Report to Shareholders
2012
Dear Shareholder:
We often have discussions about what it means to be a “Universal company” and how it manifests in what
we do and how we do it.
Being a part of Universal isn’t about systems or methods or about being joined via financial reporting or
marketing campaigns. Being a Universal company is about a shared attitude, a way of thinking and being that
demands success. It’s about having one foot on the forefront of our markets and businesses and the other in
important, time-tested traditions and values. It’s about respecting innovation as much as relationships; about
doing whatever it takes to grow success—as long as it respects and nurtures those who are helping to build it,
from customers to employees to communities. And it’s about enjoying the journey.
This attitude joins companies as diverse as Pinelli Universal, our joint-venture partner in Mexico that uses
state-of-the-art technology to manufacture fine interior mouldings and millwork, and Nepa Pallet and Container
Co., Inc., a manufacturer of pallets, containers and bins for agricultural and industrial customers. Nepa’s 75
years of growth and success made it a solid acquisition opportunity in 2012.
In 2012, this attitude took us past the $2 billion mark again—an achievement that, for us, said we’re back on a
familiar path of dynamic business opportunities and exciting goals,
including targets of achieving
$3 billion in sales and operating margins at normal historical levels by 2017. Compared to 2011, we grew sales
by nearly 13 percent to $2.1 billion (attributable to lumber prices), and we grew earnings to nearly $24 million,
from $4.5 million. We’re proud to say we still haven’t had an unprofitable year since our founding in 1955.
But those aren’t where our successes really showed: They showed in operations like Granger, Ind., Hillsboro,
Texas and Lafayette, Colo., where new products contributed to sales growth and to profit enhancement. They
showed in our ability to successfully refinance $75 million in long-term debt at favorable rates, underscoring
the strength of our balance sheet and the confidence financial institutions have in our company and outlook.
Our achievements showed in our ability to acquire successful companies, including MSR Forest Products, LLC,
a supplier of roof trusses and cut-to-size lumber to the region’s manufactured housing producers that we
consolidated with existing operations to enhance capacity utilization and reduce costs; Nepa Pallet and
Container Co., one of the best and oldest such manufacturers in the Pacific Northwest; and Custom
Caseworks, a high-tech manufacturer of commercial casework, fixtures and related products.
Universal Forest Products, Inc.
Letter to Shareholders
Page ii
Our successes also showed in our products. We re-energized our ProWood® brand as the name for our top-
drawer, professional-grade treated lumber products and launched it with a dynamic, comprehensive marketing
campaign. To offer new choices to consumers, we also launched ProWood Dura Color™ treated lumber
products that are infused with color. The Dura Color launch was described by a customer as one of the most
successful of its type, a credit to employees who worked as hard at 3 a.m. as they did at 9 p.m., manufacturing
flawless products, loading trucks and merchandising stores.
We started an initiative to focus on new product development and, in 2012, we saw sales of $53 million in
products launched in 2011 and 2012.
More importantly, our success and growth created advancement opportunities for our people: new positions
created from new success, promotions for managing our expansion, and a renewed focus on bringing in
trainees and others to backfill at the entry level and rev up the engines of employee development.
All of these were great achievements and good indicators of the strength of our strategies and our company.
That said, the year revealed more opportunities for improvement. At the top of our list for 2013 are enhancing
operating margins and growing top-line sales via new customers and new products. We have ongoing plans to
grow through acquisition and by adding new products and sales to our existing operations, and we have much
capacity to facilitate that growth.
We have competition in each of our markets, but not a single competitor that does all that we do, and we
benefit greatly from such a varied-yet-integrated business model. We achieve efficiencies, have economies of
scale, and have opportunities and leveraging power that others can’t replicate today. And we aren’t standing
still to let them to catch us.
Add to those capabilities a rock-solid balance sheet; longevity of leadership that creates consistency and
engenders loyalty; good, old American values that respect hard-working people who accept responsibility with
honor and who exemplify an entrepreneurial spirit—and you have Universal Forest Products and all the
companies and people who are making us great.
We remain concerned about macroeconomic headwinds: the uncertainty of federal policies, tenuous
economies worldwide, unemployment issues, unsustainable entitlement spending and more. But we are
confident we’ve adopted the right strategies for solid performance and for making a positive difference in the
business of our customers, the opportunity of our employees and the investment of our shareholders.
We are grateful for your support and we’re working hard to ensure you remain pleased with your investment in
our company and our efforts.
William G. Currie
Chairman of the Board
Matthew J. Missad
Chief Executive Officer
Universal Forest Products, Inc.
Letter to Shareholders
Page iii
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 29, 2012 and December 31, 2011
Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 29, 2012, December 31, 2011, and
December 25, 2010
Consolidated Statements of Shareholders' Equity for the Years Ended December 29, 2012, December 31, 2011, and December 25, 2010
Consolidated Statements of Cash Flows for the Years Ended December 29, 2012, December 31, 2011, and December 25, 2010
Notes to Consolidated Financial Statements
Price Range of Common Stock and Dividends
Stock Performance Graph
Directors and Executive Officers
Shareholder Information
Exhibit 13
2
3-23
24
25
26
27-28
29
30-32
33-34
35-60
60
61
62
63
Table of Contents
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
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)
$
$
$
$
$
2012
2011
2010
2009
2008
$
$
$
$
2,054,933
224,977
41,012
23,934
1.21
0.400
338,389
860,532
95,790
607,525
$
$
$
$
1,822,336
199,727
8,787
4,549
0.23
0.400
225,399
764,007
52,470
582,599
$
$
$
$
1,890,851
229,955
27,111
17,411
0.89
0.400
263,578
789,396
55,291
581,176
$
$
$
$
1,673,000
243,664
38,583
24,272
1.25
0.260
248,165
776,868
53,854
568,946
2,232,394
254,201
7,100
4,343
0.23
0.120
230,308
802,682
101,174
548,226
11.0%
11.0%
12.2%
14.6%
11.4%
1.2%
4.1%
3.95
0.16
30.68
$
0.2%
0.8%
2.70
0.09
29.69
$
0.9%
3.1%
3.21
0.10
30.06
$
1.5%
4.4%
3.06
0.09
29.50
$
0.2%
0.8%
2.68
0.18
28.72
(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
Table of Contents
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 building material retailers and wholesalers, engineered
wood components, structural lumber and other products for the manufactured housing industry and 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 construction market and a variety of products used 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.
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on
management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company
itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of
such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve
certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. The
Company does not undertake to update forward-looking statements to reflect facts, circumstances, events, or assumptions 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: fluctuations in the price of lumber; adverse or unusual weather conditions;
adverse economic conditions in the markets we serve; government regulations, particularly involving environmental and safety regulations; and
our ability to make successful business acquisitions. Certain of these risk factors as well as other 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 2012.
Our results for 2012 were impacted by the following:
OVERVIEW
● Our results for 2012 are comprised of a 52-week year compared to a 53-week year in 2011, adding one extra week of activity in 2011. This extra
week added an additional $16 million in sales to 2011. An additional week of cost of goods sold and expenses in 2011 also impacted our results
for 2012 compared to 2011.
3
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● Our sales increased 12% primarily due to an increase in lumber prices. See “Historical Lumber Prices”. Our unit sales increased in four of our five
markets, including double digit increases in our residential construction, manufactured housing and industrial markets. Our sales to the retail
building materials market declined by approximately 6% due to a loss of market share with one customer.
● National housing starts increased approximately 27% in the period of December 2011 through November of 2012 (our sales trail housing starts
by about a month) compared to the same period of 2011, while our unit sales increased 18% in the residential construction market. Since the
downturn in housing began, suppliers servicing this market have been challenged with significant excess capacity. Consequently, pricing
pressure has been intense resulting in several years of operating losses for many industry participants. We have maintained our focus on
profitability and cash flow by being selective in the business that we take. This has resulted in several right-sizing and plant closure actions
which have caused us to sacrifice market share.
● Shipments of HUD code manufactured homes were up 8% in the period from January through November 2012, compared to the same period of
2011, which helped drive our 13% increase in unit sales to this market. We have maintained our share of the manufactured housing market in the
core product lines we offer and our sales increase reflects greater market activity and an increase in market share of our recently acquired
distribution business, which has added more product lines.
● We experienced a 10% increase in unit sales to our industrial customers due to share gains with existing customers and by adding new
customers.
● The retail building materials market, which has been adversely impacted by a decline in consumer demand in prior years, experienced an early
trend up in sales due, in part, to favorable weather. More recently, consumer spending and confidence appears to have softened. Our unit sales
decreased due to the fact we lost market share with a major retail customer this year, primarily in product lines with lower gross margins. This
decrease was offset to some extent by gaining share with other customers in a variety of other product lines.
● Our gross profit dollars increased by 13% comparing 2012 to 2011, which compares favorably to our 4% increase in unit sales. Our gross profit
was primarily impacted by the following factors:
● During the first half of 2012 we benefited from selling into a rising lumber market for much of the period. Conversely, during the first
half of 2011 we were adversely impacted by selling into a falling market for most of that period. See “Historical Lumber Prices” and
“Impact of the Lumber Market on Our Operating Results” for additional information.
●
In the first quarter of 2012 we experienced more favorable weather than we did in the first quarter of 2011, which was impacted by
inclement weather in many areas of the country resulting in many lost production days.
4
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● We lost some market share with a major retail customer this year, primarily in product lines with lower gross margins.
● The favorable factors above were offset to some extent by pricing pressure in each of our markets.
● We had a net gain on the sale of property, plant and equipment totaling $8.0 million for the year. Total proceeds from the sale of these assets
totaled $18.2 million. This net gain was reduced by approximately $1.1 million of impairment charges we recorded on property, plant, and
equipment resulting from certain plant closure actions we had previously taken.
● We recorded a $2.3 million loss contingency for a Canadian anti-dumping duty. The Canadian government has imposed retroactive assessments
for antidumping and countervailing duties tied to certain extruded aluminum products imported from China. While we continue to work with the
government to clarify the applicability of these rules to our products, we recorded a charge in the third quarter for this matter.
● We recorded $3.2 million of loss reserves on certain notes receivable.
● We entered into a Note Purchase Agreement under which we issued senior notes in two tranches totaling $75 million. A portion of these
proceeds were used to retire $40 million senior notes due in December 2012 while the balance of the proceeds were used to repay amounts owed
under our revolving credit facility.
● In 2012, higher lumber prices have caused our investment in accounts receivable and inventory to increase substantially, mitigating the
favorable impact on cash flow in the third and fourth quarters that we would typically experience from seasonality.
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
2011
2012
2010
$
281
286
300
308
342
330
323
340
332
324
354
370
324
$
19.1%
$
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
$
$
5
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Sales of products produced using this
species may comprise up to 50% of our sales volume.
Random Lengths SYP
Average $/MBF
2011
2010
$
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
2012
$
$
$
269
278
300
314
341
314
300
315
319
313
350
362
$
315
20.7%
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
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
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 (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.
6
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● 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 with our suppliers for these sales commitments. Also, the time period and quantity limitations generally allow us to re-
price our products for changes in lumber costs from our suppliers.
● Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and profits. These
products primarily include treated lumber, remanufactured lumber, and trusses sold to the manufactured housing industry. For these products,
we estimate the customers' needs and we 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 15% of our total sales. This exposure is less significant with remanufactured lumber, trusses sold
to the manufactured housing market, and other similar products, due to the higher rate of inventory turnover. We attempt to mitigate the risk
associated with treated lumber through vendor consignment inventory programs. (Please refer to the “Risk Factors” section of our annual
report on form 10-K, filed with the United States Securities and Exchange Commission.)
● Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We
attempt to mitigate this risk through our purchasing practices by locking in costs.
In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins
when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has
increased from period one to period two, with no changes in the trend within each period.
7
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Lumber cost
Conversion cost
= Product cost
Adder
= Sell price
Gross margin
$
$
Period 1
Period 2
$
300
50
350
50
400
$
12.5%
400
50
450
50
500
10.0%
As is apparent from the preceding example, the level of lumber prices does not impact our overall profits but does impact our margins. Gross
margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are
relatively low.
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
Loss contingency for Canadian anti-dumping duty
Net loss (gain) on disposition of assets and other impairment and exit charges
Earnings from operations
Other expense, 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.
8
December 29, 2012
Years Ended
December 31, 2011
December 25, 2010
100.0 %
89.1
11.0
9.0
0.1
(0.3)
2.2
0.2
2.0
0.7
1.3
(0.1)
1.2 %
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 %
Table of Contents
GROSS SALES
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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 residential and commercial construction, 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 forming market, increasing our sales of engineered wood components for custom home, multi-family, military 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, which 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.
● 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
Industrial
Manufactured Housing
Residential Construction
Commercial Construction and Concrete Forming
Total Gross Sales
Sales Allowances
Total Net Sales
December 29,
2012
%
Change
Years Ended
December 31,
2011
%
Change
December 25,
2010
$
841,500
583,689
314,088
256,363
90,365
2,086,005
(31,072)
$
0.3
18.5
28.4
26.3
15.3
12.3
838,903
492,476
244,663
202,970
78,402
1,857,414
(35,078)
$
(8.5)
9.3
(0.5)
(15.9)
15.0
(3.4)
$
2,054,933
12.8
$
1,822,336
(3.6)
$
916,469
450,407
245,769
241,314
68,183
1,922,142
(31,291)
1,890,851
9
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – CONTINUED
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.
2012 versus 2011
2011 versus 2010
2010 versus 2009
in Sales
% Change
in Selling Prices
in Units
12%
-3%
12%
8%
-5%
7%
4%
2%
5%
Gross sales in 2012 increased 12% compared to 2011 primarily due to an estimated 8% increase in overall selling prices combined with a unit sales
increase of 4%. Our overall selling prices increased as a result of the Lumber Market (see “Historical Lumber Prices”). Unit sales increased due to
improved demand in all of our markets in the first nine months of the year.
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 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 primarily due to our industrial and manufactured housing markets.
Changes in our sales by market are discussed below.
Retail Building Materials:
Gross sales to the retail building materials market were flat in 2012 compared to 2011 primarily due to an estimated 6% decrease in overall unit sales
offset by higher lumber prices. Unit sales declined due to the loss of sales to a major retail customer. This loss of market share was offset
somewhat by increased sales to several other retail customers.
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 remained high and housing prices remain deflated, we believe many homeowners delayed plans for larger home improvement
projects. In addition, our sales of composite decking decreased as we are prepared to launch a new product.
10
Table of Contents
Industrial:
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Gross sales to the industrial market increased 19% in 2012 compared to 2011, due to an estimated 10% increase in unit sales combined with an
estimated 9% increase in selling prices. We increased our capacity in several areas of the country and added many new customers in 2012,
resulting in continued gains in market share. Our sales to existing customers also increased as we gained share with our top customers and
demand improved.
Gross sales to the industrial market increased 9% in 2011 compared to 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%.
Manufactured Housing:
Gross sales to the manufactured housing market increased 28% in 2012 compared to 2011 primarily due to an estimated 15% increase in selling
prices due to the Lumber Market and an estimated 13% increase in unit sales. Unit sales to this market increased due to a rise in industry
production of HUD-code homes related to orders from FEMA and strong demand for temporary housing in some areas of the country related to
shale oil and gas development. In addition, we continued to add product lines and expand share in our distribution business. Shipments of HUD
code manufactured homes were up 8% in January through November of 2012 compared to the same period of 2011.
Gross sales to the manufactured housing market remained flat in 2011 compared to 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.
Residential Construction:
Gross sales to the residential construction market increased 26% in 2012 compared to 2011 due to an estimated 18% increase in unit sales and an
8% increase in selling prices. By comparison, national housing starts increased approximately 27% in the period from December 2011 through
November of 2012 (our sales trail housing starts by about a month), compared to the same period of 2011. We continue to be selective in the
business that we pursue in order to improve profitability. As a result, we have lost some share of this market.
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 closed operations, 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.
11
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Commercial Construction and Concrete Forming:
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Gross sales to the commercial construction and concrete forming market increased 15% in 2012 compared to 2011. Within this market, sales to
commercial builders increased 5% as a result of our ability to supply “turnkey” (components and framing) services to our customers, and sales of
products used to make concrete forms increased 24% due to the sales and capital resources we have dedicated to growing our share of this market.
Gross sales to the commercial construction and concrete forming market increased 15% 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.
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.
2012
2011
2010
COST OF GOODS SOLD AND GROSS PROFIT
Value-
Added
Commodity-Based
58.7%
58.8%
58.6%
41.3%
41.2%
41.4%
Our gross profit percentage remained flat at 11% due to the higher level of lumber prices in 2012 compared to 2011. Since we attempt to pass higher
lumber costs along to our customers and earn a fixed profit per unit, our gross margins will decline if the level of lumber prices significantly
increases (see “Impact of the Lumber Market on Our Operating Results”). An improvement in our profitability is reflected in a comparison of the
change in our gross profit dollars versus our change in unit sales. Our gross profits increased by 13% comparing 2012 to 2011 while our unit sales
increased by 4%. Our gross profit was primarily impacted by the following factors:
● During the first half of 2012 we benefited from selling into a rising lumber market for much of the period. Conversely, during the first
●
half of 2011 we were adversely impacted by selling into a falling market for most of that period.
In the first quarter of 2012 we experienced more favorable weather than we did in the first quarter of 2011, which was impacted by
inclement weather in many areas of the country resulting in many lost production days.
● We lost some market share with a major retail customer this year, primarily in product lines with lower gross margins.
● The favorable factors above were offset to some extent by pricing pressure in each of our markets.
12
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Our gross profit percentage decreased to 11% from 12% 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.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased by approximately $3.3 million, or 1.9%, in 2012 compared to 2011, while we
reported a 4% increase in unit sales. The increase in SG&A was primarily due to increases in accrued bonus and other incentive compensation,
which is based on profitability and the efficient use of capital. Also, we recorded $3.2 million in loss reserves for certain notes receivable, which
includes $1.7 million to SG&A expenses and $1.5 million to interest income. These increases were offset by decreases in compensation and related
expenses and as well as certain other expenses as a result of our continuing efforts to reduce our cost structure.
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.
CANADIAN ANTI-DUMPING DUTY ASSESSMENT
We recorded a $2.3 million loss contingency for a Canadian anti-dumping duty. The Canadian government has imposed retroactive assessments
for antidumping and countervailing duties tied to certain extruded aluminum products imported from China. While we continue to work with the
government to clarify the applicability of these rules to our products, we recorded a charge in the third quarter for this matter such that the accrued
liability is the maximum amount of our exposure.
13
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
NET LOSS (GAIN) ON DISPOSITION OF ASSETS, EARLY RETIRMENT AND OTHER IMPAIRMENT AND EXIT CHARGES
We incurred $1.3 million, $6.4 million and $2.0 million of charges in 2012, 2011 and 2010, respectively, relating to asset impairments and other costs
associated with idled facilities and down-sizing efforts. In 2012, these costs were offset by gains on the sale of certain equipment and real estate
totaling $8.0 million. 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, which is included in the amount discussed in the
preceding paragraph.
We regularly review the performance of each of our operations and make decisions to permanently or temporarily close operations based on a
variety of factors including:
● Current and projected earnings, cash flow and return on investment
● Current and projected market demand
● Market share
● Competitive factors
● Future growth opportunities
● Personnel and management
We currently have 12 operations that are experiencing operating losses and negative cash flow for 2012. 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 $26.1 million at
the end of 2012. In addition, these operations had future fixed operating lease payments totaling $0.9 million at the end of 2012.
INTEREST, NET
Net interest costs were comparable in 2012 and 2011. Out debt levels in 2012 were slightly lower, however, our borrowing rates were slightly higher
compared to 2011.
Net interest costs were comparable in 2011 and 2010 as there were no significant changes in our debt structure or borrowing rates.
14
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INCOME TAXES
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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 36.6% in 2012 compared to 32.7% in 2011. This increase is due in part to the expiration of the R&D
tax credit offset by the impact of permanent tax differences on higher income. See Notes to Consolidated Financial Statements, Note K, “Income
Taxes”.
Our effective tax rate increased to 32.7% in 2011 compared to 26.6% in 2010. This increase is primarily due to 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”.
OFF-BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS
We have no significant off-balance sheet commitments other than operating leases. The following table summarizes our contractual obligations as
of December 29, 2012 (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
$
$
$
-
2,987
3,930
3,635
$
10,552
Payments Due by Period
3 – 5
Years
After
5 Years
1 – 3
Years
$
-
5,973
3,343
$
11,090
5,973
499
$
84,700
18,162
64
9,316
$
17,562
$
102,926
$
Total
95,790
33,095
7,836
3,635
140,356
As of December 29, 2012, we also had $28.7 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
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
15
December 29,
2012
December 31,
2011
December 25,
2010
$
$
(5,721)
(28,045)
36,695
244
3,173
11,305
14,478
$
$
11,515
(33,000)
(10,314)
(259)
(32,058)
43,363
11,305
$
$
29,267
(42,773)
(10,611)
70
(24,047)
67,410
43,363
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In general, we financed our growth in the past through a combination of operating cash flows, our revolving credit facility, industrial development
bonds (when circumstances permit), and issuances of long-term notes payable at times when interest rates are favorable. We have not issued
equity to finance growth except in the case of a large acquisition. We manage our capital structure by attempting to maintain a targeted ratio of
debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe this is one of many important factors to
maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed. We are currently below our internal targets
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. In 2012, higher lumber prices have caused our
investment in accounts receivable and inventory to increase substantially, mitigating the favorable impact on cash flow in the third and fourth
quarters that we would typically experience from seasonality.
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 decreased to 48 days in 2012
from 50 days in 2011 due to a 4 day decrease in our days supply of inventory, offset by a 2 day decrease in our days payables outstanding. In
2012, consumer demand and weather were unexpectedly good resulting in strong sales increases and higher inventory turnover. Conversely, in
2011 demand and weather were poor, resulting in weak sales and lower inventory turnover.
Cash used in operating activities was approximately $5.7 million in 2012, which was comprised of net earnings of $26.0 million and $39.2 million of
non-cash expenses, offset by a $6.9 million net gain on the sale of property, plant and equipment and a $64.0 million increase in working capital
since the end of 2011. Working capital at the end of 2012 is significantly higher than the end of 2011, primarily due to the impact of higher year over
year lumber prices. As reflected in the table under the caption “Historical Lumber Prices”, lumber prices were up 33% in the fourth quarter of 2012.
Capital expenditures were $30.3 million in 2012 and we have outstanding purchase commitments on existing capital projects totaling approximately
$3.6 million on December 29, 2012, primarily for expansion to support new product offerings and sales growth into new geographic markets. We
intend to fund capital expenditures and purchase commitments through our operating cash flows and amounts available under our revolving credit
facility. Capital expenditures were offset by $18.2 million received in proceeds for the sale of property, plant and equipment.
Cash flows used in investing activities also included $17.0 million spent to acquire the net assets of Nepa Pallet and Container Co., Inc. and MSR
Forest Products, LLC. See Notes to Unaudited Consolidated Condensed Financial Statements, Note C “Business Combinations”.
16
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
In 2012, cash flows used in financing activities included $7.9 million of dividends paid to shareholders. Our Board of Directors approved two semi-
annual dividends of $0.20 per share each, which were paid in June and December of 2012.
On December 17, 2012, we entered into a Note Purchase Agreement under which we issued senior notes in two tranches totaling $75 million. See
Notes to Unaudited Consolidated Condensed Financial Statements, Note F “Debt”. A portion of these proceeds were used to retire $40 million
senior notes due in December 2012 while the balance of the proceeds were used to repay amounts owed under our revolving credit facility.
On December 29, 2012, we had $11.1 outstanding on our $265 million revolving credit facility, which matures in November of 2016. The revolving
credit facility supports letters of credit totaling approximately $28.7 million on December 29, 2012. Financial covenants on the unsecured revolving
credit facility and unsecured senior notes include 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 29, 2012.
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.
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.
17
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
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 or more
frequently if changes in circumstances or the occurrence of other events suggest impairments exist. The test for impairment requires us to make
several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. Changes in these
estimates may result in the recognition of an impairment loss.
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 29, 2012. 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.
● 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.
18
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Tax laws are complex and subject to different interpretations by taxpayers and respective government taxing authorities, which results in judgment
in determining our tax expense and in evaluating our tax positions. Our tax positions are reviewed quarterly and adjusted as new information
becomes available.
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
FORWARD OUTLOOK
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, but improvements are slowly being seen. With the assumption that housing starts will increase to 1.5 million starts and lead to a
broader economy favorably impacting all of our markets, we are targeting goals of achieving $3 billion in sales and returning to operating margins
at normal historical levels by 2017.
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 a rebound for home improvement activity in 2013. An increase in consumer spending in the
second half of 2012 suggests a remodeling recovery may already be underway, and analysts believe annual homeowner improvement spending will
see accelerating growth through the third quarter of 2013. The Home Improvement Research Institute (“HIRI”) also anticipates growth in home
improvement spending and has forecasted a 4.0% growth rate in 2013. HIRI’s long-term forecast is for spending to grow up to 5.9% by 2015.
19
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
As a result of our recently completed proposal process with customers for 2013 business, we believe we have gained market share with certain
“big box” and independent retail customers. However, we continue to face intense pricing pressure from other suppliers to this market.
Our long-term goal is to achieve sales growth by:
●
Increasing market share of value-added products and preservative-treated products.
● 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.
●
Increasing our emphasis on product innovation and product differentiation in order to counter commoditization trends and influences.
INDUSTRIAL MARKET
Our goal is to increase our sales of wood and alternative packaging products to a wide variety of industrial and OEM 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 growth opportunities as a result of our competitive advantages in manufacturing, purchasing, and material utilization.
We plan to continue to obtain market share through increasing the utilization of our current manufacturing capabilities and dedicated industrial
sales force. We plan to evaluate strategic acquisition opportunities, expansion opportunities at existing locations and diversify our product
offering to customers.
MANUFACTURED HOUSING MARKET
The National Association of Home Builders forecasts a 13% increase in manufactured home shipments in 2013. Over the long term, we believe the
HUD code market will regain a greater share of the overall housing market as credit conditions normalize and as consumers seek more affordable
housing alternatives.
20
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
We anticipate modular housing will gain additional share of the housing market as developers try to control the building environment and
costs. We will strive 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.
We plan to continue to expand our product offering to distribute additional products to our manufactured housing customers. We may continue to
rely upon strategic business acquisitions to help us achieve this goal.
RESIDENTIAL CONSTRUCTION MARKET
The Mortgage Bankers Association of America forecasts a 19% increase in national housing starts to an estimated 926,000 starts in 2013. The
National Association of Home Builders forecasts starts of 932,000, a 20% increase from 2012. In 2013, 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 continue to
trail the market in 2013.
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.
COMMERCIAL CONSTRUCTION AND CONCRETE FORMING MARKET
It continues to be our long term objective to gain additional share of the concrete forming market through our ability to provide value-added
products and services to customers in this market.
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2013:
● End market demand.
• Our ability to maintain market share 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. Excess capacity exists for suppliers in each of our five markets. As a result, we have
experienced significant pricing pressure which we expect to continue.
● We gained market share with retail building materials customers.
● Product mix.
21
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
● 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 costs.
● Our ability to continue to achieve productivity improvements and planned cost reductions through our continuous improvement and other
initiatives.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Throughout the downturn in housing and the general economy 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 will continue to manage our cost structure conservatively based on market conditions, and will strive
to minimize increases in these costs in the future when market conditions improve and we achieve our growth objectives. In addition, bonus
expense for all salaried employees is based on operating profits and return on investment and will continue to fluctuate based on our operating
results.
On a long-term basis, we expect that our SG&A expenses will primarily be impacted by:
● Our growth in sales to the industrial market and, when industry conditions improve, the 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 development, 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 and leveraging our fixed costs.
22
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Our cash cycle will continue to be impacted in the future by 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. Our investment in trade receivables and inventory will continue to be impacted by the level of lumber prices.
Management expects to spend $35 to $40 million on capital expenditures in 2013 and incur depreciation of approximately $30 million and
amortization and other non-cash expenses of approximately $5 million. On December 29, 2012, we had outstanding purchase commitments on
capital projects of approximately $3.6 million. We intend to fund capital expenditures and purchase commitments through our operating cash flows
and availability under our revolving credit facility which is considered sufficient to meet these commitments and working capital needs.
We have no present plan to change our dividend policy, which is currently $0.20 per share paid semi-annually. We will continue to evaluate
dividends in light of United States tax law changes.
Our Board of Directors has approved a share repurchase program, and as of December 29, 2012, we have authorization to buy back approximately 3
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 predetermined levels.
23
Table of Contents
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 29, 2012, and management has concluded that as of
December 29, 2012, our internal control over financial reporting was effective.
The effectiveness of the Company’s internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in their report, which follows our report.
Universal Forest Products, Inc.
February 26, 2013
24
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Universal Forest Products, Inc.
We have audited Universal Forest Products, Inc. and subsidiaries internal control over financial reporting as of December 29, 2012, 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 29, 2012, 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 29, 2012 and December 31, 2011 and the related consolidated
statements of earnings and comprehensive income, shareholder’s equity, and cash flows for each of the three fiscal years in the period ended
December 29, 2012, and our report dated February 26, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 26, 2013
25
Table of Contents
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 29, 2012 and
December 31, 2011, and the related consolidated statements of earnings and comprehensive income, shareholders’ equity, and cash flows for each
of the three fiscal years in the period ended December 29, 2012. 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 also 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 29, 2012 and December 31, 2011, and the consolidated results of their operations and their cash
flows for each of the three fiscal years in the period ended December 29, 2012, 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 29, 2012, based on criteria established in Internal Control–
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2013,
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 26, 2013
26
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
Table of Contents
(In thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories:
Raw materials
Finished goods
Total inventories
Refundable income taxes
Deferred income taxes
Other current assets
TOTAL CURRENT ASSETS
DEFERRED INCOME TAXES
OTHER ASSETS
GOODWILL
INDEFINITE-LIVED INTANGIBLE ASSETS
OTHER INTANGIBLE ASSETS, NET
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements
Building and improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
PROPERTY, PLANT AND EQUIPMENT, GROSS
Less accumulated depreciation and amortization
PROPERTY, PLANT AND EQUIPMENT, NET
TOTAL ASSETS
27
December 29, December 31,
2012
2011
$
$
7,647 $
6,831
163,225
136,201
106,979
243,180
7,521
9,212
15,557
453,173
1,759
14,583
159,316
2,340
8,101
108,545
165,307
239,175
23,750
6,818
543,595
(322,327)
221,268
860,540 $
10,652
653
127,316
111,526
83,171
194,697
3,482
9,694
11,700
358,194
-
15,380
154,702
2,340
10,924
112,042
164,757
231,125
26,404
2,880
537,208
(314,741)
222,467
764,007
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
Table of Contents
(In thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued liabilities:
Compensation and benefits
Other
Current portion of long-term debt
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT, 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, 19,799,606 and
19,623,803
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.
28
December
29,
2012
December
31,
2011
$
66,054 $
49,433
34,728
14,002
-
114,784
95,790
24,930
17,511
253,015
$
$
19,800 $
149,805
426,887
4,258
(982)
599,768
7,757
607,525
860,540 $
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
Table of Contents
(In thousands, except per share data)
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended
December 29, December 31, December 25,
2011
2010
2012
NET SALES
COST OF GOODS SOLD
GROSS PROFIT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
CANADIAN ANTI-DUMPING DUTY
NET LOSS (GAIN) ON DISPOSITION OF ASSETS,
EARLY RETIREMENT AND OTHER
IMPAIRMENT AND EXIT CHARGES
EARNINGS FROM OPERATIONS
INTEREST EXPENSE
INTEREST INCOME
EQUITY IN EARNINGS OF INVESTEE
EARNINGS BEFORE INCOME TAXES
INCOME TAXES
NET EARNINGS
$
2,054,933 $
1,822,336 $
1,890,851
1,829,824
1,622,609
1,660,896
225,109
199,727
229,955
184,919
2,328
181,363
-
197,617
-
(6,666)
6,353
2,049
44,528
12,011
30,289
4,053
(510)
(79)
3,464
3,732
(566)
58
3,224
3,549
(301)
(70)
3,178
41,064
8,787
27,111
15,054
2,874
7,200
26,010
5,913
19,911
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST
(2,076)
(1,364)
(2,500)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST
EARNINGS PER SHARE - BASIC
EARNINGS PER SHARE - DILUTED
OTHER COMPRESHENSIVE INCOME:
$
$
$
23,934 $
4,549 $
17,411
1.21 $
0.23 $
1.21 $
0.23 $
0.91
0.89
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
980
(1,067)
697
COMPREHENSIVE INCOME
26,990
4,846
20,608
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
(2,398)
(862)
(2,665)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTERST
$
24,592 $
3,984 $
17,943
See notes to consolidated financial statements.
29
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
Controlling Interest Shareholders' Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulat-
ed Other
Comprehen-
sive
Earnings
Employees
Stock
Notes
Receivable
Noncontrolling
Interest
19,285 $
132,765 $
409,278 $
17,411
3,633 $
(1,743) $
532
5,728 $
2,500
165
450
Total
568,946
19,911
697
450
(295)
(932)
(1,227)
(1,244)
(1,244)
Balance at December 26, 2009 $
Net earnings
Foreign currency translation
adjustment
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
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
under employee stock plans
111
2,222
(7,727)
(4,854)
74
9
(145)
140
(9)
598
2,418
776
1
(2)
49
(91)
(50)
42
Balance at December 25, 2010 $
19,333 $
138,573 $
414,108 $
4,165 $
30
81
(1,670) $
6,667 $
81
581,176
(7,727)
2,333
214
-
(4,999)
598
2,418
776
-
(51)
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
Controlling Interest Shareholders' Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulat-
ed Other
Comprehen-
sive Earnings
Employees
Stock
Notes
Receivable
4,549
Noncontrolling
Interest
Total
1,364
5,913
(565)
(502)
(1,067)
Net earnings
Foreign currency translation
adjustment
Capital contribution from
noncontrolling interest
Purchase of additional
Current portion of long-term
debt
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
(7,818)
9
137
150
8
(4)
2,834
8
(8)
684
1,361
744
(208)
Balance at December 31, 2011 $
19,624 $
143,988 $
410,848 $
3,600 $
31
80
80
(402)
(402)
(1,413)
(1,413)
(7,818)
2,971
167
-
684
1,361
744
(3)
209
206
(1,255) $
5,794 $
206
582,599
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
Controlling Interest Shareholders' Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulat-
ed Other
Comprehen-
sive Earnings
Employees
Stock
Notes
Receivable
23,934
658
Noncontrolling
Interest
Total
2,076
26,010
322
436
980
436
(871)
(871)
(7,905)
1,971
37
10
(37)
765
1,270
1,836
(25)
90
50
37
(1)
(7,905)
2,061
97
-
765
1,270
1,836
1
27
246
(982) $
7,757 $
246
607,525
Net earnings
Foreign currency translation
adjustment
Capital contribution from
noncontrolling interest
Distributions to noncontrolling
interest
Cash dividends - $0.400 per
share
Issuance of 89,574 shares
under employee stock plans
Issuance of 49,536 shares
under stock grant programs
Issuance of 37,437 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 29, 2012 $
19,800 $
149,805 $
426,887 $
4,258 $
See notes to consolidated financial statements
32
Table of Contents
(In thousands)
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 29, December 31, December 25,
2011
2012
2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings attributable to controlling interest to net cash from
$
26,010 $
5,913 $
19,911
operating activities:
Depreciation
Amortization of intangibles
Expense associated with share-based compensation arrangements
Excess tax benefits from share-based compensation arrangements
Expense associated with stock grant plans
Loss reserve on notes receivable
Deferred income taxes (credit)
Equity in earnings of investee
Net (gain) loss on sale or impairment of property, plant and equipment
Changes in:
Accounts receivable
Inventories
Accounts payable
Accrued liabilities and other
NET CASH FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisitions, net of cash received
Purchase of patents & product technology
Advances on notes receivable
Collections on notes receivable
Cash restricted as to use
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
Effect of exchange rate changes on cash
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
30,461
2,918
1,270
(75)
97
2,131
2,526
(79)
(6,890)
(32,274)
(45,529)
16,281
(2,568)
(5,721)
(30,344)
18,240
(16,974)
(95)
(1,183)
2,839
(6,178)
(528)
(34,223)
11,090
(42,774)
75,000
(266)
2,061
-
(871)
281
(7,905)
-
75
4
36,695
244
(3,005)
10,652
30,804
5,183
1,361
(36)
167
-
(1,939)
58
2,490
(6,784)
(4,496)
(9,964)
(11,242)
11,515
(32,932)
1,814
-
(175)
(2,468)
472
10
289
(32,990)
(2,109)
(745)
-
(946)
2,971
(402)
(1,413)
80
(7,818)
-
36
32
(10,314)
(259)
(32,048)
42,700
30,429
6,919
2,418
(430)
214
-
(2,708)
(70)
1,239
(18,498)
(24,946)
9,646
5,143
29,267
(26,950)
835
(6,529)
(4,589)
(5,780)
227
175
13
(42,598)
2,109
(744)
-
-
2,333
(1,227)
(1,244)
450
(7,727)
(4,999)
430
8
(10,611)
70
(23,872)
66,572
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
7,647 $
10,652 $
42,700
33
Table of Contents
(In thousands)
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Year Ended
December 29, December 31, December 25,
2011
2012
2010
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid
Income taxes paid
$
3,982 $
16,751
3,654 $
6,163
3,554
(1,698)
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans
See notes to consolidated financial statements
34
1,310
246
306
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
We design, manufacture and market wood and wood-alternative products for 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. We also provide
framing services for the residential market and forming products for concrete construction. Our 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.
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 2012, 2011, and
2010 relate to the fiscal years ended December 29, 2012, December 31, 2011, and December 25, 2010, respectively. Fiscal years 2012 and
2010 were comprised of 52 weeks. Fiscal year 2011 was comprised of 53 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:
35
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Level 1 — Financial instruments with unadjusted, quoted prices listed on active market exchanges.
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.
There were no cash equivalents as of December 29, 2012. Cash equivalents totaled approximately $5.4 million as of December 31, 2011.
Restricted cash consists of amounts held in escrow for the purchase of the operating assets of Custom Caseworks, Inc. totaling $6.3
million as of December 29, 2012 and the amount required to be held for loss funding totaling $0.5 million and $0.7 million as of December
29, 2012 and December 31, 2011, respectively.
ACCOUNTS RECEIVABLE AND ALLOWANCES
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.
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.
36
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the activity in our accounts receivable allowances (in thousands):
Additions
Charged to
Costs and
Expenses
Beginning
Balance
Deductions*
Ending
Balance
Year Ended December 29, 2012:
Allowance for possible losses on accounts
receivable
$
2,053 $
16,687 $
(16,190) $
2,550
Year Ended December 31, 2011:
Allowance for possible losses on accounts
receivable
$
2,611 $
18,144 $
(18,702) $
2,053
Year Ended December 25, 2010:
Allowance for possible losses on accounts
receivable
$
2,897 $
14,967 $
(15,253) $
2,611
* 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.
NOTES RECEIVABLE AND ALLOWANCES
We have written agreements to receive repayment of funds borrowed from us, consisting of principal as well as any accrued interest, at a
specified future date. We record a valuation allowance relating to these agreements for the portion that is expected to be uncollectible.
The current portion of notes receivable, net of allowance, totaled $0.2 million and $1.1 million at December 29, 2012 and December 31, 2011,
respectively and are included in “Other Current Assets”. The long-term portion of notes receivable, net of allowance, totaled $7.7 million
and $9.6 million at December 29, 2012 and December 31, 2011, respectively and are included in “Other Assets”.
The following table presents the activity in our notes receivable allowances (in thousands):
Year Ended December 29, 2012:
Allowance for possible losses on Notes
receivable
$
-
$
3,226
$
-
$
3,226
Beginning
Balance
Additions
Deductions
Ending
Balance
37
Table of Contents
INVENTORIES
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
LONG-LIVED ASSETS
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), when an indicator of potential impairment exists, we evaluate
the recoverability of our long-lived assets by determining whether unamortized balances could be recovered through undiscounted future
operating cash flows over the remaining lives of the assets. If the sum of the expected future cash flows was less than the carrying value
of the assets, an impairment loss would be recognized for the excess of the carrying value over the fair value.
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 29, 2012 and December 31,
2011. 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.
38
Table of Contents
INCOME TAXES
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are
based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred income tax assets to the
amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the
period in deferred income tax assets and liabilities.
REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped to the customer. Generally, title passes at the time of shipment. In certain
circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically
completed the same day.
Earnings on construction contracts are reflected in operations using 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 29, 2012 and December 31, 2011 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
39
2012
2011
$
4,981 $
2,020
3,670
2,668
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SHIPPING AND HANDLING OF PRODUCT
Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenue. Costs incurred related to the
shipment and handling of products are classified in cost of goods sold.
EARNINGS PER SHARE
The computation of earnings per share (“EPS”) is as follows (in thousands):
Numerator:
Net earnings attributable to controlling interest
Adjustment for earnings allocated to non-vested restricted
common stock
Net earnings for calculating EPS
Denominator:
Weighted average shares outstanding
Adjustment for non-vested restricted common stock
Shares for calculating basic EPS
Effect of dilutive stock options
Shares for calculating diluted EPS
Net earnings per share:
Basic
Diluted
December
29, 2012
December
31, 2011
December
25, 2010
23,934
$
4,549
$
17,411
(210)
23,724
$
(38)
4,511
$
19,800
(173)
19,627
6
19,633
19,572
(165)
19,407
126
19,533
1.21
1.21
$
$
0.23
0.23
$
$
(6)
17,405
19,452
(220)
19,232
244
19,476
0.91
0.89
$
$
$
$
No options were excluded from the computation of diluted EPS for 2012. Options to purchase 105,000 and 10,000 shares of common stock
were not included in the computation of diluted EPS for 2011 and 2010, 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.
40
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2011, the Financial Accounting Standards Board 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. We have adopted the provisions of ASU 2011-05 by
presenting comprehensive income in a continuous statement of earnings and comprehensive income.
In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (ASC Topic 350) Testing Indefinite-Lived Intangible
Assets for Impairment (“ASU 2012-02”). ASU 2012-02 amends prior indefinite-lived intangible asset impairment testing guidance. Under
ASU 2012-02, we have the option to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived
intangible asset is impaired. If, after considering the totality of events and circumstances, an entity determines it is more likely than not
that an indefinite-lived intangible asset is not impaired, then further quantitative assessment is unnecessary. ASU 2012-02 became
effective for the Company during the interim and annual periods beginning after September 15, 2012. We have adopted these provisions
for our year-end assessment.
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
(ASC Topic 220) (“ASU 2013-02”). ASU 2013-02 amends prior presentation of comprehensive income guidance. ASU 2013-02 requires
that we report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net
income if the amount being reclassified is required to be reclassified in its entirety to net income. ASU 2013-02 will be effective for the
Company during the interim and annual periods beginning after December 15, 2012. The adoption of ASU 2013-02 is not expected to
significantly affect our consolidated financial position, results of operations or cash flows.
41
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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:
Quoted
Prices in
Active
Markets
(Level 1)
December 29, 2012
Prices with
Other
Observable
Inputs
(Level 2)
Total
Quoted
Prices in
Active
Markets
(Level 1)
December 31, 2011
Prices with
Other
Observable
Inputs
(Level 2)
Total
$
62
$
62
$
99
$
613
500
145
140
1,398
613
500
145
140
1,398
496
426
119
106
1,147
99
496
426
119
106
1,147
7,196
8,442
(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
Assets at fair value
$
$
1,460 $
1,600 $
$1,600 $
1,600
3,060
$
$
1,246 $
7,196
7,196 $
We maintain money market and mutual funds in our non-qualified deferred compensation plan. These funds are valued at prices quoted in
an active exchange market and are included in “Other Assets”. During our fourth quarter evaluation of the recoverability of our long-lived
assets, we identified certain idle facilities which required an impairment loss for the excess of carrying value over the fair value, and as
such were stated at fair value. The fair values of these long-lived property, plant and equipment assets are determined based on broker
assessments of value, appraisals, or recent offers to acquire 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 2012 and 2010, which were accounted for using the purchase method (in
millions). No business combinations were completed in fiscal 2011.
42
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Acquisition
Date
November 5,
2012
Purchase
Price
Intangible
Assets
$
1.4
$
$16.2
(asset
purchase)
Net
Tangible
Assets
Operating
Segment
14.8 Western
Division
Business Description
Manufactures pallets, containers and
bins for agricultural and industrial
customers. Facilities are located in
Snohomish, Yakima and Wenatchee,
WA. Nepa had trailing twelve month
sales through September 2012 of $25
million.
1.1
$
2.1 Eastern Division Supplies roof trusses and cut-to-size
May 16, 2012 $3.2 (asset
purchase)
$
April 29, 2010 $5.9 (asset
purchase)
$
2.2
$
3.7 Distribution
Division
March 8, 2010 $0.6 (asset
purchase)
$
0.0
$
0.6 Distribution
Division
lumber to manufactured housing
customers. Facilities are located in
Haleyville, AL and Waycross, GA. In
2011, MSR had annual sales of $10
million.
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.
Company
Name
Nepa Pallet
and
Container
Co., Inc.
(“Nepa”)
MSR Forest
Products,
LLC
(“MSR”)
Shepherd
Distribution
Co.
(“Shepherd”)
Service
Supply
Distribution,
Inc.
(“Service
Supply”)
The purchase price allocations for Nepa and MSR are preliminary, pending determination of the fair value of acquired intangible assets.
At December 29, 2012, the amounts assigned to major intangible classes for the business combinations mentioned above are as follows
(in millions):
Nepa
MSR
Shepherd
Customer
Relationships
$
-
-
1.4
$
Goodwill
$
1.4
1.1
0.3
Goodwill -
Tax
Deductible
1.4
1.1
0.3
Non-compete
agreements
$
-
-
0.5
43
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The business combinations mentioned above were not significant to our operating results individually or in aggregate, and thus pro
forma results for 2012 and 2010 are not presented.
D.
NET LOSS (GAIN) ON DISPOSITION OF ASSETS, EARLY RETIRMENT AND OTHER IMPAIRMENT AND EXIT CHARGES
We have long-lived assets that 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 assessments of value, appraisals or recent offers to
acquire assets. These and other idle assets were evaluated based on the requirements of ASC 360, which resulted in impairment and other
exit charges included in “Net loss (gain) on disposition of assets, early retirement and other impairment and exit charges” for the years
ended December 29, 2012, December 31, 2011 and December 25, 2010, respectively.
In the second quarter of 2012, we sold certain real estate in Fontana, CA, for approximately $12.1 million and recognized a pre-tax gain of
approximately $7.2 million and included in the Western Division segment.
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.
E.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired
businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least
annually in accordance with ASC 350, Intangibles-Goodwill and Other. We review the carrying amounts of goodwill and other non-
amortizable intangibles by reporting unit to determine if such assets may be impaired. As the carrying amount of these assets are
recoverable based upon a discounted cash flow and market approach analysis, no impairment was recognized.
The following amounts were included in other intangible assets, net as of December 29, 2012 and December 31, 2011 (in thousands):
2012
2011
Non-compete agreements
Customer relationships
Licensing agreements
Patents
Total
Assets
Accumulated
Amortization
Assets
(3,366)
(5,465)
(1,147)
(2,350)
(12,328)
$
$
6,439
8,860
4,589
3,155
23,043
$
$
3,730
8,860
4,589
3,250
20,429
$
$
44
Accumulated
Amortization
(5,125)
(4,221)
(688)
(2,085)
(12,119)
$
$
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Amortization is computed principally by the straight-line method over the estimated useful lives of the intangible assets as follows:
Non-compete agreements
Customer relationship
Licensing agreements
5 to 10 years
5 to 8 years
10 years
Amortization expense of intangibles totaled $2.9 million, $5.2 million and $6.9 million in 2012, 2011 and 2010, respectively. The estimated
amortization expense for intangibles for each of the five succeeding fiscal years is as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total
$
$
2,170
1,836
1,612
607
459
1,417
8,101
The changes in the net carrying amount of goodwill and indefinite-lived intangible assets for the years ended December 29, 2012 and
December 31, 2011, are as follows (in thousands):
Balance as of December 25, 2010 and December 31, 2011
Acquisitions
Other
Goodwill
$
154,702 $
2,514
2,100
Indefinite-Lived
Intangible Assets
2,340
-
-
Balance as of December 29, 2012
$
159,316 $
2,340
F.
DEBT
On December 17, 2012, we entered into an unsecured Note Purchase Agreement (the "Agreement") under which we issued our 3.89%
Series A Senior Notes, due December 17, 2022, in the aggregate principal amount of $35 million and our 3.98% Series B Senior Notes, due
December 17, 2024, in the aggregate principal amount of $40 million. Proceeds from the sale of the Series A Senior Notes and Series B
Senior Notes were used to repay amounts due on our existing Series 2002-A Senior Notes, Tranche B totaling $40 million and our
revolving credit facility.
45
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 29, 2012 aggregated $28.7 million, which includes approximately $9.8
million related to industrial development revenue bonds. Outstanding letters of credit extended on our behalf on December 31, 2011
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 basis points under the $265 million facility, based upon our financial performance.
Long-term debt obligations are summarized as follows on December 29, 2012 and December 31, 2011 (amounts in thousands):
2012
2011
Series 2012 Senior Notes Tranche A, due on December 17, 2022, interest payable
semi-annually at 3.89%
$
35,000 $
-
Series 2012 Senior Notes Tranche B, due on December 17, 2024, interest payable
semi-annually at 3.98%
Series 2002-A Senior Notes Tranche B
Revolving credit facility totaling $265 million due on November 14, 2016, interest
payable monthly at a floating rate (1.27% on December 29,2012)
Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029,
interest payable monthly at a floating rate (0.35% on December 29, 2012)
Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020,
interest payable monthly at a floating rate (0.46% on December 29, 2012)
Series 2001 Industrial Development Revenue Bonds
Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022,
interest payable monthly at a floating rate (0.45% on December 29, 2012)
Other
Less current portion
Long-term portion
40,000
11,090
3,300
2,700
3,700
-
95,790
40,000
-
3,300
2,700
2,500
3,700
270
52,470
(40,270)
12,200
$
95,790 $
46
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Financial covenants on the unsecured revolving credit facility and unsecured notes include 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 29, 2012 and December 31, 2011.
On December 29, 2012, the principal maturities of long-term debt and capital lease obligations are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
$
11,090
$
84,700
95,790
On December 29, 2012, the estimated fair value of our long-term debt, including the current portion, was $95.4 million, which was $0.4
million less 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 29, 2012 are as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
Total minimum lease payments
Operating
Leases
$
$
3,930
2,107
1,236
474
25
64
7,836
Rent expense was approximately $6.9 million, $9.6 million, and $13.8 million in 2012, 2011, and 2010, respectively.
.
47
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
H.
DEFERRED COMPENSATION
We have a program whereby certain executives irrevocably elected to defer receipt of certain compensation in 1985 through 1988.
Deferred compensation payments to these executives will commence upon their retirement. We purchased life insurance on such
executives, payable to us in amounts which, if assumptions made as to mortality experience, policy dividends, and other factors are
realized, will accumulate cash values adequate to reimburse us for all payments for insurance and deferred compensation obligations. In
the event cash values are not sufficient to fund such obligations, the program allows us to reduce benefit payments to such amounts as
may be funded by accumulated cash values. The deferred compensation liabilities and related cash surrender value of life insurance
policies totaled $2.0 million on December 29, 2012 and December 31, 2011 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 $1.5 million and $1.2 million on December 29, 2012 and December 31, 2011, respectively, and are
included in "Other Assets." Related liabilities totaled $6.7 million and $5.5 million on December 29, 2012 and December 31, 2011,
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.
I.
COMMON STOCK
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. The amount of expense is nominal.
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 each in 2012, 2011 and 2010.
48
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 26, 2009
Exercised
Forfeited or expired
Outstanding at December 25, 2010
Exercised
Forfeited or expired
Outstanding at December 31, 2011
Exercised
Forfeited or expired
Outstanding at December 29, 2012
Vested or expected to vest at December 29,
2012
Exercisable at December 29, 2012
Weighted-
Average
Exercise
Price Per
Share
Stock Under
Option
$
473,878
(96,310)
(17,571)
359,997
(122,517)
(46,146)
191,334
(79,550)
(1,678)
110,106
(51,000)
59,106
$
23.34
19.80
28.60
24.04
21.33
20.57
26.60
21.82
21.84
30.13
29.53
30.64
Average
Remaining
Contractual
Term
2.97
$
2.35
1.83
Aggregate
Intrinsic
Value
7,049,362
1,764,674
5,012,758
1,153,067
872,441
970,698
1.64
845,915
1.59
$
423,790
The unrecognized compensation expense for stock options is not significant for 2012, 2011 or 2010.
A summary of the nonvested restricted shares issued under stock award plans is as follows:
49
Table of Contents
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Restricted
Awards
Weighted-
Average
Grant Date
Fair Value
Unrecognized
Compensation
Expense
(in millions)
2.3
Nonvested at December 26, 2009
Granted
Vested
Forfeited
Nonvested at December 25, 2010
Granted
Vested
Forfeited
Nonvested at December 31, 2011
Granted
Vested
Forfeited
Nonvested at December 29, 2012
173,846
79,761
(17,011)
(16,802)
219,794
71,950
(113,244)
(15,500)
163,000
37,433
(859)
(12,965)
186,609
$
$
25.83
$
34.14
32.61
27.77
28.17
38.19
29.13
30.12
31.75
35.05
29.72
30.35
$
32.22
Weighted-
Average
Period to
Recognize
Expense
2.47 years
2.30 years
3.37 years
2.68 years
2.8
3.4
3.2
Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation expense of $1.3 million, $1.4 million, and $2.4 million
and the related total income tax benefits of $0.5 million, $0.5 million, and $0.9 million in 2012, 2011 and 2010, respectively.
In 2012, 2011 and 2010, cash received from option exercises and share issuances under our plans was $2.0 million, $3.0 million and $2.3
million, respectively. The actual tax benefit realized in 2012, 2011 and 2010 for the tax deductions from option exercises totaled $0.8 million,
$0.7 million and $0.6 million, respectively.
As of December 29, 2012, a total of approximately 3.0 million shares are reserved for issuance under the plans mentioned above.
On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us
to repurchase up to 2.5 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 29, 2012,
the cumulative total authorized shares available for repurchase is approximately 3.0 million shares.
50
Table of Contents
J.
RETIREMENT PLANS
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 2012 and 2011, on a discretionary basis, totaling $1.6 million and $1.5 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 $3.4 million and $2.5 million
are accrued in “Other Liabilities” for this plan at December 29, 2012 and December 31, 2011, respectively.
K.
INCOME TAXES
Income tax provisions for the years ended December 29, 2012, December 31, 2011, and December 25, 2010 are summarized as follows (in
thousands):
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
2012
2011
2010
$
$
5,167
2,160
3,123
10,450
3,464
946
194
4,604
15,054
$
$
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
The components of earnings before income taxes consist of the following:
U.S.
Foreign
Total
2012
2011
2010
$
$
31,768
9,296
41,064
$
$
328
8,459
8,787
$
$
16,185
10,926
27,111
51
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The effective income tax rates are different from the statutory federal income tax rates for the following reasons:
Statutory federal income tax rate
State and local taxes (net of federal benefits)
Effect of noncontrolling owned interest in earnings of
partnerships
Manufacturing deduction
Tax credits, including foreign tax credit
Change in valuation allowance
Change in uncertain tax positions reserve
Foreign rate differential
Other permanent differences
Other, net
Effective income tax rate
2012
2011
2010
35.0%
5.2
(0.5)
(1.6)
(1.2)
-
(1.0)
0.7
1.1
(1.1)
36.6%
34.0%
8.2
(3.0)
(1.9)
(15.4)
-
0.4
0.4
4.9
4.9
32.5%
35.0%
2.4
(1.8)
(1.6)
(1.7)
(10.5)
0.2
-
2.2
2.4
26.6%
Temporary differences which give rise to deferred income tax assets and (liabilities) on December 29, 2012 and December 31, 2011 are as
follows (in thousands):
Employee benefits
Net operating loss carryforwards
Foreign subsidiary capital loss carryforward
Other tax credits
Inventory
Reserves on receivables
Accrued expenses
Other, net
Gross deferred income tax assets
Valuation allowance
Deferred income tax assets
Depreciation
Intangibles
Other, net
Deferred income tax liabilities
Net deferred income tax liability
2012
2011
$
7,295
1,592
671
1,494
838
1,193
2,995
2,673
18,751
(671)
18,080
(18,248)
(12,781)
(1,010)
(32,039)
(13,959)
$
6,609
2,307
671
1,315
141
1,090
2,287
2,794
17,214
(671)
16,543
(16,004)
(9,272)
(622)
(25,898)
(9,355)
$
$
The valuation allowance consists of a capital loss carryforward we have for a wholly-owned subsidiary, Universal Forest Products of
Canada, Inc. Based upon the business activity and the nature of the assets of this subsidiary, our ability to realize a future benefit from
this loss carryforward is in doubt, therefore we have established an allowance for the entire amount of the future benefit. The loss has an
unlimited carryforward and therefore will not expire unless there is a change in control of the subsidiary.
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
L.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
ASC 740, Income Taxes (“ASC 740”) clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax
position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition,
measurement, classification, interest and penalties, and disclosure requirements.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
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
$
2012
2011
2010
1,837
1
68
(137)
(238)
1,531
$
$
1,253
225
391
-
(32)
1,837
$
$
10,110
-
260
(8,690)
(427)
1,253
Our effective tax rate would have been affected by the unrecognized tax benefits had this amount been recognized as a reduction to
income tax expense.
We recognized interest and penalties for unrecognized tax benefits in our provision for income taxes. The liability for unrecognized tax
benefits included accrued interest and penalties of $0.2 million, $0.3 million and $0.2 million at December 29, 2012, December 31, 2011 and
December 25, 2010, 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 routine state and local examinations are currently ongoing. Due to the
potential for resolution of state examinations, and the expiration of various statutes of limitation, and new positions that may be taken, it
is reasonably possible that the amounts of unrecognized tax benefits could change in the next twelve months.
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., a licensed captive insurance company.
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 $3.5 million on December 29, 2012 and $3.4 million December 31, 2011,
representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance
receivable.
From time to time, various special interest environmental groups have petitioned certain states requesting restrictions on the use or
disposal of CCA treated products. The wood preservation industry trade groups are working with the individual states and their
regulatory agencies to provide an accurate, factual background which demonstrates that the present method of uses and disposal is
scientifically supported. Our affiliates market a modest amount of CCA treated products for permitted, non-residential applications.
We have not accrued for any potential loss related to the contingencies above. However, potential liabilities of this nature are not
conducive to precise estimates and are subject to change.
In 2012, we recorded a $2.3 million loss contingency for a Canadian anti-dumping duty. The Canadian government has imposed
retroactive assessments for antidumping and countervailing duties tied to certain extruded aluminum products imported from China.
While we continue to work with the government to clarify the applicability of these rules to our products, we recorded a charge in 2012 for
this matter.
In addition, on December 29, 2012, 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 29, 2012, we had outstanding purchase commitments on capital projects of approximately $3.6 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.
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In certain cases we supply building materials and labor to site-built construction projects or we jointly bid on contracts with framing
companies for such projects. In some instances we are required to post payment and performance bonds to insure the owner that the
products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety
for claims made against the bonds. As of December 29, 2012, we had approximately $20.1 million in outstanding payment and performance
bonds, which expire during the next two years. In addition, approximately $21.6 million in payment and performance bonds are
outstanding for completed projects which are still under warranty.
On December 29, 2012 we had outstanding letters of credit totaling $28.7 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.
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 $9.8 million related to our outstanding industrial development revenue bonds. These
letters of credit have varying terms but may be renewed at the option of the issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products, Inc. in certain debt
agreements, including the Series 2012 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 $0.6 million. As a result, this
amount is recorded in other long-term liabilities on December 29, 2012.
55
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
We did not enter into any new guarantee arrangements during 2012 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 former 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 $1.8 million and $2.3 million at December 29, 2012 and
December 31, 2011, respectively, and is accrued in other liabilities.
On December 17, 2007 we entered into a consulting and non-compete agreement with our former CEO which provided 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, and all amounts due under this agreement were paid in full as of December 29, 2012. The present value of
these payments totaled approximately $0.4 million at December 31, 2011 and is accrued in other liabilities.
O.
SEGMENT REPORTING
ASC 280, Segment Reporting (“ASC 280”) defines operating segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
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.
56
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
$
$
$
Eastern
and
Western
Divisions
1,635,178
62,806
373
1,667
17,762
60,573
588,567
15,411
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
222,824
20,396
-
-
2,054
1,299
102,923
830
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
2012
All
Other
Corporate
Total
$
196,931
12,724
51
1,251
4,286
(11,316)
103,309
11,967
$
-
-
3,629
-
6,359
(6,028)
65,741
2,136
2,054,933
95,926
4,053
2,918
30,461
44,528
860,540
30,344
2011
All
Other
Corporate
Total
$
153,158
28,636
-
1,612
3,240
(8,731)
82,993
8,856
$
-
-
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
2010
All
Other
Corporate
Total
$
145,644
45,174
-
2,331
3,069
1,400
80,576
4,832
$
-
-
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
Net sales to outside
customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating profit
Segment assets
Capital expenditures
Net sales to outside
customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating profit
Segment assets
Capital expenditures
Net sales to outside
customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment operating profit
Segment assets
Capital expenditures
In 2012, 2011, and 2010, 18%, 23%, and 28% of net sales, respectively, were to a single customer.
57
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Information regarding principal geographic areas was as follows (in thousands):
2012
2011
2010
United States
Foreign
Total
Net Sales
$
2,005,740
49,193
2,054,933
$
Long-Lived
Tangible
Assets
Long-Lived
Tangible
Assets
Long-Lived
Tangible
Assets
Net Sales
Net Sales
$
$
220,513
17,097
237,610
$
$
1,779,909
42,427
1,822,336
$
$
221,269
16,578
237,847
$
$
1,844,289
46,562
1,890,851
$
$
218,533
15,073
233,606
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.
2012
2011
2010
Value-Added
Commodity-Based
58.7%
58.8%
58.6%
41.3%
41.2%
41.4%
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.
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents, for the periods indicated, our gross sales (in thousands) by major product classification.
Years Ended
December 31, December 31, December 25,
2011
2010
2012
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
$
185,939
125,887
123,935
137,633
199,595
50,703
56,991
23,584
38,916
125,446
38,005
61,013
24,996
13,350
11,566
6,336
54
1,223,949
348,083
285,929
194,144
25,782
8,118
862,056
2,086,005
(31,072)
2,054,933
$
$
148,715
145,486
126,832
120,317
174,057
41,313
49,355
19,049
40,716
94,768
42,792
39,772
20,088
12,094
11,749
5,418
94
1,092,615
304,070
285,340
144,236
23,386
7,767
764,799
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
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 29, 2012 and December 31, 2011 (in thousands, except per share
data):
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Table of Contents
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
$
2012
457,111
53,666
4,386
$
2011
387,233
41,414
(3,412)
$
2012
593,693
71,747
18,010
$
2011
544,139
56,587
4,496
$
2012
533,366
55,227
4,756
$
2011
468,941
54,358
6,005
$
2012
470,763
44,337
(1,141)
$
2011
422,023
47,368
(1,176)
4,155
(3,670)
17,509
4,277
4,198
5,616
(1,927)
(1,674)
0.21
0.21
(0.19)
(0.19)
0.88
0.88
0.22
0.22
0.21
0.21
0.29
0.29
(0.10)
(0.10)
(0.09)
(0.09)
Q.
SUBSEQUENT EVENTS
On December 31, 2012, one of our subsidiaries acquired the operating assets of Custom Caseworks, Inc. a high-precision business-to-
business manufacturer of engineered wood products used in a variety of applications in many commercial markets and had annual sales
of $7 million. The purchase price was $6.3 million.
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 2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
43.04
43.36
39.62
37.60
Low
Fiscal 2011
32.56 Fourth Quarter
30.76 Third Quarter
30.92 Second Quarter
29.39 First Quarter
High
Low
31.75
31.95
37.53
39.84
22.91
23.02
26.00
32.27
There were approximately 1,200 shareholders of record as of January 31, 2013.
In 2012 and 2011, we paid dividends on our common stock of $0.20 per share each in June and December. We intend to continue with our current
semi-annual dividend policy for the foreseeable future.
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STOCK PERFORMANCE GRAPH
The following graph depicts the cumulative total return on our common stock compared to the cumulative total return on the indices for The
Nasdaq Stock Market (all U.S. companies) and an industry peer group we selected. The graph assumes an investment of $100 on December 31,
2007, and reinvestment of dividends in all cases.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2012
The companies included in our self-determined industry peer group are as follows:
Bluelinx Holdings Inc.
Builders FirstSource, Inc.
Louisiana-Pacific Corp.
The returns of each company included in the self-determined peer group are weighted according to each respective company's stock market
capitalization at the beginning of each period presented in the graph above. In determining the members of our peer group, we considered
companies who selected UFPI as a member of their peer group, and looked for similarly sized companies or companies that are a good fit with the
markets we serve.
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Table of Contents
BOARD OF DIRECTORS
William G. Currie
Chairman of the Board
Universal Forest Products, Inc.
Matthew J. Missad
Chief Executive Officer
Universal Forest Products, Inc.
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
Co-Chief Executive Officer
Meijer, Inc.
Louis A. Smith
President
Smith and Johnson, Attorneys, P.C.
Thomas W. Rhodes
President and Chief Executive Officer
TWR Enterprises, Inc.
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
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.
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ANNUAL MEETING
Shareholder Information
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 17, 2013, at 2880 East Beltline Lane NE, Grand Rapids, MI
49525.
SHAREHOLDER INFORMATION
Shares of the Company's stock are traded under the symbol UFPI on the NASDAQ Stock Market. The Company's 10-K report, filed with the
Securities and Exchange Commission, will be provided free of charge to any shareholder upon written request. For more information contact:
Investor Relations Department
Universal Forest Products, Inc.
2801 East Beltline NE
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Web: www.ufpi.com
SECURITIES COUNSEL
Varnum, LLP
Grand Rapids, MI
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Grand Rapids, MI
TRANSFER AGENT/SHAREHOLDER INQUIRIES
American Stock Transfer & Trust Company serves as the transfer agent for the Corporation. Inquiries relating to stock transfers, changes of
ownership, lost or stolen stock certificates, changes of address, and dividend payments should be addressed to:
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, NY 10005
Telephone: (718) 921-8210
UNIVERSAL FOREST PRODUCTS®, INC., CORPORATE HEADQUARTERS
2801 East Beltline NE
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Facsimile: (616) 364-5558
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UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES
Locations:
Ashburn, GA
Auburndale, FL
Bay City, MI
Belchertown, MA
Berlin, NJ
Blanchester, OH
Burlington, NC
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Conway, SC
Cordele, GA
Dallas, NC
Denver, CO
Durango, Durango, Mexico
Eatonton, GA
Elizabeth City, NC
Elkhart, IN
Emlenton, 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
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
Snohomish, WA
Stockertown, PA
Thornton, CA
Turlock, CA
Union City, GA
Warrens, WI
Wenatchee, WA
White Bear Lake, MN
White Pigeon, MI
Windsor, CO
Woodburn, OR
Yakima, WA
64