Report to Shareholders
2010
Dear Shareholders:
As it turns out, there is truth to the saying, “No pain, no gain.” These past few years taught us
lessons we won’t soon forget. And that’s our focus—on the gain, not the pain. We’re done hand-
wringing about challenging conditions and tired of looking back. The lessons of the past are
well-learned and ingrained; now, they’re a springboard to new and better success.
Yes, the economy will remain tough. Unemployment is high. Our markets have excess capacity.
Unrest in oil-producing nations likely will affect fuel prices. Many factors, and, increasingly,
China, may make the lumber market a challenging arena. Increasing legislative and regulatory
issues in some instances (like health care) will increase costs and will force companies like ours
to make choices.
That is today’s tough reality. So our response must be tougher. It must begin with a focus on our
customers, whom we must serve with integrity and for whom we will add value by diversifying
our product offering, remaining a low-cost producer, and creating relationships that encourage
mutual success. Our success will hinge on fostering an environment that encourages innovation
and that creates opportunity for our people; it will be enhanced by our ability to identify and
execute on suitable acquisition opportunities and on creating opportunity for new growth in our
existing facilities. If we do all of this well, we’ll create success and continually enhance our value
as a vendor, employer, business partner and investment.
We ended 2010 with our heads held high: We still can say we’ve never had a year in which we
didn’t make money. Our 2010 results included $1.9 billion in net sales (up 13 percent over
2009), $43.4 million in cash and $55.3 million in debt. We’re not satisfied—and that’s what’s
driving us: the opportunity for better profitability and success.
Following are some of the highlights of our performance in 2010:
DIY/retail
DIY/retail
DIY/retail
DIY/retail
In 2010, our gross sales to DIY customers totaled $814.2 million, up 1.4 percent over 2009.
While high unemployment and weak economic conditions continued to impede this market,
Universal saw gains from its focus on growing business with small, independent retailers, which
saw sales increase 17 percent in 2010, due to market share gains. Big boxes remain critical to
our strategy and success, but so does diversification. We’re growing our customer base and the
products we offer. And we’re excited by the early results. Our sales to big box customers in
2010 were 75 percent of DIY sales, down from nearly 79 percent in 2009.
We also embarked on exciting new opportunities, including the development of a revolutionary
polymer technology that we believe has great prospect for sales in DIY and in other markets we
serve. Our optimism for our DIY business is fueled by forecasts that this market will grow
modestly in 2011 and more robustly in subsequent years. We like where we stand, and we’re
continually evaluating ways we can continue to grow that business solidly and sustainably.
Industrial
Industrial
Industrial
Industrial
We grew our industrial business by 24.5 percent, to $595.4 million, in 2010 over 2009.
In this business, we manufacture and supply everything from specialty crates and packaging to
components for bed frames, and from forms for concrete construction to agricultural display
racks. It’s a solid avenue for many grades of lumber, including low-grade, as well as for downfall
from our other operations, and provides opportunities for us to enhance our efficiencies and
margins. Universal netted 245 new industrial customers in 2010, and grew business
significantly with some existing customers. Industrial customers are beginning to show up
regularly on our lists of top customers, as measured by sales.
Our industrial business allows us to highlight another measure of a company’s success: the
longevity of its people’s service. When we got into the industrial business, we tapped the
experience and leadership of one of our top executives: Doug Honholt. Doug took the reins,
created a team he dubbed ISAT (Industrial Sales Assault Team), and established what can best
be described as a movement that couldn’t be stopped. For the past 10 years, he has led and
grown our industrial business with enthusiasm and skill. Doug joined the company when he
took a summer job, right out of college, to keep track of the rail cars moving our product (hence,
the nickname he has had ever since: “Chooch”). In 2011, Doug marks 40 years at Universal, the
first manager to celebrate 40 years of full-time employment at the company. We’re honored
that many of our leaders have chosen to call Universal their professional home for decades. In
fact, the two of us celebrate 40 (Bill) and 37 (Mike) years with the company, respectively. Bill’s
40 years include the past few as the non-employee chairman of the board; only Doug has hit
the 40-year-employee milestone. And our company is better for having Doug on our team.
ii
built construction
SiteSiteSiteSite----built construction
built construction
built construction
In 2010, our site-built construction gross sales were $269.5 million, an increase of 9.1 percent
over 2009. The industry ended 2010 with 587,000 actual total housing starts, up 5.9 percent
over 2009. Universal’s performance in this market is the result of many efforts, from continued
right-sizing to the soundness of growth strategies, such as focusing on diversification and on
turnkey projects, and being selective about projects and customers in an effort to create
sustainable growth. In 2010, we shuttered four site-built operations. We believe and hope we’re
done with that unpleasant task and have restructured our organization to reflect our
opportunities, business and markets. In the Eastern United States, to enhance and streamline
our management and communications, all of our site-built operations now are part of one
management structure. Our focus remains on commercial, government and turnkey business,
and on projects and customers that offer long-term opportunity and growth potential.
Manufactured housing
Manufactured housing
Manufactured housing
Manufactured housing
We ended the year with manufactured housing gross sales of $243 million, up 32.2 percent
over 2009. The industry saw HUD-Code shipments of 50,000, up just 0.5% over 2009. Our
performance in this market is attributable, in part, to our strategy to grow our distribution
business and to acquisitions we made relative to that goal. Today, in addition to trusses, floor
systems and other components we manufacture (and for which we hold a commanding market
share), we supply customers with everything from plumbing and electrical supplies to adhesives
and shingle underlayment. The fact remains that manufactured housing has been hurt by the
housing debacle and continued lack of financing, and is a mere shadow of its heyday, when it
shipped 370,000 HUD-code homes annually. As a large player in a small and fragile market,
what we do has impact. That’s a responsibility we take seriously. We are working to keep our
customers and the market as strong as possible, and to help manufactured housing survive as
a viable low-cost housing option.
The Universal you see today is hungry to create the growth that defined the first five decades of
our existence: success that begets success because it’s built on real demand, knowledge,
strong relationships, smart business models and practices, and hard work. At Universal, we are
as concerned about growing sales and profitability as we are about the ways we go about doing
so. We appreciate and value the reliability and opportunities that come with relationships; we
are rewarded by unleashing the innovation and intelligence capital of our employees to make us
a better company; and we’re driven by some old-fashioned values and practices: hard work,
entrepreneurialism, and common-sense business decisions that aren’t attached to fleeting
trends.
iii
Today, we’re on a new road to success. It’s not going to be a ride for the faint-hearted, but we
like our road map, we’re confident in the driver’s seat and we’re on our way to success. Thanks
for being on the trip with us. You honor us with your interest and investment, and make the ride
worthwhile.
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..............................................................................................2
Management's Discussion and Analysis of Financial Condition
and Results of Operations .....................................................................................3
Management's Annual Report on Internal Control
Over Financial Reporting......................................................................................21
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting ......................................................22
Report of Independent Registered Public Accounting Firm
on Financial Statements ........................................................................................23
Consolidated Balance Sheets as of December 25, 2010
and December 26, 2009 ........................................................................................24
Consolidated Statements of Earnings for the Years Ended
December 25, 2010, December 26, 2009, and December 27, 2008 .....................25
Consolidated Statements of Shareholders' Equity for the Years Ended
December 25, 2010, December 26, 2009, and December 27, 2008 .....................26
Consolidated Statements of Cash Flows for the Years Ended
December 25, 2010, December 26, 2009, and December 27, 2008 .....................27
Notes to Consolidated Financial Statements..............................................................29
Price Range of Common Stock and Dividends..........................................................58
Stock Performance Graph ..........................................................................................59
Directors and Executive Officers...............................................................................60
Shareholder Information ............................................................................................61
SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)
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
2010
2009
2008
2007
2006
$1,890,851
229,955
27,041
$1,673,000
243,664
38,597
$2,232,394
254,201
7,146
$2,513,178
309,029
38,609
$2,664,572
381,682
112,135
17,411
$0.89
$0.400
24,272
$1.25
$0.260
4,343
$0.23
$0.120
21,045
$1.09
$0.115
70,125
$3.62
$0.110
19,476
19,468
19,225
19,362
19,370
Consolidated Balance Sheet Data
Working capital(1)
Total assets
Total debt and capital lease obligations
Shareholders' equity
Statistics
Gross profit as a percentage of
net sales
Net earnings attributable to controlling
interest as a percentage of net sales
Return on beginning equity(2)
Current ratio
Debt to equity ratio
Book value per common share(3)
$262,105
788,580
55,291
581,176
$248,165
776,868
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
12.2%
14.6%
11.4%
12.3%
14.3%
0.9%
3.1%
3.19
0.10
$30.06
1.5%
4.4%
3.06
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
(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 and other products for the manufactured housing industry, engineered wood components
for the site-built construction market, and specialty wood packaging and components and
packing materials for various industries. The Company’s subsidiaries also provide framing
services for the site-built market and forming products for concrete construction. 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. Its lawn and garden group
offers an array of products, such as trellises and arches, to retailers nationwide. The Company is
headquartered in Grand Rapids, Michigan, and its subsidiaries operate facilities throughout
North America. For more about Universal Forest Products, Inc., go to www.ufpi.com.
We advise you to read the issues discussed in 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 25, 2010. We also encourage you to read our Annual
Report on Form 10-K, filed with the United States Securities and Exchange Commission. That
report includes "Risk Factors" that you should consider in connection with any decision to buy or
sell our securities. We are pleased to present this overview of 2010.
Our results for 2010 were impacted by the following:
OVERVIEW
• Our overall unit sales increased 5% primarily due to our manufactured housing and industrial
markets. During 2010, we believe we gained additional share of the manufactured housing and
industrial markets and maintained our share of the DIY/retail market. Share gains in our
industrial market have been achieved by adding many new customers while share gains in
manufactured housing have been achieved by acquiring distribution operations. Finally, we
recently closed several plants that supply the site-built housing market in order to achieve
profitability and cash flow goals; consequently, we believe that these actions may temporarily
cause us to lose some market share.
• After unusual volatility in the second quarter of 2010, the Lumber Market stabilized and was
approximately 27% higher, on average, in 2010 compared to the same period of 2009.
Consequently, the Lumber Market had the effect of increasing our overall selling prices for
2010.
• The Leading Indicator for Remodeling Activity, released by Harvard’s Joint Center for
Housing Studies, estimated in its’ most recent report that consumer spending on homeowner
remodeling improvements increased 4% in 2010, which impacts our DIY/retail market.
• National housing starts increased approximately 6% in 2010 compared to 2009, while
production of HUD code manufactured homes were up 2% and production of modular homes
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increased by 12%. Housing starts and production of manufactured homes were positively
impacted in the first half of the year by certain government tax credits that have now expired.
• The industrial market has improved as the U.S. economy slowly recovers. More significantly,
we gained additional share of this market due, in part, to adding many new customers and
continuing to penetrate the concrete forming business.
• Our gross margin decreased to 12.2% in 2010 compared to 14.6% in 2009 primarily due to the
unusual Lumber Market volatility from January through the end of June of 2010. During this
period, prices increased 48% to a peak of $367/MBF in April and subsequently declined to
$247/MBF by the end of June. Since June, lumber prices stabilized for several months until
the end of 2010. In order to meet anticipated customer demand during the peak of the selling
season, our inventory purchases are generally very high from January through May, when
lumber prices happened to be at their highest level in 2010. The subsequent decline in lumber
prices resulted in a significant adverse impact on our gross margins from June through October
on products we purchase and produce for inventory to meet anticipated demand and whose
selling prices are indexed to the Lumber Market at the time they are shipped to the customer
(such as high-volume treated lumber).
• Our cash flow from operating activities was $29 million in 2010. Working capital increased
primarily due to higher inventory levels at the end of December as a result of our purchasing
strategy to buy inventory earlier at opportune times in order to protect margins on 2011
business, and higher receivables due to increasing sales.
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price for the years
ended December 25, 2010, December 26, 2009, and December 27, 2008.
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
Random Lengths Composite
Average $/MBF
2009
2010
2008
$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
$264
312
310
351
333
267
251
245
250
254
275
279
$283
27.5%
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.
Random Lengths SYP
Average $/MBF
2009
2010
2008
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
$269
331
337
382
374
293
264
249
252
249
262
260
$294
22.0%
$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
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.
(cid:1) 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
5
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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.
(cid:1) 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:
(cid:1) Products with significant inventory levels with low turnover rates, whose selling prices are
indexed to the Lumber Market. In other words, the longer the period of time these products
remain in inventory, the greater the exposure to changes in the price of lumber. This would
include treated lumber, which comprises approximately 16% of our total sales. This exposure
is less significant with remanufactured lumber, trusses sold to the manufactured housing
market, and other similar products, due to the higher rate of inventory turnover. We attempt to
mitigate the risk associated with treated lumber through vendor consignment inventory
programs. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed
with the United States Securities and Exchange Commission.)
(cid:1) 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
$400
50
450
50
$500
10.0%
$300
50
350
50
$400
12.5%
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 loss (gain) 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
Years Ended
December 25, 2010 December 26, 2009 December 27, 2008
100.0 %
88.6
11.4
100.0 %
85.4
14.6
100.0 %
87.8
12.2
10.5
0.1
1.6
0.2
1.4
0.4
1.1
(0.1)
12.0
(0.0)
2.6
0.3
2.3
0.8
1.5
(0.0)
10.2
0.3
0.9
0.5
0.4
0.1
0.3
(0.1)
0.9 %
1.5 %
0.2 %
Note: Actual percentages are calculated and may not sum to total due to rounding.
GROSS SALES
We design, manufacture and market wood and wood-alternative products for DIY/retail home
centers and other retailers, structural lumber and other products for the manufactured housing
industry, engineered wood components for the site-built construction market, and specialty wood
packaging and components and packing materials for various industries. Our strategic long-term
sales objectives include:
(cid:1) 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.
(cid:1) Expanding geographically in our core businesses.
7
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(cid:1) 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.
(cid:1) Developing new products and expanding our product offering for existing customers.
(cid:1) Maximizing unit sales growth while achieving return on investment goals.
The following table presents, for the periods indicated, our gross sales (in thousands) and
percentage change in gross sales by market classification.
Market Classification
DIY/Retail
Site-Built Construction
Industrial
Manufactured Housing
Total Gross Sales
Sales Allowances
Total Net Sales
December 25,
2010
$814,207
269,532
595,354
243,049
1,922,142
(31,291)
$1,890,851
%
Change
1.4
9.1
24.5
32.2
12.3
13.0
Years Ended
December 26,
2009
$803,269
247,144
478,137
183,815
1,712,365
(39,365)
$1,673,000
%
Change
(12.6)
(45.4)
(20.2)
(39.4)
(24.7)
(25.1)
December 27,
2008
$919,200
452,689
598,915
303,387
2,274,191
(41,797)
$2,232,394
The following table presents estimates, for the periods indicated, of our percentage change in
gross sales which were attributable to changes in overall selling prices versus changes in units
shipped.
2010 versus 2009 ...............................................
2009 versus 2008 ...............................................
2008 versus 2007 ...............................................
% Change
in Units
in Selling Prices
5%
7%
-19%
-6%
-9%
-2%
in Sales
12%
-25%
-11%
Gross sales in 2010 increased 12% compared to 2009 resulting from an estimated increase in unit
sales of approximately 5%, while overall selling prices increased by 7%. We estimate that our
unit sales increased 2% as a result of business acquisitions and new plants, increased 5% as a
result of existing operations, and declined 2% due to operations we recently closed. Our overall
selling prices increased as a result of the Lumber Market (see “Historical Lumber Prices”).
Gross sales in 2009 decreased 25% compared to 2008 resulting from an estimated decrease in
unit sales of approximately 19%, while overall selling prices decreased by 6%. We estimate that
our unit sales increased 1% as a result of business acquisitions and new plants, while our unit
sales from existing and closed operations decreased by 20% due to a decline in market demand.
8
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Our overall selling prices fluctuated as a result of the Lumber Market and were negatively
impacted by pricing pressure in the site-built construction market.
Changes in our sales by market are discussed below.
DIY/Retail:
Gross sales to the DIY/retail market increased 1% in 2010 compared to 2009 primarily due to an
estimated 5% increase in overall selling prices due to the Lumber Market, offset by an estimated
4% decrease in overall unit sales. Unit sales declined due to a decrease in consumer spending
which is evidenced by a drop in same store sales reported by our “big box” customers.
Gross sales to the DIY/retail market decreased 13% in 2009 compared to 2008 primarily due to
an estimated 7% decrease in overall unit sales and an estimated 6% decrease in overall selling
prices due to the Lumber Market. We estimate that our unit sales increased 1% as a result of
acquisitions, while unit sales from existing and closed facilities decreased 8%. Unit sales
declined due to the impact of the housing market on our retail customers whose business is
closely correlated with single-family housing starts and a decline in consumer spending as
evidenced by declines in same store sales reported by our “big box” customers. We believe that
we achieved market share gains in 2009, which offset some of the impact of these adverse
market conditions.
Site-Built Construction:
Gross sales to the site-built construction market increased 9% in 2010 compared to 2009, due to
an estimated 3% increase in unit sales and an estimated 6% increase in selling prices primarily
due to the Lumber Market. We estimate that our unit sales increased 2% as a result of business
acquisitions and new plants, increased 12% as a result of existing operations, and declined 11%
due to operations we recently closed. We have taken several recent plant closure actions in order
to achieve profitability and cash flow objectives, which may temporarily result in a loss of
market share. National housing starts increased approximately 6% for 2010 compared to the
same period of 2009.
Gross sales to the site-built construction market decreased 45% in 2009 compared to 2008, due
to an estimated 37% decrease in unit sales and an estimated 8% decrease in selling prices.
National housing starts were off a reported 39% for 2009 compared to the same period of 2008.
Industrial:
Gross sales to the industrial market increased 25% in 2010 compared to the same period of 2009,
due to an estimated 17% increase in unit sales and an estimated 8% increase in selling prices.
The industrial market has improved as the U.S. economy continues to recover, but more
significantly, we have been able to continue to gain market share due, in part, to adding many
new customers and our continued penetration of the concrete forming market.
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Gross sales to the industrial market decreased 20% in 2009 compared to the same period of
2008, due to an estimated 14% decrease in unit sales and an estimated 6% decrease in selling
prices. We experienced a decline in sales to our customers that supply the housing market or
have been impacted by the weakening U.S. economy. We were able to offset some of the impact
of a decline in demand with market share gains and our continued penetration of the concrete
forming market.
Manufactured Housing:
Gross sales to the manufactured housing market increased 32% in 2010 compared to the same
period of 2009 primarily due to an estimated 17% increase in selling prices due to the Lumber
Market and an estimated 15% increase in unit sales. The increase in unit sales was comprised of
an estimated 6% increase out of existing plants and an estimated 10% increase due to
acquisitions, offset by a 1% decline due to operations we recently closed. Shipments of HUD
code manufactured homes were up 2% for 2010 compared to 2009. Industry production of
modular homes increased 12% for the year.
Gross sales to the manufactured housing market decreased 39% in 2009 compared to the same
period of 2008 primarily due to a decline in unit sales as a result of weak demand. Industry
production of HUD code homes was off a reported 39% for 2009 compared to the same period of
2008. Modular home production was down an estimated 44% in 2009.
Value-Added and Commodity-Based Sales:
The following table presents, for the periods indicated, our percentage of value-added and
commodity-based sales to total sales. Value-added products generally carry higher gross
margins than our commodity-based products.
2010 .....................................................
2009 .....................................................
2008 .....................................................
58.6%
59.4%
60.4%
41.4%
40.6%
39.6%
Value-Added Commodity-Based
COST OF GOODS SOLD AND GROSS PROFIT
Our gross profit percentage decreased to 12.2% in 2010 from 14.6% in 2009. In addition, our
gross profit dollars decreased by 5.6%, which compares unfavorably with our 5% increase in unit
sales. The decrease was primarily due to unusual Lumber Market volatility from January
through the end of June of 2010. During this period, prices increased 48% to a peak of
$367/MBF in April and subsequently declined to $247/MBF by the end of June. Since
June, lumber prices stabilized for several months until the end of 2010. In order to meet
anticipated customer demand during the peak of the selling season, our inventory
purchases are generally very high from January through May, when lumber prices
happened to be at their highest level in 2010. The subsequent decline in lumber prices
resulted in a significant adverse impact on our gross margins from June through October
10
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
on products we purchase and produce for inventory to meet anticipated demand and
whose selling prices are indexed to the Lumber Market at the time they are shipped to the
customer (such as high-volume treated lumber). (See “Impact of the Lumber Market on Our
Operating Results”.) Additionally, we achieved lower labor and overhead costs as a percentage
of sales this year due to efficiency gains, which offset some the decline in gross margin
discussed above.
Our gross profit percentage increased to 14.6% in 2009 from 11.4% in 2008. Our gross profit
dollars decreased by only 4.1%, which compares favorably with our 19% decrease in unit sales.
Our improved gross margin was primarily due to cost reductions consisting of:
(cid:1) An improvement in material costs as a percentage of net sales as a result of better buying and
inventory management to protect margins.
(cid:1) An improvement in labor and plant overhead as a percentage of net sales due to plant
consolidation and right-sizing efforts previously taken.
(cid:1) Lower freight costs due to fuel prices.
In addition, the lower level of the Lumber Market caused our gross margin to increase. (See
“Impact of the Lumber Market on Our Operating Results”.)
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses decreased by approximately $3.3
million, or 1.7%, in 2010 compared to 2009, while we reported a 5% increase in unit sales. New
operations added $4.8 million of expenses, operations we closed decreased expenses by $21.4
million, and existing operations increased expenses by $13.3 million. The increase in SG&A
expenses at our existing operations was primarily due to increases in wages and other
compensation related costs, variable selling costs, and accrued expense associated with an officer
retirement plan. These increases were partially offset by decreases in bad debt expense and
accrued bonus expense. Our SG&A expenses decreased as a percentage of sales primarily due to
the factors above. The higher level of the Lumber Market also contributed to the improvement
in this ratio.
Selling, general and administrative ("SG&A") expenses decreased by approximately $27.6
million, or 12.1%, in 2009 compared to 2008, while we reported a 19% decrease in unit sales.
New operations added $0.6 million of expenses, operations we closed decreased expenses by
$15.5 million, and existing operations reduced expenses by $12.7 million. The decrease in
SG&A expenses at our existing operations was primarily due to a decline in wages and related
costs due to a reduction in headcount and a decline in many other account categories as a result
of efforts to control costs. These decreases were partially offset by an increase in accrued bonus
and bad debt expense. Our SG&A expenses increased as a percentage of sales primarily due to
the lower level of the Lumber Market, accrued bonus, and bad debt expense.
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND
EXIT CHARGES
We incurred $2.0 million, $4.1 million and $7.7 million of charges in 2010, 2009 and 2008,
respectively, relating to asset impairments and other costs associated with idled facilities and
down-sizing efforts. These costs were offset by gains on the sale of certain real estate totaling
$4.2 million and $0.5 million in 2009 and 2008, respectively. See Notes to Consolidated
Financial Statements, Note D “Assets Held for Sale and Net Loss (Gain) on Disposition of
Assets and Other Impairment and Exit Charges.”
We regularly review the performance of each of our operations and make decisions to
permanently or temporarily close operations based on a variety of factors including:
• Current and projected earnings, cash flow and return on investment
• Current and projected market demand
• Market share
• Competitive factors
• Future growth opportunities
• Personnel and management
We currently have 6 operations which are experiencing operating losses and negative cash flow
for 2010. The net book value of the long-lived assets of these operations, which could be subject
to an impairment charge in the future in the event a closure action is taken, was $1.7 million at
the end of 2010. In addition, these operations had future fixed operating lease payments totaling
$0.2 million at the end of 2010.
INSURANCE PROCEEDS
In May, 2008 our plant in Windsor, CO was hit by a tornado. In accordance with Accounting
Standards Codification (“ASC”) 605, Accounting for Involuntary Conversions of Non-Monetary
Assets to Monetary Assets, we have written off the net book value of the destroyed inventory and
property totaling $0.7 million. The insured value of the property exceeded its net book value,
which was recorded as a gain in 2008. In 2008, we collected $0.8 million of the insurance
receivable and in 2009 we collected $1.0 million. As of December 26, 2009, there was no
remaining insurance receivable.
INTEREST, NET
Net interest costs decreased $1.0 million in 2010 compared to 2009 primarily due to lower debt
balances throughout 2010 and payments to reduce long-term debt during 2009, which carried
higher rates of interest.
Net interest costs were lower in 2009 compared to 2008 due to lower debt balances combined
with a decrease in short-term interest rates upon which our variable rate debt is based.
12
UNIVERSAL FOREST PRODUCTS, INC.
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 decreased to
26.6% in 2010 compared to 35.9% in 2009. This decrease is primarily due to removing a
valuation allowance against a deferred tax asset for one of our wholly-owned subsidiaries. Our
effective tax rate differs from the federal statutory rate primarily due to estimated state and local
income taxes and certain permanent tax differences. See Notes to Consolidated Financial
Statements, Note L, “Income Taxes”.
Our effective tax rate increased to 35.9% in 2009 compared to 23.6% in 2008. Our pre-earnings
increased substantially in 2009 and the research and development tax credit and certain state
income tax credits represented a lower percentage of pre-tax earnings in 2009 than they did in
2008.
OFF-BALANCE SHEET TRANSACTIONS AND CONTRACTUAL OBLIGATIONS
We have no significant off-balance sheet transactions other than operating leases. The following
table summarizes our contractual obligations as of December 25, 2010 (in thousands).
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
$712
2,546
7,276
1,977
$12,511
Payments Due by Period
3 – 5
Years
1 – 3
Years
After
5 Years
$42,379
2,610
5,984
$12,200
536
727
$129
2,624
$50,973
$2,753
$13,463
Total
$55,291
5,821
16,611
1,977
$79,700
As of December 25, 2010, we also had $31.3 million in outstanding letters of credit issued
during the normal course of business, as required by some vendor contracts.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in
thousands):
December 25,
December 26,
December 27,
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
2009
$126,874
(3,329)
(56,135)
67,410
0
$67,410
2008
$75,214
(11,367)
(107,452)
(43,605)
43,605
$0
2010
$29,337
(42,773)
(10,611)
(24,047)
67,410
$43,363
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In general, we financed our growth in the past through a combination of operating cash flows,
our revolving credit facility, industrial development bonds (when circumstances permit), and
issuances of long-term notes payable at times when interest rates are favorable. We have not
issued equity to finance growth except in the case of a large acquisition. We manage our capital
structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before
interest, taxes, depreciation and amortization. We believe this is one of many important factors
to maintaining a strong credit profile, which in turn helps ensure timely access to capital when
needed. We are currently below our internal targets but plan to manage our capital structure
conservatively in light of current economic conditions.
Seasonality has a significant impact on our working capital from March to August which
historically resulted in negative or modest cash flows from operations in our first and second
quarters. Conversely, we experience a substantial decrease in working capital from September to
February which typically results in significant cash flow from operations in our third and fourth
quarters.
Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash
cycle (days sales outstanding plus days supply of inventory less days payables outstanding) is a
good indicator of our working capital management. Our cash cycle remained flat at 45 days in
2010 and 2009 due to a one day decrease in our receivables cycle offset by a one day decrease in
our payables cycle.
Cash provided by operating activities was approximately $29.3 million in 2010, which was
comprised of net earnings of $17.4 million and $40.5 million of non-cash expenses, offset by a
$28.6 million increase in working capital since the end of 2009. Working capital increased
primarily due to higher inventory levels at the end of December as a result of our purchasing
strategy to buy inventory earlier at opportune times in order to protect margins on 2011 business,
and higher receivables due to increasing sales.
Capital expenditures were $27.0 million in 2010 and we have outstanding purchase
commitments on existing capital projects totaling approximately $2.0 million on December 25,
2010. We intend to fund capital expenditures and purchase commitments through our operating
cash flows.
Cash flows used in investing activities also include $6.5 million spent to acquire assets of certain
operations that distribute a wide range of products to the manufactured housing industry. (See
Notes to Consolidated Financial Statements, Note C, “Business Combinations”.) In addition, we
purchased certain technology and intangible assets to produce new products for approximately
$4.6 million. Finally, we advanced $5.8 million of notes receivable to finance certain
construction projects that we believe will result in future sales of engineered wood components
and framing services.
Cash flows used in financing activities included $7.7 million for dividends. Our Board of
Directors approved two semi-annual dividends of $0.20 per share each, which were paid in June
and December of 2010. In addition, we spent approximately $5.0 million for repurchases of our
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
common stock. On October 14, 2010, our Board authorized an additional 2 million shares to be
repurchased under our share repurchase program. The total number of shares that may be
repurchased under this program is almost 3 million shares. Our practice has been to repurchase
an appropriate number of shares each year to offset share issuances occurring under certain of
our employee benefit plans, and to purchase additional shares at times when the price is at a pre-
determined level.
On December 25, 2010, we had $2.1 million outstanding on our $300 million revolving credit
facility, which matures in February of 2012. The revolving credit facility supports letters of
credit totaling approximately $31.3 million on December 25, 2010. Financial covenants on the
unsecured revolving credit facility and unsecured notes include a minimum net worth
requirement, minimum interest and fixed charge coverage tests, and a maximum leverage ratio.
The agreements also restrict the amount of additional indebtedness we may incur and the amount
of assets which may be sold. We were within all of our lending requirements on December 25,
2010.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Consolidated Financial Statements, Note N, “Commitments, Contingencies, and
Guarantees”.
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting principles generally
accepted in the United States. These principles require us to make certain estimates and apply
judgments that affect our financial position and results of operations. We continually review our
accounting policies and financial information disclosures. Following is a summary of our more
significant accounting policies that require the use of estimates and judgments in preparing the
financial statements.
ACCOUNTS RECEIVABLE ALLOWANCES
We record provisions against gross revenues for estimated returns and cash discounts in the
period when the related revenue is recorded. These estimates are based on factors that include,
but are not limited to, historical discounts taken, analysis of credit memorandum activity, and
customer demand. We also evaluate the allowance for uncollectible accounts receivable and
discounts based on historical collection experience and specific identification of other potential
problems, including the economic climate. Actual collections can differ, requiring adjustments
to the allowances.
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,
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
property, workers' compensation, and certain environmental liabilities are managed through a
wholly-owned insurance captive; the related assets and liabilities of which are included in the
consolidated financial statements as of December 25, 2010. Our accounting policies with respect
to the reserves are as follows:
(cid:1) General liability, automobile, workers' compensation reserves are accrued based on third party
actuarial valuations of the expected future liabilities.
(cid:1) 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.
(cid:1) The environmental reserve is based on known remediation activities at certain wood
preservation facilities and the potential for undetected environmental matters at other sites.
The reserve for known activities is based on expected future costs and is computed by in-
house experts responsible for managing our monitoring and remediation activities.
REVENUE RECOGNITION
Earnings on construction contracts are reflected in operations using either percentage-of-
completion accounting, which includes the cost to cost and units of delivery methods, or
completed contract accounting, depending on the nature of the business at individual operations.
Under percentage-of-completion using the cost to cost method, revenues and related earnings on
construction contracts are measured by the relationships of actual costs incurred related to the
total estimated costs. Under percentage-of-completion using the units of delivery method,
revenues and related earnings on construction contracts are measured by the relationships of
actual units produced related to the total number of units. Revisions in earnings estimates on the
construction contracts are recorded in the accounting period in which the basis for such revisions
becomes known. Projected losses on individual contracts are charged to operations in their
entirety when such losses become apparent. Under the completed contract method, revenues and
related earnings are recorded when the contracted work is complete and losses are charged to
operations in their entirety when such losses become apparent.
LONG-LIVED ASSETS AND GOODWILL
We evaluate long-lived assets for indicators of impairment when events or circumstances
indicate that this risk may be present. Our judgments regarding the existence of impairment are
based on market conditions, operational performance and estimated future cash flows. If the
carrying value of a long-lived asset is considered impaired, an impairment charge is recorded to
adjust the asset to its fair value. Changes in forecasted operations and changes in discounted
rates can materially affect these estimates. In addition, we test goodwill annually for impairment
by utilizing the discounted cash flow method.
16
UNIVERSAL FOREST PRODUCTS, INC.
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”
Our four-year growth plan entitled “Route 2012,” included goals to be achieved by the end of
our fiscal year 2012 including:
• Increase sales to $3 billion as our markets recover from the current downturn and by
increasing our market share and expanding our product lines.
• Improve productivity by 15% through our Continuous Improvement initiative.
• Improve profitability by three hundred basis points through productivity improvements, cost
reductions, and growth.
• Improve receivables cycles in our industrial, site-built and manufactured housing markets by
10% by reducing the amount of our receivables that are paid past the agreed upon due date.
• Improve inventory turnover by 10%.
The pace of the economic recovery and in particular, the recovery of the housing market, has
been much slower than we or industry analysts anticipated. As a result, this has significantly
impacted our ability to achieve certain goals above. Therefore, we have lengthened our timeline
for achieving these goals until the end of 2014 in order to provide additional time for the
anticipated economic recovery and recovery in housing to take hold.
In the first half of 2010, our sales to the site-built construction and manufactured housing
markets were favorably impacted by government tax credits for housing which have now
expired.
DIY/RETAIL MARKET
Harvard’s Joint Center for Housing Studies projects home improvement spending to show
healthy gains in 2011, reflecting favorable interest rates, increasing home sales and the
strengthening economy. Conversely, the Home Improvement Research Institute (“HIRI”)
anticipates a continued delay in the recovery of home improvement spending and has forecasted
a 1.6% growth rate in 2011. HIRI’s long-term forecast is for spending to grow between 5.5%
and 7.0% from 2012 to 2015.
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In 2011, we believe we will maintain our overall market share with “big box” home
improvement and other retailers. We believe our product mix will change to include more sales
of preservative-treated products, offset by a decline in sales of composite decking.
On a long-term basis, it is our goal to achieve sales growth by:
• Increasing our market share of value-added wood products and preservative-treated products
as a result of our national presence, service capabilities that meet stringent customer
requirements, diversified product offering, and purchasing leverage.
• Increasing our sales of wood alternative products, which may take market share from
preservative-treated products. Although we expect this trend to continue to some extent, we
believe wood products will continue to maintain a dominant market share for the foreseeable
future as a result of its cost advantages over wood alternative products.
• Increasing our market penetration of products distributed by our Consumer Products Division,
including decorative balusters, accessories, and post caps, plastic lattice, and other proprietary
plastic products which have greatly enhanced our deck and fencing product lines.
• Developing new value-added products and services for this market.
• Adding new products or new markets through strategic business acquisitions.
SITE-BUILT CONSTRUCTION MARKET
The Mortgage Bankers Association of America forecasts a 9% increase in national housing starts
to an estimated 647,000 starts in 2011. The National Association of Home Builders forecasts
starts of 708,000, a 20% increase from 2010. In 2011, we believe we are well-positioned to
capture our share of an increase that may occur in housing starts. However, due to recent plant
closures to achieve profitability targets our growth may trail the market in 2011.
On a long-term basis, we anticipate growth in our sales to the site-built construction market as
market conditions improve and as a result of market share gains as weaker competitors exit the
market. In addition, it is our goal to improve our diversification of sales to this market by
increasing our sales to the multi-family, light commercial, military and customer home building
markets.
MANUFACTURED HOUSING MARKET
The National Association of Home Builders forecasts a 26% increase in manufactured home
shipments in 2011. It is our goal to maintain our current market share of trusses produced for the
HUD code market. On a long-term basis, we believe the HUD code market will regain a greater
share of the single-family market as credit conditions normalize and as consumers seek more
affordable housing alternatives.
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
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
trusses produced for the modular market as a result of our strong relationships with modular
builders, design services and proprietary products. On a long-term basis, we anticipate modular
housing will gain additional share of the single-family market as a result of more developers
adopting the controlled building environment of modular construction as a method of cost
control.
In addition, on a long-term basis, it is our goal to continue to expand our product offering to
manufactured housing customers. We may continue to use strategic business acquisitions to help
us achieve this goal.
INDUSTRIAL MARKET
One of our key strategic objectives is to increase our sales of wood packaging products to
industrial users. We believe the vast amount of hardwood and softwood lumber consumed for
industrial applications, combined with the highly fragmented nature of this market provides us
with significant market share growth opportunities as a result of our competitive cost advantages
in manufacturing, purchasing, and material utilization. To take advantage of these opportunities,
we plan to continue to obtain market share through an internal growth strategy utilizing our
current manufacturing capabilities and dedicated industrial sales force. On a long-term basis, we
plan to evaluate strategic acquisition opportunities and continue to gain market share with
concrete forming customers, and expand our product offering to customers.
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2011:
• Our ability to maintain sales and gross margins on products sold to our largest customers. We
believe our level of service, geographic diversity, and quality of products provides an added
value to our customers. However, if our customers are unwilling to pay for these advantages,
our sales and gross margins may be reduced.
• Through at least the first half of 2011 we expect to continue to experience soft demand in each
of our markets, which, in turn, may impact our sales prices, capacity utilization, and
profitability. In the first half of 2010, our sales to site-built and manufactured housing
customers were favorably impacted by government tax credits for housing which have now
expired.
• Fluctuations in the relative level of the Lumber Market and the trend in the market place of
lumber. (See "Impact of the Lumber Market on our Operating Results.")
• Fuel and transportation cost trends.
• Our ability to continue to achieve productivity improvements and planned cost reductions
through our Continuous Improvement and other initiatives.
19
UNIVERSAL FOREST PRODUCTS, INC.
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 2011. In addition, bonus expense for all salaried employees is
based on operating profits and return on investment and will continue to fluctuate based on our
operating results.
On a long-term basis, we expect that our SG&A expenses will primarily be impacted by:
(cid:1) 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.
(cid:1) Our incentive compensation program which is tied to pre-bonus operating profits and return on
investment.
(cid:1) Our growth and success in achieving Continuous Improvement objectives.
LIQUIDITY AND CAPITAL RESOURCES
Our cash cycle will continue to be impacted in the future based on our mix of sales by market.
Sales to the site-built construction and industrial markets require a greater investment in working
capital (inventory and accounts receivable) than our sales to the DIY/retail and manufactured
housing markets.
Management expects to spend $30 to $35 million on capital expenditures in 2011 and incur
depreciation of approximately $30 million and amortization of intangible assets of approximately
$5 million. On December 25, 2010, we had outstanding purchase commitments on capital
projects of approximately $2.0 million. We intend to fund capital expenditures and purchase
commitments through our operating cash flows and cash.
We have no present intention to change our dividend policy, which is currently $0.20 per share
paid semi-annually.
Our Board of Directors has approved a share repurchase program, and as of December 25, 2010,
we have authorization to buy back approximately 3.0 million shares. In the past, we have
repurchased shares in order to offset the effect of issuances resulting from our employee benefit
plans and at times when our stock price falls to a pre-determined level.
We are also obligated to pay amounts due on long-term debt totaling approximately $0.7 million
in 2011.
20
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 25,
2010, and management has concluded that as of December 25, 2010, our internal control over
financial reporting was effective.
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 22, 2011
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 25, 2010, 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 25, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Universal Forest Products, Inc. and subsidiaries as of
December 25, 2010 and December 26, 2009 and the related consolidated statements of income, shareholder’s
equity, and cash flows for each of the three fiscal years in the period ended December 25, 2010 and our report
dated February 22, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 22, 2011
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 25, 2010 and December 26, 2009, and the related
consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three
fiscal years in the period ended December 25, 2010. These financial statements are the
responsibility of 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 25, 2010 and December 26, 2009, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended December 25, 2010, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Universal Forest Products, Inc. and subsidiaries’ internal
control over financial reporting as of December 25, 2010, based on criteria established in Internal
Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 22, 2011 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 22, 2011
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
Inventory
Assets held for sale
Other current assets
Refundable income taxes
Deferred income taxes
TOTAL CURRENT ASSETS
OTHER ASSETS
GOODWILL
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
PROPERTY, PLANT AND EQUIPMENT, GROSS
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, 19,333,122 and 19,284,587
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings
Employee stock notes receivable
Total controlling interest shareholders' equity
Noncontrolling interest
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
See notes to consolidated financial statements.
24
December 25,
2010
December 26,
2009
$ 43,363
126,780
$ 67,410
107,383
113,049
77,341
190,390
2,446
9,742
9,278
381,999
11,455
154,702
2,340
15,933
105,857
162,995
245,764
3,177
517,793
(295,642)
222,151
$788,580
89,956
72,192
162,148
13,528
10,391
7,680
368,540
4,478
154,718
2,340
16,693
107,115
161,861
240,904
894
510,774
(280,675)
230,099
$776,868
$ 59,481
$ 49,664
43,909
15,792
712
119,894
54,579
20,631
12,300
207,404
$ 19,333
138,573
414,108
4,165
(1,670)
574,509
6,667
581,176
$788,580
48,340
21,698
673
120,375
53,181
21,707
12,659
207,922
$ 19,285
132,765
409,278
3,633
(1,743)
563,218
5,728
568,946
$776,868
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
December 25,
2010
Year Ended
December 26,
December 27,
2009
2008
NET SALES
$1,890,851
$1,673,000
$2,232,394
COST OF GOODS SOLD
1,660,896
1,429,336
1,978,193
GROSS PROFIT
229,955
243,664
254,201
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER
197,617
200,939
228,557
IMPAIRMENT AND EXIT CHARGES
2,049
(92)
7,239
EARNINGS FROM OPERATIONS
30,289
42,817
18,405
12,088
(829)
11,259
7,146
1,686
5,460
INTEREST EXPENSE
INTEREST INCOME
NON-OPERATING EXPENSE
3,549
(301)
3,248
4,611
(391)
4,220
EARNINGS BEFORE INCOME TAXES
27,041
38,597
INCOME TAXES
NET EARNINGS
LESS NET EARNINGS ATTRIBUTABLE TO
NONCONTROLLING INTEREST
NET EARNINGS ATTRIBUTABLE TO
CONTROLLING INTEREST
7,200
13,852
19,841
24,745
(2,430)
(473)
(1,117)
$ 17,411
$ 24,272
$ 4,343
EARNINGS PER SHARE - BASIC
$ 0.91
$ 1.26
$ 0.23
EARNINGS PER SHARE - DILUTED
$ 0.89
$ 1.25
$ 0.23
WEIGHTED AVERAGE SHARES OUTSTANDING
19,232
19,256
19,074
WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS
See notes to consolidated financial statements.
19,476
19,468
19,225
25
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
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
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
Controlling Interest Shareholders' Equity
Accumulat-
ed Other
Comprehen-
sive
Earnings
$
4,704
Additional
Paid-In
Capital
123,368
Retained
Earnings
$
391,253
$
Common
Stock
$
18,908
Employees
Stock Notes
Receivable
$
(1,565)
Noncontrolling
Interest
$
10,376
$
Total
547,044
4,343
(2,351)
(2,284)
1,117
(1,071)
419
(844)
(3,654)
(237)
101
(1,701)
$
6,343
$
473
85
14
(917)
(270)
175
3,030
4
15
100
(15)
(20)
(622)
878
1,136
725
230
7
$
19,089
$
128,830
$
393,312
$
2,353
$
24,272
1,280
130
80
74
(90)
(2)
(853)
2,290
29
(74)
(33)
730
(518)
1,597
646
(5,017)
(3,289)
25
2,038
419
(844)
(3,654)
(2,284)
3,205
104
-
(642)
878
1,136
725
-
101
548,226
26,110
14
(1,770)
(270)
(5,017)
2,420
109
-
(3,379)
(35)
730
(518)
1,597
646
notes receivable
Payments received on employee
stock notes receivable
Balance at December 26, 2009
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 - $0.400 per share
Issuance of 111,258 shares under
employee stock plans
Issuance of 73,857 shares under
stock grant programs
Issuance of 9,046 shares under
deferred compensation plans
Repurchase of 144,900 shares
Tax benefits from non-qualified
stock options exercised
Expense associated with
share-based compensation
arrangements
Accrued expense under
deferred compensation plans
Issuance of 1,298 shares in
exchange for employee stock
notes receivable
Note receivable adjustment
Payments received on employee
stock notes receivable
4
121
$
19,285
$
132,765
$
409,278
$
3,633
$
(125)
83
(1,743)
-
83
568,946
$
5,728
$
17,411
532
111
74
9
(145)
(7,727)
(4,854)
(295)
2,222
140
(9)
598
2,418
776
1
(2)
49
(91)
2,430
235
450
(932)
(1,244)
20,608
450
(1,227)
(1,244)
(7,727)
2,333
214
-
(4,999)
598
2,418
776
-
(51)
$
6,667
$
81
581,176
(50)
42
81
(1,670)
Balance at December 25, 2010
See notes to consolidated financial statements.
$
19,333
$
138,573
$
414,108
$
4,165
$
26
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 attributable to controlling interest
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 insurance settlement
Net loss (gain) 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 property, plant and equipment
Purchase of product technology and non-compete agreement
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 25, December 26,
2010
2009
December 27,
2008
$
17,411
$
24,272
$
4,343
30,429
6,919
2,418
(430)
214
(2,708)
2,430
1,239
(18,428)
(24,946)
9,646
5,143
29,337
(26,950)
(6,529)
835
(4,589)
(5,780)
227
13
(42,773)
2,109
(744)
2,333
(1,227)
(1,244)
450
(7,727)
(4,999)
430
8
(10,611)
(24,047)
67,410
32,917
8,308
1,597
(603)
109
4,744
473
(773)
31,071
31,522
(862)
(5,901)
126,874
(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)
67,410
-
37,570
9,797
1,136
(171)
104
(7,747)
1,117
(598)
7,062
4,287
42,922
(33,490)
8,882
75,214
(18,944)
(23,338)
30,367
(997)
556
800
189
(11,367)
(24,148)
(80,824)
2,957
(3,654)
419
(2,284)
171
(89)
(107,452)
(43,605)
43,605
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
43,363
$
67,410
$
-
27
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 INVESTING ACTIVITIES:
Stock acquired through employees' stock notes receivable
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans
See notes to consolidated financial statements
Year Ended
December 25, December 26,
2010
2009
December 27,
2008
$
3,554
(1,698)
$
4,905
12,346
$
12,418
(8)
50
306
125
338
237
443
28
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
We design, manufacture and market wood and wood-alternative products for DIY/retail
home centers and other retailers, structural lumber and other products for the
manufactured housing industry, engineered wood components for the site-built
construction market, and specialty wood packaging and components and packing
materials for various industries. Our principal products include preservative-treated
wood, remanufactured lumber, lattice, fence panels, deck components, specialty
packaging, engineered trusses, wall panels, and other building products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include our accounts and those of our wholly-
owned and majority-owned subsidiaries and partnerships. In addition, we consolidate
50% owned entities over which we exercise control. Intercompany transactions and
balances have been eliminated.
NONCONTROLLING INTEREST IN SUBSIDIARIES
Noncontrolling interest in results of operations of consolidated subsidiaries represents the
noncontrolling shareholders' share of the income or loss of various consolidated
subsidiaries. The noncontrolling interest reflects the original investment by these
noncontrolling shareholders combined with their proportional share of the earnings or
losses of these subsidiaries, net of distributions paid.
FISCAL YEAR
Our fiscal year is a 52 or 53 week period, ending on the last Saturday of December.
Unless otherwise stated, references to 2010, 2009, and 2008 relate to the fiscal years
ended December 25, 2010, December 26, 2009, and December 27, 2008, respectively.
Fiscal years 2010, 2009, and 2008 were comprised of 52 weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined in accordance
with ASC 825, Financial Instruments. Significant differences in the fair market value
and recorded value of our debt is disclosed in Note F. The fair values of all other
financial instruments approximate their carrying values. The estimated fair value
amounts have been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that we could realize in a current
29
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
market exchange.
methodologies may have a material effect on the estimated fair value amounts.
The use of different market assumptions and/or estimation
The fair value estimates presented herein are based on pertinent information available to
management as of December 25, 2010. Although we are not aware of any factors that
would significantly affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from the amounts presented
herein.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly-liquid investments purchased with
an original maturity of three months or less. Cash equivalents totaled approximately
$44.1 million and $44.9 million as of December 25, 2010 and December 26, 2009,
respectively.
ACCOUNTS RECEIVABLE
We perform periodic credit evaluations of our customers and generally do not require
collateral. Accounts receivable are due under a range of terms we offer to our customers.
Discounts are offered, in most instances, as an incentive for early payment.
ACCOUNTS RECEIVABLE ALLOWANCES
We base our allowances related to receivables on historical credit and collections
experience, and the specific identification of other potential problems, including the
general economic climate. Actual collections can differ, requiring adjustments to the
allowances. Individual accounts receivable balances are evaluated on a monthly basis,
and those balances considered uncollectible are charged to the allowance. Collections of
amounts previously written off are recorded as an increase to the allowance.
30
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the activity in our accounts receivable allowances (in
thousands):
Additions
Charged to
Beginning Costs and
Balance
Expenses Deductions* Collections
Ending
Balance
Year Ended December 25, 2010:
Allowance for possible losses
on accounts receivable........................ $2,897
Year Ended December 26, 2009:
Allowance for possible losses
on accounts receivable........................ $2,440
Year Ended December 27, 2008:
Allowance for possible losses
on accounts receivable........................ $2,403
$12,412
($15,253)
$2,555
$2,611
$23,984
($24,600)
$1,073
$2,897
$24,734
($25,453)
$756
$2,440
* Includes accounts charged off, discounts given to customers and actual customer returns and allowances.
We record estimated sales returns, discounts, and other applicable adjustments as a
reduction of net sales in the same period revenue is recognized.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of inventories includes raw
materials, direct labor, and manufacturing overhead. Cost is determined on a weighted
average basis. Raw materials consist primarily of unfinished wood products expected to
be manufactured or treated prior to sale, while finished goods represent various
manufactured and treated wood products ready for sale.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures for renewals and
betterments are capitalized, and maintenance and repairs are expensed as incurred.
Amortization of assets held under capital leases is included in depreciation and amortized
over the shorter of the estimated useful life of the asset or the lease term. Depreciation is
computed principally by the straight-line method over the estimated useful lives of the
assets as follows:
Land improvements ............................................................... 5 to 15 years
Buildings and improvements .............................................15 to 31.5 years
Machinery, equipment and office furniture ........................... 3 to 10 years
31
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 25, 2010 and
December 26, 2009. Our policy is to accrue amounts equal to actuarially determined or
internally computed liabilities. The actuarial and internal valuations are based on
historical information along with certain assumptions about future events. Changes in
assumptions for such matters as legal actions, medical cost trends, and changes in claims
experience could cause these estimates to change in the future.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between the
financial statement and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates. Valuation allowances are
established when necessary to reduce deferred income tax assets to the amounts expected
to be realized. Income tax expense is the tax payable or refundable for the period plus or
minus the change during the period in deferred income tax assets and liabilities.
REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped to the customer. Generally, title
passes at the time of shipment. In certain circumstances, the customer takes title when
the shipment arrives at the destination. However, our shipping process is typically
completed the same day.
Earnings on construction contracts are reflected in operations using either percentage-of-
completion accounting, which includes the cost to cost and units of delivery methods, or
completed contract accounting, depending on the nature of the business at individual
operations. Under percentage-of-completion using the cost to cost method, revenues and
related earnings on construction contracts are measured by the relationships of actual
costs incurred related to the total estimated costs. Under percentage-of-completion using
the units of delivery method, revenues and related earnings on construction contracts are
32
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
measured by the relationships of actual units produced related to the total number of
units. Revisions in earnings estimates on the construction contracts are recorded in the
accounting period in which the basis for such revisions becomes known. Projected losses
on individual contracts are charged to operations in their entirety when such losses
become apparent. Under the completed contract method, revenues and related earnings
are recorded when the contracted work is complete and losses are charged to operations
in their entirety when such losses become apparent.
The following table presents the balances of percentage-of-completion and completed
contract accounts on December 25, 2010 and December 26, 2009 which are included in
other current assets and other accrued liabilities, respectively (in thousands):
2010
Cost and Earnings in Excess of Billings ....................... $3,604
Billings in Excess of Cost and Earnings ....................... 2,126
2009
$9,998
8,954
SHIPPING AND HANDLING OF PRODUCT
Shipping and handling costs that are charged to and reimbursed by the customer are
recognized as revenue. Costs incurred related to the shipment and handling of products
are classified in cost of goods sold.
LONG-LIVED ASSETS
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), when an
indicator of potential impairment exists, we evaluate the recoverability of our long-lived
assets by determining whether unamortized balances could be recovered through
undiscounted future operating cash flows over the remaining lives of the assets. If the
sum of the expected future cash flows was less than the carrying value of the assets, an
impairment loss would be recognized for the excess of the carrying value over the fair
value.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is calculated based on the weighted average number of
common shares outstanding during the periods presented. Diluted EPS is calculated
based on the weighted average number of common and common equivalent shares
outstanding during the periods presented, giving effect to stock options granted and
conditional stock grants (see Note I) utilizing the "treasury stock" method.
33
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A reconciliation of the changes in the numerator and the denominator from the
calculation of basic EPS to the calculation of diluted EPS follows (in thousands, except
per share data):
2010
Income Shares
Per
(Num- (Denom- Share
erator) inator) Amount
2009
Shares
Income
(Denom- Share
(Num-
inator) Amount
erator)
Per
2008
Income Shares
(Num- (Denom- Share
erator) inator) Amount
Per
Net Earnings ........................ $17,411
$24,272
$4,343
EPS - Basic
Income available to common
stockholders ........................ 17,411 19,232 $0.91
24,272
19,256 $1.26
4,343
19,074 $0.23
Effect of Dilutive Securities
Options..................................
244
212
151
EPS - Diluted
Income available to common
stockholders and assumed
options exercised................. $17,411 19,476 $0.89
$24,272 19,468 $1.25
$4,343
19,225 $0.23
Options to purchase 10,000, 10,000 and 230,000 shares of common stock were not
included in the computation of diluted EPS for 2010, 2009 and 2008, respectively,
because the options' exercise prices were greater than the average market price of the
common stock during the period and, therefore, would be antidilutive.
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements as well as the reported amounts
of revenues and expenses during the reporting period. We believe our estimates to be
reasonable; however, actual results could differ from these estimates.
RECLASSIFICATIONS
Certain prior year information has been reclassified to conform to the current year
presentation.
B.
FAIR VALUE
We apply the provisions of ASC 820, Fair Value Measurements and Disclosures, to
assets and liabilities measured at fair value. Assets and liabilities measured at fair value
are as follows:
34
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(in thousands)
Recurring:
Money market funds
Mutual funds:
Domestic stock funds
International stock funds
Target funds
Bond funds
Total mutual funds
Non-Recurring:
Property, plant and
equipment
December 25, 2010
Prices with
Other
Observable
Inputs
(Level 2)
Quoted
Prices in
Active
Markets
(Level 1)
$67
459
408
119
55
1,108
December 26, 2009
Prices with
Other
Observable
Inputs
(Level 2)
Quoted
Prices in
Active
Markets
(Level 1)
Total
$883
$883
883
883
Total
$67
459
408
119
55
1,108
$1,071
1,071
$1,385
1,385
$1,108
$1,071
$2,179
$883
$1,385
$2,268
Mutual funds are valued at prices quoted in an active exchange market. Property, plant
and equipment are valued based on active market prices and other relevant information
for sales of similar assets. We have elected not to apply the fair value option under ASC
825, Financial Instruments, to any of our financial instruments except for those expressly
required by U.S. GAAP.
We do not maintain any Level 3 assets or liabilities that would be based on significant
unobservable inputs.
C.
BUSINESS COMBINATIONS
We completed the following business combinations in fiscal 2010 and 2008, which were
accounted for using the purchase method (in millions). No business combinations were
completed in fiscal 2009.
Company
Name
Shepherd
Distribution
Co.
(“Shepherd”)
Acquisition
Date
April 29,
2010
Purchase
Price
$5.9
(asset
purchase)
Intangible
Assets
$2.2
Net
Tangible
Assets
$3.7
Operating
Segment
Distribution
Division
Business Description
Distributes shingle underlayment,
bottom board, house wrap, siding,
poly film and other products to
manufactured housing and RV
customers. Headquartered in
Elkhart, Indiana, it has
distribution capabilities
throughout the United States.
Purchased 100% of the inventory,
property, plant and equipment,
and intangibles.
35
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 8,
2010
$0.6
(asset
purchase)
$0.0
$0.6
Distribution
Division
June 9,
2008
$7.1
(asset
purchase)
$5.1
$2.0
Western
Division
Service
Supply
Distribution,
Inc.
(“Service
Supply”)
D-Stake Mill
and
Manufacturin
g Country
(“D-Stake”)
April 1,
2008
Shawnlee
Construction,
LLC
("Shawnlee")
$1.8
(asset
purchase)
$1.0
$0.8
Atlantic
Division
Romano
Construction
Company,
Ltd.
(“Romano”)
International
Wood
Industries,
Inc. (“IWI”)
March 15,
2008
$0.4
(asset
purchase)
$0.2
$0.2
Atlantic
Division
February 4,
2008
$14.0
(stock
purchase)
$10.6
$3.4
Western
Division
Distributes certain plumbing,
electrical, adhesives, flooring,
paint and other products to
manufactured housing and RV
customers. Headquartered in
Cordele, Georgia, it has
distribution capabilities
throughout the United States.
Purchased 100% of the inventory,
property, plant and equipment
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.
Provides framing services and is
located in Middletown, NY.
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
36
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):
Non-compete
agreements
$0.5
1.0
0.3
0.2
2.4
Customer
Relationships
$1.4
1.9
0.4
5.6
Goodwill
- Total
$0.3
2.2
0.3
2.6
Goodwill -
Tax
Deductible
$0.3
2.2
0.3
0.0
Shepherd
D-Stake
Shawnlee
Romano
IWI
The business combinations mentioned above were not significant to our operating results
individually or in aggregate, and thus pro forma results are not presented.
D.
ASSETS HELD FOR SALE AND NET LOSS (GAIN) ON DISPOSITION OF
ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES
Included in “Assets held for sale” on our Consolidated Balance Sheets is certain property,
plant and equipment totaling $2.4 million on December 25, 2010. The assets held for
sale consist of certain vacant land and facilities we closed to better align manufacturing
capacity with the current business environment. The fair values were determined based
on appraisals or recent offers to acquire assets. These and other idle assets were
evaluated based on the requirements of ASC 360, which resulted in impairment and other
exit charges included in “Net loss (gain) on disposition of assets and other impairment
and exit charges” for the years ended December 25, 2010, December 26, 2009 and
December 27, 2008, respectively. These amounts include the following, separated by
reporting segment (in millions):
December 25, 2010
December 26, 2009
December 27, 2008
Eastern
and
Western
Divisions
$0.6
Atlantic
Division
$0.2
All
Other
Eastern
and
Western
Divisions
$0.3
Atlantic
Division
$0.4
All
Other
Eastern
and
Western
Divisions
$0.6
Atlantic
Division
$0.5
All
Other
$0.3
0.5
0.1
1.9
0.2
$0.4
2.1
0.7
0.8
(3.4)
(0.8)
(0.5)
1.6
0.6
0.1
0.5
0.3
0.5
0.6
Severances
Property,
plant and
equipment
Gain on
sale of real
estate
Notes
receivable
Lease
termination
Other
intangibles
37
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The changes in assets held for sale 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
Additions
Assets held for sale as of December 25, 2010
Net Book
Value
$8,296
1,030
(3,057)
(2,806)
(2,433)
(1,030)
-
2,446
$2,446
Date of Sale
Net Sales
Price
February 6, 2009
May 13, 2009
June 10, 2009
$5.2 million
$3.4 million
$0.9 million
In 2009, we transferred certain assets back to held for use because we did not believe we
would sell these assets within a year due to difficult economic conditions and competitive
factors. Appropriate “catch-up” adjustments were recorded for depreciation associated
with the transfer of these assets to held for use.
E.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of net
tangible and identifiable intangible assets of acquired businesses. Goodwill and
intangible assets deemed to have indefinite lives are not amortized, but are subject
to impairment tests at least annually in accordance with ASC 350, Intangibles-
Goodwill and Other. We review the carrying amounts of goodwill and other non-
amortizable intangibles by reporting unit to determine if such assets may be
impaired. As the carrying amount of these assets are recoverable based upon a
discounted cash flow and market approach analysis, no impairment was
recognized.
The following amounts were included in other intangible assets, net as of December 25,
2010 and December 26, 2009 (in thousands):
Non-compete agreements ............
Customer relationships .................
Licensing agreements ...................
Patents ..........................................
Total .............................................
Assets
2010
Accumulated
Amortization
($9,214)
(9,199)
(229)
(1,782)
($20,424)
$12,569
16,219
4,589
2,980
$36,357
2009
Accumulated
Amortization
($11,182)
(11,643)
(1,437)
($24,262)
Assets
$18,162
19,813
2,980
$40,955
38
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Amortization is computed principally by the straight-line method over the estimated
useful lives of the intangible assets as follows:
Non-compete agreements........................ 5 to 10 years
Customer relationship ............................... 5 to 8 years
Licensing agreements......................................10 years
Amortization expense of intangibles totaled $6.9 million, $8.3 million and $9.8 million in
2010, 2009 and 2008, respectively. The estimated amortization expense for intangibles
for each of the five succeeding fiscal years is as follows (in thousands):
2011 ...................................................
2012 ...................................................
2013 ...................................................
2014 ...................................................
2015 ...................................................
Thereafter...........................................
Total ...................................................
$5,183
2,918
2,170
1,836
1,612
2,214
$15,933
The changes in the net carrying amount of goodwill and indefinite-lived intangible assets
for the years ended December 25, 2010 and December 26, 2009, are as follows (in
thousands):
Balance as of December 27, 2008 .........................
Final purchase price allocations.............................
Deferred income tax adjustment ............................
Balance as of December 26, 2009 .........................
Acquisitions ...........................................................
Final purchase price allocations.............................
Goodwill
$156,923
(2,326)
121
$154,718
309
(325)
Indefinite-
Lived
Intangible
Assets
$2,340
________
$2,340
________
Balance as of December 25, 2010 .........................
$154,702
$2,340
F.
DEBT
We have a five-year, $300 million unsecured revolving credit facility, which includes
amounts reserved for letters of credit. Cash borrowings are charged interest based upon
an index equal to the Eurodollar rate (in the case of borrowings in US Dollars) or the
bankers’ acceptance rate quoted (in the case of borrowings in Canadian Dollars), plus a
margin (ranging from 27 to 90 basis points, based upon our financial performance). We
are also charged an annual facility fee on the entire amount of the lending commitment
(ranging from 8 to 25 basis points, based upon our performance), and a usage premium
(ranging from 5 to 12.5 basis points, based upon our performance) at times when
borrowings in US Dollars exceed $150 million. The average borrowing rate on this
facility was 0.8% in both 2010 and 2009, respectively. The amount outstanding on the
39
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
revolving credit facility is included in the long-term debt summary below. The revolving
credit facility supports letters of credit that we may be required to issue.
Outstanding letters of credit extended on our behalf aggregated $31.3 million on
December 25, 2010, which includes approximately $12.4 million related to industrial
development revenue bonds. Outstanding letters of credit extended on our behalf
aggregated $32.3 million on December 26, 2009, which includes approximately $12.4
million related to industrial development revenue bonds. Letters of credit have terms
ranging from one to three years, and include an automatic renewal clause. The letters of
credit are charged an annual interest rate ranging from 27 to 90 basis points under the
$300 million facility, based upon our financial performance.
Long-term debt and capital lease obligations are summarized as follows on December 25,
2010 and December 26, 2009 (amounts in thousands):
2010
2009
Series 2002-A Senior Notes Tranche B, due on December 18,
2012, interest payable semi-annually at 6.16% ..............................................
$40,000
$40,000
Revolving credit facility totaling $300 million due on
February 12, 2012, interest due monthly at a floating rate
(1.2% on December 25, 2010)........................................................................
Series 1999 Industrial Development Revenue Bonds, due on
August 1, 2029, interest payable monthly at a floating rate
(0.55% on December 25, 2010)......................................................................
Series 2000 Industrial Development Revenue Bonds, due on
October 1, 2020, interest payable monthly at a floating rate
(0.52% on December 25, 2010)......................................................................
Series 2001 Industrial Development Revenue Bonds, due on
November 1, 2021, interest payable monthly at a floating rate
(0.53% on December 25, 2010)......................................................................
Series 2002 Industrial Development Revenue Bonds, due on
December 1, 2022, interest payable monthly at a floating rate
(0.51% on December 25, 2010)......................................................................
Capital lease obligations, interest imputed at 5.37%........................................
Other.................................................................................................................
Less current portion..........................................................................................
Long-term portion ............................................................................................
2,109
3,300
3,300
2,700
2,700
2,500
2,500
3,700
458
524
55,291
712
$ 54,579
3,700
892
762
53,854
673
$53,181
Financial covenants on the unsecured revolving credit facility and unsecured notes
include a minimum net worth requirement, minimum interest coverage tests, and a
maximum leverage ratio. The agreements also restrict the amount of additional
indebtedness we may incur and the amount of assets which may be sold. We were within
all of our lending requirements on December 25, 2010 and December 26, 2009.
40
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On December 25, 2010, the principal maturities of long-term debt and capital lease
obligations are as follows (in thousands):
2011 ..............................
2012 ..............................
2013 ..............................
2014 ..............................
2015 ..............................
Thereafter......................
$712
42,379
12,200
$55,291
On December 25, 2010, the estimated fair value of our long-term debt, including the
current portion, was $55.9 million, which was $0.6 million greater than the carrying
value. The estimated fair value is based on rates anticipated to be available to us for debt
with similar terms and maturities.
G.
LEASES
Leased property included in the balance sheet on December 25, 2009 and December 26,
2010 is as follows (in thousands):
Machinery and equipment....................... $1,345
Less accumulated amortization............... (672)
$673
2010
2009
$1,345
(224)
$1,121
We lease certain real estate under operating and capital lease agreements with original
terms ranging from one to ten years. We are required to pay real estate taxes and other
occupancy costs under these leases. Certain leases carry renewal options of five to fifteen
years. We also lease motor vehicles, equipment, and an aircraft under operating lease
agreements for periods of one to ten years. Future minimum payments under non-
cancelable leases on December 25, 2010 are as follows (in thousands):
2011 ...............................................................................
2012 ...............................................................................
2013 ...............................................................................
2014 ...............................................................................
2015 ...............................................................................
Thereafter.......................................................................
Total minimum lease payments .....................................
Less imputed interest .....................................................
Present value of minimum lease payments ....................
Capital
Leases
$472
$472
(14)
$458
Total
$7,748
Operating
Leases
$7,276
3,950
2,034
1,423 1,423
1,201
727
$ 16,611
1,201
727
$17,083
3,950
2,034
Rent expense was approximately $13.8 million, $16.7 million, and $19.9 million in 2010,
2009, and 2008, respectively.
41
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
H.
DEFERRED COMPENSATION
We have a program whereby certain executives irrevocably elected to defer receipt of
certain compensation in 1985 through 1988. Deferred compensation payments to these
executives will commence upon their retirement. We purchased life insurance on such
executives, payable to us in amounts which, if assumptions made as to mortality
experience, policy dividends, and other factors are realized, will accumulate cash values
adequate to reimburse us for all payments for insurance and deferred compensation
obligations. In the event cash values are not sufficient to fund such obligations, the
program allows us to reduce benefit payments to such amounts as may be funded by
accumulated cash values. The deferred compensation liabilities and related cash
surrender value of life insurance policies are included in "Other Liabilities" and "Other
Assets," respectively.
We also maintain a non-qualified deferred compensation plan (the "Plan") for the benefit
of senior management employees who may elect to defer a portion of their annual bonus
payments and salaries. The Plan provides investment options similar to our 401(k) plan,
including our stock. The investment in our stock is funded by the issuance of shares to a
Rabbi trust, and may only be distributed in kind. Assets held by the Plan totaled
approximately $1.1 million and $0.9 million on December 25, 2010 and December 26,
2009, respectively, and are included in "Other Assets." Related liabilities totaled $5.3
million and $4.9 million on December 25, 2010 and December 26, 2009, respectively,
and are included in "Other Liabilities" and "Shareholders' Equity." Assets of the Plan are
recorded at fair market value. The related liabilities are recorded at fair market value,
with the exception of obligations associated with investments in our stock which are
recorded at the market value on the date of deferral.
I.
COMMON STOCK
On June 1, 1993, our shareholders approved the Incentive Stock Option Plan (the "Plan")
for certain officers of the Company. The remaining options were exercisable within
thirty days of the anniversary of the Plan in 2008. There are no options outstanding
under the Plan.
In January 1994, the Employee Stock Gift Program was approved by the Board of
Directors which allows us to gift shares of stock to eligible employees based on length of
service. We gifted shares of stock under this Plan in 2010, 2009, and 2008, and
recognized the market value of the shares at the date of issuance as an expense totaling
approximately $38,000, $45,000, and $45,000, respectively.
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
42
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
our stock at a share price equal to 85% of fair market value on the purchase date. In
2010, 2009, and 2008, shares were issued under this Plan for amounts totaling
approximately $427,000, $454,000, and $582,000, respectively. The weighted average
discounted per share fair value of these shares was $28.56, $29.10, and $25.92,
respectively. Upon adoption of ASC 718, Compensation – Stock Compensation,
("ASC 718"), we have expensed the fair value of the compensation associated with these
awards, which approximates the discount.
In April 1994, our shareholders approved the Directors’ Retainer Stock Plan ("Stock
Retainer Plan"). In April 2007, our shareholders authorized additional shares to be
distributed pursuant to this plan. The Stock Retainer Plan allows eligible members of the
Board of Directors to defer their retainer fees and receive shares of our stock at the time
of their retirement, disability or death. The number of shares to be received is equal to
the amount of the retainer fee deferred multiplied by 110%, divided by the fair market
value of a share of our stock at the time of deferral. The number of shares is increased by
the amount of dividends paid on the Company’s Common Shares Outstanding.
Shareholders’ equity includes approximately $1.5 million and $1.1 million on December
25, 2010 and December 26, 2009, respectively, for obligations incurred under this Plan.
In 2009, distributions totaled approximately $600,000, all of which was paid in shares of
our common stock. There were no distributions in 2010 or 2008.
In January 1997, we instituted a Directors' Stock Grant Program. In lieu of a cash
increase in the amount of Directors’ fees, each outside Director receives 100 shares of
stock for each board meeting attended up to a maximum of 400 shares per year. In 2010,
2009, and 2008, we issued shares and recognized the market value of the shares on the
date of issuance as an expense totaling approximately $102,000, $63,000, and $58,000,
respectively.
On April 15, 2009, our shareholders approved an amended and restated Long Term Stock
Incentive Plan (the "LTSIP”). The LTSIP reserves 1,000,000 shares, plus a balance of
unused shares from prior plans of approximately 1.6 million shares, plus an annual
increase of no more than 200,000 shares per year which may be added on the date of the
annual meeting of shareholders. The LTSIP provides for the granting of stock options,
reload options, stock appreciation rights, restricted stock, performance shares and other
stock-based awards. No options were granted under the LTSIP in 2010, 2009 or 2008.
The following stock grants are outstanding under the LTSIP:
• On April 17, 2002, a Conditional Share Grant was made which will grant our
Executive Chairman 10,000 shares of common stock immediately upon the
satisfaction of the terms and conditions set forth in the grant. Shareholders’
equity includes approximately $245,000 and $245,000 on December 25, 2010 and
December 26, 2009, respectively, for this grant.
43
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
• Shares of common stock were issued on February 9, 2009 for Performance Share
Grants made on February 3, 2006.
• On January 16, 2007, Conditional Share Grants were made which will grant
certain employees 500 shares each of common stock immediately upon vesting in
2017, subject to conditions set forth in the grant. Shareholders’ equity includes
approximately $66,000 and $49,000 on December 25, 2010 and December 26,
2009, respectively, for this grant.
• On February 23, 2007, shares were issued into a Deferred Stock Bonus Plan for
certain employees. These shares are distributable upon retirement, subject to
conditions set forth in the plan. Shareholders’ equity includes approximately $1.0
million on December 25, 2010 and $1.4 million December 26, 2009, respectively,
for this grant.
• On January 16, 2008, Conditional Share Grants were made which will grant
certain employees 500 shares each of common stock immediately upon vesting in
2018, subject to conditions set forth in the grant. Shareholders’ equity includes
approximately $32,000 and $21,000 on December 25, 2010 and December 26,
2009, respectively, for this grant.
• On February 8, 2008, Conditional Share Grants were made which granted certain
employees approximately 94,000 shares of common stock on February 15, 2011,
subject to conditions set forth in the grant. Shareholders’ equity includes
approximately $2.5 million and $1.3 million on December 25, 2010 and
December 26, 2009, respectively, for this grant.
• On January 21, 2009, Conditional Share Grants were made which will grant
certain employees 500 shares each of common stock immediately upon vesting in
2019, subject to conditions set forth in the grant. Shareholders’ equity includes
approximately $7,000 and $3,000 on December 25, 2010 and December 26, 2009,
respectively, for this grant.
• On February 1, 2009, approximately 75,000 shares of common stock were issued
into a deferred compensation plan for certain employees and independent
directors. The shares will be vested on February 1, 2014, subject to conditions set
forth in the grant. Shareholders’ equity includes approximately $0.7 million and
$0.5 million on December 25, 2010 and December 26, 2009, respectively, for this
grant.
• On January 14, 2010, Conditional Share Grants were made which will grant
certain employees 500 shares each of common stock immediately upon vesting in
2020, subject to conditions set forth in the grant. Shareholders’ equity includes
approximately $7,000 on December 25, 2010, for this grant.
44
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
• On February 1, 2010, approximately 73,000 shares of common stock were issued
into a deferred compensation plan for certain employees and independent
directors. The shares will be vested on February 1, 2015, subject to conditions set
forth in the grant. Shareholders’ equity includes approximately $0.7 million
December 25, 2010, for this grant.
As of December 25, 2010, a total of approximately 3.1 million shares are reserved for
issuance under the plans mentioned above.
On November 14, 2001, the Board of Directors approved a share repurchase program
(which succeeded a previous program) allowing us to repurchase up to 2,500,000 shares
of our common stock. On October 14, 2010, our Board authorized an additional 2
million shares to be repurchased under our share repurchase program. We repurchased
144,900 and 91,724 shares under this program in 2010 and 2009, respectively. As of
December 25, 2010, cumulative total authorized shares available for repurchase is
approximately 3.0 million shares.
Common stock activity for 2010, 2009 and 2008 was as follows:
Shares issued under plan:
Employee Stock Purchase
Stock Option Exercises
Employee stock plans
Stock gift
Executive Stock Grant
Conditional Stock Grant
Directors’ Retainer Stock
Directors’ Stock Grant
Stock grant plans
Deferred compensation
Stock notes receivable, net
Shares received for exercise
of stock options
Stock repurchase
Beginning common stock
Ending common stock
2010
2009
2008
14,948
96,310
111,258
1,154
67,692
2,011
3,000
73,857
9,046
(726)
15,614
114,651
130,265
1,466
74,750
23,413
3,000
102,629
50,816
3,721
(144,900)
48,535
19,284,587
19,333,122
(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
J.
STOCK-BASED COMPENSATION
We account for share-based compensation using the fair value recognition provisions of
ASC 718, Compensation – Stock Compensation, (“ACS 718”), which we have adopted
using the modified-prospective-transition method effective January 1, 2006. As discussed
in Note I, Common Stock, we provide compensation benefits to employees and non-
45
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
employee directors under several share-based payment arrangements including the
Employee Stock Gift Program, the 2002 Employee Stock Purchase Plan, the Directors’
Retainer Stock Plan, the Directors’ Stock Grant Program and the Long-Term Stock
Incentive Plan.
Stock Option Plans
To date, other than certain, relatively nominal conditional share grants, performance share
awards and deferred share awards that are permitted under the LTSIP, we have only issued
options under the LTSIP. Vesting requirements for awards under this plan will vary by
individual grant and, as to outstanding awards, and are subject to time-based vesting. The
contractual life of all of the options granted under this plan is no greater than 15 years.
The fair value of each option award is estimated as of the date of grant using the Black-
Scholes option pricing model. Expected volatility assumptions used were based on
historical volatility of our stock. We utilize historical data to estimate option exercise and
employee termination behavior within the valuation model; separate groups of employees
that have similar historical exercise behavior are considered separately for valuation
purposes. The risk-free rate for the expected term of the option award was based on the
U.S. Treasury yield curve in effect at the time of the grant. No new option awards were
granted in 2010, 2009 or 2008 and therefore no specific valuation assumptions are
presented.
The following summary presents information regarding outstanding options as of
December 25, 2010 and changes during the period then ended with regard to options under
all stock option plans:
Outstanding at December 26, 2009.....................
Exercised.............................................................
Forfeited or expired.............................................
Outstanding at December 25, 2010.....................
Vested or expected to vest at December 25, 2010
Exercisable at December 25, 2010......................
Weighted
Average
Remaining Aggregate
Intrinsic
Value
Exercise Price Contractual
Term
Stock
Under
Option
473,878
(96,310)
(17,571)
359,997
197,000
162,997
Weighted
Average
Per Share
$23.34
$19.80
$28.60
$24.04
$24.69
$23.24
2.35
2.79
1.82
$5,012,758
$2,613,885
$2,398,873
The total intrinsic value of options exercised during 2010, 2009 and 2008 was $1.8 million
$2.3 million and $2.4 million, respectively.
Employee Stock Purchase Plan
In 2010, 2009 and 2008, we issued shares under this plan totaling 14,948, 15,614 and
22,474, respectively. In 2010, 2009 and 2008, the weighted average fair values per share
of employee stock purchase rights pursuant to this plan were $5.04, $5.14 and $4.57,
46
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
respectively. The fair value of the stock purchase rights approximated the difference
between the stock price and the employee purchase price.
Directors’ Retainer Stock Plan
We recognized the fair market value of the shares issued under this plan, calculated using
the number of shares issued and the stock price on the issuance date, as expense and
recorded the related obligation in shareholders’ equity. In 2010, 2009 and 2008, we
recognized approximately $467,000, $317,000 and $268,000, respectively, in expense for
shares issued under this program.
Directors’ Stock Grant Program
In 2010, 2009 and 2008, we recognized the fair market value of the shares issued under this
plan, calculated using the number of shares issued and the stock price on the issuance date,
as an expense totaling approximately $102,000, $63,000 and $58,000, respectively.
Conditional Share Grant Agreements
In 2010, 2009 and 2008, we recognized the fair value of the awards estimated as of the date
of grant. We recognized approximately $112,000, $118,000 and $50,000, respectively, in
expense for shares issuable under this program.
All Share-Based Payment Arrangements
The total share-based compensation cost and the related total income tax benefit that has
been recognized in results of operations was approximately $1,920,000 and $1,140,000,
respectively in 2010. The total share-based compensation cost and the related total income
tax benefit that has been recognized in results of operations was approximately $1,252,000
and $724,000, respectively in 2009. The total share-based compensation cost and the
related total income tax benefit that has been recognized in results of operations was
approximately $820,000 and $255,000, respectively in 2008.
In 2010, 2009 and 2008, cash received from option exercises and share issuances under our
plans was $2.3 million, $2.4 million and $3.0 million, respectively. The actual tax benefit
realized in 2010, 2009 and 2008 for the tax deductions from option exercises totaled $0.6
million, $0.7 million and $0.9 million, respectively.
K. RETIREMENT PLANS
We have a profit sharing and 401(k) plan for the benefit of substantially all of our
employees, excluding the employees of certain non-wholly-owned subsidiaries. Amounts
contributed to the plan are made at the discretion of the Board of Directors. We matched
25% of employee contributions in 2010 and 2009, on a discretionary basis, totaling $1.4
million and $1.4 million, respectively. We matched 50% of employee contributions in
47
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2008, on a discretionary basis, totaling $3.5 million. The basis for matching contributions
may not exceed the lesser of 6% of the employee's annual compensation or the IRS
limitation.
On July 14, 2010, the compensation committee of the board of directors approved a
retirement plan for officers whereby we will pay, upon retirement, benefits totaling 150%
of the officer’s highest base salary in the three years immediately preceding separation
from service plus health care benefits for a specified period of time if certain eligibility
requirements are met. Approximately $1.4 million is accrued in other liabilities for this
plan at December 25, 2010.
L.
INCOME TAXES
Income tax provisions for the years ended December 25, 2010, December 26, 2009, and
December 27, 2008 are summarized as follows (in thousands):
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
2010
2009
2008
$4,762
1,768
3,344
9,874
384
(689)
(2,369)
(2,674)
$7,200
$4,411
1,452
2,602
8,465
$5,566
915
3,169
9,650
4,868
337
182
5,387
$13,852
(5,768)
(1,951)
(245)
(7,964)
$1,686
The components of earnings before income taxes consist of the following:
2010
2009
2008
U.S.
Foreign
Total
$16,115
10,926
$27,041
$29,806
8,791
$38,597
$(702)
7,848
$7,146
48
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The effective income tax rates are different from the statutory federal income tax rates for
the following reasons:
Statutory federal income tax rate
State and local taxes (net of federal benefits)
Effect of noncontrolling owned interest in earnings of partnerships
Manufacturing deduction
Research and development tax credits
Change in valuation allowance
Nondeductible amortization of goodwill
Meals and entertainment
Other, net
Effective income tax rate
2010
35.0%
2.4
(1.8)
(1.6)
(1.4)
(10.5)
1.6
1.6
1.3
26.6%
2009
35.0%
1.9
0.1
(0.8)
(1.8)
(1.4)
1.2
1.1
0.6
35.9%
2008
35.0%
(1.3)
(2.2)
(4.0)
(14.0)
1.1
5.7
6.6
(3.3)
23.6%
Temporary differences which give rise to deferred income tax assets and (liabilities) on
December 25, 2010 and December 26, 2009 are as follows (in thousands):
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
2010
2009
$6,626
1,350
3,855
3,836
15,667
15,667
(17,762)
(9,269)
148
(137)
(27,020)
($11,353)
$5,189
1,782
3,769
3,764
14,504
(2,712)
11,792
(17,522)
(7,799)
(421)
(77)
(25,819)
($14,027)
At the end of 2009, the valuation allowance consists of a net operating loss carryforward
we have for a wholly-owned subsidiary. As a result of cumulative historical losses of this
subsidiary, our ability to realize a future benefit from this loss carryforward was in doubt,
therefore, we established an allowance for the entire amount of the future benefit. The
allowance was removed in 2010 as a result of increased profitability in this subsidiary.
This carryforward will expire at the end of 2027.
M.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
ASC 740, Income Taxes (“ASC 740”) clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. ASC 740 also provides guidance on
derecognition, measurement, classification, interest and penalties, and disclosure
requirements.
49
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows (in thousands):
Gross unrecognized tax benefits beginning of year
(Decrease) 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
2010
$10,311
(7,124)
278
(1,565)
(427)
$1,473
2009
$11,034
116
512
(778)
(573)
$10,311
The total amount of net unrecognized tax benefits that, if recognized, would affect the
effective tax rate was $1.5 million and $10.3 million at December 25, 2010 and
December 26, 2009, respectively. We recognized interest and penalties for unrecognized
tax benefits in our provision for income taxes. The liability for unrecognized tax benefits
included accrued interest and penalties of $0.2 million and $0.3 million at December 25,
2010 and December 26, 2009, respectively.
We file income tax returns in the United States and in various state, local and foreign
jurisdictions. During 2010, the Internal Revenue Service examination for tax years 2004
– 2008 was resolved. For the majority of state and foreign jurisdictions, we are no longer
subject to income tax examinations for years before 2004. A number of state and local
examinations are currently ongoing. It is possible that these examinations may be
resolved within the next twelve months. Due to the potential for resolution of state
examinations, and the expiration of various statutes of limitation, it is reasonably possible
that our gross unrecognized tax benefits may change within the next twelve months by a
range of $0.3 million to $1.0 million.
N.
COMMITMENTS, CONTINGENCIES, AND GUARANTEES
We are self-insured for environmental impairment liability, including certain liabilities
which are insured through a wholly owned subsidiary, UFP Insurance Ltd., a licensed
captive insurance company.
We own and operate a number of facilities throughout the United States that chemically
treat lumber products. In connection with the ownership and operation of these and other
real properties, and the disposal or treatment of hazardous or toxic substances, we may,
under various federal, state, and local environmental laws, ordinances, and regulations, be
potentially liable for removal and remediation costs, as well as other potential costs,
damages, and expenses. Environmental reserves, calculated with no discount rate, have
been established to cover remediation activities at our affiliates’ wood preservation
facilities in Stockertown, PA; Elizabeth City, NC; Auburndale, FL; Gordon, PA;
Janesville, WI; and Medley, FL. In addition, a reserve was established for our 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
50
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 $3.4 million on December 25,
2010 and $4.3 million on December 26, 2009, representing the estimated costs to
complete future remediation efforts. These amounts have not been reduced by an
insurance receivable.
From time to time, various special interest environmental groups have petitioned certain
states requesting restrictions on the use or disposal of CCA treated products. The wood
preservation industry trade groups are working with the individual states and their
regulatory agencies to provide an accurate, factual background which demonstrates that
the present method of uses and disposal is scientifically supported. Our affiliates market
a modest amount of CCA treated products for permitted, non-residential applications.
We have not accrued for any potential loss related to the contingencies above. However,
potential liabilities of this nature are not conducive to precise estimates and are subject to
change.
In addition, on December 25, 2010, we were parties either as plaintiff or a defendant to a
number of lawsuits and claims arising through the normal course of our business. In the
opinion of management, our consolidated financial statements will not be materially
affected by the outcome of these contingencies and claims.
On December 25, 2010, we had outstanding purchase commitments on capital projects of
approximately $2.0 million.
We provide a variety of warranties for products we manufacture. Historically, warranty
claims have not been material. We distribute products manufactured by other companies,
some of which are no longer in business. While we do not warrant these products, we
have received claims as a distributor of these products when the manufacturer no longer
exists or has the ability to pay. Historically, these costs have not had a material affect on
our consolidated financial statements.
In certain cases we supply building materials and labor to site-built construction projects
or we jointly bid on contracts with framing companies for such projects. In some
instances we are required to post payment and performance bonds to insure the owner
that the products and installation services are completed in accordance with our
contractual obligations. We have agreed to indemnify the surety for claims made against
the bonds. As of December 25, 2010, we had approximately $13.5 million in outstanding
payment and performance bonds, which expire during the next two years. In addition,
approximately $29.8 million in payment and performance bonds are outstanding for
completed projects which are still under warranty.
51
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
We have entered into operating leases for certain assets that include a guarantee of a
portion of the residual value of the leased assets. If, at the expiration of the initial lease
term, we do not exercise our option to purchase the leased assets and these assets are sold
by the lessor for a price below a predetermined amount, we will reimburse the lessor for a
certain portion of the shortfall. These operating leases will expire periodically over the
next three years. The estimated maximum aggregate exposure of these guarantees is
approximately $0.6 million.
On December 25, 2010 we had outstanding letters of credit totaling $31.3 million,
primarily related to certain insurance contracts and industrial development revenue bonds
described further below.
In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to
guarantee our performance under certain insurance contracts. We currently have
irrevocable letters of credit outstanding totaling approximately $19.0 million for these
types of insurance arrangements. We have reserves recorded on our balance sheet, in
accrued liabilities, that reflect our expected future liabilities under these insurance
arrangements.
We are required to provide irrevocable letters of credit in favor of the bond trustees for all
of the industrial development revenue bonds that we have issued. These letters of credit
guarantee principal and interest payments to the bondholders. We currently have
irrevocable letters of credit outstanding totaling approximately $12.4 million related to
our outstanding industrial development revenue bonds. These letters of credit have
varying terms but may be renewed at the option of the issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of
Universal Forest Products, Inc. in certain debt agreements, including the Series 2002-A
Senior Notes and our revolving credit facility. The maximum exposure of these
guarantees is limited to the indebtedness outstanding under these debt arrangements and
this exposure will expire concurrent with the expiration of the debt agreements.
Many of our wood treating operations utilize "Subpart W" drip pads, defined as
hazardous waste management units by the EPA. The rules regulating drip pads require
that the pad be “closed” at the point that it is no longer intended to be used for wood
treating operations or to manage hazardous waste. Closure involves identification and
disposal of contaminants which are required to be removed from the facility. The cost of
closure is dependent upon a number of factors including, but not limited to, identification
and removal of contaminants, cleanup standards that vary from state to state, and the time
period over which the cleanup would be completed. Based on our present knowledge of
existing circumstances, it is considered probable that these costs will approximate $0.7
million. As a result, this amount is recorded in other long-term liabilities on December
25, 2010.
52
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
We did not enter into any new guarantee arrangements during 2010 which would require
us to recognize a liability on our balance sheet.
O.
CONSULTING & NON-COMPETE AGREEMENTS
On December 17, 2007 we entered into a consulting and non-compete agreement with
our former CEO which provides for monthly payments for a term of three years that
began upon retirement from Universal Forest Products, Inc. The present value of the
vested portion of the non-compete payments totaling approximately $1.1 million and $1.8
million at December 25, 2010 and December 26, 2009, respectively, is accrued in other
liabilities.
On December 31, 2007 the former President of Universal Forest Products Western
Division, Inc. retired as an employee of Universal Forest Products, Inc., and we entered
into an agreement with him which provides for monthly payments for a term of three
years. The present value of these payments totaled approximately $0.4 million at
December 26, 2009 and was recorded in other liabilities. This obligation has been paid in
full at December 25, 2010.
P.
SEGMENT REPORTING
ASC 280, Segment Reporting (“ASC 280”) defines operating segments as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
During 2010, we undertook a reorganization of our former Eastern division
operating segment that occurred in two stages. The first stage involved a
management restructuring whereby the division was divided into Northern and
Southern operating segments during the first quarter of fiscal 2010. This
realignment was further refined commencing on December 25, 2010 with a
reorganization of the Northern and Southern operating segments into newly
created Eastern and Atlantic divisions to better align management oversight with
strategic growth opportunities and operational initiatives.
Our operating segments consist of the Eastern, Western, Atlantic, Consumer
Products and Distribution divisions. In accordance with ASC 280, due to the
similar economic characteristics, nature of products, distribution methods, and
customers, we have aggregated our Eastern and Western operating segments into
one reportable segment. The Atlantic division is considered a separate reportable
segment. Our other divisions do not collectively form a reportable segment
because their respective operations are dissimilar and they do not meet the
53
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
applicable quantitative requirements. These operations have been included in the
“All Other” column of the table below.
Eastern
and
Western
Divisions
$1,282,294
85,076
424
4,492
17,147
23,389
459,048
12,150
Eastern
and
Western
Divisions
$1,160,216
75,347
523
4,874
18,948
34,870
442,138
6,334
Eastern
and
Western
Divisions
$1,539,152
88,877
1,235
4,755
22,166
9,704
503,531
9,702
2010
Atlantic
Division
Corporate
All
Other
$469,448
36,593
44
96
5,501
6,654
152,711
2,448
$139,109
45,173
-
2,331
3,071
1,401
80,576
4,598
$-
-
3,081
-
4,710
(1,155)
96,245
7,754
2009
Atlantic
Division
Corporate
All
Other
$409,661
35,501
30
750
6,301
4,194
152,570
962
$103,123
33,058
53
2,684
3,080
5,845
68,170
4,881
$-
-
4,005
-
4,588
(2,092)
113,990
3,427
2008
Atlantic
Division
Corporate
All
Other
$575,823
60,618
110
2,105
6,796
4,614
180,590
2,526
$-
-
10,685
-
5,024
5,462
58,762
4,279
$117,419
26,765
58
2,937
3,584
(1,375)
73,136
2,437
Total
$1,890,851
166,842
3,549
6,919
30,429
30,289
788,580
26,950
Total
$1,673,000
143,906
4,611
8,308
32,917
42,817
776,868
15,604
Total
$2,232,394
176,260
12,088
9,797
37,570
18,405
816,019
18,944
Net sales to
outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating profit
Segment assets
Capital expenditures
Net sales to
outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating profit
Segment assets
Capital expenditures
Net sales to
outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating profit
Segment assets
Capital expenditures
In 2010, 2009, and 2008, 28%, 32%, and 27% of net sales, respectively, were to a single
customer.
54
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Information regarding principal geographic areas was as follows (in thousands):
2010
2009
2008
Net Sales
$1,844,289
46,562
$1,890,851
Long-Lived
Assets
$373,709
16,076
$389,785
Net Sales
$1,630,763
42,237
$1,673,000
Long-Lived
Assets
$374,831
18,688
$393,519
Net Sales
$2,170,933
61,461
$2,232,394
Long-Lived
Assets
$418,603
16,508
$435,111
United States
Foreign
Total
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.
2010.............................................................................
2009.............................................................................
2008.............................................................................
58.6%
59.4%
60.4%
41.4%
40.6%
39.6%
Value-Added
Commodity-Based
Value-added product sales consist of fencing, decking, lattice, and other specialty
products sold to the DIY/retail market, specialty wood packaging, engineered wood
components, and wood-alternative products. Engineered wood components include roof
trusses, wall panels, and floor systems. Wood-alternative products consist primarily of
composite wood and plastics. Although we consider the treatment of dimensional lumber
with certain chemical preservatives a value-added process, treated lumber is not presently
included in the value-added sales totals. Commodity-based product sales consist
primarily of remanufactured lumber and preservative treated lumber.
55
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents, for the periods indicated, our gross sales (in thousands) by
major product classification.
December 25,
2010
Years Ended
December 26,
December 27,
2009
2008
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
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
(eg. door
$167,165
162,314
162,699
117,340
142,369
46,069
50,540
26,093
46,610
73,629
45,819
37,046
19,469
12,204
11,706
4,562
92
1,125,726
$160,242
167,311
156,400
98,785
130,593
35,386
40,224
25,774
42,745
35,990
47,304
28,427
20,384
11,544
12,535
2,991
135
1,016,770
$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
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
315,634
305,756
147,845
21,330
5,851
796,416
1,922,142
(31,291)
$1,890,851
255,836
296,936
116,645
21,373
4,805
695,595
1,712,365
(39,365)
$1,673,000
384,268
345,211
138,448
24,534
7,833
900,294
2,274,191
(41,797)
$2,232,394
Q.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth selected financial information for all of the quarters, each
consisting of 13 weeks) during the years ended December 25, 2010 and December 26,
2009 (in thousands, except per share data):
56
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
First
Second
Third
Fourth
Net sales
Gross profit
Net earnings (loss)
Net earnings (loss)
attributable to
controlling interest
Basic earnings
(loss) per share
Diluted earnings
(loss) per share
2010
$392,958
51,634
1,720
987
2009
$361,722
46,821
(1,163)
(1,207)
2009
2010
2010
$638,635 $514,945 $480,574 $457,768 $378,685
46,021
455
124
69,263
10,260
10,054
54,415
3,198
2,584
82,485
16,455
16,088
77,886
14,468
13,716
2009
2010
2009
$338,565
45,095
(807)
(663)
0.05
0.05
(0.06)
(0.06)
0.71
0.70
0.84
0.83
0.13
0.13
0.52
0.51
0.01
0.01
(0.03)
(0.03)
R.
SUBSEQUENT EVENTS
On February 1, 2011, an approved stock grant was made for certain employees and
independent directors which will grant shares of common stock immediately upon the
satisfaction of certain terms and conditions. We estimate that we will recognize total
expense of approximately $2.6 million over the next five years for this grant.
57
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock trades on The Nasdaq Stock Market (“NASDAQ”) under the symbol UFPI.
The following table sets forth the range of high and low sales prices as reported by NASDAQ.
Fiscal 2010
High Low
Fourth Quarter............ 39.01 27.84
Third Quarter ............. 33.09 25.76
Second Quarter........... 46.63 30.36
First Quarter ............... 40.00 31.84
Fiscal 2009
High Low
Fourth Quarter............ 42.32 34.00
Third Quarter ............. 47.78 30.24
Second Quarter........... 37.50 25.53
First Quarter ............... 29.98 19.01
There were approximately 1,090 shareholders of record as of January 31, 2011.
In 2010, we paid dividends on our common stock of $0.200 per share each in June and
December. In 2009, we paid dividends on our common stock of $0.060 per share in June and
$0.200 per share in December. We intend to continue with our current semi-annual dividend
policy for the foreseeable future.
58
STOCK PERFORMANCE GRAPH
The following graph depicts the cumulative total return on our common stock compared to the
cumulative total return on the indices for The Nasdaq Stock Market (all U.S. companies) and an
industry peer group we selected. The graph assumes an investment of $100 on December 31,
2005, and reinvestment of dividends in all cases.
The companies included in our self-determined industry peer group are as follows:
Bluelinx Holdings Inc.
Builders FirstSource, 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.
59
Directors and Executive Officers
BOARD OF DIRECTORS
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.
Michael B. Glenn
Chief Executive Officer
Patrick M. Webster
President and Chief Operating Officer
Michael R. Cole
Chief Financial Officer and Treasurer
John M. Engler
President and Chief Executive Officer
National Association of Manufacturers
Robert D. Coleman
Executive Vice President Manufacturing
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
C. Scott Greene
President
UFP Eastern Division
Allen T. Peters
President
UFP Western Division
Robert W. Lees
President
UFP Atlantic 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
60
Shareholder Information
ANNUAL MEETING
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 13,
2011, at 2880 East Beltline Lane NE, Grand Rapids, MI 49525.
SHAREHOLDER INFORMATION
Shares of the 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
61
UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES
Locations:
Ashburn, GA
Auburndale, FL
Bayamon, Puerto Rico
Belchertown, MA
Berlin, NJ
Blanchester, OH
Burlington, NC
Burleson, TX
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Clinton, NY
Conway, SC
Cordele, GA
Denver, CO
Durango, Durango, Mexico
Eatonton, GA
Elizabeth City, NC
Elkhart, IN
Emlenton, PA
Evans City, PA
Gordon, PA
Grandview, TX
Grand Rapids, MI
Granger, IN
Greene, ME
Haleyville, AL
Harrisonville, MO
Hillsboro, TX
Houston, TX
Hudson, NY
Hutchinson, MN
Janesville, WI
Jefferson, GA
Lacolle, Quebec, Canada
Lafayette, CO
Lansing, MI
Liberty, NC
Lodi, OH
McMinnville, OR
Medley, FL
Minneota, MN
Morristown, TN
Moultrie, GA
Muscle Shoals, AL
Naugatuck, CT
New London, NC
New Waverly, TX
New Windsor, MD
Parker, PA
Pearisburg, VA
Plainville, MA
Prairie du Chien, WI
Ranson, WV
Riverside, CA
Saginaw, TX
Salisbury, NC
San Antonio, TX
Schertz, TX
Sidney, NY
Silsbee, TX
Stockertown, PA
Thornton, CA
Turlock, CA
Union City, GA
Warrens, WI
White Bear Lake, MN
White Pigeon, MI
Windsor, CO
Woodburn, OR
62