Report to Shareholders
2011
Dear Shareholder:
At Universal, we’re thankful for the things that bring us success: good customer relationships; smart,
hard-working employees; a diversified business model and solid balance sheet. These strengths provide a
springboard to opportunities to grow our profits and provide a better return to our shareholders. Some
years, however, the significance of these assets is accentuated—and 2011 was one of those years.
We finished 2011 profitably after a very difficult first six months, and we’re pleased to be able to say that
we still have not had an unprofitable year in our 56 years in business.
2011 became a year of change and repositioning for Universal. After helping us through the toughest
times in recent memory, our former CEO retired and new CEO Matthew J. Missad and his management
team ushered in an era of opportunity, accountability and hope.
In spite of all the so-called “headwinds,” we decided that good enough wasn’t good enough anymore.
Everyone at Universal is hungry for better performance and for the excitement and momentum that form
at even the hint of growth and success. It was time to make that happen again at Universal, so we put the
wheels in motion. We looked at our markets and the economy and, not expecting to get help from either,
we refined and shaped strategies for profitability and sustainable growth in both new and existing arenas.
Already, our work is starting to bear fruit. Previous cost-cutting efforts have helped reduce our overhead.
The new business environment designed to strengthen our entrepreneurial spirit has created a
resurgence of enthusiasm and innovation among our employees. We are running full speed in 2012,
scouring markets and countries for profitable opportunities, opening new plants (in Salisbury, North
Carolina; Selma, Alabama and Salina, Kansas), and identifying and preparing new products for market.
We established a group to enable us to more effectively launch new products and to generate new
business in new markets and countries. We also continue to investigate acquisition targets to integrate
into and enhance our efforts to improve our business.
Universal Forest Products, Inc.
Letter to Shareholders
Page ii
We’re excited about the future and committed to improve upon the results of 2011: We ended the year
with $1.8 billion in net sales, $52.5 million in debt and no outstanding balance on our revolver (under
which we have $233.7 million in remaining availability). This solid balance sheet affords us the ability to
pursue new opportunities.
Some of the highlights of our 2011 performance include:
RETAIL BUILDING MATERIALS
In 2011, our gross sales to this market totaled $839.0 million, a decline of 8.5 percent from 2010. We
are becoming more selective with the business we accept (in this market and others) so that we meet our
financial objectives. We are seeing a healthy increase in the number of customers we are serving in this
market.
INDUSTRIAL
Our 2011 sales in this market totaled $493.0 million, an increase of 9.5 percent over 2010. We gained
market share in this fragmented arena, grew sales with existing customers and added 214 new
customers in the year. We’re dedicating additional resources to continue our growth in this market.
MANUFACTURED HOUSING
Compared to the previous year, 2011 sales in this market were flat at $245.0 million. Sales trended up
during the fourth quarter, fueled by a spike in business in the oil exploration areas and bolstered by
FEMA. We continue to look for new opportunities for growth and remain committed to a market we have
proudly served since 1955.
RESIDENTIAL CONSTRUCTION
Our sales to this market totaled $203.2 million, down 15.8 percent from the previous year. Although
we’ve lost many competitors, capacity still far exceeds demand. Here, too, we are selective with the jobs
we accept and focus on projects that provide stronger opportunities for success.
COMMERCIAL CONSTRUCTION AND CONCRETE FORMING
Sales to this market continue to grow, reaching $77.5 million in 2011, up 13.7 percent over 2010. This is
a fragmented market that benefits greatly from the national reach of the companies of Universal and
from the design and manufacturing capabilities and capacity we bring to the table.
Universal Forest Products, Inc.
Letter to Shareholders
Page iii
Yes, we ended 2011 profitably, and we’re proud of the efforts of our team members, who drove our
success when so many of our competitors were not as fortunate. But make no mistake: None of us was
satisfied with our results. And already, 2012 feels different. Not because we are swayed by the election
year media. Not because the winter seems to be milder than last year. Not because we are counting on
help from legislative or political changes. No, 2012 feels different because we’re focused on strategies
that we believe will lead to sustainable success. We’ve unleashed the potential of a great workforce to
innovate, to take well-reasoned risks, to develop their business in the markets they serve and to hold
each of us accountable for performing.
We thank you for your continued interest and for the trust you’ve placed in Universal Forest Products. We
look forward to making 2012 a year that makes you pleased with your investment and that encourages
others to join the ranks of UFPI shareholders.
William G. Currie
Chairman of the Board
Matthew J. Missad
Chief Executive Officer
Universal Forest Products, Inc.
Letter to Shareholders
Page iv
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
Table of Contents
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2011and December 25, 2010
Consolidated Statements of Earnings for the Years Ended December 31, 2011, December 25, 2010, and December 26, 2009
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2011, December 25, 2010, and December 26, 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, December 25, 2010, and December 26, 2009
Notes to Consolidated Financial Statements
Price Range of Common Stock and Dividends
Stock Performance Graph
Directors and Executive Officers
Shareholder Information
EXHIBIT 13
2
3 - 22
23
24
25
26
27
28 - 29
30 - 31
32 - 56
57
58
59
60
SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)
Consolidated Statement of Earnings Data
Net sales
Gross profit
Earnings before income taxes
Net earnings attributable to controlling interest
Diluted earnings per share
Dividends per share
Weighted average shares outstanding with common stock equivalents
Consolidated Balance Sheet Data
Working capital(1)
Total assets
Total debt and capital lease obligations
Shareholders' equity
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)
2011
2010
2009
2008
2007
$
$
$
$
$
$
$
$
$
1,822,336
199,727
8,845
4,549
0.23
0.400
19,533
225,399
764,007
52,470
582,599
11.0%
0.3%
0.8%
2.70
0.09
29.69
$
$
$
$
$
1,890,851
229,955
27,041
17,411
0.89
0.400
19,476
263,578
789,396
55,291
581,176
12.2%
0.9%
3.1%
3.21
0.10
30.06
$
$
$
$
$
1,673,000
243,664
38,597
24,272
1.25
0.260
19,468
248,165
776,868
53,854
568,946
14.6%
1.5%
4.4%
3.06
0.09
29.50
$
$
$
$
$
2,232,394
254,201
7,146
4,343
0.23
0.120
19,225
230,308
802,682
101,174
548,226
11.4%
0.2%
0.8%
2.68
0.18
28.72
$
2,513,178
309,029
38,609
21,045
1.09
0.115
19,362
337,800
935,740
206,071
547,044
12.3%
0.8%
4.0%
3.39
0.38
28.93
(1) Current assets less current liabilities.
(2) Net earnings attributable to controlling interest 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 - CONTINUED
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 retail building materials home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for the
residential construction market, and specialty wood packaging and components and packing materials for various industries. The Company’s subsidiaries also provide framing services for the residential
market and forming products for concrete construction. The Company's consumer products operations offer 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.
Please be aware that: Any statements included in this report that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Such forward-looking statements are based on the beliefs of the Company's management as well as on assumptions made by, and information currently available to, the Company at the time
such statements were made. The Company does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking
statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and
uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: adverse lumber market trends, competitive activity, negative economic
trends, government regulations and weather. Certain of these risk factors and additional information are included in the Company's reports on Form 10-K and 10-Q on file with the Securities and Exchange
Commission. We are pleased to present this overview of 2011.
Our results for 2011 were impacted by the following:
OVERVIEW
● Our results for 2011 include one extra week of activity, a 53-week year compared to a 52-week year in 2010. This additional week added an additional $16 million in sales to 2011. An additional week of
cost of goods sold and expenses also impacted our results for 2011 compared to 2010.
● Our overall unit sales increased 2% primarily due to increases in unit sales to our commercial construction and concrete forming and industrial markets, offset by a decline in unit sales to our residential
construction and retail building materials markets. During 2011, we believe we gained additional share of the concrete forming and industrial markets we serve. These share gains were achieved by
adding many new customers. We believe we have maintained our share of the retail building materials market based on the number of stores we serve of our customers compared to last year. We have
also maintained our share of the manufactured housing market in the product lines we offer. Finally, within the last 18 months we closed several plants that supply the residential construction market in
order to achieve profitability and cash flow goals. Consequently, we believe that these actions temporarily caused us to lose some market share in 2011.
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● We experience significant fluctuations in the cost of commodity lumber products from primary producers ("Lumber Market"). In 2011, the overall Lumber Market and Southern Yellow Pine (“SYP”)
market were down 3.9% and 11.2%, respectively, compared to 2010. We estimate that lower lumber prices and competitive price pressure reduced our overall selling prices by approximately 5%
comparing 2011 and 2010.
• The retail building materials market has been adversely impacted by a decline in consumer demand attributed to several factors, including high unemployment rates, tighter credit availability, and home
values which continue to decline in many parts of the country. The primary products we sell to this market include decking, fencing and other outdoor specialty products used in higher cost home
improvement projects.
● National housing starts increased approximately 2% in the period from December 2010 through November of 2011 (our sales trail housing starts by about a month), compared to the same period of 2010.
● Shipments of HUD code manufactured homes were up 1% in the period from January through November of 2011 compared to the same period of 2010.
● Our gross profit percentage decreased to 11.0% from 12.2% comparing 2011 to 2010. In addition, our gross profit dollars decreased by 13% comparing 2011 to 2010, which compares unfavorably to our
2% increase in unit sales. The decline in our gross margin and profitability was due to several factors.
Inclement weather in the first quarter resulted in many lost production days and adversely impacted our efficiencies and profitability.
●
● Gross margins on sales to the retail building materials market declined primarily due to an increase in material costs as a percentage of sales to this market. This was primarily due to the
Lumber Market, which decreased 11 consecutive weeks from the end of March 2011 through the end of May 2011, our busiest selling season of the year. As a result, this adversely impacted
our gross margins on products whose prices were indexed to the current Lumber Market at the time they are sold. Conversely, we were selling into a rising Lumber Market from January
through most of May of 2010, which increased our gross margins on these products.
● A decline in sales to our retail building materials and residential construction markets adversely impacted our margins due to fixed manufacturing costs. In addition, as these markets have
contracted, competitive pricing pressure has become greater and adversely impacted 2011 margins.
● We recorded a $2 million loss during the second quarter on a construction project.
● Freight costs as a percentage of sales increased primarily due to higher year over year fuel prices and rates charged by carriers due to a shortage of capacity.
4
● On June 20, 2011 our chief executive officer resigned and we entered into a consulting and non-competition agreement with him. We accrued for the present value of the future payments under the
agreement totaling $2.6 million in June 2011.
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● We recorded a $2.5 million impairment charge in the fourth quarter related to the value of real estate of certain idle plants.
● In the fourth quarter of 2010, we eliminated a valuation allowance we had recorded against a deferred tax asset totaling approximately $2.3 million.
The following table presents the Random Lengths framing lumber composite price.
HISTORICAL LUMBER PRICES
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
Random Lengths Composite
Average $/MBF
2010
2011
2009
$
$
$
301
296
294
275
259
262
269
265
262
261
257
267
272
$
(3.9%)
$
$
264
312
310
351
333
267
251
245
250
254
275
279
283
27.5%
198
199
195
208
198
222
238
239
236
235
245
252
222
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.
5
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Random Lengths SYP
Average $/MBF
2010
2009
2011
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
$
$
$
282
289
290
266
254
246
253
263
239
244
248
256
261
$
(11.2%)
$
$
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
IMPACT OF THE LUMBER MARKET ON OUR OPERATING PROFITS
We experience significant fluctuations in the cost of commodity lumber products from primary producers ("Lumber Market"). We generally price our products to pass lumber costs through to our
customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales levels (and working capital requirements) are
impacted by the lumber costs of our products. Lumber costs are a significant percentage of our cost of goods sold.
Our gross margins are impacted by both (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e.
whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling
prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the
Lumber Market impact our products differently.
Below is a general description of the primary ways in which our products are priced.
● Products with fixed selling prices. These products include value-added products such as decking and fencing sold to retail building materials customers, as well as trusses, wall panels and other
components sold to the residential construction market, and most industrial packaging products. Prices for these products are generally fixed at the time of the sales quotation for a specified period of
time or are based upon a specific quantity. In order to maintain margins and reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs for these
sales commitments with our suppliers. Also, the time period and quantity limitations generally allow us to re-price our products for changes in lumber costs from our suppliers.
6
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and profits. These products primarily include treated lumber, remanufactured
lumber, and trusses sold to the manufactured housing industry. For these products, we estimate the customers' needs and carry anticipated levels of inventory. Because lumber costs are incurred in
advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins. For these products, our margins are exposed to changes in the trend of lumber
prices. As a result of the decline in the housing market and our sales to residential and commercial builders, a greater percentage of our sales fall into this general pricing category. Consequently, we
believe our profitability may be impacted to a much greater extent to changes in the trend of lumber prices.
Changes in the trend of lumber prices have their greatest impact on the following products:
● Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in
inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprises approximately 17% of our total sales. This exposure is less significant with
remanufactured lumber, trusses sold to the manufactured housing market, and other similar products, due to the higher rate of inventory turnover. We attempt to mitigate the risk associated with
treated lumber through vendor consignment inventory programs. However, these currently comprise only 5% of our total inventory on December 31, 2011. (Please refer to the “Risk Factors” section of
our annual report on form 10-K, filed with the United States Securities and Exchange Commission.)
● Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing
practices by locking in costs.
In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period.
This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.
Period 1
Period 2
Lumber cost
Conversion cost
= Product cost
Adder
= Sell price
Gross margin
$
$
$
$
300
50
350
50
400
12.5%
400
50
450
50
500
10.0%
As is apparent from the preceding example, the level of lumber prices does not impact our overall profits but does impact our margins. Gross margins are negatively impacted during periods of high lumber
prices; conversely, we experience margin improvement when lumber prices are relatively low.
7
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
Note: Actual percentages are calculated and may not sum to total due to rounding.
GROSS SALES
December 31, 2011
Years Ended
December 25, 2010
December 26, 2009
100.0 %
89.0
11.0
10.0
0.4
0.7
0.2
0.5
0.2
0.3
(0.1)
0.2 %
100.0 %
87.8
12.2
10.5
0.1
1.6
0.2
1.4
0.4
1.1
(0.1)
0.9 %
100.0 %
85.4
14.6
12.0
(0.0)
2.6
0.3
2.3
0.8
1.5
(0.0)
1.5 %
We design, manufacture and market wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry,
engineered wood components for the residential and commercial construction industry, and specialty wood packaging, components and packing materials for various industries. Our strategic long-term
sales objectives include:
● Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our penetration of the concrete forms market, increasing our sales of engineered
wood components for custom home, multi-family and light commercial construction, and increasing our market share with independent retailers.
● Expanding geographically in our core businesses, domestically and internationally.
● Increasing sales of "value-added" products. Value-added product sales primarily consist of fencing, decking, lattice, and other specialty products sold to the retail building materials 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.
8
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● Developing new products and expanding our product offering for existing customers.
● Maximizing unit sales growth while achieving return on investment goals.
The following table presents, for the periods indicated, our gross sales (in thousands) and percentage change in gross sales by market classification.
Market Classification
Retail Building Materials
Residential Construction
Commercial Construction and Concrete Forming
Industrial
Manufactured Housing
Total Gross Sales
Sales Allowances
Total Net Sales
December
31,
2011
%
Change
$
$
838,994
203,217
77,503
493,038
244,662
1,857,414
(35,078)
1,822,336
Years Ended
December
25,
2010
$
(8.5)
(15.8)
13.7
9.5
(0.5)
(3.4)
(3.6)
$
916,469
241,314
68,183
450,407
245,769
1,922,142
(31,291)
1,890,851
%
Change
December
26,
2009
$
2.9
15.0
(4.7)
27.2
32.0
12.3
13.0
$
890,691
209,919
71,573
354,004
186,178
1,712,365
(39,365)
1,673,000
Note: In the second quarter of 2011, we made changes to our customer market classifications to improve our reporting by better aligning our customer market designations with available industry reporting
and end market research. In addition, certain customers have been reclassified to a different market in subsequent periods. Prior year information has been restated to reflect these changes.
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.
2011 versus 2010
2010 versus 2009
2009 versus 2008
in Sales
% Change
in Selling Prices
in Units
-3%
12%
-25%
-5%
7%
-6%
2%
5%
-19%
Gross sales in 2011 decreased 3% compared to 2010 primarily due to an estimated 5% decrease in overall selling prices, while overall unit sales increased by 2%. Our overall selling prices decreased as a
result of the Lumber Market (see “Historical Lumber Prices”) and competitive price pressure. While unit sales had declined in the first six months of the year due to weak end market demand, particularly in
our retail building materials market, unit sales rebounded in the fourth quarter due to our industrial and manufactured housing markets and our extra week of sales (see “Overview”).
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Gross sales in 2010 increased 12% compared to 2009 primarily due to an estimated 5% increase in unit sales and a 7% increase in overall selling prices. 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.
Changes in our sales by market are discussed below.
Retail Building Materials:
Gross sales to the retail building materials market decreased 8% in 2011 compared to 2010 primarily due to an estimated 3% decrease in overall unit sales and a 5% decrease in overall selling prices due to
the Lumber Market and competitive price pressure due to excess supplier capacity. We believe unit sales declined due to a decrease in consumer spending for “big ticket” building materials products
such as decking and fencing. As unemployment remains high and housing projects have decreased, we believe many homeowners have delayed plans for these projects. In addition, our sales of
composite decking decreased as we are preparing to launch a new product in 2012.
Gross sales to the retail building materials market increased 3% in 2010 compared to 2009 primarily due to an estimated increase in overall selling prices due to the Lumber Market, offset by an estimated
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.
Residential Construction:
Gross sales to the residential construction market decreased 16% in 2011 compared to 2010 due to an estimated 11% decrease in selling prices and a 5% decrease in unit sales. Unit sales declined 13% as a
result of operations we have recently closed, offset by an estimated 8% increase in unit sales out of existing plants that were operating in both periods. By comparison, national housing starts increased
approximately 2% in the period from December 2010 through November of 2011 (our sales trail housing starts by about a month), compared to the same period of 2010. Increased unit sales out of existing
plants were primarily due to our increased penetration of the multi-family market.
Gross sales to the residential construction market increased 15% in 2010 compared to 2009, due to an increase in unit sales and an increase in selling prices primarily due to the Lumber Market. Our unit
sales increased as a result of increases from new plants and existing operations. National housing starts increased approximately 6% for 2010 compared to the same period of 2009.
10
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Commercial Construction and Concrete Forming:
Gross sales to the commercial construction and concrete forming market increased 14% in 2011 compared to 2010. Volume increased as a result of adding several large commercial accounts and continuing
to gain share of the concrete forming market.
Gross sales to the commercial construction and concrete forming market decreased 5% in 2010 compared to 2009. This decrease was primarily due to several plant closure actions taken in order to achieve
profitability and cash flow objectives. These operations served the commercial and residential construction markets. Our sales to the concrete forming customers increased in 2010 compared to 2009.
Industrial:
Gross sales to the industrial market increased 9% in 2011 compared to the same period of 2010, due to an estimated 12% increase in unit sales offset by an estimated 3% decrease in selling prices. We
added many new customers in 2011 which allowed us to continue to add market share and grow unit sales. Unit sales to existing customers increased an estimated 12%.
Gross sales to the industrial market increased 27% in 2010 compared to the same period of 2009, due to increases in unit sales and selling prices. The industrial market improved as the U.S. economy
showed signs of recovery, but more significantly, we have been able to continue to gain market share due, in part, to adding many new customers.
Manufactured Housing:
Gross sales to the manufactured housing market remained flat in 2011 compared to the same period of 2010 primarily due to an estimated 3% decrease in selling prices due to the Lumber Market and an
estimated 3% increase in unit sales of new operations we acquired in 2010. By comparison, shipments of HUD code manufactured homes were up 1% in January through November of 2011 compared to
the same period of 2010.
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.
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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.
2011
2010
2009
COST OF GOODS SOLD AND GROSS PROFIT
Value-Added
Commodity-Based
58.8%
58.6%
59.4%
41.2%
41.4%
40.6%
● Our gross profit percentage decreased to 11.0% from 12.2% comparing 2011 to 2010. In addition, our gross profit dollars decreased by 13% comparing 2011 to 2010, which compares unfavorably to our
2% increase in unit sales. The decline in our gross margin and profitability was due to several factors.
Inclement weather in the first quarter resulted in many lost production days and adversely impacted our efficiencies and profitability.
●
● Gross margins on sales to the retail building materials market declined primarily due to an increase in material costs as a percentage of sales to this market. This was primarily due to the
Lumber Market, which decreased 11 consecutive weeks from the end of March 2011 through the end of May 2011, our busiest selling season of the year. As a result, this adversely impacted
our gross margins on products whose prices were indexed to the current Lumber Market at the time they are sold. Conversely, we were selling into a rising Lumber Market from January
through most of May of 2010, which increased our gross margins on these products.
● A decline in sales to our retail building materials and residential construction markets adversely impacted our margins due to fixed manufacturing costs. In addition, as these markets have
contracted, competitive pricing pressure has become greater and adversely impacted 2011 margins.
● We recorded a $2 million loss during the second quarter on a construction project.
● Freight costs as a percentage of sales increased primarily due to higher year over year fuel prices and rates charged by carriers due to a shortage of capacity.
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. Thereafter, lumber prices stabilized for the balance of the year. In order to meet anticipated customer demand during the peak of the selling season, our
inventory purchases are generally very high from January through May, when lumber prices happened to be at their highest level in 2010. The subsequent decline in lumber prices resulted in a significant
adverse impact on our gross margins from June through October on products we purchase and produce for inventory to meet anticipated demand and whose selling prices are indexed to the Lumber
Market at the time they are shipped to the customer (such as high-volume treated lumber). (See “Impact of the Lumber Market on Our Operating Results”.) Additionally, we achieved lower labor and
overhead costs as a percentage of sales due to efficiency gains, which offset some of the decline in gross margin discussed above.
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses decreased by approximately $16.3 million, or 8.2%, in 2011 compared to 2010, while we reported a 2% increase in unit sales. The decline in SG&A
was primarily due to decreases in compensation and related expenses, accrued bonus expense, stock grant expense and several other expenses as a result of our continuing efforts to reduce our cost
structure.
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.
NET LOSS (GAIN) ON DISPOSITION OF ASSETS, EARLY RETIRMENT AND OTHER IMPAIRMENT AND EXIT CHARGES
We incurred $6.4 million, $2.0 million and $4.1 million of charges in 2011, 2010 and 2009, 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 in 2009. See Notes to Consolidated Financial Statements, Note D “Assets Held for Sale and Net Loss (Gain)
on Disposition of Assets, Early Retirement and Other Impairment and Exit Charges.”
On June 20, 2011 our chief executive officer resigned and we entered into a consulting and non-competition agreement with him. We accrued for the present value of the future payments under the
agreement totaling $2.6 million in June 2011.
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
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
• Competitive factors
• Future growth opportunities
● Personnel and management
We currently have 13 operations which are experiencing operating losses and negative cash flow for 2011. 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 $12.5 million at the end of 2011. In addition, these operations had future fixed operating lease payments totaling $2.0 million at the
end of 2011.
INTEREST, NET
Net interest costs were comparable in 2011 and 2010 as there were no significant changes in our debt structure or borrowing rates.
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.
INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and permanent tax differences. Our effective tax rate increased to 32.5% in 2011
compared to 26.6% in 2010. This increase is primarily due to certain 2010 adjustments for a reduction in reserves for uncertain tax positions as a result of a federal tax settlement and removing a valuation
allowance against a deferred tax asset for a net operating loss carryforward related to one of our wholly-owned foreign subsidiaries that was considered more likely than not to be realized. See Notes to
Consolidated Financial Statements, Note K, “Income Taxes”.
Our effective tax rate decreased to 26.6% in 2010 compared to 35.9% in 2009. This decrease in 2010 is primarily due to a reduction in reserves for uncertain tax positions as a result of a federal tax
settlement and removing a valuation allowance against a deferred tax asset related to one of our wholly-owned foreign subsidiaries that was considered more likely than not to be realized.
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 31, 2011 (in thousands).
Contractual Obligation
Long-term debt and capital lease obligations
Estimated interest on long-term debt
Operating leases
Capital project purchase obligations
Total
Less than
1 Year
1 – 3
Years
Payments Due by Period
3 – 5
Years
After
5 Years
$
$
40,270
2,511
5,980
2,494
51,255
$
$
14
94
5,732
$
$
94
1,832
$
12,200
348
89
5,826
$
1,926
$
12,637
$
Total
52,470
3,047
13,633
2,494
71,644
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
As of December 31, 2011, we also had $31.3 million in outstanding letters of credit issued during the normal course of business, as required by some vendor contracts.
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
LIQUIDITY AND CAPITAL RESOURCES
Cash from operating activities
Cash from investing activities
Cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
December 31,
2011
December 25,
2010
December 26,
2009
$
$
11,256
(33,000)
(10,314)
(32,058)
43,363
11,305
$
$
29,337
(42,773)
(10,611)
(24,047)
67,410
43,363
$
$
126,874
(3,329)
(56,135)
67,410
0
67,410
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 and plan to manage our capital structure conservatively in light of current economic
conditions.
Seasonality has a significant impact on our working capital from March to August which historically resulted in negative or modest cash flows from operations in our first and second
quarters. Conversely, we experience a substantial decrease in working capital from September to February which 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 increased to 50 days in 2011 from 45 days in 2010 due to a 5 day increase in our days supply of inventory, due to much higher inventory levels
this year. In preparation for the 2011 selling season, we changed our purchasing strategy to buy inventory earlier at opportune times in an attempt to protect margins and avoid buying as much inventory
during the peak of the season when lumber prices tend to rise.
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Cash provided by operating activities was approximately $11.3 million in 2011, which was comprised of net earnings of $4.5 million and $39.5 million of non-cash expenses, offset by a $32.7 million increase
in working capital since the end of 2010. Working capital increased primarily due to an increase in sales volume and an additional week of operations in 2011 which allowed for compensation and other
accrued liabilities due to be paid before December 31.
Capital expenditures were $32.9 million in 2011 and we have outstanding purchase commitments on existing capital projects totaling approximately $2.5 million on December 31, 2011. We intend to fund
capital expenditures and purchase commitments through our operating cash flows.
Cash flows used in investing activities also includes $2.5 million of notes receivable we advanced to finance a new joint venture with our Mexican partnership.
In 2011, cash flows used in financing activities included $7.8 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 2011. In 2010, we spent approximately $5.0 million for repurchases of our common stock. On October 14, 2010, our Board authorized an additional 2 million shares to be repurchased under our
share repurchase program. The total number of shares that may be repurchased under this program is almost 3 million shares. Our practice has been to repurchase an appropriate number of shares each
year to offset share issuances occurring under certain of our employee benefit plans, and to purchase additional shares at opportune times when the price is at a pre-determined level.
On November 14, 2011, we entered into a five-year, $265 million unsecured revolving credit facility which replaced our $300 million unsecured revolving credit facility. On December 31, 2011, we had no
outstanding balance on our $265 million revolving credit facility, which matures in November of 2016. The revolving credit facility supports letters of credit totaling approximately $31.3 million on
December 31, 2011. 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 31, 2011.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Consolidated Financial Statements, Note M, “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.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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.
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 discount rates can materially affect these estimates. In addition, we test goodwill annually for impairment by utilizing the discounted cash flow
method. The first step of the goodwill impairment test requires that the estimated fair value of the applicable reporting unit be compared with its recorded value. As of December 31, 2011, we have no
reporting units that are at risk of failing this step.
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 31, 2011. Our accounting policies with respect to the reserves are as follows:
● General liability, automobile, property and workers' compensation reserves are accrued based on third party actuarial valuations of the expected future liabilities.
● Health benefits are self-insured by us up to our pre-determined stop loss limits. These reserves, including incurred but not reported claims, are based on internal computations. These computations
consider our historical claims experience, independent statistics, and trends.
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● 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.
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
Earnings on construction contracts are reflected in operations using percentage-of-completion accounting, under either cost to cost or units of delivery methods, 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.
LONG-TERM GOALS
Our previously announced goals were to achieve the following by 2014:
FORWARD OUTLOOK
●
Increase sales to $3 billion through a recovery of our markets from the current economic and housing downturn and by increasing our market share and expanding our product lines.
●
Improve productivity by 15%.
●
Improve profitability by three hundred basis points through productivity improvements, cost reductions, and growth.
●
Improve receivables cycles in our industrial, residential and manufactured housing markets by 10% by reducing the amount of our receivables that are paid past the agreed upon due date.
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
●
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 the financial goals above by 2014. Due to the substantial uncertainty about the timing and strength of the economic recovery, we are not targeting any specific long-term goals,
including those referenced above.
Our general long-term objectives continue to be to:
● Achieve sales growth through new product introduction, international business expansion, and gaining additional share, particularly of our industrial and concrete forming markets;
●
Increase our profitability through cost reductions, productivity improvements as volume improves, and a more favorable mix of higher margin value-added products;
● And earn a return on invested capital in excess of our weighted average cost of capital.
RETAIL BUILDING MATERIALS MARKET
Harvard’s Joint Center for Housing Studies projects home improvement spending to trend up later in the year during 2012. The Home Improvement Research Institute (“HIRI”) also anticipates growth in
home improvement spending and has forecasted a 4.0% growth rate in 2012. HIRI’s long-term forecast is for spending to grow between 3.4% and 5.9% from 2013 to 2015.
In 2012, it is reasonable to expect that we will lose overall market share with certain home improvement and other retailers due to pricing pressure. However, it is our long-term objective to offset this loss
of volume by gaining new customers and increasing our market share with other existing customers. In addition, we believe our product mix will change to include more sales of value added products such
as composite decking and less sales of low margin treated lumber.
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.
19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● Developing new value-added products, such as our Eovations product line, and services for this market.
● Adding new products or new markets through strategic business acquisitions or alliances.
RESIDENTIAL CONSTRUCTION MARKET & COMMERCIAL CONSTRUCTION AND CONCRETE FORMING MARKET
The Mortgage Bankers Association of America forecasts a 13% increase in national housing starts to an estimated 690,000 starts in 2012. The National Association of Home Builders forecasts starts of
709,000, a 17% increase from 2011. In 2012, we believe we are well-positioned to capture our share of any increase that may occur in housing starts. However, due to our focus on profitability and cash
flow our growth may trail the market in 2012.
On a long-term basis, we anticipate growth in our sales to the residential 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 these markets by increasing our sales to the multi-family, light commercial, military and customer home building markets.
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.
MANUFACTURED HOUSING MARKET
The National Association of Home Builders forecasts a 17% increase in manufactured home shipments in 2012. 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 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.
20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In addition, on a long-term basis, it is our goal to continue to expand our product offering to distribute additional products to our manufactured housing customers. We may continue to use strategic
business acquisitions to help us achieve this goal.
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2012:
● We lost market share on lower margin treated lumber business with a major retail customer. We have offset some of this lost share with additional sales of composite decking and other products with
new and existing customers.
● 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.
● Product mix.
● Through at least the first half of 2012 we expect to continue to experience soft demand in each of our markets, which, in turn, may impact our sales prices, capacity utilization, and profitability.
● Fluctuations in the relative level of the Lumber Market and the trend in the market 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.
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 2012. 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:
21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● Our growth in sales to the industrial market and, when industry conditions improve, the residential construction market.
● Our sales to these markets require a higher ratio of SG&A costs due, in part, to product design requirements. Sales of new products which may require higher marketing and advertising costs.
● Our incentive compensation program which is tied to pre-bonus operating profits and return on investment.
● Our growth and success in achieving Continuous Improvement objectives.
LIQUIDITY AND CAPITAL RESOURCES
Our cash cycle will continue to be impacted in the future based on our mix of sales by market. Sales to the residential construction and industrial markets require a greater investment in working capital
(inventory and accounts receivable) than our sales to the retail building materials and manufactured housing markets.
Management expects to spend $35 to $40 million on capital expenditures in 2012 and incur depreciation of approximately $30 million and amortization and other non-cash expenses of approximately $5
million. On December 31, 2011, we had outstanding purchase commitments on capital projects of approximately $2.5 million. We intend to fund capital expenditures and purchase commitments through
our operating cash flows and cash on hand.
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 31, 2011, 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 opportune 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 $40.3 million in 2012. We intend to pay this using operating cash flows and our revolving credit facility.
22
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 31, 2011, and management has concluded that as of December 31, 2011, 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.
March 14, 2012
23
The Board of Directors and Shareholders of Universal Forest Products, Inc.
Report of Independent Registered Public Accounting Firm
We have audited Universal Forest Products, Inc. and subsidiaries internal control over financial reporting as of December 31, 2011, 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 31, 2011, 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 31, 2011 and December 25, 2010 and the related consolidated statements of earnings, shareholder’s equity, and cash flows for each of the three fiscal years in the period ended
December 31, 2011, and our report dated March 14, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
March 14, 2012
24
The Board of Directors and Shareholders of Universal Forest Products, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Universal Forest Products, Inc. and subsidiaries as of December 31, 2011 and December 25, 2010, and the related consolidated
statements of earnings, shareholders’ equity, and cash flows for each of the three fiscal years in the period ended December 31, 2011. 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 31, 2011
and December 25, 2010, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 31, 2011, 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 31, 2011, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission,
and our report dated March 14, 2012, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
March 14, 2012
25
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2011
December 25,
2010
(In thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net
Inventories:
Raw materials
Finished goods
Total inventories
Assets held for sale
Refundable income taxes
Deferred income taxes
Other current assets
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, 19,623,803 and 19,333,122
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.
26
$
11,305
131,292
$
111,526
83,171
194,697
3,482
9,694
7,724
358,194
15,380
154,702
2,340
10,924
112,042
164,757
257,529
2,880
537,208
(314,741)
222,467
764,007
$
49,433
$
30,920
12,172
40,270
132,795
12,200
19,049
17,364
181,408
$
19,624
143,988
410,848
3,600
(1,255)
576,805
5,794
582,599
764,007
$
$
$
$
$
43,363
126,780
113,049
77,341
190,390
2,446
816
9,278
9,742
382,815
11,455
154,702
2,340
15,933
105,857
162,995
245,764
3,177
517,793
(295,642)
222,151
789,396
59,481
43,909
15,135
712
119,237
54,579
20,631
13,773
208,220
19,333
138,573
414,108
4,165
(1,670)
574,509
6,667
581,176
789,396
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
NET SALES
COST OF GOODS SOLD
GROSS PROFIT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NET LOSS (GAIN) ON DISPOSITION OF ASSETS, EARLY RETIREMENT AND OTHER IMPAIRMENT AND EXIT CHARGES
EARNINGS FROM OPERATIONS
INTEREST EXPENSE
INTEREST INCOME
NON-OPERATING EXPENSE
EARNINGS BEFORE INCOME TAXES
INCOME TAXES
NET EARNINGS
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST
EARNINGS PER SHARE - BASIC
EARNINGS PER SHARE - DILUTED
WEIGHTED AVERAGE SHARES OUTSTANDING
WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS
See notes to consolidated financial statements.
27
December 31,
2011
Year Ended
December 25,
2010
December 26,
2009
$
1,822,336
$
1,890,851
$
1,673,000
1,622,609
1,660,896
1,429,336
199,727
181,363
6,353
12,011
3,732
(566)
3,166
8,845
2,874
5,971
229,955
197,617
2,049
30,289
3,549
(301)
3,248
27,041
7,200
19,841
$
$
$
(1,422)
(2,430)
4,549
$
17,411
$
0.23
$
0.23
$
19,407
19,533
0.91
$
0.89
$
19,232
19,476
243,664
200,939
(92)
42,817
4,611
(391)
4,220
38,597
13,852
24,745
(473)
24,272
1.26
1.25
19,256
19,468
(In thousands, except share and per share data)
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Controlling Interest Shareholders' Equity
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
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
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulat-
ed Other
Comprehen-
sive
Earnings
Employees
Stock
Notes
Receivable
Noncontrolling
Interest
Total
19,089
$
128,830
$
393,312
$
2,353
$
(1,701) $
6,343
$
548,226
24,272
1,280
(5,017)
(3,289)
(853)
2,290
29
(74)
(33)
730
(518)
1,597
646
121
130
80
74
(90)
(2)
4
19,285
$
132,765
$
409,278
$
3,633
$
17,411
532
(295)
2,222
140
(9)
598
2,418
776
49
(91)
111
74
9
(145)
1
(2)
(7,727)
(4,854)
28
473
85
14
(917)
(270)
5,728
$
2,430
235
450
(932)
(1,244)
26,110
14
(1,770)
(270)
(5,017)
2,420
109
-
(3,379)
(35)
730
(518)
1,597
646
-
83
568,946
20,608
450
(1,227)
(1,244)
(7,727)
2,333
214
-
(4,999)
598
2,418
776
-
(51)
81
(125)
83
(1,743) $
(50)
42
81
Controlling Interest Shareholders' Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulat-
ed Other
Comprehen-
sive
Earnings
Employees
Stock
Notes
Receivable
Noncontrolling
Interest
Total
19,333
$
138,573
$
414,108
$
4,165
$
(1,670) $
6,667
$
581,176
4,549
(565)
(7,818)
9
137
150
8
(4)
2,834
8
(8)
684
1,361
744
(208)
1,422
(560)
80
(402)
(1,413)
4,846
80
(402)
(1,413)
(7,818)
2,971
167
-
684
1,361
744
(3)
5,794
$
206
582,599
209
206
(1,255) $
Balance at December 25, 2010 $
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 137,029 shares
under employee stock plans
Issuance of 150,376 shares
under stock grant programs
Issuance of 7,995 shares under
deferred compensation plans
Tax benefits from non-qualified
stock options exercised
Expense associated with share-
based compensation
arrangements
Accrued expense under
deferred compensation plans
Note receivable adjustment
Payments received on employee
stock notes receivable
Balance at December 31, 2011 $
19,624
$
143,988
$
410,848
$
3,600
$
See notes to consolidated financial statements
29
(In thousands)
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31,
2011
Year Ended
December 25,
2010
December 26,
2009
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:
$
4,549
$
17,411
$
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
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 patents & product technology
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
Debt issuance costs
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
30,804
5,183
1,361
(36)
167
(1,939)
1,422
2,490
(7,043)
(4,496)
(9,964)
(11,242)
11,256
30,429
6,919
2,418
(430)
214
(2,708)
2,430
1,239
(18,428)
(24,946)
9,646
5,143
29,337
(32,932)
(26,950)
1,814
(175)
(2,468)
472
289
(33,000)
(2,109)
(745)
(946)
2,971
(402)
(1,413)
80
(7,818)
36
32
(10,314)
(32,058)
43,363
(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
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
11,305
$
43,363
$
30
24,272
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
-
67,410
(In thousands)
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
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
31
December 31,
2011
Year Ended
December 25,
2010
December 26,
2009
$
$
3,654
6,163
$
3,554
(1,698)
4,905
12,346
50
306
125
338
246
A.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We design, manufacture and market wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing
industry, engineered wood components for the residential and commercial construction industry, 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 2011, 2010, and 2009 relate to the fiscal years ended December 31, 2011,
December 25, 2010, and December 26, 2009, respectively. Fiscal year 2011 was comprised of 53 weeks. Fiscal years 2010 and 2009 were comprised of 52 weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
We follow ASC Topic 820, Fair Value Measurements and Disclosures, which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over
entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. This topic requires fair value measurements to be classified and disclosed in one
of the following three categories:
● Level 1 — Financial instruments with unadjusted, quoted prices listed on active market exchanges.
32
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
● Level 2 — Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over-the-counter traded financial instruments. Financial instrument values are
determined using prices for recently traded financial instruments with similar underlying terms and direct or indirect observational inputs, such as interest rates and yield curves at
commonly quoted intervals.
● Level 3 — Financial instruments not actively traded on a market exchange and there is little, if any, market activity. Values are determined using significant unobservable inputs or
valuation techniques.
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 $5.4 million and
$44.1 million as of December 31, 2011 and December 25, 2010, 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.
33
The following table presents the activity in our accounts receivable allowances (in thousands):
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 2011:
Allowance for possible losses on accounts receivable
Year Ended December 25, 2010:
Allowance for possible losses on accounts receivable
Year Ended December 26, 2009:
Allowance for possible losses on accounts receivable
Beginning
Balance
Additions
Charged to
Costs and
Expenses
Deductions*
Ending
Balance
$
$
$
2,611
$
18,144
$
(18,702) $
2,897
$
14,967
$
(15,253) $
2,440
$
25,057
$
(24,600) $
2,053
2,611
2,897
* Includes accounts charged off, discounts given to customers and actual customer returns and allowances.
We record estimated sales returns, discounts, and other applicable adjustments as a reduction of net sales in the same period revenue is recognized.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of inventories includes raw materials, direct labor, and manufacturing overhead. Cost is determined on a weighted average
basis. Raw materials consist primarily of unfinished wood products expected to be manufactured or treated prior to sale, while finished goods represent various manufactured and treated wood
products ready for sale.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures for renewals and betterments are capitalized, and maintenance and repairs are expensed as incurred. Amortization of assets held
under capital leases is included in depreciation and amortized over the shorter of the estimated useful life of the asset or the lease term. Depreciation is computed principally by the straight-line
method over the estimated useful lives of the assets as follows:
Land improvements
Buildings and improvements
Machinery, equipment and office furniture
5 to 15 years
15 to 31.5 years
3 to 10 years
34
LONG-LIVED ASSETS
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
FOREIGN CURRENCY
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. Gains and losses arising from re-measuring foreign
currency transactions are included in earnings.
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 31, 2011 and December 25, 2010. 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.
35
REVENUE RECOGNITION
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 percentage-of-completion accounting, under either the cost to cost or units of delivery methods, 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.
The following table presents the balances of percentage-of-completion accounts on December 31, 2011 and December 25, 2010 which are included in other current assets and other accrued
liabilities, respectively (in thousands):
Cost and Earnings in Excess of Billings
Billings in Excess of Cost and Earnings
SHIPPING AND HANDLING OF PRODUCT
2011
2010
$
$
3,670
2,668
3,604
2,126
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.
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.
36
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):
Income
(Num-
erator)
2011
Shares
(Denom-
inator)
Net Earnings
$
4,549
Per
Share
Amount
Income
(Num-
erator)
$
17,411
2010
Shares
(Denom-
inator)
Per
Share
Amount
Income
(Num-
erator)
$
24,272
2009
Shares
(Denom-
inator)
Per
Share
Amount
EPS - Basic
Income available to
common
stockholders
Effect of Dilutive
Securities
Options
EPS - Diluted
Income available to
common
stockholders and
assumed options
exercised
4,549
19,407
$
0.23
17,411
19,232
$
0.91
24,272
19,256
$
1.26
126
244
212
$
4,549
19,533
$
0.23
$
17,411
19,476
$
0.89
$
24,272
19,468
$
1.25
Options to purchase 105,000, 10,000 and 10,000 shares of common stock were not included in the computation of diluted EPS for 2011, 2010 and 2009, 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05
eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. Under ASU 2011-05, an entity has the option to present
the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a continuous statement of comprehensive income or in two
separate consecutive statements. In December 2011, FASB issued Accounting Standards Update No. 2011-12, Deferral of Effective Date for Amendments to the Presentation of Reclassifications
of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 to defer the effective date of ASU 2011-05 as it pertains to the effects of
reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. The guidance is effective for
financial periods beginning after December 15, 2011, and is not expected to have a material effect on the Company’s consolidated financial position or results of operations.
37
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment (ASU 2011-08). ASU 2011-08 amended existing accounting literature by allowing an entity the option to
make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments are effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 is not expected to significantly effect the Company's consolidated
financial position, results of operations or cash flows.
In 2011, the FASB amended the provisions of the Intangibles-Goodwill and Other topic of the FASB Codification. The amended provisions were issued to simplify how entities test goodwill for
impairment. This topic will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-
step goodwill impairment test required under current accounting standards. These amended provisions are effective for fiscal years beginning after December 15, 2011, and is not expected to
have a material effect on the Company’s consolidated financial position or results of operations.
38
B.
FAIR VALUE
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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:
(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
Quoted
Prices in
Active
Markets
(Level 1)
December 31, 2011
Prices with
Other
Observable
Inputs
(Level 2)
$
99
496
426
119
106
1,147
Quoted
Prices in
Active
Markets
(Level 1)
December 25, 2010
Prices with
Other
Observable
Inputs
(Level 2)
67
459
408
119
55
1,041
Total
$
67
459
408
119
55
1,041
1,071
2,179
Total
$
99
$
496
426
119
106
1,147
7,196
8,442
$
1,246
$
$
7,196
7,196
$
$
1,108
$
$
1,071
1,071
$
Mutual funds are valued at prices quoted in an active exchange market and are included in “Other Assets”. Property, plant and equipment are valued based on 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, which were accounted for using the purchase method (in millions). No business combinations were completed in fiscal 2011
and 2009.
Company
Name
Acquisition
Date
Shepherd Distribution
Co. (“Shepherd”)
April 29, 2010
Purchase
Price
$5.9 (asset purchase)
$
Intangible
Assets
Net
Tangible
Assets
Operating
Segment
2.2
$
3.7
Distribution Division
Service Supply
March 8, 2010
$0.6 (asset purchase)
$
0.0
$
0.6
Distribution Division
Distribution, Inc.
(“Service Supply”)
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 a percentage of certain assets.
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 a percentage of certain assets.
39
The amounts assigned to major intangible classes for business combinations mentioned above are as follows (in millions):
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Non-compete
agreements
Customer
Relationships
Goodwill
Goodwill -
Tax
Deductible
Shepherd
$
0.5
$
1.4
$
0.3
$
0.3
The business combinations mentioned above were not significant to our operating results individually or in aggregate, and thus pro forma results for 2010 and 2009 are not presented.
D.
ASSETS HELD FOR SALE AND NET LOSS (GAIN) ON DISPOSITION OF ASSETS, EARLY RETIRMENT AND OTHER IMPAIRMENT AND EXIT CHARGES
Included in “Assets held for sale” on our Consolidated Balance Sheets are 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 broker assessment of value 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, early retirement and other impairment and exit charges” for the years ended December 31, 2011, December 25, 2010 and December 26, 2009, respectively. These amounts
include the following, separated by reporting segment (in millions):
40
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2011
December 25, 2010
December 26, 2009
Eastern
and
Western
Site-
Built
All
Other
Total
Eastern
and
Western
Site-
Built
All
Other
Total
Eastern
and
Western
Site-
Built
All
Other
Total
$
0.7
$
3.1
$
3.8
$
0.6
$
0.2
$
0.8
$
0.3
$
0.4
$
0.7
(0.1)
(0.1)
0.5
0.1
0.6
1.9
0.2
$
0.4
2.5
0.8
$
1.8
0.1
2.7
(0.8)
(3.4)
0.1
$
1.5
$
1.8
$
3.1
$
6.4
$
0.6
1.7
$
0.3
$- $
0.6
2.0
$
(1.1)
$
(0.2)
$
(4.2)
0.6
0.3
(0.1)
0.5
0.3
1.2
$
Severances and
early
retirement
Property, plant
and
equipment
Loss (gain) on
impairment or
sale of real
estate
Lease
termination
Other
intangibles
Total
On June 20, 2011 our chief executive officer resigned and we entered into a consulting and non-competition agreement with him. We accrued for the present value of the future payments under
the agreement totaling $2.6 million in June 2011.
The changes in assets held for sale are as follows (in thousands):
Description
Net Book
Value
Date of Sale
Net Sales
Price
Assets held for sale as of December 26, 2009
Additions
Assets held for sale as of December 25, 2010
Additions
Transfers to held for use
Sale of certain real estate in Indianapolis, Indiana
Assets held for sale as of December 31, 2011
$
$
-
2,446
2,446
5,082
(6,701)
(827)
-
May 17, 2011
$0.7 million
In 2011, 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 that were not significant to operating results.
41
E.
GOODWILL AND OTHER INTANGIBLE ASSETS
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 31, 2011 and December 25, 2010 (in thousands):
Non-compete agreements
Customer relationships
Licensing agreements
Patents
Total
2011
2010
Assets
Accumulated
Amortization
Assets
Accumulated
Amortization
$
$
6,439
8,860
4,589
3,155
23,043
$
$
(5,125)
(4,221)
(688)
(2,085)
(12,119)
$
$
12,569
16,219
4,589
2,980
36,357
$
$
(9,214)
(9,199)
(229)
(1,782)
(20,424)
Amortization is computed principally by the straight-line method over the estimated useful lives of the intangible assets as follows:
Non-compete agreements
Customer relationship
Licensing agreements
5 to 10 years
5 to 8 years
10 years
Amortization expense of intangibles totaled $5.2 million, $6.9 million and $8.3 million in 2011, 2010 and 2009, respectively. The estimated amortization expense for intangibles for each of the five
succeeding fiscal years is as follows (in thousands):
2012
2013
2014
2015
2016
Thereafter
Total
$
$
2,918
2,170
1,836
1,612
607
1,781
10,924
The changes in the net carrying amount of goodwill and indefinite-lived intangible assets for the years ended December 31, 2011 and December 25, 2010, are as follows (in thousands):
Balance as of December 26, 2009
Acquisitions
Final purchase price allocations
Balance as of December 25, 2010 December 31, 2011
42
Indefinite-Lived
Intangible Assets
2,340
$
Goodwill
154,718
309
(325)
154,702
$
2,340
$
$
F.
DEBT
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
We had a five-year, $300 million unsecured revolving credit facility, which included amounts reserved for letters of credit. Cash borrowings were 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 were 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 2011 and 2010. The amount outstanding on the revolving credit facility is included in the long-term debt summary below.
On November 14, 2011, we entered into a five-year, $265 million unsecured revolving credit facility, which includes amounts reserved for letters of credit. This facility replaced our $300 million
unsecured revolving credit facility. Cash borrowings are charged interest based upon an index we elect, equal to the U.S. prime rate (in the case of borrowings in US Dollars), the Canadian prime
rate as determined by the agent (in the case of borrowings in Canadian Dollars), or the Eurodollar rate (in the case of any borrowing, including foreign currency borrowings), in each case, plus a
margin ranging from 110 to 165 basis points, determined based upon our financial performance. We are also charged a facility fee on the entire amount of the lending commitment, at a per annum
rate ranging from 15 to 35 basis points, also determined based upon our performance.
Outstanding letters of credit extended on our behalf on December 31, 2011 and December 25, 2010 aggregated $31.3 million, which includes approximately $12.4 million related to industrial
development revenue bonds. Letters of credit have one year terms and include an automatic renewal clause. The letters of credit are charged an annual interest rate ranging from 110 to 165 and
27 to 90 basis points under the $265 and $300 million facilities, respectively, based upon our financial performance.
Long-term debt and capital lease obligations are summarized as follows on December 31, 2011 and December 25, 2010 (amounts in thousands):
Series 2002-A Senior Notes Tranche B, due on December 18,2012, interest payable semi-annually at 6.16%
Revolving credit facility
Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest payable monthly at a floating rate (0.42% on
December 31, 2011)
Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest payable monthly at a floating rate (0.38% on
December 31, 2011)
Series 2001 Industrial Development Revenue Bonds, due on November 1, 2021, interest payable monthly at a floating rate (0.38% on
December 31, 2011)
Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest payable monthly at a floating rate (0.36% on
December 31, 2011)
Capital lease obligations
Other
Less current portion
Long-term portion
$
43
2011
2010
$
40,000
$
40,000
2,109
3,300
2,700
2,500
3,700
458
524
55,291
(712)
54,579
3,300
2,700
2,500
3,700
270
52,470
(40,270)
12,200
$
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Financial covenants on the unsecured revolving credit facility and unsecured notes include a minimum net worth requirement, minimum interest coverage tests, and a maximum leverage
ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were within all of our lending requirements on
December 31, 2011 and December 25, 2010.
On December 31, 2011, the principal maturities of long-term debt and capital lease obligations are as follows (in thousands):
2012
2013
2014
2015
2016
Thereafter
$
40,270
$
12,200
52,470
On December 31, 2011, the estimated fair value of our long-term debt, including the current portion, was $54.0 million, which was $1.5 million greater than the carrying value. The estimated fair
value is based on rates anticipated to be available to us for debt with similar terms and maturities.
G.
LEASES
We lease certain real estate under operating 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 operating leases on December 31, 2011 are as follows (in thousands):
44
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2012
2013
2014
2015
2016
Thereafter
Total minimum lease payments
Operating
Leases
5,980
3,453
2,279
1,351
481
89
13,633
$
$
There was no leased property included in the balance sheet on December 31, 2011. Leased property included in the balance sheet on December 25, 2010 is as follows (in thousands):
Machinery and equipment
Less accumulated amortization
Rent expense was approximately $9.6 million, $13.8 million, and $16.7 million in 2011, 2010, and 2009, respectively.
H.
DEFERRED COMPENSATION
$
$
2010
1,345
(672)
673
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 totaled $2.0 million on December 31, 2011 and December 25, 2010 and are included "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 $1.2 million and $1.1 million on December 31, 2011 and December 25, 2010, respectively, and are included in "Other
Assets." Related liabilities totaled $5.5 million and $5.3 million on December 31, 2011 and December 25, 2010, respectively, and are included in "Other Liabilities" and "Shareholders'
Equity." Assets associated with 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.
45
I.
COMMON STOCK
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In April 2002, our shareholders approved the 2002 Employee Stock Purchase Plan ("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 Stock Purchase Plan and extended the term of the Stock Purchase Plan to 2018. The plan allows eligible employees to
purchase shares of our stock at a share price equal to 85% of fair market value on the purchase date. 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 stock. We recognized expense for this plan of $0.5 million, $0.5 million and $0.3 million in 2011, 2010 and 2009,
respectively.
On April 15, 2010, 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.
A summary of the transactions under the stock option plans is as follows:
Outstanding at December 27, 2008
Exercised
Forfeited or expired
Outstanding at December 26, 2009
Exercised
Forfeited or expired
Outstanding at December 25, 2010
Exercised
Forfeited or expired
Outstanding at December 31, 2011
Vested or expected to vest at December 31, 2011
Exercisable at December 31, 2011
Weighted-
Average
Exercise
Price Per
Share
Stock Under
Option
600,047
(114,651)
(11,518)
473,878
(96,310)
(17,571)
359,997
(122,517)
(46,146)
191,334
(102,000)
89,334
$
$
22.16
17.14
23.48
23.34
19.80
28.60
24.04
21.33
20.57
26.60
27.61
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
3.62
$
2,686,949
2.97
2.35
1.83
1.45
$
7,049,362
5,012,758
872,441
293,986
46
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The total intrinsic value of options exercised during 2011, 2010 and 2009 was $1.2 million $1.8 million and $2.3 million, respectively.
The unrecognized compensation expense for stock options is not significant for 2011, 2010 or 2009.
A summary of the nonvested restricted shares issued under stock award plans is as follows:
Nonvested at December 27, 2008
Granted
Vested
Forfeited
Nonvested at December 26, 2009
Granted
Vested
Forfeited
Nonvested at December 25, 2010
Granted
Vested
Forfeited
Nonvested at December 31, 2011
Restricted
Awards
Weighted-
Average
Grant Date
Fair Value
Unrecognized
Compensation
Expense
(in millions)
Weighted-
Average
Period to
Recognize
Expense
135,929
79,250
(28,000)
(13,333)
173,846
79,761
(17,011)
(16,802)
219,794
71,950
(113,244)
(15,500)
163,000
$
$
28.09
21.04
22.24
27.88
25.83
34.14
32.61
27.77
28.17
38.19
29.13
30.12
31.75
$
2.6
2.33 years
2.3
2.47 years
2.8
2.30 years
$
3.4
3.37 years
Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation expense of $1.4 million, $2.4 million, and $1.6 million and the related total income tax benefits of $0.5 million,
$0.9 million, and $0.6 million in 2011, 2010 and 2009, respectively.
In 2011, 2010 and 2009, cash received from option exercises and share issuances under our plans was $3.0 million, $2.3 million and $2.4 million, respectively. The actual tax benefit realized in 2011,
2010 and 2009 for the tax deductions from option exercises totaled $0.7 million, $0.6 million and $0.7 million, respectively.
As of December 31, 2011, a total of approximately 3.0 million shares are reserved for issuance under the plans mentioned above.
47
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common
stock. On October 14, 2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. We repurchased 144,900 shares under this program in
2010. As of December 31, 2011, the cumulative total authorized shares available for repurchase is approximately 3.0 million shares.
J.
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 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 2011 and 2010, on a discretionary basis, totaling $1.5 million and $1.4 million, respectively. 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, 2011, 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 $2.5
million and $1.4 million are accrued in “Other Liabilities” for this plan at December 31, 2011 and December 25, 2010, respectively.
K.
INCOME TAXES
Income tax provisions for the years ended December 31, 2011, December 25, 2010, and December 26, 2009 are summarized as follows (in thousands):
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
2011
2010
2009
$
$
453
1,419
3,000
4,872
(1,884)
(137)
23
(1,998)
2,874
$
$
4,762
1,768
3,344
9,874
384
(689)
(2,369)
(2,674)
7,200
$
$
4,411
1,452
2,602
8,465
4,868
337
182
5,387
13,852
48
The components of earnings before income taxes consist of the following:
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
U.S.
Foreign
Total
2011
2010
2009
$
$
268
8,577
8,845
$
$
16,115
10,926
27,041
$
$
29,806
8,791
38,597
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 intangibles
Meals and entertainment
Other, net
Effective income tax rate
2011
2010
2009
34.0%
8.2
(3.0)
(1.9)
(13.4)
-
4.9
4.4
(0.7)
32.5%
35.0%
2.4
(1.8)
(1.6)
(1.4)
(10.5)
1.6
1.6
1.3
26.6%
35.0%
1.9
0.1
(0.8)
(1.8)
(1.4)
1.2
1.1
0.6
35.9%
Temporary differences which give rise to deferred income tax assets and (liabilities) on December 31, 2011 and December 25, 2010 are as follows (in thousands):
Employee benefits
Foreign subsidiary and state net operating loss
Inventory
Accrued expenses
Other, net
Deferred income tax assets
Depreciation
Intangibles
Other, net
Deferred income tax liabilities
Net deferred income tax liability
L.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
2011
2010
6,609
2,224
141
2,562
4,046
15,582
(13,605)
(11,226)
(106)
(24,937)
(9,355)
$
$
6,626
3,130
148
2,075
3,836
15,815
(17,762)
(9,269)
(137)
(27,168)
(11,353)
$
$
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
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Gross unrecognized tax benefits beginning of year
Increase in tax positions for prior years
Increase in tax positions for current year
Settlements with taxing authorities
Lapse in statute of limitations
Gross unrecognized tax benefits end of year
2011
2010
2009
1,253
225
391
(32)
1,837
$
$
10,110
$
260
(8,690)
(427)
1,253
$
10,786
84
591
(778)
(573)
10,110
$
$
We recognized interest and penalties for unrecognized tax benefits in our provision for income taxes. The liability for unrecognized tax benefits included accrued interest and penalties of $0.3
million, $0.2 million and $0.2 million at December 31, 2011, 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 2007. 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 $0.4 million to $1.8 million.
M.
COMMITMENTS, CONTINGENCIES, AND GUARANTEES
We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, Ardellis Insurance Ltd., (f/k/a 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; 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 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 31, 2011 and December 25, 2010, representing the estimated costs to complete future remediation efforts. These
amounts have not been reduced by an insurance receivable.
50
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 31, 2011, 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 31, 2011, we had outstanding purchase commitments on capital projects of approximately $2.5 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 residential 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 31, 2011, we had approximately $13.3 million in outstanding payment and performance bonds, which expire during the
next two years. In addition, approximately $22.7 million in payment and performance bonds are outstanding for completed projects which are still under warranty.
On December 31, 2011 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 $18.9 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected
future liabilities under these insurance arrangements.
51
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 31, 2011.
We did not enter into any new guarantee arrangements during 2011 which would require us to recognize a liability on our balance sheet.
N.
CONSULTING & NON-COMPETE AGREEMENTS
On June 20, 2011 we entered into a consulting and non-compete agreement with our CEO which provides for monthly payments through December 2015 that began upon resignation from
Universal Forest Products, Inc. All amounts were fully accrued and vested on the date of resignation. The present value of these payments totaled approximately $2.3 million at December 31, 2011
and is accrued in other liabilities.
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. All amounts were fully accrued and vested on the date of retirement. The present value of these payments totaled approximately $0.4 million and $1.1 million
at December 31, 2011 and December 25, 2010, respectively, and is accrued in other liabilities.
52
O.
SEGMENT REPORTING
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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. In the fourth quarter of 2011, we undertook a realignment to separately manage our Site-Built
business, which was formerly included in the Atlantic division operating segment. This realignment improves management oversight to more effectively evaluate growth opportunities and other
operational decisions. The remaining component of the former Atlantic division represented core operations and was realigned under Eastern division operating segment management.
Our operating segments consist of the Eastern, Western, Site-Built, 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 Site-Built division is considered a
separate reportable segment. Our other divisions do not collectively form a reportable segment because their respective operations are dissimilar and they do not meet the applicable quantitative
requirements. These operations have been included in the “All Other” column of the table below. The “Corporate” column includes unallocated administrative costs.
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
$
$
$
$
Eastern
and
Western
Divisions
1,486,058
77,858
440
3,571
19,036
28,198
520,506
14,870
Eastern
and
Western
Divisions
1,566,094
104,186
424
4,492
20,140
35,515
525,482
14,205
$
$
Site-Built
183,120
24,907
154
-
2,380
(6,349)
87,160
1,007
Site-Built
179,113
17,482
45
96
2,509
(5,471)
86,128
394
53
2011
All
Other
153,158
28,636
-
1,612
3,240
(8,731)
82,993
8,856
2010
All
Other
145,644
45,174
-
2,331
3,069
1,400
80,576
4,832
$
$
Corporate
Total
$
-
-
3,138
-
6,148
(1,107)
73,348
8,199
1,822,336
131,401
3,732
5,183
30,804
12,011
764,007
32,932
Corporate
Total
$
-
-
3,080
-
4,711
(1,155)
97,210
7,519
1,890,851
166,842
3,549
6,919
30,429
30,289
789,396
26,950
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Eastern
and
Western
Divisions
$
$
1,423,140
98,019
523
4,874
22,543
49,112
503,468
6,954
Site-Built
$
141,091
12,830
30
750
2,704
(10,980)
91,442
359
2009
All
Other
$
108,769
33,171
53
2,684
3,080
5,845
67,819
4,881
Corporate
Total
$
-
-
4,005
-
4,590
(1,160)
114,139
3,410
1,673,000
144,020
4,611
8,308
32,917
42,817
776,868
15,604
Net sales to outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating profit
Segment assets
Capital expenditures
In 2011, 2010, and 2009, 23%, 28%, and 32% of net sales, respectively, were to a single customer.
Information regarding principal geographic areas was as follows (in thousands):
United States
Foreign
Total
2011
2010
2009
Net Sales
1,779,909
42,427
1,822,336
$
$
$
$
Long-Lived
Assets
388,232
17,582
405,814
$
$
Net Sales
1,844,289
46,562
1,890,851
$
$
Long-Lived
Assets
Net
Sales
Long-Lived
Assets
373,709
16,076
389,785
$
$
1,630,763
42,237
1,673,000
$
$
374,831
18,688
393,519
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.
2011
2010
2009
Value-Added
Commodity-Based
58.8%
58.6%
59.4%
41.2%
41.4%
40.6%
Value-added product sales consist of fencing, decking, lattice, and other specialty products sold to the retail building materials 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.
54
The following table presents, for the periods indicated, our gross sales (in thousands) by major product classification.
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Value-Added Sales
Trusses – residential, modular and manufactured housing
Fencing
Decking and railing – composite, wood and other
Turn-key framing and installed sales
Industrial packaging and components
Engineered wood products (eg. LVL; i-joist)
Manufactured brite and other lumber
Wall panels
Outdoor DIY products (eg. stakes; landscape ties)
Construction and building materials (eg. door packages; drywall)
Lattice – plastic and wood
Manufactured brite and other panels
Siding, trim and moulding
Hardware
Manufactured treated lumber
Manufactured treated panels
Other
Total Value-Added Sales
Commodity-Based Sales
Non-manufactured brite and other lumber
Non-manufactured treated lumber
Non-manufactured brite and other panels
Non-manufactured treated panels
Other
Total Commodity-Based Sales
Total Gross Sales
Sales allowances
Total Net Sales
December 31,
2011
Years Ended
December 25,
2010
December 26,
2009
$
$
148,711
145,486
126,832
120,321
174,056
41,313
49,375
19,049
40,716
94,767
42,792
39,779
20,088
12,094
11,728
5,411
98
1,092,616
304,104
285,305
145,547
22,075
7,767
764,798
1,857,414
(35,078)
1,822,336
$
$
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
315,634
305,756
147,845
21,330
5,851
796,416
1,922,142
(31,291)
1,890,851
$
$
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
255,836
296,936
116,645
21,373
4,805
695,595
1,712,365
(39,365)
1,673,000
P.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth selected financial information for all of the quarters, each consisting of 13 weeks (except fourth quarter of 2011 which consisted of 14 weeks) during the years ended
December 31, 2011 and December 25, 2010 (in thousands, except per share data):
55
Net sales
Gross profit
Net earnings (loss)
Net earnings (loss)
attributable to
controlling
interest
Basic earnings
(loss) per share
Diluted earnings
(loss) per share
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
First
Second
Third
Fourth
2011
2010
2011
2010
2011
2010
2011
2010
$
$
387,233
41,414
(3,429)
$
392,958
51,634
1,720
$
544,139
56,587
4,478
$
638,635
77,886
14,468
$
468,941
54,358
5,988
$
480,574
54,415
3,198
$
422,023
47,368
(1,066)
378,685
46,021
455
(3,670)
(0.19)
(0.19)
987
0.05
0.05
4,277
0.22
0.22
13,716
0.71
0.70
56
5,616
0.29
0.29
2,584
0.13
0.13
(1,674)
(0.09)
(0.09)
124
0.01
0.01
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.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Fiscal 2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
31.75
31.95
37.53
39.84
Low
22.91
23.02
26.00
32.27
Fiscal 2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
39.01
33.09
46.63
40.00
Low
27.84
25.76
30.36
31.84
There were approximately 1,300 shareholders of record as of February 29, 2012.
In 2011 and 2010, we paid dividends on our common stock of $0.200 per share each in June and December. We intend to continue with our current semi-annual dividend policy for the foreseeable future.
57
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, 2006, and reinvestment of dividends in all cases.
STOCK PERFORMANCE GRAPH
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2011
The companies included in our self-determined industry peer group are as follows:
Bluelinx Holdings Inc. Louisiana-Pacific Corp.
Builders FirstSource, Inc.
The returns of each company included in the self-determined peer group are weighted according to each respective company's stock market capitalization at the beginning of each period presented in the
graph above. In determining the members of our peer group, we considered companies who selected UFPI as a member of their peer group, and looked for similarly sized companies or companies that are
a good fit with the markets we serve.
58
BOARD OF DIRECTORS
William G. Currie
Chairman of the Board
Universal Forest Products, Inc.
Matthew J. Missad
Chief Executive Officer
Universal Forest Products, Inc.
Dan M. Dutton
Chairman of the Board
Stimson Lumber Co.
John M. Engler
President
Business Roundtable
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
Amway, Inc.
Louis A. Smith
President
Smith and Johnson, Attorneys, P.C.
Bruce A. Merino
Directors and Executive Officers
EXECUTIVE OFFICERS
Matthew J. Missad
Chief Executive Officer
Patrick M. Webster
President and Chief Operating Officer
Michael R. Cole
Chief Financial Officer and Treasurer
Robert W. Lees
President
UFP Eastern Division, Inc.
Allen T. Peters
President
UFP Western Division, Inc.
Robert D. Coleman
Executive Vice President Manufacturing
Joseph F. Granger
Executive Vice President
Universal Consumer Products, Inc. and
UFP Distribution, Inc.
C. Scott Greene
Executive Vice President
New Business Development
Donald L. James
Executive Vice President
National Sales
Michael F. Mordell
Executive Vice President
UFP Purchasing, Inc.
59
ANNUAL MEETING
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 18, 2012, at 2880 East Beltline Lane NE, Grand Rapids, MI 49525.
SHAREHOLDER INFORMATION
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
60
UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES
Ashburn, GA
Auburndale, FL
Belchertown, MA
Berlin, NJ
Blanchester, OH
Burlington, NC
Chaffee, NY
Chandler, AZ
Chesapeake, VA
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
Hudson, NY
Hutchinson, MN
Janesville, WI
Jefferson, GA
Lacolle, Quebec, Canada
Lafayette, CO
Liberty, NC
Lodi, OH
McMinnville, OR
Medley, FL
Minneota, MN
Morristown, TN
Moultrie, GA
Muscle Shoals, AL
New London, NC
New Waverly, TX
New Windsor, MD
Parker, PA
Pearisburg, VA
Plainville, MA
Ponce, Puerto Rico
Prairie du Chien, WI
Ranson, WV
Riverside, CA
Saginaw, TX
Salisbury, NC
San Antonio, TX
Schertz, TX
Sidney, NY
Stockertown, PA
Thornton, CA
Turlock, CA
Union City, GA
Warrens, WI
White Bear Lake, MN
White Pigeon, MI
Windsor, CO
Woodburn, OR
61