Report to Shareholders
2015
“You all know," said the Guide, "that security is mortals' greatest enemy.”
― C.S. Lewis, The Pilgrim's Regress
To our Shareholders:
What a way to mark our 60th year in business! In 2015, we grew annual sales to a record $2.9 billion.
We increased our earnings by 40 percent over 2015, posting record annual net earnings of $80.5 million,
or $3.99 per diluted share. We attained $250 million in annual new product sales—the goal we set to
achieve by the end of 2016. And we almost hit our 2017 goal of attaining $3 billion in annual sales.
We’re proud of all that our people accomplished, but also mindful of the dangers of complacency: It can
hurt a business faster than a weak economy. We don’t intend to stand back and admire our successes;
instead, we intend to learn from and build upon them. Because we want to break records again. It’s that
simple. And that difficult.
These are our 2015 results by market:
In our retail business, we grew gross sales 10.8 percent, to $1.1 billion, with help from a 12 percent
increase in unit sales. This came at a time when the Home Improvement Research Institute reported
a 4.5 percent increase in home improvement sales. Our success in this market was bolstered by new
product sales and improved product mix, which helped drive our growth with both big box and
independent retail customers. We bring new product ideas to their doorsteps, and then we help them
sell the products with sophisticated, effective marketing tools.
In this market, we sell everything from ProWood Dura Color® wood that’s treated both with preservative
and color (www.prowoodlumber.com), to a revolutionary decking product from our Deckorators® brand
called Vault™ (www.deckorators.com), and from the outdoor party games in our Belknap Hill Trading Post™
collection (www.belknaphill.com) to project panels made of plywood, MDF, chalkboard, pegboard and
other materials for crafts or decorative accent projects in our Dimensions™ product line
(www.dimensionsdiy.com/en/products/project-panels.aspx).
ii
Our construction business grew a modest-yet-sustainable 1.4 percent over 2014, with gross sales at
$898.3 million, as we continued to be selective about the business we take and where we grow. In this
market, we manufacture and supply lumber and engineered wood products to builders of commercial
structures and single- and multi-family residential structures (both site-built and factory built). Commercial
construction led our growth, and we saw single-digit growth in residential construction and factory built
housing. We have been careful to grow our business with opportunities we believe will be both profitable
and sustainable. We also worked to add new products and capabilities in this market, and have been
pleased with our exclusive distribution of insulated structural sheathing called ThermalStar® LCi-SS™.
This panel is being used for residential and light commercial construction, and has been exceptionally
well-received for reducing time and cost on the job, and providing superior insulating capabilities.
Our healthy industrial business continued its double-digit sales growth in 2015, with annual gross sales
increasing 13.5 percent over 2014, to $896.6 million—at a time when total industrial production in the
U.S. declined. We grew with existing customers, by expanding into new locations and offering additional
products and services, and by adding 192 new customers during the year. That will be the recipe for our
growth in the years to come.
There wasn’t a magic potion for our record-setting 2015; our results were attributable to many things:
clear vision and strategies
more sales of value-added products
more new product sales
the addition of new customers and of new business with existing customers
a growing geographic footprint by expanding into new regions in the U.S., and internationally with
the purchase of Brisbane, Australia-based Integra Packaging
outstanding customer relationships and business partners
an extraordinary management team
the efforts of the best, hardest-working employees in the business
We believe we’re the best at what we do, but we also have a healthy respect for the competition, and
we don’t underestimate the innovation and hard work that occurs elsewhere. That drives us: We have
no intention of taking the back seat anywhere we operate. Our competitive spirit is our lifeblood. It
permeates our businesses: Our operators are determined (and incentivized) to be the best, most
profitable manufacturers and suppliers in our industries. They’re also strongly competitive with one
another, and we regularly celebrate Universal operations that have the best financial performance, the
best safety record, the healthiest workforce, and on and on. If we’re breathing, we’re competing!
iii
We’re excited about the year ahead, and we remain focused on our goals of achieving annual sales
growth that’s 4 to 6 percentage points greater than positive U.S. GDP growth, EBITDA margins of 5%
to 6% of sales, and a Return on Invested Capital greater than our Weighted Average Cost of Capital.
We keep our goals and challenges in front of us all the time, every day: How are we going to grow sales
without adding cost at the same rate? How are we going to attract, train and retain the best people?
How are we going to grow our profitability with customers who are keenly focused on their own bottom
line? How are we going to succeed in new environments –geographically as well as in e-commerce?
How are we going to operate efficiently in an increasingly burdensome regulatory environment, and in
the face of so-called healthcare reform that has added millions of dollars to our cost of providing
healthcare benefits for our people?
We’re motivated by challenges like these: They help us define what we need to be successful in 2016,
what the Universal of 2026 will look like, and what we need to do to get there.
The coming year might well turn out to be the most unpredictable election year in history. Certainly, the
campaigning has been anything but orthodox. We remain hopeful that the American people will select
leaders who will embrace policies that permit businesses to thrive and enable companies like ours to
continue to provide opportunities for employees to succeed in a free society and provide well for
themselves and their families.
We remain grateful to those who work with us, who put their trust and investment in us, and who
encourage us to be a bold, thoughtful American business true to our Midwestern values of integrity,
respect, hard work and perseverance. We take no stakeholders, efforts or guidance for granted, and
we work hard every day to continue to earn your trust and approval.
Cordially,
William G. Currie
Chairman of the Board
Matthew J. Missad
Chief Executive Officer
iv
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
Table of Contents
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 26, 2015 and December 27, 2014
Exhibit 13
2
3-17
18
19
20
22-23
Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 26, 2015, December
27, 2014, and December 28, 2013
24
Consolidated Statements of Shareholders' Equity for the Years Ended December 26, 2015, December 27, 2014, and
December 28, 2013
25-27
Consolidated Statements of Cash Flows for the Years Ended December 26, 2015, December 27, 2014, and December
28, 2013
28-29
Notes to Consolidated Financial Statements
Price Range of Common Stock and Dividends
Stock Performance Graph
Directors and Executive Officers
Shareholder Information
30-49
50
51
52
53
SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)
Consolidated Statement of Earnings Data
Net sales
Gross profit
Earnings before income taxes
Net earnings attributable to controlling interest
Diluted earnings per share
Dividends per share
Consolidated Balance Sheet Data
Working capital(1)
Total assets
Total debt
Shareholders' equity
Statistics
Gross profit as a percentage of
net sales
2015
2014
2013
2012
2011
$ 2,887,071
$ 2,660,329
$ 2,470,448
$ 2,054,933
$ 1,822,336
325,342
280,552
225,109
199,727
399,904
131,002
80,595
3.99
0.820
444,057
$
$
$
$
95,713
57,551
2.86
0.610
397,546
$
$
$
$
$
$
$
$
1,107,679
1,023,800
85,895
766,409
98,645
699,560
70,258
43,082
2.15
0.410
357,299
916,987
84,700
649,734
$
$
$
41,064
23,934
1.21
0.400
338,389
860,540
95,790
607,525
$
$
$
8,787
4,549
0.23
0.400
225,399
764,007
52,470
582,599
13.9%
12.2%
11.4%
11.0%
11.0%
Net earnings attributable to controlling interest
as a percentage of net sales
Return on beginning equity(2)
Current ratio(4)
Debt to equity ratio(5)
Book value per common share(3)
2.8%
11.5%
3.17
0.11
2.2%
8.8%
3.27
0.14
1.7%
7.1%
3.59
0.13
1.2%
4.1%
3.95
0.16
0.2%
0.8%
2.70
0.09
$
38.05
$
35.01
$
32.57
$
30.68
$
29.69
(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.
(4) Current assets divided by current liabilities.
(5) Total debt divided by shareholders' equity.
2
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Universal Forest Products, Inc. is a holding company with subsidiaries throughout North America and in Australia that supply
wood, wood composite and other products to three robust markets: retail,construction and industrial. The Company is
headquartered in Grand Rapids, Mich., and is celebrating its 60th year in business. For more information about Universal Forest
Products, Inc., or its affiliated operations, go to www.ufpi.com.
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended,
that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve,
the economy and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,”
“plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These
statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict
with regard to timing, extent, likelihood and degree of occurrence. The Company does not undertake to update forward-looking
statements to reflect facts, circumstances, events, or assumptions that occur after the date the forward-looking statements are made.
Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially
from forward-looking statements are the following: fluctuations in the price of lumber; adverse or unusual weather conditions;
adverse economic conditions in the markets we serve; government regulations, particularly involving environmental and safety
regulations; and our ability to make successful business acquisitions. Certain of these risk factors as well as other risk factors and
additional information are included in the Company's reports on Form 10-K and 10-Q on file with the Securities and Exchange
Commission. We are pleased to present this overview of 2015.
Our results for 2015 were impacted by the following:
OVERVIEW
• Our sales increased 8.5% in 2015 due to an 11.5% increase in our unit sales, offset by a 3% decrease in overall selling prices.
See “Historical Lumber Prices”. Our unit sales increased to all three of our markets - retail, industrial, and construction - and
were driven by a combination of acquisition and organic growth. Businesses we acquired contributed 4% to our unit sales
growth in 2015. See Note C of the Notes to Consolidated Financial Statements.
• The Home Improvement Research Institute reported a 4.5% increase in home improvement sales in 2015. Comparatively,
our unit sales to the retail market increased 12% in 2015.
• Our sales to the industrial market increased 13.5% in 2015, despite a decline in national industrial production of 3.4%.
• National housing starts increased approximately 11% in the period from December 2014 through November 2015, compared
to the same period of the prior year (our sales trail housing starts by about a month). Comparatively, our unit sales to residential
construction customers increased 4% in 2015.
•
Shipments of HUD code manufactured homes were up 8.7% in the period from January through November 2015, compared
to the same period of the prior year, and year over year modular home starts remained flat in the first nine months of 2015
(the last period reported). Comparatively, our unit sales to the manufactured housing market increased 2% in 2015.
• Our profitability improved to $80.6 million in net earnings attributable to controlling interest from $57.6 million last year
primarily due to a combination of strong organic sales growth, businesses we acquired (see Note C of the Notes to Consolidated
Financial Statements), favorable improvements in sales mix, and low lumber costs on products sold with fixed selling prices.
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price.
Random Lengths Composite
Average $/MBF
2014
2015
2013
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
$
$
379
361
339
334
315
328
346
327
300
308
326
314
331
$
$
395
394
387
367
377
375
381
401
398
381
367
375
383
$
$
(13.6)%
0.0%
393
409
436
429
367
329
343
353
368
384
398
385
383
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
2014
2013
2015
$
$
411
399
393
400
368
354
344
321
290
318
348
347
358
$
$
375
398
406
392
402
406
396
419
416
393
386
399
399
$
$
(10.3)%
3.9%
397
426
445
436
383
355
366
364
360
356
362
360
384
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
4
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, and
our material costs as a percentage of sales were 68.7%, 71.3%, and 73.2% in 2015, 2014, 2013, 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.
•
•
Products with fixed selling prices. These products include value-added products such as decking and fencing sold to retail
building materials customers, as well as trusses, wall panels and other components sold to the residential construction market,
and most industrial packaging products. Prices for these products are generally fixed at the time of the sales quotation for a
specified period of time or are based upon a specific quantity. In order to maintain margins and reduce any exposure to adverse
trends in the price of component lumber products, we attempt to lock in costs with our suppliers for these sales commitments.
Also, the time period and quantity limitations generally allow us to re-price our products for changes in lumber costs from
our suppliers.
Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and
profits. These products primarily include treated lumber, remanufactured lumber, and trusses sold to the manufactured housing
industry. For these products, we estimate the customers' needs and we carry anticipated levels of inventory. Because lumber
costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our
gross margins. For these products, our margins are exposed to changes in the trend of lumber prices.
The greatest risk associated with changes in the trend of lumber prices is on the following products:
•
Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market.
In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the
price of lumber. This would include treated lumber, which comprises approximately 18% of our total sales. This exposure is
less significant with remanufactured lumber, trusses sold to the manufactured housing market, and other similar products, due
to the higher rate of inventory turnover. We attempt to mitigate the risk associated with treated lumber through vendor
consignment inventory programs. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed with
the United States Securities and Exchange Commission.)
•
Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family
construction projects. We attempt to mitigate this risk through our purchasing practices by locking in costs.
In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in
gross margins when comparing operating results from period to period. This is explained in the following example, which assumes
the price of lumber has increased from period one to period two, with no changes in the trend within each period.
Lumber cost
Conversion cost
= Product cost
Adder
= Sell price
Gross margin
Period 1
Period 2
$
$
300
50
350
50
400
$
$
400
50
450
50
500
12.5%
10.0%
As is apparent from the preceding example, the level of lumber prices does not impact our overall profits but does impact our
margins. Gross margins are negatively impacted during periods of high lumber prices; conversely, we experience margin
improvement when lumber prices are relatively low.
5
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS COMBINATIONS AND ASSET PURCHASES
We completed two business acquisitions during 2015 and five during 2014 and each was accounted for using the purchase method.
The aggregate annual revenue of these acquisitions totaled $92.4 million. These business combinations were not significant to
our operating results individually or in aggregate, and thus pro forma results for 2015 and 2014 are not presented.
See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information.
The following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a
percentage of net sales.
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
December 26,
2015
Years Ended
December 27,
2014
December 28,
2013
100.0%
100.0%
100.0%
86.1
13.9
9.2
—
—
4.7
0.2
4.5
1.6
2.9
(0.2)
2.8%
87.8
12.2
8.6
0.1
(0.1)
3.7
0.1
3.6
1.3
2.3
(0.2)
2.2%
88.6
11.4
8.3
0.1
—
3.0
0.2
2.8
1.0
1.9
(0.1)
1.7%
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:
• Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our
penetration of the concrete forming market, increasing our sales of engineered wood components for custom home, multi-
family, military and light commercial construction, and increasing our market share with independent retailers.
• Expanding geographically in our core businesses, domestically and internationally.
•
Increasing sales of "value-added" products, which primarily consist of fencing, decking, lattice, and other specialty products
sold to the retail market, specialty wood packaging, engineered wood components, and "wood alternative" products. Engineered
wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist primarily of composite
wood and plastics. Although we consider the treatment of dimensional lumber with certain chemical preservatives a value-
added process, treated lumber is not presently included in the value-added sales totals.
• Developing new products and expanding our product offering for existing customers. New product sales were $250.1 million
in 2015 and $186.2 million in 2014. (Certain prior year product reclassifications resulted in an increase in new product sales
in 2014.)
6
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• 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
Industrial
Construction
Total Gross Sales
Sales Allowances
Total Net Sales
December
26,
2015
$
1,132,178
896,587
898,328
2,927,093
(40,022)
$
2,887,071
Years Ended
December
27,
2014
%
Change
%
Change
December
28,
2013
10.8
13.5
1.4
8.5
6.4
8.5
$
1,022,037
9.7
$
789,798
886,101
2,697,936
(37,607)
2,660,329
$
12.2
2.1
7.8
12.4
7.7
$
931,815
703,987
868,110
2,503,912
(33,464)
2,470,448
Note: During 2015, 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.
2015 versus 2014
2014 versus 2013
2013 versus 2012
Retail:
% Change
in Sales
in Selling Prices
in Units
8.5%
7.7%
20.0%
(3.0)%
— %
12.0 %
11.5%
7.7%
8.0%
Gross sales to the retail market increased almost 11% in 2015 compared to 2014 due to a 12% increase in unit sales, offset by a
1% decrease in selling prices. Within this market, sales to our big box customers increased 15% while our sales to other retailers
increased 5%. We believe that our increase in unit sales was primarily due to a combination of significant share gains in existing
product lines with certain large retailers, an improvement in consumer demand, and growth in our new product sales. Our large
retail customers have reported good year over year same store sales growth.
Gross sales to the retail 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 was primarily due an improvement in consumer demand as our
large retail customers reported year over year increases in their same store sales.
Industrial:
Gross sales to the industrial market increased 14% in 2015 compared to 2014, resulting from a 17% increase in overall unit sales,
offset by a 3% decrease in selling prices. Businesses we acquired contributed 12% to our growth in unit sales. Our organic growth
in unit sales of 5% was due to share gains achieved with several existing customers, as well as adding 168 new customers.
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, 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.
7
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information concerning acquired
businesses.
Construction:
Gross sales to the construction market increased about 1% in 2015 compared to 2014, due to a unit sales increase of 5%, offset
by a 4% decrease in selling prices. Unit sales increased due to a 4% increase in units shipped to residential construction customers,
a 15% increase in shipments to commercial construction customers, and a 2% increase in shipments to manufactured housing
customers. Comparatively, year over year housing starts increased 11% nationally, the commercial construction market increased
11%, industry production of HUD-code homes increased 8.7%, and modular home starts remained flat for the first nine months
of 2015 (the last period reported).
Gross sales to the construction market increased about 2% in 2014 compared to 2013, due to a unit sales increase of 1% and a 1%
increase in selling prices. Unit sales increased due to a 29% increase in units shipped to commercial construction customers, offset
by an 8% decrease in shipments to residential construction customers. Shipments to manufactured housing customers remained
flat. Comparatively, year over year housing starts increased 9%, the commercial construction market increased 6%, industry
production of HUD-code homes increased 6%, and modular home starts decreased 1% in 2014.
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.
2015
2014
2013
Value-Added
Commodity-Based
59.8%
58.5%
58.1%
40.2%
41.5%
41.9%
COST OF GOODS SOLD AND GROSS PROFIT
Our gross profit percentage increased from 12.2% in 2014 to 13.9% in 2015. Additionally, our gross profit dollars increased by
almost $75 million, or 23%, which exceeds our 11.5% increase in unit sales. The improvement in our profitability in 2015 is
attributable to the following factors:
• Our growth in unit sales to the industrial market and a significant margin improvement on those sales contributed almost
$50 million to our gross profit improvement. The gross margin improvement is attributable to an improvement in our sales
mix and benefiting from lower lumber costs relative to our fixed selling prices in the last six months of 2015. We estimate
lower lumber costs contributed $17 million to $20 million to our overall improvement in gross profits.
• Approximately $17 million of the increase is attributable to our growth in unit sales to the retail market and a slight
improvement in margin on those sales. New product sales contributed to our margin improvement;
• Over $9 million of our gross profit improvement was due to growth in sales and an improvement in margins on sales to the
residential construction market. Margins improved primarily as a result of efforts to be more selective in the business that
we take as market conditions have improved.
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 exceeded our 8% increase in unit sales. The improvement in our profitability in 2014 was
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 market as well an
improvement in margin on those sales due to a more favorable trend in lumber prices in 2014 compared to 2013.
8
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• 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.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased by approximately $34.5 million, or 15%, in 2015 compared to
2014, while we reported an 11.5% increase in unit sales. The increase in SG&A was primarily due to a $12 million increase in
compensation and related expenses resulting from annual raises and hiring additional sales and design personnel to support sales
growth, and a $16 million increase in incentive compensation expense tied to profitability and return on investment.
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.
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. Additionally, we recorded $0.6 million for a
Canadian anti-dumping duty in 2013 related to certain extruded aluminum products imported from China.
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.
INTEREST, NET
Net interest costs were higher in 2015 compared to 2014, due to a higher outstanding balance on our revolving line of credit
throughout 2015 resulting in additional associated interest expense and the loss of interest income related to notes receivable
collected in late 2014 and 2015.
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.
INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and
permanent tax differences. Our effective tax rate decreased to 35.0% in 2015 compared to 35.7% in 2014. The decrease in the
2015 tax rate is due to an increase in our domestic manufacturing deduction and a reduction in our estimated state tax rate.
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.
SEGMENT REPORTING
The following table presents, for the periods indicated, our net sales and earnings from operations by reportable segment.
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands)
Net Sales
December 26,
2015
December 27,
2014
December 28,
2013
2015 vs 2014
2014 vs 2013
North $
922,092
$
840,277
$
South
West
All Other
656,550
1,133,398
175,031
611,700
1,062,565
145,787
811,438
568,237
950,684
140,089
Total $
2,887,071
$
2,660,329
$
2,470,448
9.7%
7.3
6.7
20.1
8.5%
3.6%
7.6
11.8
4.1
7.7%
(in thousands)
Earnings from Operations
December 26,
2015
December 27,
2014
December 28,
2013
2015 vs 2014
2014 vs 2013
North $
53,879
$
32,988
$
South
West
All Other
Corporate1
30,740
70,220
3,038
(22,410)
Total $
135,467
$
24,474
53,575
3,155
(16,825)
97,367
$
21,167
23,680
42,003
(1,850)
(10,732)
74,268
63.3%
25.6
31.1
(3.7)
(33.2)
39.1%
55.8%
3.4
27.6
270.5
(56.8)
31.1%
1Corporate primarily represents over (under) allocated administrative costs and certain incentive compensation expense.
North
Net sales attributable to the North reportable segment increased by 9.7% in 2015, due to an increase in sales to our retail, residential
construction, and manufactured housing customers. These increases were offset by a decline in sales to our industrial customers.
Net sales attributable to the North reportable segment increased by 3.6% in 2014, due to an increase in sales to our retail, industrial,
and commercial construction customers. These increases were offset by a decline in sales to our residential construction customers
as we were more selective in the business that we pursued, particularly in our framing operations.
Earnings from operations for the North reportable segment increased in 2015 primarily due to the growth in our sales to retail
and residential construction customers. Margin improvements were also achieved due to a more favorable product sales mix
and a decline in lumber costs in the last six months of 2015 on products we sell with fixed selling prices.
Earnings from operations for the North reportable segment increased in 2014, compared to 2013, primarily due to the growth in
our sales to the retail and industrial markets. These improvements were offset by unfavorable cost variances in our first and
fourth quarters due to inclement weather.
South
Net sales attributable to the South reportable segment increased by 7.3% in 2015, primarily due to an increase in sales to our retail,
industrial, and manufactured housing customers.
Net sales attributable to the South reportable segment increased by 7.6% in 2014, due to an increase in sales to our retail and
industrial customers, offset by a decrease in sales to manufactured housing due to a vertical integration strategy implemented by
one of our largest customers.
Earnings from operations for the South reportable segment increased in 2015 primarily due to the growth in our sales to the
retail and industrial markets and margin improvements. These improvements were primarily due to a more favorable product
sales mix and low lumber costs in the last six months of 2015 on products we sell with fixed selling prices.
10
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Earnings from operations for the South reportable segment increased in 2014, primarily due to growth in our sales to retail and
industrial customers, as well as a slight margin improvement. These factors were offset by a decline in sales to manufactured
housing customers.
West
Net sales of the West reportable segment increased by 6.7% in 2015, due to an increase in sales to the retail, commercial
construction, and industrial markets. Acquired businesses contributed to our growth in sales to the industrial market. These
increases were offset by a decline in sales to manufactured housing and residential construction customers.
Net sales of the West reportable segment increased by 11.8% in 2014, due to an increase in sales to the commercial construction
and industrial markets. Acquired businesses contributed to our growth in sales to the industrial market. These increases were
offset by a decline in sales to manufactured housing customers.
Earnings from operations for the West reportable segment increased in 2015 primarily due to the growth in our sales to the retail
and industrial markets and an improvement in margins. Our margins increased due to an improvement in our sales mix and lower
lumber prices in the last six months of 2015 on products we sell with fixed selling prices.
Earnings from operations for the West 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-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.
All Other
Net sales of all other segments increased 20.1% in 2015 primarily due to:
• An increase in sales by our Alternative Materials operations to retail customers. Our Alternative Materials operations
primarily manufacturer, distribute, and sell composite decking, decorative post caps and balusters, and a variety of other
deck accessories to retail customers.
• An increase in sales to the Industrial market by our Pinelli Universal partnership. Pinelli Universal manufactures moulding
and millwork products out of its plant in Durango, Mexico.
• Our Integra Packaging partnership, acquired in 2015, which manufactures and distributes specialty packaging products.
Net sales of all other segments increased 4.1% in 2014 primarily due to:
• A 7% increase in sales to the Industrial market by our Pinelli Universal partnership.
• A 12% increase in sales by our Alternative Materials operations.
Earnings from operations for all other segments decreased slightly in 2015, primarily due to a gain on the sale of certain real estate
in Mexico recorded in the third quarter of 2014 totaling $2.7 million offset by margin improvements achieved by our Pinelli
Universal partnership on its sales to industrial customers in 2015.
Earnings from operations for all other segments improved in 2014, primarily due to improved profitability of our Alternative
Materials 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.
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 26, 2015 (in thousands).
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Contractual Obligation
Payments Due by Period
Less than
1 Year
1 – 3
Years
3 – 5
Years
After
5 Years
Total
Long-term debt and capital lease obligations
$
1,145
$
48
$
2,702
$
82,000
$
85,895
Estimated interest on long-term debt and capital
lease obligations
Operating leases
Capital project purchase obligations
Total
3,057
6,008
3,324
5,959
9,497
—
5,950
1,110
—
9,160
—
—
24,126
16,615
3,324
$
13,534
$
15,504
$
9,762
$
91,160
$
129,960
As of December 26, 2015, we also had $25.4 million in outstanding letters of credit issued during the normal course of business,
as required by some vendor contracts.
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):
LIQUIDITY AND CAPITAL RESOURCES
Cash from operating activities
Cash from investing activities
Cash from financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
December 26,
2015
December 27,
2014
December 28,
2013
$
$
168,796
(46,817)
(33,002)
(1,221)
87,756
—
$
87,756
$
$
73,120
(67,063)
(5,205)
(852)
—
—
— $
54,440
(43,603)
(18,422)
(62)
(7,647)
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 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.
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 53 days in 2015 from 50 days in 2014. In 2015, we carried higher levels of safety stock inventory. In addition,
adverse weather in the first quarter of 2015 resulted in weaker than expected unit sales and lower inventory turnover during that
period.
Cash generated from operating activities was approximately $168.8 million in 2015, which was comprised of net earnings of $85.1
million, $41.6 million of non-cash expenses, and a $42.1 million decrease in working capital since the end of 2014. Working
capital declined primarily due to reducing inventory to targeted levels and an increase in accrued liabilities resulting from a $17
million increase in accrued compensation.
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital expenditures were $43.5 million in 2015, and we have outstanding purchase commitments on existing capital projects
totaling approximately $3.3 million on December 26, 2015. We intend to fund capital expenditures and purchase commitments
through our operating cash flows and amounts available under our revolving credit facility.
Cash flows used in investing activities also included:
• Cash advances on notes receivable of $7.0 million, which was more than offset by $11.4 million in collections, associated
with our Mexican subsidiary; and
Purchases of investments of $7.9 million by our captive insurance subsidiary.
•
In 2015, cash flows used in financing activities included $16.5 million of dividends paid to shareholders. Our Board of Directors
approved semi-annual dividends of $0.40 per share and $0.42 per share, which were paid in June and December of 2015, respectively.
In addition, we repaid the $13.9 million outstanding balance on our revolving credit facility.
On December 26, 2015, we had no outstanding balance on our $295 million revolving credit facility, which also supports letters
of credit totaling approximately $9.8 million on December 26, 2015 and December 27, 2014. The revolving credit facility is
scheduled to mature in November of 2019. Financial covenants on this unsecured revolving credit facility and our 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 26, 2015 and December 27, 2014.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Consolidated Financial Statements, Note M, “Commitments, Contingencies, and Guarantees”.
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These
principles require us to make certain estimates and apply judgments that affect our financial position and results of operations.
We continually review our accounting policies and financial information disclosures. Following is a summary of our more
significant accounting policies that require the use of estimates and judgments in preparing the financial statements.
ACCOUNTS RECEIVABLE ALLOWANCES
We record provisions against gross revenues for estimated returns and cash discounts in the period when the related revenue is
recorded. These estimates are based on factors that include, but are not limited to, historical discounts taken, analysis of credit
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 27, 2015, our assessment date, the fair values of each of the Company’s operating segments substantially exceeded
their carrying values.
Excess Fair Value over Carrying Value
North
South
West
All Other
101.0%
29.7%
79.4%
39.4%
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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
26, 2015. Our accounting policies with respect to the reserves are as follows:
• General liability, automobile, and workers' compensation reserves are accrued based on third party actuarial valuations of the
expected future liabilities.
• Health benefits are self-insured up to our pre-determined stop loss limits. These reserves, including incurred but not
reported claims, are based on internal computations. These computations consider our historical claims experience,
independent statistics, and trends.
• The environmental reserve is based on known remediation activities at certain wood preservation facilities and the potential
for undetected environmental matters at other sites. The reserve for known activities is based on expected future costs and is
computed by in-house experts responsible for managing our monitoring and remediation activities.
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 26, 2015, there were 21 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 $2.0 million at December 26, 2015 and $1.8 million at December 27, 2014, 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.
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.
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Our general long-term objectives also include:
• Achieving sales growth primarily through new product introduction, international business expansion, and gaining additional
market share, particularly of our industrial and commercial construction markets;
•
Increasing our profitability through cost reductions, productivity improvements as volume improves, and a more favorable mix
of higher margin value-added products; and
• Earning a return on invested capital in excess of our weighted average cost of capital.
RETAIL 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 through 2016.
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.
• Adding new products and customers 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
product offerings and increasing the size of our dedicated industrial sales force. We also plan to pursue strategic acquisition
opportunities.
CONSTRUCTION MARKET
The National Association of Home Builders forecasts a 3% decrease in manufactured home shipments in 2016 followed by a 14%
increase in 2017. We will strive to maintain our market share of trusses produced for this market.
The Mortgage Bankers Association of America forecasts an 11% increase in national housing starts to an estimated 1.2 million
starts in 2016. The National Association of Home Builders forecasts starts of 1.3 million, a 13% increase from 2015. 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,
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
due to our continued focus on profitability and our conservative approach to adding capacity to serve this market, our growth may
continue to trail the market in future years.
GROSS PROFIT
We believe the following factors may impact our gross profits and margins in 2016:
• 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 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
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 2016, 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 and manufactured housing markets. Additionally, our investment in trade receivables and inventory will continue
to be impacted by the level of lumber prices.
In 2016, management expects to spend between $70 million and $75 million on capital expenditures, incur depreciation of
approximately $40 million, and incur amortization and other non-cash expenses of approximately $6 million. On December 26,
2015, we had outstanding purchase commitments on capital projects of approximately $3.3 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.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We have no present plan to change our dividend policy, which was recently increased to a semi-annual rate of $0.42 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.
We have a share repurchase program approved by our Board of Directors, and as of December 26, 2015, 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.
17
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 26, 2015, based on the framework
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework) (“COSO”). Based on that evaluation, management has concluded that as of December 26, 2015, 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 24, 2016
18
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 26, 2015, based on criteria established in Internal Control - Integrated Framework (2013) 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 26, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) 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 26, 2015 of the Company and our report dated
February 24, 2016 expressed an unqualified opinion on those consolidated financial statements.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
February 24, 2016
19
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 26, 2015 and December 27, 2014, and the related consolidated statements of earnings and
comprehensive income, shareholders' equity, and cash flows for the years 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 audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Universal
Forest Products, Inc. and subsidiaries as of December 26, 2015 and December 27, 2014, and the results of their operations and
their cash flows for the years 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 26, 2015, based on the criteria established in Internal
Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and
our report dated February 24, 2016 expressed an unqualified opinion on the Company's internal control over financial
reporting.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
February 24, 2016
20
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
the fiscal year 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 the fiscal year 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 24, 2016
21
December 26,
2015
December 27,
2014
$
87,756
$
6,743
586
—
—
405
222,964
195,912
168,548
136,370
304,918
7,784
—
17,481
648,232
1,312
8,298
180,990
2,340
15,357
118,701
180,066
303,081
21,682
4,515
183,770
156,278
340,048
11,934
6,284
18,423
573,006
1,079
9,565
183,062
2,340
6,479
114,157
175,340
284,981
23,397
6,523
628,045
(376,895)
251,150
604,398
(356,129)
248,269
$
1,107,679
$
1,023,800
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents
Investments
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
See notes to consolidated financial statements.
22
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
Current portion of long-term debt
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
DEFERRED INCOME TAXES
OTHER LIABILITIES
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY:
Controlling interest shareholders' equity:
December 26,
2015
December 27,
2014
$
— $
95,041
78,877
29,112
1,145
204,175
84,750
23,838
28,507
341,270
621
89,105
62,143
23,591
—
175,460
98,645
30,933
19,202
324,240
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none $
— $
—
Common stock, $1 par value; shares authorized 40,000,000; issued and outstanding,
20,141,709 and 19,984,451
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings
Employee stock notes receivable
Total controlling interest shareholders' equity
Noncontrolling interest
TOTAL SHAREHOLDERS' EQUITY
20,142
171,562
565,636
(4,585)
—
752,755
13,654
766,409
19,984
162,483
502,334
1,348
(455)
685,694
13,866
699,560
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,107,679
$
1,023,800
See notes to consolidated financial statements.
23
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
Year Ended
December 26,
2015
December 27,
2014
December 28,
2013
$
2,887,071
$
2,660,329
$
2,470,448
2,487,167
2,334,987
2,189,896
399,904
264,265
—
172
135,467
5,133
(294)
(374)
4,465
131,002
45,870
85,132
325,342
229,775
1,600
(3,400)
97,367
4,267
(2,235)
(378)
1,654
95,713
34,149
61,564
280,552
204,390
1,526
368
74,268
4,851
(640)
(201)
4,010
70,258
24,454
45,804
(2,722)
43,082
2.16
2.15
(784)
45,020
NET SALES
COST OF GOODS SOLD
GROSS PROFIT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
ANTI-DUMPING DUTY ASSESSMENTS
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND
IMPAIRMENT CHARGES
EARNINGS FROM OPERATIONS
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
$
(4,537)
80,595
$
(4,013)
57,551
$
EARNINGS PER SHARE - BASIC
EARNINGS PER SHARE - DILUTED
OTHER COMPREHENSIVE INCOME:
OTHER COMPREHENSIVE LOSS
COMPREHENSIVE INCOME
3.99
3.99
(7,257)
77,875
2.87
2.86
(3,116)
58,448
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO
NONCONTROLLING INTEREST
(3,213)
(3,015)
(2,730)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING
INTEREST
$
74,662
$
55,433
$
42,290
See notes to consolidated financial statements.
24
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
Controlling Interest Shareholders' Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulat-ed
Other
Comprehen-
sive Earnings
Employees
Stock Notes
Receivable
Noncontrolling
Interest
Total
$
19,800
$ 149,805
$ 426,887
$
4,258
$
(982) $
7,757
$ 607,525
43,082
(792)
(8,166)
9
76
31
44
2,068
20
(44)
290
1,874
2,219
(3)
(103)
2,722
45,804
8
84
(784)
84
(1,460)
(1,460)
(8,166)
2,144
60
—
290
1,874
2,219
—
144
106
144
$
19,948
$ 156,129
$ 461,812
$
3,466
$
(732) $
9,111
$ 649,734
Balance at
December 29, 2012
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
Balance at
December 28, 2013
See notes to consolidated financial statements
25
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
Controlling Interest Shareholders' Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
57,551
Accumulat-ed
Other
Comprehen-
sive Earnings
Employees
Stock Notes
Receivable
(2,118)
Noncontrolling
Interest
4,013
(998)
Total
61,564
(3,116)
3,650
3,650
(1,910)
(1,910)
(12,205)
16
78
49
525
1,125
13
(49)
(105)
(4,761)
319
1,919
2,515
(2)
(76)
78
199
(12,205)
541
1,216
—
(4,866)
319
1,919
2,515
—
199
$
19,984
$ 162,483
$ 502,334
$
1,348
$
(455) $
13,866
$ 699,560
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
Balance at
December 27, 2014
See notes to consolidated financial statements
26
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
Controlling Interest Shareholders' Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
80,595
Accumulat-ed
Other
Comprehen-
sive Earnings
Employees
Stock Notes
Receivable
(5,892)
(41)
Noncontrolling
Interest
4,537
Total
85,132
(1,324)
(7,216)
(41)
1,019
1,019
(3,188)
(3,188)
(1,256)
(1,256)
(16,507)
(16,507)
31
76
65
(14)
1,044
1,836
(65)
370
1,846
4,048
(786)
304
$20,142
$171,562
$565,636
$(4,585)
151
$—
1,075
1,912
—
(496)
370
1,846
4,048
151
$13,654
$766,409
Net earnings
Foreign currency
translation adjustment
Unrealized gain (loss)
on investment
Noncontrolling
interest associated
with business
acquisitions
Distributions to
noncontrolling
interest
Purchase of
noncontrolling
interest
Cash dividends -
$0.400 & $0.420 per
share - semiannually
Issuance of 30,213
shares under
employee stock plans
Issuance of 75,604
shares under stock
grant programs
Issuance of 65,054
shares under deferred
compensation plans
Repurchase of 13,613
shares
Tax benefits from
non-qualified stock
options exercised
Expense associated
with share-based
compensation
arrangements
Accrued expense
under deferred
compensation plans
Payments received on
employee stock notes
receivable
Balance at
December 26, 2015
See notes to consolidated financial statements
27
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
$
85,132
$
61,564
$
45,804
Year Ended
December 26,
2015
December 27,
2014
December 28,
2013
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 remaining noncontrolling interest in subsidiary
Advances on notes receivable
Collections on notes receivable
Purchases of investments
Proceeds from sale of investments
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
Debt issuance costs
Proceeds from issuance of common stock
Distributions to noncontrolling interest
Dividends paid to shareholders
Repurchase of common stock
Excess tax benefits from share-based compensation arrangements
Other, net
28
37,710
3,531
1,846
(33)
109
—
(1,369)
(374)
172
(26,007)
34,139
4,798
29,142
168,796
(43,522)
2,843
(2,505)
(1,256)
(6,994)
11,446
(7,858)
1,115
(181)
95
(46,817)
297,711
(311,271)
(54)
1,074
(3,188)
(16,507)
(800)
33
—
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
—
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)
—
(2,673)
2,814
—
—
6,111
(132)
(43,603)
251,801
(262,891)
(46)
2,144
(1,460)
(8,166)
—
112
84
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
CASH AND CASH EQUIVALENTS, END OF PERIOD
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
Property exchanged for notes receivable
Acquisition earnout and noncompete adjustment prior to final purchase
accounting
See notes to consolidated financial statements
(33,002)
(1,221)
87,756
0
87,756
$
(5,205)
(852)
—
0
0
$
(18,422)
(62)
(7,647)
7,647
0
5,118
$
4,334
$
42,767
38,475
4,883
14,427
— $
389
2,768
3,000
3,461
$
2,567
300
14,195
—
—
1,635
3,900
1,800
—
—
$
$
$
$
29
A.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPERATIONS
We design, manufacture and market wood and wood-alternative products for large home centers and other retailers,
structural lumber, engineered wood components, framing services, and other products for the construction market, and specialty
wood packaging, components, packing materials, and other wood-based products for various industries.
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 any entity which we own 50% or more and 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 2015, 2014, and 2013 relate to the fiscal years ended December 26, 2015, December 27, 2014, and December 28, 2013,
respectively. Fiscal years 2015, 2014, and 2013 were comprised of 52 weeks.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
We follow ASC Topic 820, Fair Value Measurements and Disclosures, which provides a consistent definition of fair
value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and
establishes a three-tier hierarchy for fair value measurements. This topic requires fair value measurements to be classified and
disclosed in one of the following three categories:
• Level 1 — Financial instruments with unadjusted, quoted prices listed on active market exchanges.
• Level 2 — Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over-the-
counter traded financial instruments. Financial instrument values are determined using prices for recently traded financial
instruments with similar underlying terms and direct or indirect observational inputs, such as interest rates and yield curves
at commonly quoted intervals.
• Level 3 — Financial instruments not actively traded on a market exchange and there is little, if any, market activity. Values
are determined using significant unobservable inputs or valuation techniques.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly-liquid investments purchased with an original maturity of three
months or less.
Restricted cash consists of amounts required to be held for loss funding totaling $0.6 and $0.4 million as of December 26,
2015 and December 27, 2014, respectively.
INVESTMENTS
30
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Investments are deemed to be "available for sale" and are, accordingly, carried at fair value being the quoted market
value. Unrealized investment gains or losses, net of deferred taxes, are reported as a separate component of comprehensive
income or loss until sold.
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):
Beginning
Balance
Additions
Charged to
Costs and
Expenses
Deductions*
Ending
Balance
Year Ended December 26, 2015:
Allowance for possible losses on accounts receivable
Year Ended December 27, 2014:
Allowance for possible losses on accounts receivable
Year Ended December 28, 2013:
Allowance for possible losses on accounts receivable
$
$
$
2,390
2,060
2,550
$
$
$
20,538
18,871
17,114
$
$
$
(20,256) $
2,672
(18,541) $
2,390
(17,604) $
2,060
* 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 $6.5 million and $6.0 million
as of December 26, 2015 and December 27, 2014, respectively. All amounts are expected to be collected within 18 months.
Concentration of accounts receivable related to our largest customer totaled $39.1 million and $26.5 million as of December 26,
2015 and December 27, 2014, 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 $2.0 million and $5.2 million at
December 26, 2015 and December 27, 2014, respectively and are included in “Other Current Assets”. The long-term portion of
notes receivable, net of allowance, totaled $2.4 million and $3.0 million at December 26, 2015 and December 27, 2014, respectively
and are included in “Other Assets”.
The following table presents the activity in our notes receivable allowances (in thousands):
31
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Year Ended December 26, 2015:
Allowance for possible losses on
Notes receivable
Year Ended December 27, 2014:
Allowance for possible losses on
Notes receivable
Year Ended December 28, 2013:
Allowance for possible losses on
Notes receivable
INVENTORIES
$
$
Beginning
Balance
Additions
Deductions
Ending
Balance
826
$
— $
(826) $
—
1,025
$
1,599
$
(1,798) $
826
3,226
$
887
(3,088) $
1,025
Inventories are stated at the lower of cost or market. The cost of inventories includes raw materials, direct labor, and
manufacturing overhead. Cost is determined on a weighted average basis. Raw materials consist primarily of unfinished wood
products expected to be manufactured or treated prior to sale, while finished goods represent various manufactured and treated
wood products ready for sale. We have inventory on consignment at customer locations valued at $11.7 million as of December 26,
2015 and $12.9 million as of December 27, 2014. During 2015, management decided to discontinue certain product lines in our
Gulf region which resulted in a $2.5 million inventory write-down.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures for renewals and betterments are capitalized, and
maintenance and repairs are expensed as incurred. Amortization of assets held under capital leases is included in depreciation
and amortized over the shorter of the estimated useful life of the asset or the lease term. Depreciation is computed principally by
the straight-line method over the estimated useful lives of the assets as follows:
Land improvements
Buildings and improvements
Machinery, equipment and office furniture
LONG-LIVED ASSETS
5 to 15 years
10 to 32 years
2 to 8 years
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
Our annual testing date for evaluating goodwill and indefinite-lived intangible asset impairment in the first day of the
Company’s fourth fiscal quarter for all reporting units. Additionally, the Company reviews various triggering events throughout
the year to ensure that a mid-year impairment analysis is not required. The reasonableness of our segment values determined in
our valuation is measured against our market capitalization at the measurement date.
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
32
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Our wholly-owned insurance captive, Ardellis 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.
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 26, 2015 and
December 27, 2014. 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 26, 2015, Ardellis had 21 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 $2.0 million
at December 26, 2015 and $1.8 million at December 27, 2014, 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. The Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) 2015-17 - Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes, on November 2, 2015, which simplifies the accounting for deferred tax assets and deferred tax liabilities. In accordance
with this standard, the Company has early adopted the presentation of deferred income taxes, which requires all deferred tax
assets and deferred tax liabilities to be classified as noncurrent as opposed to the former US GAAP Standard which requires entities
to split their deferred tax assets and deferred tax liabilities between current and noncurrent based on the balance sheet classification
of the related asset or liability. At the end of 2015 and prospectively, the deferred tax assets and deferred tax liabilities were
classified as noncurrent.
DEBT
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03 - Simplifying
the Presentation of Debt Issuance Costs on April 7, 2015 and effective for fiscal years beginning after December 15, 2015. The
ASU requires the presentation of debt issuance costs in the balance sheet as a direct deduction from the recognized debt liability
rather than as an asset and amortization of the costs is reported as interest expense. In accordance with ASU 2015-03, the Company
will comply with this ASU during the first interim reporting period of 2016.
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
33
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 26, 2015 and December 27,
2014 which are included in other current assets and other accrued liabilities, respectively (in thousands):
Cost and Earnings in Excess of Billings
Billings in Excess of Cost and Earnings
SHIPPING AND HANDLING OF PRODUCT
2015
2014
$
3,624
$
4,978
5,244
4,682
Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenue. Costs incurred
related to the shipment and handling of products are classified in cost of goods sold.
EARNINGS PER SHARE
The computation of earnings per share (“EPS”) is as follows (in thousands):
Numerator:
Net earnings attributable to controlling interest
Adjustment for earnings allocated to non-vested restricted common stock
Net earnings for calculating EPS
Denominator:
Weighted average shares outstanding
Adjustment for non-vested restricted common stock
Shares for calculating basic EPS
Effect of dilutive stock options
Shares for calculating diluted EPS
Net earnings per share:
Basic
Diluted
December 26,
2015
December 27,
2014
December 28,
2013
$
$
$
$
80,595
(1,059)
79,536
$
$
57,551
(718)
56,833
$
$
20,184
(265)
19,919
36
19,955
20,081
(250)
19,831
23
19,854
43,082
(412)
42,670
19,952
(191)
19,761
54
19,815
3.99
3.99
$
$
2.87
2.86
$
$
2.16
2.15
No options were excluded from the computation of diluted EPS for 2015, 2014, or 2013.
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.
B.
FAIR VALUE
We apply the provisions of ASC 820, Fair Value Measurements and Disclosures, to assets and liabilities measured at fair
value. Assets and liabilities measured at fair value are as follows:
34
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 26, 2015
December 27, 2014
Quoted
Prices in
Active
Markets
(Level 1)
Prices with
Other
Observable
Inputs
(Level 2)
Total
Quoted
Prices in
Active
Markets
(Level 1)
Prices with
Other
Observable
Inputs
(Level 2)
Total
$
78,210
— $
78,210
$
—
—
3,523
237
230
172
4,162
238
3,130
—
—
—
—
—
238
3,130
3,523
237
230
172
4,162
$
82,372
$
3,368
$
85,740
$
62
—
—
208
68
198
157
693
693
— $
—
—
—
—
—
—
—
— $
62
—
—
208
68
198
157
693
693
(in thousands)
Money market funds
Bond funds
Domestic stock funds
Mutual funds:
Domestic stock funds
International stock funds
Target funds
Bond funds
Total mutual funds
Assets at fair value
We maintain money market, mutual funds, bonds, and/or stocks in our non-qualified deferred compensation plan and our
wholly owned licensed captive insurance company. These funds are valued at prices quoted in an active exchange market and are
included in "Cash and Cash Equivalents", "Investments", and "Other Assets". We have elected not to apply the fair value option
under ASC 825, Financial Instruments, to any of our financial instruments except for those expressly required by U.S. GAAP.
We do not maintain any Level 3 assets or liabilities that would be based on significant unobservable inputs.
In accordance with our investment policy, our wholly-owned captive, Ardellis Insurance Ltd. ("Ardellis"), maintains
an investment portfolio, totaling $6.7 million as of December 26, 2015, consisting of mutual funds, domestic and international
stocks, and fixed income bonds.
Ardellis' available for sale investment portfolio consists of the following:
Cost
Unrealized
Gain/Loss
Fair Value
Fixed Income
Equity
Total
$
$
3,362
3,438
6,800
$
$
(12) $
(45)
(57) $
3,350
3,393
6,743
Our Fixed Income investments consist of short, intermediate, and long term bonds, as well as fixed blend bonds.
Within the fixed income investments, we maintain a specific mixture of US treasury notes, US agency mortgage backed
securities, private label mortgage backed securities, and various corporate securities. Our equity investments consist of small,
mid, and large cap growth and value funds, as well as international equity. The gross unrealized gains and losses were de
minimus thus reporting net pre-tax effect unrealized loss of $57,000. Carrying amounts above are recorded in the investments
line item within the balance sheet as of December 26, 2015. During 2015, Ardellis reported a net realized gain of $35,600,
which was recorded in interest income on the statement of earnings.
C.
BUSINESS COMBINATIONS
We completed the following business combinations in fiscal 2015 and 2014, which were accounted for using the purchase
method (in thousands).
35
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Company Name
Acquisition
Date
Purchase
Price
Intangible
Assets
Net
Tangible
Assets
Operating
Segment
Rapid Wood
Mfg., LLC
(“Rapid Wood”)
February 2,
2015
$1,638
(asset
purchase)
$789
$849
West
$1,406
(The
Company
portion of
Intangible
Assets $730
or 51.94%)
$715
(The Company
portion of Net
Tangible
Assets $372 or
51.94%)
All Other
$25,294
$8,901
West
Integra
Packaging
Proprietary, Ltd
(“Integra
Packaging”)
January 16,
2015
$1,102
(51.94% stock
purchase)
Bigs Packaging
and Lumber,
LLC (“Bigs
Packaging”)
November 13,
2014
$20,000 (asset
purchase) +
$13,212
earnout accrual
+ $983
noncompete
accrual
Packnet Ltd
(“Packnet”)
November 24,
2014
$7,506 (80%
asset purchase)
Business Description
A supplier of lumber products
to the region’s manufactured
housing and recreational
vehicle industries based in
Caldwell, Idaho. Rapid Wood
had annual sales of $2.3
million.
An Australian-based
manufacturer and distributor of
industrial wood specialty
packaging products. Integra
Packaging had annual sales of
$12.4 million.
A Texas-based manufacturer of
industrial wood and packaging
solutions. Bigs Packaging had
annual sales of $50.0 million.
$7,885
(The
Company
portion of
Intangible
Assets
$6,308 or
80%)
$1,498
(The Company
portion of Net
Tangible
Assets $1,198
or 80%)
West
A supplier of industrial
packaging and services based in
Eagan, MN. Packnet had
annual sales of $9.0 Million.
High Level
Components,
LLC (“High
Level”)
Upshur Forest
Products, LLC
(“Upshur”)
March 31, 2014
March 28, 2014
(majority
interest)
June 25, 2015
(minority
interest)
$2,944
(asset
purchase)
$—
$3,232
North
A building component
manufacturer based in Locust,
NC. High Level had annual
sales of $6.8 million.
$3,548 (asset
purchase)
$1,577
$1,971
West
A sawmill located in Gilmer,
TX. Upshur had annual sales
of $8.9 million.
Container
Systems, Inc.
(“CSI”)
March 14, 2014
$2,417 (asset
purchase)
$—
$2,417
South
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.
The intangible assets for each acquisition were finalized and allocated to their respective identifiable intangible asset and
goodwill accounts during 2015.
At December 26, 2015, the amounts assigned to major intangible classes for the business combinations mentioned
above are as follows (in thousands):
36
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Rapid Wood
Integra Packaging
Bigs Packaging
Packnet
Upshur
Non-
Compete
Agreements
Customer
Relationships
Goodwill
Goodwill -
Tax
Deductible
$
— $
— $
85
2,500
—
1,577
467
4,580
—
—
$
789
854
18,214
7,885
—
789
—
12,082
7,885
—
The business combinations mentioned above were not significant to our operating results individually or in aggregate,
and thus pro forma results for 2015 and 2014 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.
E.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets
of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to
impairment tests at least annually in accordance with ASC 350, Intangibles-Goodwill and Other. We review the carrying amounts
of goodwill and other non-amortizable intangibles by reporting unit to determine if such assets may be impaired. As the carrying
amount of these assets are recoverable based upon a discounted cash flow and market approach analysis, no impairment was
recognized.
The changes in the net carrying amount of goodwill by reporting segment for the years ended December 26, 2015 and
December 27, 2014, are as follows (in thousands):
Balance as of December 28, 2013
Acquisitions
Balance as of December 27, 2014
2015 Acquisitions
2014 Final Purchase Accounting
Other
Balance as of December 26, 2015
$
North
South
West
All Other
Total
44,983
—
44,983
—
—
(1,730)
43,253
43,625
—
43,625
—
—
—
62,176
22,916
85,092
789
(1,328)
—
43,625
$
84,553
$
9,362
—
9,362
618
—
(421)
9,559
$
160,146
22,916
183,062
1,407
(1,328)
(2,151)
180,990
Indefinite-lived intangible assets totaled $2.3 million as of December 26, 2015 and December 27, 2014 related to the
Consumer Products segment.
The following amounts were included in other amortizable intangible assets, net as of December 26, 2015 and
December 27, 2014 (in thousands):
37
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2015
2014
Non-compete agreements
Customer relationships
Licensing agreements
Patents
Total
Assets
Accumulated
Amortization
Assets
$
5,496
$
19,194
4,589
3,563
$
32,842
$
(1,725) $
(10,140)
(2,524)
(3,096)
(17,485) $
2,917
9,480
4,589
3,464
20,450
$
Accumulated
Amortization
(1,019)
(8,027)
(2,065)
(2,860)
(13,971)
$
Amortization is computed principally by the straight-line method over the estimated useful lives of the intangible assets
as follows:
Non-compete agreements
Customer relationship
Licensing agreements
5 to 15 years
5 to 15 years
10 years
Amortization expense of intangibles totaled $3.5 million, $2.4 million and $2.5 million in 2015, 2014 and 2013,
respectively. The estimated amortization expense for intangibles for each of the five succeeding fiscal years is as follows (in
thousands):
2016
2017
2018
2019
2020
Thereafter
Total
F.
DEBT
$
2,373
2,070
1,812
1,528
1,117
6,457
$
15,357
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 26, 2015 and December 27, 2014 aggregated $25.4
million and $26.3 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 of 110 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
38
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Long-term debt obligations are summarized as follows on December 26, 2015 and December 27, 2014 (amounts in
thousands):
Series 2012 Senior Notes Tranche A, due on December 17, 2022, interest payable semi-
annually at 3.89%
Series 2012 Senior Notes Tranche B, due on December 17, 2024, interest payable semi-
annually at 3.98%
Revolving credit facility totaling $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 (0.17% on December 26, 2015 and 0.24% on December
27, 2014)
Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest
payable monthly at a floating rate (0.26% on December 26, 2015 and 0.23% on December
27, 2014)
Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest
payable monthly at a floating rate (0.25% on December 26, 2015 and 0.23% on December
27, 2014)
Foreign Affiliate Debt
Less current portion
Long-term portion
2015
2014
$
35,000
$
35,000
40,000
—
40,000
13,945
3,300
3,300
2,700
2,700
3,700
1,195
85,895
1,145
3,700
—
98,645
—
$
84,750
$
98,645
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 among other industry standard covenants. We were within all of our lending requirements
on December 26, 2015 and December 27, 2014.
On December 26, 2015, the principal maturities of long-term debt and capital lease obligations are as follows (in
thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
1,145
29
19
2
2,700
82,000
85,895
$
On December 26, 2015, the estimated fair value of our long-term debt, including the current portion, was $85.6 million,
which was $0.3 million less than the carrying value. The estimated fair value is based on rates anticipated to be available to us
for debt with similar terms and maturities.
G.
LEASES
We lease certain real estate under operating lease agreements with original terms ranging from one to ten years. We are
required to pay real estate taxes and other occupancy costs under these leases. Certain leases carry renewal options of five to fifteen
years. We also lease motor vehicles, equipment, and an aircraft under operating lease agreements for periods of one to ten years.
Future minimum payments under non-cancelable operating leases on December 26, 2015 are as follows (in thousands):
39
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2016
2017
2018
2019
2020
Thereafter
Total minimum lease payments
$
Operating
Leases
6,008
4,295
3,250
1,952
1,068
42
$
16,615
Rent expense was approximately $6.3 million, $5.2 million, and $5.2 million in 2015, 2014, and 2013, 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 these 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 $2.3 million and $2.0 million on December 26, 2015 and December 27,
2014, respectively, 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 $0.8 million and $0.7 million on December 26, 2015
and December 27, 2014 respectively, and are included in "Other Assets." Related liabilities totaled $13.3 million and $9.7 million
on December 26, 2015 and December 27, 2014, respectively, and are included in "Other Liabilities" and "Shareholders' Equity."
Assets associated with the Plan are recorded at fair market value. The related liabilities are recorded at fair market value, with
the exception of obligations associated with investments in our stock which are recorded at the market value on the date of deferral.
I.
COMMON STOCK
In April 2002, our shareholders approved the 2002 Employee Stock Purchase Plan ("Stock Purchase Plan") to succeed
the Employee Stock Purchase Plan originally approved in 1994. In April 2008, our shareholders authorized additional shares to
be allocated to the Stock Purchase Plan and extended the term of the Stock Purchase Plan to 2018. The plan allows eligible
employees to purchase shares of our stock at a share price equal to 85% of fair market value on the purchase date. We have
expensed the fair value of the compensation associated with these awards, which approximates the discount. The amount of
expense is nominal.
In April 1994, our shareholders approved the Directors’ Retainer Stock Plan ("Stock Retainer Plan"). In April 2007, our
shareholders authorized additional shares to be 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 2015, $0.6 million in 2014, and $0.4 million
in 2013.
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.
40
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A summary of the transactions under the stock option plans is as follows:
Outstanding at December 29, 2012
Exercised
Forfeited or expired
Outstanding at December 28, 2013
Exercised
Forfeited or expired
Outstanding at December 27, 2014
Exercised
Forfeited or expired
Outstanding at December 26, 2015
Vested or expected to vest at December 26, 2015
Exercisable at December 26, 2015
Weighted-
Average
Exercise
Price Per
Share
Average
Remaining
Contractual
Term
Stock Under
Option
110,106
(77,632)
—
32,474
(8,737)
—
23,737
(23,737)
—
—
—
— $
30.13
29.49
—
31.65
30.64
—
32.03
30.64
—
—
—
—
1.64
1.55
1.00
0.00
0.00
$
Aggregate
Intrinsic
Value
845,915
1,221,004
661,674
163,830
—
493,304
559,510
—
—
—
There is no unrecognized compensation expense remaining for stock options in 2015 and 2014 and the amounts are
nominal in 2013.
A summary of the nonvested restricted stock awards granted under the LTSIP is as follows:
Nonvested at December 29, 2012
Granted
Vested
Forfeited
Nonvested at December 28, 2013
Granted
Vested
Forfeited
Nonvested at December 27, 2014
Granted
Vested
Forfeited
Nonvested at December 26, 2015
Restricted
Awards
Weighted-
Average
Grant Date
Fair Value
Unrecognized
Compensation
Expense
(in millions)
Weighted-
Average
Period to
Recognize
Expense
186,609
36,481
(9,955)
(6,715)
206,420
62,555
(9,446)
(2,443)
257,086
76,321
(121,642)
(3,849)
207,916
3.2
2.68 years
2.9
2.00 years
1.7
1.81 years
32.22
40.58
40.58
31.96
32.52
55.30
55.30
36.13
36.39
54.01
38.61
48.85
$
40.97
$
5.2
2.53 years
Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation expense of $1.8 million, $1.9 million,
and $1.9 million and the related total income tax benefits of $0.9 million, $0.9 million, and $0.4 million in 2015, 2014 and 2013,
respectively.
In 2015, 2014 and 2013, cash received from option exercises and share issuances under our plans was $1.1 million, $0.5
million and $2.1 million, respectively. The actual tax benefit realized in 2015, 2014 and 2013 for the tax deductions from option
exercises totaled $0.4 million, $0.3 million and $0.3 million, respectively.
41
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program)
allowing us to repurchase up to 2.5 million shares of our common stock. On October 14, 2010, our Board authorized an additional
2 million shares to be repurchased under our share repurchase program. We repurchased 105,012 and 13,613 shares under this
program in 2014 and 2015, respectively. As of December 26, 2015, 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 2015 and 2014, on a discretionary basis, totaling $2.4 million and $2.0 million,
respectively. The basis for matching contributions may not exceed the lesser of 6% of the employee's annual compensation or the
IRS limitation.
On July 14, 2011, the compensation committee of the board of directors approved a retirement plan for officers whereby
we will pay, upon retirement, benefits totaling 150% of the officer’s highest base salary in the three years immediately preceding
separation from service plus health care benefits for a specified period of time if certain eligibility requirements are met.
Approximately $5.8 million and $5.0 million are accrued in “Other Liabilities” for this plan at December 26, 2015 and December 27,
2014, respectively.
K.
INCOME TAXES
Income tax provisions for the years ended December 26, 2015, December 27, 2014, and December 28, 2013 are summarized
as follows (in thousands):
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
2015
2014
2013
$
34,672
$
18,664
$
12,683
6,643
5,599
46,914
(1,104)
96
(36)
(1,044)
45,870
$
4,852
5,619
29,135
4,128
1,079
(193)
5,014
$
34,149
$
3,381
3,928
19,992
3,696
600
166
4,462
24,454
The components of earnings before income taxes consist of the following:
U.S.
Foreign
Total
2015
2014
2013
$
$
115,231
15,771
131,002
$
$
79,365
16,348
95,713
$
$
59,334
10,924
70,258
42
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The effective income tax rates are different from the statutory federal income tax rates for the following reasons:
Statutory federal income tax rate
State and local taxes (net of federal benefits)
Effect of noncontrolling owned interest in earnings of partnerships
Manufacturing deduction
Tax credits, including foreign tax credit
Change in uncertain tax positions reserve
Other permanent differences
Other, net
Effective income tax rate
2015
2014
2013
35.0%
35.0%
35.0%
3.6
(0.3)
(2.4)
(1.6)
0.3
0.7
(0.3)
35.0%
4.1
(0.2)
(2.0)
(1.9)
(0.2)
0.6
0.3
35.7%
4.2
(0.3)
(2.0)
(2.5)
0.6
0.6
(0.8)
34.8%
Temporary differences which give rise to deferred income tax assets and (liabilities) on December 26, 2015 and
December 27, 2014 are as follows (in thousands):
Employee benefits
Net operating loss carryforwards
Foreign subsidiary capital loss carryforward
Other tax credits
Inventory
Reserves on receivables
Accrued expenses
Other, net
Gross deferred income tax assets
Valuation allowance
Deferred income tax assets
Depreciation
Intangibles
Other, net
Deferred income tax liabilities
Net deferred income tax liability
2015
2014
$
10,996
$
1,256
478
3,518
1,264
1,213
5,311
4,728
28,764
(1,454)
27,310
(25,795)
(20,765)
(3,276)
(49,836)
(22,526) $
$
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)
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.
43
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Gross unrecognized tax benefits beginning of year
$
1,793
$
1,923
$
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
$
—
754
—
(338)
2,209
$
—
556
—
(686)
1,793
$
1,531
230
481
—
(319)
1,923
2015
2014
2013
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 26,
2015, December 27, 2014, and December 28, 2013, 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 2012. 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.
On a consolidated basis, we have reserved approximately $3.5 million on December 26, 2015 and December 27, 2014,
representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance
receivable.
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 26, 2015.
In February 2014, one of our operations was served with a federal grand jury subpoena from the Southern District of
New York. The subpoena was issued in connection with an investigation being conducted by the US Attorney's Office for the
Southern District of New York. The subpoena requested documents relating to a developer and construction projects for which
our operation had provided materials and labor. Following receipt of the subpoena, the Audit Committee of the Company’s Board
of Directors retained outside counsel to conduct an internal investigation and respond to the subpoena. The Company cooperated
in all respects with the US Attorney's Office, complied with this subpoena and voluntarily provided additional information. As a
result of the internal investigation, in April 2014, two Company employees were terminated for violating the Company’s Code of
44
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Conduct and Business Ethics. In May 2015, those ex-employees were indicted by the grand jury . The Company has not been
named as a target and continues to cooperate with the US Attorney's Office in this matter; however, because of the duration and
unique nature of this proceeding, any potential, adverse financial implications to the Company are uncertain.
As of December 26, 2015 and December 27, 2014, we have an accrual balance of $1.6 million, respectively, related to
anti-dumping duty assessments imposed on steel nails imported from China.
In addition, on December 26, 2015, 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 26, 2015, we had outstanding purchase commitments on capital projects of approximately $3.3 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 26, 2015, we had approximately $0.2
million in outstanding payment and performance bonds, for projects in process, which should expire during the next two years.
In addition, approximately $12.4 million in payment and performance bonds are outstanding for completed projects which are
still under warranty.
On December 26, 2015 we had outstanding letters of credit totaling $25.4 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 $15.6 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 have been issued. These letters of credit guarantee principal and interest payments to the bondholders. We
currently have irrevocable letters of credit outstanding totaling approximately $9.8 million related to our outstanding industrial
development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products, Inc. in certain
debt agreements, including the Series 2012 Senior Notes and our revolving credit facility. The maximum exposure of these
guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire concurrent with
the expiration of the debt agreements.
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
The Company operates manufacturing, treating and distribution facilities throughout North America, but primarily in
the United States. The Company manages the operations of its individual locations primarily through a geographic reporting
structure under which each location is included in a region and regions are included in divisions. The exceptions to this
geographic reporting and management structure are (a) the Company's Alternative Materials Division, which offers
portfolio of non-wood products and distributes those products nation-wide and (b) the Company's distribution unit (referred to
as UFPD) which distributes a variety of products to the manufactured housing industry
45
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Due to changes in management structure, we revised our operating segments at the beginning of fiscal 2015. Our operating
segments currently consist of the North, South, West, Alternative Materials, International, Corporate, and All Other. Our
previous operating segments, immediately prior to the current fiscal year, consisted of Eastern, Western, Site-Built, Corporate,
and All Other. The Company's new North and South reporting segments represent the segregation of the former Eastern
segment with the following
The Site-Built unit previously was a separate operating and reportable segment; however the recent management
structure reorganization resulted in the Site-Built unit reporting through (and is now apart of) the North segment.
UFPD which previously was included in the All Other segment, is now included as part of the North segment.
With respect to the facilities in the north, south, and west segments, these facilities generally supply the three markets
the Company serves nationally - Retail, Industrial, and Construction. Also, substantially all of our facilities support customers
in the immediate geographical region surrounding the facility
Prior year amounts have been reclassified to our new segments. Our Alternative Materials and International divisions have
been included in the “All Other” column of the table below. The “Corporate” column includes unallocated administrative costs
and certain incentive compensation expense.
North
South
West
2015
All
Other
Corporate
Total
Net sales to outside customers
$
922,092
$
656,550
$ 1,133,398
$
175,031
$
— $ 2,887,071
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment earnings from operations
Segment assets
Capital expenditures
51,796
29,940
—
267
7,901
53,879
291,614
9,622
296
9
6,255
30,740
185,818
6,138
58,412
516
2,467
13,033
70,220
369,077
13,356
13,673
52
788
3,707
3,038
98,004
6,698
—
4,269
—
6,814
(22,410)
163,166
7,708
153,821
5,133
3,531
37,710
135,467
1,107,679
43,522
North
South
West
2014
All
Other
Corporate
Total
Net sales to outside customers
$
840,277
$
611,700
$ 1,062,565
$
145,787
$
— $ 2,660,329
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment earnings from operations
Segment assets
Capital expenditures
37,624
—
331
7,060
32,988
303,213
10,887
20,224
323
10
5,700
24,474
201,245
8,875
47,737
39
1,358
11,029
53,575
351,557
11,984
12,783
—
711
4,082
3,155
85,661
3,879
—
3,905
—
6,042
(16,825)
82,124
9,680
118,368
4,267
2,410
33,913
97,367
1,023,800
45,305
46
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
North
South
West
2013
All
Other
Corporate
Total
Net sales to outside customers
$
811,438
$
568,237
$
950,684
$
140,089
$
— $ 2,470,448
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment earnings from operations
Segment assets
Capital expenditures
46,103
17,689
38,176
11,798
—
331
6,541
21,167
287,382
8,390
356
8
4,762
23,680
178,008
6,010
48
1,416
9,830
42,003
300,443
11,069
—
718
4,288
(1,850)
79,510
6,285
—
4,447
—
5,670
(10,732)
71,644
8,269
113,766
4,851
2,473
31,091
74,268
916,987
40,023
In 2015, 2014, and 2013, 19%, 17%, and 17% of net sales, respectively, were to a single customer.
Information regarding principal geographic areas was as follows (in thousands):
United States
Foreign
Total
2015
2014
2013
Long-Lived
Tangible
Assets
Net Sales
Long-Lived
Tangible
Assets
Net Sales
$
$
244,040
$ 2,596,278
15,408
64,051
259,448
$ 2,660,329
$
$
242,156
$ 2,410,313
15,678
60,135
257,834
$ 2,470,448
Long-Lived
Tangible
Assets
$
$
233,237
16,260
249,497
Net Sales
$ 2,811,359
75,712
$ 2,887,071
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.
2015
2014
2013
Value-Added
Commodity-
Based
59.8%
58.5%
58.1%
40.2%
41.5%
41.9%
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.
47
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents, for the periods indicated, our gross sales (in thousands) by major product classification.
Years Ended
December 26,
2015
December 27,
2014
December 28,
2013
Value-Added Sales
Trusses – residential, modular and manufactured housing
$
299,111
$
273,605
$
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)
149,526
177,787
129,803
374,030
67,804
59,804
46,496
56,846
143,252
141,121
121,434
298,335
61,970
73,261
43,751
51,710
238,093
120,765
131,102
159,811
251,224
60,335
64,465
36,908
47,251
Construction and building materials (eg. door packages; drywall)
200,901
191,426
162,362
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
47,392
57,999
45,215
17,123
13,611
5,353
281
40,943
69,622
32,323
17,265
12,071
6,042
248
38,959
80,335
29,157
16,295
11,183
5,882
106
$
1,749,082
$
1,578,379
$
1,454,233
458,023
423,543
253,678
31,789
10,978
454,695
389,487
232,821
33,146
9,402
421,071
349,156
239,641
30,450
9,361
$
$
$
1,178,011
2,927,093
(40,022)
2,887,071
$
$
$
1,119,551
2,697,930
(37,601)
2,660,329
$
$
$
1,049,679
2,503,912
(33,464)
2,470,448
48
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 26, 2015 and December 27, 2014 (in thousands, except per share data):
Net sales
Gross profit
Net earnings
Net earnings attributable to
controlling interest
Basic earnings per share
Diluted earnings per share
First
Second
Third
Fourth
2015
2014
2015
2014
2015
2014
2015
2014
$ 633,025
$ 553,998
$ 838,171
$ 772,752
$ 762,275
$ 713,489
$ 653,600
$ 620,090
79,582
10,804
66,012
112,443
7,668
26,884
96,988
22,449
110,706
26,883
89,586
20,492
97,173
20,561
72,756
10,955
10,162
7,216
25,976
21,789
25,556
19,234
18,901
0.51
0.51
0.36
0.36
1.29
1.28
1.08
1.08
1.26
1.26
0.96
0.96
0.93
0.93
9,312
0.46
0.46
49
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 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
Fiscal 2014
High
Low
77.91
64.53
58.05
54.48
57.68 Fourth Quarter
50.82 Third Quarter
52.98 Second Quarter
49.34 First Quarter
53.36
50.27
57.32
58.52
40.70
42.71
46.18
47.63
There were approximately 1,200 shareholders of record as of January 30, 2016.
We paid dividends on our common stock of $0.40 and $0.42 per share in June and December 2015, respectively. In June and
December 2014, we paid dividends of $0.21 and $0.40 per share, respectively. We intend to continue with our current semi-annual
dividend policy for the foreseeable future.
50
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 25, 2010, and reinvestment of dividends in all cases.
The companies included in our self-determined industry peer group are as follows:
Bluelinx Holdings Inc.
Builders FirstSource, Inc.
Louisiana-Pacific Corp.
The returns of each company included in the self-determined peer group are weighted according to each respective company's
stock market capitalization at the beginning of each period presented in the graph above. In determining the members of our peer
group, we considered companies who selected UFPI as a member of their peer group, and looked for similarly sized companies
or companies that are a good fit with the markets we serve.
51
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
Vice Chairman
Meijer, Inc.
Louis A. Smith
President
Smith and Johnson, Attorneys, P.C.
Thomas W. Rhodes
President and Chief Executive Officer
TWR Enterprises, Inc.
Bruce A. Merino
Mary E. Tuuk
Chief Compliance Officer
Meijer, Inc.
Brian C. Walker
Chief Executive Officer
Herman Miller, Inc.
Michael G. Wooldridge
Partner
Varnum, LLP
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.
Patrick Benton
Executive Vice President
UFP Eastern Division – North
Jonathan West
Executive Vice President
UFP Eastern Division - South
Robert D. Coleman
Executive Vice President Manufacturing
C. Scott Greene
Executive Vice President Marketing
Donald L. James
Executive Vice President
National Sales
Michael F. Mordell
Executive Vice President
Purchasing
52
ANNUAL MEETING
Shareholder Information
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 20, 2016, 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
53
UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES
Locations:
Liberty, NC
Locust, NC
McMinnville, OR
Magna, UT
Medley, FL
Merciditas, Puerto Rico
Minneota, MN
Morristown, TN
Ashburn, GA
Athena, OR
Auburn, NY
Auburndale, FL
Bay City, MI
Belchertown, MA
Berlin, NJ
Blanchester, OH
Bomaderry, NSW, Australia Moultrie, GA
Brisbane, QLD, Australia
Burlington, NC
Caldwell, ID
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
Embalaje, MX
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
Kearneysville, WV
Kyle, TX
Janesville, WI
Jefferson, GA
Lacolle, Quebec, Canada
Lafayette, CO
Muscle Shoals, AL
Naugatuck, CT
New Hartford, NY
New London, NC
New Waverly, TX
New Windsor, MD
Ooltewah, TN
Parker, PA
Pearisburg, VA
Phil Campbell, AL
Plainville, MA
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
54
LIST OF REGISTRANT'S SUBSIDIARIES AND AFFILIATES
EXHIBIT 21
Aljoma Holding Company, LLC
Michigan
UFP International Employment Services, LLC Michigan
Aljoma Lumber, Inc.
Ardellis Insurance Ltd.
Caliper Building Systems, LLC
CA Truss, Inc.
D&R Framing Contractors, LLC
Discount Building Products, LLC
Eovations, LLC
Integra International Pty Ltd
Florida
Bermuda
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
UFP ISF, LLC
UFP Janesville, LLC
UFP Kyle, LLC
UFP Lafayette, LLC
UFP Lansing, LLC
UFP Magna, LLC
UFP McMinnville, LLC
UFP Mexico Embalaje y Distribution, S. de
R.L. de C. V.
International Wood Industries, Inc.
California
UFP Mid-Atlantic, LLC
Landura, LLC
Maine Ornamental, LLC
Metaworld Technologies, LLC
Mid-Atlantic Framing, LLC
North Atlantic Framing, LLC
Pinelli Universal TKT, S de R.L. de C.V.
Pinelli Universal, S de R.L. de C.V.
PR Distribution, LLC
Shawnlee Construction, L.L.C.
Shepardville Construction, LLC
TKT Real State, S. de R.L. de C.V.
Treating Services of Minnesota, LLC
Tresstar, LLC
Universal Forest Products Education
Foundation
Texas
Michigan
Michigan
Michigan
Michigan
Mexico
Mexico
UFP Millry, LLC
UFP Minneota, LLC
UFP Morristown, LLC
UFP Moultrie, LLC
UFP National Enterprises, Inc.
UFP New London, LLC
UFP New Waverly, LLC
Puerto Rico
UFP New Windsor, LLC
Michigan
Michigan
Mexico
Michigan
Michigan
Michigan
UFP New York, LLC
UFP North Atlantic, LLC
UFP Northeast, LLC
UFP Parker, LLC
UFP Purchasing, Inc.
UFP Ranson, LLC
Universal Forest Products Foundation
Michigan
UFP RE Acquisition, LLC
U.F.P. Mexico Holdings, S. de R.L.
UFP Albuquerque, LLC
UFP Altoona, LLC
UFP Ashburn, LLC
UFP Atlantic, LLC
UFP Atlantic Division, LLC
UFP Auburndale, LLC
UFP Australia Ptd Ltd
UFP Australia Real Estate Pty Ltd
Mexico
Mexico
UFP Riverside, LLC
UFP Saginaw, LLC
Pennsylvania UFP Salisbury, LLC
Michigan
Michigan
Michigan
Michigan
Australia
Michigan
UFP San Antonio, LLC
UFP Sauk Rapids, LLC
UFP Schertz, LLC
UFP Shawnee, LLC
UFP Southeast, LLC
UFP Southwest, LLC
Michigan
Michigan
Michigan
Michigan
Michigan
Utah
Michigan
Mexico
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Oklahoma
Michigan
Michigan
UFP Belchertown, LLC
UFP Berlin, LLC
UFP Blanchester, LLC
UFP Caldwell, LLC
UFP Chandler, LLC
UFP Dallas, LLC
UFP Distribution, LLC
UFP Eagan, LLC
UFP East Central, LLC
UFP Eastern Division, Inc.
UFP Eaton LLC
UFP Eatonton, LLC
UFP Elizabeth City, LLC
UFP Far West, LLC
UFP Folkston, LLC
UFP Franklinton, LLC
UFP Gear, LLC
UFP Gordon, LLC
UFP Grandview, LLC
UFP Granger, LLC
UFP Great Lakes, LLC
Michigan
UFP Stockertown, LLC
Michigan
UFP Thorndale Partnership
Michigan
UFP Thornton, LLC
Idaho
UFP Transportation, Inc.
Michigan
UFP Union City, LLC
Michigan
UFP Ventures II, Inc.
Michigan
UFP Warranty Corporation
Michigan
UFP Warrens, LLC
Michigan
UFP Washington, LLC
Michigan
UFP West Central, LLC
Michigan
UFP Western Division, Inc.
Michigan
UFP White Bear Lake, LLC
Michigan
UFP Windsor, LLC
Michigan
UFP Woodburn, LLC
Michigan
United Lumber & Reman, LLC
Michigan
Universal Consumer Products, Inc.
Michigan
Universal Forest Products of Canada, Inc.
Michigan
Universal Forest Products RMS, LLC
Michigan
Universal Forest Products Texas LLC
Michigan
Upshur Forest Products, LLC
Michigan
Canada
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Alabama
Michigan
Canada
Michigan
Michigan
Michigan
Michigan Western Building Professionals of California II
Michigan
Limited Partnership
UFP Gulf, LLC
Michigan Western Building Professionals of California,
Michigan
UFP Haleyville, LLC
UFP Hamilton, LLC
UFP Harrisonville, LLC
UFP Hillsboro, LLC
Inc.
Michigan Western Building Professionals, LLC
Michigan
Michigan
Michigan
Michigan
Exhibit 23 (a) -Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement No. 333-75278 on Form S-3 and Registration
Statements on Form S-8 for various employee option and incentive stock plans (Registration Statement Nos. 33-81128,
33-81116, 33-81450, 333-60630, 333-88056, 333-150345, and 333-156596) of our reports dated February 24, 2016, relating to
the financial statements of Universal Forest Products, Inc., and the effectiveness of Universal Forest Product, Inc.'s internal
control over financial reporting, appearing in this Annual Report on Form 10-K of Universal Forest Product, Inc. for the year
ended December 26, 2015.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
February 24, 2016
Exhibit 23 (b) -Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in this Annual Report (Form 10-K) of Universal Forest Products, Inc. and subsidiaries
of our report dated February 26, 2014, except for Note N, as to which the date is February 24, 2016, with respect to the consolidated
financial statements of Universal Forest Products, Inc. and subsidiaries, included in the fiscal 2015 Annual Report to Shareholders
of Universal Forest Products, Inc. and subsidiaries.
We also consent to the incorporation by reference in the Registration Statement file numbers 33-81128, 33-81116, 33-81450,
333-60630, 333-88056, 333-150345 and 333-156596 on Form S-8 related to various employee option and incentive stock plans
and Registration Statement file number 333-75278 on Form S-3 of our reports dated February 26, 2014, except for Note N, as to
which the date is February 24, 2016, with respect to the consolidated financial statements of Universal Forest Products, Inc. and
subsidiaries, incorporated by reference in this Annual Report (Form 10-K) for the fiscal year ended December 26, 2015.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 24, 2016
Universal Forest Products, Inc.
Certification
EXHIBIT 31(a)
I, Matthew J. Missad, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Universal Forest Products, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to designed under our supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or
persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date:
February 24, 2016
/s/ Matthew J. Missad
Matthew J. Missad
Chief Executive Officer and
Principal Executive Officer
Universal Forest Products, Inc.
Certification
EXHIBIT 31(b)
I, Michael R. Cole, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Universal Forest Products, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to designed under our supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or
persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date:
February 24, 2016
/s/ Michael R. Cole
Michael R. Cole
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
EXHIBIT 32(a)
CERTIFICATE OF THE
CHIEF EXECUTIVE OFFICER OF
UNIVERSAL FOREST PRODUCTS, INC.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):
I, Matthew J. Missad, Chief Executive Officer of Universal Forest Products, Inc., certify, to the best of my knowledge
and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:
(1)
The report on Form 10-K for the year ended December 27, 2014, which this statement accompanies, fully
complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in this report on Form 10-K for the period ended December 27, 2014 fairly presents,
in all material respects, the financial condition and results of operations of Universal Forest Products, Inc.
Date:
February 24, 2016
UNIVERSAL FOREST PRODUCTS, INC.
By:
/s/ Matthew J. Missad
Matthew J. Missad
Its:
Chief Executive Officer and
Principal Executive Officer
The signed original of this written statement required by Section 906, or any other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to Universal Forest Products, Inc. and will be retained by Universal Forest Products, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32(b)
CERTIFICATE OF THE
CHIEF FINANCIAL OFFICER OF
UNIVERSAL FOREST PRODUCTS, INC.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):
I, Michael R. Cole, Chief Financial Officer of Universal Forest Products, Inc., certify, to the best of my knowledge and
belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:
(1)
The report on Form 10-K for the period ended December 27, 2014, which this statement accompanies, fully
complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in this report on Form 10-K for the period ended December 27, 2014 fairly presents,
in all material respects, the financial condition and results of operations of Universal Forest Products, Inc.
Date:
February 24, 2016
UNIVERSAL FOREST PRODUCTS, INC.
By:
/s/ Michael R. Cole
Michael R. Cole
Its:
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
The signed original of this written statement required by Section 906, or any other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to Universal Forest Products, Inc. and will be retained by Universal Forest Products, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.