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.