Report to Shareholders
2013
“A goal without a plan is just a wish.” Antoine de Saint-Exupéry
To Our Shareholders:
At Universal, we know that wishes don’t grow sales, pay our people or reward our investors. Those come from
results that are created through careful planning, preparation and execution. That was our recipe for success in
2013 as the companies of Universal Forest Products, Inc., delivered the strongest results in years. We’re back
to $2.5 billion in sales, which is up 20 percent over 2012, and had net earnings of $43 million, an 80 percent
increase over last year. We’re on track to reach our goals: $3 billion in sales, operating margins at normal
historical levels and earning a return in excess of our cost of capital by 2017. And we are excited, motivated
and hard at work to beat our own expectations.
Sales to our markets were up nearly 12 percent in retail, more than 31 percent in construction and 19 percent
in industrial. While the numbers are reminiscent of our performance during the homebuilding and economic
boom of the early 2000s, they feel—and are—much different: They were hard-fought, born of lessons learned
from challenging times and derived from years of reinvention, refocus and determination. These results didn’t
come easy, but they set a solid foundation for sustainable business growth in the years ahead. We are a wiser,
more diversified company today, supplying more customers with new and better products and looking into the
far corners of our markets, and deep into our experience and creativity, for continued growth.
Our new product initiative, an important growth strategy, resulted in sales of $85 million in 2013. We’re proud
of that achievement, and we have a long way to go. But, we now have systems and a mindset that encourage
the development of ideas from concept to sale. We also are assessing current and future lines of business for
new opportunities through innovation and development initiatives. These efforts are energizing employees
throughout the companies of Universal at all levels of our organization, and producing results.
In retail, we are focused on growing our business with big box and independent retailers, as well as with
customers that focus on professional contractors. Our product mix is constantly evolving with a consistent
focus on what the consumer needs and is willing to pay for. You probably would expect our companies to
make preservative treated lumber, wood railings and lattice, but what about composite landscape rocks, glass
and aluminum railing kits, and postcaps and deck lighting? These are in our portfolio, and we have plans for
much, much more.
Construction is becoming a healthier market again. We are focused on taking only business that makes
financial sense. As we’ve said in the past, we can’t afford to take business for practice. We know what we’re
good at and we want to do more of it, with great quality and a fair profit. We continue to add to our design and
Universal Forest Products, Inc.
2013 Letter to Shareholders
Page ii
engineering strengths to assist our customers with the issues they face on job sites: shortage of skilled labor,
tight time requirements and consistent quality. We provide manufactured items and engineered wood
products, and other items that save time, money and headaches.
We remain focused on growing our industrial business with new customers, products and services. It is a highly
fragmented market, and a competitive one, and we believe our service and quality will continue to attract more
customers. We have to fight hard and perform better than our competition to continue to grow in this market,
and that’s what we’re doing. So far, our approach is working.
We are determined to make sure our business isn’t “here today, gone tomorrow” by creating sustainable
opportunities with trusted customers and vendors who value mutual success. Some are new relationships that
we are carefully cultivating; some are decades old and have survived the tests of time, challenge and change.
Together, these relationships and the hard work of our people allowed us to turn in some pretty solid results.
What are the secrets to future success? Simply put: We hate to lose. We will work harder, train smarter and
give our best to make sure the customer has better results by working with us. We continue to seek out growth
opportunities that are in our strategic wheelhouse: a larger geographic footprint, new products, and
partnerships and acquisitions that are great cultural fits and that have valuations that allow us to create value
for our shareholders. We haven’t found too many acquisition opportunities that meet these requirements, but
we are diligent, consistent and patient in our approach.
To meet our business growth targets, we need our current employees to continue to grow and we need to
recruit future leaders. We are doing that through enhanced training and development programs and regional
recruiting. We are willing to reach out everywhere for talented employees—we’ll even shamelessly solicit our
shareholders to help us find highly motivated and hard-working people to join our team. Send them our way!
Next year, Universal will celebrate its 60th year of doing business. The two of us have been affiliated with the
Company for 43 (Bill) and 35 (Matt) years, and these are as exciting and promising times as we’ve ever seen.
We’re becoming a stronger, more sustainable, more diverse organization that has opportunities for growth in
many corners of business and around the globe. And we have the best, hardest-working people delivering
results in a competitive world and markets. But our fiercest competition comes from within: from our ongoing
challenge to do better tomorrow than today and our determination to hold ourselves and each other accountable
for doing exactly that. The vast majority of our employees own UFPI stock, so when we say we’re focused on
creating great results for our valued stockholders, we have many motivations for achieving our goals.
Thank you for placing your investment and trust in the Universal Forest Products family of companies.
We don’t simply wish for your continued support and investment; we plan to earn it.
William G. Currie
Chairman of the Board
Matthew J. Missad
Chief Executive Officer
Universal Forest Products, Inc.
2013 Letter to Shareholders
Page iii
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
Table of Contents
Selected Financial Data..............................................................................................2
Management's Discussion and Analysis of Financial Condition
and Results of Operations .....................................................................................3-25
Management's Annual Report on Internal Control
Over Financial Reporting ......................................................................................26
Report of Independent Registered Public Accounting Firm .....................................27
Report of Independent Registered Public Accounting Firm ......................................28
Consolidated Balance Sheets as of December 28, 2013
and December 29, 2012 ........................................................................................29-30
Consolidated Statements of Earnings and Comprehensive Income
for the Years Ended December 28, 2013, December 29, 2012,
and December 31, 2011 ........................................................................................31
Consolidated Statements of Shareholders' Equity for the Years Ended
December 28, 2013, December 29, 2012, and December 31, 2011 .....................32-34
Consolidated Statements of Cash Flows for the Years Ended
December 28, 2013, December 29, 2012, and December 31, 2011 .....................35-36
Notes to Consolidated Financial Statements..............................................................37-60
Price Range of Common Stock and Dividends..........................................................61
Stock Performance Graph ..........................................................................................62
Directors and Executive Officers ...............................................................................63
Shareholder Information ............................................................................................64-65
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
2013
2012
2011
2010
2009
$2,470,448
280,552
70,258
$2,054,933
225,109
41,064
$1,822,336
199,727
8,787
$1,890,851
229,955
27,111
$1,673,000
243,664
38,583
43,082
$2.15
$0.410
23,934
$1.21
$0.400
4,549
$0.23
$0.400
17,411
$0.89
$0.400
24,272
$1.25
$0.260
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)
$357,299
916,987
84,700
649,734
$338,389
860,540
95,790
607,525
$225,399
764,007
52,470
582,599
$263,578
789,396
55,291
581,176
$248,165
776,868
53,854
568,946
11.4%
11.0%
11.0%
12.2%
14.6%
1.7%
7.1%
3.59
0.13
$32.57
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
(1) Current assets less current liabilities.
(2) Net earnings attributable to controlling interest divided by beginning shareholders’ equity.
(3) Shareholders’ equity divided by common stock outstanding.
2
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
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 2013.
the markets we serve; government regulations, particularly
in
OVERVIEW
Our results for 2013 were impacted by the following:
• Our sales increased 20% in 2013 due to a 12% increase in our selling prices due to the Lumber
Market and an 8% increase in unit sales. See “Historical Lumber Prices”. Our unit sales
increased in all five of our markets classifications, with our strongest growth occurring in our
housing and construction markets (commercial construction and concrete forming, residential
construction, and manufactured housing). Our unit sales to the retail building materials market
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
reported an increase of approximately 1% and our industrial market increased by 8%, in part,
due to recent acquisitions.
• National housing starts increased approximately 21% in the period of December 2012 through
November 2013 (our sales trail housing starts by about a month) compared to the same period
of 2012, while our unit sales increased 12% in the residential construction market. Since the
downturn in housing began, suppliers servicing this market were challenged with significant
excess capacity. We have maintained our focus on profitability and cash flow by being
selective in the business that we take. Consequently, our revenue growth may trail market
growth from time to time.
• Shipments of HUD code manufactured homes were up 9% in the period from January through
November 2013, compared to the same period of 2012. In addition, through the first nine
months of 2013 (the last period reported), modular home starts increased by 5%. These
increases helped drive our 11% increase in unit sales to this market.
• Our gross profit dollars increased by 25% comparing 2013 to 2012, which compares to our 8%
increase in unit sales. Our profitability has improved primarily due to a combination of higher
unit sales and improved operating leverage we have in the cost structure of our business and
improvements in our sales mix whereby our sales of higher margin products have increased. In
addition, pricing pressure on sales to the residential construction market has eased. These
factors were offset by the higher level of lumber prices in 2013 relative to 2012.
• We recorded loss contingencies of $1.6 million in 2013 and $2.3 million in 2012 related to
anti-dumping duty assessments estimated on plywood and steel nails imported from China and
Canadian anti-dumping duties. The Canadian government has imposed retroactive assessments
for antidumping and countervailing duties tied to certain extruded aluminum products imported
from China. We continue to work with the applicable government agencies to clarify the
applicability of these rules to our products.
• Higher unit sales and lumber prices have resulted in a year over year increase in our working
capital.
4
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price.
Random Lengths Composite
Average $/MBF
2012
2013
2011
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
$393
409
436
429
367
329
343
353
368
384
398
385
$383
18.2%
$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
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
2012
2011
2013
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
$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
$397
426
445
436
383
355
366
364
360
356
362
360
$384
21.9%
5
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
(cid:1) 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.
(cid:1) Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder"
to cover conversion costs and profits. These products primarily include treated lumber,
remanufactured lumber, and trusses sold to the manufactured housing industry. For these
products, we estimate the customers' needs and 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:
(cid:1) Products with significant inventory levels with low turnover rates, whose selling prices are
indexed to the Lumber Market. In other words, the longer the period of time these products
remain in inventory, the greater the exposure to changes in the price of lumber. This would
6
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.)
(cid:1) Products with fixed selling prices sold under long-term supply arrangements, particularly those
involving multi-family construction projects. We attempt to mitigate this risk through our
purchasing practices by locking in costs.
In addition to the impact of the Lumber Market trends on gross margins, changes in the level of
the market cause fluctuations in gross margins when comparing operating results from period to
period. This is explained in the following example, which assumes the price of lumber has
increased from period one to period two, with no changes in the trend within each period.
Lumber cost ..................................................
Conversion cost ............................................
= Product cost ...............................................
Adder ............................................................
= Sell price ...................................................
Gross margin ................................................
Period 1 Period 2
$400
50
450
50
$500
10.0%
$300
50
350
50
$400
12.5%
As is apparent from the preceding example, the level of lumber prices does not impact our
overall profits but does impact our margins. Gross margins are negatively impacted during
periods of high lumber prices; conversely, we experience margin improvement when lumber
prices are relatively low.
BUSINESS COMBINATIONS AND ASSET PURCHASES
We completed four business acquisitions during 2013 and two during 2012 and each was accounted for
using the purchase method. The aggregate annual revenue of these acquisitions totaled $58 million.
These business combinations were not significant to our operating results individually or in aggregate,
and thus pro forma results for 2013 and 2012 are not presented. No business combinations were
completed in fiscal 2011.
See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional
information.
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.
7
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales
Cost of goods sold
Gross profit
Selling, general, and administrative
expenses
Loss contingency for anti-dumping
duty assessments
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
Years Ended
December 28, 2013 December 29, 2012 December 31, 2011
100.0 %
89.0
11.0
100.0 %
89.0
11.0
88.6
11.4
100.0 %
8.3
0.1
-
3.0
0.2
2.8
1.0
1.9
(0.1)
9.0
0.1
(0.3)
2.2
0.2
2.0
0.7
1.3
(0.1)
10.0
-
0.3
0.7
0.2
0.5
0.2
0.3
(0.1)
1.7 %
1.2 %
0.2 %
Note: Actual percentages are calculated and may not sum to total due to rounding.
GROSS SALES
We design, manufacture and market wood and wood-alternative products for 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:
(cid:1) 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.
(cid:1) Expanding geographically in our core businesses, domestically and internationally.
(cid:1) 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.
(cid:1) Developing new products and expanding our product offering for existing customers. New product
sales were $85 million in 2013 and $53 million in 2012.
8
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(cid:1) Maximizing unit sales growth while achieving return on investment goals.
The following table presents, for the periods indicated, our gross sales (in thousands) and
percentage change in gross sales by market classification.
Market Classification
Retail Building Materials
Industrial
Manufactured Housing
Residential Construction
Commercial Construction
and Concrete Forming
Housing and Construction
Total Gross Sales
Sales Allowances
Total Net Sales
December
28,
2013
$936,590
701,688
388,697
340,296
136,641
865,634
2,503,912
(33,464)
$2,470,448
Years Ended
December
29,
2012
$836,670
589,893
314,095
255,544
89,804
659,443
2,086,005
(31,072)
$2,054,933
%
Change
(0.3)
19.8
28.4
25.9
14.5
12.3
12.8
December
31,
2011
$838,903
492,476
244,663
202,970
78,402
526,035
1,857,414
(35,078)
$1,822,336
%
Change
11.9
19.0
23.8
33.2
52.2
20.0
20.2
Note: During 2013, certain customers were reclassified to a different market. Prior year
information has been restated to reflect these changes.
The following table presents estimates, for the periods indicated, of our percentage change in
gross sales which were attributable to changes in overall selling prices versus changes in units
shipped.
2013 versus 2012 ...............................................
2012 versus 2011 ...............................................
2011 versus 2010 ...............................................
% Change
in Units
in Selling Prices
8%
12%
4%
8%
2%
-5%
in Sales
20%
12%
-3%
Gross sales in 2013 increased 20% compared to 2012 due to a 12% estimated increase in overall
prices primarily resulting from the higher level of the Lumber Market, which impacts our selling
prices to customers in each of our markets, and an 8% increase in overall unit sales. Unit sales
increased due to improved demand in our housing and construction markets and share gains in
our retail and industrial markets.
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.
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in our sales by market are discussed below.
Retail Building Materials:
Gross sales to the retail building materials market increased 12% in 2013 compared to 2012 due
to an 11% increase in lumber prices and an estimated 1% increase in overall unit sales. Within
this market, sales to our big box customers increased 11% while our sales to other retailers
increased 13%. We believe that our increase in unit sales is due to a slight increase in market
share. Sales to this market for the first half of 2013 were adversely impacted by inclement
weather, resulting in a shifting of some consumer demand to our third quarter.
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.
Industrial:
Gross sales to the industrial market increased 19% in 2013 compared to 2012, resulting from an
11% increase in selling prices and an 8% increase in unit sales. We acquired two new operations
(Nepa Pallet and Container Co, Inc. and Custom Caseworks, Inc., which contributed to our
growth in unit sales. Our sales also increased as a result of adding 218 new customers during the
year. Demand from our existing customers was soft for much of the year.
Gross sales to the industrial market increased 20% 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.
Manufactured Housing:
Gross sales to the manufactured housing market increased 24% in 2013 compared to 2012, due
to an 11% increase in unit sales and a 13% increase in selling prices due to the lumber market.
Production of HUD-code homes increased 9% compared to 2012 and modular home starts
increased 5% for the first nine months of 2013 (the last period reported).
Gross sales to the manufactured housing market increased 28% in 2012 compared to 2011 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.
10
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Residential Construction:
Gross sales to the residential construction market increased 33% in 2013 compared to 2012 due
to a 21% increase in lumber prices and a 12% increase in our unit sales. By comparison,
national housing starts increased approximately 21% in the period of December 2012 through
November 2013 (our sales typically trail housing starts by about a month), compared to the same
period of 2012. Our sales growth may trail the market from time to time as we are selective in
the business that we take due to our focus on profitability and cash flow.
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 were selective in the business that we pursued in order to improve profitability. As
a result, we lost some share of this market.
Commercial Construction and Concrete Forming:
Gross sales to the commercial construction and concrete forming market increased 52% in 2013
compared to 2012 due to a 39% increase in unit sales and a 13% increase in selling prices.
Within this market, sales to commercial builders increased 84%, and sales of products used to
make concrete forms increased 34% due to our continued focus on growing our share of this
market. Our sales to commercial builders increased primarily due to a new product offering of
installed cabinets to customers in our Gulf Region.
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.
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.
2013.................................................
2012.................................................
2011.................................................
58.1%
58.7%
58.8%
41.9%
41.3%
41.2%
Value-Added Commodity-Based
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST OF GOODS SOLD AND GROSS PROFIT
Our gross profit percentage increased from 11.0% in 2012 to 11.4% in 2013. This improvement
in profitability resulted from unit sales growth combined with operating leverage in our cost
structure, as well as an improvement in our sales mix, whereby our sales of higher margin
products has increased. In addition, the pricing pressure we experienced on sales to our
residential construction customers has eased as market activity has improved and we have been
selective in the business that we take. These factors were offset by the higher level of lumber
prices in 2013 relative to 2012. As explained above, based upon the manner in which the sale
price of certain of our products is established, higher relative lumber prices tend to reduce our
gross profits as a percentage of sales. (See "Impact of Lumber Market on Our Operating
Results".) We also measure our relative profitability by comparing our gross profit dollars to
changes in unit sales. For 2013, our gross profit dollars increased by 24.6%, exceeding our 8%
increase in unit sales.
Our gross profits increased by 13% comparing 2012 to 2011 while our unit sales increased by
4%. Our improved profitability was primarily impacted by the following factors:
(cid:1)
(cid:1) 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.
(cid:1) We lost some market share with a major retail customer in 2012, primarily in product
lines with lower gross margins.
(cid:1) The favorable factors above were offset to some extent by pricing pressure in each of
our markets.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased by approximately $19.5
million, or 10.5%, in 2013 compared to 2012, while we reported an 8% increase in unit sales.
The increase in SG&A was primarily due to an increase in base wages as a result of raises and
hiring additional sales and engineering personnel to support sales growth, and certain incentive
compensation expense tied to profitability and return on investment which represented over half
of the overall increase.
Selling, general and administrative ("SG&A") expenses increased by approximately $3.6
million, or 2.0%, 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 included $1.7 million to SG&A
expenses and $1.5 million to interest income. These increases were offset by decreases in
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
compensation and related expenses and as well as certain other expenses attributable to our
continuing efforts to reduce our cost structure.
ANTI-DUMPING DUTY ASSESSMENTS
In 2012, we recorded a $2.3 million loss contingency for a Canadian anti-dumping duty. The
Canadian government imposed retroactive assessments for antidumping and countervailing
duties tied to certain extruded aluminum products imported from China. An additional $0.6
million was recorded during 2013.
During 2013, we accrued $0.9 million related to anti-dumping duty assessments imposed by the
US government estimated on plywood and steel nails imported from China. We continue to
work with US Customs and Border Protection to mitigate potential charges. This duty is
unrelated to the Canadian duty assessment disclosed above.
NET LOSS (GAIN) ON DISPOSITION OF ASSETS, EARLY RETIRMENT AND
OTHER IMPAIRMENT AND EXIT CHARGES
We incurred $0.4 million, $1.3 million and $6.4 million of charges in 2013, 2012 and 2011,
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. The present value of these payments totaled approximately $1.2
million and $1.8 million at December 28, 2013 and December 29, 2012, respectively, and is
accrued in other liabilities.
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
INTEREST, NET
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net interest costs were higher in 2013 compared to 2012, due to higher debt levels in 2013
resulting from the impact of higher lumber prices and greater sales volumes on working capital
and the issuance of long-term debt at the end of 2012 which carried a higher interest rate than our
revolving credit facility.
Net interest costs were comparable in 2012 and 2011. Our debt levels in 2012 were slightly
lower; however, our borrowing rates were slightly higher compared to 2011.
INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for
state and local income taxes and permanent tax differences. Our effective tax rate decreased to
34.8% in 2013 compared to 36.6% in 2012. The decrease is due to a decline in the state income
tax rate resulting from franchise taxes which remain relatively unchanged even when income
increases, along with research and development and certain other tax credits related to 2012,
which Congress approved in 2013. See Notes to Consolidated Financial Statements, Note K,
“Income Taxes”.
Our effective tax rate increased to 36.6% in 2012 compared to 32.5% in 2011. This increase is
due in part to the expiration of the research and development tax credit offset by the impact of
permanent tax differences on higher income.
SEGMENT REPORTING
The following table presents, for the periods indicated, our net sales and earnings from operations by
reportable segment.
(in thousands)
Net Sales
Eastern and Western
Site-Built
All Other
Corporate
Total
December 28,
2013
$1,987,751
272,114
210,583
-
$2,470,448
December 29,
2012
$1,635,178
222,824
196,931
-
$2,054,933
December 31,
2011
$1,486,058
183,120
153,158
-
$1,822,336
2013 vs
2012
2012 vs
2011
21.6%
22.1
6.9
-
20.2%
10.0%
21.7
28.6
-
12.8%
(in thousands)
Earnings from Operations
December 28,
2013
December 29,
2012
Eastern and Western
Site-Built
All Other
Corporate1
Total
$79,419
7,947
(2,366)
(10,732)
$74,268
$60,573
1,299
(11,316)
(6,028)
$44,528
14
December 31,
2011
$28,198
(6,349)
(8,731)
(1,107)
$12,011
2013 vs
2012
2012 vs
2011
31.1%
511.8
79.1
(78.0)
66.8%
114.8%
120.5
(29.6)
(444.5)
270.7%
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1Corporate primarily represents over (under) allocated administrative costs and certain incentive compensation expense.
Eastern and Western
Net sales of the Eastern and Western reportable segment increased 21.6% in 2013 compared to 2012,
due to increased lumber prices and:
• An increase in commercial construction and concrete forming sales primarily due to new
products introduced in our Gulf region and other market share gains.
• An increase in manufactured housing sales due to an increase in industry production of HUD
code homes.
• Recently acquired businesses that serve the industrial market.
• A slight increase in sales to retail customers due to market share gains.
Net sales of the Eastern and Western reportable segment increased 10.0% in 2012 compared to 2011,
primarily due to:
• A 19% increase in Industrial sales resulting from higher lumber prices and greater unit sales due
to market share gains.
• A 28% increase in Manufactured Housing sales due to higher lumber prices and an increase in
industry production of HUD code homes.
• A 15% increase in Commercial Construction and Concrete Forming sales primarily due to a
significant increase in the sale of products used to make concrete forms.
Earnings from operations for the Eastern and Western reportable segment increased in 2013 primarily
due to greater unit sales and operating leverage on labor and overhead costs as well as improvements in
our sales mix whereby our sales of higher margin products has increased.
Earnings from operations for the Eastern and Western reportable segment increased in 2012 compared to
2011 primarily due to the following factors:
• Selling into a rising lumber market for much of the first half of 2012. 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. Adverse weather conditions in many areas of the country resulted in lost
production days during early 2011.
• Earnings from operations were impacted in 2012 by a $6.9 million net gain on the sale of real
estate.
Site-Built
Net sales of the Site-Built reportable segment increased 22.1% in 2013 compared to 2012, primarily due
to increased lumber prices, an easing of pricing pressure, and an increase in housing starts.
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales of the Site-Built reportable segment increased 21.7% in 2012 compared to 2011. This increase
was primarily due to a 27% increase in national housing starts as well as growth in commercial
construction.
Earnings from operations for the Site-Built reportable segment increased in 2013 compared to 2012,
primarily due to an increase in unit sales and operating leverage on labor and overhead costs and an
easing of pricing pressure on sales. In addition, the profits of our turn-key framing operations were
adversely impacted by an unexpected rise in labor costs early in the year on certain projects, which
offset some of the favorable impact of higher unit sales and pricing improvements.
Earnings from operations for the Site-Built reportable segment increased in 2012 compared to 2011
primarily due to the increase in unit sales mentioned above and operating leverage we have in the
business.
All Other
Net sales of all other segments increased 6.9% in 2013 compared to 2012 primarily due to:
• An increase in sales to the manufactured housing market by our UFP Distribution operations,
primarily due to an increase in industry production of HUD code homes and market share gains
from adding new product lines.
• An increase in sales to the industrial market by our Pinelli Universal partnership, which
manufactures moulding and millwork products out of its plant in Durango, Durango Mexico.
• An increase in sales by our Universal Consumer Products operations due to market share gains.
Net sales of all other segments increased 28.6% in 2012 compared to 2011. This increase was primarily
due to:
• An increase in sales to the Manufactured Housing market by our UFP Distribution operations,
primarily due to an increase in industry production of HUD code homes.
• An increase in sales to the Retail Building Materials market by our Universal Consumer Products
operations, due to market share gains in composite decking and vinyl fencing products.
• An increase in sales to the Industrial market by our Universal Pinelli subsidiary, which
manufactures molding and millwork products out of its plant in Durango, Mexico.
Earnings from operations for all other segments improved in 2013 compared to 2012, primarily due to
improved profitability of our Universal Consumer Products operations resulting from operational
improvements and our Pinelli Universal partnership due to the higher level of lumber prices. These
factors were partially offset by $7.5 million of additional development costs associated with our new
Eovations product line.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 28, 2013 (in thousands).
Contractual Obligation
Long-term debt and
capital lease obligations
Estimated interest on long-term debt
Operating leases
Capital project purchase obligations
Total
Less than
1 Year
Payments Due by Period
After
5 Years
3 – 5
Years
1 – 3
Years
$ -
2,979
4,235
4,152
$11,366
$ -
5,957
4,475
-
$10,432
$-
5,957
1,448
-
$7,405
$84,700
15,126
-
-
$99,826
Total
$84,700
30,019
10,158
4,152
$129,029
As of December 28, 2013, we also had $26.5 million in outstanding letters of credit issued
during the normal course of business, as required by some vendor contracts.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in
thousands):
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 (overdraft), end of year
December 28,
2013
$53,380
(43,625)
(18,419)
(62)
(8,726)
7,647
$(1,079)
December 29,
2012
($5,721)
(34,223)
36,695
244
(3,005)
10,652
$7,647
December 31,
2011
$11,515
(32,990)
(10,314)
(259)
(32,048)
42,700
$10,652
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
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
quarters. In 2013, higher lumber prices and unit sales caused our investment in accounts
receivable and inventory to increase.
Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash
cycle (days sales outstanding plus days supply of inventory less days payables outstanding) is a
good indicator of our working capital management. Our cash cycle increased to 49 days in 2013
from 48 days in 2012 due to a 1 day increase in our days supply of inventory. In 2012, consumer
demand and weather were unexpectedly good resulting in strong sales increases and higher
inventory turnover. Conversely, adverse weather in the first half of 2013 shifted some consumer
demand to the third quarter and inventory turnover declined.
Cash generated from operating activities was approximately $53.4 million in 2013, which was
comprised of net earnings of $45.8 million and $40.0 million of non-cash expenses, partially
offset by a $32.4 million change in working capital since the end of 2012. Working capital at the
end of 2013 is higher than the end of 2012, primarily due to the impact of higher year over year
lumber prices and unit sales increases. As reflected in the table under the caption “Historical
Lumber Prices”, lumber prices were up 11% in the fourth quarter of 2013.
Capital expenditures were $40.0 million in 2013 and we have outstanding purchase
commitments on existing capital projects totaling approximately $4.2 million at December 28,
2013. Included within capital expenditures was $11.2 million for expansion to support new
product offerings and sales growth into new geographic markets and growing our manufacturing
capabilities to serve our industrial customers. We intend to fund capital expenditures and
purchase commitments through our operating cash flows and amounts available under our
revolving credit facility.
Cash flows used in investing activities also included $11.5 million spent to acquire the net assets
of SE Panel and Lumber Supply, LLC, Premier Laminating Services, Inc., Millry Mill Company,
Inc. and Custom Caseworks, Inc. See Notes to Consolidated Financial Statements, Note C
“Business Combinations”.
In 2013, cash flows used in financing activities included $8.2 million of dividends paid to
shareholders. Our Board of Directors approved two semi-annual dividends of $0.20 per share
and $0.21 per share, which were paid in June and December of 2013, respectively. During 2013,
we also paid down the $11.1 million balance on our revolving credit facility.
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 28, 2013, we had no amounts outstanding on our $265 million revolving credit
facility. On December 29, 2012, we had $11.1 million outstanding. The revolving credit facility
is scheduled to mature in November of 2016. The revolving credit facility supports letters of
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
credit totaling approximately $9.8 million on December 28, 2013 and $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 28,
2013 and 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.
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.
19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter of fiscal 2013, we changed our annual testing date for evaluating goodwill
and indefinite-lived intangible asset impairment from the last day of the fiscal year to the first
day of the Company’s fourth fiscal quarter for all reporting units and indefinite-lived intangible
assets. This voluntary change in accounting method is preferable under the circumstances
because it will allow us more time to complete the annual goodwill and indefinite-lived
intangible asset impairment testing in advance of our year-end reporting. This change does not
delay, accelerate or avoid an impairment charge. The change is not applied retrospectively as it is
impracticable to do so because retrospective application would require application of significant
estimates and assumptions with the use of hindsight. Accordingly, the change will be applied
prospectively.
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 28, 2013. Our accounting policies with respect
to the reserves are as follows:
(cid:1) General liability, automobile, and workers' compensation reserves are accrued based on third
party actuarial valuations of the expected future liabilities.
(cid:1) Health benefits are self-insured by us up to our pre-determined stop loss limits. These
reserves, including incurred but not reported claims, are based on internal computations.
These computations consider our historical claims experience, independent statistics, and
trends.
(cid:1) The environmental reserve is based on known remediation activities at certain wood
preservation facilities and the potential for undetected environmental matters at other sites.
The reserve for known activities is based on expected future costs and is computed by in-
house experts responsible for managing our monitoring and remediation activities.
In addition to providing coverage for the Company, our wholly-owned insurance captive
provides Excess Loss Insurance (primarily medical and prescription drug) to certain third
parties. As of December 28, 2013, there were nine such contracts in place. The contracts have
specific and/or aggregate coverage loss limits based on the election of the third parties. Reserves
associated with these contracts were $0.9 million at December 28, 2013 and $0.2 million at
December 29, 2012, and are accrued based on third party actuarial valuations of the expected
future liabilities.
.
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
20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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
Revenue for product sales 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.
Performance on construction contracts is 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 per the contract. 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.
Our construction contracts are generally entered into with a fixed price and completion of the
projects can range from 6 to 18 months in duration. Therefore, our operating results are
impacted by, among many other things, labor rates and commodity costs. During the year, we
update our estimated costs to complete our projects using current labor and commodity costs and
recognize losses to the extent that they exist.
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 currently being
seen. With the assumption that housing starts will increase to 1.5 million starts by calendar 2015
and lead to a broader economic recovery that favorably impacts all of our markets, we are
21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 primarily 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 that spending by homeowners on
improvement projects will continue to increase at a double-digit pace in early 2014 while a
slowdown can be expected by the middle of 2014. However, even with the projected mid-year
tapering, remodeling activity is expected to remain at healthy levels. The Home Improvement
Research Institute (“HIRI”) also anticipates growth in home improvement spending and has
forecasted a 6.8% growth rate in 2014. HIRI’s long-term forecast is for spending to grow up to
4.3% by 2018.
We continue to compete for market share for certain retail customers and face intense pricing
pressure from other suppliers to this market.
Our long-term goal is to achieve sales growth by:
• Increasing our market share of value-added and preservative-treated products, particularly
with independent retail customers.
• 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
22
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 growth opportunities as a result of our competitive advantages in
manufacturing, purchasing, and material utilization. We plan to continue to obtain market share
by expanding our manufacturing capabilities and increasing the size of our dedicated industrial
sales force. We also plan to evaluate strategic acquisition opportunities.
MANUFACTURED HOUSING MARKET
The National Association of Home Builders forecasts a 14% increase in manufactured home
shipments in 2014. 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.
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 13% increase in national housing
starts to an estimated 1.0 million starts in 2014. The National Association of Home Builders
forecasts starts of 1.1 million, a 24% increase from 2013. We believe we are well-positioned to
capture our share of any increase that may occur in housing starts in the regions we operate.
However, due to our continued focus on profitability and cash flow, our growth may continue to
trail the market in 2014.
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 the customers in this market.
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2014:
• End market demand.
23
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• 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 may experience pricing pressure in the
future.
• Product mix.
• 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 as our unit sales increase and
planned cost reductions through our continuous improvement and other initiatives.
• Operational improvements in our turn-key framing business.
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 continue to minimize increases in
these costs in the future as market conditions improve and we achieve our growth objectives. In
addition, bonus expense for all salaried employees is based on earnings from operations 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, as industry conditions continue to
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 earnings from operations
and return on investment.
• Our growth and success in achieving continuous improvement objectives and leveraging
our fixed costs.
24
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 2014 and incur
depreciation of approximately $32 million and amortization and other non-cash expenses of
approximately $3 million. On December 28, 2013, we had outstanding purchase commitments
on capital projects of approximately $4.2 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 $0.21 per share paid
semi-annually.
Our Board of Directors has approved a share repurchase program, and as of December 28, 2013,
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.
25
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 28,
2013, based on the framework in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework)
(“COSO”). Based on that evaluation, management has concluded that as of December 28, 2013,
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, 2014
26
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 28, 2013, based on criteria established in Internal Control–Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (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 28, 2013, 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 28, 2013 and December 29, 2012 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 28, 2013, and our report dated February 26, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 26, 2014
27
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Universal Forest Products, Inc.
We have audited the accompanying consolidated balance sheets of Universal Forest Products,
Inc. and subsidiaries as of December 28, 2013 and December 29, 2012, 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 28, 2013. 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 28, 2013 and December 29, 2012, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended December 28, 2013, 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 28, 2013, based on criteria established in Internal
Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework), and our report dated February 26, 2014, expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 26, 2014
28
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(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
December 28,
2013
December 29,
2012
$
-
720
180,452
$
7,647
6,831
163,225
161,226
126,079
287,305
2,235
6,866
18,820
496,398
1,365
12,087
160,146
2,340
7,241
136,201
106,979
243,180
7,521
9,212
15,557
453,173
1,759
14,583
159,316
2,340
8,101
115,155
173,641
260,807
23,233
5,866
578,702
(341,292)
237,410
916,987
$
108,545
165,307
239,175
23,750
6,818
543,595
(322,327)
221,268
860,540
$
29
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft
Accounts payable
Accrued liabilities:
Compensation and benefits
Other
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
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, 19,948,270 and 19,799,606
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.
December 28,
2013
December 29,
2012
$
1,079
72,918
$
-
66,054
45,018
20,084
139,099
84,700
26,788
16,666
267,253
34,728
14,002
114,784
95,790
24,930
17,511
253,015
$
-
$
-
19,948
156,129
461,812
3,466
(732)
640,623
9,111
649,734
916,987
$
19,800
149,805
426,887
4,258
(982)
599,768
7,757
607,525
860,540
$
30
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Year Ended
December 28, December 29, December 31,
2012
2013
2011
NET SALES
$
2,470,448
$
2,054,933
$
1,822,336
COST OF GOODS SOLD
2,189,896
1,829,824
1,622,609
GROSS PROFIT
280,552
225,109
199,727
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
ANTI-DUMPING DUTY ASSESSMENTS
NET LOSS (GAIN) ON DISPOSITION OF ASSETS,
EARLY RETIREMENT AND OTHER
IMPAIRMENT AND EXIT CHARGES
204,390
1,526
184,919
2,328
181,363
-
368
(6,666)
6,353
EARNINGS FROM OPERATIONS
74,268
44,528
12,011
INTEREST EXPENSE
INTEREST INCOME
EQUITY IN EARNINGS OF INVESTEE
EARNINGS BEFORE INCOME TAXES
INCOME TAXES
NET EARNINGS
LESS NET EARNINGS ATTRIBUTABLE TO
NONCONTROLLING INTEREST
NET EARNINGS ATTRIBUTABLE TO
CONTROLLING INTEREST
4,851
(640)
(201)
4,010
70,258
24,454
45,804
4,053
(510)
(79)
3,464
41,064
15,054
26,010
3,732
(566)
58
3,224
8,787
2,874
5,913
(2,722)
(2,076)
(1,364)
$
43,082
$
23,934
$
4,549
EARNINGS PER SHARE - BASIC
$
2.16
$
1.21
$
0.23
EARNINGS PER SHARE - DILUTED
$
2.15
$
1.21
$
0.23
OTHER COMPRESHENSIVE INCOME:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
(784)
980
(1,067)
COMPREHENSIVE INCOME
45,020
26,990
4,846
LESS COMPREHENSIVE INCOME ATTRIBUTABLE
TO NONCONTROLLING INTEREST
COMPREHENSIVE INCOME ATTRIBUTABLE TO
(2,730)
(2,398)
(862)
CONTROLLING INTERST
$
42,290
$
24,592
$
3,984
See notes to consolidated financial statements.
31
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
Controlling Interest Shareholders' Equity
Accumulat-
ed Other
Comprehen-
sive
Earnings
$
4,165
Additional
Paid-In
Capital
138,573
$
Retained
Earnings
414,108
$
4,549
Common
Stock
$
19,333
Employees
Stock Notes
Receivable
$
(1,670)
Noncontrolling
Interest
$
6,667
1,364
$
Total
581,176
5,913
(565)
(502)
(1,067)
80
80
(7,818)
9
137
150
8
(4)
2,834
8
(8)
684
1,361
744
(208)
(402)
(1,413)
(402)
(1,413)
(7,818)
2,971
167
-
684
1,361
744
(3)
209
206
(1,255)
$
$
5,794
206
582,599
$
Balance at December 25, 2010
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
Balance at December 31, 2011
$
19,624
$
143,988
$
410,848
$
3,600
32
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
Common
Stock
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
Controlling Interest Shareholders' Equity
Accumulat-
ed Other
Comprehen-
sive
Earnings
Additional
Paid-In
Capital
Retained
Earnings
23,934
Employees
Stock Notes
Receivable
Noncontrolling
Interest
2,076
658
322
436
(871)
(7,905)
10
90
50
37
(1)
1,971
37
(37)
765
1,270
1,836
(25)
27
Total
26,010
980
436
(871)
(7,905)
2,061
97
-
765
1,270
1,836
1
246
(982)
$
$
7,757
246
607,525
$
Balance at December 29, 2012
$
19,800
$
149,805
$
426,887
$
4,258
33
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Controlling Interest Shareholders' Equity
Accumulat-
ed Other
Comprehen-
sive
Earnings
Additional
Paid-In
Capital
Retained
Earnings
43,082
Employees
Stock Notes
Receivable
Noncontrolling
Interest
2,722
Total
45,804
(792)
8
(784)
84
(1,460)
84
(1,460)
(8,166)
2,144
60
-
290
1,874
2,219
-
106
144
(732)
$
$
9,111
144
649,734
$
(in thousands, except share and per share data)
Common
Stock
Net earnings
Foreign currency
translation adjustment
Capital contribution from
noncontrolling interest
Distributions to noncontrolling interest
Cash dividends - $0.410 per share
Issuance of 76,492 shares under
employee stock plans
Issuance of 30,808 shares under
stock grant programs
Issuance of 43,914 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
(8,166)
9
76
31
44
(3)
2,068
20
(44)
290
1,874
2,219
(103)
Balance at December 28, 2013
$
19,948
$
156,129
$
461,812
$
3,466
See notes to consolidated financial statements
34
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings attributable to controlling interest
to net cash from operating activities:
Depreciation
Amortization of intangibles
Expense associated with share-based compensation arrangements
Excess tax benefits from share-based compensation arrangements
Expense associated with stock grant plans
Loss reserve on notes receivable
Deferred income taxes
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
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
December 28,
2013
Year Ended
December 29,
2012
December 31,
2011
$
45,804
$
26,010
$
5,913
31,091
2,473
1,874
(112)
58
15
4,453
(201)
297
-
(17,886)
(42,287)
6,756
21,026
53,361
(40,023)
1,778
(11,478)
(143)
(2,673)
2,814
6,111
11
(43,603)
(11,090)
-
-
(46)
2,144
-
(1,460)
84
(8,166)
112
-
(18,422)
(62)
(8,726)
7,647
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
CASH AND CASH EQUIVALENTS (OVERDRAFT), END OF PERIOD
$
(1,079)
$
7,647
$
10,652
35
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -
(CONTINUED)
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid
Income taxes paid
NON-CASH INVESTING ACTIVITIES
Accounts receivable exchanged for notes receivable
Notes receivable exchanged for property
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans
See notes to consolidated financial statements
December 28,
2013
Year Ended
December 29,
2012
December 31,
2011
$
4,883
14,427
$
3,982
16,751
$
3,654
6,163
$
$
1,635
3,900
-
-
-
-
$
1,800
1,310
246
36
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 2013, 2012, and 2011 relate to the fiscal years
ended December 28, 2013, December 29, 2012, and December 31, 2011, respectively.
Fiscal years 2013 and 2012 were comprised of 52 weeks. Fiscal year 2011 was
comprised of 53 weeks. 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.
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-
37
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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:
(cid:1) Level 1 — Financial instruments with unadjusted, quoted prices listed on active
market exchanges.
(cid:1) 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.
(cid:1) 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 28, 2013 or December 29, 2012.
Restricted cash consists of amounts required to be held for loss funding totaling $0.7
million and $0.5 million as of December 28, 2013 and December 29, 2012, respectively.
In addition, as of December 29, 2012, restricted cash included amounts held in escrow for
the purchase of the operating assets of Custom Caseworks, Inc. totaling $6.3 million.
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.
38
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the activity in our accounts receivable allowances (in
thousands):
Additions
Charged to
Beginning Costs and
Balance
Ending
Expenses Deductions* Balance
Year Ended December 28, 2013:
Allowance for possible losses
on accounts receivable ........................ $2,550
Year Ended December 29, 2012:
Allowance for possible losses
on accounts receivable ........................ $2,053
Year Ended December 31, 2011:
Allowance for possible losses
on accounts receivable ........................ $2,611
$17,114
($17,604)
$2,060
$16,687
($16,190)
$2,550
$18,144
($18,702)
$2,053
* 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.
Accounts receivable retainage amounts related to long term construction contracts totaled
$8.3 million and $6.9 million as of December 28, 2013 and December 29, 2012,
respectively. All amounts are expected to be collected within one year.
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 $0.8
million and $0.2 million at December 28, 2013 and December 29, 2012, respectively and
are included in “Other Current Assets”. The long-term portion of notes receivable, net of
allowance, totaled $4.7 million and $7.7 million at December 28, 2013 and December 29,
2012, respectively and are included in “Other Assets”. No allowance for possible losses
on notes receivable existed at December 31, 2011.
The following table presents the activity in our notes receivable allowances (in
thousands):
Beginning
Balance
Additions Deductions
Ending
Balance
Year Ended December 28, 2013:
Allowance for possible losses on
Notes receivable
Year Ended December 29, 2012:
Allowance for possible losses on
$3,226
$887
$(3,088)
$1,025
$ -
$3,226
$ -
$3,226
39
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Notes receivable
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of inventories includes raw
materials, direct labor, and manufacturing overhead. Cost is determined on a weighted
average basis. Raw materials consist primarily of unfinished wood products expected to
be manufactured or treated prior to sale, while finished goods represent various
manufactured and treated wood products ready for sale. We have inventory on
consignment at customer locations valued at $11.4 million as of December 28, 2013 and
$10.9 million as of December 29, 2012.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures for renewals and
betterments are capitalized, and maintenance and repairs are expensed as incurred.
Amortization of assets held under capital leases is included in depreciation and amortized
over the shorter of the estimated useful life of the asset or the lease term. Depreciation is
computed principally by the straight-line method over the estimated useful lives of the
assets as follows:
Land improvements ............................................................... 5 to 15 years
Buildings and improvements ............................................. 15 to 31.5 years
Machinery, equipment and office furniture ........................... 3 to 10 years
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.
GOODWILL
In the second quarter of fiscal 2013, we changed our annual testing date for evaluating
goodwill and indefinite-lived intangible asset impairment from the last day of the fiscal
year to the first day of the Company’s fourth fiscal quarter for all reporting units and
indefinite-lived intangible assets. This voluntary change in accounting method is
preferable under the circumstances because it will allow us more time to complete the
annual goodwill and indefinite-lived intangible asset impairment testing in advance of
our year-end reporting. This change does not delay, accelerate or avoid an impairment
charge. The change is not applied retrospectively as it is impracticable to do so because
retrospective application would require application of significant estimates and
40
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
assumptions with the use of hindsight. Accordingly, the change will be applied
prospectively.
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.
INSURANCE RESERVES
Insurance Ltd.(“Ardellis”), was
Our wholly-owned
incorporated on April 21, 2001 under the laws of Bermuda and is licensed as a Class 2
insurer under the Insurance Act 1978 of Bermuda.
insurance captive, Ardellis
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 Ardellis; the related assets and liabilities of which are included in the
consolidated financial statements as of December 28, 2013 and December 29, 2012. 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.
In addition to providing coverage for the Company, Ardellis provides Excess Loss
Insurance (primarily medical and prescription drug) to certain third parties. As of
December 28, 2013, Ardellis had nine such contracts in place. The contracts have
specific and/or aggregate coverage loss limits based on the election of the third parties.
Reserves associated with these contracts were $0.9 million at December 28, 2013 and
$0.2 million at December 29, 2012, and are accrued based on third party actuarial
valuations of the expected future liabilities.
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
41
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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.
Our construction contracts are generally entered into with a fixed price and completion of
the projects can range from 6 to 18 months in duration. Therefore, our operating results
are impacted by, among many other things, labor rates and commodity costs. During the
year, we update our estimated costs to complete our projects using current labor and
commodity costs and recognized losses to the extent that they exist.
The following table presents the balances of percentage-of-completion accounts on
December 28, 2013 and December 29, 2012 which are included in other current assets
and other accrued liabilities, respectively (in thousands):
2013
Cost and Earnings in Excess of Billings ....................... $6,903
Billings in Excess of Cost and Earnings ....................... 2,858
2012
$4,981
2,020
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):
42
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
28, 2013
December
29, 2012
December
31, 2011
$43,082
$23,934
$4,549
(412)
$42,670
(210)
$23,724
(38)
$4,511
19,952
19,800
19,572
(191)
19,761
54
19,815
$2.16
$2.15
(173)
19,627
6
19,633
$1.21
$1.21
(165)
19,407
126
19,533
$0.23
$0.23
No options were excluded from the computation of diluted EPS for 2013 or 2012.
Options to purchase 105,000 shares of common stock were not included in the
computation of diluted EPS for 2011, because the options' exercise prices were greater
than the average market price of the common stock during the period and, therefore,
would be antidilutive.
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements as well as the reported amounts
of revenues and expenses during the reporting period. We believe our estimates to be
reasonable; however, actual results could differ from these estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
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, in one place, 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.
Our adoption of the provisions of ASU 2013-02 in the first quarter of 2013 did not affect
our consolidated financial position, results of operations or cash flows.
43
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
B.
FAIR VALUE
We apply the provisions of ASC 820, Fair Value Measurements and Disclosures, to
assets and liabilities measured at fair value. Assets and liabilities measured at fair value
are as follows:
December 28, 2013
Prices with
Other
Observable
Inputs
(Level 2)
Quoted
Prices in
Active
Markets
(Level 1)
$62
813
586
176
139
1,776
-
$1,776
-
-
-
-
-
-
-
-
December 29, 2012
Prices with
Other
Observable
Inputs
(Level 2)
Quoted
Prices in
Active
Markets
(Level 1)
$62
613
500
145
140
1,398
-
-
-
-
-
-
Total
$62
613
500
145
140
1,398
Total
$62
813
586
176
139
1,776
-
$1,776
-
$1,460
$1,600
$1,600
$1,600
$3,060
(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
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 2012 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 2013 and 2012, which were
accounted for using the purchase method (in thousands). No business combinations were
completed in fiscal 2011.
Company Name
Acquisition
Date
Purchase
Price
Intangible
Assets
Net
Tangible
Assets
Operating
Segment
Business Description
44
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SE Panel and
Lumber Supply,
LLC (“SE
Panel”)
November 8,
2013
$2,181
(asset
purchase)
$ -
$2,181
Eastern
Division
Premier
Laminating
Services, Inc.
(“Premier
Laminating”)
May 31,
2013
$696
(asset
purchase)
$250
$446
Western
Division
Millry Mill
Company, Inc.
(“Millry”)
February 28,
2013
$2,323
(asset
purchase)
$50
$2,273
Eastern
Division
Custom
Caseworks, Inc.
(“Custom
Caseworks”)
December
31, 2012
$6,278
(asset
purchase)
$2,000
$4,278
Western
Division
Nepa Pallet and
Container Co.,
Inc. (“Nepa”)
November 5,
2012
$16,175
(asset
purchase)
$1,350
$14,825 Western
Division
MSR Forest
Products, LLC
(“MSR”)
May 16,
2012
$3,208
(asset
purchase)
$1,164
$2,044
Eastern
Division
A distributor of Olympic
Panel overlay concrete
forming panels and
commodity lumber
products to the concrete
forming and construction
industries. Facility is
located in South Daytona,
FL. SE Panel had annual
sales of $5.4 million.
A business specialized in
environmentally
sustainable laminated
wooden products. Facility
is located in Perris, CA.
Premier Laminating had
annual sales of $6.2
million.
A highly specialized
export mill that produces
rough dimension boards
and lumber. Facility is
located in Millry, AL.
Millry had annual sales of
$4.7 million.
A high-precision
business-to-business
manufacturer of
engineered wood products
in many commercial
markets. Facility is
located in Sauk Rapids,
MN. Custom Caseworks
had annual sales of $7
million.
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 of $25
million.
Supplies roof trusses and
cut-to-size lumber to
manufactured housing
customers. Facilities are
located in Haleyville, AL
and Waycross, GA. MSR
had annual sales of $10
million.
45
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The intangible assets for each of the acquisitions were finalized and allocated to their
respective identifiable intangible asset and goodwill accounts during 2013. This resulted
in a $1.4 million reclassification from goodwill to amortizable intangible asset accounts.
At December 28, 2013, the amounts assigned to major intangible classes for the business
combinations mentioned above are as follows (in thousands):
Non-
Compete
Agreements
$250
50
220
330
-
Customer
Relationships Goodwill
-
-
-
-
$1,160
$620
1,020
-
1,164
-
Goodwill -
Tax
Deductible
-
-
$1,160
1,020
1,164
Premier Laminating
Millry
Custom Caseworks
Nepa
MSR
The business combinations mentioned above were not significant to our operating results
individually or in aggregate, and thus pro forma results for 2013 and 2012 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 prevailing 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 28, 2013, December 29, 2012 and December 31, 2011,
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
which is included in the Eastern and Western Division segment.
In the second quarter of 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 Corporate segment.
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
46
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 changes in the net carrying amount of goodwill by reporting segment for the years
ended December 28, 2013 and December 29, 2012, are as follows (in thousands):
Balance as of December 25, 2011
Acquisitions
Other
Balance as of December 29, 2012
Acquisitions
Other
Balance as of December 28, 2013
Eastern and
Western
$123,311
2,514
2,100
127,925
1,160
(330)
$128,755
Site-Built
$21,720
All
Other
$9,671
21,720
9,671
$21,720
$9,671
Total
$154,702
2,514
2,100
159,316
1,160
(330)
$160,146
Indefinite-lived intangible assets totaled $2.3 million as of December 28, 2013 and
December 29, 2012.
The following amounts were included in other amortizable intangible assets, net as of
December 28, 2013 and December 29, 2012 (in thousands):
Non-compete agreements
Customer relationships
Licensing agreements
Patents
Total
2013
Accumulated
Amortization
($514)
(6,832)
(1,606)
(2,609)
($11,561)
Assets
$1,340
9,480
4,589
3,393
$18,802
Assets
$3,730
8,860
4,589
3,250
$20,429
2012
Accumulated
Amortization
($3,366)
(5,465)
(1,147)
(2,350)
($12,328)
Amortization is computed principally by the straight-line method over the estimated
useful lives of the intangible assets as follows:
Non-compete agreements .........................5 to 10 years
Customer relationship ................................5 to 8 years
Licensing agreements ...................................... 10 years
Amortization expense of intangibles totaled $2.5 million, $2.9 million and $5.2 million in
2013, 2012 and 2011, respectively. The estimated amortization expense for intangibles
for each of the five succeeding fiscal years is as follows (in thousands):
2014 ...................................................
2015 ...................................................
$2,184
1,959
47
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2016 ...................................................
2017 ...................................................
2018 ...................................................
Thereafter ...........................................
Total ...................................................
954
797
535
812
$7,241
F.
DEBT
On December 17, 2012, we entered into an unsecured Note Purchase Agreement (the
"Agreement") under which we issued our 3.89% Series 2012 A Senior Notes, due
December 17, 2022, in the aggregate principal amount of $35 million and our 3.98%
Series 2012 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.
On November 14, 2011, we entered into a five-year, $265 million unsecured revolving
credit facility, which includes amounts reserved for letters of credit. 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 28, 2013 aggregated
$26.5 million, which includes approximately $9.8 million related to industrial
development revenue bonds. 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. Letters of credit have one year terms
and include an automatic renewal clause. The letters of credit related to industrial
development revenue bonds are charged an annual interest rate ranging from 110 to 165
basis points, based upon our financial performance. The letters of credit related to
workers’ compensation are charged an annual interest rate of 75 basis points
Long-term debt obligations are summarized as follows on December 28, 2013 and
December 29, 2012 (amounts in thousands):
2013
2012
Series 2012 Senior Notes Tranche A, due on December 17,
2022, interest payable semi-annually at 3.89% ..............................................
Series 2012 Senior Notes Tranche B, due on December 17,
2024, interest payable semi-annually at 3.98% ..............................................
Revolving credit facility totaling $265 million due on November 14, 2016,
$35,000
$35,000
40,000
40,000
48
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
(0.19% on December 28, 2013 and 0.35% on December 29, 2012) ..............
Series 2000 Industrial Development Revenue Bonds, due on
October 1, 2020, interest payable monthly at a floating rate
(0.30% on December 28, 2013 and 0.46% on December 29, 2012) ..............
Series 2002 Industrial Development Revenue Bonds, due on
December 1, 2022, interest payable monthly at a floating rate
(0.29% on December 28, 2013 and 0.45% on December 29, 2012) ..............
Less current portion ..........................................................................................
Long-term portion ............................................................................................
-
11,090
3,300
3,300
2,700
2,700
3,700
84,700
-
$ 84,700
3,700
95,790
-
$95,790
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 28,
2013 and December 29, 2012.
On December 28, 2013, the principal maturities of long-term debt and capital lease
obligations are as follows (in thousands):
2014 .............................. $ -
-
2015 ..............................
-
2016 ..............................
-
2017 ..............................
2017 ..............................
-
Thereafter ...................... $84,700
$84,700
On December 28, 2013, the estimated fair value of our long-term debt, including the
current portion, was $79.9 million. 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 28, 2013 are as follows (in thousands):
2014 ...............................................................................
2015 ...............................................................................
Operating
Leases
$4,235
2,115
49
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2016 ...............................................................................
2017 ...............................................................................
2018 ...............................................................................
Thereafter .......................................................................
Total minimum lease payments .....................................
1,384
976
884
564
$10,158
Rent expense was approximately $5.2 million, $6.9 million, and $9.6 million in 2013,
2012, and 2011, respectively.
H.
DEFERRED COMPENSATION
We have a program whereby certain executives irrevocably elected to defer receipt of
certain compensation in 1985 through 1988. Deferred compensation payments to these
executives will commence upon their retirement. We purchased life insurance on such
executives, payable to us in amounts which, if assumptions made as to mortality
experience, policy dividends, and other factors are realized, will accumulate cash values
adequate to reimburse us for all payments for insurance and deferred compensation
obligations. In the event cash values are not sufficient to fund such obligations, the
program allows us to reduce benefit payments to such amounts as may be funded by
accumulated cash values. The deferred compensation liabilities and related cash
surrender value of life insurance policies totaled $2.0 million on December 28, 2013 and
December 29, 2012 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 $1.8 million and $1.5 million on December 28, 2013 and December 29,
2012, respectively, and are included in "Other Assets." Related liabilities totaled $8.4
million and $6.7 million on December 28, 2013 and December 29, 2012, 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.
50
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 $0.4 million in 2013 and $0.5 million in each of 2012 and 2011.
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:
Weighted-
Average
Exercise
Price Per
Share
Average
Remaining
Contractual
Term
Outstanding at December 25, 2010
Exercised
Forfeited or expired
Outstanding at December 31, 2011
Exercised
Forfeited or expired
Outstanding at December 29, 2012
Exercised
Forfeited or expired
Outstanding at December 28, 2013
Vested or expected to vest at December 28, 2013
Exercisable at December 28, 2013
Stock Under
Option
359,997
(122,517)
(46,146)
191,334
(79,550)
(1,678)
110,106
(77,632)
-
32,474
(31,000)
1,474
24.04
21.33
20.57
26.60
21.82
21.84
30.13
29.49
-
31.65
31.70
$30.64
Aggregate
Intrinsic
Value
5,012,758
1,153,067
872,441
970,698
845,915
1,221,004
-
661,674
2.35
1.83
1.64
1.55
0.59
$31,529
The unrecognized compensation expense for stock options is nominal for 2013, 2012 or
2011.
A summary of the nonvested restricted stock awards granted under the LTSIP is as
follows:
Weighted-
Average
Grant Date
Fair Value
Unrecognized
Compensation
Expense
(in millions)
Weighted-
Average
Period to
Recognize
Expense
Restricted
Awards
51
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Nonvested at December 25, 2010
Granted
Vested
Forfeited
Nonvested at December 31, 2011
Granted
Vested
Forfeited
Nonvested at December 29, 2012
Granted
Vested
Forfeited
Nonvested at December 28, 2013
$219,794
71,950
(113,244)
(15,500)
163,000
37,433
(859)
(12,965)
186,609
36,481
(9,955)
(6,715)
$206,420
$28.17
38.19
29.13
30.12
31.75
35.05
29.72
30.35
32.22
40.58
40.58
31.96
$32.52
$2.8
2.30 years
3.4
3.37 years
3.2
2.68 years
$2.9 2.00 years
Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation
expense of $1.9 million, $1.3 million, and $1.4 million and the related total income tax
benefits of $0.4 million, $0.5 million, and $0.5 million in 2013, 2012 and 2011,
respectively.
In 2013, 2012 and 2011, cash received from option exercises and share issuances under our
plans was $2.1 million, $2.0 million and $3.0 million, respectively. The actual tax benefit
realized in 2013, 2012 and 2011 for the tax deductions from option exercises totaled $0.3
million, $0.8 million and $0.7 million, respectively.
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 28, 2013, the cumulative total
authorized shares available for repurchase is approximately 3.0 million shares.
J. RETIREMENT PLANS
We have a profit sharing and 401(k) plan for the benefit of substantially all of our
employees, excluding the employees of certain wholly-owned subsidiaries. Amounts
contributed to the plan are made at the discretion of the Board of Directors. We matched
25% of employee contributions in 2013 and 2012, on a discretionary basis, totaling $1.7
million and $1.6 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 $4.0 million and $3.4 million are accrued in “Other
Liabilities” for this plan at December 28, 2013 and December 29, 2012, respectively.
52
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
K.
INCOME TAXES
Income tax provisions for the years ended December 28, 2013, December 29, 2012, and
December 31, 2011 are summarized as follows (in thousands):
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
2013
2012
2011
$12,683 $5,167
3,381
3,928
19,992
3,696
600
166
4,462
$24,454
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
The components of earnings before income taxes consist of the following:
2013
2012
2011
U.S.
Foreign
Total
$59,334
10,924
$70,258
$31,768
9,296
$41,064
$328
8,459
$8,787
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
2013
35.0%
4.2
(0.3)
(2.0)
(2.5)
-
0.6
0.3
0.6
(1.1)
34.8%
2012
35.0%
5.2
(0.5)
(1.6)
(1.2)
-
(1.0)
0.7
1.1
(1.1)
36.6%
2011
34.0%
8.2
(3.0)
(1.9)
(15.4)
-
0.4
0.4
4.9
4.9
32.5%
Temporary differences which give rise to deferred income tax assets and (liabilities) on
December 28, 2013 and December 29, 2012 are as follows (in thousands):
Employee benefits
Net operating loss carryforwards
Foreign subsidiary capital loss carryforward
2013
$7,698
1,136
628
2012
$7,295
1,780
671
53
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
2,141
113
1,011
4,470
3,172
20,369
(1,021)
19,348
(21,114)
(15,269)
(1,522)
(37,905)
($18,557)
1,494
838
1,193
2,995
2,673
18,939
(859)
18,080
(18,248)
(12,781)
(1,010)
(32,039)
($13,959)
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.
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
2013
$1,531
230
481
-
(319)
$1,923
2012
$1,837
1
68
(137)
(238)
$1,531
2011
$1,253
225
391
-
(32)
$1,837
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
54
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
penalties of $0.2 million, $0.2 million and $0.3 million at December 28, 2013, December
29, 2012 and December 31, 2011, respectively.
We file income tax returns in the United States and in various state, local and foreign
jurisdictions. The federal and a majority of state and foreign jurisdictions are no longer
subject to income tax examinations for years before 2010. 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.
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 28,
2013 and December 29, 2012, representing the estimated costs to complete future
remediation efforts. These amounts have not been reduced by an insurance receivable.
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.
An additional $0.6 million was recorded during 2013. We continue to work with the
government to clarify the applicability of these rules to our products.
During 2013, we accrued $0.9 million related to anti-dumping duty assessments
estimated on plywood and steel nails imported from China. We continue to work with
US Customs and Border Protection to mitigate potential charges. This duty is unrelated
to the 2013 duty assessment disclosed above.
55
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
We are currently undergoing an unclaimed property audit with the state of Michigan
covering the period July 1, 1994 to present. We anticipate that the audit will be
completed during 2014 and do expect it to result in a material loss.
In addition, on December 28, 2013, 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 28, 2013, we had outstanding purchase commitments on capital projects of
approximately $4.2 million.
We provide a variety of warranties for products we manufacture. Historically, warranty
claims have not been material. We distribute products manufactured by other companies,
some of which are no longer in business. While we do not warrant these products, we
have received claims as a distributor of these products when the manufacturer no longer
exists or has the ability to pay. Historically, these costs have not had a material affect on
our consolidated financial statements.
In certain cases we supply building materials and labor to site-built construction projects
or we jointly bid on contracts with framing companies for such projects. In some
instances we are required to post payment and performance bonds to insure the owner
that the products and installation services are completed in accordance with our
contractual obligations. We have agreed to indemnify the surety for claims made against
the bonds. As of December 28, 2013, we had approximately $24.2 million in outstanding
payment and performance bonds, which expire during the next two years. In addition,
approximately $17.7 million in payment and performance bonds are outstanding for
completed projects which are still under warranty.
On December 28, 2013 we had outstanding letters of credit totaling $26.5 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 $16.7 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
56
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
28, 2013.
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 $1.2 million and $1.8 million at December 28, 2013 and December 29,
2012, respectively, 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,
Pinelli Universal 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.
57
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
These operations have been included in the “All Other” column of the table below. The
“Corporate” column includes unallocated administrative costs.
Eastern
and
Western
Divisions
$1,987,751
86,050
404
1,424
18,617
79,419
642,652
23,159
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
Site-Built
$272,114
15,918
-
-
2,284
7,947
103,227
2,310
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
2013
All
Other
$210,583
11,798
-
1,049
4,520
(2,366)
99,464
6,285
2012
All
Other
$196,931
12,724
51
1,251
4,286
(11,316)
103,309
11,967
2011
All
Other
$153,158
28,636
-
1,612
3,240
(8,731)
82,993
8,856
Corporate
$ -
-
4,447
-
5,670
(10,732)
71,644
8,269
Total
$2,470,448
113,766
4,851
2,473
31,091
74,268
916,987
40,023
Corporate
$ -
-
3,629
-
6,359
(6,028)
65,741
2,136
Corporate
$ -
-
3,138
-
6,148
(1,107)
73,348
8,199
Total
$2,054,933
95,926
4,053
2,918
30,461
44,528
860,540
30,344
Total
$1,822,336
131,401
3,732
5,183
30,804
12,011
764,007
32,932
Net sales to outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment earnings from
operations
Segment assets
Capital expenditures
Net sales to outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment earnings from
operations
Segment assets
Capital expenditures
Net sales to outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment earnings from
operations
Segment assets
Capital expenditures
In 2013, 2012, and 2011, 17%, 18%, and 23% of net sales, respectively, were to a single
customer.
58
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Information regarding principal geographic areas was as follows (in thousands):
2013
2012
2011
Long-Lived
Tangible
Assets
$233,237
16,260
$249,497
Long-Lived
Tangible
Assets
$222,272
17,097
$239,369
Long-Lived
Tangible
Assets
$221,269
16,578
$237,847
Net Sales
$1,779,909
42,427
$1,822,336
Net Sales
$2,005,740
49,193
$2,054,933
Net Sales
$2,410,313
60,135
$2,470,448
United States
Foreign
Total
Sales generated in Canada and Mexico are primarily to customers in the United States of
America.
The following table presents, for the periods indicated, our percentage of value-added and
commodity-based sales to total sales.
2013 .............................................................................
2012 .............................................................................
2011 .............................................................................
58.1%
58.7%
58.8%
41.9%
41.3%
41.2%
Value-Added
Commodity-Based
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.
59
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents, for the periods indicated, our gross sales (in thousands) by
major product classification.
December 28,
2013
Years Ended
December 29,
December 31,
2012
2011
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
$238,093
120,765
131,102
159,811
251,224
60,335
64,465
36,908
47,251
162,362
38,959
80,335
29,157
16,295
11,183
5,882
106
1,454,233
421,071
349,156
239,641
30,450
9,361
1,049,679
2,503,912
(33,464)
2,470,448
$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
P.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth selected financial information for all of the quarters, each
consisting of 13 weeks during the years ended December 28, 2013 and December 29,
2012 (in thousands, except per share data):
First
Second
Third
Fourth
Net sales
Gross profit
Net earnings (loss)
2013
$554,494
57,818
5,756
2012
$457,111
53,666
4,386
2013
$738,436
80,216
16,373
2012
$593,693
72,075
18,010
2013
$651,780
78,289
15,015
2012
$533,366
55,227
4,756
2013
$525,738
64,229
8,660
2012
$470,763
44,142
(1,141)
60
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Net earnings (loss)
attributable to
controlling interest
Basic earnings
(loss) per share
Diluted earnings
(loss) per share
5,224
4,155
15,772
17,509
14,091
4,198
7,995
(1,927)
0.26
0.26
0.21
0.21
0.79
0.79
0.88
0.88
0.71
0.71
0.21
0.21
0.40
0.40
(0.10)
(0.10)
61
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock trades on The Nasdaq Stock Market (“NASDAQ”) under the symbol UFPI.
The following table sets forth the range of high and low sales prices as reported by NASDAQ.
Fiscal 2013
High Low
Fourth Quarter ............ 54.40 38.60
Third Quarter ............. 42.98 36.01
Second Quarter........... 45.60 33.23
First Quarter ............... 42.22 37.62
Fiscal 2012
High Low
Fourth Quarter ............ 43.04 32.56
Third Quarter ............. 43.36 30.76
Second Quarter........... 39.62 30.92
First Quarter ............... 37.60 29.39
There were approximately 1,200 shareholders of record as of January 31, 2014.
We paid dividends on our common stock of $0.20 per share each in June and December 2012
and June 2013. In Dec 2013, we paid dividends of $0.21 per share. We intend to continue with
our current semi-annual dividend policy for the foreseeable future.
62
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 27,
2008, and reinvestment of dividends in all cases.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2013
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.
63
Directors and Executive Officers
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
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.
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 Marketing
Thomas W. Rhodes
President and Chief Executive Officer
TWR Enterprises, Inc.
Donald L. James
Executive Vice President
National Sales
Bruce A. Merino
Mary E. Tuuk
Executive Vice President and Secretary
Fifth Third Bankcorp
Michael F. Mordell
Executive Vice President
UFP Purchasing, Inc.
64
Shareholder Information
ANNUAL MEETING
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 16,
2014, 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
65
UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES
Locations:
Ashburn, GA
Auburn, NY
Auburndale, FL
Bay City, MI
Belchertown, MA
Berlin, NJ
Blanchester, OH
Burlington, NC
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Church Hill, TN
Clinton, NY
Conway, SC
Cordele, GA
Durango, Durango, Mexico
Eaton, CO
Eatonton, GA
Elizabeth City, NC
Elkhart, IN
Folkston, GA
Gordon, PA
Grandview, TX
Grand Rapids, MI
Granger, IN
Greene, ME
Haleyville, AL
Hamilton, OH
Harrisonville, MO
Hillsboro, TX
Hudson, NY
Hutchinson, MN
Janesville, WI
Jefferson, GA
Lacolle, Quebec, Canada
Lafayette, CO
Liberty, NC
McMinnville, OR
Medley, FL
Millry, AL
Minneota, MN
Morristown, TN
Moultrie, GA
Muscle Shoals, AL
Naugatuck, CT
New London, NC
New Waverly, TX
New Windsor, MD
Parker, PA
Pearisburg, VA
Plainville, MA
Ponce, Puerto Rico
Prairie du Chien, WI
Ranson, WV
Riverside, CA
Saginaw, TX
Salina, KS
Salisbury, NC
San Antonio, TX
Sauk Rapids, MN
Selma, AL
Schertz, TX
Sidney, NY
Snohomish, WA
Stanfield, NC
Stockertown, PA
Thornton, CA
Turlock, CA
Union City, GA
Warrens, WI
Waycross, GA
Wenatchee, WA
White Bear Lake, MN
White Pigeon, MI
Windsor, CO
Woodburn, OR
Yakima, WA
66