with the State of Florida to conduct additional testing at the Auburndale, FL facility. We admitted no liability and the
costs are not expected to be material.
On a consolidated basis, we have reserved approximately $4.3 million on December 26, 2009 and $4.4 million on
December 27, 2008, representing the estimated costs to complete future remediation efforts. These amounts have not been
reduced by an insurance receivable.
From time to time, various special interest environmental groups have petitioned certain states requesting restrictions on the
use or disposal of CCA treated products. The wood preservation industry trade groups are working with the individual
states and their regulatory agencies to provide an accurate, factual background which demonstrates that the present method
of uses and disposal is scientifically supported.
We 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 26, 2009, 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 26, 2009, we had outstanding purchase commitments on capital projects of approximately $0.9 million.
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 26, 2009, we had approximately
$16.0 million in outstanding payment and performance bonds, which expire during the next two years. In addition,
approximately $32.6 million in payment and performance bonds are outstanding for completed projects which are still
under warranty.
53
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
We have entered into operating leases for certain assets that include a guarantee of a portion of the residual value of the
leased assets. If, at the expiration of the initial lease term, we do not exercise our option to purchase the leased assets and
these assets are sold by the lessor for a price below a predetermined amount, we will reimburse the lessor for a certain
portion of the shortfall. These operating leases will expire periodically over the next five years. The estimated maximum
aggregate exposure of these guarantees is approximately $1.3 million.
On December 26, 2009 we had outstanding letters of credit totaling $32.3 million, primarily related to certain insurance
contracts and industrial development revenue bonds described further below.
In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our performance under
certain insurance contracts. We currently have irrevocable letters of credit outstanding totaling approximately $19.9 million
for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that
reflect our expected future liabilities under these insurance arrangements.
We are required to provide irrevocable letters of credit in favor of the bond trustees for all of the industrial development
revenue bonds that we have issued. These letters of credit guarantee principal and interest payments to the bondholders. We
currently have irrevocable letters of credit outstanding totaling approximately $12.4 million related to our outstanding
industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the
issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products, Inc. in certain
debt agreements, including the Series 2002-A Senior Notes and our revolving credit facility. The maximum exposure of
these guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire
concurrent with the expiration of the debt agreements.
Many of our wood treating operations utilize “Subpart W” drip pads, defined as hazardous waste management units by the
EPA. The rules regulating drip pads require that the pad be “closed” at the point that it is no longer intended to be used for
wood treating operations or to manage hazardous waste. Closure involves identification and disposal of contaminants which
are required to be removed from the facility. The cost of closure is dependent upon a number of factors including, but not
limited to, identification and removal of contaminants, cleanup standards that vary from state to state, and the time period
over which the cleanup would be completed. Based on our present knowledge of existing circumstances, it is considered
probable that these costs will approximate $0.3 million. As a result, this amount is recorded in other long-term liabilities on
December 26, 2009.
54
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
We did not enter into any new guarantee arrangements during 2009 which would require us to recognize a liability on our
balance sheet.
P. 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 $1.8 million and $1.4 million at December
26, 2009 and December 27, 2008, 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 $0.4 million and $0.6 million at
December 26, 2009 and December 27, 2008, respectively, has been recorded in other liabilities.
Q. SEGMENT REPORTING
ASC 280, Segment Reporting (“ASC 280”) defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance. Under the definition of a segment, our Eastern, Western and Consumer
Products Divisions may be considered an operating segment of our business. Under ASC 280, segments may be aggregated
if the segments have similar economic characteristics and if the nature of the products, distribution methods, customers and
regulatory environments are similar. Based on 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.
55
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
2009
Eastern
and
Western All
Divisions Other
Total
Eastern
and
Western
Divisions
2008
All
Other
2007
Eastern
and
Total
Western All
Divisions Other
Total
Net sales to outside
customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating
$1,567,639 $105,361 $1,673,000 $2,130,437 $101,957 2,232,394 $2,405,830 $107,348 $2,513,178
24,126
17,033
8,034
39,547
0 33,059
21
2,562
2,512
0 24,126
15
2,703
3,200
0
12,037
6,983
34,656
26,765
12,088
9,797
37,570
26,765
51
2,814
2,914
33,059
4,611
8,308
32,917
4,590
5,746
30,405
17,018
5,331
36,347
profit
Segment assets
Capital expenditures
38,884
3,933
718,361 73,316
909
14,695
42,817
21,310
791,677
15,604
746,335
18,409
(2,905)
69,684
535
18,405
816,019
18,944
48,399
5,093
864,546 92,454
1,789
37,571
53,492
957,000
39,360
In 2009, 2008, and 2007, 32%, 27%, and 26% of net sales, respectively, were to a single customer.
Information regarding principal geographic areas was as follows (in thousands):
2009
Long-Lived
United States
Foreign
Total
Net Sales
$1,630,763
42,237
$1,673,000
Assets
389,640
18,688
Net Sales
$2,170,933
61,461
408,328
$2,232,394
$
$
2008
$
Long-Lived
Assets
418,603
16,508
435,111
$
2007
Long-Lived
Net Sales
$2,442,676
70,502
$2,513,178
Assets
427,547
28,928
456,475
$
$
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.
2009
2008
2007
Value-Added
Commodity-Based
59.4%
60.4%
60.5%
40.6%
39.6%
39.5%
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.
56
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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
Years Ended
December 26, December 27, December 29,
2009
2008
2007
$
$
202,916
167,214
155,700
57,200
132,894
35,386
40,129
25,774
40,530
35,946
46,442
28,422
20,275
11,828
12,597
2,991
134
1,016,378
254,768
298,291
116,753
21,373
4,802
695,987
1,712,365
(39,365)
1,673,000
$
$
365,155
194,029
167,722
103,149
147,605
57,631
64,552
31,101
51,565
49,437
43,895
34,326
28,879
15,134
14,354
4,904
459
1,373,897
384,268
345,211
138,448
24,534
7,833
900,294
2,274,191
(41,797)
2,232,394
$
$
489,970
199,392
179,707
84,403
106,982
87,588
82,784
57,065
53,031
46,492
46,523
42,793
38,098
15,746
8,066
3,637
6,915
1,549,192
454,445
378,240
149,643
24,947
5,018
1,012,293
2,561,485
(48,307)
2,513,178
57
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
R. 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 26, 2009 and December 27, 2008 (in thousands, except per share data):
Net sales
Gross profit
Net earnings (loss)
Net earnings
(loss) attributable to
controlling interest
Basic earnings (loss) per
share
Diluted earnings
(loss) per share
First
Second
Third
Fourth
2009
$361,722
46,821
(1,163)
2008
2009
$489,512 $514,945
82,485
54,820
16,455
(4,402)
2008
$708,485
84,878
12,177
2009
$457,768
69,263
10,260
2008
2009
2008
$610,744 $338,565 $423,653
49,853
44,182
(551)
(807)
64,650
(1,764)
(1,207)
(4,576)
16,088
11,663
10,054
(1,951)
(663)
(793)
(0.06)
(0.24)
(0.06)
(0.24)
0.84
0.83
0.61
0.61
0.52
0.51
(0.10)
(0.03)
(0.04)
(0.10)
(0.03)
(0.04)
S. SUBSEQUENT EVENTS
Subsequent events have been evaluated through our filing date of February 23, 2010.
On February 1, 2010, an approved stock grant was made for certain employees and independent directors which will grant
shares of common stock immediately upon the satisfaction of certain terms and conditions. We estimate that we will
recognize total expense of approximately $2.5 million over the next five years for this grant.
58
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 2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
42.32
47.78
37.50
29.98
Low
34.00
30.24
25.53
19.01
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
There were approximately 1,130 shareholders of record as of January 31, 2010.
In 2009, we paid dividends on our common stock of $0.060 per share in June and $0.200 per share in December. In 2008, we
paid dividends on our common stock of $0.060 per share in June and December. We intend to continue with our current semi-
annual dividend policy for the foreseeable future.
59
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 25, 2004, and reinvestment of dividends in all cases.
The companies included in our self-determined industry peer group are as follows:
Bluelinx Holdings Inc.
Builders FirstSource, Inc.
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.
60
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Directors and Executive Officers
William G. Currie
Chairman of the Board
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.
Bruce A. Merino
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
UFP Southern Division
Richard C. Frazier
President
UFP Western Division
Robert W. Lees
President
UFP Northern Division
Ronald G. Klyn
Chief Information Officer
Matthew J. Missad
Executive Vice President and Secretary
Joseph F. Granger
Executive Vice President of Sales and Marketing
Michael F. Mordell
Executive Vice President of Purchasing
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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 14, 2010, 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:
Arlington, TX
Ashburn, GA
Auburn, NY
Auburndale, FL
Bayamon, Puerto Rico
Belchertown, MA
Berlin, NJ
Blanchester, OH
Burleson, TX
Burlington, NC
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Clinton, NY
Conway, SC
Dallas, NC
Durango, Durango, Mexico
Eatonton, GA
Elizabeth City, NC
Emlenton, PA
Englewood, CO
Evans City, PA
Fontana, CA
Gordon, PA
Grandview, TX
Grand Rapids, MI
Granger, IN
Greene, ME
Haleyville, AL
Harrisonville, MO
Hastings, MN
Hillsboro, TX
Houston, TX
Hudson, NY
Independence, OR
Indianapolis, IN
Janesville, WI
Jefferson, GA
Lacolle, Quebec, Canada
Lafayette, CO
Lansing, MI
Liberty, NC
Lodi, OH
McMinnville, OR
Medley, FL
Minneota, MN
Morristown, TN
Moultrie, GA
Muscle Shoals, AL
New London, NC
New Waverly, TX
New Windsor, MD
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
Thornton, CA
Turlock, CA
Union City, GA
Warrens, WI
White Bear Lake, MN
Windsor, CO
Woodburn, OR
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