Report to Shareholders
2014
“Work! Thank God for the swing of it, for the clamoring, hammering ring of it.” --Anonymous
To Our Shareholders:
At the companies of Universal Forest Products, we turned up the volume on the sounds of industry in
2014—on the percussion of nailing systems, the hum of the saws and the synthesized sounds of
specialized equipment all playing in harmony. The score was written by our seasoned team members,
and well-performed by many groups: by existing employees who worked side-by-side with new talent; by
salespeople who provided customers with solutions to their needs; by transportation specialists who
kept the trucks rolling; by strategists who made sure we understood our markets and the needs of our
customers, and developed our people; and by all those who helped create an environment where
innovation and new products thrive.
It sounded a lot like success. We liked what we heard, and we’re turning up the volume for more.
In 2014, we grew our top line and increased profitability. We came to work each day determined to
outperform the day before, and we rewarded employees and companies who rose to the challenge and
contributed to our profitability. We closed the year with $2.7 billion in sales, up 7.7 percent over 2013,
and we grew annual net earnings by 33.6 percent, to $57.6 million.
Internally, we were driven by our call to grow “Bigger. Better. Faster. Stronger.” We did, and we haven’t
stopped. We have dubbed 2015 “Bigger. Better. Faster. Stronger. Two.” Because we’re not done—not
even close. With the momentum we have going, we’re confident that we will achieve our goals, including
our long-term objective to achieve sales growth that exceeds positive GDP growth by 4 percent to 6 percent,
and EBITDA margins of 5 percent to 6 percent of sales.
Of course, we still have challenges—and they’re what drive us to improve. We’re not a company that likes
to lose; in fact, we don’t like to tie. So we take our challenges head on. We need to reduce SG&A and
continually improve our operating margin. We need to enhance our bench strength in all areas of our
company from upper management to production, which means focusing on being great at recruiting and
retaining talented people, and developing the talent we have. We need to get to market efficiently and
expertly with our new products. We need to make sure our people aren’t ever satisfied with “good” or
“good enough.” And we need to make sure we continue to set the highest standards, internally and
externally, and grow our leadership position in our markets. Fortunately, employees throughout the
organization are aligned on these goals and are hard at work to achieve them.
Universal Forest Products, Inc.
2014 Letter to Shareholders
Page ii
In 2014, we welcomed five companies to our Universal family:
North Carolina-based Container Systems, Inc., a manufacturer of crates and containers for
industrial applications and for the moving-and-storage industry;
Upshur Forest Products, a sawmill operation in Gilmer, Texas, that supplies raw material to
nearby Universal affiliates and is positioned to help us grow our industrial business;
High Level Components, a building component manufacturer that serves customers in the
Charlotte, N.C., market, where we previously didn’t have a strong presence;
Bigs Packaging and Lumber, a Dallas-Texas based manufacturer of industrial wood and
packaging solutions; and
Packnet, Ltd., a supplier of industrial packaging and services based in Eagan, Minn.
In the early weeks of 2015, we also added Idaho-based Rapid Wood Mfg., a supplier of lumber products to
the region’s manufactured housing and recreational vehicle industries in territory that’s new to the Universal
companies, and our first acquisition outside North America, Integra Packaging, Ltd., a manufacturer and
distributor of integrated packaging solutions based in Brisbane, Australia.
Our 2014 acquisitions started to contribute to our sales growth during the year, and to the growth and
success of our companies in many other important ways. We deepened our industrial reach, we enhanced
our business in markets where we had a minimal presence (or none at all), we added to our collective
experience the strength, knowledge and contributions of the good people and leaders of these acquired
companies, and we energized our existing operations with new relationships, capacity and opportunity.
In our retail business, sales were $1.0 billion, up 10 percent over 2013, reflecting ongoing success with our
improving ability to launch new products and to grow business with big box and independent retailers, alike.
We added decking and launched an exciting new marketing campaign for our Deckorators brand, which
offers the largest collection of outdoor living products and accessories available. Today, through this brand
and others, we sell everything from fence kits to deck lighting, and from glass balusters to knock-down
project tables.
In the construction market, sales were up 2 percent over 2013, to $885.3 million. Sales to this market
include residential site-built and manufactured housing, commercial construction and concrete forming. The
results reflect our objectives to grow business selectively and to focus on innovation and on diversification,
putting us on a path of growth and ever-improving profitability. Our diversification provides many paths for
success and allows us to leverage the vast capabilities of our affiliated operations for the benefit of our
customers. Those who come to us for a particular product or service quickly learn how many problems we
can solve for them as a single-source supplier for their projects.
Universal Forest Products, Inc.
2014 Letter to Shareholders
Page iii
The industrial market continues to offer strong opportunities, and annual sales to this market were up
12 percent over 2013, to $783.8 million. Our growth in this business is due in large part to the hard work
of our sales professionals, to our talented design and production teams, and to the blend of capabilities
and capacity that we feel is unique to our organization and that allows us to serve innumerable needs in
many markets and industries.
Our results in 2014 include $150 million in new product sales, including successful forays into ProWood
Dura Color® color-treated wood, laminated products and scores of other products. New product
development gets top billing in our growth goals.
We promoted 19 people to important positions (division presidents, vice presidents, general managers),
creating a domino effect that provided opportunity for growth and development for many of our employees.
We love to promote and hire from within, and we were able to do that in abundance in 2014. It creates a
great culture and longtime bonds among employees who work and grow together.
This year was energizing for the people of our family of companies. If the music of past success was
exciting, this is even better—like the Beatles, it has the ability to withstand the test of time. Whether it’s
adding a new beat to an old chorus, or developing a whole new sound for the next generation, we have
the ability and the desire to make it sound great.
We are a strong, deliberate Midwest company that values pragmatism, integrity and working hard toward
long-term rewards. We like diverse, sustained growth because we learned the hard way what temporary
highs in the business pipeline and individual markets can do to a company. We take well-considered risks
to achieve sales growth, and we’re conservative with our dollars. They’re hard-earned, and we take our
responsibility to our stakeholders, including our shareholders, very seriously. Many of them are with us for
the long-haul, and we want the ride to be satisfying and lucrative for all.
This year, we’re celebrating 60 years of business. We are planning commemorations for our company and
people. More importantly, we’re planning the next decades of success. We’ve got a lot more music in us.
Thank you for your investment in our company and your belief in our team. We’ll continue to work hard to
earn both.
William G. Currie
Chairman of the Board
Matthew J. Missad
Chief Executive Officer
Universal Forest Products, Inc.
2014 Letter to Shareholders
Page iv
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
Table of Contents
Selected Financial Data..............................................................................................2
Management's Discussion and Analysis of Financial Condition
and Results of Operations .....................................................................................3-26
Management's Annual Report on Internal Control
Over Financial Reporting ......................................................................................27
Report of Independent Registered Public Accounting Firm .....................................28-29
Report of Independent Registered Public Accounting Firm ......................................30
Consolidated Balance Sheets as of December 27, 2014
and December 28, 2013 ........................................................................................31-32
Consolidated Statements of Earnings and Comprehensive Income
for the Years Ended December 27, 2014, December 28, 2013,
and December 29, 2012 ........................................................................................33
Consolidated Statements of Shareholders' Equity for the Years Ended
December 27, 2014, December 28, 2013, and December 29, 2012 .....................34-36
Consolidated Statements of Cash Flows for the Years Ended
December 27, 2014, December 28, 2013, and December 29, 2012 .....................37-38
Notes to Consolidated Financial Statements..............................................................39-63
Price Range of Common Stock and Dividends..........................................................64
Stock Performance Graph ..........................................................................................65
Directors and Executive Officers ...............................................................................66
Shareholder Information ............................................................................................67-68
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
2014
2013
2012
2011
2010
$2,660,329
325,342
95,713
$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
57,551
$2.86
$0.610
43,082
$2.15
$0.410
23,934
$1.21
$0.400
4,549
$0.23
$0.400
17,411
$0.89
$0.400
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)
$397,546
1,023,800
98,645
699,560
$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
12.2%
11.4%
11.0%
11.0%
12.2%
2.2%
8.8%
3.27
0.14
$35.01
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) 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 supply wood, wood composite and
other products to three primary markets: retail, housing and construction, and industrial. Our
retail market is comprised of building materials sold primarily to national home center retailers,
retail-oriented regional lumber yards and contractor-oriented lumber yards. Our housing and
construction market is comprised of three submarkets, manufactured housing customers,
residential construction customers and commercial construction customers. Our industrial
market is generally defined as industrial manufacturers and other customers for packaging,
material handling and other applications. Founded in 1955, the Company is headquartered in
Grand Rapids, Mich., with affiliates throughout North America. For more about Universal
Forest Products, 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 2014.
the markets we serve; government regulations, particularly
in
OVERVIEW
Our results for 2014 were impacted by the following:
• Our sales increased 8% in 2014 due to an 8% increase in our unit sales, as selling prices
remained flat. See “Historical Lumber Prices”. Our unit sales increased in three of five of our
market classifications, with our strongest growth occurring in our commercial construction
market. Our unit sales to the retail building materials and industrial markets each reported an
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increase of approximately 12%. Our decline in unit sales to the manufactured housing and
residential construction markets are discussed in the following paragraphs.
• National housing starts increased approximately 8% in the period from December 2013
through November 2014, compared to the same period of the prior year (our sales trail housing
starts by about a month). Although national housing starts increased, our unit sales to the
residential construction market decreased 8% in 2014, primarily due to being more selective in
the business that we select, particularly in our framing operations within our Site-Built
segment, which primarily supplies engineered wood components and framing services in
certain regions for construction of housing and small commercial structures. We expect our
selective pricing policies and conservative approach to adding capacity to serve this market
may continue to impact our sales growth relative to industry growth.
• Shipments of HUD code manufactured homes were up 6% in the period from January through
November 2014, compared to the same period of the prior year, and modular home starts
decreased by 3.3% in the first nine months of 2014 (the last period reported). Our unit sales to
the manufactured housing market remained flat as the impact of a modest overall increase in
industry production on our sales was offset by a decline in sales to one of our large customers.
This customer began to produce its own trusses and lumber components used its homes in
certain regions of the United States.
• Our profitability has improved to $57.6 million in net earnings attributable to controlling
interest from $43.1 million last year primarily due to a combination of the unit sales growth
mentioned above, being more selective in the business that we select with residential
construction customers, improvements in our sales mix, and relatively steady lumber prices
during 2014 compared to lumber prices that were falling at key times during 2013.
• We completed several strategic business acquisitions in 2014 that are outlined in the Notes to
Consolidated Financial Statements, Note C, "Business Combinations".
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.
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
Random Lengths Composite
Average $/MBF
2013
2014
2012
$395
394
387
367
377
375
381
401
398
381
367
375
$383
0%
$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
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 23% of our
sales volume.
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
Random Lengths SYP
Average $/MBF
2013
2012
2014
$397
426
445
436
383
355
366
364
360
356
362
360
$384
21.9%
$269
278
300
314
341
314
300
315
319
313
350
362
$315
$375
398
406
392
402
406
396
419
416
393
386
399
$399
3.9%
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
approximately 60% of our material costs. Material costs as a percentage of sales were 71.3%,
73.2%, and 69.7% in 2014, 2013, 2012, respectively.
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 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
6
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
remain in inventory, the greater the exposure to changes in the price of lumber. This would
include treated lumber, which comprises approximately 15% of our total sales. This exposure
is less significant with remanufactured lumber, trusses sold to the manufactured housing
market, and other similar products, due to the higher rate of inventory turnover. We attempt to
mitigate the risk associated with treated lumber through vendor consignment inventory
programs. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed
with the United States Securities and Exchange Commission.)
(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 five business acquisitions during 2014 and four during 2013 and each was accounted for
using the purchase method. The aggregate annual revenue of these acquisitions totaled $77.7 million.
These business combinations were not significant to our operating results individually or in aggregate,
and thus pro forma results for 2014 and 2013 are not presented.
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 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 27, 2014 December 28, 2013 December 29, 2012
100.0 %
89.0
11.0
100.0 %
88.6
11.4
87.8
12.2
100.0 %
8.6
0.1
(0.1)
3.7
0.1
3.6
1.3
2.3
(0.2)
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)
2.2 %
1.7 %
1.2 %
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.
8
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(cid:1) Developing new products and expanding our product offering for existing customers. New product
sales were $149.1 million in 2014 and $85.0 million in 2013.
(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
Housing and Construction
Total Gross Sales
Sales Allowances
Total Net Sales
December
27,
2014
$1,028,783
783,805
381,564
355,393
148,391
885,348
2,697,936
(37,607)
$2,660,329
Years Ended
December
28,
2013
$936,141
699,688
%
Change
12.0
18.4
December
29,
2012
$835,553
590,921
%
Change
9.9
12.0
(2.4)
(1.5)
27.6
7.8
7.7
391,051
360,762
116,270
868,083
2,503,912
(33,464)
$2,470,448
24.1
39.1
36.8
20.0
20.2
315,208
259,301
85,022
659,531
2,086,005
(31,072)
$2,054,933
Note: During 2014, 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.
2014 versus 2013 ...............................................
2013 versus 2012 ...............................................
2012 versus 2011 ...............................................
% Change
in Units
in Selling Prices
8%
0%
8%
12%
4%
8%
in Sales
8%
20%
12%
Retail Building Materials:
Gross sales to the retail building materials market increased almost 10% in 2014 compared to
2013 due to a 12% increase in overall unit sales, offset by a 2% decrease in selling prices.
Within this market, sales to our big box customers increased 12% while our sales to other
retailers increased 7%. We believe that our increase in unit sales is primarily due an
improvement in consumer demand. Our large retail customers have also reported year over year
increases in their same store sales.
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 was 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.
Industrial:
Gross sales to the industrial market increased 12% in 2014 compared to 2013, resulting from a
12% increase in overall unit sales while selling prices remained flat. We acquired three new
operations (Container Systems, Inc., Packnet Ltd, and Bigs Packaging and Lumber, LLC), which
contributed 2% to our growth in unit sales, and expanded our capacity at several existing
locations to take advantage of market share growth opportunities. Our unit sales also increased
as a result of adding 192 new customers during the year and improved demand from our existing
customers.
Gross sales to the industrial market increased 18% in 2013 compared to 2012, resulting from an
10% 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.
Manufactured Housing:
Gross sales to the manufactured housing market decreased approximately 2% in 2014 compared
to 2013, due to unit sales remaining flat and a 2% decrease in selling prices due to the lumber
market and commodity prices for OSB panels which we distribute. Industry production of HUD-
code homes increased 6% compared to 2013 and modular home starts decreased over 3% for the
first nine months of 2014 (the last period reported). Our unit sales to the manufactured housing
market remained flat as the impact of a modest overall increase in industry production on our
sales was offset by a decline in sales to one of our large customers. This customer began to
produce its own trusses and lumber components used its homes in certain regions of the United
States.
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). In addition to industry
production growth, market share gains in our distribution business contributed to our increase in
sales.
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 decreased almost 2% in 2014 compared to
2013 due to an 8% decrease in unit sales offset by a 6% increase in estimated selling prices. By
comparison, national housing starts increased approximately 7% in the period of December 2013
through November 2014 (our sales typically trail housing starts by about a month), compared to
the same period of 2013. Our sales growth trailed the growth in national housing starts primarily
due to being more selective in the business that we select, particularly in our framing operations
within our Site-Built segment. We expect our selective pricing policies and conservative
approach to adding capacity to serve this market may continue to impact our sales growth
relative to industry growth.
Gross sales to the residential construction market increased 39% in 2013 compared to 2012 due
to an estimated 18% increase in unit sales and a 21% increase in selling prices. By comparison,
national housing starts increased approximately 21% in the period from December 2012 through
November of 2013 (our sales trail housing starts by about a month), compared to the same period
of 2012.
Commercial Construction:
Gross sales to the commercial construction market increased 28% in 2014 compared to 2013 due
to a 29% increase in unit sales offset by a 1% decrease in selling prices. Within this market,
sales to commercial builders increased 11%, and sales of products used to make concrete forms
increased 35.8% due to our continued focus on growing our share of this market.
Gross sales to the commercial construction market increased 37% in 2013 compared to 2012 due
to a 24% increase in unit sales and a 13% increase in selling prices. Within this market, sales to
commercial builders increased 42%, and sales of products used to make concrete forms increased
35% 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.
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.
2014.................................................
2013.................................................
2012.................................................
58.5%
58.1%
58.7%
41.5%
41.9%
41.3%
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 11.4% in 2013 to 12.2% in 2014. Additionally, our
gross profit dollars increased by almost $45 million, or 16%, which exceeds our 8% increase in
unit sales. The improvement in our profitability in 2014 is attributable to the following factors:
• Over $20 million of the improvement reflects our efforts to be more selective in the
business that we select on sales to the residential construction market, particularly in our
framing operations, as well as operational efficiencies;
• Approximately $12 million of the increase is attributable to our growth in unit sales to the
retail building materials market as well an improvement in margin on those sales due to a
more favorable trend in lumber prices in 2014 compared to 2013;
• Our growth in unit sales to the industrial and commercial construction markets, as well as
improvements in our product mix to sell more higher margin products, contributed to gross
profit increases of approximately $17 million and $6 million, respectively;
• The improvements above were offset to some extent by unfavorable cost variances as a
result of inclement weather in our first and fourth quarters of 2014.
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 increased. In addition, the pricing pressure we experienced on sales to our residential
construction customers eased as market activity has improved. These factors were offset by the
higher level of lumber prices in 2013 relative to 2012. As explained previously, 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.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased by approximately $25.4
million, or 12.4%, in 2014 compared to 2013, while we reported an 8% increase in unit sales.
The increase in SG&A was primarily due to a $13 million increase in compensation and related
expenses resulting from annual raises and hiring additional sales and design personnel to support
sales growth, and an $8 million increase in incentive compensation expense tied to profitability
and return on investment.
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 increases in base wages and other incentive
compensation.
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANTI-DUMPING DUTY ASSESSMENTS
We accrued $1.6 million and $0.9 million related to estimated anti-dumping duty assessments in
2014 and 2013, respectively, imposed by the US government 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 below.
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.
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT
CHARGES
The net gain on disposition and impairment of assets totaled $3.4 million in 2014. Included
within the $3.4 million net gain was a gain on the sale of certain real estate totaling $2.7 million
completed by a 50% owned subsidiary of the Company. During 2014, we also recognized a net
gain on the sale of other properties and equipment totaling $1.9 million. These gains were offset
by a $1.2 million impairment loss recorded to reduce the value of one of our vacant properties.
We incurred a $0.4 million net loss in 2013 comprising a $0.1 million net gain from the sales of
properties and $0.5 million in losses from asset impairments and other costs associated with
idled facilities. See Notes to Consolidated Financial Statements, Note D “Net Loss (Gain) on
Disposition of Assets and Other Impairment Charges.”
We regularly review the performance of each of our operations and make decisions to
permanently or temporarily close operations based on a variety of factors including:
• Current and projected earnings, cash flow and return on investment
• Current and projected market demand
• Market share
• Competitive factors
• Future growth opportunities
• Personnel and management
INTEREST, NET
Net interest costs were lower in 2014 compared to 2013, due to a lower outstanding balance on
our revolving line of credit throughout 2014 resulting in less associated interest expense.
Additionally, interest income increased by $1.6 million due to certain investments made in notes
receivable.
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
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and the issuance of long-term debt at the end of 2012 which carried a higher interest rate than our
revolving credit facility.
INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for
state and local income taxes and permanent tax differences. Our effective tax rate increased to
35.7% in 2014 compared to 34.8% in 2013. The increase is due to the 2013 tax rate including
additional research and development and certain other tax credits relating to 2012 that were
retroactively approved by Congress in 2013. See Notes to Consolidated Financial Statements,
Note K, “Income Taxes”.
Our effective tax rate decreased to 34.8% in 2013 compared to 36.6% in 2012. This decrease
was due to a decline in the state income tax rate resulting from franchise taxes which remained
relatively unchanged even when income increased, along with research and development and
certain other tax credits related to 2012, which Congress approved in 2013.
SEGMENT REPORTING
The following table presents, for the periods indicated, our net sales and earnings from operations
by reportable segment.
(in thousands)
Net Sales
December 27,
2014
$1,113,525
1,062,565
260,118
224,121
$2,660,329
December 28,
2013
$1,037,066
950,685
272,114
210,583
$2,470,448
December 29,
2012
2014 vs
2013
2013 vs
2012
$858,539
776,639
222,824
196,931
$2,054,933
7.4%
11.8
(4.4)
6.4
7.7%
20.8%
22.4
22.1
6.9
20.2%
Eastern
Western
Site-Built
All Other
Total
(in thousands)
Earnings from Operations
December 27,
2014
December 28,
2013
December 29,
2012
2014 vs
2013
2013 vs
2012
Eastern
Western
Site-Built
All Other
Corporate1
Total
$37,522
53,576
19,574
3,520
(16,825)
$97,367
$37,416
42,003
7,947
(2,366)
(10,732)
$74,268
$25,156
35,417
1,299
(11,316)
(6,028)
$44,528
0.3%
27.6
146.3
248.8
(56.8)
31.1%
48.7%
18.6
511.8
79.1
(78.0)
66.8%
1Corporate primarily represents over (under) allocated administrative costs and certain incentive compensation expense.
Eastern
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net sales of the Eastern reportable segment increased by 7.4% in 2014 compared to 2013, due to an
increase in sales to retail, industrial, and commercial construction customers primarily due to improved
demand. These increases were offset by a decline in sales to manufactured housing due to a vertical
integration strategy recently implemented by one of our largest customers.
Net sales of the Eastern reportable segment increased by 20.8% in 2013 compared to 2012, due to:
• Higher lumber prices.
• An increase in commercial construction and concrete forming sales primarily due to new
products introduced in our Gulf region and other market share gains.
• A slight increase in sales to retail, industrial, and commercial construction customers due to
market share gains.
Earnings from operations for the Eastern reportable segment increased slightly in 2014 primarily due to
the growth in our sales to the retail, industrial and commercial construction markets, and the impact of a
more favorable lumber market. These improvements were offset by unfavorable cost variances in our
first and fourth quarters due to inclement weather and a decline in sales to manufactured housing.
Earnings from operations for the Eastern 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 increased.
Western
Net sales of the Western reportable segment increased by 11.8% in 2014 compared to 2013, due to:
• An increase in sales to the commercial construction market;
• Growth in sales to the industrial market as a result of gaining new customers, increased demand
from existing customers, and acquiring businesses and adding capacity to our existing locations
to grow our share of the industrial market;
• These increases were offset by a decline in sales to manufactured housing due to a vertical
integration strategy recently implemented by one of our largest customers.
Net sales of the Western reportable segment increased by 22.4% in 2013 compared to 2012, due to:
• Higher lumber prices.
• Recently acquired businesses that serve the industrial market.
• An increase in manufactured housing sales due to an increase in industry production of HUD
code homes.
Earnings from operations for the Western reportable segment increased in 2014 primarily due to the
growth in our sales to the retail, industrial, and construction markets, the impact of a more favorable
lumber market, and an improvement in our product mix such that we sold more higher margin, value-
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
added products. These improvements were offset to some extent by unfavorable cost variances in our
first and fourth quarters due to inclement weather, and a decline in sales to manufactured housing.
Earnings from operations for the Western reportable segment increased in 2013 primarily due to greater
unit sales and operating leverage on labor and overhead costs.
Site-Built
Net sales of the Site-Built reportable segment decreased 4.4% in 2014 compared to 2013 despite an
increase in housing starts, primarily due to our operations being selective in the business we take,
particularly in our framing operations.
Net sales of the Site-Built reportable segment increased 22.1% in 2013 compared to 2012. This increase
was primarily due to increased selling prices due to higher lumber prices and an easing of pricing
pressure with customers, as well as an increase in housing starts.
Earnings from operations for the Site-Built reportable segment increased in 2014 compared to 2013,
primarily due to being more selective in the business we elected to undertake.
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 as well as
an easing of pricing pressure. These factors were affected by reduced profits of our turn-key framing
operations, which were adversely impacted by an unexpected rise in labor and lumber costs early in the
year on certain projects.
All Other
Net sales of all other segments increased 6.4% in 2014 compared to 2013 primarily due to:
• An increase in sales to the Manufactured Housing market by our UFP Distribution operations
primarily due to market share gains.
• 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, Mexico.
• An increase in sales by our Universal Consumer Products operations due to market share gains
and an increase in customer demand.
Net sales of all other segments increased 6.9% in 2013 compared to 2012. 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 and market share gains
from adding new product lines.
• An increase in sales to the Industrial market by our Pinelli Universal partnership.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• An increase in sales by our Universal Consumer Products operations due to market share gains.
Earnings from operations for all other segments improved in 2014 compared to 2013, primarily due to
improved profitability of our Universal Consumer Products operations due, in part, to operational
improvements, and our Pinelli Universal partnership, which recorded a $2.7 million gain on the sale of
certain real estate.
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.
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 27, 2014 (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
4,865
7,008
$14,852
$ -
5,957
6,922
-
$12,879
$-
5,957
2,430
-
$8,387
$98,645
12,150
-
-
$110,795
Total
$98,645
27,043
14,217
7,008
$146,913
As of December 27, 2014, we also had $26.3 million in outstanding letters of credit issued
during the normal course of business, as required by some vendor contracts.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow statement (in
thousands):
December 27,
2014
December 28,
2013
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
$73,120
(67,063)
(5,205)
(852)
-
-
$-
$54,440
(43,603)
(18,422)
(62)
(7,647)
7,647
$-
December 29,
2012
($5,721)
(34,223)
36,695
244
(3,005)
10,652
$7,647
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
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 carrying less debt than we believe we could based on our internal
targets. We have recently increased our semi-annual dividend rate, completed repurchases of our
stock when the price is at a targeted level, increased our capital expenditures to expand our
capacity to serve certain targeted markets, and completed several strategic business acquisitions.
Seasonality has a significant impact on our working capital from March to August which
historically resulted in negative or modest cash flows from operations in our first and second
quarters. Conversely, we experience a substantial decrease in working capital from September to
February which typically results in significant cash flow from operations in our third and fourth
quarters. In 2014, higher unit sales caused our investment in accounts receivable and inventory
to increase. Industry challenges with transportation also caused us to carry greater levels of
safety stock.
Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash
cycle (days sales outstanding plus days supply of inventory less days payables outstanding) is a
good indicator of our working capital management. Our cash cycle increased to 50 days in 2014
from 49 days in 2013 due to a 2 day increase in our days supply of inventory, offset by a 1 day
extension in our payables cycle. We carried higher levels of safety stock inventory in 2014 due
to industry transportation challenges. In addition, adverse weather in the first quarter of 2014
resulted in weaker than expected unit sales and lower inventory turnover during that period.
Cash generated from operating activities was approximately $73.1 million in 2014, which was
comprised of net earnings of $61.6 million and $39.4 million of non-cash expenses, partially
offset by a $27.9 million increase in working capital since the end of 2013. Working capital at
the end of 2014 is higher than the end of 2013, primarily due to new businesses we’ve added in
2014, as well as the impact of higher year over year unit sales on receivables and higher
inventory levels due to an anticipated increase in unit sales in 2015.
Capital expenditures were $45.3 million in 2014, and we have outstanding purchase
commitments on existing capital projects totaling approximately $7.0 million at December 27,
2014. Included within capital expenditures was $9.0 million for expansion to support new
product offerings, 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.
Proceeds from the sale of property, plant, and equipment totaled $9 million in 2014. Included
within these proceeds were collections of approximately $8 million related to the sale of five idle
real estate properties associated with plants we previously closed. See Notes to Consolidated
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Statements, Note D “Net Loss (Gain) on Disposition of Assets and Impairment
Charges”.
Cash flows used in investing activities also included $34.6 million spent to acquire the net assets
of Container Systems Inc, Upshur Forest Products LLC, High Level Components LLC, Packnet
Ltd, and Bigs Packaging and Lumber LLC. See Notes to Consolidated Financial Statements,
Note C “Business Combinations”.
In 2014, cash flows used in financing activities included $12.2 million of dividends paid to
shareholders. Our Board of Directors approved semi-annual dividends of $0.21 per share and
$0.40 per share, which were paid in June and December of 2014, respectively. In addition, we
repurchased approximately 105,000 shares of our stock for an amount totaling approximately
$4.9 million. The company currently has remaining authorization to repurchase up to
approximately 2.9 million shares.
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 was used to
repay amounts owed under our revolving credit facility.
On December 27, 2014, we had $13.9 million outstanding on our $295 million revolving credit
facility. On December 28, 2013, we had no outstanding balance. The revolving credit facility is
scheduled to mature in November of 2019. The revolving credit facility supports letters of credit
totaling approximately $9.8 million on December 27, 2014 and December 28, 2013. 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 27, 2014 and December 28, 2013.
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.
19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 memorandums 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. The
discounted cash flow analysis uses the following assumption: a business is worth today what it
can generate in future cash flows; cash received today is worth more than an equal amount of
cash received in the future; and future cash flows can be reasonably estimated. The discounted
cash flow analysis is based on the present value of projected cash flows and residual values.
As of September 28, 2014, the fair values of each of the Company’s reporting units substantially
exceeded their carrying values.
Excess Fair Value
over Carrying Value
Eastern
Division
Western
Division
Site-
Built
All Other
21.8%
87.8%
150.2%
52.6%
If the carrying value of a long-lived asset is considered impaired, a level two analysis will be
conducted and 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.
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
20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
delay, accelerate or avoid an impairment charge. The change was 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.
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 27, 2014. 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 27, 2014, there were fifteen 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 $1.8 million at December 27, 2014 and $0.9 million at
December 28, 2013, 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 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.
21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
GOALS
FORWARD OUTLOOK
The Company’s goal is to achieve sales growth that exceeds positive GDP growth by 4 percent
to 6 percent. In addition, the Company is targeting EBITDA margins of 5 percent to 6 percent of
sales.
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 commercial
construction markets;
• Increase our profitability through cost reductions, productivity improvements as volume
improves, and a more favorable mix of higher margin value-added products; and
22
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• Earn a return on invested capital in excess of our weighted average cost of capital.
RETAIL BUILDING MATERIALS MARKET
The Home Improvement Research Institute (“HIRI”) anticipates growth in home improvement
spending and has forecasted a 4.4% compounded annual growth rate until 2019.
We continue to compete for market share for certain retail customers and face intense pricing
pressure from other suppliers to this market. Nevertheless, we were successful in our attempt to
gain a greater share of our customers business in 2015 and were awarded many new stores and
some additional product lines. We anticipate that this gain in market share could add up to $80
million to our sales to the retail building materials market in 2015.
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
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 10% decrease in manufactured home
shipments in 2015 followed by a 38% increase in 2016. 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 also 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.
23
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We may continue to expand our product offering to distribute additional products to our
manufactured housing customers. In addition, 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 12% increase in national housing
starts to an estimated 1.1 million starts in 2015. The National Association of Home Builders
forecasts starts of 1.2 million, a 17% increase from 2014. 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 and our conservative
approach to adding capacity to serve this market, our growth may continue to trail the market in
2015.
On a long-term basis, we anticipate growth in our sales to the residential construction market as
market conditions improve.
COMMERCIAL CONSTRUCTION MARKET
It continues to be our long term objective to gain additional share of this market through our ability to
provide value added products and services to these customers.
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2015:
• End market demand.
• Our ability to maintain market share and gross margins on products sold to our largest
customers. We believe our level of service, geographic diversity, and quality of products
provides an added value to our customers. However, if our customers are unwilling to pay for
these advantages, our sales and gross margins may be reduced. Excess capacity exists for
suppliers in each of our markets. As a result, we may continue to 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.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
24
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In recent years selling, general and administrative (SG&A) expenses have increased as we have
added personnel needed to take advantage of growth opportunities and execute our initiatives
designed to increase our sales of new products and improve our sales mix of higher margin,
value-added products. We anticipate our trend of increases in these costs will continue in 2015,
but it is an objective to reduce these costs as a percentage of sales (assuming lumber prices
remain stable) as we grow as a result of fixed costs and through improved productivity of our
people. In addition, bonus and other incentive expenses for all salaried and sales employees is
based on profitability and the effective management of our assets and will continue to fluctuate
based on our 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 programs which are tied to gross profits, pre-bonus earnings
from operations, and return on investment.
• Our growth and success in achieving continuous improvement objectives designed to
improve our productivity and leveraging our fixed costs.
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 and commercial 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 approximately $45 million on capital expenditures in 2015 and
incur depreciation of approximately $35 million and amortization and other non-cash expenses
of approximately $6 million. On December 27, 2014, we had outstanding purchase
commitments on capital projects of approximately $7.0 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 was increased in December 2014
to $0.40 per share. Our dividend rates are reviewed and approved at our April and October
board meetings and payments are made in June and December of each year.
25
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Board of Directors has approved a share repurchase program, and as of December 27, 2014,
we have authorization to buy back approximately 2.9 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.
26
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 27,
2014, 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 27, 2014,
our internal control over financial reporting was effective.
The effectiveness of the Company’s internal control over financial reporting has been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their
report, which follows our report.
Universal Forest Products, Inc.
February 25, 2015
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Universal Forest Products, Inc.
Grand Rapids, Michigan
We have audited the internal control over financial reporting of Universal Forest Products, Inc. and subsidiaries (the
"Company") as of December 27, 2014, based on criteria established in Internal Control — Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
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 by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the 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, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 27, 2014, based on the criteria established in Internal Control — Integrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended December 27, 2014 of the Company and
our report dated February 25, 2015 expressed an unqualified opinion on those consolidated financial statements.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
February 25, 2015
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Universal Forest Products, Inc.
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Universal Forest Products,
Inc. and subsidiaries (the "Company") as of December 27, 2014 and the related consolidated
statements of earnings and comprehensive income, shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the 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 the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 2014 consolidated financial statements present fairly, in all material
respects, the financial position of Universal Forest Products, Inc. and subsidiaries as of
December 27, 2014, and the results of their operations and their cash flows for the year then
ended in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial reporting as of
December 27, 2014, based on the criteria established in Internal Control—Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated February 25, 2015 expressed an unqualified opinion on the Company's internal
control over financial reporting.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
February 25, 2015
29
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 sheet of Universal Forest Products, Inc.
and subsidiaries as of December 28, 2013, and the related consolidated statements of earnings
and comprehensive income, shareholders’ equity, and cash flows for each of the two 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 the consolidated results of their operations and their cash flows for each
of the two fiscal years in the period ended December 28, 2013, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 26, 2014, except for Note N, as to which the date is February 25, 2015
30
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
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 27,
2014
December 28,
2013
$
405
195,912
$
720
180,452
183,770
156,278
340,048
11,934
6,284
18,423
573,006
1,079
9,565
183,062
2,340
6,479
161,226
126,079
287,305
2,235
6,866
18,820
496,398
1,365
12,087
160,146
2,340
7,241
114,157
175,340
284,981
23,397
6,523
604,398
(356,129)
248,269
1,023,800
$
115,155
173,641
260,807
23,233
5,866
578,702
(341,292)
237,410
916,987
$
31
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, 19,984,451 and 19,948,270
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 27,
2014
December 28,
2013
$
621
89,105
$
1,079
72,918
62,143
23,591
175,460
98,645
30,933
19,202
324,240
45,018
20,084
139,099
84,700
26,788
16,666
267,253
$
-
$
-
19,984
162,483
502,334
1,348
(455)
685,694
13,866
699,560
1,023,800
$
19,948
156,129
461,812
3,466
(732)
640,623
9,111
649,734
916,987
$
32
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Year Ended
December 27, December 28, December 29,
2013
2014
2012
NET SALES
$
2,660,329
$
2,470,448
$
2,054,933
COST OF GOODS SOLD
2,334,987
2,189,896
1,829,824
GROSS PROFIT
325,342
280,552
225,109
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
ANTI-DUMPING DUTY ASSESSMENTS
NET LOSS (GAIN) ON DISPOSITION OF ASSETS
229,775
1,600
204,390
1,526
184,919
2,328
AND IMPAIRMENT CHARGES
(3,400)
368
(6,666)
EARNINGS FROM OPERATIONS
97,367
74,268
44,528
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
4,267
(2,235)
(378)
1,654
95,713
34,149
61,564
4,851
(640)
(201)
4,010
70,258
24,454
45,804
4,053
(510)
(79)
3,464
41,064
15,054
26,010
(4,013)
(2,722)
(2,076)
$
57,551
$
43,082
$
23,934
EARNINGS PER SHARE - BASIC
$
2.87
$
2.16
$
1.21
EARNINGS PER SHARE - DILUTED
$
2.86
$
2.15
$
1.21
OTHER COMPRESHENSIVE INCOME:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
(3,116)
(784)
980
COMPREHENSIVE INCOME
58,448
45,020
26,990
LESS COMPREHENSIVE INCOME ATTRIBUTABLE
TO NONCONTROLLING INTEREST
COMPREHENSIVE INCOME ATTRIBUTABLE TO
(3,015)
(2,730)
(2,398)
CONTROLLING INTERST
$
55,433
$
42,290
$
24,592
See notes to consolidated financial statements.
33
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
$
3,600
Additional
Paid-In
Capital
143,988
$
Retained
Earnings
410,848
$
23,934
Common
Stock
$
19,624
Employees
Stock Notes
Receivable
$
(1,255)
Noncontrolling
Interest
$
5,794
2,076
$
Total
582,599
26,010
658
322
436
(871)
(7,905)
10
90
50
37
(1)
1,971
37
(37)
765
1,270
1,836
(25)
27
980
436
(871)
(7,905)
2,061
97
-
765
1,270
1,836
1
246
(982)
$
$
7,757
246
607,525
$
Balance at December 31, 2011
Net earnings
Foreign currency
translation adjustment
Capital contribution from
noncontrolling interest
Distributions to noncontrolling interest
Cash dividends - $0.400 per share
Issuance of 89,574 shares under
employee stock plans
Issuance of 49,536 shares under
stock grant programs
Issuance of 37,437 shares under
deferred compensation plans
Tax benefits from non-qualified
stock options exercised
Expense associated with
share-based compensation
arrangements
Accrued expense under
deferred compensation plans
Note receivable adjustment
Payments received on employee
stock notes receivable
Balance at December 29, 2012
$
19,800
$
149,805
$
426,887
$
4,258
34
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
35
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
Additional
Paid-In
Capital
Retained
Earnings
57,551
Employees
Stock Notes
Receivable
Noncontrolling
Interest
4,013
Total
61,564
(2,118)
(998)
(3,116)
3,650
(1,910)
3,650
(1,910)
(12,205)
541
1,216
-
(4,866)
319
1,919
2,515
-
(2)
(76)
78
199
(455)
$
$
13,866
199
699,560
$
Common
Stock
16
78
49
(105)
Net earnings
Foreign currency
translation adjustment
Noncontrolling interest associated with
business acquisitions
Distributions to noncontrolling interest
Cash dividends - $0.210 & $0.400
per share - semiannually
Issuance of 15,639 shares under
employee stock plans
Issuance of 77,970 shares under
stock grant programs
Issuance of 49,337 shares under
deferred compensation plans
Repurchase of 105,012 shares
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
(12,205)
13
(4,761)
525
1,125
(49)
319
1,919
2,515
Balance at December 27, 2014
$
19,984
$
162,483
$
502,334
$
1,348
See notes to consolidated financial statements
36
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 and cash overdraft
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:
Borrowings under revolving credit facilities
Repayments under revolving credit facilities
Repayment of long-term debt
Borrowings of long-term debt
Debt issuance costs
Proceeds from issuance of common stock
Distributions to noncontrolling interest
Capital contribution from noncontrolling interest
Dividends paid to shareholders
Repurchase of common stock
Excess tax benefits from share-based compensation arrangements
Other, net
NET CASH FROM FINANCING ACTIVITIES
Effect of exchange rate changes on cash
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
December 27,
2014
Year Ended
December 28,
2013
December 29,
2012
$
61,564
$
45,804
$
26,010
33,913
2,410
1,919
(14)
94
-
4,926
(378)
(3,400)
(9,710)
(49,575)
15,390
15,981
73,120
(45,305)
9,005
(34,641)
-
(6,201)
9,926
315
(162)
(67,063)
211,770
(197,825)
-
-
(724)
541
(1,910)
-
(12,205)
(4,866)
14
-
(5,205)
(852)
-
(0)
31,091
2,473
1,874
(112)
58
15
4,453
(201)
297
(17,886)
(42,287)
7,835
21,026
54,440
(40,023)
1,778
(11,478)
(143)
(2,673)
2,814
6,111
11
(43,603)
251,801
(262,891)
-
-
(46)
2,144
(1,460)
84
(8,166)
-
112
-
(18,422)
(62)
(7,647)
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)
294,055
(282,965)
(42,774)
75,000
(266)
2,061
(871)
281
(7,905)
-
75
4
36,695
244
(3,005)
10,652
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
(0)
$
(0)
$
7,647
37
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 27,
2014
Year Ended
December 28,
2013
December 29,
2012
$
4,334
38,475
$
4,883
14,427
$
3,982
16,751
$
2,768
3,000
1,635
3,900
-
-
$
2,567
1,800
1,310
38
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 2014, 2013, and 2012 relate to the fiscal years
ended December 27, 2014, December 28, 2013, and December 29, 2012, respectively.
Fiscal years 2014, 2013, and 2012 were comprised of 52 weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
We follow ASC Topic 820, Fair Value Measurements and Disclosures, which provides a
consistent definition of fair value, focuses on exit price, prioritizes the use of market-
based inputs over entity-specific inputs for measuring fair value and establishes a three-
tier hierarchy for fair value measurements. This topic requires fair value measurements to
be classified and disclosed in one of the following three categories:
39
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(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 27, 2014 or December 28, 2013.
Restricted cash consists of amounts required to be held for loss funding totaling $0.4 and
$0.7 million as of December 27, 2014 and December 28, 2013, respectively.
ACCOUNTS RECEIVABLE AND ALLOWANCES
We perform periodic credit evaluations of our customers and generally do not require
collateral. Accounts receivable are due under a range of terms we offer to our customers.
Discounts are offered, in most instances, as an incentive for early payment.
We base our allowances related to receivables on historical credit and collections
experience, and the specific identification of other potential problems, including the
general economic climate. Actual collections can differ, requiring adjustments to the
allowances. Individual accounts receivable balances are evaluated on a monthly basis,
and those balances considered uncollectible are charged to the allowance.
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 27, 2014:
40
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Allowance for possible losses
on accounts receivable ........................ $2,060
$18,871
($18,541)
$2,390
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
$17,114
($17,604)
$2,060
$16,687
($16,190)
$2,550
* 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
$6.0 million and $8.3 million as of December 27, 2014 and December 28, 2013,
respectively. All amounts are expected to be collected within 18 months. Concentration
of accounts receivable related to our largest customer totaled $26.5 million and $19.8
million as of December 27, 2014 and December 28, 2013, respectively.
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 $5.2
million and $0.8 million at December 27, 2014 and December 28, 2013, respectively and
are included in “Other Current Assets”. The long-term portion of notes receivable, net of
allowance, totaled $3.0 million and $5.1 million at December 27, 2014 and December 28,
2013, respectively and are included in “Other Assets”.
The following table presents the activity in our notes receivable allowances (in
thousands):
Beginning
Balance
Additions Deductions
Ending
Balance
Year Ended December 27, 2014:
Allowance for possible losses on
Notes receivable
Year Ended December 28, 2013:
Allowance for possible losses on
Notes receivable
Year Ended December 29, 2012:
Allowance for possible losses on
Notes receivable
$1,025
$1,599
$(1,798)
$826
$3,226
$887
$(3,088)
$1,025
-
$3,226
-
$3,226
41
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 $12.9 million as of December 27, 2014 and
$11.4 million as of December 28, 2013.
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
42
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
retrospective application would require application of significant estimates and
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
Our wholly-owned
Insurance Ltd.(“Ardellis”), was
incorporated on April 21, 2001 under the laws of Bermuda and is licensed as a Class 3
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 27, 2014 and December 28, 2013. 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 27, 2014, Ardellis had 15 such contracts in place. The contracts have
aggregate coverage loss limits based on the election of the third parties. Reserves
associated with these contracts were $1.8 million at December 27, 2014 and $0.9 million
at December 28, 2013, 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
43
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 27, 2014 and December 28, 2013 which are included in other current assets
and other accrued liabilities, respectively (in thousands):
2014
Cost and Earnings in Excess of Billings ....................... $5,244
Billings in Excess of Cost and Earnings ....................... 4,682
2013
$6,903
2,858
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):
44
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
27, 2014
December
28, 2013
December
29, 2012
$57,551
$43,082
$23,934
(718)
$56,833
(412)
$42,670
(210)
$23,724
20,081
19,952
19,800
(250)
19,831
23
19,854
$2.87
$2.86
(191)
19,761
54
19,815
$2.16
$2.15
(173)
19,627
6
19,633
$1.21
$1.21
No options were excluded from the computation of diluted EPS for 2014, 2013, or 2012.
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.
45
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)
December 27, 2014
Prices with
Other
Observable
Inputs
(Level 2)
Quoted
Prices in
Active
Markets
(Level 1)
$62
208
68
198
157
693
-
$693
-
-
-
-
-
-
-
-
(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
Total
$62
208
68
198
157
693
$62
813
586
176
139
1,776
-
$693
-
$1,776
Total
$62
813
586
176
139
1,776
-
$1,776
-
-
-
-
-
-
-
-
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”.
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 2014 and 2013, which were
accounted for using the purchase method (in thousands).
Acquisition
Date
November
13, 2014
Company
Name
Bigs
Packaging
and Lumber,
LLC (“Bigs
Packaging”)
Packnet Ltd
(“Packnet”)
November
24, 2014
Purchase
Price
$20,000
(asset
purchase) +
$3,976
earnout
accrual
$7,506
(80% asset
purchase)
Intangible
Assets
Net
Tangible
Assets
$15,031
$8,945
Operating
Segment
Western
Division
Western
Division
$1,498
(The
Company
portion of
Net
$7,885
(The
Company
portion of
Intangible
46
Business Description
A Texas-based
manufacturer of industrial
wood and packaging
solutions. Bigs Packaging
had annual sales of $50.0
million.
A supplier of industrial
packaging and services
based in Eagan, MN.
Packnet had annual sales of
$9.0 Million.
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Assets
$6,308 or
80%)
Tangible
Assets
$1,198 or
80%)
$ -
$3,232
$1,577
(The
Company
portion of
Intangible
Assets
$788 or
50%)
$1,971
(The
Company
portion of
Net
Tangible
Assets
$986 or
50%)
$2,417
Eastern
Division
Western
Division
Eastern
Division
High Level
Components,
LLC (“High
Level”)
Upshur Forest
Products,
LLC
(“Upshur”)
March 31,
2014
$2,944
(asset
purchase)
March 28,
2014
$1,774
(50% asset
purchase;
51% voting
majority)
Container
Systems, Inc.
(“CSI”)
March 14,
2014
$-
$2,417
(asset
purchase)
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”)
Millry Mill
Company,
Inc.
(“Millry”)
May 31,
2013
$696 (asset
purchase)
$250
$446
Western
Division
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
47
A building component
manufacturer based in
Locust, NC. High Level
had annual sales of $6.8
million.
A sawmill located in
Gilmer, TX. Upshur had
annual sales of $8.9
million.
A manufacturer of crates
and containers for industrial
applications and the
moving-and-storage
industry, located in
Franklinton, NC. CSI had
annual sales of $3.0
million.
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
laminated wood products.
Facility is located in Perris,
CA. Premier Laminating
had annual sales of $6.2
million.
A 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
custom casework, cabinetry
and other products used in
many commercial markets.
Facility is located in Sauk
Rapids, MN. Custom
Caseworks had annual sales
of $7.0 million.
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The intangible assets for each acquisition, excluding Packnet and Bigs Packaging, was
finalized and allocated to their respective identifiable intangible asset and goodwill
accounts during 2014. This resulted in a no account reclassifications from goodwill to
amortizable intangible asset accounts.
At December 27, 2014, the amounts assigned to major intangible classes for the business
combinations mentioned above are as follows (in thousands):
Non-
Compete
Agreements
-
-
$1,577
250
50
220
Customer
Relationships Goodwill
$15,031
-
7,885
-
-
-
-
-
-
-
1,160
$620
Goodwill -
Tax
Deductible
$15,031
7,885
-
-
-
1,160
Bigs Packaging
Packnet
Upshur
Premier Laminating
Millry
Custom Caseworks
The business combinations mentioned above were not significant to our operating results
individually or in aggregate, and thus pro forma results for 2014 and 2013 are not
presented.
D.
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND IMPAIRMENT
CHARGES
The net gain on disposition and impairment of assets totaled $3.4 million in 2014.
Included within the $3.4 million net gain was a gain on the sale of certain real estate
totaling $2.7 million completed by a 50% owned subsidiary of the Company. During
2014, we also recognized a net gain on the sale of other properties and equipment totaling
$1.9 million. These gains were offset by a $1.2 million impairment loss recorded to
reduce the value of one of our vacant properties.
The 2012 net gain on disposition of assets and impairment charges totaled $6.7 million.
During 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 was included in the
Western Division 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
48
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
deemed to have indefinite lives are not amortized, but are subject to impairment tests at
least annually in accordance with ASC 350, Intangibles-Goodwill and Other. We review
the carrying amounts of goodwill and other non-amortizable intangibles by reporting unit
to determine if such assets may be impaired. As the carrying amount of these assets are
recoverable based upon a discounted cash flow and market approach analysis, no
impairment was recognized.
The changes in the net carrying amount of goodwill by reporting segment for the years
ended December 27, 2014 and December 28, 2013, are as follows (in thousands):
Balance as of December 29, 2012
Acquisitions
Other
Balance as of December 28, 2013
Acquisitions
Balance as of December 27, 2014
Eastern
66,579
-
-
66,579
-
$66,579
Western
61,346
1,160
(330)
62,176
22,916
85,092
Site-Built
21,720
All Other
9,671
21,720
9,671
$21,720
$9,671
Total
159,316
1,160
(330)
160,146
22,916
$183,062
Indefinite-lived intangible assets totaled $2.3 million as of December 27, 2014 and
December 28, 2013 related to the Consumer Products segment.
The following amounts were included in other amortizable intangible assets, net as of
December 27, 2014 and December 28, 2013 (in thousands):
Non-compete agreements
Customer relationships
Licensing agreements
Patents
Total
2014
Accumulated
Amortization
($1,019)
(8,027)
(2,065)
(2,860)
($13,971)
Assets
$2,917
9,480
4,589
3,464
$20,450
Assets
$1,340
9,480
4,589
3,393
$18,802
2013
Accumulated
Amortization
($514)
(6,832)
(1,606)
(2,609)
($11,561)
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 $2.4 million, $2.5 million and $2.9 million in
2014, 2013 and 2012, respectively. The estimated amortization expense for intangibles
for each of the five succeeding fiscal years is as follows (in thousands):
2015 ...................................................
2016 ...................................................
$2,270
1,265
49
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2017 ...................................................
2018 ...................................................
2019 ...................................................
Thereafter ...........................................
Total ...................................................
1,108
845
586
405
$6,479
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 3, 2014, the Company entered into a five-year, $295 million unsecured
revolving credit facility with a syndicate of U.S. banks led by JPMorgan Chase Bank,
N.A., as administrative agent and Wells Fargo Bank, N.A., as syndication agent. The
facilities include up to $45 million which may be advanced in the form of letters of
credit, and up to $100 million (U.S. dollar equivalent) which may be advanced in
Canadian dollars, Australian dollars, pounds Sterling, Euros and such other foreign
currencies as may subsequently be agreed upon among the parties. This facility replaced
our $265 million unsecured revolving credit facility. Cash borrowings are charged
interest based upon an index selected by the Company, plus a margin that is determined
based upon the index selected and upon the financial performance of the Company and
certain of its subsidiaries. The Company is charged a facility fee on the entire amount of
the lending commitment, at a per annum rate ranging from 15 to 32.5 basis points, also
determined based upon the Company's performance. The facility fee is payable quarterly
in arrears.
Outstanding letters of credit extended on our behalf on December 27, 2014 and
December 28, 2013 aggregated $26.3 million and $26.5 million; respectively, 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 27, 2014 and
December 28, 2013 (amounts in thousands):
2014
2013
Series 2012 Senior Notes Tranche A, due on December 17,
2022, interest payable semi-annually at 3.89% ..............................................
$35,000
$35,000
50
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Series 2012 Senior Notes Tranche B, due on December 17,
2024, interest payable semi-annually at 3.98% ..............................................
Revolving credit facility totaling $295 million due on November 3, 2019,
interest payable monthly at a floating rate (1.11% on December 27,2014) ...
Series 1999 Industrial Development Revenue Bonds, due on
August 1, 2029, interest payable monthly at a floating rate
(0.24% on December 27, 2014 and 0.19% on December 28, 2013) ..............
Series 2000 Industrial Development Revenue Bonds, due on
October 1, 2020, interest payable monthly at a floating rate
(0.23% on December 27, 2014 and 0.30% on December 28, 2013) ..............
Series 2002 Industrial Development Revenue Bonds, due on
December 1, 2022, interest payable monthly at a floating rate
(0.23% on December 27, 2014 and 0.29% on December 28, 2013) ..............
Less current portion ..........................................................................................
Long-term portion ............................................................................................
40,000
40,000
13,945
-
3,300
3,300
2,700
2,700
3,700
98,645
-
$ 98,645
3,700
84,700
-
$84,700
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 27,
2014 and December 28, 2013.
On December 27, 2014, the principal maturities of long-term debt and capital lease
obligations are as follows (in thousands):
2015 .............................. $ -
-
2016 ..............................
-
2017 ..............................
-
2018 ..............................
$13,945
2019 ..............................
Thereafter ...................... $84,700
$98,645
Total
On December 27, 2014, the estimated fair value of our long-term debt, including the
current portion, was $99.7 million, which was $1.1 million more than the carrying value.
The estimated fair value is based on rates anticipated to be available to us for debt with
similar terms and maturities.
G.
LEASES
We lease certain real estate under operating lease agreements with original terms ranging
from one to ten years. We are required to pay real estate taxes and other occupancy costs
under these leases. Certain leases carry renewal options of five to fifteen years. We also
lease motor vehicles, equipment, and an aircraft under operating lease agreements for
periods of one to ten years. Future minimum payments under non-cancelable operating
leases on December 27, 2014 are as follows (in thousands):
51
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2015 ...............................................................................
2016 ...............................................................................
2017 ...............................................................................
2018 ...............................................................................
2019 ...............................................................................
Thereafter .......................................................................
Total minimum lease payments .....................................
Operating
Leases
$4,865
2,867
2,187
1,868
1,533
897
$14,217
Rent expense was approximately $5.2 million, $5.2 million, and $6.9 million in 2014,
2013, and 2012, 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 27, 2014 and
December 28, 2013 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 $0.7 million and $1.8 million on December 27, 2014 and December 28,
2013 respectively, and are included in "Other Assets." Related liabilities totaled $9.7
million and $8.4 million on December 27, 2014 and December 28, 2013, 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
52
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2018. The plan allows eligible employees to purchase shares of our stock at a share price
equal to 85% of fair market value on the purchase date. We have expensed the fair value
of the compensation associated with these awards, which approximates the discount. The
amount of expense is nominal.
In April 1994, our shareholders approved the Directors’ Retainer Stock Plan ("Stock
Retainer Plan"). In April 2007, our shareholders authorized additional shares to be issued
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 $0.6 million in 2014, $0.4 million in 2013, and $0.5 million in 2012.
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 dates of our
annual shareholder meetings. The LTSIP provides for the grant of stock 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
Stock Under
Option
Outstanding at December 31, 2011
Exercised
Forfeited or expired
Outstanding at December 29, 2012
Exercised
Forfeited or expired
Outstanding at December 28, 2013
Exercised
Forfeited or expired
Outstanding at December 27, 2014
Vested or expected to vest at December 27, 2014
Exercisable at December 27, 2014
191,334
(79,550)
(1,678)
110,106
(77,632)
-
32,474
(8,737)
-
23,737
(5,000)
18,737
26.60
21.82
21.84
30.13
29.49
-
31.65
30.64
-
32.03
26.49
$33.51
Aggregate
Intrinsic
Value
872,441
970,698
845,915
1,221,004
-
661,674
163,830
-
493,304
1.83
1.64
1.55
1.00
-
$361,699
There is no unrecognized compensation expense remaining for stock options in 2014, and
the amounts are nominal in 2013 and 2012.
A summary of the nonvested restricted stock awards granted under the LTSIP is as
follows:
53
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Nonvested at December 31, 2011
Granted
Vested
Forfeited
Nonvested at December 29, 2012
Granted
Vested
Forfeited
Nonvested at December 28, 2013
Granted
Vested
Forfeited
Nonvested at December 27, 2014
Weighted-
Average
Grant Date
Fair Value
Restricted
Awards
163,000
37,433
(859)
(12,965)
186,609
36,481
(9,955)
(6,715)
206,420
62,555
(9,446)
(2,443)
257,086
31.75
35.05
29.72
30.35
32.22
40.58
40.58
31.96
$32.52
55.30
55.30
36.13
$36.39
Unrecognized
Compensation
Expense
(in millions)
3.4
Weighted-
Average
Period to
Recognize
Expense
3.37 years
3.2
2.68 years
$2.9 2.00 years
$1.7 1.81 years
Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation
expense of $1.9 million, $1.9 million, and $1.3 million and the related total income tax
benefits of $0.9 million, $0.4 million, and $0.5 million in 2014, 2013 and 2012,
respectively.
In 2014, 2013 and 2012, cash received from option exercises and share issuances under our
plans was $0.5 million, $2.1 million and $2.0 million, respectively. The actual tax benefit
realized in 2014, 2013 and 2012 for the tax deductions from option exercises totaled $0.3
million, $0.3 million and $0.8 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
and 105,012 shares under this program in 2010 and 2014, respectively. As of December
27, 2014, the cumulative total authorized shares available for repurchase is approximately
2.9 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 2014 and 2013, on a discretionary basis, totaling $2.0
million and $1.7 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%
54
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 $5.0 million and $4.0 million are accrued in “Other
Liabilities” for this plan at December 27, 2014 and December 28, 2013, respectively.
K.
INCOME TAXES
Income tax provisions for the years ended December 27, 2014, December 28, 2013, and
December 29, 2012 are summarized as follows (in thousands):
2014
2013
2012
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
$18,664 $12,683 $5,167
3,381
3,928
19,992
4,852
5,619
29,135
2,160
3,123
10,450
4,128
1,079
(193)
5,014
$34,149
3,696
600
166
4,462
$24,454
3,464
946
194
4,604
$15,054
The components of earnings before income taxes consist of the following:
2014
2013
2012
U.S.
Foreign
Total
$79,365
16,348
$95,713
$59,334
10,924
$70,258
$31,768
9,296
$41,064
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
Other permanent differences
Other, net
Effective income tax rate
2014
35.0%
4.1
(0.2)
(2.0)
(1.9)
-
(0.2)
0.6
0.3
35.7%
2013
35.0%
4.2
(0.3)
(2.0)
(2.5)
-
0.6
0.6
(0.8)
34.8%
2012
35.0%
5.2
(0.5)
(1.6)
(1.2)
-
(1.0)
1.1
(0.4)
36.6%
Temporary differences which give rise to deferred income tax assets and (liabilities) on
December 27, 2014 and December 28, 2013 are as follows (in thousands):
55
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Employee benefits
Net operating loss carryforwards
Foreign subsidiary capital loss carryforward
Other tax credits
Inventory
Reserves on receivables
Accrued expenses
Other, net
Gross deferred income tax assets
Valuation allowance
Deferred income tax assets
Depreciation
Intangibles
Other, net
Deferred income tax liabilities
Net deferred income tax liability
2014
2013
$8,189
1,045
574
3,034
488
1,086
4,186
3,790
22,392
(1,371)
21,021
(23,907)
(18,056)
(2,629)
(44,592)
($23,571)
$7,698
1,136
628
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)
The valuation allowance consists of a capital loss carryforward we have for a wholly-
owned subsidiary, Universal Forest Products of Canada, Inc., as well as various
subsidiary net operating losses and credit carryforwards within certain state jurisdictions.
Based upon the business activity and the nature of the assets of these subsidiaries, our
ability to realize a future benefit from these carryforwards is in doubt, therefore we have
established an allowance against the amount of the future benefit. The capital 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
2014
$1,923
-
556
-
(686)
$1,793
2013
$1,531
230
481
-
(319)
$1,923
2012
$1,837
1
68
(137)
(238)
$1,531
56
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Our effective tax rate would have been affected by the unrecognized tax benefits had this
amount been recognized as a reduction to income tax expense.
We recognized interest and penalties for unrecognized tax benefits in our provision for
income taxes. The liability for unrecognized tax benefits included accrued interest and
penalties of $0.2 million, $0.2 million and $0.2 million at December 27, 2014, December
28, 2013, and December 29, 2012, 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 2011. 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 wood preservation facilities in
Stockertown, PA; Elizabeth City, NC; Auburndale, FL; and Medley, FL. In addition, a
reserve was established for our 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 our 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 27,
2014 and December 28, 2013, representing the estimated costs to complete future
remediation efforts. These amounts have not been reduced by an insurance receivable.
In 2012, the Canadian government imposed retroactive assessments for antidumping and
countervailing duties tied to certain extruded aluminum products imported from China.
We previously had recorded a $2.3 million loss contingency in 2012, and additional $0.6
million was recorded during 2013. In 2014, the matter has been fully adjudicated and all
appeal periods have expired.
57
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of December 27, 2014 and December 28, 2013, we have an accrual balance of $1.6
million and $0.9 million, respectively, related to anti-dumping duty assessments imposed
on steel nails imported from China.
In addition, on December 27, 2014, 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 27, 2014, we had outstanding purchase commitments on capital projects of
approximately $7 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.
As part of our operations, 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 project owner 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 27, 2014, we had approximately $8.2
million in outstanding payment and performance bonds for projects in process, which
should expire during the next two years. In addition, approximately $16.9 million in
payment and performance bonds are outstanding for completed projects which are still
under warranty.
On December 27, 2014 we had outstanding letters of credit totaling $26.3 million,
primarily related to certain insurance contracts and industrial development revenue bonds
described further below.
In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to
guarantee our performance under certain insurance contracts. We currently have
irrevocable letters of credit outstanding totaling approximately $16.5 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
58
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
irrevocable letters of credit outstanding totaling approximately $9.8 million related to our
outstanding industrial development revenue bonds. These letters of credit have varying
terms but may be renewed at the option of the issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of
Universal Forest Products, Inc. in certain debt agreements, including the Series 2012
Senior Notes and our revolving credit facility. The maximum exposure of these
guarantees is limited to the indebtedness outstanding under these debt arrangements and
this exposure will expire concurrent with the expiration of the debt agreements.
Many of our wood treating operations utilize "Subpart W" drip pads, defined as
hazardous waste management units by the Environmental Protection Agency. 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 27, 2014.
N.
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 prior years, the Eastern and Western
divisions were aggregated into one reporting segment. Due to recent acquisitions and
sales mix changes, the two operating segments no longer have similar economic
characteristics; therefore we have disaggregated Eastern and Western into separate
reporting segments. The Site-Built division is considered a separate reportable segment.
Our other divisions do not collectively form a reportable segment because they do not
meet the applicable quantitative requirements. These operations have been included in
the “All Other” column of the table below. The “Corporate” column includes unallocated
administrative costs.
Net sales to outside
$1,113,525
$1,062,565
$260,118
$224,121
$ -
$2,660,329
Eastern
Division
Western
Division
Site-Built
All
Other
Corporate
Total
2014
59
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
46,141
323
10
10,202
37,522
379,470
16,208
47,737
39
1,358
11,029
53,576
351,558
11,984
11,707
12,783
-
118,368
-
1,042
4,337
3,905
-
6,042
4,267
2,410
33,913
3,520
105,699
3,879
(16,825)
82,124
9,680
97,367
1,023,800
45,305
-
-
2,303
19,574
104,949
3,554
2013
Eastern
Division
Western
Division
Site-Built
All
Other
Corporate
Total
$1,037,066
47,874
356
8
8,787
37,416
342,209
12,090
$950,685
38,176
48
1,416
9,830
42,003
300,443
11,069
$272,114
15,918
-
-
2,284
7,947
103,227
2,310
$210,583
11,798
-
1,049
4,520
$ -
-
4,447
-
5,670
$2,470,448
113,766
4,851
2,473
31,091
(2,366)
99,464
6,285
(10,732)
71,644
8,269
74,268
916,987
40,023
Eastern
Division
Western
Division
Site-Built
All
Other
Corporate
Total
2012
$858,539
39,706
369
9
8,769
25,156
305,805
7,709
$776,639
23,100
4
1,658
8,993
35,417
282,762
7,702
$222,824
20,396
-
-
2,054
1,299
102,923
830
$196,931
12,724
51
1,251
4,286
(11,316)
103,309
11,967
$ -
-
3,629
-
6,359
(6,028)
65,741
2,136
$2,054,933
95,926
4,053
2,918
30,461
44,528
860,540
30,344
In 2014, 2013, and 2012, 17%, 17%, and 18% of net sales, respectively, were to a single
customer.
60
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Information regarding principal geographic areas was as follows (in thousands):
2014
2013
2012
Long-Lived
Tangible
Assets
$242,156
15,678
$257,834
Long-Lived
Tangible
Assets
$233,237
16,260
$249,497
Long-Lived
Tangible
Assets
$222,272
17,097
$239,369
Net Sales
$2,005,740
49,193
$2,054,933
Net Sales
$2,410,313
60,135
$2,470,448
Net Sales
$2,596,278
64,051
$2,660,329
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.
2014 .............................................................................
2013 .............................................................................
2012 .............................................................................
58.5%
58.1%
58.7%
41.5%
41.9%
41.3%
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.
61
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 27,
2014
Years Ended
December 28,
December 29,
2013
2012
Value-Added Sales
Trusses – residential, modular and manufactured
housing
Fencing
Decking and railing – composite, wood and other
Turn-key framing and installed sales
Industrial packaging and components
Engineered wood products (eg. LVL; i-joist)
Manufactured brite and other lumber
Wall panels
Outdoor DIY products (eg. stakes; landscape ties)
Construction and building materials (eg. door
packages; drywall)
Lattice – plastic and wood
Manufactured brite and other panels
Siding, trim and moulding
Hardware
Manufactured treated lumber
Manufactured treated panels
Other
Total Value-Added Sales
Commodity-Based Sales
Non-manufactured brite and other lumber
Non-manufactured treated lumber
Non-manufactured brite and other panels
Non-manufactured treated panels
Other
Total Commodity-Based Sales
Total Gross Sales
Sales allowances
Total Net Sales
$273,605
143,252
141,121
121,434
298,335
61,970
73,261
43,751
51,710
191,426
40,943
69,622
32,323
17,265
12,071
6,042
248
1,578,379
454,695
389,487
232,821
33,146
9,402
1,119,551
2,697,930
(37,601)
2,660,329
$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
62
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
O.
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 27, 2014 and December 28,
2013 (in thousands, except per share data):
First
Second
Third
Fourth
2014
$553,998
66,012
7,668
7,216
2013
$554,494
57,818
5,756
5,224
2014
$772,752
96,988
22,449
21,789
2013
$738,436
80,216
16,373
15,772
2014
$713,489
89,586
20,492
19,234
2013
$651,780
78,289
15,015
14,091
2014
$620,090
72,756
10,955
9,312
2013
$525,738
64,229
8,660
7,995
0.36
0.36
0.26
0.26
1.08
1.08
0.79
0.79
0.96
0.96
0.71
0.71
0.46
0.46
0.40
0.40
Net sales
Gross profit
Net earnings
Net earnings
attributable to
controlling interest
Basic earnings per
share
Diluted earnings
per share
63
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 2014
High Low
Fourth Quarter ............ 53.36 40.70
Third Quarter ............. 50.27 42.71
Second Quarter........... 57.32 46.18
First Quarter ............... 58.52 47.63
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
There were approximately 1,200 shareholders of record as of January 31, 2015.
We paid dividends on our common stock of $0.21 and $0.20 per share in June 2014 and 2013,
respectively. In December 2014 and 2013, we paid dividends of $0.40 and $0.21 per share,
respectively. We intend to continue with our current semi-annual dividend policy for the
foreseeable future.
64
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 26,
2009, and reinvestment of dividends in all cases.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2014
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.
65
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
Gary F. Goode, CPA
Chairman
Titan Sales & Consulting, LLC
Mark A. Murray
Co-Chief Executive Officer
Meijer, Inc.
Matthew J. Missad
Chief Executive Officer
Patrick M. Webster
President and Chief Operating Officer
Michael R. Cole
Chief Financial Officer and Treasurer
Allen T. Peters
President
UFP Western Division, Inc.
Robert D. Coleman
Executive Vice President Manufacturing
Louis A. Smith
President
Smith and Johnson, Attorneys, P.C.
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
Brian C. Walker
Chief Executive Officer
Herman Miller, Inc.
Michael F. Mordell
Executive Vice President
UFP Purchasing, Inc.
Patrick Benton
Executive Vice President
UFP Eastern Division – North
Jonathan West
Executive Vice President
UFP Eastern Division - South
66
Shareholder Information
ANNUAL MEETING
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 15,
2015, 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
Deloitte & Touche 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.
6201 15th Ave
Brooklyn, NY 11219
Telephone: (800) 937-5449
UNIVERSAL FOREST PRODUCTS®, INC., CORPORATE HEADQUARTERS
2801 East Beltline NE
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Facsimile: (616) 364-5558
67
UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES
Locations:
Ashburn, GA
Athena, OR
Auburn, NY
Auburndale, FL
Bay City, MI
Belchertown, MA
Berlin, NJ
Blanchester, OH
Burlington, NC
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Chino, CA
Church Hill, TN
Conway, SC
Cordele, GA
Dallas, TX
Durango, Mexico
Eagan, MN
Eaton, CO
Eatonton, GA
Elizabeth City, NC
Elkhart, IN
Folkston, GA
Franklinton, NC
Gilmer, TX
Gordon, PA
Grandview, TX
Grand Rapids, MI
Granger, IN
Greene, ME
Haleyville, AL
Hamilton, OH
Harrisonville, MO
Hillsboro, TX
Hudson, NY
Hutchinson, MN
Kyle, TX
Janesville, WI
Jefferson, GA
Lacolle, Quebec, Canada
Lafayette, CO
Liberty, NC
Locust, NC
McMinnville, OR
Medley, FL
Millry, AL
Minneota, MN
Morristown, TN
Moultrie, GA
Muscle Shoals, AL
Naugatuck, CT
New Hartford, NY
New London, NC
New Waverly, TX
New Windsor, MD
Parker, PA
Pearisburg, VA
Plainville, MA
Ponce, Puerto Rico
Portland, OR
Poulsbo, WA
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
68