UFP Industries
Annual Report 2016

Plain-text annual report

Report to Shareholders 2016 “Arriving at one goal is the starting point to another.” ― John Dewey To our Shareholders: After we announced 2016’s record results, we asked our employees, “What if we said we hope 2016’s profits are a low point?” Because that is, indeed, what we want. In 2026, we would like to look back on 2016 – a record year – and say, “That was the lowest point of the last 10 years.” We believe that breaking records starts with an attitude. You must believe you can do it. Then you must add hard work, innovation and a well-thought-out strategy. Only then can you own it! That’s the mentality of the people of the companies of Universal Forest Products. After creating record results in 2015, our 60th year in business, we shattered them in 2016. Great wasn’t good enough; we knew we could achieve more. We did—and hit some big goals early. We posted record annual net sales of $3.24 billion, up 12.2 percent over 2015. Our goal was to get to $3 billion in sales by the end of 2017—so not only did our people hit the goal early, they crushed it. We posted annual net earnings attributable to controlling interest of $101.2 million, or $4.96 per diluted share, which was a 25.5 percent increase over 2015. We grew new product sales to $354.3 million – up 28.9 percent over 2015, beating another goal early. (Our target was new product sales of $250 million by 2016.) We are proud of our people, but humble about our successes. There are many great companies and professionals out there, and to win, we must add new products, services and solutions for our customers. And, of course, we must outwork the competition. So, we come to our facilities and job sites every day with that intent. It’s not magic. It’s just a simple formula we’ve used for more than 60 years. In 2016, we added many great people to our team, both at existing operations and through our acquisitions, including: ii  idX, an international provider of highly customized merchandising solutions, which brought to Universal 20 facilities in North America, Europe and Asia,  Idaho Western, a Nampa, Idaho-based distributor of products for building materials retailers and the manufactured housing and recreational vehicle industries,  Seven D Truss, L.P., a manufacturer and distributor of roof and floor trusses whose assets were incorporated into our operations in Gordon, Penn.,  The UBEECO Group Pty. Ltd., a manufacturer of wood packaging based in Erskine Park, Australia, a suburb of Sydney. UBEECO joins our other Australian industrial packaging operation, Integra Packaging, which joined the Universal family in 2015, and  UFP Elkwood, LLC, a producer of doors and trim for customers in the greater Washington, D.C., metro area and Virginia. These are our results by market: Retail. Gross sales to the retail market were $1.3 billion, up 13.7 percent over 2015, with healthy increases to both big box and independent retailers. Our successes in this market included share gains in existing product lines and growth with new product sales. Better consumer demand and improved product mix helped drive sales with customers who are growing to rely on us to bring exciting new products to market. In our retail business, we sell hundreds of products ranging from decking, fencing and accessories (such as balusters and post caps) to outdoor games to loose lumber. Among our products and brands are ProWood® lumber (www.prowoodlumber.com), Deckorators® decking and accessories (www.deckorators.com), the popular Rustic Collection of shiplap siding and trim boards in our UFP-Edge portfolio (www.ufpedge.com), and the lattice and other panel products sold under our Dimensions™ brand (www.dimensionsdiy.com). Industrial. Gross sales to the industrial market were $988 million, up nearly 11 percent over 2015, due to a 13 percent increase in unit sales, offset by a 2 percent decrease in selling prices. Acquisitions contributed to 10 percent of the growth in our unit sales. We achieved share gains during the year, adding more than 190 new customers and doing more with existing customers. In this market, we supply specialty crates and packaging to multiple industries, as well as components for products, like wood frames for mattresses and furniture. It’s a strong opportunity not just for maximizing our design and production expertise, which often must accommodate intricate needs for protecting and transporting goods, but also for using raw material that otherwise would have been waste. iii Construction. Gross sales to the construction market were $1.0 billion, up 12 percent over 2015 due to an 11 percent increase in unit sales and a 1 percent increase in selling prices. Residential construction includes traditional site-built single- and multifamily construction as well as factory built homes. Unit sales increased 17 percent to residential construction customers and 5 percent to manufactured housing customers (which includes both modular and HUD-code homes). In commercial construction, we saw a 10 percent increase in shipments in 2016 over the prior year. We are proud of these achievements and numbers, but they tell only part of the story. Our growth and opportunities lie in new areas—whether by geography, market or distribution channel—and, in 2016, we unfolded exciting strategies in those areas. For example, we launched a global group, responsible for growing our business around the world, and we put a Universal veteran at its helm. Mike Mordell joined the company in 1993 and was successful in many capacities, including the position he had prior to his appointment: executive vice president of our purchasing affiliate. Today, Mike is responsible for sales, production, distribution and developing partnerships related to our business outside the U.S. While we had many people throughout our organization working on E-commerce initiatives, we strengthened the focus in 2016 by bringing them into a single group and appointing another company veteran to lead it. Today, former CIO Ron Klyn is running our E-commerce group as its vice president, responsible for creating, managing and growing our business through digital channels, including B2B (business to business) and B2C (business to consumer), working with both existing and new customers. Concerned about students graduating from college with mountains of debt and, too often, limited practical skills, we started UFP Business School. It’s a two-year program aimed at recent high school graduates that’s modeled after a traditional business degree program. Students are in classes 10 hours a week and in paid internships 20 hours a week. The company underwrites the cost of the school and, upon graduation, UFP Business School grads get the first crack at available jobs. The inaugural class of nine students has been a great success. We’re working to expand the program by adding students and placing coursework online so that we can offer it outside of our Grand Rapids, Michigan, headquarters. As you can see, we’re driven to do things differently and better than others. We don’t think government can solve all of our challenges without usurping many of our freedoms, and we remain cautiously optimistic that elected officials can foster a business climate that enables us to grow, which, in turn, allows us to employ more people, give them great opportunities to provide for themselves and their families and build wealth for their futures. iv Thank you for your investment, interest and trust in us. We take none of it lightly, and we work hard to earn it every day we turn on the lights. We exist to succeed and to create opportunity and wealth for all of our stakeholders. We believe that what works for our company can also help work to heal our country. Growth, jobs, opportunity and freedom seem like a good start! In 2017, we will be focused on building shareholder value and breaking records again with the hopes that we are able to write an even better letter to you next year. Thank you! And God bless America! Cordially, William G. Currie Chairman of the Board Matthew J. Missad Chief Executive Officer v UNIVERSAL FOREST PRODUCTS, INC. FINANCIAL INFORMATION Table of Contents Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Annual Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2016 and December 26, 2015 Exhibit 13 2 3-17 18 19 20 22-23 Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 31, 2016, December 26, 2015, and December 27, 2014 24 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2016, December 26, 2015, and December 27, 2014 25-27 Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, December 26, 2015, and December 27, 2014 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 2016 2015 2014 2013 2012 $ 3,240,493 $ 2,887,071 $ 2,660,329 $ 2,470,448 $ 2,054,933 325,342 280,552 225,109 474,590 160,671 101,179 4.96 0.870 484,661 $ $ $ $ 399,904 131,002 80,595 3.99 0.820 444,057 $ $ $ $ 95,713 57,551 2.86 0.610 397,546 $ $ $ $ $ $ $ 1,292,058 1,107,679 1,023,800 111,693 860,466 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 14.6% 13.9% 12.2% 11.4% 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) 3.1% 13.2% 2.78 0.13 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 $ 42.30 $ 38.05 $ 35.01 $ 32.57 $ 30.68 (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, Europe, Asia, and in Australia that supply wood, wood composite and other products to three robust markets: retail, industrial, and construction. The Company is headquartered in Grand Rapids, Mich. 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 2016. Our results for 2016 were impacted by the following: OVERVIEW • Our sales increased 12% in 2016 due to an 11% increase in our unit sales and a 1% increase in overall selling prices (see “Historical Lumber Prices”). Our unit sales increased in all three of our markets - retail, industrial, and construction - and were driven by a combination of acquisition and organic growth. Businesses we acquired contributed 3% to our unit sales growth in 2016 (see Note C of the Notes to Consolidated Financial Statements). • The Home Improvement Research Institute reported a 6% increase in home improvement sales in 2016. Comparatively, our unit sales to the retail market increased 10% in 2016. • Our sales to the industrial market increased 11% in 2016. Businesses we acquired contributed 10% to unit sales growth. Comparatively, the Federal Reserve's Industrial Production noted that national industrial production increased less than 1% in 2016. • National housing starts increased approximately 5% in the period from December 2015 through November 2016, 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 17% in 2016. • Production of HUD code manufactured homes were up 15% in the period from January through December 2016, compared to the same period of the prior year, and year over year modular home starts increased 9% in the first six months of 2016 (the last period reported). Comparatively, our unit sales to the manufactured housing market increased 5% in 2016. • Our profitability improved to $101.2 million in net earnings attributable to controlling interest from $80.6 million last year primarily due to a combination of strong organic sales growth and favorable improvements in sales mix. • Our cash flow from operating activities increased to $172 million due to our improved profitability and working capital management. Additionally, we invested almost $173 million in newly acquired businesses in 2016. 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 2015 2016 2014 January February March April May June July August September October November December Annual average Annual percentage change $ $ 316 310 321 345 356 353 351 367 354 356 346 357 344 $ $ 379 361 339 334 315 328 346 327 300 308 326 314 331 $ $ 3.9% (13.6)% 395 394 387 367 377 375 381 401 398 381 367 375 383 In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprises approximately 43% of total lumber purchases for 2016 and 2015. January February March April May June July August September October November December Annual average Annual percentage change Random Lengths SYP Average $/MBF 2015 2014 2016 $ $ 358 357 366 389 397 382 380 391 375 385 387 400 381 $ $ 411 399 393 400 368 354 344 321 290 318 348 347 358 $ $ 6.4% (10.3)% 375 398 406 392 402 406 396 419 416 393 386 399 399 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 were 48.5%, 48.9%, and 53.5% of our sales in 2016, 2015, and 2014, 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 19% 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. As a result of this factor, we believe it is useful to compare our change in units shipped with our change in gross profits as a method of evaluating profitability. 5 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS COMBINATIONS AND ASSET PURCHASES We completed five business acquisitions during 2016 and two during 2015 and each was accounted for using the purchase method. The aggregate annual sales of these acquisitions totals $362 million and collectively they contributed $100 million to net sales in 2016. These business combinations were not significant to our operating results individually or in aggregate, and thus pro forma results for 2016 and 2015 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 31, 2016 Years Ended December 26, 2015 December 27, 2014 100.0% 100.0% 100.0% 85.4 14.6 9.6 — — 5.1 0.1 5.0 1.7 3.3 (0.1) 3.1% 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% 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, specialty wood packaging, components and packing materials for various industries, and customized interior fixtures used in a variety of retail stores, commercial and other structures. 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, increasing our market share with independent retailers, and increasing our sales of customized interior fixtures used in a variety of markets. • 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, customized interior fixtures, 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. 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 • Developing new products and expanding our product offering for existing customers. New product sales were $354.3 million in 2016, $274.9 million in 2015, and $200.7 million in 2014. (Certain prior year product reclassifications resulted in an increase in new product sales in 2015 and 2014.) December 31, 2016 New Product Sales by Market December 26, 2015 December 27, 2014 Retail Industrial Construction Total New Product Sales $ $ 205,934 94,844 53,505 354,283 $ $ 153,880 74,424 46,572 274,876 $ $ 116,119 33,077 51,537 200,733 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 31, 2016 $ 1,292,892 988,040 1,009,317 3,290,249 (49,756) $ 3,240,493 Years Ended December 26, 2015 $ 1,136,643 893,149 897,301 2,927,093 (40,022) 2,887,071 $ % Change 13.7 10.6 12.5 12.4 24.3 12.2 % Change 10.9 13.3 1.4 7.8 6.4 8.5 December 27, 2014 $ 1,024,788 788,450 884,698 2,697,936 (37,607) 2,660,329 $ Note: During 2016, 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. 2016 versus 2015 2015 versus 2014 2014 versus 2013 Retail: % Change in Sales in Selling Prices in Units 12.4% 8.5% 7.7% 1.2 % (3.0)% — % 11.2% 11.5% 7.7% Gross sales to the retail market increased almost 14% in 2016 compared to 2015 due to a 10% increase in unit sales and a 4% increase in selling prices. Within this market, sales to our big box customers increased 17% while our sales to other retailers increased 10%. Our increase in unit sales was primarily organic growth achieved through a combination of share gains in existing product lines with certain retailers, an improvement in consumer demand, and growth in our new product sales. Our large retail customers reported year over year same store sales growth of approximately 6% during the first nine months of 2016. 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 share gains in existing product lines with certain 7 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS retailers, an improvement in consumer demand, and growth in our new product sales. Our large retail customers reported year over year same store sales growth of approximately 5% during the first nine months of 2015. Industrial: Gross sales to the industrial market increased 11% in 2016 compared to 2015, resulting from a 13% increase in overall unit sales, offset by a 2% decrease in selling prices. Businesses we acquired contributed 10% to our growth in unit sales. Our organic growth in unit sales was 3% as a result of share gains achieved by adding 191 new customers during the year and increasing the number of locations we serve of certain large customers. We believe overall market demand decreased in 2016. 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. See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information concerning acquired businesses. Construction: Gross sales to the construction market increased over 12% in 2016 compared to 2015, due to a unit sales increase of 11% and a 1% increase in selling prices. Unit sales increased due to a 17% increase in units shipped to residential construction customers, a 10% increase in shipments to commercial construction customers, and a 5% increase in shipments to manufactured housing customers. Businesses we acquired in 2016 contributed 2% in unit sales growth to manufactured housing customers. Comparatively, Mortgage Bankers Association of America reported year over year national housing starts increased 5%, the commercial construction market increased 5%, National Association of Home Builders reported industry production of HUD-code homes increased 14%, and modular home starts increased 9% for the first six months of 2016 (the last period reported). The increases in our sales to residential and commercial construction above nationally recognized market data are primarily due to a combination of increased demand and market share in certain areas of our geographic footprint. Our growth in the manufactured housing market was less than the national average, which was primarily due to a reduction in market share resulting from the loss of certain customers. Gross sales to the construction market increased approximately 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, Mortgage Bankers Association of America reported year over year housing starts increased 11% nationally, the commercial construction market increased 11%, National Association of Home Builders reported 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). 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. 2016 2015 2014 Value-Added Commodity-Based 62.6% 59.8% 58.5% 37.4% 40.2% 41.5% COST OF GOODS SOLD AND GROSS PROFIT Our gross profit percentage increased from 13.9% in 2015 to 14.6% in 2016. Additionally, our gross profit dollars increased by almost $75 million, or 19%, which exceeds our 11% increase in unit sales. The improvement in our profitability in 2016 is attributable to the following factors: 8 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • Approximately $38 million of the increase is attributable to our growth in unit sales to the retail market and an improvement in margin on those sales. New product sales, effective inventory positioning leading to lower lumber costs, and the favorable impact of selling into a rising lumber market on variable priced products contributed to our margin improvement. • Our growth in unit sales to the industrial market and margin improvement on those sales for most of the year resulted in a $22 million improvement in our gross profit. Businesses we acquired in 2016 contributed $16 million of this increase. The gross margin improvement is attributable to a favorable improvement in our product sales mix of more value-added products. • Almost $16 million of our gross profit improvement was due to growth in sales to the residential construction, commercial construction, and manufactured housing markets as our gross margins remained relatively flat. 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. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses increased by approximately $45.9 million, or 17%, in 2016 compared to 2015, while we reported an 11% increase in unit sales. Acquired businesses contributed $17 million to our increase. The remaining increase in SG&A was primarily due to an $11 million increase in compensation and benefit costs resulting from annual raises, other cost increases, and hiring additional personnel to support sales growth, and a $14 million increase in incentive compensation expense tied to profitability and return on investment. 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. Our SG&A has increased as a percentage of sales due to the favorable change in our sales mix of more value-added products which require higher SG&A costs and incentive compensation. ANTI-DUMPING DUTY ASSESSMENTS We accrued $1.6 million related to estimated anti-dumping duty assessments in 2014, imposed by the US government on plywood and steel nails imported from China. During a 2016 assessment, it was determined that the estimated anti-dumping duty accrual was no longer necessary. 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 9 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net interest costs were lower in 2016 compared to 2015, due to a lower outstanding balance on our revolving line of credit throughout 2016 resulting in less associated interest expense. 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. INCOME TAXES Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and permanent tax differences. Our effective tax rate decreased to 34.3% in 2016 compared to 35.0% in 2015. The decrease in the 2016 tax rate is primarily due to a reduction in our estimated state tax rate. 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. SEGMENT REPORTING The following table presents, for the periods indicated, our net sales and earnings from operations by reportable segment. (in thousands) Net Sales December 31, 2016 December 26, 2015 December 27, 2014 2016 vs 2015 2015 vs 2014 North $ 1,000,426 $ 922,092 $ South West idX All Other 711,862 1,251,093 87,001 190,111 656,550 1,133,398 — 840,277 611,700 1,062,565 — 175,031 145,787 8.5% 8.4 10.4 — 8.6 Total $ 3,240,493 $ 2,887,071 $ 2,660,329 12.2% (in thousands) Earnings from Operations 9.7% 7.3 6.7 — 20.1 8.5% December 31, 2016 December 26, 2015 December 27, 2014 2016 vs 2015 2015 vs 2014 North $ 59,408 $ 53,879 $ South West idX All Other Corporate1 47,146 76,875 627 16,012 (35,630) Total $ 164,438 $ 30,740 70,220 — 3,038 (22,410) 135,467 $ 32,988 24,474 53,575 — 3,155 (16,825) 97,367 10.3% 53.4 9.5 — 427.1 (59.0) 21.4% 63.3% 25.6 31.1 — (3.7) (33.2) 39.1% 1Corporate primarily represents over (under) allocated administrative costs and certain incentive compensation expense. North 10 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands) Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales Net Sales North Segment by Market Twelve Months Ended December 31, 2016 December 26, 2015 December 27, 2014 % Change 2016 vs 2015 % Change 2015 vs 2014 $ 465,823 $ 415,709 $ 118,492 436,121 1,020,436 119,890 402,534 938,133 (20,010) (16,041) $ 1,000,426 $ 922,092 $ 351,734 122,189 379,011 852,934 (12,657) 840,277 12.1 (1.2) 8.3 8.8 (24.7) 8.5 18.2 (1.9) 6.2 10.0 (26.7) 9.7 Net sales attributable to the North reportable segment increased by 8.5% in 2016, due to increases in sales to our retail and residential construction markets, offset by a decrease in sales to our industrial customers as a result of the same factors discussed under "Gross Sales". Earnings from operations for the North reportable segment increased in 2016 primarily due to the growth in our sales to retail and residential construction customers. Additionally, margin improvements were achieved on sales to the retail and industrial markets due to a more favorable product sales mix focused on value-added products. These improvements were offset by a 12.6% increase in our SG&A expenses from 2015 to 2016. 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, offset by a decline in sales to our industrial customers, as a result of the same factors discussed under "Gross Sales". 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. These improvements were offset by an 11.4% increase in our SG&A expenses from 2014 to 2015. South (in thousands) Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales Net Sales South Segment by Market Twelve Months Ended December 31, 2016 December 26, 2015 December 27, 2014 % Change 2016 vs 2015 % Change 2015 vs 2014 $ 315,109 $ 288,395 $ 249,599 161,382 726,090 245,539 134,400 668,334 (14,228) (11,784) $ 711,862 $ 656,550 $ 259,121 234,271 127,603 620,995 (9,295) 611,700 9.3 1.7 20.1 8.6 (20.7) 8.4 11.3 4.8 5.3 7.6 (26.8) 7.3 Net sales attributable to the South reportable segment increased by 8.4% in 2016, primarily due to an increase in sales to our retail and manufactured housing customers, as a result of the same factors discussed under "Gross Sales". Earnings from operations for the South reportable segment increased in 2016 primarily due to the growth in our sales to retail and manufactured housing customers. Additionally, we achieved margin improvements primarily due to improvements in our sales 11 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS mix of more value-added products and closure of certain under-performing operations. The overall improvement in gross profit was offset by a 4.7% increase in SG&A expenses from 2015 to 2016. 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, as a result of the same factors discussed under "Gross Sales". Earnings from operations for the South reportable segment increased in 2015 primarily due to our growth in sales and margin improvements. Margin 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. The overall improvement in gross profit was offset by a 9.5% increase in SG&A expenses from 2014 to 2015. West (in thousands) Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales Net Sales West Segment by Market Twelve Months Ended December 31, 2016 December 26, 2015 December 27, 2014 % Change 2016 vs 2015 % Change 2015 vs 2014 $ 384,666 $ 322,639 $ 471,055 411,810 463,908 360,353 1,267,531 1,146,900 (16,438) (13,502) $ 1,251,093 $ 1,133,398 $ 313,403 384,265 378,059 1,075,727 (13,162) 1,062,565 19.2 1.5 14.3 10.5 (21.7) 10.4 2.9 20.7 (4.7) 6.6 (2.6) 6.7 Net sales of the West reportable segment increased by 10.4% in 2016, primarily due to an increase in sales to the retail and construction markets, as a result of the same factors discussed under "Gross Sales". Additionally, newly acquired businesses contributed $11.3 million in gross sales to the retail and construction markets in 2016. Earnings from operations for the West reportable segment increased in 2016 primarily due to growth in our sales to the retail and construction markets, and an improvement in margins. Our margins increased due to an improvement in our sales mix of value- added products. These improvements were offset by a 14.2% increase in SG&A expenses during 2016. 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. Businesses we acquired in 2015 and at the end of 2014 contributed $92.3 million 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. 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 of value- add products and lower lumber prices in the last six months of 2015 on products we sell with fixed selling prices. These improvements were offset by a 9.9% increase in SG&A expenses during 2015. idX 12 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands) Market Classification Industrial Total Gross Sales Sales Allowances Total Net Sales Net Sales idX Segment by Market Twelve Months Ended December 31, 2016 December 26, 2015 December 27, 2014 % Change 2016 vs 2015 % Change 2015 vs 2014 87,262 87,262 (261) — — — $ 87,001 $ — $ — — — — — — — — — — — — On September 16, 2016, we acquired idX Holdings, Inc. ("idX"). idX is a designer, manufacturer and installer of highly customized in-store environments that are used in a range of end markets. Prior to acquisition, idX had annual sales and earnings from operations of approximately $300 million and $23 million, respectively. All Other (in thousands) Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales Net Sales All Other Segment by Market Twelve Months Ended December 31, 2016 December 26, 2015 December 27, 2014 % Change 2016 vs 2015 % Change 2015 vs 2014 $ 127,295 $ 109,900 $ 100,530 61,632 3 188,930 1,181 63,813 12 173,725 1,306 $ 190,111 $ 175,031 $ 47,724 26 148,280 (2,493) 145,787 15.8 (3.4) (75.0) 8.8 9.6 8.6 9.3 33.7 (53.8) 17.2 152.4 20.1 Net sales of all other segments increased 8.6% in 2016 primarily due to an increase in sales by our Alternative Materials operations, primarily due to an increase in market share with certain Big Box retailers. Earnings from operations for all other segments increased in 2016, primarily due to the sales growth and operational improvements of our Alternative Materials operations and to a lesser extent the performance of our captive insurance subsidiary, Ardellis. 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 manufacture, 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. 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 and a 28% increase in SG&A expenses in 2015, offset by margin improvements achieved by our Pinelli Universal partnership on its sales to industrial customers in 2015. 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 31, 2016 (in thousands). 13 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 $ 2,595 $ 24,348 $ 41,490 $ 43,260 $ 111,693 Estimated interest on long-term debt and capital lease obligations Operating leases Capital project purchase obligations Total 3,548 17,664 10,075 6,954 23,014 — 6,114 10,214 — 6,296 4,974 — 22,912 55,866 10,075 $ 33,882 $ 54,316 $ 57,818 $ 54,530 $ 200,546 As of December 31, 2016, we also had $25.5 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 used in investing activities Cash from (used in) 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 31, 2016 December 26, 2015 December 27, 2014 172,520 (227,469) 3,211 (1,927) (53,665) 87,756 168,796 (46,817) (33,002) (1,221) 87,756 0 $ 34,091 $ 87,756 $ 73,120 (67,063) (5,205) (852) — 0 — 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 issuance 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. Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to August. Consequently, our working capital increases during our first and second quarter resulting in negative or modest cash flows from operations during those periods. Conversely, we experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows 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 of sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle decreased to 48 days in 2016 from 53 days in 2015. 14 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS December 31, 2016 Twelve Months Ended December 26, 2015 December 27, 2014 Days of sales outstanding Days supply of inventory Days payables outstanding Days in cash cycle $ $ 31 38 (21) 48 $ 31 43 (21) 53 31 41 (22) 50 Improvements in our days supply of inventory in 2016 was due, in part, to strong customer demand, particularly in our retail market which typically requires a greater investment in inventory than our other markets, as well as certain improvements in inventory management. Additionally, during 2015 we carried higher levels of safety stock inventory due to inclement weather early in the year and expected industry transportation challenges. Each of our operating segments achieved significant improvements in their days supply of inventory. Our North, South, and West segments improved their days supply of inventory by 9%, 22%, and 12%, respectively, through 2016. Our cash flows from operating activities in 2016 was $172.5 million, which was comprised of net earnings of $105.5 million, $48.2 million of non-cash expenses, and a $18.8 million decrease in working capital since the end of December 2015. Comparatively, 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. In 2015, 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. Acquisitions comprised most of our cash used in investing activities during 2016 and totaled $172.9 million, which includes $92.8 million paid to retire all of idX's debt and certain other obligations on the acquisition date. Additionally purchases of property, plant, and equipment totaled $53.8 million and included approximately $16 million of investments we believe will contribute to future sales and profit growth. Outstanding purchase commitments on existing capital projects totaled approximately $10.1 million on December 31, 2016. Comparatively, capital expenditures were $43.5 million in 2015, and we had outstanding purchase commitments on existing capital projects totaling approximately $3.3 million on December 26, 2015. Cash flows from financing activities primarily consisted of net borrowings under our revolving credit facility of approximately $23.7 million, offset by $17.7 million in dividend payments in June at $0.42 per share and December at $0.45 per share. In 2015, cash flows used in financing activities included $16.5 million of dividends paid to shareholders. Additionally in 2015, we repaid the $13.9 million outstanding balance on our revolving credit facility. On December 31, 2016, we had $23.9 million outstanding on our $295 million revolving credit facility. The revolving credit facility also supports letters of credit totaling approximately $9.8 million on December 31, 2016. As a result, we have approximately $261 million in remaining availability on our revolver. Additionally, we have $150 million in availability under a "shelf agreement" for long term debt with a current lender. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest 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 in compliance with all our covenant requirements on December 31, 2016. 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 15 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. As a result of favorable factors in each of these areas combined with substantial excess equity value over carrying value from the prior year analysis, management has determined that the carryforward method is appropriate to use. The discounted cash flow analysis, from prior years, 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 25, 2016, based on the carryforward method and the analysis, the fair values would exceed the carrying values for each of the Company's operating segments. 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 company; the related assets and liabilities of which are included in the consolidated financial statements as of December 31, 2016. 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 company provides Excess Loss Insurance (primarily medical and prescription drug) to certain third parties. As of December 31, 2016, there were 26 such contracts in place. Reserves associated with these contracts were $2.5 million at December 31, 2016 and $2.0 million at December 26, 2015, 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. 16 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Tax laws are complex and subject to different interpretations by taxpayers and respective government taxing authorities, which results in judgment in determining our tax expense and in evaluating our tax positions. Our tax positions are reviewed quarterly and adjusted as new information becomes available. REVENUE RECOGNITION Revenue for product sales is recognized at the time the product is shipped to the customer. Generally, title passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day. Performance on construction contracts is reflected in operations using percentage-of-completion accounting, under either the cost to cost or units of delivery methods, depending on the nature of the business at individual operations. Under percentage-of- completion using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under percentage-of-completion using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units per the contract. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent. Our construction contracts are generally entered into with a fixed price and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist. GOALS FORWARD OUTLOOK The Company’s goal is to achieve sales growth that exceeds positive GDP growth by 4 percent to 6 percent. Our general long-term objectives also include: • Achieving sales growth primarily through new product introduction, international business expansion, and gaining additional market share, particularly in our retail, industrial and commercial construction markets; • Increasing our profitability through cost reductions, productivity improvements as volume improves, and a more favorable mix of 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 3.9% compounded annual growth rate through 2020. We continue to compete for market share for certain retail customers and face intense pricing pressure from other suppliers to this market. Our long-term goal is to achieve sales growth by: • Increasing our market share of value-added and preservative-treated products, particularly with independent retail customers. • Developing new, value-added products, such as our Eovations product line. • 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. 17 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 design and sales personnel. We also plan to pursue strategic acquisition opportunities. On September 16, 2016, we acquired idX. See Footnote C "Business Combinations" in the Notes to Consolidated Financial Statements. We plan to pursue opportunities to grow this business in the future including strategic acquisition opportunities. CONSTRUCTION MARKET The National Association of Home Builders forecasts an 8% decrease in manufactured home shipments in 2017 followed by a 13% increase in 2018. We will strive to maintain our market share of trusses produced for this market. The Mortgage Bankers Association of America forecasts an 8% increase in national housing starts to an estimated 1.3 million starts in 2017. The National Association of Home Builders forecasts starts of 1.2 million, a 7% increase from 2016. We believe we are well-positioned to capture our share of any increase that may occur in housing starts in the regions we operate. However, due to our conservative approach to adding capacity to serve this market and focus on managing potential channel conflicts with certain customers, our growth may trail the market in future years. GROSS PROFIT We believe the following factors may impact our gross profits and margins in 2017: • 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 certain of our markets. As a result, we may experience pricing pressure in the future. • Sales mix of value-added and commodity products. • 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. • Rising labor and benefit 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 value-added products. We anticipate our trend of increases in these costs will continue in 2017, 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 the 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 and engineering requirements. 18 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • Sales of new products which generally require higher development, marketing, advertising, and other selling 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 2017, management expects to spend approximately $65 million on capital expenditures, incur depreciation of approximately $42 million, and incur amortization and other non-cash expenses of approximately $10 million. On December 31, 2016, we had outstanding purchase commitments on capital projects of approximately $10.1 million. We intend to fund capital expenditures and purchase commitments through our operating cash flows and availability under our revolving credit facility which is considered sufficient to meet these commitments and working capital needs. We have no present plan to change our dividend policy, which was recently increased to a semi-annual rate of $0.45 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 31, 2016, 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. 19 Management’s Annual Report on Internal Control Over Financial Reporting The management of Universal Forest Products, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to us and the Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. We assessed the effectiveness of our internal control over financial reporting as of December 31, 2016, 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 31, 2016, our internal control over financial reporting was effective. Management excluded the assessment of our effectiveness of internal control over financial reporting for idX Holdings, Inc. ("idX"), which was acquired on September 16, 2016. We have made the election to complete the evaluation of internal controls over financial reporting in 2017 for idX. idX constitutes 14% of total assets, 3% of net sales, and less than 1% of earnings from operations of Universal Forest Products, Inc.'s consolidated financial statements as of December 31, 2016. 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. March 1, 2017 20 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 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Controls Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at idX Holdings, Inc., which was acquired on September 16, 2016 and whose financial statements constitute 14% of total assets, 3% of net sales, and less than 1% of earnings from operations of the consolidated financial statement amounts as of and for the year ended December 31, 2016. Accordingly, our audit did not include the internal control over financial reporting of idX Holdings, Inc. 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 31, 2016, 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 31, 2016 of the Company and our report dated March 1, 2017 expressed an unqualified opinion on those consolidated financial statements. /s/ Deloitte & Touche LLP Grand Rapids, Michigan March 1, 2017 21 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 31, 2016 and December 26, 2015, and the related consolidated statements of earnings and comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2016. 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 31, 2016 and December 26, 2015, and the results of their operations and their cash flows for each of the three years then in the period ended December 31, 2016, 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 31, 2016, 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 March 1, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting. /s/ Deloitte & Touche LLP Grand Rapids, Michigan March 1, 2017 22 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 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. December 31, 2016 December 26, 2015 $ 34,091 $ 87,756 10,348 398 282,253 198,954 198,273 397,227 11,459 20,662 756,438 1,546 8,617 198,535 2,340 26,731 124,316 204,586 332,397 22,570 15,593 6,743 586 222,964 168,548 136,370 304,918 7,784 17,481 648,232 1,312 8,298 180,990 2,340 15,357 118,701 180,066 303,081 21,682 4,515 699,462 (401,611) 297,851 628,045 (376,895) 251,150 $ 1,292,058 $ 1,107,679 23 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 31, 2016 December 26, 2015 $ 19,761 $ 124,660 92,441 32,281 2,634 271,777 109,059 20,817 29,939 431,592 — 95,041 78,877 29,112 1,145 204,175 84,750 23,838 28,507 341,270 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, 20,342,069 and 20,141,709 Additional paid-in capital Retained earnings Accumulated other comprehensive earnings Total controlling interest shareholders' equity Noncontrolling interest TOTAL SHAREHOLDERS' EQUITY 20,342 185,333 649,135 (5,630) 849,180 11,286 860,466 20,142 171,562 565,636 (4,585) 752,755 13,654 766,409 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,292,058 $ 1,107,679 See notes to consolidated financial statements. 24 UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (in thousands, except per share data) EARNINGS FROM OPERATIONS 164,438 135,467 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 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 EARNINGS PER SHARE - BASIC EARNINGS PER SHARE - DILUTED OTHER COMPREHENSIVE INCOME: OTHER COMPREHENSIVE LOSS COMPREHENSIVE INCOME LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST Year Ended December 31, 2016 December 26, 2015 December 27, 2014 $ 3,240,493 $ 2,887,071 $ 2,660,329 2,765,903 2,487,167 2,334,987 474,590 310,152 — — 399,904 264,265 — 172 4,575 (541) (267) 3,767 160,671 55,174 105,497 (4,318) 101,179 4.97 4.96 $ $ $ 5,133 (294) (374) 4,465 131,002 45,870 85,132 (4,537) 80,595 3.99 3.99 $ $ $ $ $ $ 325,342 229,775 1,600 (3,400) 97,367 4,267 (2,235) (378) 1,654 95,713 34,149 61,564 (4,013) 57,551 2.87 2.86 (2,703) 102,794 (7,257) 77,875 (3,116) 58,448 (2,660) (3,213) (3,015) COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST $ 100,134 $ 74,662 $ 55,433 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 Accumulated Other Comprehen- sive Earnings Employees Stock Notes Receivable Noncontrolling Interest Total $ 19,948 $ 156,129 $ 461,812 $ 3,466 $ (732) $ 9,111 $ 649,734 57,551 4,013 61,564 (2,118) (998) (3,116) (12,205) 16 78 49 525 1,125 13 (49) (105) (4,761) 319 1,919 2,515 (2) (76) 78 199 3,650 3,650 (1,910) (1,910) (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 Balance at December 28, 2013 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 Accumulated Other Comprehen- sive Earnings Employees Stock Notes Receivable Noncontrolling Interest Total 4,537 85,132 (5,892) (41) (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) 304 151 1,075 1,912 — (496) 370 1,846 4,048 151 $ 20,142 $ 171,562 $ 565,636 $ (4,585) $ — $ 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 SHAREHOLDERS' EQUITY (in thousands, except share and per share data) Controlling Interest Shareholders' Equity Net earnings Foreign currency translation adjustment Unrealized gain (loss) on investment Distributions to noncontrolling interest Net purchase and dissolution of noncontrolling interest Cash dividends - $0.420 & $0.450 per share - semiannually Issuance of 6,813 shares under employee stock plans Issuance of 135,757 shares under stock grant programs Issuance of 57,790 shares under deferred compensation plans Expense associated with share-based compensation arrangements Accrued expense under deferred compensation plans Balance at December 31, 2016 Common Stock Additional Paid- In Capital Retained Earnings 101,179 Accumulated Other Comprehensive Earnings Noncontrolling Interest Total 4,318 105,497 (1,316) (1,658) (2,974) 271 271 (3,280) (3,280) (1,748) (892) (17,680) (17,680) 536 5,297 — 2,208 5,074 7 135 58 856 529 5,162 (58) 2,208 5,074 $ 20,342 $ 185,333 $ 649,135 $ (5,630) $ 11,286 $ 860,466 See notes to consolidated financial statements 28 UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 105,497 $ 85,132 $ 61,564 Year Ended December 31, 2016 December 26, 2015 December 27, 2014 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 Deferred income taxes Equity in earnings of investee Net loss (gain) on disposition and impairment of assets 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 Repayment of debt of acquiree Purchase and dissolution 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 CASH FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facilities Repayments under revolving credit facilities Proceeds from issuance of common stock Distributions to noncontrolling interest Dividends paid to shareholders Repurchase of common stock Other NET CASH FROM FINANCING ACTIVITIES Effect of exchange rate changes on cash 29 40,823 2,795 2,208 — 127 2,464 (267) — (5,119) (3,245) 11,259 15,978 172,520 (53,762) 3,126 (80,077) (92,830) (892) (6,012) 7,899 (5,666) 2,568 188 (2,011) (227,469) 131,002 (107,294) 536 (3,280) (17,680) — (73) 3,211 (1,927) 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) 1,074 (3,188) (16,507) (800) (21) (33,002) (1,221) 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) 541 (1,910) (12,205) (4,866) (710) (5,205) (852) 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 $ $ $ $ (53,665) 87,756 87,756 0 34,091 $ 87,756 $ 4,550 $ 5,118 $ 57,311 42,767 — $ — — $ 389 — — 0 4,334 38,475 2,768 3,000 4,353 $ 3,461 $ 2,567 — — 300 14,195 — — 30 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS We design, manufacture and market wood and wood-alternative products for large home centers and other retailers; structural lumber, engineered wood components, framing services, and other products for the construction market; specialty wood packaging, components, packing materials, and other wood-based products for various industries; and design, manufacture, and install customized fixtures and in-store environments for various markets. 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 2016, 2015, and 2014 relate to the fiscal years ended December 31, 2016, December 26, 2015, and December 27, 2014, respectively. Fiscal year 2016 was comprised of 53 weeks, which contributed an additional $53 million in sales in 2016 compared to fiscal years 2015 and 2014, which 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 $0.4 and $0.6 million as of December 31, 2016 and December 26, 2015, respectively. INVESTMENTS 31 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 31, 2016: Allowance for possible losses on accounts receivable Year Ended December 26, 2015: Allowance for possible losses on accounts receivable Year Ended December 27, 2014: Allowance for possible losses on accounts receivable $ $ $ 2,672 2,390 2,060 $ $ $ 28,405 20,538 18,871 $ $ $ (28,232) $ 2,845 (20,256) $ 2,672 (18,541) $ 2,390 * Includes accounts charged off, discounts given to customers and actual customer returns and allowances. We record estimated sales returns, discounts, and other applicable adjustments as a reduction of net sales in the same period revenue is recognized. Accounts receivable retainage amounts related to long term construction contracts totaled $6.0 million and $6.5 million as of December 31, 2016 and December 26, 2015, respectively. All amounts are expected to be collected within 18 months. Concentration of accounts receivable related to our largest customer totaled $34.0 million and $39.1 million as of December 31, 2016 and December 26, 2015, 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. If we expected a portion to be uncollectible, a valuation allowance relating to these agreements would be recorded. The current portion of notes receivable totaled $1.4 million and $2.0 million at December 31, 2016 and December 26, 2015, respectively and are included in “Other Current Assets”. The long-term portion of notes receivable totaled $0.9 million and $2.4 million at December 31, 2016 and December 26, 2015, respectively and are included in “Other Assets”. We had no notes receivable allowances at December 31, 2016 and December 26, 2015. INVENTORIES Inventories are stated at the lower of cost or market. The cost of inventories includes raw materials, direct labor, and manufacturing overhead. Cost is determined on a weighted average basis. Raw materials consist primarily of unfinished wood products expected to be manufactured or treated prior to sale, while finished goods represent various manufactured and treated wood products ready for sale. We have inventory on consignment at customer locations valued at $12.2 million as of December 31, 2016 and $11.7 million as of December 26, 2015. During 2015, management decided to discontinue certain product lines in our Gulf region which resulted in a $2.5 million inventory write-down. This product was sold in 2016 at an amount which approximated it's carrying value after the write-down. 32 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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. LEASES In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, “Leases (Topic 842)” (ASU 2016-02). Under ASU 2016-02, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term of 12 months or less, an entity can elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016-02 will require new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity’s leases. Companies are required to adopt the new standard using a modified retrospective approach for annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 is permitted. The Company plans to evaluate the effect of the new leasing guidance in 2017, therefore the quantitative impact has not yet been determined. GOODWILL Our annual testing date for evaluating goodwill and indefinite-lived intangible asset impairment is 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. FOREIGN CURRENCY Our foreign operations use the local currency as their functional currency. Accordingly, assets and liabilities are translated at exchange rates as of the balance sheet date and revenues and expenses are translated using weighted average rates, with translation adjustments included as a separate component of shareholders' equity. Gains and losses arising from re-measuring foreign currency transactions are included in earnings. INSURANCE RESERVES Our wholly-owned insurance company, Ardellis Insurance Ltd.(“Ardellis”), was incorporated on April 21, 2001 under the laws of Bermuda and is licensed as a Class 3A 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 31, 2016 and December 26, 2015. 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 33 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 31, 2016, Ardellis had 26 such contracts in place. Reserves associated with these contracts were $2.5 million at December 31, 2016 and $2.0 million at December 26, 2015, 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. 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 complied with this ASU during the reporting period of 2016. There was no material retroactive impact to the 2015 Balance Sheet. REVENUE RECOGNITION On May 28, 2014, the FASB issued ASU No. 2014-09 (Accounting Standard Codification 606), Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. Preliminarily, the Company plans to adopt the guidance in the first quarter of fiscal 2018 and apply the modified retrospective method. The Company is assessing the impact of this ASU on its Consolidated Financial Statements. Revenue is recognized at the time the product is shipped to the customer. Generally, title passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day. Earnings on construction contracts are reflected in operations using percentage-of-completion accounting, under either the cost to cost or units of delivery methods, depending on the nature of the business at individual operations. Under percentage- of-completion using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under percentage-of-completion using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent. Our construction contracts are generally entered into with a fixed price and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognized losses to the extent that they exist. The following table presents the balances of percentage-of-completion accounts on December 31, 2016 and December 26, 2015 which are included in other current assets and other accrued liabilities, respectively (in thousands): 34 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Cost and Earnings in Excess of Billings Billings in Excess of Cost and Earnings SHIPPING AND HANDLING OF PRODUCT 2016 2015 $ 2,573 $ 4,748 3,624 4,978 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 31, 2016 December 26, 2015 December 27, 2014 $ $ $ $ 101,179 (1,595) 99,584 $ $ 80,595 (1,059) 79,536 $ $ 20,363 (321) 20,042 33 20,075 20,184 (265) 19,919 36 19,955 57,551 (718) 56,833 20,081 (250) 19,831 23 19,854 4.97 4.96 $ $ 3.99 3.99 $ $ 2.87 2.86 No options were excluded from the computation of diluted EPS for 2016, 2015, or 2014. 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: 35 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED December 31, 2016 December 26, 2015 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 $ 64 1,676 5,609 760 72 235 201 1,268 178 $ 242 $ 78,210 — $ 78,210 2,592 — — — — — — 4,268 5,609 760 72 235 201 — — 3,523 237 230 172 1,268 4,162 238 3,130 — — — — — 238 3,130 3,523 237 230 172 4,162 $ 8,617 $ 2,770 $ 11,387 $ 82,372 3,368 $ 85,740 (in thousands) Money market funds Fixed income funds Equity Securities 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. The valuations of the Level 2 assets or liabilities rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability. 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 company, Ardellis Insurance Ltd. ("Ardellis"), maintains an investment portfolio, totaling $10.3 million as of December 31, 2016, consisting of mutual funds, domestic and international stocks, and fixed income bonds. Ardellis' available for sale investment portfolio consists of the following: December 31, 2016 Unrealized December 26, 2015 Unrealized Fixed Income Equity Mutual Funds Total Cost Gain/Loss Fair Value Cost Gain/Loss Fair Value $ $ 4,310 $ (43) $ 4,267 $ 3,362 $ 5,181 481 428 (9) 5,609 472 3,438 — 9,972 $ 376 $ 10,348 $ 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 net pre-tax unrealized gain was $376 thousand. Carrying amounts above are recorded in the investments line item within the balance sheet as of December 31, 2016. During 2016, Ardellis reported a net realized gain of $8 thousand which was recorded in interest income on the statement of earnings. C. BUSINESS COMBINATIONS We completed the following business combinations in fiscal 2016 and 2015, which were accounted for using the purchase method (in thousands). 36 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Company Name Acquisition Date Purchase Price Intangible Assets Net Tangible Assets Operating Segment The UBEECO Group Pty. Ltd. ("Ubeeco") November 29, 2016 $9,455 cash paid for 100% stock purchase $7,313 $2,142 All Other idX Holdings, Inc. ("idX") September 16, 2016 $66,046 cash paid for 100% stock purchase which includes $11,337 in net cash received. Also, paid $86,294 to retire outstanding debt and $6,536 of certain other obligations. $17,016 $49,030 idX Seven D Truss, L.P. July 29, 2016 $1,246 cash paid for asset purchase $405 $841 North Idaho Western, Inc. ("IWI") June 30, 2016 Packnet Ltd (“Packnet”) November 24, 2014 (majority interest) April 15, 2016 (minority interest) Capital Components & Millwork, Inc. ("CCM") April 15, 2016 $10,787 cash paid for 100% stock purchase plus $500 holdback. $7,506 November 24, 2014 cash paid for controlling interest and $1,877 cash paid for noncontrolling asset purchase. $1,682 cash paid for asset purchase plus $205 assumed liability $6,817 $4,248 West $7,885 $1,498 West A supplier of industrial packaging and services based in Eagan, MN. Packnet had annual sales of $9.6 million. $— $1,887 North Rapid Wood Mfg., LLC (“Rapid Wood”) February 2, 2015 $1,638 cash paid for asset purchase $789 $849 West 37 Business Description A manufacturer and distributor of a variety of wood packaging and alternative material products, including boxes, crates, pallets, skids, protective packaging, packaging accessories and loose lumber. Ubeeco has annual sales of approximately $20 million. A designer, producer, and installer of customized in- store environments that are used in a range of end markets. idX has annual sales of $300 million. A manufacturer and distributor of roof and floor trusses. 7D had annual sales of approximately $4.0 million. A supplier of products ranging from lumber and plywood to siding and doors. IWI had annual sales of approximately $21 million. A producer of doors and trim for customers in the greater Washington, D.C., metro area and Virginia. CCM had approximately $16.6 million in annual sales. 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 $3.5 million in 2015. UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Integra Packaging Proprietary, Ltd (“Integra Packaging”) January 16, 2015 $1,102 cash paid for 51.94% stock purchase $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 An Australian-based manufacturer and distributor of industrial wood specialty packaging products. Integra Packaging had annual sales of $7.6 million in 2015. The intangible assets for each acquisition were finalized and allocated to their respective identifiable intangible asset and goodwill accounts during 2016, excluding idX and Ubeeco. Initial estimates have been made for idX's identifiable intangible and goodwill allocations and deferred tax, however finalization will be completed in 2017. At December 31, 2016, the amounts assigned to major intangible classes for the business combinations mentioned above are as follows (in thousands): Ubeeco idX 7D IWI Rapid Wood Integra Packaging Non- Compete Agreements Customer Relationships Goodwill Goodwill - Tax Deductible $ — $ — $ 7,313 $ — 405 — — 85 10,000 — 3,640 — 467 7,016 — 3,177 789 854 — — 405 — 789 — The business combinations mentioned above were not significant to our operating results individually or in aggregate, and thus pro forma results for 2016 and 2015 are not presented. The initial estimated allocation from goodwill to an identifiable intangible of $10 million for idX as of December 31, 2016, has been presented above. 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 31, 2016 and December 26, 2015, are as follows (in thousands): 38 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED North South West idX All Other Total Balance as of December 27, 2014 44,983 43,625 85,092 2015 Acquisitions 2014 Final Purchase Accounting Foreign Exchange, Net Balance as of December 26, 2015 2016 Acquisitions Foreign Exchange, Net — — (1,730) 43,253 — 133 — — — 43,625 — — 789 (1,328) — 84,553 3,177 — — — — — — 7,016 — Balance as of December 31, 2016 $ 43,386 43,625 $ 87,730 $ 7,016 9,362 183,062 618 — (421) 9,559 7,313 (94) $ 16,778 1,407 (1,328) (2,151) 180,990 17,506 39 $ 198,535 Indefinite-lived intangible assets totaled $2.3 million as of December 31, 2016 and December 26, 2015 related to the Consumer Products reporting unit which is included in the All Other reportable segment. The following amounts were included in other amortizable intangible assets, net as of December 31, 2016 and December 26, 2015 (in thousands): 2016 2015 Non-compete agreements Customer relationships Licensing agreements Patents Total Assets Accumulated Amortization Assets $ 5,411 $ 25,503 4,589 704 $ 36,207 $ (1,954) $ (4,351) (2,991) (180) (9,476) $ 5,496 19,194 4,589 3,563 32,842 $ Accumulated Amortization (1,725) (10,140) (2,524) (3,096) (17,485) $ Amortization is computed principally by the straight-line method over the estimated useful lives of the intangible assets as follows: Intangible Asset Type Estimated Useful Life Non-compete agreements Customer relationship Licensing agreements 5 to 15 years 5 to 15 years 10 years Weighted Average Amortization Period 9.6 years 13.1 years 10 years Amortization expense of intangibles totaled $2.8 million, $3.5 million and $2.4 million in 2016, 2015 and 2014, respectively. The estimated amortization expense for intangibles for each of the five succeeding fiscal years is as follows (in thousands): 2017 2018 2019 2020 2021 Thereafter Total F. DEBT 39 $ $ 3,070 2,762 2,469 2,058 1,803 14,569 26,731 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 31, 2016 and December 26, 2015 aggregated $25.5 million and $25.4 million; respectively, which includes approximately $9.8 million related to industrial development revenue bonds. As a result, we have approximately $261 million in remaining availability on our revolver. Additionally, we have $150 million in availability under a "shelf agreement" for long term debt with a current lender. 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. Long-term debt obligations are summarized as follows on December 31, 2016 and December 26, 2015 (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 (1.67% on December 31,2016) Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest payable monthly at a floating rate (0.52% on December 31, 2016 and 0.17% on December 26, 2015) Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest payable monthly at a floating rate (0.59% on December 31, 2016 and 0.26% on December 26, 2015) Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest payable monthly at a floating rate (0.57% on December 31, 2016 and 0.25% on December 26, 2015) Capital leases and foreign affiliate debt Less current portion Less debt issuance costs Long-term portion 2016 2015 $ 35,000 $ 35,000 40,000 23,860 40,000 — 3,300 3,300 2,700 2,700 3,700 3,336 111,896 2,634 203 3,700 1,195 85,895 1,145 — $ 109,059 $ 84,750 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 31, 2016 and December 26, 2015. On December 31, 2016, the principal maturities of long-term debt and capital lease obligations are as follows (in thousands): 40 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 2017 2018 2019 2020 2021 Thereafter Total $ 2,634 393 24,009 2,832 28 82,000 $ 111,896 On December 31, 2016, the estimated fair value of our long-term debt, including the current portion, was $111.6 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. We consider the valuations of our long-term debt, including the current portion, to be Level 2 liabilities which rely on quoted prices in markets that are not active or observable inputs over the full term of the liability. G. LEASES We lease certain real estate under operating lease agreements with original terms ranging from one to ten years. We are required to pay real estate taxes and other occupancy costs under these leases. Certain leases carry renewal options of five to fifteen years. We also lease motor vehicles, equipment, and an aircraft under operating lease agreements for periods of one to ten years. Future minimum payments under non-cancelable operating leases on December 31, 2016 are as follows (in thousands): 2017 2018 2019 2020 2021 Thereafter Total minimum lease payments $ Operating Leases 17,664 14,216 8,798 6,034 4,180 4,974 $ 55,866 Rent expense was approximately $10.5 million, $6.3 million, and $5.2 million in 2016, 2015, and 2014, 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 $2.4 million and $2.3 million on December 31, 2016 and December 26, 2015, 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 $0.9 million and $0.8 million on December 31, 2016 and December 26, 2015 respectively, and are included in "Other Assets." Related liabilities totaled $17.4 million and $13.3 million on December 31, 2016 and December 26, 2015, 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. 41 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 $0.7 million in 2016, $0.6 million in 2015, and $0.6 million in 2014. Effective January 1, 2017, this plan was amended to allow directors to defer payment of the annual retainer paid in the form of our common stock. On April 15, 2010, our shareholders approved an amended and restated Long Term Stock Incentive Plan (the "LTSIP”). The LTSIP reserves 1,000,000 shares, plus a balance of unused shares from prior plans of approximately 1.6 million shares, plus an annual increase of no more than 200,000 shares per year which may be added on the dates of our annual shareholder meetings. The LTSIP provides for the grant of stock options, stock appreciation rights, restricted stock, performance shares and other stock- based awards. A summary of the transactions under the stock option plans is as follows: Outstanding at December 28, 2013 Exercised Forfeited or expired Outstanding at December 27, 2014 Exercised Forfeited or expired Outstanding at December 26, 2015 Exercised Forfeited or expired Outstanding at December 31, 2016 Vested or expected to vest at December 31, 2016 Exercisable at December 31, 2016 Weighted- Average Exercise Price Per Share Average Remaining Contractual Term Aggregate Intrinsic Value 31.65 30.64 — 32.03 30.64 — — — — — — — 1.55 1.00 0.00 0.00 0.00 $ 661,674 163,830 493,304 559,510 — — — — — — Stock Under Option 32,474 (8,737) — 23,737 (23,737) — — — — — — — $ There is no unrecognized compensation expense remaining for stock options in 2016, 2015, and 2014. A summary of the nonvested restricted stock awards granted under the LTSIP is as follows: 42 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Nonvested at December 28, 2013 Granted Vested Forfeited Nonvested at December 27, 2014 Granted Vested Forfeited Nonvested at December 26, 2015 Granted Vested Forfeited Nonvested at December 31, 2016 Restricted Awards Weighted- Average Grant Date Fair Value Unrecognized Compensation Expense (in millions) Weighted- Average Period to Recognize Expense 206,420 62,555 (9,446) (2,443) 257,086 76,321 (121,642) (3,849) 207,916 116,964 (60,155) (881) 263,844 2.9 2.00 years 1.7 1.81 years 5.2 2.53 years 32.52 55.30 55.30 36.13 36.39 54.01 38.61 48.85 40.97 71.88 46.98 64.36 $ 57.95 $ 4.8 1.51 years Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation expense of $2.2 million, $1.8 million, and $1.9 million and the related total income tax benefits of $1.1 million, $0.9 million, and $0.9 million in 2016, 2015 and 2014, respectively. In 2016, 2015 and 2014, cash received from option exercises and share issuances under our plans was $0.5 million, $1.1 million and $0.5 million, respectively. The actual tax benefit realized in 2016, 2015 and 2014 for the tax deductions from option exercises totaled $0.0 million, $0.4 million and $0.3 million, respectively. On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common stock. On October 14, 2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. We repurchased 0 and 13,613 shares under this program in 2016 and 2015, respectively. As of December 31, 2016, 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 2016, 2015, and 2014, on a discretionary basis, totaling $4.4 million, $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 $6.5 million and $5.8 million are accrued in “Other Liabilities” for this plan at December 31, 2016 and December 26, 2015, respectively. K. INCOME TAXES Income tax provisions for the years ended December 31, 2016, December 26, 2015, and December 27, 2014 are summarized as follows (in thousands): 43 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Currently Payable: Federal State and local Foreign Net Deferred: Federal State and local Foreign 2016 2015 2014 $ 42,397 $ 34,672 $ 18,664 6,341 6,143 54,881 (455) 438 310 293 $ 55,174 $ 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 The components of earnings before income taxes consist of the following: U.S. Foreign Total 2016 2015 2014 $ $ 140,106 20,565 160,671 $ $ 115,231 15,771 131,002 $ $ 79,365 16,348 95,713 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 2016 2015 2014 35.0% 35.0% 35.0% 3.1 (0.2) (2.4) (1.4) 0.4 0.1 (0.3) 34.3% 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% Temporary differences which give rise to deferred income tax assets and (liabilities) on December 31, 2016 and December 26, 2015 are as follows (in thousands): 44 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Employee benefits Net operating loss carryforwards Foreign subsidiary capital loss carryforward Other tax credits Inventory Reserves on receivables Accrued expenses Other, net Gross deferred income tax assets Valuation allowance Deferred income tax assets Depreciation Intangibles Other, net Deferred income tax liabilities Net deferred income tax liability 2016 2015 $ 13,375 $ 10,996 13,605 509 1,196 2 1,208 8,931 2,323 41,149 (5,371) 35,778 (29,971) (25,078) — (55,049) (19,271) $ 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) $ As of December 31, 2016, the company had state and foreign net operating loss carryforwards of $1.5 million and state tax credit carryforwards of $0.6 million, which will expire at various dates. As a result of the acquisition of idX, the company also acquired estimated federal, state and foreign net operating loss carryforwards of $12.1 million and federal foreign tax credit carryforwards of $0.4 million. Because of the federal, state and certain foreign change of ownership law provisions, some of the various acquired NOLs and the federal foreign tax credits maybe limited. An evaluation under these law provisions will be performed during the business combination measurement period for idX, and therefore the ultimate resolution of their future availability is yet undetermined. The NOL and credit carryforwards expire as follows: Net Operating Losses Tax Credits U.S. State Foreign U.S. State 2016 - 2020 $ — $ 396 $ 2,300 $ 2021 - 2025 2026 - 2030 2031 - 2035 Thereafter — — 7,726 16 469 689 1,204 220 117 — 202 268 253 $ 180 — — — Total $ 7,742 $ 2,978 $ 2,887 $ 433 $ 118 440 — — — 558 As of December 31, 2016, we believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards as well as certain state tax credit carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance against various NOL and tax credit carryforwards. Furthermore, there is a valuation allowance of $0.5 million against a capital loss carryforward we have for a wholly-owned subsidiary, UFP Canada, Inc. Based upon the business activity and the nature of the assets of this subsidiary, our ability to realize a future benefit from this carryforward is doubtful. 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 45 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ASC 740, Income Taxes (“ASC 740”) clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, measurement, classification, interest and penalties, and disclosure requirements. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): Gross unrecognized tax benefits beginning of year $ 2,209 $ 1,793 $ 1,923 2016 2015 2014 Increase in tax positions for prior years Increase in tax positions due to acquisitions Increase in tax positions for current year Settlements with taxing authorities Lapse in statute of limitations Gross unrecognized tax benefits end of year $ 243 362 905 (32) (306) 3,381 $ — — 754 — (338) 2,209 $ — — 556 — (686) 1,793 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 $0.6 million at December 31, 2016, and $0.2 million at December 26, 2015 and December 27, 2014. 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 2013. 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 is $0.7 million. M. COMMITMENTS, CONTINGENCIES, AND GUARANTEES We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, Ardellis Insurance Ltd., 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 $3.6 million and $3.5 million on December 31, 2016 and December 26, 2015, respectively, 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 a 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 $0.3 million. As a result, this amount is recorded in other long-term liabilities on December 31, 2016. 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 46 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 Conduct and Business Ethics. In May 2015, those ex-employees were indicted by the grand jury. In April 2016, one of the two former employees pled guilty to four of the charges included in the indictment. In May 2016, the other former employee was found guilty by a jury on four of the charges included in the indictment. 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. In addition, on December 31, 2016, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims. On December 31, 2016, we had outstanding purchase commitments on commenced capital projects of approximately $10.1 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 that the products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety for claims made against the bonds. As of December 31, 2016, we had approximately $6.1 million in outstanding payment and performance bonds for open projects. We had approximately $0.3 million in payment and performance bonds outstanding for completed projects which are still under warranty. On December 31, 2016 we had outstanding letters of credit totaling $25.5 million, primarily related to certain insurance contracts and industrial development revenue bonds described further below. In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our performance under certain insurance contracts. We currently have irrevocable letters of credit outstanding totaling approximately $15.7 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements. We are required to provide irrevocable letters of credit in favor of the bond trustees for all 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. We did not enter into any new guarantee arrangements during 2016 which would require us to recognize a liability on our balance sheet. 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 47 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED structure under which each location is included in a region and regions are included in our North, South, and West divisions. The exceptions to this geographic reporting and management structure are (a) the Company's Alternative Materials Division, which offers a portfolio of non-wood products and distributes those products nation-wide, (b) the Company's distribution unit (referred to as UFPD) which distributes a variety of products to the manufactured housing industry and is accounted for as a reporting unit within the North segment, and (c) idX division, which designs, produces, and installs customized in-store 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. Additionally, our recently acquired idX division has been presented, which generally serves the Industrial 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 idX All Other Corporate Total 2016 Net sales to outside customers $1,000,426 $ 711,862 $1,251,093 $ 87,001 $ 190,111 $ — $3,240,493 Intersegment net sales Interest expense Amortization expense Depreciation expense Segment earnings from operations Segment assets Capital expenditures 57,770 38,641 1 115 8,948 59,408 307 — 6,190 47,146 88,311 387 1,858 13,326 76,875 15 50 190 1,598 627 19,307 — 204,044 93 632 2,933 16,012 3,737 — 4,575 2,795 7,828 (35,630) 305,185 40,823 164,438 1,292,058 220,148 145,451 303,607 185,813 131,854 10,902 5,571 19,648 — 6,037 11,604 53,762 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 48 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 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 20,224 — 331 7,060 32,988 303,213 10,887 323 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 In 2016, 2015, and 2014, 20%, 19%, 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 2016 2015 2014 Long-Lived Tangible Assets Net Sales Long-Lived Tangible Assets Net Sales $ $ 280,362 $ 2,811,359 26,106 75,712 306,468 $ 2,887,071 $ $ 244,040 $ 2,596,278 15,408 64,051 259,448 $ 2,660,329 Long-Lived Tangible Assets $ $ 242,156 15,678 257,834 Net Sales $ 3,162,331 78,162 $ 3,240,493 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. 2016 2015 2014 Value-Added Commodity- Based 62.6% 59.8% 58.5% 37.4% 40.2% 41.5% 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. 49 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED The following table presents, for the periods indicated, our gross sales (in thousands) by major product classification. Years Ended December 31, 2016 December 26, 2015 December 27, 2014 Value-Added Sales Trusses – residential, modular and manufactured housing $ 334,956 $ 299,111 $ 176,668 200,004 141,474 391,610 76,503 87,262 68,517 53,279 106,284 204,732 50,556 60,753 66,048 20,713 17,412 3,449 390 149,526 177,787 129,803 374,030 67,804 — 59,804 46,496 56,846 273,605 143,252 141,121 121,434 298,335 61,970 — 73,261 43,751 51,710 200,901 191,426 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 $ 2,060,610 $ 1,749,082 $ 1,578,379 469,042 479,333 238,806 30,374 12,084 458,023 423,543 253,678 31,789 10,978 454,695 389,487 232,821 33,146 9,402 $ $ $ 1,229,639 3,290,249 (49,756) 3,240,493 $ $ $ 1,178,011 2,927,093 (40,022) 2,887,071 $ $ $ 1,119,551 2,697,930 (37,601) 2,660,329 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) In-store fixtures Manufactured brite and other lumber Wall panels Outdoor DIY products (eg. stakes; landscape ties) Construction and building materials (eg. door packages; drywall) Lattice – plastic and wood Manufactured brite and other panels Siding, trim and moulding Hardware Manufactured treated lumber Manufactured treated panels Other Total Value-Added Sales Commodity-Based Sales Non-manufactured brite and other lumber Non-manufactured treated lumber Non-manufactured brite and other panels Non-manufactured treated panels Other Total Commodity-Based Sales Total Gross Sales Sales allowances Total Net Sales 50 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, consisting of 14 and 13 weeks during the years ended December 31, 2016 and December 26, 2015, respectively, (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 2016 2015 2016 2015 2016 2015 2016 2015 $ 682,151 $ 633,025 $ 872,093 $ 838,171 $ 826,665 $ 762,275 $ 859,584 $ 653,600 102,739 20,255 79,582 10,804 131,487 112,443 118,054 110,706 122,310 34,237 26,884 28,764 26,883 22,241 97,173 20,561 19,212 10,162 33,398 25,976 27,819 25,556 20,750 18,901 0.95 0.95 0.51 0.51 1.64 1.64 1.29 1.28 1.36 1.36 1.26 1.26 1.02 1.02 0.93 0.93 P. SUBSEQUENT EVENTS Subsequent to December 31, 2016, the Company has signed definitive agreements to acquire the operating assets of two businesses. The purchase price for these acquisitions is currently estimated to total approximately $53 million. These acquisitions will be financed from expected operating cash flows and the use of the revolving credit facility. 51 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 2016 Fourth Quarter Third Quarter Second Quarter First Quarter High Low Fiscal 2015 High Low 107.09 109.99 91.49 83.58 83.41 Fourth Quarter 84.77 Third Quarter 76.65 Second Quarter 61.04 First Quarter 77.91 64.53 58.05 54.48 57.68 50.82 52.98 49.34 There were approximately 1,300 shareholders of record as of February 6, 2017. We paid dividends on our common stock of $0.42 and $0.45 per share in June and December 2016, respectively. In June and December 2015, we paid dividends of $0.40 and $0.42 per share, respectively. We intend to continue with our current semi-annual dividend policy for the foreseeable future. 52 STOCK PERFORMANCE GRAPH The following graph depicts the cumulative total return on our common stock compared to the cumulative total return on the indices for The Nasdaq Stock Market (all U.S. companies) and an industry peer group we selected. The graph assumes an investment of $100 on December 31, 2011, and reinvestment of dividends in all cases. The companies included in our self-determined industry peer group are as follows: American Woodmark Corporation Bemis Company, Inc. BlueLinx Holdings, Inc. BMC Stock Holdings, Inc. Boise Cascade, LLC Builders FirstSource, Inc. Gibraltar Industries, Inc. Greif Bros. Corporation Louisiana-Pacific Corporation Masco Corporation NCI Building Systems, Inc. Simpson Manufacturing Company,Inc. Sonoco Products Company Trex Company, Inc. Westrock Company 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. 53 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 Gary F. Goode, CPA Chairman Titan Sales & Consulting, LLC 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 President UFP Northern Division Jonathan West President UFP Southern Division 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 International Operations Chad C. Uhlig Eastin Executive Vice President Purchasing 54 ANNUAL MEETING Shareholder Information The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 18, 2017, 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 55 Selma, AL Shanghai, China Shawnee, OK Shibuya-ku, Tokyo, Japan Sidney, NY Snohomish, WA Spring Lake, MI Stanfield, NC Stockertown, PA Swindon, Wiltshire, United Kingdom Tacoma, WA Thornton, CA Turlock, CA Union City, GA Warrens, WI Washington, NC Wenatchee, WA White Bear Lake, MN White Pigeon, MI Windsor, CO Woodburn, OR Wujiang City, China Yakima, WA Yeerongpilly, QLD, Australia UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES Locations: Ashburn, GA Athena, OR Auburn, NY Auburndale, FL Aurora, CO Bangalore, India Belchertown, MA Berlin, NJ Blanchester, OH Bomaderry, NSW, Australia Bridgeton, MO Burlington, NC Caldwell, ID Cedar Hill, TX Chaffee, NY Chandler, AZ Chesapeake, VA Chicago, IL Chino, CA Church Hill, TN Columbia, MD Concord, Ontario, Canada Conway, SC Cordele, GA Dallas, TX Dayton, OH Durango, Mexico Eagan, MN Earth City, MO Eatonton, GA Elizabeth City, NC Elkhart, IN Elkwood, VA Embalaje, Mexico Erskine Park, NSW, Australia Folkston, GA Franklinton, NC Gilmer, TX Gordon, PA Grand Rapids, MI Grandview, TX Granger, IN Greene, ME Haleyville, AL Hamilton, OH Harrisonville, MO Hillsboro, TX Hudson, NY Hutchinson, MN Janesville, WI Jefferson, GA Jeffersonville, IN Kansas City, MO Kearneysville, WV Kyle, TX Lacolle, Quebec, Canada Lafayette, CO Liberty, NC Locust, NC Magna, UT McMinnville, OR Medley, FL Merciditas, Puerto Rico Mexico City, Mexico Minneota, MN Morristown, TN Moultrie, GA Muscle Shoals, AL Nampa, ID Naugatuck, CT New Delhi, India New Hartford, NY New London, NC New Waverly, TX New Windsor, MD New York, NY Ontario, CA Ooltewah, TN Parker, PA Pearisburg, VA Peru, IL Plainville, MA Poulsbo, WA Prairie du Chien, WI Puyallup, WA Ranson, WV Riverside, CA Saginaw, MI Saginaw, TX Salina, KS Salisbury, NC San Antonio, TX Sauk Rapids, MN Schertz, TX 56 LIST OF REGISTRANT'S SUBSIDIARIES AND AFFILIATES EXHIBIT 21 234 Springs Rd., LLC 2875 Springs Rd., LLC 621 Hall St., LLC Aljoma Holding Company, LLC Aljoma Lumber, Inc. Ardellis Insurance Ltd. CA Truss, Inc. Caliper Building Systems, LLC Discount Building Products, LLC Eovations, LLC Gulf Coast Components, LLC Horizon terra, Incorporated Idaho Western, Inc. idX Asia Fixtures Limited idX Asia Trading Limited idX Baltimore, Inc. idX Chicago, LLC idX (China) Display System Co. Ltd. idX Corporation London Limited idX Corporate idX Dallas, LLC idX Dayton, LLC idX Holdings, Inc. idX Impressions, LLC idX (India) Display Privte Ltd. idX Los Angeles, LLC idX Mexico idX Shanghai Trading Company Ltd. Integra International Pty Ltd International Wood Industries, Inc. Landura, LLC Maine Ornamental, LLC Metaworld Technologies, LLC Mid-Atlantic Framing, LLC North Atlantic Framing, LLC Pacific Coast Showcase, Inc. Pinelli Universal TKT, S de R.L. de C.V. Pinelli Universal, S de R.L. de C.V. Delaware Delaware Delaware Michigan Florida Bermuda Michigan Michigan Michigan Michigan Michigan Indiana Idaho Hong Kong Hong Kong Delaware Delaware China Delaware Delaware Delaware Delaware Delaware Delaware India UFP Gear, LLC UFP Global Holdings Limited Michigan United Kingdom UFP Gordon, LLC UFP Grandview, LLC UFP Granger, LLC UFP Great Lakes, LLC UFP Gulf, LLC UFP Haleyville, LLC UFP Hamilton, LLC UFP Harrisonville, LLC UFP Hillsboro, LLC UFP International, LLC Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan UFP International Employment Services, LLC Michigan 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. UFP Mexico Investment, LLC UFP Mid-Atlantic, LLC UFP Millry, LLC UFP Minneota, LLC UFP Morristown, LLC Delaware UFP Moultrie, LLC Mexico China Australia California Texas Michigan Michigan Michigan Michigan Washington Mexico Mexico UFP Mountain West, LLC UFP National Enterprises II, Inc. UFP New London, LLC UFP New Waverly, LLC UFP New Windsor, LLC UFP New York, LLC UFP North Atlantic, LLC UFP Northeast, LLC UFP Orlando, LLC UFP Parker, LLC UFP Purchasing, Inc. UFP Ranson, LLC Michigan Michigan Michigan Michigan Michigan Michigan Mexico Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan PR Distribution, LLC Puerto Rico UFP RE Acquisition, LLC Shawnlee Construction, L.L.C. Shepardville Construction, LLC Store Fixtures Canada Holdings, Inc. The UBEECO Group Pty Ltd TKT Real State, S. de R.L. de C.V. Tresstar, LLC Triangle Systems, Inc. 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 UFP Belchertown, LLC UFP Berlin, LLC UFP Blanchester, LLC UFP Caldwell, LLC UFP Canada, Inc. UFP Central Plains, LLC UFP Chandler, LLC UFP Dallas, LLC UFP de Mexico S.A. de C.V. 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 Elkwood, LLC UFP Far West, LLC UFP Folkston, LLC UFP Franklinton, LLC UFP Gainesville, LLC Michigan Michigan Delaware Australia Mexico Michigan New York Mexico Michigan Michigan Michigan Michigan Michigan Michigan Australia Australia Michigan Michigan Michigan Michigan Canada Michigan Michigan Michigan Mexico Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan UFP Riverside, LLC UFP Rockwell, LLC UFP Saginaw, LLC UFP Salisbury, LLC UFP San Antonio, LLC UFP Sauk Rapids, LLC UFP Schertz, LLC UFP Shawnee, LLC UFP Southeast, LLC UFP Southwest, LLC UFP Stockertown, LLC UFP Tampa, LLC UFP Thomaston, LLC UFP Thorndale Partnership UFP Thornton, LLC UFP Transportation, Inc. UFP Union City, LLC UFP Ventures II, Inc. UFP Warranty Corporation UFP Warrens, LLC UFP Washington, LLC UFP Western Division, Inc. UFP White Bear Lake, LLC UFP Windsor, LLC UFP Woodburn, LLC United Lumber & Reman, LLC Universal Consumer Products, Inc. Universal Forest Products RMS, LLC Universal Forest Products Texas LLC Universal Showcase ULC Upshur Forest Products, LLC Western Building Professionals of California II Limited Partnership Western Building Professionals of California, Inc. Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Canada Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Alabama Michigan Michigan Michigan Alberta Michigan Michigan Michigan Western Building Professionals, LLC Michigan Exhibit 23 - 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 March 1, 2017, relating to the consolidated financial statements of Universal Forest Products, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2016. /s/ Deloitte & Touche LLP Grand Rapids, Michigan March 1, 2017 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: March 1, 2017 /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: March 1, 2017 /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 31, 2016, 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 31, 2016 fairly presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc. Date: March 1, 2017 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 31, 2016, 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 31, 2016 fairly presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc. Date: March 1, 2017 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. 

Continue reading text version or see original annual report in PDF format above