Report to Shareholders
2017
Even if you’re on the right track, you’ll get run over if you just sit there.
― Will Rogers
To our Shareholders:
Every year at Universal Forest Products, we choose a theme that helps us frame the year ahead.
For 2017, it was Learn it. Earn it. Own it. Or LEO. With the ferocity, stealth and determination of a lion,
our employees did just that: they learned what they needed to know to improve over the previous year’s
performance, they earned the opportunity to do more through their success, and they owned their results
in 2017. It was a good year, a record-breaking year in fact. But, it wasn’t our best—that’s yet to come.
And that is what motivates us, day in and day out: the knowledge that we can do better, and create more
opportunity and value for all of our stakeholders.
Our 2018 theme, >B4, is about the competitiveness and motivation of not just wanting to win, but hating
to lose. We strive for perfection, recognizing that if we don’t set a high standard, we certainly won’t reach it.
On the pages of this annual report, you will learn all about the numbers that illustrate our success, so in
this letter, we’d like to highlight a few other things. Like our culture. Each of us has been associated with
Universal for decades—nearly four for Matt and nearly five for Bill. Throughout that time, we have hired
countless people who have built lifelong careers with the Universal family. Our coworkers became our
best friends, toughest critics and biggest supporters. We encourage each other to reach for more, and
we can be brutally honest when things need improving—because we want everyone to be their best and
to have as much responsibility and reward as they can earn. That’s our culture. We are big and growing.
We are international. Yet we are tightly knit. We genuinely care about our company and each other. It
makes coming to work every day enjoyable, even on the toughest days.
We work hard to bring in people who will continue that culture and our traditions. A few years ago, we
started UFP Business School’s two-year degree program. It is based on a four-year business degree
program, but with only the business courses. The instructors are our professionals. Students are in
class 10 hours a week and in paid internships for 20 hours a week. The company underwrites the
cost of the program. Those who successfully complete it get jobs at Universal affiliates. That is not a
requirement of enrollment, but it is our belief that students will like it so much that they will stay. If our
ii
first class is any indication, we are right: all students who are graduating this summer are staying to
build careers at Universal. They have every opportunity to be leaders long after we are gone.
Jake W., Class of 2018: The people of UFP have built a company culture that … made me realize
very quickly that I wouldn’t want to build a career anywhere else.
Molly J., Class of 2019: All the instructors … have real-world experience that makes classes
interesting and useful. I will be able to take what I learn and incorporate it into my future at UFP.
Calvin C., Class of 2018: Every day in my internship, I am completing tasks for the company that
make a difference, that give me something to be proud of. The people here incorporate me into
their departments and teach me, rather than just give me “typical intern” work. This is a great
opportunity to get a head start in your career without a cost to you.
These are just the newest members of a team that is made up of hard-working professionals who care
about what we do, how we do it and what kind of company we are. There are approximately 11,000
people in the companies of Universal on four continents. Some of our operations have a few hundred
people; some have a dozen. All are bound by the values that define us and our work: Honesty and
integrity. Innovation. Ferocity. Determination. Fun. A solid work ethic.
Our people are our story. They are responsible for the numbers. In 2013, we said we wanted to be a
$3 billion company by the end of 2017. Well, we ended the year with net sales of $3.94 billion (and gross
sales of $4.0 billion), which was 22 percent better than 2016. And we achieved record net earnings
attributable to controlling interests of $119.5 million, up 18 percent over 2016. Unit sales accounted for
15 percent of our gross sales growth; price increases accounted for 7 percent. These achievements
deserve strong praise, but we are not satisfied. We didn’t achieve some of our own internal goals, and
we’re determined to change that for 2018.
One of our strategic objectives has been a focus on new product sales growth, and we had great success
in 2017, increasing new product sales 23.5 percent over 2016, to $418.4 million. Among our exciting
successes has been the popularity of our UFP-Edge rustic shiplap products and our Deckorators decking
products and accessories.
On the international business front, we sold more new products manufactured by UFP North American
affiliates to offshore customers and continued to grow our list of exported and imported products (for
example, we increased exports of UFP Edge and of American hardwoods, and imported products from
around the globe). We successfully exported products from existing Universal vendors, growing our
opportunity to do new business with them, and we saved hundreds of thousands of dollars through
procurement enhancements and synergies in our overseas operations, among other things.
iii
In 2017, our E-commerce group finished its first full year as an independent team focused on creating
and growing our business with our customers through digital channels and opportunities.
Also in 2017, we added the operations of four businesses to the Universal family of companies:
Quality Hardwood Sales, of Nappanee, Ind., is a manufacturer and supplier of hardwood products
including components for cabinets used in homes and recreational vehicles, adding hardwood
products to our portfolio.
Robbins Manufacturing Co. is a manufacturer of treated wood products that helped us expand
our presence in the Southeast United States.
Go Boy Pallets, a manufacturer and distributor of industrial pallets and packaging for the Georgia
and North Carolina markets, expanded our product offering and lumber sourcing in that region.
Silverwater Box, a packaging solutions company in the Sydney, Australia suburb of Girraweek,
helped advance our goal of becoming the leading global provider of packaging solutions in the
products we offer.
Our balanced business model makes us unique, sometimes hard to understand, and more resilient than
most to market fluctuations. It allows us to use all grades of wood for our products, making us an
attractive customer for the world’s largest mills. And it provides many avenues for growth in new markets
and with new products. It has been a strong foundation on which to build over the decades and continues
to be a competitive advantage. Today, we serve three robust markets and saw these results in 2017:
Retail. Gross sales of $1.49 billion were up 15 percent over 2016, led by a 10 percent increase in
unit sales and a 5 percent increase in selling prices. In our retail business, we sell hundreds of products
ranging from decking, fencing and accessories to loose lumber. Among our products and brands are
ProWood® lumber (www.prowoodlumber.com), Deckorators® decking and accessories (www.deckorators.com),
the shiplap siding and trim boards in our UFP-Edge portfolio (www.ufpedge.com), and lattice and panel
products sold under our Dimensions™ brand (www.dimensionsdiy.com). Sales to this market were
affected by a record hurricane season, which resulted in a temporary increase in sales of low-margin
commodity products. While the temptation for many is to take advantage of need in the face of natural
disasters, our philosophy is the opposite: we hold our prices as people struggle to prepare themselves for
disaster. We can’t imagine making a bad human situation worse.
Industrial. Gross sales of $1.33 billion for 2017 represented an increase of 35 percent over the previous
year. Unit sales increased 29 percent, primarily due to the Company’s acquisition of idX Corporation in
September of 2016. Excluding acquisitions, the Company’s organic unit sales grew 4 percent over 2016.
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
iv
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.
Construction. We saw $1.18 billion in gross sales for 2017, up 16 percent over 2016, driven by a
7 percent increase in unit sales and a 9 percent increase in prices. Residential construction unit sales
grew 7 percent, and unit sales to manufactured housing customers rose 9 percent over 2016. Residential
construction includes traditional site-built single-family and multifamily construction, factory-built homes
(both HUD-code and modular homes), commercial construction and concrete forming.
We couldn’t achieve any of this without great people. As is true for other American corporations, changes
in tax laws will lower taxes for us in 2018. Instead of using the tax savings for a one-time bonus, we will
use approximately one-third of it to enhance our compensation and benefits package for employees, with
a special emphasis on hourly production employees (the rest will be used on strategies to grow the
company and to provide a return to shareholders). We are working with employees to select options that
meet the differing needs and desires of our workforce. We want to make sure to provide our people with
good pay and benefits in a way that is more valuable to them and their families.
As our company grows and succeeds, we want our people to share in the value they help create, so we
provide them with opportunities to invest in their company. Do many of our people build wealth in the
process? We hope so. That’s the American Dream. People of modest means who have determination,
ability and a willingness to work hard can achieve it. Both of us are grateful examples of that, and we are
determined to help as many others as possible achieve the dream. It is the reason for our business
school (not all paths to success include a costly degree from a four-year institution), for training programs
and career paths at Universal and for our hire-from-within-first philosophy for those who prove themselves
through hard work and success. It is our privilege to help others achieve their goals, and it is those
practices and our strong culture that make us different and, we believe, better.
We love this company and the principles on which it was founded. We are grateful to this country for
a free enterprise system that allows people and companies to compete and prove their worth based
on their merits, and that allows people to determine worthy investments. We are honored that you
deemed Universal a worthy choice, and we are focused on making sure you remain pleased with your
investment in us.
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 30, 2017 and December 31, 2016
Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 30, 2017,
December 31, 2016, and December 26, 2015
Exhibit 13
2
3-23
24
25
26
27
28
Consolidated Statements of Shareholders’ Equity for the Years Ended December 30, 2017, December 31, 2016,
29
and December 26, 2015
Consolidated Statements of Cash Flows for the Years Ended December 30, 2017, December 31, 2016, and
30
December 26, 2015
Notes to Consolidated Financial Statements
Price Range of Common Stock and Dividends
Stock Performance Graph
Directors and Executive Officers
Shareholder Information
31-54
55
56
57
58
SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)
2017
2016
2015
2014
2013
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
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)
$ 3,941,182
542,826
176,007
$ 119,512
1.94
$
0.320
$
$ 560,241
1,464,677
146,003
974,023
$ 3,240,493
474,590
160,671
$ 2,887,071
399,904
131,002
$ 2,660,329
325,342
95,713
$ 2,470,448
280,552
70,258
$ 101,179
1.65
$
0.290
$
$
$
$
80,595
1.33
0.273
57,551
0.95
0.203
$
$
43,082
0.72
0.137
$
$
$ 484,661
1,292,058
111,693
860,466
$ 444,057
1,107,679
85,895
766,409
397,546
$
1,023,800
98,645
699,560
$ 357,299
916,987
84,700
649,734
13.8 %
14.6 %
13.9 %
12.2 %
11.4 %
3.0 %
13.9 %
2.85
0.15
15.92
$
3.1 %
13.2 %
2.78
0.13
14.10
$
2.8 %
11.5 %
3.17
0.11
12.68
$
2.2 %
8.8 %
3.27
0.14
11.67
$
1.7 %
7.1 %
3.59
0.13
10.86
$
(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.
Acquisition growth is the primary contributing factor to material increases over the period from 2013 to 2017. Refer to
Note C under the“Notes to the Consolidated Financial Statements” for further discussion on the Company’s business
combinations and impact on financials.
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 2017.
Our results for 2017 were impacted by the following:
OVERVIEW
Our sales increased almost 22% in 2017 due to a 15% increase in our unit sales and a 7% 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. Overall,
businesses we acquired contributed 11% to our unit sales growth in 2017 (see Note C of the Notes to
Consolidated Financial Statements) and we achieved 4% organic unit sales growth. In 2016, we had 53 weeks
in our fiscal year which contributed an additional $60 million of sales compared to 2017, which was a 52 week
year (See Note A of the Notes to Consolidated Financial Statements).
The Home Improvement Research Institute reported a 5% increase in home improvement sales in 2017.
Comparatively, our unit sales to the retail market increased 10% in 2017, including approximately 7%
contributed from acquired businesses.
Our sales to the industrial market increased 35% in 2017. Businesses we acquired contributed 25% to unit sales
growth. Comparatively, the Federal Reserve’s Industrial Production noted that national industrial production
increased less than 1% in 2017.
National housing starts
through
November 2017, 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 7% in 2017.
the period from December 2016
increased approximately 4%
in
Production of HUD code manufactured homes were up 16% in the period from January through
November 2017, compared to the same period of the prior year. Comparatively, our unit sales to the
manufactured housing market increased 9% in 2017.
3
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our earnings from operations increased 10.4% to $181.5 million in 2017 from $164.4 million in 2016.
Acquired businesses contributed $6.7 million to our increase, which was below our expectations primarily due
to idX. The remaining $10.4 million, or 6.3%, increase was primarily driven by our organic unit sales growth
and a decline in our incentive bonus expense due to a decrease in our return on investment which is a key
performance metric for determining incentive bonus payments.
Finally, the Tax Act, as defined in Note K to our 2017 Annual Financial Statements, resulted in a $6.4 million
decrease to our net deferred tax liability and income taxes in 2017. Excluding the impact of the Tax Act, our
net earnings attributable to controlling interest was $113.1 million, compared to $101.2 million in 2016, an
11.8% increase.
Our cash flow from operating activities decreased to $137 million due to an increase in our investment in
working capital resulting from higher year over year lumber prices in the fourth quarter of 2017 compared with
the fourth quarter of 2016 as presented in the tables below.
The following table presents the Random Lengths framing lumber composite price.
HISTORICAL LUMBER PRICES
Random Lengths Composite
Average $/MBF
2016
2015
2017
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
$
356
393
401
424
416
399
411
417
416
437
436
433
$
$
316
310
321
345
356
353
351
367
354
356
346
357
$
412
$
19.8 %
344
$
3.9 %
379
361
339
334
315
328
346
327
300
308
326
314
331
4
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our
purchases of this species comprises approximately 44% and 43% of total lumber purchases for 2017 and 2016,
respectively.
January
February
March
April
May
June
July
August
September
October
November
December
Annual average
Annual percentage change
Southern Yellow Pine
Average $/MBF
2016
2017
2015
$
397
420
433
438
416
399
381
383
387
417
412
418
$
$
358
357
366
389
397
382
380
391
375
385
387
400
$
408
$
7.1 %
381
$
6.4 %
411
399
393
400
368
354
344
321
290
318
348
347
358
The significant increases in lumber prices from 2016 to 2017 can primarily be attributed to the following factors:
Duties on imported lumber from Canada - The U.S. Department of Commerce has preliminarily determined that
subsidies are being provided to producers and exporters of certain softwood lumber products (softwood lumber)
from Canada and duties are being assessed ranging from 7% to 23%.
Canadian Wildfires - In 2017, British Columbia experienced its worst wildfire season in history which impacted
the producers and exporters of lumber products.
Hurricanes Irma and Harvey - Caused catastrophic damage in parts of the U.S. and the Caribbean. The
necessity for lumber to prevent and repair hurricane damage resulted in a surge in lumber demand during the
third and fourth quarters of 2017.
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
We experience significant fluctuations in the cost of commodity lumber products from primary producers ("Lumber
Market"). We generally price our products to pass lumber costs through to our customers so that our profitability is
based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales
levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were 49.1%,
48.4%, and 48.9% of our gross sales in 2017, 2016, and 2015, 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
5
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 eventually 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 our higher rate of inventory turnover of these
products. 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 or including re-pricing triggers if lumber prices change in excess of an agreed upon percentage.
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
$
$
300
50
350
50
400
$
12.5 %
Period 2
400
50
450
50
500
10.0 %
$
6
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and operating 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, operating profits, and selling,
general, and administrative expenses as a method of evaluating our profitability and efficiency.
BUSINESS COMBINATIONS AND ASSET PURCHASES
We completed four business acquisitions during 2017 and six during 2016. The annual historical sales attributable to
acquisitions in 2017 and 2016 were approximately $127 million and $362 million, respectively. These business
combinations were not significant to our operating results individually or in aggregate, and thus pro forma results for
2017 and 2016 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
Year Ended
Net sales
Cost of goods sold
Gross profit
Selling, general, and administrative expenses
Earnings from operations
Other expense (income), net
Earnings before income taxes
Income taxes
Net earnings
Less net earnings attributable to noncontrolling interest
Net earnings attributable to controlling interest
December 30, December 31, December 26,
2016
100.0 %
85.4
14.6
9.6
5.1
0.1
5.0
1.7
3.3
(0.1)
3.1 %
2017
100.0 %
86.2
13.8
9.1
4.6
0.1
4.5
1.3
3.1
(0.1)
3.0 %
2015
100.0 %
86.1
13.9
9.2
4.7
0.2
4.5
1.6
2.9
(0.2)
2.8 %
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:
Maximizing unit sales growth while achieving return on investment goals
7
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Developing new products and expanding our product offering for existing customers. New product sales were
$418.4 million in 2017, $338.6 million in 2016, and $298.0 million in 2015 and are presented by market in the
table below (in thousands).
Market Classification
Retail
Industrial
Construction
Total New Product Sales
$
New Product Sales by Market
Twelve Months Ended
December 31,
2016
191,619
97,718
49,290
338,627
$
$
December 30,
2017
241,009
109,892
67,536
418,437
December 26,
2015
167,938
77,723
52,378
298,039
Note: Certain prior year product reclassifications resulted in a decrease and increase in new product sales in 2016 and 2015,
respectively.
The following table presents, for the periods indicated, our gross sales (in thousands) and percentage change in gross
sales by market classification.
December 30, % December 31, %
December 26,
Year Ended
Market Classification
Retail
Industrial
Construction
Total Gross Sales
Sales Allowances
Total Net Sales
2017
$ 1,493,366
1,334,082
1,178,755
4,006,203
(65,021)
$ 3,941,182
Change
2016
Change
2015
15.4 $ 1,294,273
984,968
35.4
1,018,136
15.8
3,297,377
21.5
14.3
(56,884)
21.6 $ 3,240,493
13.8 $ 1,137,109
890,179
10.6
12.5
905,193
2,932,481
12.4
25.3
(45,410)
12.2 $ 2,887,071
Note: During 2017, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.
8
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
2017 versus 2016
2016 versus 2015
2015 versus 2014
Retail:
% Change
in Sales in Selling Prices
6.6 %
21.5 %
1.2 %
12.4 %
(3.0)%
8.5 %
in Units
14.9 %
11.2 %
11.5 %
Gross sales to the retail market increased over 15% in 2017 compared to 2016 due to a 10% increase in unit sales and a
5% increase in selling prices. Within this market, sales to our big box customers increased 16% while our sales to other
retailers increased 14%. Businesses we acquired contributed 7% to our growth, while new products contributed to our
3% organic unit sales growth. Comparatively, our large retail customers reported year over year same store sales growth
of approximately 8% during the first nine months of 2017, the latest information available to us.
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 primarily consisted of 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 2016.
See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information
concerning acquired businesses.
Industrial:
Gross sales to the industrial market increased 35% in 2017 compared to 2016, resulting from a 29% increase in overall
unit sales and a 6% increase in selling prices. Businesses we acquired contributed 25% to our growth in unit sales. Our
organic unit sales growth of 4% was primarily achieved through share gains including adding 390 new customers during
the year and increasing the number of locations we serve of existing customers by 142 new stores.
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 certain large customers. We believe overall market demand
decreased in 2016 due, in part, to the strong U.S. dollar which impacted our customers with export sales.
See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information
concerning acquired businesses.
Construction:
Gross sales to the construction market increased almost 16% in 2017 compared to 2016, due to a unit sales increase of
7% and a 9% increase in selling prices. Unit sales increased due to a 7% increase in units shipped to residential
construction customers and a 9% increase in shipments to manufactured housing customers while unit sales to
commercial construction customers remained flat. Businesses we acquired in 2017 contributed 1% to unit sales growth.
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparatively, the Mortgage Bankers Association of America reported year over year national housing starts increased
4%, the commercial construction market increased 3% and the National Association of Home Builders reported industry
production of HUD-code homes increased over 15%.
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, the Mortgage Bankers Association of America reported year over year
national housing starts increased 5%, the commercial construction market increased 5%, the National Association of
Home Builders reported industry production of HUD-code homes increased 14%, and modular home starts decreased
1% in 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.
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.
2017
2016
2015
Value-Added
Commodity-Based
36.7 %
37.4 %
40.2 %
63.3 %
62.6 %
59.8 %
COST OF GOODS SOLD AND GROSS PROFIT
Our gross profit percentage decreased from 14.6% in 2016 to 13.8% in 2017 due, in part, to the high level of lumber
prices. This is evident when comparing our increase in gross profits with our increase in units shipped. Our gross profit
dollars increased by over $68 million, or 14%, which is slightly below our 15% increase in unit sales. Our profitability in
2017 was impacted by the following factors:
Approximately $8 million, a 5% increase in our gross profit in the retail market, was attributable to our growth
in unit sales to that market. Businesses we acquired in 2017 contributed $1.6 million of this increase. Our
increase in gross profit was less than our increase in unit sales as a result of (1) Lumber Market volatility,
particularly in the second quarter which is our primary selling season, and (2) the acquisition of Robbins in the
first quarter of 2017, which primarily sells lower margin treated lumber products.
Our growth in unit sales to the industrial market resulted in a $34 million, or 20%, increase in our gross profit,
which was due primarily to businesses we acquired in 2017 and 2016. Our increase in gross profit was less than
our increase in unit sales primarily due to the impact of higher lumber prices on our products sold with fixed
selling prices.
Almost $13 million, or 9%, of our gross profit improvement was due to growth in sales to the residential
construction and manufactured housing markets. Our gross profit increase exceeded our increase in unit sales
10
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
primarily due to leveraging our fixed manufacturing costs, which helped offset the impact of Lumber Market
volatility and higher labor rates and benefit costs.
The remaining $13 million increase in our gross profit was due to a variety of factors including favorable labor
and overhead cost variances, increases in vendor rebates, and a decrease in customer rebates compared to 2017.
Our gross profit percentage increased from 13.9% in 2015 to 14.6% in 2016. Additionally, our gross profit dollars
increased by over $75 million, or 19%, which exceeded our 11% increase in unit sales. The improvement in our
profitability in 2016 is attributable to the following factors:
Approximately $38 million of the increase was 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 to this increase. The gross margin improvement was 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.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses increased by approximately $52.1 million, or 16.7%, in 2017
compared to 2016, while we reported a 15% increase in unit sales. Acquired businesses contributed $41.0 million to our
increase. The remaining increase in SG&A was primarily due to a $11.1 million increase in compensation and related
costs resulting from annual raises, greater benefit costs, and hiring additional personnel to support sales growth. Our
annual incentive bonus expense was almost $44 million compared to $45 million last year. This decrease, in spite of an
increase in profits, was due to a decline in our return on investment, a key performance metric for determining incentive
compensation bonus payments.
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 this
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 our return on investment.
INTEREST, NET
Net interest costs were higher in 2017 compared to 2016, due to a higher outstanding balance on our revolving line of
credit throughout 2017 as well as an increase in the borrowing rate on our revolving credit facility which is tied to
LIBOR.
Net interest costs were lower in 2016 compared to 2015, due to a lower outstanding balance on our revolving line of
credit throughout 2016.
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INCOME TAXES
Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income
taxes, permanent tax differences, and the impact of the Tax Act in the U.S. Our effective tax rate decreased to 29.5% in
2017 compared to 34.3% in 2016. The decrease in the 2017 tax rate is primarily due to the impact of the Tax Act, which
resulted in a $6.4 million reduction in our net deferred tax liability at the end of December 2017. The remaining
decrease was due to increases in tax credits 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.
SEGMENT REPORTING
The following tables present, for the periods indicated, our net sales and earnings from operations by reportable segment
(in thousands).
North
South
West
All Other
Total
North
South
West
All Other
Corporate1
Total
Net Sales
December 26,
2015
December 30,
December 31,
2017
2016
$ 1,133,656 $ 1,000,426 $ 922,092
656,550
1,133,398
175,031
$ 3,941,182 $ 3,240,493 $ 2,887,071
837,370
1,417,924
552,232
711,862
1,251,093
277,112
2017 vs 2016 2016 vs 2015
8.5 %
8.4
10.4
58.3
12.2 %
13.3 %
17.6
13.3
99.3
21.6 %
Earnings from Operations
December 31, December 26,
December 30,
2017
2016
$ 61,326 $ 59,408 $
2015
53,879
30,740
70,220
3,038
(22,410)
$ 181,469 $ 164,438 $ 135,467
46,646
82,465
17,296
(26,264)
47,146
76,875
16,639
(35,630)
2017 vs 2016 2016 vs 2015
10.3 %
53.4
9.5
447.7
(59.0)
21.4 %
3.2 %
(1.1)
7.3
3.9
26.3
10.4
1. Corporate primarily represents over (under) allocated administrative costs and certain incentive compensation expense.
North
Market Classification
Retail
Industrial
Construction
Total Gross Sales
Sales Allowances
Net Sales of North Segment by Market
Twelve Months Ended
December 30, December 31, December 26, % Change
2017
2016
2015
$ 488,871 $ 467,619 $ 416,635
118,315
403,183
938,133
(16,041)
157,365
510,810
1,157,046
(23,390)
115,889
436,928
1,020,436
(20,010)
% Change
2017 vs 2016 2016 vs 2015
12.2
(2.1)
8.4
8.8
24.7
4.5
35.8
16.9
13.4
16.9
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total Net Sales
$ 1,133,656 $ 1,000,426 $ 922,092
13.3
8.5
Net sales attributable to the North reportable segment increased by $133 million, or 13.3%, in 2017, due primarily to the
following factors:
Acquired operations contributed over $29 million to our growth in sales to the industrial market.
Higher lumber prices resulted in an increase in our selling prices.
Organic unit sales growth to the industrial and construction markets was offset slightly by a decrease in unit
sales to the retail market due to a reduction in demand from certain customers.
Earnings from operations for the North reportable segment increased in 2017 by $1.9 million, or 3.2%, due to an
increase in gross profit of $9.2 million, offset by a $7.3 million increase in SG&A expenses compared to last year.
Acquired operations contributed $1.5 million to our operating profits in 2017. Gross profits and SG&A were impacted
by the same factors discussed under “Cost of Goods Sold and Gross Profit” and “Selling, General, and Administrative
Expenses.”
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 by $5.5 million, or 10.3%, due to an
increase in gross profit of $13.6 million, offset by an $8.1 million increase in SG&A expenses compared to the prior
year. 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.
South
Market Classification
Retail
Industrial
Construction
Total Gross Sales
Sales Allowances
Total Net Sales
Net Sales of South Segment by Market
Twelve Months Ended
% Change
2017 vs 2016
December 30, December 31, December 26,
2015
2017
2016
$ 388,784 $ 317,242 $ 288,442
244,380
135,512
668,334
(11,784)
$ 837,370 $ 711,862 $ 656,550
246,849
161,999
726,090
(14,228)
271,005
196,471
856,260
(18,890)
% Change
2016 vs 2015
10.0
1.0
19.5
8.6
20.7
8.4
22.6
9.8
21.3
17.9
32.8
17.6
Net sales attributable to the South reportable segment increased by $125 million, or 17.6%, in 2017, primarily due to the
following factors:
Acquired operations contributed $88.4 million, $5.0 million, and $6.1 million to our retail, industrial, and
construction markets, respectively.
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Higher lumber prices increased our selling prices.
Organic unit sales growth to the construction and industrial markets was offset by a decline in unit sales to the
retail market as a result of transferring our import and export business to our International segment and
management team. Our International segment was formed, among other reasons, to gain efficiencies by
consolidating our international business into one unit.
Earnings from operations for the South reportable segment decreased in 2017 by $0.5 million, or 1.1%, as the increase in
gross profit of $3.9 million was more than offset by a $4.4 million increase in SG&A expenses compared to last year.
Acquired operations contributed $3.5 million to our operating profits in 2017. Our decline in profitability was due to
customer attrition in our East Central and Southeast regions.
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 by $16.4 million, or 53.4%, due to an
increase in gross profit of $17.9 million, offset by a $1.5 million increase in SG&A expenses compared to the prior year.
Additionally, we achieved margin improvements primarily due to improvements in our sales mix of more value-added
products and the closure of certain under-performing operations.
West
Market Classification
Retail
Industrial
Construction
Total Gross Sales
Sales Allowances
Total Net Sales
Net Sales of West Segment by Market
Twelve Months Ended
December 30, December 31, December 26, % Change
2017
2015
2016
$ 439,667 $ 382,117 $ 322,215
458,202
366,483
1,146,900
(13,502)
$ 1,417,924 $ 1,251,093 $ 1,133,398
524,819
470,773
1,435,259
(17,335)
466,209
419,205
1,267,531
(16,438)
% Change
2017 vs 2016 2016 vs 2015
18.6
1.7
14.4
10.5
21.7
10.4
15.1
12.6
12.3
13.2
5.5
13.3
Net sales of the West reportable segment increased by $167 million, or 13.3%, in 2017, primarily due to the following
factors:
Acquired operations contributed $4.9 million, $3.2 million, and $6.8 million to our retail, industrial, and
construction markets, respectively.
Higher lumber prices increased our selling prices.
Organic unit sales growth in each of our markets due to the factors discussed under “Gross Sales”.
Earnings from operations for the West reportable segment increased in 2017 by $5.6 million, or 7.3%, due to an increase
in gross profit of $12.1 million, offset by a $6.5 million increase in SG&A expenses compared to last year due to the
same factors discussed under “Cost of Goods Sold and Gross Profit” and “Selling, General, and Administrative
Expenses.”
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 by $6.7 million, or 9.5%, due to an increase
in gross profit of $15.1 million, offset by a $8.4 million increase in SG&A expenses compared to the prior year. Our
margins increased due to an improvement in our sales mix of value-added products.
All Other
Market Classification
Retail
Industrial
Construction
Total Gross Sales
Sales Allowances
Total Net Sales
Net Sales of All Other Segment by Market
Twelve Months Ended
2015
2017
December 30, December 31, December 26, % Change % Change
2017 vs 2016 2016 vs 2015
15.9
125.2
(75.0)
58.2
52.1
58.3
2016
$ 176,043 $ 127,294 $ 109,818
69,282
12
179,112
(4,081)
$ 552,232 $ 277,112 $ 175,031
38.3
144.1
9,533.3
96.7
(19.6)
99.3
380,892
289
557,224
(4,992)
156,022
3
283,319
(6,207)
Note that prior years have been restated to reflect the reclassification of captive insurance external revenue from the sales allowances line item into the
industrial market. We believe these amounts to be immaterial to the financial statements.
Our All Other reportable segment consists of our Alternative Materials, International, idX, and certain other segments
which are not significant.
Net sales of all other segments increased $275.1 million, or 99.3%, in 2017 primarily due to:
Acquired operations, including idX, contributed $196 million to our sales growth to the industrial market.
Additionally, the Mexico reporting unit of our international segment increased its sales to the industrial market.
Our increase in sales to the retail market was due to the transfer of our import and export business into our
international segment.
Earnings from operations for the All Other reportable segment increased in 2017 by $0.7 million, or 3.9%, due to an
increase in gross profit of $46.5 million, offset by a $45.8 million increase in SG&A expenses compared to last year.
Acquired operations increased earnings from operations by $1.7 million in 2017.
Net sales of all other segments increased $102.1 million, or 58.3%, in 2016 primarily due to:
The idX acquisition on September 16, 2016, which contributed $87.0 million in sales to the industrial market.
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 the All Other reportable segment increased in 2016 by $13.6 million, or 448%, due to an
increase in gross profit of $23.9 million, offset by a $10.3 million increase in SG&A expenses compared to the prior
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
year. The increase was primarily due to the idX acquisition’s contribution during the fourth quarter of 2016 and sales
growth and operational improvements of our Alternative Materials operations and to a lesser extent the performance of
our captive insurance subsidiary, Ardellis.
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 30, 2017 (in thousands).
Contractual Obligation
Long-term debt and capital lease obligations
Estimated interest on long-term debt and capital lease
obligations
Operating leases
Capital project purchase obligations
Total
Less than
1 Year
Payments Due by Period
3 – 5
Years
$ 1,290 $ 62,575 $ 38,878 $ 43,260 $ 146,003
1 – 3
Years
After
5 Years
Total
5,239
19,405
7,743
22,967
73,924
7,743
$ 33,677 $ 93,890 $ 58,777 $ 64,293 $ 250,637
6,174
13,725
—
3,393
17,640
—
8,161
23,154
—
As of December 30, 2017, we also had $26.5 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
December 30, December 31, December 26,
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, cash equivalents, and restricted cash, beginning of year
Cash, cash equivalents, and restricted cash, end of year
2017
2016
136,583
172,520
(137,659) (227,657)
3,211
(1,927)
(53,853)
88,342
2015
168,796
(46,636)
(33,002)
(1,221)
87,937
405
$ 28,816 $ 34,489 $ 88,342
(5,247)
650
(5,673)
34,489
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 these financial ratios are among many other 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.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 increased to 52 days in 2017 from 48 days in 2016.
Days of sales outstanding
Days supply of inventory
Days payables outstanding
Days in cash cycle
Twelve Months Ended
December 30, December 31, December 26,
2017
2016
2015
31
41
(20)
52
31
38
(21)
48
31
43
(21)
53
The increase in our days’ supply of inventory was due to idX as its business requires a higher investment in inventory
due to the long project lead time of its customers.
Our cash flows from operating activities in 2017 was $136.6 million, which was comprised of net earnings of $124.0
million and $47.7 million of non-cash expenses, offset by a $35.1 million increase in working capital since the end of
December 2016. Comparatively, cash generated from operating activities was approximately $172.5 million in 2016,
which was comprised of net earnings of $105.5 million, $48.2 million of non-cash expenses, and an $18.8 million
decrease in working capital since the end of 2015.
Our cash used in investing activities during 2017 was $137.7 million, which was comprised primarily of purchases of
property, plant, and equipment totaling $71.1 million and business acquisitions totaling $60.6 million. The increase in
our capital expenditures in 2017 is primarily due to the additional requirements of our recently acquired operations and
an increase in our “expansionary and efficiency” capital expenditures tied to initiatives including new products, value-
added product capacity expansion, and automation. Outstanding purchase commitments on existing capital projects
totaled approximately $7.7 million on December 30, 2017. The sale and purchase of investments totaling $5.1 million
and $13.5 million, respectively, are due to investment activity in our captive insurance subsidiary.
In 2016, investments in business acquisitions comprised most of our cash used in investing activities 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). Purchases of property, plant, and equipment totaled $53.8 million. Outstanding purchase commitments on existing
capital projects totaled approximately $10.1 million on December 31, 2016.
Cash flows from financing activities primarily consisted of net borrowings under our revolving credit facility of
approximately $35.6 million, offset by $19.6 million in dividend payments. We paid a dividend in June at $0.15 per
share and December at $0.17 per share after considering the impact of our 3 for 1 stock split on November 14, 2017.
Additionally, we had approximately $13.0 million in stock repurchases. Comparatively in 2016, 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.
On December 30, 2017, we had $59.4 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 30, 2017. As a result, we
have approximately $226 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 30, 2017.
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Consolidated Financial Statements, Note M, “Commitments, Contingencies, and Guarantees”.
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United
States. These principles require us to make certain estimates and apply judgments that affect our financial position and
results of operations. We continually review our accounting policies and financial information disclosures. Following is
a summary of our more significant accounting policies that require the use of estimates and judgments in preparing the
financial statements.
ACCOUNTS RECEIVABLE ALLOWANCES
We record provisions against gross revenues for estimated returns and cash discounts in the period when the related
revenue is recorded. These estimates are based on factors that include, but are not limited to, historical discounts taken,
analysis of credit memorandums activity, and customer demand. We also evaluate the allowance for uncollectible
accounts receivable and discounts based on historical collection experience and specific identification of other potential
problems, including the economic climate. Actual collections can differ, requiring adjustments to the allowances.
LONG-LIVED ASSETS AND GOODWILL
We evaluate long-lived assets for indicators of impairment when events or circumstances indicate that this risk may be
present. Our judgments regarding the existence of impairment are based on market conditions, operational performance
and estimated future cash flows. 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 with the exception of the idX and Australian reporting units where a more in-depth analysis was
completed. 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 our annual testing date of October 1, 2017, based on the carryforward method and the analysis, the fair values would
exceed the carrying values for each of the Company’s reporting units.
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
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
consolidated financial statements as of December 30, 2017. 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 30, 2017, there were 30
such contracts in place. Reserves associated with these contracts were $3.4 million at December 30, 2017 and $2.5
million at December 31, 2016, and are accrued based on third party actuarial valuations of the expected future liabilities.
On April 14, 2017 the U.S. Branch of Ardellis Insurance Ltd. was granted its Certificate of Authority to transact property
and casualty insurance lines as an admitted carrier in the State of Michigan.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates. Valuation allowances are established when necessary to
reduce deferred income tax assets to the amounts expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities.
Tax laws are complex and subject to different interpretations by taxpayers and respective government taxing authorities,
which results in judgment in determining our tax expense and in evaluating our tax positions. Our tax positions are
reviewed quarterly and adjusted as new information becomes available.
REVENUE RECOGNITION
Revenue for product sales is recognized at the time the product is shipped to the customer. Generally, title passes at the
time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination.
However, our shipping process is typically completed the same day.
Performance on construction contracts is reflected in operations using percentage-of-completion accounting, under either
the cost to cost or units of delivery methods, depending on the nature of the business at individual operations.
Under percentage-of-completion using the cost to cost method, revenues and related earnings on construction contracts
are measured by the relationships of actual costs incurred related to the total estimated costs. Under percentage-of-
completion using the units of delivery method, revenues and related earnings on construction contracts are measured by
the relationships of actual units produced related to the total number of units per the contract. Revisions in earnings
estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions
19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 long-term sales growth that exceeds positive U.S. 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 core retail, industrial and commercial construction markets;
Identifying new growth opportunities in businesses with adjacencies to our core businesses, primarily through
strategic business acquisitions;
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 3.7% 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.
20
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 capacity 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 a 2% increase in manufactured home shipments in 2018 followed
by a 6% increase in 2019. We currently supply approximately 40% of the trusses used in manufactured housing and we
will strive to maintain our market share of trusses produced for this market.
The Mortgage Bankers Association of America forecasts a 7% increase in national housing starts to an estimated 1.4
million starts in 2018. The National Association of Home Builders forecasts starts of 1.2 million, a 3% increase from
2017. 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 the future:
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, automation, and other initiatives.
21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 2018;
however, our 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 our 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 the construction market. Our sales to these markets require a
higher ratio of SG&A costs due, in part, to product design and engineering requirements.
Sales of new products which generally require higher development, marketing, advertising, and other selling
costs.
Our incentive compensation programs which is 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.
INCOME TAXES
We anticipate an additional 4.5% in our overall effective tax rate in 2018 from 2017 to approximately 25%, which is
driven primarily by a reduction in the U.S. corporate federal tax rate from 35% to 21% as a result of the Tax Act.
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 January 2018, we sold real estate in Medley, Florida, and received $36 million of pretax proceeds and recognized a $7
million pretax gain. We are currently evaluating purchases of other real estate, including replacement capacity of our
Medley plant, which will qualify as a like-kind exchange for U.S. tax purposes and allow us to defer the $25 million tax
gain from the sale.
Additionally, management expects to spend approximately $85 million on capital expenditures, incur depreciation of
approximately $50 million, and incur amortization and other non-cash expenses of approximately $8 million in 2018.
On December 30, 2017, we had outstanding purchase commitments on capital projects of approximately $8 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.
22
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We have no present plan to change our dividend policy, which was recently increased by 13% to a semi-annual rate of
$0.17 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 30, 2017, we
have authorization to buy back approximately 2.7 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.
23
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 30, 2017, 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 30, 2017, our internal control over financial reporting was effective.
The effectiveness of the Company’s internal control over financial reporting has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their report, which follows our report.
Universal Forest Products, Inc.
February 28, 2018
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Universal Forest Products, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Universal Forest Products, Inc. and subsidiaries (the
“Company”) as of December 30, 2017, based on criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 30,
2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 30, 2017, of the
Company and our report dated February 28, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
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 are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
February 28, 2018
25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Universal Forest Products, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Universal Forest Products, Inc. and subsidiaries (the
"Company") as of December 30, 2017 and December 31, 2016, 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
30, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 30, 2017 and
December 31, 2016, and the results of its operations and its cash flows for each of the three years in the period ended
December 30, 2017, 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) (PCAOB), the Company's internal control over financial reporting as of December 30, 2017, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 28, 2018, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
February 28, 2018
We have served as the Company's auditor since 2014.
26
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
RESTRICTED INVESTMENTS
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
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:
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,191,888
and 61,026,207
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total controlling interest shareholders’ equity
Noncontrolling interest
TOTAL SHAREHOLDERS’ EQUITY
December 30,
2017
December 31,
2016
$
28,339 $
11,269
477
327,751
234,354
225,954
460,308
7,228
28,115
863,487
1,865
8,359
7,368
212,644
7,415
34,910
134,916
213,384
372,628
25,251
16,922
763,101
(434,472)
328,629
1,464,677
$
25,851 $
140,106
97,556
38,404
1,329
303,246
144,674
14,079
28,655
490,654
$
$
34,091
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
699,462
(401,611)
297,851
1,292,058
19,761
124,660
92,441
32,281
2,634
271,777
109,059
20,817
29,939
431,592
$
— $
—
61,192
161,928
736,212
144
959,476
14,547
974,023
1,464,677 $
61,026
144,649
649,135
(5,630)
849,180
11,286
860,466
1,292,058
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
See notes to consolidated financial statements.
27
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(in thousands, except per share data)
NET SALES
COST OF GOODS SOLD
GROSS PROFIT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NET (GAIN) LOSS ON DISPOSITION OF ASSETS
EARNINGS FROM OPERATIONS
INTEREST EXPENSE
INTEREST INCOME
EQUITY IN EARNINGS OF INVESTEE
EARNINGS BEFORE INCOME TAXES
INCOME TAXES
NET EARNINGS
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING
INTEREST
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST
EARNINGS PER SHARE - BASIC
EARNINGS PER SHARE - DILUTED
December 30,
2017
Year Ended
December 31,
2016
December 26,
2015
$ 3,941,182 $ 3,240,493 $ 2,887,071
2,487,167
399,904
264,265
172
135,467
5,133
(294)
(374)
4,465
131,002
45,870
85,132
3,398,356 2,765,903
474,590
310,152
—
164,438
4,575
(541)
(267)
3,767
160,671
55,174
105,497
542,826
362,220
(863)
181,469
6,218
(731)
(25)
5,462
176,007
51,967
124,040
(4,528)
119,512 $
(4,318)
101,179 $
(4,537)
80,595
1.95 $
1.94 $
1.66 $
1.65 $
1.33
1.33
$
$
$
OTHER COMPREHENSIVE INCOME:
OTHER COMPREHENSIVE GAIN (LOSS)
COMPREHENSIVE INCOME
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO
NONCONTROLLING INTEREST
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING
INTEREST
6,130
130,170
(2,703)
102,794
(7,257)
77,875
(4,884)
(2,660)
(3,213)
$
125,286 $
100,134 $
74,662
See notes to consolidated financial statements.
28
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share and per share data)
Balance at December 27, 2014
Net earnings
Foreign currency translation adjustment
Unrealized gain (loss) on investment
Noncontrolling interest associated with business
acquisitions
Distributions to noncontrolling interest
Purchases of noncontrolling interest
Cash dividends - $0.133 & $0.140 per share -
semiannually
Issuance of 90,639 shares under employee stock plans
Issuance of 226,812 shares under stock grant programs
Issuance of 195,162 shares under deferred
compensation plans
Repurchase of 40,839 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
Net earnings
Foreign currency translation adjustment
Unrealized gain (loss) on investment
Noncontrolling interest associated with business
acquisitions
Distributions to noncontrolling interest
Net purchase and dissolution of noncontrolling interest
Cash dividends - $0.140 & $0.150 per share -
semiannually
Issuance of 20,439 shares under employee stock plans
Issuance of 407,271 shares under stock grant programs
Issuance of 173,370 shares under deferred
compensation plans
Expense associated with share-based compensation
arrangements
Accrued expense under deferred compensation plans
Balance at December 31, 2016
Net earnings
Foreign currency translation adjustment
Unrealized gain (loss) on investment & foreign
currency
Distributions to noncontrolling interest
Additional purchases of noncontrolling interest
Net purchase and dissolution of noncontrolling interest
Cash dividends - $0.150 & $0.170 per share -
semiannually
Issuance of 23,691 shares under employee stock plans
Issuance of 428,622 shares under stock grant programs
Issuance of 159,108 shares under deferred
compensation plans
Repurchase of 445,740 shares
Expense associated with share-based compensation
arrangements
Accrued expense under deferred compensation plans
Balance at December 30, 2017
$
$
$
Controlling Interest Shareholders’ Equity
Accumulated
Other
Employees
Common
Stock
59,952 $ 122,515 $ 502,334 $
Retained
Earnings
$
Additional
Paid-In
Capital
Comprehensive
Stock Notes Noncontrolling
Earnings
Receivable
Interest
Total
1,348 $
(455) $
80,595
(5,892)
(41)
(16,507)
13,866 $
4,537
(1,324)
1,019
(3,188)
(1,256)
—
91
227
195
(40)
984
1,685
(195)
26
370
1,846
4,048
(786)
304
60,425 $ 131,279 $ 565,636 $
(4,585) $
101,179
151
— $
(1,316)
271
13,654 $
4,318
(1,658)
—
(3,280)
(1,748)
(17,680)
856
515
4,890
(173)
21
407
173
2,208
5,074
61,026 $ 144,649 $ 649,135 $
119,512
24
429
159
(446)
(19,607)
637
5,769
(159)
297
(12,828)
3,618
7,117
61,192 $ 161,928 $ 736,212 $
(5,630) $
— $
5,070
704
11,286 $
4,528
356
(4,032)
2,409
—
144 $
— $
14,547 $
699,560
85,132
(7,216)
(41)
1,019
(3,188)
(1,256)
(16,507)
1,075
1,912
—
(496)
370
1,846
4,048
151
766,409
105,497
(2,974)
271
—
(3,280)
(892)
(17,680)
536
5,297
—
2,208
5,074
860,466
124,040
5,426
704
(4,032)
2,409
—
(19,607)
661
6,198
—
(12,977)
3,618
7,117
974,023
See notes to consolidated financial statements
29
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 30,
2017
Year Ended
December 31,
2016
December 26,
2015
$
124,040 $
105,497 $
85,132
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation
Amortization of intangibles
Expense associated with share-based and grant compensation arrangements
Expense tax benefits from share-based compensation arrangements
Deferred income taxes (credits)
Equity in earnings of investee
Net (gain) loss on disposition 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
Repayments of debt of acquiree
Purchase and dissolution of remaining noncontrolling interest in subsidiary
Advances of notes receivable
Collections on notes receivable
Purchases of investments
Proceeds from sale of investments
Other
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities
Repayments under revolving credit facilities
Borrowings of debt
Repayment of debt
Proceeds from issuance of common stock
Dividends paid to shareholders
Distributions to noncontrolling interest
Repurchase of common stock
Other
NET CASH FROM (USED IN) FINANCING ACTIVITIES
Effect of exchange rate changes on cash
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents, beginning of period
Restricted cash, beginning of period
Cash, cash equivalents, and restricted cash, beginning of period
Cash and cash equivalents, end of period
Restricted cash, end of period
Cash, cash equivalents, and restricted cash, end of period
SUPPLEMENTAL INFORMATION:
Interest paid
Income taxes paid
NON-CASH INVESTING ACTIVITIES
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
$
$
$
$
$
$
$
30
48,536
4,860
3,805
—
(8,629)
(25)
(863)
(30,787)
(49,262)
21,159
23,749
136,583
(71,116)
2,919
(60,587)
—
—
(234)
1,509
(13,518)
5,103
(1,735)
(137,659)
758,287
(722,725)
8,525
(13,347)
660
(19,607)
(4,032)
(12,977)
(31)
(5,247)
650
(5,673)
34,489
28,816
34,091
398
34,489
28,339
477
28,816
6,020
56,663
—
5,116
—
—
$
$
$
$
$
$
$
40,823
2,795
2,335
—
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
(2,011)
(227,657)
131,002
(107,294)
—
—
536
(17,680)
(3,280)
—
(73)
3,211
(1,927)
(53,853)
88,342
34,489
87,756
586
88,342
34,091
398
34,489
4,550
57,311
—
4,353
—
—
$
$
$
$
$
$
$
37,710
3,531
1,955
(33)
(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
95
(46,636)
297,711
(311,271)
—
—
1,074
(16,507)
(3,188)
(800)
(21)
(33,002)
(1,221)
87,937
405
88,342
-
405
405
87,756
586
88,342
5,118
42,767
389
3,461
300
14,195
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 interior fixtures used in retail and commercial structures 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 2017, 2016, and 2015 relate to the fiscal years ended December 30, 2017, December 31, 2016, and
December 26, 2015, respectively. Fiscal year 2016 was comprised of 53 weeks, which contributed an additional $60
million in sales in 2016 compared to fiscal years 2017 and 2015, 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.
31
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 $0.5 million and $0.4 million
as of December 30, 2017 and December 31, 2016, respectively.
In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update
(ASU) No. 2016-18, “Statement of Cash Flows (Topic 230)” (ASU 2016-18). Under ASU 2016-18, an entity will be
required to explain changes in the statement of cash flows during the period in the total of cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this
update should be applied using retrospective transition method to each period presented. Companies are required to
adopt the new standard for fiscal years beginning after December 15, 2017. Early adoption of ASU 2016-18 is permitted,
including adoption in an interim period. The Company has early adopted this standard during the first quarter of 2017.
INVESTMENTS
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):
Additions
Charged to
Beginning Costs and
Ending
Balance Expenses Deductions* Balance
Year Ended December 30,2017:
Allowance for possible losses on accounts receivable
$ 2,845 $ 28,102 $ (28,523) $ 2,424
Year Ended December 31, 2016:
Allowance for possible losses on accounts receivable
$ 2,672 $ 28,405 $ (28,232) $ 2,845
Year Ended December 26, 2015:
Allowance for possible losses on accounts receivable
$ 2,390 $ 20,538 $ (20,256) $ 2,672
*
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.
32
Accounts receivable retainage amounts related to long term construction contracts totaled $4.8 million and $6.0
million as of December 30, 2017 and December 31, 2016, respectively. All amounts are expected to be collected within
18 months. Concentration of accounts receivable related to our largest customer totaled $55.9 million and $34.0 million
as of December 30, 2017 and December 31, 2016, respectively.
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 $14.8 million as of December 30, 2017 and $12.2 million as of December 31, 2016.
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 for annual and interim periods beginning after December 15, 2018. Early adoption of
ASU 2016-02 is permitted. The FASB has tentatively decided to amend certain aspects of its new leasing standard in an
attempt to provide a relief from implementation costs. Specifically, entities may elect not to restate their comparative
periods in the period of adoption when transitioning to the new standard. The Company plans to continue to evaluate the
effect of the new leasing guidance in 2018; therefore, the quantitative impact has not yet been determined however the
Company anticipates only a balance sheet impact.
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.
33
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. On April
14, 2017 the U.S. Branch of Ardellis Insurance Ltd. was granted its Certificate of Authority to transact property and
casualty insurance lines as an admitted carrier in the State of Michigan.
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 30, 2017 and December 31, 2016. Our policy is to accrue amounts equal to
actuarially determined or internally computed liabilities. The actuarial and internal valuations are based on historical
information along with certain assumptions about future events. Changes in assumptions for such matters as legal
actions, medical cost trends, and changes in claims experience could cause these estimates to change in the future.
In addition to providing coverage for the Company, Ardellis provides Excess Loss Insurance (primarily medical
and prescription drug) to certain third parties. As of December 30, 2017, Ardellis had 30 such contracts in place.
Reserves associated with these contracts were $3.4 million at December 30, 2017 and $2.5 million at December 31,
2016, 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.
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. The Company is currently finalizing its evaluation of the impact of adopting this new guidance,
which is not expected to materially impact the Company's financial condition or results of operations. The five-step
model has been applied to existing contracts with customers, and based upon this review, the Company does not expect
the adoption of ASU 2014-09 to have a material quantitative impact on its consolidated financial statements, as the
timing of revenue recognition for product sales will continue to occur at the point of shipment. Other types of revenue,
such as installation and framing, which are immaterial to our total revenue, will continue to be recognized over the
appropriate period of time. As required by the standard, the Company expects to make additional disclosures related to
the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company will
adopt this standard in the first quarter of fiscal year 2018 using the modified retrospective.
34
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 30, 2017 and
December 31, 2016 which are included in other current assets and other accrued liabilities, respectively (in thousands):
Cost and Earnings in Excess of Billings
Billings in Excess of Cost and Earnings
SHIPPING AND HANDLING OF PRODUCT
December 30,
2017
December 31,
2016
$
5,005 $
4,435
2,573
4,748
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), which incorporate the retroactive
effect of the Company’s 3 for 1 stock split:
Numerator:
December 30, December 31, December 26,
2017
2016
2015
Net earnings attributable to controlling interest
Adjustment for earnings allocated to non-vested restricted common stock
Net earnings for calculating EPS
(2,225)
$ 117,287 $
$ 119,512 $ 101,179 $
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
(1,595)
99,584 $
61,089
(963)
60,126
99
60,225
80,595
(1,059)
79,536
60,552
(795)
59,757
108
59,865
61,416
(1,143)
60,273
90
60,363
$
$
1.95 $
1.94 $
1.66 $
1.65 $
1.33
1.33
35
No options were excluded from the computation of diluted EPS for 2017, 2016, or 2015.
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:
(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
Total
Assets at fair value
Quoted
Prices in
Active
Markets
(Level 1)
December 30, 2017
Prices with
Other
Observable
Inputs
(Level 2)
$
64 $
1,182
10,710
3,071 $
6,974
—
Quoted
Prices in
Active
Markets
(Level 1)
December 31, 2016
Prices with
Other
Observable
Inputs
(Level 2)
64 $
1,676
5,609
178 $
2,592
—
Total
242
4,268
5,609
Total
3,135 $
8,156
10,710
367
91
270
209
937
—
—
—
—
—
367
91
270
209
937
$
$
12,893 $ 10,045 $ 22,938 $
12,893 $ 10,045 $ 22,938 $
760
72
235
201
1,268
8,617 $
8,617 $
—
—
—
—
—
760
72
235
201
1,268
2,770 $ 11,387
2,770 $ 11,387
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.
During 2017, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”) transferred $4.1 million in fixed income
securities from its Investment Account and purchased an additional $4.1 million in fixed income securities which are
held in a newly formed collateral trust account in line with regulatory requirements in the State of Michigan to allow
Ardellis to act as an admitted carrier in the State. These funds are intended to safeguard the insureds of the Michigan
Branch of Ardellis. The funds are classified as “Restricted Investments”.
36
In accordance with our investment policy, our wholly-owned company, Ardellis Insurance Ltd. ("Ardellis"),
maintains an investment portfolio, totaling $18.9 million as of December 30, 2017, consisting of mutual funds, domestic
and international stocks, and fixed income bonds.
Ardellis’ available for sale investment portfolio consists of the following:
Fixed Income
Equity
Mutual Funds
Total
December 30,2017
Unrealized
Gain/(Loss) Fair Value Cost
Cost
$ 8,170 $
9,185
—
(14) $ 8,156 $ 4,310 $
1,524 10,709
—
—
5,181
481
$ 17,355 $ 1,510 $ 18,865 $ 9,972 $
December 31,2016
Unrealized
Gain/(Loss) Fair Value
(43) $ 4,267
5,609
428
472
(9)
376 $ 10,348
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 $1.5 million. Carrying amounts above are recorded in the investments and restricted investments line items
within the balance sheet as of December 30, 2017. During 2017, Ardellis reported a net realized gain of $256 thousand
which was recorded in interest income on the statement of earnings.
C.
BUSINESS COMBINATIONS
We completed the following business combinations in fiscal 2017 and 2016, which were accounted for using
the purchase method (in thousands).
Company
Name
Silverwater Box
Acquisition
Date
October 16, 2017
Purchase Price
$931
cash paid for 100% asset
purchase
$
Net
Intangible
Assets
Tangible Operating
Segment
Assets
909 $
22 All Other
A manufacturer and distributor of total packaging solutions in timber, plastic, steel, fiberglass,
and cardboard. Silverwater Box has annual sales of approximately $2.8 million. The
acquisition of Silverwater Box allows us to make progress on our goal of becoming a global
provider of packaging solutions.
May 26, 2017
$5,042
cash paid for 100% asset
purchase
$
4,880 $
162
South
Go Boy Pallets, LLC ("Go Boy") A manufacturer and distributor of industrial pallets and packaging in Georgia and North
Carolina. Go Boy has annual sales of approximately $8 million. The acquisition of Go Boy
enabled us to expand our industrial packaging product offering and lumber sourcing in this
region.
March 6, 2017
$31,818
cash paid for 100% asset
purchase
$
7,653 $
24,165
South
Robbins Manufacturing Co.
("Robbins")
A manufacturer of treated wood products with facilities in Florida, Georgia, and North
Carolina. Robbins has annual sales of approximately $86 million. The acquisition of Robbins
allowed us to expand our presence in this region and serve customers more cost effectively.
37
Company
Name
Acquisition
Date
March 6, 2017
Purchase Price
$22,789
cash paid for 100% asset
purchase
$
Net
Intangible
Assets
Tangible Operating
Segment
Assets
14,341 $
8,448 North
Quality Hardwood Sales, LLC
("Quality")
A manufacturer and supplier of hardwood products, including components of cabinets used in
homes and recreational vehicles. Quality has annual sales of approximately $30 million. The
acquisition of Quality enabled us to expand our product offering to include hardwood-based
products.
The UBEECO Group Pty. Ltd.
("Ubeeco")
November 29, 2016
$9,449
cash paid for 100% stock
purchase
$
8,553 $
896 All Other
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. The acquisition of
Ubeeco allows us to make progress on our goal of becoming a global provider of packaging
solutions.
September 16, 2016
$66,691
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.
$
17,455 $
49,236 All Other
A designer, manufacturer, and installer of customized interior fixtures and related products
used in a variety of commercial structures. idX had annual sales of $300 million. The
acquisition of idX enables us to enhance our design, product and service offering to become a
tier 1 supplier of interior fixtures to retail customers, and continue to use idX's capabilities to
continue to develop new markets for growth. Our goal is to achieve long-term synergies,
including:
idX Holdings, Inc. ("idX")
a. Eliminating redundant administrative support costs.
b.
c.
d.
e.
Using the scale advantage of the Company to reduce material costs of
common raw materials.
Utilizing manufacturing capacity of certain existing locations to supply
idX.
Utilizing idX’s international footprint to identify sourcing opportunities
for certain products.
Cross selling one another’s products and services with our respective
customers.
f. Collaborating on new product development.
July 29, 2016
$1,246
cash paid for asset
purchase
$
405 $
841 North
Seven D Truss, L.P.
A manufacturer and distributor of roof and floor trusses. 7D had annual sales of approximately
$4.0 million. The acquisition of 7D gave us the opportunity to consolidate operations with our
Gordon, Pennsylvania location.
June 30, 2016
$10,787
cash paid for 100% stock
purchase plus $500
holdback.
$
6,817 $
4,248 West
Idaho Western, Inc. ("IWI")
A supplier of products ranging from lumber and plywood to siding and doors. IWI had annual
sales of approximately $21 million. The acquisition of IWI allowed us to expand our presence
in Boise, Idaho and consolidate with our Rapid Wood operations.
38
Company
Name
Acquisition
Date
November 24, 2014
(majority interest)
April 15, 2016
(minority interest)
Purchase Price
$7,506
November 24, 2014
cash paid for controlling
interest and
$1,877
cash paid for
noncontrolling asset
purchase
Net
Intangible
Assets
Tangible Operating
Segment
Assets
$
7,885 $
1,498 West
Packnet Ltd ("Packnet")
A supplier of industrial packaging and services based in Eagan, MN. Packnet had annual sales
of $9.6 million. The acquisition of Packnet gave us the opportunity to expand our presence in
the region.
April 15, 2016
$1,682
cash paid for asset
purchase plus
$205
assumed liability
$
— $
1,887 North
Capital Components & Millwork, Inc.
("CCM")
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. The acquisition of CCM
allowed us to expand our product offering in the Washington, D.C. area.
The intangible assets for each acquisition were finalized and allocated to their respective identifiable intangible
asset and goodwill accounts during 2017, excluding Silverwater Box.
At December 30, 2017, the amounts assigned to major intangible classes for the business combinations
mentioned above are as follows (in thousands):
Silverwater Box
Go Boy
Robbins
Quality
Ubeeco
idX
7D
IWI
Tax
Customer
— $
— $
Goodwill -
Non-
Compete
Agreements Relationships Tradename Goodwill Deductible
—
$
4,880
7,653
14,341
—
—
405
—
909 $
—
3,113
7,391
3,948
4,500 10,325
—
1,070 3,177
4,655
3,530
5,720
3,847
—
—
2,570
225
560
830
183
2,630
405
—
— $
—
450
400
575
—
The business combinations mentioned above were not significant to our operating results individually or in
aggregate, and thus pro forma results for 2017 and 2016 are not presented.
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
39
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 30,
2017 and December 31, 2016, are as follows (in thousands):
Balance as of December 26, 2015
2016 Acquisitions
Foreign Exchange, Net
Balance as of December 31, 2016
2017 Acquisitions
Foreign Exchange, Net
Balance as of December 30, 2017
Total
North
West
All Other
—
—
South
43,253 43,625 84,553
—
133
3,177 14,329
(94)
9,559 180,990
17,506
39
43,386 43,625 87,730 23,794 198,535
11,413
2,696
$ 51,127 $ 46,738 $ 87,730 $ 27,049 $ 212,644
3,113
—
7,391
350
909
2,346
—
—
—
Indefinite-lived intangible assets totaled $7.4 million and $2.3 million as of December 30, 2017 and
December 31, 2016 related to the idX, International, and Consumer Products reporting units which is included in the All
Other reportable segment.
The following amounts were included in other amortizable intangible assets, net as of December 30, 2017 and
December 31, 2016 (in thousands):
Non-compete agreements
Customer relationships
Licensing agreements
Patents
Tradename
Total
Assets
Assets
2017
Accumulated
Amortization
2016
Accumulated
Amortization
$ 9,841 $ (4,208) $ 5,411 $ (1,954)
(4,351)
(2,991)
(180)
—
$ 49,272 $ (14,362) $ 36,207 $ (9,476)
25,503
4,589
704
—
31,630
4,589
792
2,420
(5,986)
(3,450)
(254)
(464)
Amortization is computed principally by the straight-line method over the estimated useful lives of the
intangible assets as follows:
Intangible Asset Type
Non-compete agreements
Customer relationship
Licensing agreements
Tradename (amortizable)
Weighted Average
Estimated Useful Life Amortization Period
7.1 years
13.5 years
10 years
12.9 years
5 to 15 years
5 to 15 years
10 years
5 to 15 years
Amortization expense of intangibles totaled $4.9 million, $2.8 million and $3.5 million in 2017, 2016 and 2015,
respectively. The estimated amortization expense for intangibles for each of the five succeeding fiscal years is as follows
(in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
$
$
4,879
4,264
3,234
2,979
2,676
16,878
34,910
40
F.
DEBT
On December 17, 2012, we entered into an unsecured Note Purchase Agreement (the "Agreement") under
which we issued our 3.89% Series 2012 A Senior Notes, due December 17, 2022, in the aggregate principal amount of
$35 million and our 3.98% Series 2012 B Senior Notes, due December 17, 2024, in the aggregate principal amount of
$40 million. Proceeds from the sale of the Series A Senior Notes and Series B Senior Notes were used to repay amounts
due on our existing Series 2002-A Senior Notes, Tranche B totaling $40 million and our revolving credit facility.
On November 3, 2014, the Company entered into a five-year, $295 million unsecured revolving credit facility
with a syndicate of U.S. banks led by JPMorgan Chase Bank, N.A., as administrative agent and Wells Fargo Bank, N.A.,
as syndication agent. The facilities include up to $45 million which may be advanced in the form of letters of credit, and
up to $100 million (U.S. dollar equivalent) which may be advanced in Canadian dollars, Australian dollars, pounds
Sterling, Euros and such other foreign currencies as may subsequently be agreed upon among the parties. This facility
replaced our $265 million unsecured revolving credit facility. Cash borrowings are charged interest based upon an index
selected by the Company, plus a margin that is determined based upon the index selected and upon the financial
performance of the Company and certain of its subsidiaries. The Company is charged a facility fee on the entire amount
of the lending commitment, at a per annum rate ranging from 15 to 32.5 basis points, also determined based upon the
Company’s performance. The facility fee is payable quarterly in arrears.
Outstanding letters of credit extended on our behalf on December 30, 2017 and December 31, 2016 aggregated
$26.5 million and $25.5 million; respectively, which includes approximately $9.8 million related to industrial
development revenue bonds. The Company had an outstanding balance of $59.4 million and 23.9 million on its revolver
at December 30, 2017, and December 31, 2016, respectively. After considering letters of credit, the Company had
$225.7 million and $261.3 million in remaining availability on its revolver on December 30, 2017, and December 31,
2016, respectively. 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.
41
Long-term debt obligations are summarized as follows on December 30, 2017 and December 31, 2016
(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 (2.41% on December 30, 2017 and 1.67% on December
31, 2016)
Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest
payable monthly at a floating rate (1.08% on December 30, 2017 and 0.52% on
December 31, 2016)
Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest
payable monthly at a floating rate (1.14% on December 30, 2017 and 0.59% on
December 31, 2016)
Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest
payable monthly at a floating rate (1.13% on December 30, 2017 and 0.57% on
December 31, 2016)
Capital leases and foreign affiliate debt
Less current portion
Less debt issuance costs
Long-term portion
2017
2016
$ 35,000 $ 35,000
40,000
40,000
59,422
23,860
3,300
3,300
2,700
2,700
3,700
2,058
146,180
(1,329)
(177)
3,700
3,336
111,896
(2,634)
(203)
$ 144,674 $ 109,059
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 30, 2017 and December 31, 2016.
On December 30, 2017, the principal maturities of long-term debt and capital lease obligations are as follows
(in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
$
1,329
59,737
2,891
135
38,788
43,300
$ 146,180
On December 30, 2017, the estimated fair value of our long-term debt, including the current portion, was
$148.0 million, which was $1.8 million more than the carrying value. The estimated fair value is based on rates
anticipated to be available to us for debt with similar terms and maturities. 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
42
agreements for periods of one to ten years. Future minimum payments under non-cancelable operating leases on
December 30, 2017 are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
Operating
Leases
19,405
13,187
9,967
7,778
5,947
17,640
73,924
$
$
Rent expense was approximately $22.3 million, $10.5 million, and $6.3 million in 2017, 2016, and 2015,
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 $2.0
million and $2.4 million on December 30, 2017 and December 31, 2016, 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 $1.0 million and $0.9
million on December 30, 2017 and December 31, 2016 respectively, and are included in "Other Assets." Related
liabilities totaled $22.6 million and $17.4 million on December 30, 2017 and December 31, 2016, respectively, and are
included in "Other Liabilities" and "Shareholders’ Equity." Assets associated with the Plan are recorded at fair market
value. The related liabilities are recorded at fair market value, with the exception of obligations associated with
investments in our stock which are recorded at the market value on the date of deferral.
I.
COMMON STOCK
In April 2002, our shareholders approved the 2002 Employee Stock Purchase Plan ("Stock Purchase Plan") to
succeed the Employee Stock Purchase Plan originally approved in 1994. In April 2008, our shareholders authorized
additional shares to be allocated to the Stock Purchase Plan and extended the term of the Stock Purchase Plan to 2018.
The plan allows eligible employees to purchase shares of our stock at a share price equal to 85% of fair market value on
the purchase date. We have expensed the fair value of the compensation associated with these awards, which
approximates the discount. The amount of expense is nominal.
In April 1994, our shareholders approved the Directors’ Retainer Stock Plan ("Stock Retainer Plan"). In
April 2007, our shareholders authorized additional shares to be issued pursuant to this plan. The Stock Retainer Plan
allows eligible members of the Board of Directors to defer the cash portion of their retainer and committee fees and
receive shares of our stock at the time of or following their retirement, disability or death. The number of shares to be
received is equal to the amount of the cash portion of their retainer and committee fees 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 $1.7 million in
43
2017, $0.7 million in 2016, and $0.6 million in 2015. 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.
On October 18, 2017, the Board of Directors approved a three-for-one split of the Company's outstanding
shares of common stock effected as a stock dividend. On November 14, 2017, shareholders of record as of October 31,
2017, received two additional shares for each share held on the record date.
There is no unrecognized compensation expense remaining for stock options in 2017, 2016, and 2015.
A summary of the nonvested restricted stock awards granted under the LTSIP is as follows:
Nonvested at December 27, 2014
Granted
Vested
Forfeited
Nonvested at December 26, 2015
Granted
Vested
Forfeited
Nonvested at December 31, 2016
Granted
Vested
Forfeited
Nonvested at December 30, 2017
Restricted
Awards
771,258
228,963
(364,926)
(11,547)
623,748
350,892
(180,465)
(2,643)
791,532
388,248
(141,111)
(5,043)
1,033,626 $
Weighted-
Average Grant
Date Fair Value
12.13
18.00
12.87
16.28
13.66
23.96
15.66
21.45
19.32
32.03
12.71
30.14
24.24 $
Weighted-
Unrecognized Average
Compensation Period to
Recognize
Expense
1.7 1.81 years
Expense
(in millions)
5.2 2.53 years
4.8 1.51 years
7.1 1.31 years
Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation expense of $3.6 million,
$2.2 million, and $1.8 million and the related total income tax benefits of $1.0 million, $1.1 million, and $0.9 million in
2017, 2016 and 2015, respectively.
In 2017, 2016 and 2015, cash received from option exercises and share issuances under our plans was $0.7
million, $0.5 million and $1.1 million, respectively. The actual tax benefit realized in 2017, 2016 and 2015 for the tax
deductions from option exercises totaled $0.0 million, $0.0 million and $0.4 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
445,740 and 0 shares under this program in 2017 and 2016, respectively. As of December 30, 2017, the cumulative total
authorized shares available for repurchase is approximately 2.7 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
44
Board of Directors. We matched 25% of employee contributions in 2017, 2016, and 2015, on a discretionary basis,
totaling $4.8 million, $4.4 million, and $2.4 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 certain
officers of the Company (who have at least 20 years of service with the Company and at least 10 years of service as an
officer) 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 $7.8 million and $6.5 million are accrued in “Other Liabilities”
for this plan at December 30, 2017 and December 31, 2016, respectively.
K.
INCOME TAXES
Income tax provisions for the years ended December 30, 2017, December 31, 2016, and December 26, 2015 are
summarized as follows (in thousands):
2017
2016
2015
Currently Payable:
Federal
State and local
Foreign
Net Deferred:
Federal
State and local
Foreign
$ 44,413 $ 42,397 $ 34,672
6,643
5,599
46,914
8,579
6,240
59,232
6,341
6,143
54,881
(7,681)
(864)
1,280
(7,265)
(1,104)
96
(36)
(1,044)
$ 51,967 $ 55,174 $ 45,870
(455)
438
310
293
The components of earnings before income taxes consist of the following:
2017
2016
2015
U.S.
Foreign
Total
reasons:
The effective income tax rates are different from the statutory federal income tax rates for the following
$ 151,395 $ 140,106 $ 115,231
15,771
$ 176,007 $ 160,671 $ 131,002
20,565
24,612
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
Impact of Tax Act and reduction of corporate tax rate
Effective income tax rate
2017
2016
2015
35 %
3.0
(0.2)
(2.5)
(2.0)
0.4
(0.1)
(0.6)
(3.5)
29.5 %
35 %
3.1
(0.2)
(2.4)
(1.4)
0.4
0.1
(0.3)
—
34.3 %
35 %
3.6
(0.3)
(2.4)
(1.6)
0.3
0.7
(0.3)
—
35.0 %
45
Temporary differences which give rise to deferred income tax assets and (liabilities) on December 30, 2017 and
December 31, 2016 are as follows (in thousands):
Employee benefits
Net operating loss carryforwards
Foreign subsidiary capital loss carryforward
Other tax credits
Inventory
Reserves on receivables
Accrued expenses
Other, net
Gross deferred income tax assets
Valuation allowance
Deferred income tax assets
Depreciation
Intangibles
Other, net
Deferred income tax liabilities
Net deferred income tax liability
2017
2016
$ 17,048 $ 13,375
13,605
509
1,196
2
1,208
8,931
2,323
41,149
(5,371)
35,778
(29,971)
(25,078)
—
(55,049)
$ (12,214) $ (19,271)
8,592
546
709
358
714
2,060
1,879
31,906
(4,706)
27,200
(19,992)
(19,422)
—
(39,414)
As of December 30, 2017, the company had federal, state and foreign net operating loss carryforwards of $8.6
million and state tax credit carryforwards of $0.5 million, which will expire at various dates. The Company also has a
$0.2 million federal alternative minimum tax credit which it expects to be refunded.
The NOL and credit carryforwards expire as follows:
2017 – 2021
2022 - 2026
2027 - 2031
2032 - 2036
Thereafter
Total
State
Net Operating Losses
U.S.
$
Tax Credits
Foreign U.S. State
— $ 356 $ 2,106 $ — $ 270
233
—
—
—
—
3,431
—
—
$ 3,431 $ 2,575 $ 2,586 $ — $ 503
—
—
—
—
243
156
—
81
391
605
804
419
As of December 30, 2017, 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.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the ”Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect
2017, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign
subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified
property.
The Tax Act also established new tax laws that will affect 2018, including, but not limited to, (1) reduction of the U.S.
federal corporate tax rate; (2) elimination of the corporate alternative minimum tax (AMT); (3) the creation of the base
erosion anti-abuse tax (BEAT), a new minimum tax: (4) a general elimination of U.S. federal income taxes on dividends
from foreign subsidiaries; (5) a new provision designed to tax global intangible low-taxed income (GILTI), which allows
46
for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax
liability (subject to some limitations); (6) a new limitation on deductible interest expense; (7) the repeal of the domestic
production activity deduction; (8) limitations on the deductibility of certain executive compensation; (9) limitations on
the use of FTCs to reduce the U.S. income tax liability; and (10) limitations on net operating losses (NOLs) generated
after December 31, 2017, to 80 percent of taxable income.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118
provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies
to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects
of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s
accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it
must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to
be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws
that were in effect immediately before the enactment of the Tax Act.
In connection with our initial analysis of the impact of the Tax Act, we have recorded a discrete net tax benefit of $6.1
million in the period ending December 30, 2017. This net benefit primarily consists of (1) a net benefit for the corporate
rate reduction of $8.2 million; (2) a net expense for the write-down of deferred tax assets for stock based compensation
that will no longer be deductible for $1.9 million; and (3) a net expense for the transition tax of $0.2 million. For various
reasons that are discussed more fully below, we have not completed our accounting for the income tax effects of certain
elements of the Tax Act. If we were able to make reasonable estimates of the effects of elements for which our analysis
is not yet complete, we recorded provisional adjustments. If we were not yet able to make reasonable estimates of the
impact of certain elements, we have not recorded any adjustments related to those elements and have continued
accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act.
Our accounting for the following elements of the Tax Act is incomplete. However, we were able to make reasonable
estimates of certain effects and, therefore, recorded provisional adjustments as follows:
Reduction of U.S. federal corporate tax rate: The Tax Act reduces the corporate tax rate to 21 percent, effective January
1, 2018. For certain of our DTAs and DTLs, we have recorded a provisional decrease of $13.6 million and $21.8
million, respectively, with a corresponding net adjustment of deferred income tax benefit of $8.2 million for the year
ended December 30, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate
rate, it may be affected by other analysis related to the Tax Act, including, but not limited to, our calculation of deemed
repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.
Deemed Repatriation Transition Tax: The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously
untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the
amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the
relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a
reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation comprised of $6.3
million tax on foreign earnings and offset by FTCs of $6.1 million. However, we are continuing to gather additional
information to more precisely compute the amount of the Transition Tax for any potential state tax effects and we are
still evaluating the remaining outside basis differences not closed by the imposition of the transition tax. Tentatively, no
changes were made to our ASC 740-30 assertion.
Cost recovery: While we have not yet completed all of the computations necessary or completed an inventory of our
2017 expenditures that qualify for immediate expensing, we have recorded a provisional benefit of $0.1 million based on
our current intent to fully expense all qualifying expenditures. This resulted in a decrease of approximately $0.3 million
to our current income tax payable and a corresponding increase in our DTLs of approximately $0.2 million (after
considering the effects of the reduction in income tax rates).
Our accounting for the following elements of the Tax Act is incomplete, and we were not yet able to make reasonable
estimates of the effects. Therefore, no provisional adjustments were recorded.
47
Global intangible low taxed income (GILTI): The Tax Act creates a new requirement that certain income (i.e., GILTI)
earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S.
shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income
return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share
of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount
of certain interest expense taken into account in the determination of net CFC-tested income.
Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and
the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1)
treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when
incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes
(the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in
part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income
related to GILTI and, if so, what the impact is expected to be. Because whether we expect to have future U.S. inclusions
in taxable income related to GILTI depends on not only our current structure and estimated future results of global
operations but also our intent and ability to modify our structure and/or our business, we are not yet able to reasonably
estimate the effect of the provision of the Tax Act. Therefore, we have not made any adjustments related to potential
GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on
GILTI.
Valuation allowances: The company must assess whether valuation allowances assessments are affected by various
aspects of the Tax Act (e.g., deemed repatriation of deferred foreign income and the effects on state NOLs, GILTI
inclusions, new categories of FTCs). Since, as discussed herein, the company has recorded no amounts related to certain
portions of the Tax Act, any corresponding determination of the need for or change in a valuation allowance has not be
completed and no changes to valuation allowances as a result of the Tax Act have been recorded.
The remaining provisions of the Tax Act, as listed above, became effective on January 1, 2018 and did not require
accounting treatment for the year-ended December 30, 2017. We are currently analyzing the impact of these provisions.
L.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
ASC 740, Income Taxes (“ASC 740”) clarifies the accounting for income taxes by prescribing the minimum
recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740
also provides guidance on derecognition, measurement, classification, interest and penalties, and disclosure
requirements.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2017
2016
2015
Gross unrecognized tax benefits beginning of year
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
$ 3,381 $ 2,209 $ 1,793
—
—
754
—
(338)
$ 4,000 $ 3,381 $ 2,209
4
—
1,107
(2)
(490)
243
362
905
(32)
(306)
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 $0.7 million, $0.6 million, and $0.2
million at December 30, 2017, December 31, 2016, and December 26, 2015, respectively.
48
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 2014.
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 $3.0 million and $3.6 million on December 30, 2017
and December 31, 2016, 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 $0.2 million. As
a result, this amount is recorded in other long-term liabilities on December 30, 2017.
In February 2014, one of our operations was served with a federal grand jury subpoena from the Southern
District of New York. The subpoena was issued in connection with an investigation being conducted by the US
Attorney’s Office for the Southern District of New York. The subpoena requested documents relating to a developer and
construction projects for which our operation had provided materials and labor. Following receipt of the subpoena, the
Audit Committee of the Company’s Board of Directors retained outside counsel to conduct an internal investigation and
respond to the subpoena. The Company cooperated in all respects with the US Attorney’s Office, complied with this
subpoena and voluntarily provided additional information. As a result of the internal investigation, in 2014, two
Company employees were terminated for violating the Company’s Code of Business Conduct and 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. Based upon prior communications with the US Attorney’s Office, we do not
believe that the resolution of this matter will have a material adverse impact on our financial condition or the results of
our operations.
In addition, on December 30, 2017, 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 30, 2017, we had outstanding purchase commitments on commenced capital projects of
approximately $7.7 million.
49
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 30, 2017, we had approximately $1.4 million in outstanding payment and performance bonds for open
projects. We had approximately $7.6 million in payment and performance bonds outstanding for completed projects
which are still under warranty.
On December 30, 2017 we had outstanding letters of credit totaling $26.5 million, primarily related to certain
insurance contracts and industrial development revenue bonds described further below.
In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our
performance under certain insurance contracts. We currently have irrevocable letters of credit outstanding totaling
approximately $16.7 million for these types of insurance arrangements. We have reserves recorded on our balance sheet,
in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements.
We are required to provide irrevocable letters of credit in favor of the bond trustees for all 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 2017 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 performance.
The Company operates manufacturing, treating and distribution facilities throughout North America, Europe,
Asia and Australia, but primarily in the United States. The Company manages the operations of its individual locations
primarily through a geographic reporting structure under which each location is included in a region and regions are
included in our North, South, West, and International 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 and is accounted for as a reporting unit within the All Other
segment, (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, manufactures, and installs customized interior fixtures and is accounted for within the All Other segment.
50
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.
Our Alternative Materials, International, and idX 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
Other
Corporate
Total
2017
All
Net sales to outside customers
Intersegment net sales
Interest expense (income)
Amortization expense
Depreciation expense
Segment earnings from operations
Segment assets
Capital expenditures
Net sales to outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment earnings from operations
Segment assets
Capital expenditures
Net sales to outside customers
Intersegment net sales
Interest expense
Amortization expense
Depreciation expense
Segment earnings from operations
Segment assets
Capital expenditures
$ 1,133,656 $ 837,370 $ 1,417,924 $ 552,232 $
67,161
4
559
10,511
61,326
351,270
23,026
74,566
160
607
6,880
46,646
240,661
12,286
83,245
293
1,723
14,116
82,465
462,311
23,212
167,568
(473)
1,971
8,586
17,296
356,264
9,865
— $ 3,941,182
392,540
—
6,218
6,234
4,860
—
48,536
8,443
(26,264)
181,469
1,464,677
54,171
71,116
2,727
North
South
West
Other
Corporate
Total
2016
All
$ 1,000,426 $ 711,862 $ 1,251,093 $ 277,112 $
57,770
1
115
8,948
59,408
302,009
10,902
38,641
307
—
6,190
47,146
192,085
5,571
88,311
387
1,858
13,326
76,875
438,674
19,648
19,322
143
822
4,531
16,639
313,304
6,037
2015
All
— $ 3,240,493
204,044
—
4,575
3,737
2,795
—
40,823
7,828
(35,630)
164,438
1,292,058
45,986
53,762
11,604
North
$ 922,092 $ 656,550 $ 1,133,398 $ 175,031 $
Other
South
West
Corporate
Total
51,796
—
267
7,901
53,879
279,664
9,622
29,940
296
9
6,255
30,740
192,756
6,138
58,412
516
2,467
13,033
70,220
382,251
13,356
13,673
52
788
3,707
3,038
152,527
6,698
— $ 2,887,071
153,821
—
5,133
4,269
3,531
—
37,710
6,814
(22,410)
135,467
1,107,679
100,481
43,522
7,708
Information regarding principal geographic areas was as follows (in thousands):
2017
Long-Lived
Tangible
2016
Long-Lived
Tangible
2015
Long-Lived
Tangible
United States
Foreign
Total
Assets
Net Sales
$ 3,821,366 $ 313,976 $ 3,162,331 $ 280,362 $ 2,811,359 $ 244,040
15,408
$ 3,941,182 $ 344,356 $ 3,240,493 $ 306,468 $ 2,887,071 $ 259,448
Net Sales
Net Sales
119,816
26,106
30,380
78,162
75,712
Assets
Assets
Sales generated in Canada and Mexico are primarily to customers in the United States of America.
51
The following table presents, for the periods indicated, our percentage of value-added and commodity-based
sales to total sales.
2017
2016
2015
Value-Added
Commodity-
Based
63.3 %
62.6 %
59.8 %
36.7 %
37.4 %
40.2 %
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, in-store 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. Commodity-based product sales consist primarily of remanufactured lumber and
preservative treated lumber.
52
The following table presents, for the periods indicated, our gross sales (in thousands) by major product
classification.
Year Ended
December 30, December 31, December 26,
2017
2016
2015
$ 368,591 $
187,905
244,910
149,520
471,262
76,507
260,174
78,638
61,226
110,327
265,048
48,736
75,742
85,016
21,218
17,584
3,329
9,275
334,956 $ 299,111
149,526
176,668
177,787
200,004
129,803
141,474
374,030
391,610
67,804
76,503
—
87,262
59,804
68,517
46,496
53,279
56,846
106,284
200,901
204,732
47,392
50,556
57,999
60,753
45,215
66,048
17,123
20,713
13,611
17,412
5,353
3,449
5,668
7,518
$ 2,535,008 $ 2,067,738 $ 1,754,469
576,374
575,505
271,310
34,970
13,036
469,042
479,333
238,806
30,374
12,084
458,023
423,543
253,678
31,789
10,978
$ 1,471,195 $ 1,229,639 $ 1,178,011
$ 4,006,203 $ 3,297,377 $ 2,932,480
(45,409)
$ 3,941,182 $ 3,240,493 $ 2,887,071
(56,884)
(65,021)
Value-Added Sales
Trusses – residential, modular and manufactured housing
Fencing
Decking and railing – composite, wood and other
Turn-key framing and installed sales
Industrial packaging and components
Engineered wood products (eg. LVL; i-joist)
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
53
Net sales
Gross profit
Net earnings
Net earnings
attributable to
controlling
interest
Basic
earnings per
share
Diluted
earnings per
share
O.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth selected financial information for all of the quarters, consisting of 13 and 14
weeks during the years ended December 30, 2017 and December 31, 2016, respectively, (in thousands, except per share
data):
First
Second
Third
Fourth
2017
2016
2017
2016
2017
2016
2017
2016
$ 846,130 $ 682,151 $ 1,072,375 $ 872,093 $ 1,056,586 $ 826,665 $ 966,091 $ 859,584
122,310
22,241
129,159
33,162
118,054
28,764
120,740
21,634
102,739
20,255
131,487
34,237
144,687
34,669
148,240
34,574
21,062
19,212
33,642
33,398
33,693
27,819
31,115
20,750
0.34
0.32
0.55
0.55
0.55
0.45
0.51
0.34
0.34
0.32
0.55
0.55
0.55
0.45
0.51
0.34
P.
SUBSEQUENT EVENTS
Subsequent to December 30, 2017, the Company completed a sale and lease-back transaction with a property in
Medley, Florida. The sale price for the property was approximately $36 million and created a $7 million pre-tax gain.
The transaction is part of a strategy to create efficiencies and advantages not possible with the current facility by
optimizing the capacity of its other three Florida operations, including two it acquired from Robbins Manufacturing in
2017, and adding a state-of-the-art facility in South Florida. The Company will lease back the Medley, Florida, facility
for two years as it executes its long-term plan for Florida and the Southeast region.
54
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, which incorporate the retroactive effect of the Company’s 3 for 1
stock split, as reported by NASDAQ.
Fiscal 2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
Fiscal 2016
39.16
32.72
32.80
35.70
32.50 Fourth Quarter
26.28 Third Quarter
28.43 Second Quarter
31.34 First Quarter
High
35.70
36.66
30.50
27.86
Low
27.80
28.26
25.55
20.35
There were approximately 1,450 shareholders of record as of February 23, 2018.
We paid dividends on our common stock of $0.15 and $0.17 per share in June and December 2017, respectively. In
June and December 2016, we paid dividends of $0.14 and $0.15 per share, respectively. We intend to continue with our
current semi-annual dividend policy for the foreseeable future.
55
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 29, 2012, 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.
56
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Directors and 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
Interim President
Michigan State University
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
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
57
ANNUAL MEETING
Shareholder Information
The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 18, 2018, 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
58
Schertz, TX
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
Thomaston, GA
Thornton, 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
Barnesville, GA
Belchertown, MA
Berlin, NJ
Biscoe, NC
Blanchester, OH
Bomaderry, NSW, Australia
Bridgeton, MO
Burlington, NC
Cedar Hill, TX
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Chicago, IL
Chino, CA
Church Hill, TN
Clinton, NC
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
Fredericksburg, VA
Gainesville, GA
Gilmer, TX
Gordon, PA
Grand Rapids, MI
Grandview, TX
Granger, IN
Greene, ME
Haleyville, AL
Hamilton, OH
Harrisonville, MO
Hillsboro, TX
Hudson, NY
Huntsville, TX
Janesville, WI
Jefferson, GA
Jeffersonville, IN
Kansas City, MO
Kearneysville, WV
Kyle, TX
Lacolle, Quebec, Canada
Lafayette, CO
Liberty, NC
Lockhart, FL
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
Nappanee, IN
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
Rockwell, NC
Saginaw, MI
Saginaw, TX
Salina, KS
Salisbury, NC
San Antonio, TX
Sauk Rapids, MN
59
LIST OF REGISTRANT'S SUBSIDIARIES AND AFFILIATES
UFP Gear, LLC
UFP Global Holdings Limited
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 Employment Services, LLC
UFP International, LLC
Delaware
11032 Tidewater Trail, LLC
Delaware
234 Springs Rd., LLC
Delaware
2875 Needmore Rd. LLC
621 Hall St., LLC
Delaware
Aljoma Holding Company, LLC Michigan
Aljoma Lumber, Inc.
Ardellis Insurance Ltd.
CA Truss, Inc.
Caliper Building Systems, LLC
Eovations, LLC
Gulf Coast Components, LLC
Horizon Terra, Incorporated
Idaho Western, Inc.
idX (China) Display System Co.,
Ltd.
idX (India) Display Private Ltd.
idX Asia Fixtures Limited
idX Asia Trading Limited
idX Chicago, LLC
idX Corporation
idX Corporation London Limited England and Wales ltd. Corp. UFP Mexico Embalaje y Distribution, S. de R.L.
UFP Janesville, LLC
UFP Kyle, LLC
UFP Lafayette, LLC
UFP Lansing, LLC
UFP Magna, LLC
UFP McMinnville, LLC
Florida
Bermuda
Michigan
Michigan
Michigan
Michigan
Indiana
Idaho
China
India
Hong Kong
Hong Kong
Delaware
Delaware
idX Dallas, LLC
idX Dayton, LLC
idX Holdings, Inc.
idX Impressions, LLC
idX Los Angeles, LLC
idX Mexico, S. de R.L. de C.V.
idX Shanghai Trading Company,
Ltd.
Integra International Pty Ltd
Integra Packaging Pty Ltd
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.
PR Distribution, 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.de CV
UFP Albuquerque, LLC
UFP Altoona, LLC
UFP Ashburn, LLC
UFP Atlantic Division, LLC
UFP Atlantic, LLC
UFP Auburndale, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Mexico
China
Australia
Australia
Texas
Michigan
Michigan
Michigan
Michigan
Washington
de C. V.
UFP Mexico Investment, LLC
UFP Mid-Atlantic, LLC
UFP Minneota, LLC
UFP Morristown, LLC
UFP Moultrie, LLC
UFP Mountain West, LLC
UFP Nappanee, 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
Mexico
UFP Parker, LLC
Mexico
Puerto Rico
Michigan
Michigan
Delaware
Australia
Mexico
Michigan
New York
Mexico
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
UFP Purchasing, Inc.
UFP Ranson, LLC
UFP Real Estate, LLC
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
EXHIBIT 21
Michigan
United Kingdom
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
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
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
UFP Aurora, LLC
Australia
UFP Australia Pty Ltd
UFP Australia Real Estate Pty Ltd Australia
Michigan
UFP Barnesville, LLC
Michigan
UFP Belchertown, LLC
Michigan
UFP Berlin, LLC
Michigan
UFP Biscoe, LLC
Michigan
UFP Blanchester, LLC
Michigan
UFP Caldwell, LLC
Canada
UFP Canada, Inc.
Michigan
UFP Central Plains, LLC
Michigan
UFP Chandler, LLC
Michigan
UFP Chicago, LLC
Michigan
UFP Dallas, LLC
Michigan
UFP Distribution, LLC
Michigan
UFP Eagan, LLC
Michigan
UFP East Central, LLC
Michigan
UFP Eastern Division, Inc.
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
Michigan
Michigan
Michigan
Michigan
Michigan
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 Forest Products, Inc.
Universal Showcase ULC
Upshur Forest Products, LLC
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Michigan
Alabama
Michigan
Michigan
Michigan
Michigan
Alberta
Michigan
Western Building Professionals of California II
Limited Partnership
Michigan
Western Building Professionals of California, Inc. Michigan
Michigan
Western Building Professionals, LLC
Michigan
Yard & Home, LLC
Texas
Pinelli Lumber, Inc.
TIBASA Universal Forest Products S. de R.L. de
C.V.
idX Amsterdam B.V.
Mexico
Amsterdam
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement Form S-8 for various employee option and
incentive stock plans (Registration Statement Nos. 33-81128, 333-60630, 333-150345, 333-156596, and 33-84632) of
our reports dated February 28, 2018, 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 30, 2017.
Exhibit 23
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
February 28, 2018
Universal Forest Products, Inc.
Certification
Exhibit 31(a)
I, Matthew J. Missad, certify that:
1. I have reviewed this report on Form 10-K of Universal Forest Products, Inc.;
2. 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;
3. 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;
4. 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. 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;
b. 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;
c. 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
d. 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. 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
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date:
February 28, 2018
/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. I have reviewed this report on Form 10-K of Universal Forest Products, Inc.;
2. 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;
3. 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;
4. 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. 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;
b. 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;
c. 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
d. 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. 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
b. Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date:
February 28, 2018
/s/ Michael R. Cole
Michael R. Cole
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
CERTIFICATE OF THE
CHIEF EXECUTIVE OFFICER OF
UNIVERSAL FOREST PRODUCTS, INC.
Exhibit 32(a)
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 30, 2017, 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 30, 2017 fairly
presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc.
Date: February 28, 2018
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.
CERTIFICATE OF THE
CHIEF FINANCIAL OFFICER OF
UNIVERSAL FOREST PRODUCTS, INC.
Exhibit 32(b)
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 30, 2017, 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 30, 2017 fairly
presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc.
Date: February 28, 2018
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.