UFP Industries
Annual Report 2018

Plain-text annual report

Report to Shareholders 2018 The time your game is most vulnerable is when you’re ahead. Never let up. – Rod Laver To our Shareholders: It is safe to say that both of us essentially have grown up with Universal Forest Products. One of us (Bill Currie, Chairman of the Board) is in his 48th year with the company; the other (Matt Missad, CEO) has been around for almost 41 years (which includes his early years on the maintenance crew). We have worked side-by-side with at least two generations of UFP leaders and teammates: people who have not only worked together but also celebrated life together. We’ve worked in and served our operations together, developed and implemented strategies, attended family weddings, grieved with each other at times of loss and celebrated births — we’ve lived, worked and learned together. This has created a rich, rewarding culture that permeates the Universal family of companies. It is in this culture and with this spirit that future leaders of our company are learning and growing: bright young people who will lead this company through an era that doesn’t count years, but nanoseconds; that doesn’t celebrate the innovation of the decade or year, but of the day. A time when 90 percent of the world’s data was created in the last two years (there are 2.5 quintillion bytes of data created each day, and the pace is accelerating). What does that mean for next year and the following? For us at Universal — in an industry known less for its agility than its perceived lumbering practices (excuse the pun) — it means not just adapting to change, but creating it, anticipating it, BEING it. And that’s the backdrop against which everything is done these days at the companies of Universal. It’s at the root of our theme for 2018 — >B4 (Greater than Before) — and of our messaging. Look at your job. Did you do it well? Great — how can you do it better? What new product or service can we create to make our customers (and the consumer’s life) better? How can we fulfill a previously unmet customer need? What can we do to make our company more valuable? Do we have good leadership today? Great, but let’s make sure the leaders of tomorrow are even better. ii We back our message of continuously improving with incentive programs that encourage our people to improve every day. There’s nothing we like better than to share our success — with shareholders and our employees (many of whom are also shareholders). We were able to do that in 2018, thanks to the results our people created: Net sales of $4.49 billion and net earnings attributable to controlling interest of $148.6 million were up 14 percent and 24 percent, respectively, over 2017. Operating profit was up 14.2 percent and diluted earnings per share for the year of $2.40 represented an increase of 24 percent over the previous year. By market, our 2018 results were: Retail In our retail business, we sell hundreds of products ranging from decking, fencing and accessories to loose lumber. Our 2018 results included $1.66 billion in gross sales, up 11 percent over 2017, led by a 7 percent increase in selling prices and a 4 percent increase in unit sales. Acquisitions and organic growth each contributed 2 percent of the sales growth. Sales to big box retailers increased 8 percent while sales to others increased 17 percent. Among our retail 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). Construction In this market, we serve residential construction customers, who build traditional site-built single-family and multifamily construction, factory-built homes (both HUD-code and modular homes), commercial construction and concrete forming. Our 2018 results were $1.35 billion in gross sales, up 15 percent over the previous year, driven by a 7 percent increase in unit sales and an 8 percent increase in prices. Residential unit sales grew 7 percent, commercial unit sales grew 14 percent and manufactured housing unit sales grew 4 percent. Acquisitions contributed 1 percent to growth. Industrial In this market, we supply specialty crates and packaging to numerous industries, ranging from aerospace to agriculture, as well as components for products, like wood frames for bedding and furniture. Our 2018 results included $1.56 billion in gross sales, up 16 percent over the previous year. Unit sales increased 10 percent, of which 5 percent came from acquisitions and 5 percent from organic growth. iii These markets comprise a balanced business model that makes us unique and more resilient to market fluctuations than most. It allows us to use all grades of wood for our products, making us an attractive customer for the world’s largest mills. It provides many avenues for growth in new markets and with new products. And it has been a strong foundation on which to build over the decades and continues to be a competitive advantage. In 2018, we welcomed the people of seven companies to the Universal family by completing the following acquisitions: • Pak-Rite, Ltd., a designer and manufacturer of packaging for high-value products, such as medical, aerospace and automation equipment. This acquisition allows us to grow our portfolio of packaging products and our presence in this market. • The Pallet Place, LLC, which manufactures and distributes total packaging solutions in timber, crates, skids and pallets. The acquisition of Pallet Place allows us to increase our industrial business and creates operating leverage by consolidating with another regional operation. • North American Container Corp., a manufacturer of structural packaging products, including steel, corrugated and hardwood packaging, that allows us to enhance our presence in this region, expand our product offering, and serve customers more cost effectively. • Fontana Wood Products, a manufacturer and distributor of lumber and trusses in Southern California. This acquisition allows us to expand our manufactured housing business and creates operating leverage by consolidating with another regional operation. • Expert Packaging, a manufacturer and distributor of total packaging solutions in timber, crates, pallets and skids. Expert had annual sales of approximately $3.6 million. The acquisition of Expert allows us to make progress on our goal of becoming a global provider of packaging solutions. • Spinner Wood Products, LLC, which manufactures and distributes agricultural bins and various industrial packaging, allowing us to expand our industrial packaging product offering and creating operating leverage by consolidating with other regional operations. • Great Northern Lumber, LLC, a manufacturer of industrial products as well as serving the concrete forming market in the Chicago area. The acquisition of Great Northern Lumber enables us to expand our concrete forming product offering and regional coverage. Our challenges aren’t unlike those faced by other businesses across the spectrum: the need for skilled labor and work-ready graduates, economic fluctuations exacerbated by an unpredictable political climate, soaring medical costs that put a burden on benefits, and the availability of trucks and trains to move our products, among others. We pride ourselves on our ability to anticipate problems and tackle them creatively; we don’t make excuses --- we create solutions. iv The people who succeed at Universal, those who build our success, are people who are energized, not daunted or intimidated, by challenge. The successful people of Universal are driven by practical, old- fashioned values that are steeped in our Midwest roots: gritty determination, a solid work ethic, the highest regard for integrity and respect, a focus on the American Dream. The two of us have been fortunate enough to achieve many of our dreams. It is an understatement to say that neither of us was born with a silver spoon in his mouth. We definitely did not start out on third base thinking we hit a triple! It also is an understatement to say that Universal provided us with opportunity to build success for our company, ourselves and our families that we couldn’t have anticipated. The joy in this, though, is doing the same for others: helping that next generation achieve so that they can take the company to new heights and new levels of success, creating opportunities for all those around them. Those people are provided the very best training; they’re being given opportunities to tackle new challenges not just to see how they perform, but to give them the experience they need to help lead this company now, and for many years to come. Thanks for believing and investing in us. You motivate us every day to be better today than we were the day before so that the return we provide to all stakeholders makes them pleased to be –and to own -- a part of this great company. 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 29, 2018 and December 30, 2017 Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 29, 2018, December 30, 2017, and December 31, 2016 Exhibit 13 2 3-24 25 26 27 28 29 Consolidated Statements of Shareholders’ Equity for the Years Ended December 29, 2018, December 30, 2017, 30 and December 31, 2016 Consolidated Statements of Cash Flows for the Years Ended December 29, 2018, December 30, 2017, and 31 December 31, 2016 Notes to Consolidated Financial Statements Market Information for our Common Stock Stock Performance Graph Directors and Executive Officers Shareholder Information 32-54 55 56 57 58 SELECTED FINANCIAL DATA (In thousands, except per share and statistics data) 2018 2017 2016 2015 2014 Consolidated Statement of Earnings Data Net sales Gross profit Earnings before income taxes(6) 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) $ 4,489,180 592,894 197,853 $ 148,598 2.40 $ 0.360 $ $ 685,108 1,647,548 202,278 1,088,684 $ 3,941,182 542,826 176,007 $ 3,240,493 474,590 160,671 $ 2,887,071 399,904 131,002 $ 2,660,329 325,342 95,713 $ 119,512 1.94 $ 0.320 $ $ 101,179 1.65 $ 0.290 $ $ $ $ 80,595 1.33 0.273 $ $ 57,551 0.95 0.203 $ 560,241 1,464,677 146,003 974,023 $ 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 13.2 % 13.8 % 14.6 % 13.9 % 12.2 % 3.3 % 15.3 % 3.21 0.19 17.88 $ 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) 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. (6) 2018 includes an approximately $7 million gain on the sale of one of our facilities. Acquisition growth is one of the primary contributing factors to material increases over the period from 2014 to 2018. 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 2018. Our results for 2018 were impacted by the following: OVERVIEW  Our sales increased almost 14% in 2018 due to a 7% 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 3% to our unit sales growth in 2018 (see Note C of the Notes to Consolidated Financial Statements) and we achieved 4% organic unit sales growth.  The Home Improvement Research Institute reported a 5% increase in home improvement sales in 2018. Comparatively, our unit sales to the retail market increased 4% in 2018, including approximately 2% contributed from acquired businesses.  Our unit sales to the industrial market increased 10% in 2018. Businesses we acquired contributed 5% to unit sales growth. Comparatively, the Federal Reserve’s Industrial Production noted that national industrial production increased almost 4% in 2018.  National housing starts increased approximately 4% in the period from December 2017 through November 2018, 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 2018.  Production of HUD code manufactured homes were up 5% in the period from January through November 2018, compared to the same period of the prior year. Comparatively, our unit sales to the manufactured housing market increased 4% in 2018.  Our earnings from operations increased 14.2% to $207.3 million in 2018 from $181.5 million in 2017, which includes a pre-tax gain of approximately $6.7 million as a result of the sale of certain assets including our Medley, 3 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FL, plant for $36.0 million in proceeds. Acquired businesses contributed approximately $1.1 million to earnings from operations for the year. The remaining $18.0 million, or 9.9%, increase was primarily driven by our strong organic unit sales growth and favorable improvements in sales mix, among other factors.  Net earnings attributable to controlling interest increased 24% to $148.6 million due to the factors above along with the reduction in our U.S Federal income tax rate in 2018. Our overall effective rate decreased from 29.5% in 2017 to 23.0% in 2018.  Our cash flow from operating activities decreased by $20 million due to an increase in our investment in working capital (See “Liquidity and Capital Resources”) and opportunistic purchases of inventory in the second half of 2018.  We re-invested $95.9 million in capital expenditures to support and grow our business organically and invested $54.0 million in acquired businesses.  We returned $22.1 million to shareholders through dividends and bought back $24.6 million of our common stock at an average price of $28.62 per share.  Finally, our net debt (debt plus cash overdraft less surplus cash) increased to $202.3 million, representing a ratio of 0.76x earnings before interest, taxes, depreciation and amortization, which we believe along with other factors, indicates a strong credit profile. The following table presents the Random Lengths framing lumber composite price. HISTORICAL LUMBER PRICES Random Lengths Composite Average $/MBF 2017 2016 2018 January February March April May June July August September October November December Annual average Annual percentage change $ 449 496 505 496 554 572 525 449 443 375 339 338 $ $ 356 393 401 424 416 399 411 417 416 437 436 433 $ 462 $ 12.1 % 412 19.8 % $ 316 310 321 345 356 353 351 367 354 356 346 357 344 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 comprise approximately 58% of total lumber purchases, excluding plywood, for 2018 and 2017. January February March April May June July August September October November December Annual average Annual percentage change Southern Yellow Pine Average $/MBF 2017 2018 2016 $ $ 418 459 480 483 535 562 512 449 440 410 378 377 $ 397 420 433 438 416 399 381 383 387 417 412 418 $ $ 459 12.5 % $ 408 7.1 % 358 357 366 389 397 382 380 391 375 385 387 400 381 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 50.6%, 49.1%, and 48.4% of our gross sales in 2018, 2017, and 2016, respectively. Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently. Below is a general description of the primary ways in which our products are priced.  Products with fixed selling prices. These products include value-added products such as decking and fencing sold to retail building materials customers, as well as trusses, wall panels and other components sold to the residential construction market, and most industrial packaging products. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time or are based upon a specific quantity. In order to maintain margins and reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs with our suppliers for these sales commitments. Also, the time period and quantity limitations generally allow us to 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 5 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 profitability. In other words, for these products, our margins are exposed to changes in the trend of lumber prices. We believe our sales of these products are at their highest relative level in our second quarter, primarily due to treated lumber sold to the retail market. The greatest risk associated with changes in the trend of lumber prices is on the following products:  Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprises approximately 18% of our total sales. This exposure is less significant with remanufactured lumber, trusses sold to the manufactured housing market, and other similar products, due to 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 % 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 seven business acquisitions during 2018 and four during 2017. The annual historical sales attributable to acquisitions in 2018 and 2017 were approximately $140 million and $127 million, respectively. These business combinations were not significant to our operating results individually or in aggregate, and thus pro forma results for 2018 and 2017 are not presented. See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information. 6 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a percentage of net sales. Net sales Cost of goods sold Gross profit Selling, general, and administrative expenses Net gain on disposition and impairment of assets 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 2018 2016 100.0 % Year Ended December 29, December 30, December 31, 2017 100.0 % 86.2 13.8 9.1 — 4.6 0.1 4.5 1.3 3.1 (0.1) 3.0 % 86.8 13.2 8.8 (0.1) 4.6 0.2 4.4 1.0 3.4 (0.1) 3.3 % 100.0 % 85.4 14.6 9.6 — 5.1 0.1 5.0 1.7 3.3 (0.1) 3.1 % Note: Actual percentages are calculated and may not sum to total due to rounding. The following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a percentage of sales, adjusted to restate 2017 and 2018 sales and cost of goods sold at lumber prices. The restated sales amounts were calculated by applying unit sales growth from 2017 and 2018 to 2016 sales levels. By eliminating the “pass- through” impact of higher or lower lumber prices on sales and cost of goods sold from year to year, we believe this provides an enhanced view of our change in profitability and costs as a percentage of sales. The amount of the adjustment to 2017 and 2018 sales was also applied to cost of goods sold so that gross profit remains unchanged. Net sales Cost of goods sold Gross profit Selling, general, and administrative expenses Net gain on disposition and impairment of assets 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 2018 2016 100.0 % Adjusted for Lumber Market Volatility Year Ended December 29, December 30, December 31, 2017 100.0 % 85.4 14.6 9.7 — 4.9 0.1 4.7 1.4 3.3 (0.1) 3.2 % 85.1 14.9 9.9 (0.2) 5.2 0.2 5.0 1.1 3.8 (0.1) 3.7 % 100.0 % 85.4 14.6 9.6 — 5.1 0.1 5.0 1.7 3.3 (0.1) 3.1 % The following table presents, for the periods included, our selling, general, and administrative (SG&A) costs as a percentage of gross profit. Given our strategies to enhance our capabilities and improve our value-added product offering 7 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and recognizing the higher relative level of SG&A costs these strategies require, we believe this ratio provides an enhanced view of our efficiency in managing these costs. SG&A as a Percentage of Gross Profit Year Ended December 30, 2017 December 29, 2018 December 31, 2016 Gross profit Selling, general, and administrative expenses SG&A as percentage of gross profit 592,894 392,235 66.2% 542,826 362,220 66.7% 474,590 310,152 65.4% 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  Diversifying our end market sales mix by increasing sales of specialty wood and other 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. 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. 2018 2017 2016 Value-Added Commodity-Based 62.5 % 63.3 % 62.6 % 37.5 % 36.7 % 37.4 %  Developing new products and expanding our product offering. New product sales are presented by market in the table below (in thousands). 8 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Market Classification Retail Industrial Construction Total New Product Sales December 29, 2018 $ 291,654 141,791 79,735 513,180 New Product Sales by Market Twelve Months Ended December 30, 2017 241,662 113,120 67,929 422,711 %  Change 20.7 25.3 17.4 21.4 $ %  Change December 31, 2016 191,619 97,718 49,290 338,627 26.1 $ 15.8 37.8 24.8 Note: Certain prior year product reclassifications resulted in a decrease and increase in new product sales in 2017 and 2016, respectively. Our goal is for our new product sales to comprise at least 10% of our total sales. The following table presents, for the periods indicated, our gross sales (in thousands) and percentage change in gross sales by market classification. December 29, %  December 30, %  December 31, Year Ended Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales 2018 $ 1,662,895 1,557,011 1,345,843 4,565,749 (76,569) $ 4,489,180 Change 11.4 16.1 14.8 14.0 17.8 13.9 2017 $ 1,492,552 1,341,319 1,172,332 4,006,203 (65,021) $ 3,941,182 Change 2016 15.4 $ 1,293,797 988,050 35.8 1,015,530 15.4 3,297,377 21.5 14.3 (56,884) 21.6 $ 3,240,493 Note: During 2018, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes. The following table presents estimates, for the periods indicated, of our percentage change in gross sales which were attributable to changes in overall selling prices versus changes in units shipped. 2018 versus 2017 2017 versus 2016 2016 versus 2015 Retail: % Change in Sales in Selling Prices 7.0 % 6.6 % 1.2 % 14.0 % 21.5 % 12.4 % in Units 7.0 % 14.9 % 11.2 % Gross sales to the retail market increased over 11% in 2018 compared to 2017 due to a 4% increase in unit sales and a 7% increase in selling prices. Within this market, sales to our big box customers increased 8% while our sales to other retailers increased 17%. Businesses we acquired contributed 2% to our growth, while new products contributed to our 2% organic unit sales growth. Comparatively, our large retail customers reported year over year store sales growth of approximately 6% during the first nine months of 2018, the latest information available to us. In the third and fourth quarter of 2017, our sales increased due to hurricanes Irma and Harvey. 9         UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information concerning acquired businesses. Industrial: Gross sales to the industrial market increased 16% in 2018 compared to 2017, resulting from a 10% increase in overall unit sales and a 6% increase in selling prices. Businesses we acquired contributed 5% to our growth in unit sales. Our organic unit sales growth of 5% was primarily achieved through share gains including adding 200 new customers during the year and increasing the number of locations we serve of existing customers by 346. Gross sales to the industrial market increased 36% in 2017 compared to 2016, resulting from a 30% 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 5% was primarily achieved through share gains including adding 390 new customers during the year and increasing the number of locations we serve existing customers by 142. 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 15% in 2018 compared to 2017, due to a unit sales increase of 7% and an 8% increase in selling prices. Unit sales increased due to a 7% increase in units shipped to residential construction customers, a 4% increase in shipments to manufactured housing customers, and a 14% increase in unit sales to commercial construction customers. Businesses we acquired in 2018 contributed 4% to our commercial construction unit sales growth. Comparatively, the Mortgage Bankers Association of America reported year over year national housing starts increased 4%, the United States Census Bureau reported commercial construction market increased 6% and the National Association of Home Builders reported industry production of HUD-code homes increased almost 5%. 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. Comparatively, the Mortgage Bankers Association of America reported year over year national housing starts increased 4%, the United States Census Bureau reported commercial construction market increased 3% and the National Association of Home Builders reported industry production of HUD-code homes increased over 15%. COST OF GOODS SOLD AND GROSS PROFIT Our gross profit percentage decreased from 13.8% in 2017 to 13.2% in 2018 due, in part, to the high level of lumber prices in 2018. This is evident when comparing our increase in gross profits with our increase in units shipped. Our gross profit 10 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS dollars increased by over $50 million, or 9.2%, which exceeds our 6.8% increase in unit sales. Our profitability in 2018 was impacted by the following factors:  An $8 million, or 5%, increase in our gross profit on sales to the retail market, primarily driven by a 4% increase in unit sales.  A $27 million, or 13%, increase in our gross profit on sales to the industrial market, primarily driven by a 10% increase in unit sales as well as favorable changes in product mix and a decline in lumber prices in the last six months of 2018. Most products sold to this market have fixed selling prices for a period of time.  A $24 million, or 15%, increase in gross profit on sales to the construction market, primarily driven by unit growth and a decline in lumber prices in the last six months of 2018. Acquired businesses contributed $1 million of this gross profit increase.  The remaining $9 million decrease in our gross profit was due to a variety of factors including unfavorable labor and overhead cost variances in certain areas of our business and an increase in customer rebates compared to 2017. 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:  An $8 million, or 5%, increase in our gross profit on sales to the retail market, was primarily driven by a 10% increase in unit sales to that market. Businesses we acquired in 2017 contributed $1.6 million of our gross profit increase. Our increase in gross profit was less than our increase in unit sales as a result of adverse changes in lumber prices, particularly in the second quarter which is our primary selling season, and the acquisition of Robbins in the first quarter of 2017, which primarily sells lower margin treated lumber products.  Our 30% 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 during part of the year.  Almost $13 million, or 9%, of our gross profit improvement was primarily due to 7% unit sales growth on sales to the construction market. Our gross profit increase exceeded our increase in unit sales primarily due to leveraging our fixed manufacturing costs, which helped offset the impact of higher lumber prices on products sold with fixed selling prices during part of the year 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 in certain areas of our business, increases in vendor rebates, and a decrease in customer rebates compared to 2016. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses increased by approximately $30.0 million, or 8.3%, in 2018 compared to 2017, while we reported a 7% increase in unit sales. Acquired businesses contributed $8.3 million to our increase. The remaining increase in SG&A was primarily due to an $11.4 million increase in compensation and benefit costs resulting from annual raises, healthcare cost increases, and hiring additional personnel to support sales growth, and 11 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS a $6.1 million increase in sales and other incentive compensation. Finally, our annual bonus expense increased by $4 million to almost $48 million in 2018 compared to last year. Our annual bonus expense is tied to operating profits and return on investment. 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 an $11.1 million increase in compensation and related costs resulting from annual raises, greater benefit costs, and hiring additional personnel to support sales growth. Finally, our annual bonus expense was almost $44 million compared to $45 million in 2016. 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 the annual bonus amount. INTEREST, NET Net interest costs were higher in 2018 compared to 2017, due to a higher outstanding balance on our revolving line of credit throughout 2018, an increase in variable borrowing rates, and issuance of additional long-term Senior Notes under our shelf facility at an average rate of 4.23%. 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. 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 23.0% in 2018 compared to 29.5% in 2017. The decrease in the 2018 effective tax rate was primarily due to the impact of the Tax Act, which reduced the statutory federal income tax rate from 35% to 21%. Our effective tax rate decreased to 29.5% in 2017 compared to 34.3% in 2016. The decrease in the 2017 tax rate was 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. SEGMENT REPORTING The following tables present, for the periods indicated, our net sales and earnings from operations by reportable segment (in thousands). Net Sales North South West All Other Total December 29, 2018 $ 1,279,459 1,024,747 1,599,274 585,700 $ 4,489,180 December 30, 2017 $ 1,133,656 837,370 1,417,924 552,232 $ 3,941,182 12 December 31, % Change % Change 2018 vs 2017 2017 vs 2016 13.3 % 17.6 13.3 99.3 21.6 % 2016 $ 1,000,426 711,862 1,251,093 277,112 $ 3,240,493 12.9 % 22.4 12.8 6.1 13.9 % UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings from Operations North South West All Other Corporate1 Total $ December 29, 2018 66,239 60,049 103,357 6,779 (29,161) $ 207,263 $ 2017 61,326 46,646 82,465 17,296 (26,264) $ 181,469 $ $ 2016 59,408 47,146 76,875 16,639 (35,630) 164,438 % Change % Change 2018 vs 2017 2017 vs 2016 3.2 % (1.1) 7.3 3.9 26.3 10.4 % 8.0 % 28.7 25.3 (60.8) (11.0) 14.2 % December 30, December 31, 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 Total Net Sales Net Sales of North Segment by Market Twelve Months Ended December 29, December 30, December 31, % Change $ 2018 541,798 213,178 550,630 1,305,606 (26,147) $ 1,279,459 $ 2017 489,269 157,633 510,144 1,157,046 (23,390) $ 1,133,656 $ 2016 465,601 115,867 438,968 1,020,436 (20,010) $ 1,000,426 2018 vs 2017 10.7 % 35.2 7.9 12.8 % (11.8) 12.9 % % Change 2017 vs 2016 5.1 % 36.0 16.2 13.4 % (16.9) 13.3 % Net sales attributable to the North reportable segment increased by $145.8 million, or 12.9%, in 2018, due primarily to the following factors:  Acquired operations contributed almost $27 million and $6 million to our growth in sales to the industrial and construction markets, respectively.  Higher lumber prices resulted in an increase in our selling prices.  Organic unit sales growth primarily to the retail and industrial markets. Earnings from operations for the North reportable segment increased in 2018 by $4.9 million, or 8.0%, due to an increase in gross profit of $7.9 million, offset by a $3.0 million increase in SG&A expenses compared to last year. Acquired operations contributed $1.6 million to the North’s operating profits in 2018. 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 $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. 13 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  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 decline 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 the North’s 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.” South Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales Net Sales of South Segment by Market Twelve Months Ended December 29, December 30, December 31, % Change 2018 vs 2017 % Change 2017 vs 2016 $ 2018 441,050 392,971 211,792 1,045,813 (21,066) $ 1,024,747 2017 $ 388,273 276,848 191,139 856,260 (18,890) $ 837,370 2016 $ 317,003 251,475 157,612 726,090 (14,228) $ 711,862 13.6 % 41.9 10.8 22.1 % (11.5) 22.4 % 22.5 % 10.1 21.3 17.9 % (32.8) 17.6 % Net sales attributable to the South reportable segment increased by $187 million, or 22.4%, in 2018, primarily due to the following factors:  Acquired operations contributed $33 million and $40 million to our retail and industrial markets, respectively.  Higher lumber prices increased our selling prices.  Strong organic unit sales growth, particularly to the industrial market. Earnings from operations for the South reportable segment increased in 2018 by $13.4 million, or 28.7%, which includes a $6.7 million gain from the sale of our Medley, Florida, plant and an increase in gross profit of $8.9 million, which was offset by a $2.2 million increase in SG&A expenses compared to last year. Acquired operations had a $0.3 million operating loss in 2018. 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.  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 14 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. 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 29, December 30, December 31, % Change $ 2018 479,494 559,277 582,761 1,621,532 (22,258) $ 1,599,274 $ 2017 438,967 525,946 470,346 1,435,259 (17,335) $ 1,417,924 $ 2016 383,899 464,686 418,946 1,267,531 (16,438) $ 1,251,093 2018 vs 2017 9.2 % 6.3 23.9 13.0 % 28.4 12.8 % % Change 2017 vs 2016 14.3 % 13.2 12.3 13.2 % 5.5 13.3 % Net sales of the West reportable segment increased by $181 million, or 12.8%, in 2018, primarily due to the following factors:  Higher lumber prices increased our selling prices.  Organic unit sales growth to the retail and construction markets. Earnings from operations for the West reportable segment increased in 2018 by $20.9 million, or 25.3%, due to an increase in gross profit of $26.3 million, offset by a $5.4 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.” 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.” 15 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Sales of All Other Segment by Market Twelve Months Ended 2018 December 29, December 30, December 31, % Change % Change 2018 vs 2017 2017 vs 2016 38.3 144.1 9,533.3 96.7 (19.6) 99.3 2016 $ 127,294 156,022 3 283,319 (6,207) $ 277,112 $ 200,554 391,585 659 592,798 (7,098) $ 585,700 2017 $ 176,043 380,892 289 557,224 (4,992) $ 552,232 13.9 2.8 128.0 6.4 42.2 6.1 All Other Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales 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 $33.5 million, or 6.1%, in 2018 primarily due to:  Acquired operations contributed $2 million to our sales growth to the industrial market.  Our increase in sales to the retail and industrial markets was primarily due to an increase in our import and export business within the international segment. Earnings from operations for the All Other reportable segment decreased in 2018 by $10.5 million, or 60.8%, due to a decrease in gross profit of $5.2 million and a $5.3 million increase in SG&A expenses compared to last year. The decrease in earnings from operations was primarily due to our idX operations, as a result of increased costs related to a facility relocation and unfavorable labor and overhead cost variances due in part to new business and related inefficiencies. 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. 16     UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 29, 2018 (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 Payments Due by Period Less than 1 Year 81 $ 1 – 3 Years $ 2,780 3 – 5 Years After 5 Years $ 81,161 $ 118,256 Total $ 202,278 7,717 17,242 14,316 $ 39,356 15,163 21,753 — $ 39,696 13,825 14,728 — 19,155 22,498 — $ 109,714 $ 159,909 55,860 76,221 14,316 $ 348,675 As of December 29, 2018, we also had $30.3 million in outstanding letters of credit issued during the normal course of business, as required by some vendor contracts. The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands): LIQUIDITY AND CAPITAL RESOURCES Cash from operating activities Cash used in investing activities Cash from (used in) financing activities Effect of exchange rate changes on cash Net change in cash and cash equivalents Cash, cash equivalents, and restricted cash, beginning of year Cash, cash equivalents, and restricted cash, end of year December 29, December 30, December 31, 2017 2018 116,685 136,583 (121,232) (137,659) (5,247) 650 (5,673) 34,489 28,816 $ 4,393 (464) (618) 28,816 28,198 $ 2016 172,520 (227,657) 3,211 (1,927) (53,853) 88,342 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 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 quarters 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. 17 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 54 days in 2018 from 52 days in 2017. Days of sales outstanding Days supply of inventory Days payables outstanding Days in cash cycle Twelve Months Ended December 29, December 30, December 31, 2018 2017 2016 32 43 (21) 54 31 41 (20) 52 31 38 (21) 48 The increase in our days’ supply of inventory from 2016 to 2017 was due to idX as its business requires a higher investment in inventory due to the long project lead time of its customers. The increase in our days’ supply of inventory from 2017 to 2018 was primarily due to opportunistic lumber purchases in the second half of 2018. Our cash flows from operating activities in 2018 was $116.7 million, which was comprised of net earnings of $152.4 million and $61.1 million of non-cash expenses, offset by a $96.8 million increase in working capital since the end of December 2017. Comparatively, cash generated from operating activities was approximately $136.6 million in 2017, which was comprised of net earnings of $124.0 million, $47.7 million of non-cash expenses, and an $35.1 million increase in working capital since the end of 2016. The increase in working capital is primarily due to planned increases in inventory. Our cash used in investing activities during 2018 was $121.2 million, which was comprised primarily of purchases of property, plant, and equipment totaling $95.9 million and business acquisitions totaling $54.0 million, offset by the sale of property, plant, and equipment totaling $38.4 million, including the sale of our Medley, FL, plant for $36 million. The increase in our capital expenditures in 2018 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, automation, and the purchase of certain real estate related to geographical expansion. Outstanding purchase commitments on existing capital projects totaled approximately $14.3 million on December 29, 2018. The sale and purchase of investments totaling $3.7 million and $13.3 million, respectively, are due to investment activity in our captive insurance subsidiary. In 2017, investments in business acquisitions and purchases of property, plant, and equipment were $60.6 million and $71.1 million, respectively. Outstanding purchase commitments on existing capital projects totaled approximately $7.7 million on December 30, 2017. Cash flows from financing activities primarily consisted of the issuance of $75 million in Senior Notes under our shelf facility (See Notes to Consolidated Financial Statements “Debt”), offset by net repayments under our revolving credit facility of approximately $16.1 million, $22.1 million in dividend payments, and $24.6 million in repurchases of our common stock. We paid semi-annual dividends in June and December at a rate of $0.18 per share. Repurchases of our common stock were at an average price of $28.62 per share. Comparatively in 2017, 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 and almost $13 million of stock repurchases at an average price of $29.11 per share. On November 1, 2018, we entered into a five-year, $375 million unsecured revolving credit facility with a syndicate of U.S. and Canadian 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 $40 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, 18 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Euros and such other foreign currencies as may subsequently be agreed upon among the parties. This facility replaced our $295 million unsecured revolving credit facility. On December 29, 2018, we had $42.5 million outstanding on our $375 million revolving credit facility. The revolving credit facility also supports letters of credit totaling approximately $9.8 million on December 29, 2018. As a result, we have approximately $323 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 29, 2018. 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 reporting unit 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, 2018, 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 19 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS circumstances or the occurrence of other events suggest impairments exist. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. Changes in these estimates may result in the recognition of an impairment loss. INSURANCE RESERVES We are primarily self-insured for certain employee health benefits, and have self-funded retentions for general liability, automobile liability, property and workers’ compensation. We are fully self-insured for environmental liabilities. The general liability, automobile liability, property, workers’ compensation, and certain environmental liabilities are managed through a wholly-owned insurance company, the related assets and liabilities of which are included in the consolidated financial statements as of December 29, 2018. 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, Ardellis Insurance Ltd., provides Excess Loss Insurance (primarily medical and prescription drug) to certain third parties. As of December 29, 2018, there were 39 such contracts in place. Reserves associated with these contracts were $4.9 million at December 29, 2018 and $3.4 million at December 30, 2017, 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 performance obligation is satisfied, which is primarily when the goods are delivered to the carrier, Free On Board (FOB) shipping point. Generally, title passes at the time of shipment. In 20 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day. Performance on construction contracts is reflected in operations using percentage-of-completion accounting, under either the cost to cost or units of delivery methods, depending on the nature of the business at individual operations. Under percentage-of-completion using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under percentage-of- completion using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units per the contract. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent. Our construction contracts are generally entered into with a fixed price and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist. GOALS FORWARD OUTLOOK The Company’s goal is to achieve 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 3.5% compounded annual growth rate through 2022. 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 products, including our Deckorators product line. 21 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  Developing new, value-added products, such as our Eovations product line.  Adding new products and customers through strategic business acquisitions or alliances.  Increasing our emphasis on product innovation and product differentiation in order to counter commoditization trends and influences. INDUSTRIAL MARKET Our goal is to increase our sales of wood, wood alternative, and other 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. In addition, purchasers of packaging products increasingly desire to reduce the number of suppliers they buy from, which provides an opportunity to gain market share due to our geographic footprint. 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. CONSTRUCTION MARKET The National Association of Home Builders forecasts a 14% increase in manufactured home shipments in 2019 followed by an 8% increase in 2020. 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 2% increase in national housing starts to an estimated 1.3 million starts in 2019. The National Association of Home Builders forecasts starts of 1.3 million, a 1% increase from 2018. 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 and our ability to grow and leverage fixed costs.  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. 22 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  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. 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 2019; however, our objective is to reduce these costs on a per unit basis and as a percentage of gross profits 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 are tied to gross profits, pre-bonus earnings from operations and return on investment.  Our growth and success in achieving continuous improvement objectives designed to improve our productivity and leveraging our fixed costs. LIQUIDITY AND CAPITAL RESOURCES Our cash cycle will continue to be impacted in the future by our mix of sales by market. Sales to the residential and commercial construction and industrial markets require a greater investment in working capital (inventory and accounts receivable) than our sales to the retail and manufactured housing markets. Additionally, our investment in trade receivables and inventory will continue to be impacted by the level of lumber prices. Additionally, management expects to spend approximately $95 million on capital expenditures, incur depreciation of approximately $60 million, and incur amortization and other non-cash expenses of approximately $12 million in 2019. On December 29, 2018, we had outstanding purchase commitments on capital projects of approximately $14 million. We intend to fund capital expenditures and purchase commitments through our operating cash flows and availability under our revolving credit facility which is considered sufficient to meet these commitments and working capital needs. We have no present plan to change our dividend policy, which was recently increased by 6% to a semi-annual rate of $0.18 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 29, 2018, we have authorization to buy back approximately 1.9 million shares. In the past, we have repurchased shares in order to offset the 23 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS effect of issuances resulting from our employee benefit plans and at opportune times when our stock price falls to predetermined levels. 24 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 29, 2018, 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 29, 2018, 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 27, 2019 25 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 29, 2018, 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 29, 2018, 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 29, 2018, of the Company and our report dated February 27, 2019, 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 27, 2019 26 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 29, 2018 and December 30, 2017, 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 29, 2018, 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 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018, 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 29, 2018, 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 27, 2019, 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 27, 2019 We have served as the Company's auditor since 2014. 27 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, 60,883,749 and 61,191,888 Additional paid-in capital Retained earnings Accumulated other comprehensive income Total controlling interest shareholders’ equity Noncontrolling interest TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY See notes to consolidated financial statements. 28 $ $ $ $ December 29, 2018 December 30, 2017 $ 27,316 $ 14,755 882 343,450 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 28,655 490,654 271,871 284,349 556,220 14,130 38,525 995,278 2,668 13,267 8,662 224,117 7,360 41,486 120,324 239,906 419,115 16,960 18,340 814,645 (459,935) 354,710 1,647,548 $ 27,367 $ 136,901 104,109 41,645 148 310,170 202,130 15,687 30,877 558,864 — $ — 60,884 178,540 839,917 (5,938) 1,073,403 15,281 1,088,684 1,647,548 $ 61,192 161,928 736,212 144 959,476 14,547 974,023 1,464,677 UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (in thousands, except per share data) December 29, 2018 Year Ended December 30, 2017 December 31, 2016 $ 4,489,180 $ 3,941,182 $ 3,240,493 2,765,903 474,590 310,152 — 164,438 4,575 (541) (267) 3,767 160,671 55,174 105,497 3,398,356 542,826 362,220 (863) 181,469 6,218 (731) (25) 5,462 176,007 51,967 124,040 3,896,286 592,894 392,235 (6,604) 207,263 8,893 (1,371) 1,888 9,410 197,853 45,441 152,412 (3,814) 148,598 $ (4,528) 119,512 $ (4,318) 101,179 2.41 $ 2.40 $ 1.95 $ 1.94 $ 1.66 1.65 $ $ $ 152,412 (5,076) 147,336 124,040 6,130 130,170 105,497 (2,703) 102,794 (3,873) (4,884) (2,660) $ 143,463 $ 125,286 $ 100,134 NET SALES COST OF GOODS SOLD GROSS PROFIT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES NET (GAIN) ON DISPOSITION OF ASSETS EARNINGS FROM OPERATIONS INTEREST EXPENSE INTEREST INCOME UNREALIZED LOSS (GAIN) ON INVESTMENTS AND OTHER EARNINGS BEFORE INCOME TAXES INCOME TAXES NET EARNINGS LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST EARNINGS PER SHARE - BASIC EARNINGS PER SHARE - DILUTED OTHER COMPREHENSIVE INCOME: NET EARNINGS OTHER COMPREHENSIVE GAIN (LOSS) COMPREHENSIVE INCOME LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST See notes to consolidated financial statements. 29 UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands, except share and per share data) Controlling Interest Shareholders’ Equity 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 Repurchase of 13,613 shares Tax benefits from non-qualified stock options exercised Expense associated with share-based compensation arrangements Accrued expense under deferred compensation plans 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 Net earnings Foreign currency translation adjustment Unrealized gain (loss) on investment & foreign currency Distributions to noncontrolling interest Cash dividends - $0.180 per share - semiannually Issuance of 37,794 shares under employee stock purchase plans Issuance of 348,208 shares under stock grant programs Issuance of 166,528 shares under deferred compensation plans Repurchase of 860,669 shares Expense associated with share-based compensation arrangements Accrued expense under deferred compensation plans Balance at December 29, 2018 $ $ $ Common Stock Additional Paid-In Capital 60,425 $ 131,279 $ Retained Earnings 565,636 101,179 $ Accumulated Other Comprehensive Noncontrolling Earnings Interest Total $ (4,585) $ (1,316) 271 13,654 $ 4,318 (1,658) — (3,280) (1,748) 21 407 173 — 856 515 4,890 (173) — (17,680) — 2,208 5,074 144,649 $ 61,026 $ 24 429 159 (446) 637 5,769 (159) 297 3,618 7,117 61,192 $ 161,928 $ 38 348 167 (861) 988 4,827 (167) 3,379 7,585 649,135 119,512 $ (5,630) $ 5,070 704 11,286 $ 4,528 356 (4,032) 2,409 — (19,607) (12,828) 736,212 148,598 947 (22,072) (23,768) $ 144 $ (4,973) (1,109) 14,547 $ 3,814 59 (3,139) 60,884 $ 178,540 $ 839,917 $ (5,938) $ 15,281 $ 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 7,117 974,023 152,412 (4,914) (162) (3,139) (22,072) 1,026 5,175 — (24,629) 3,379 7,585 1,088,684 See notes to consolidated financial statements 30 UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (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 Deferred income taxes (credits) Unrealized loss (gain) on investments and other Net (gain) 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 Issuance of long-term 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 FINANCING ACTIVITIES: Common stock issued under deferred compensation plans See notes to consolidated financial statements 31 December 29, 2018 Year Ended December 30, 2017 December 31, 2016 $ 152,412 $ 124,040 $ 105,497 54,949 6,393 3,574 857 1,888 (6,604) (8,512) (84,304) (5,213) 1,245 116,685 (95,862) 38,373 (54,017) — — (434) 768 (13,338) 3,678 (400) (121,232) 732,370 (748,496) 927 (5,540) 75,000 1,026 (22,072) (3,139) (24,629) (1,054) 4,393 (464) (618) 28,816 28,198 28,339 477 28,816 27,316 882 28,198 8,860 51,578 $ $ $ $ $ $ 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 5,837 $ 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 $ $ $ $ $ $ $ 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 2018, 2017, and 2016 relate to the fiscal years ended December 29, 2018, December 30, 2017, and December 31, 2016, respectively. Fiscal year 2016 was comprised of 53 weeks, which contributed an additional $60 million in sales in 2016 compared to fiscal years 2018 and 2017, 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. 32 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. 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. In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments – Overall, this ASU changes the treatment for available-for-sale equity investments by recognizing unrealized fair value changes directly in net income and no longer in other comprehensive income. For public entities, the amendment is effective for fiscal years beginning after December 15, 2017. The ASU was adopted during fiscal 2018 with a cumulative-effect adjustment to retained earnings of $0.9 million at the beginning of 2018. The available-for-sale equity securities balance at December 29, 2018 is $10.7 million, which resulted in an unrealized loss recorded as a non-operating expense of $1.9 million. 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 29,2018: Allowance for possible losses on accounts receivable $ 2,424 $ 38,963 $ (38,786) $ 2,601 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 * Includes accounts charged off, discounts given to customers and actual customer returns and allowances. 33 We record estimated sales returns, discounts, and other applicable adjustments as a reduction of net sales in the same period revenue is recognized. Accounts receivable retainage amounts related to long term construction contracts totaled $5.5 million and $4.8 million as of December 29, 2018 and December 30, 2017, respectively. All amounts are expected to be collected within 18 months. Concentration of accounts receivable related to our largest customer totaled $44.5 million and $55.9 million as of December 29, 2018 and December 30, 2017, 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 $16.8 million as of December 29, 2018 and $14.8 million as of December 30, 2017. 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 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 will elect practical expedients permitted under the transition guidance within the new standard, which among other things, allows the carryforward of historical lease classification, lease and related non-lease components accounted as a single component, and hindsight practical expedient to determine the reasonably certain lease term for existing leases. As required by the standard, the Company expects to make additional disclosures related to the nature and type of leases, practical expedients applied, and adoption method in the first quarter of 2019 fiscal year. The Company expects $60-80 million impact on our consolidated balance sheets and no material impact on our consolidated income statement. 34 GOODWILL Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually in accordance with ASC 350, Intangibles-Goodwill and Other. We review the carrying amounts of goodwill and other non-amortizable intangibles by reporting unit to determine if such assets may be impaired. As the carrying amount of these assets are recoverable based upon a discounted cash flow and market approach analysis, no impairment was recognized. Our annual testing date for evaluating goodwill and indefinite-lived intangible asset impairment is the first day of the Company’s fourth fiscal quarter for all reporting units. Additionally, the Company reviews various triggering events throughout the year to ensure that a mid-year impairment analysis is not required. FOREIGN CURRENCY Our foreign operations use the local currency as their functional currency. Accordingly, assets and liabilities are translated at exchange rates as of the balance sheet date and revenues and expenses are translated using weighted average rates, with translation adjustments included as a separate component of shareholders’ equity. Gains and losses arising from re-measuring foreign currency transactions are included in earnings. INSURANCE RESERVES Our wholly-owned insurance company, Ardellis Insurance Ltd.(“Ardellis”), was incorporated on April 21, 2001 under the laws of Bermuda and is licensed as a Class 3A insurer under the Insurance Act 1978 of Bermuda. 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 29, 2018 and December 30, 2017. 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 29, 2018, Ardellis had 39 such contracts in place. Reserves associated with these contracts were $4.9 million at December 29, 2018 and $3.4 million at December 30, 2017, 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. Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and requires the recognition of revenue when promised goods or services 35 are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange 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 has adopted the requirements of the new standard as of January 1, 2018, and utilized the modified retrospective method of transition which was applied to all contracts. The Company completed the new revenue recognition standard assessment and determined that there was no material impact to our consolidated financial statements, aside from additional required disclosures, thus no needed adjustment to the opening retained earnings for the annual reporting period. Within the three markets (retail, industrial, and construction) that the Company operates, there are a variety of written and oral contracts that are utilized to generate revenue from the sale of wood, wood composite and other products. The transaction price is stated at the purchase order level, which includes shipping and/or freight costs and any applicable governmental authority taxes. The majority of our contracts have a single performance obligation concentrated around the delivery of goods to the carrier, Free On Board (FOB) shipping point. Therefore, revenue is recognized when this performance obligation is satisfied. Generally, title and control 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. Certain customer products that we provide require installation by the Company or a 3rd party. Installation revenue is recognized upon completion, which is typically 2-3 days after receipt. If it is determined to utilize a 3rd party for installation, the party will act as an agent to the Company until completion of the installation. Installation revenue represents an immaterial share of the Company’s total sales. The Company utilizes rebates, credits, discounts and/or cash-based incentives with certain customers which are accounted for as variable consideration. We estimate these amounts based on historical and anticipated customer sales and reduce recognized revenues accordingly. We believe that there will not be significant changes to our estimates of variable consideration. Our estimates of variable consideration are considered not constrained as the likelihood and magnitude of a significant reversal are not probable. The allocation of these costs are applied at the invoice level and recognized in conjunction with revenue. Additionally, the volume returns and refunds are estimated on a historical and expected basis which is a reduction of revenue recognized. Earnings on construction contracts are reflected in operations using over time accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations, which is in accordance with ASC 606 as revenue is recognized when certain performance obligations are performed. Under over time accounting 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 over time accounting 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 and performance obligations 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. Invoices are issued routinely throughout the projects’ life and payments are primarily due 45-60 days after invoice date. 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. 36 The following table presents our gross revenues disaggregated by revenue source: (in thousands) Market Classification FOB Shipping Point Revenue Construction Contract Revenue Total Gross Sales Sales Allowances Total Net Sales December 29, 2018 December 30, 2017 % Change 4,440,098 125,651 4,565,749 (76,569) 4,489,180 $ $ 3,867,781 138,422 4,006,203 (65,021) 3,941,182 14.8% -9.2% 14.0% 17.8% 13.9% $ $ In 2018, $77.8 million and $47.8 million of our construction contract revenue was attributable to our North and West segments, respectively. Construction contract revenue is primarily made up of site-built and framing customers. The following table presents the balances of percentage-of-completion accounts on December 29, 2018 and December 30, 2017 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 29, 2018 December 30, 2017 $ 6,945 $ 3,245 5,005 4,435 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: Net earnings attributable to controlling interest Adjustment for earnings allocated to non-vested restricted common stock Net earnings for calculating EPS $ $ 148,598 $ (3,396) 145,202 $ 119,512 $ 101,179 (1,595) 99,584 (2,225) 117,287 $ December 29, December 30, December 31, 2018 2017 2016 Denominator: Weighted average shares outstanding Adjustment for non-vested restricted common stock Shares for calculating basic EPS Effect of dilutive restricted common stock Shares for calculating diluted EPS Net earnings per share: Basic Diluted 61,762 (1,411) 60,351 82 60,433 61,416 (1,143) 60,273 90 60,363 61,089 (963) 60,126 99 60,225 $ $ 2.41 $ 2.40 $ 1.95 $ 1.94 $ 1.66 1.65 No options were excluded from the computation of diluted EPS for 2018, 2017, or 2016. 37                     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: Quoted Prices in Active Markets (Level 1) $ 56 $ 3,387 7,262 — December 29, 2018 Prices with Other Prices with Observable Unobservable Inputs (Level 2) 5,267 $ 9,738 — — Inputs (Level 3) Total — $ 5,323 $ — — 1,756 13,125 7,262 1,756 Quoted Prices in Active December 30, 2017 Prices with Other Observable Markets (Level 1) Inputs (Level 2) 64 $ 1,182 10,710 Total 3,071 $ 3,135 8,156 6,974 10,710 — 2,846 937 237 796 1,318 6,134 $ 16,839 $ 16,839 — — — — — — $ 15,005 $ 15,005 — — — — — — 1,756 1,756 2,846 937 237 796 1,318 6,134 $ 33,600 $ 33,600 367 91 270 209 — — — — 367 91 270 209 937 — $ 12,893 $ 10,045 $ 12,893 $ 10,045 937 $ 22,938 $ 22,938 (in thousands) Money market funds Fixed income funds Equity securities Hedge funds Mutual funds: Domestic stock funds International stock funds Target funds Bond funds Alternative funds Total mutual funds Total Assets at fair value We maintain money market, mutual funds, bonds, and/or stocks in our non-qualified deferred compensation plan and our wholly owned licensed captive insurance company. These funds are valued at prices quoted in an active exchange market and are included in "Cash and Cash Equivalents", "Investments", and "Other Assets". We have elected not to apply the fair value option under ASC 825, Financial Instruments, to any of our financial instruments except for those expressly required by U.S. GAAP. The valuations of the Level 2 assets or liabilities rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability. During 2018, we purchased a private real estate income trust which will be valued as a Level 3 asset. We did not maintain any Level 3 assets or liabilities at December 30, 2017. In 2017, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”) transferred fixed income securities to 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”. 38 In accordance with our investment policy, our wholly-owned company, Ardellis Insurance Ltd. ("Ardellis"), maintains an investment portfolio, totaling $27.4 million as of December 29, 2018, 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 Hedge Funds Total $ 13,301 $ 7,141 5,815 1,722 $ 27,979 $ (176) $ 13,125 7,262 121 5,248 (567) 1,756 34 (588) $ 27,391 December 29,2018 Unrealized Gain/(Loss) Fair Value Cost Cost December 30,2017 Unrealized Gain/(Loss) Fair Value (14) $ 8,156 10,709 — — 1,510 $ 18,865 1,524 — — $ 8,170 $ 9,185 — — $ 17,355 $ Our fixed income investments consist of a blend of US Government and Agency bonds and investment grade corporate bonds with varying maturities. Our equity investments consist of small, mid, and large cap growth and value funds, as well as international equity. Our hedge funds consist of the private real estate income trust which is valued as a Level 3 asset. The net pre-tax unrealized loss was $0.5 million. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of December 29, 2018. C. BUSINESS COMBINATIONS We completed the following business combinations in fiscal 2018 and 2017, which were accounted for using the purchase method (in thousands). Company Name Pak-Rite, LTD ("Pak-Rite") Acquisition Date October 22, 2018 Purchase Price $15,115 cash paid for 100% asset purchase $ Net Intangible Assets Tangible Operating Segment Assets 8,592 $ 6,523 North A designer and manufacturer of packaging for high-value products, such as medical, aerospace and automation equipment. Pak-Rite had annual sales of approximately $15 million. The acquisition of Pak-Rite allows us to grow our portfolio of packaging products and our presence in this region. July 31, 2018 $1,016 cash paid for 100% asset purchase $ 250 $ 766 West The Pallet Place, LLC ("Pallet Place") A manufacturer and distributor of total packaging solutions in timber, crates, skids, and pallets. Pallet Place had annual sales of approximately $5 million. The acquisition of Pallet Place allows us to increase our industrial business and creates operating leverage by consolidating with another regional operation. June 1, 2018 $23,866 cash paid for 100% asset purchase $ 12,497 $ 11,369 South North American Container Corporation ("NACC") A manufacturer of structural packaging products, including steel, corrugated and hardwood packaging. NACC had annual sales of approximately $71 million. The acquisition of NACC allows us to enhance our presence in this region, expand our product offering, and serve customers more cost effectively. 39 Company Name Acquisition Date April 9, 2018 Purchase Price $3,890 cash paid for 100% asset purchase $ Net Intangible Assets Tangible Operating Segment Assets 2,235 $ 1,655 West Fontana Wood Products ("Fontana") A manufacturer and distributor of lumber and trusses in the Southern California region. Fontana had annual sales of approximately $12 million. The acquisition of Fontana allows us to expand our manufactured housing business and creates operating leverage by consolidating with another regional operation. April 3, 2018 $1,347 cash paid for 100% asset purchase $ 1,287 $ 60 All Other Expert Packaging ("Expert") A manufacturer and distributor of total packaging solutions in timber, crates, pallets, and skids. Expert had annual sales of approximately $3.6 million. The acquisition of Expert allows us to make progress on our goal of becoming a global provider of packaging solutions. January 23, 2018 $2,942 cash paid for 100% asset purchase $ 850 $ 2,092 West Spinner Wood Products, LLC ("Spinner") A manufacturer and distributor of agricultural bin and various industrial packaging. Spinner had annual sales of approximately $8 million. The acquisition of Spinner allows us to expand our industrial packaging product offering and creates operating leverage by consolidating with other regional operations. Great Northern Lumber, LLC January 15, 2018 $5,784 cash paid for 100% asset purchase $ 50 $ 5,734 North A manufacturer of industrial products as well as serving the concrete forming market in the Chicago area. Great Northern Lumber had annual sales of approximately $25 million. The acquisition of Great Northern Lumber enables us to expand our concrete forming product offering and regional coverage. October 16, 2017 $931 cash paid for 100% asset purchase $ 909 $ 22 All Other Silverwater Box 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. March 6, 2017 $22,789 cash paid for 100% asset purchase $ 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. 40 The intangible assets for each acquisition were finalized and allocated to their respective identifiable intangible asset and goodwill accounts during 2018, except for our NACC and Pak-Rite acquisitions. In aggregate, acquisitions not consolidated with other operations contributed approximately $110.1 million in revenue and a $1.1 million in operating profit during 2018. At December 29, 2018, the amounts assigned to major intangible classes for the business combinations mentioned above are as follows (in thousands): Non- Compete Customer Goodwill - Tax Pak-Rite Pallet Place NACC Fontana Expert Packaging Spinner Great Northern Lumber Silverwater Box Go Boy Robbins Quality *(estimate) — 4,300 * $ 250 3,500 * 2,235 809 Agreements Relationships Tradename Goodwill Deductible — $ 4,292 * $ 8,592 $ 250 — 12,497 — 8,997 * 2,235 — — 257 850 — 50 — — — 4,880 — 7,653 14,341 — — — — 909 — 450 3,113 400 7,391 — $ — — — 221 850 50 — 225 560 830 — — — 4,655 3,530 5,720 The business combinations mentioned above were not significant to our operating results individually or in aggregate, and thus pro forma results for 2018 and 2017 are not presented. D. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the net carrying amount of goodwill by reporting segment for the years ended December 29, 2018 and December 30, 2017, are as follows (in thousands): Balance as of December 31, 2016 2017 Acquisitions Foreign Exchange, Net Balance as of December 30, 2017 2018 Acquisitions Foreign Exchange, Net Balance as of December 29, 2018 North 43,386 7,391 350 51,127 4,292 (365) $ 55,054 South 43,625 3,113 — 46,738 8,996 — $ 55,734 West All Other — — 87,730 23,794 909 2,346 87,730 27,049 — — — (1,450) $ 87,730 $ 25,599 Total 198,535 11,413 2,696 212,644 13,288 (1,815) $ 224,117 Indefinite-lived intangible assets totaled $7.4 million as of December 29, 2018 and December 30, 2017 related to the idX, International, and Consumer Products reporting units which is included in the All Other reportable segment. 41 The following amounts were included in other amortizable intangible assets, net as of December 29, 2018 and December 30, 2017 (in thousands): Non-compete agreements Customer relationships Licensing agreements Patents Tradename Total 2018 Accumulated Amortization $ Assets (5,517) $ 9,841 31,630 (6,843) 4,589 (3,909) 792 (284) 2,420 (760) $ (17,313) $ 49,272 2017 Accumulated Amortization (4,208) $ (5,986) (3,450) (254) (464) $ (14,362) Assets $ 10,232 40,307 4,589 792 2,879 $ 58,799 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 6.8 years 11.4 years 10 years 11.7 years 3 to 15 years 5 to 15 years 10 years 5 to 15 years Amortization expense of intangibles totaled $6.4 million, $4.9 million and $2.8 million in 2018, 2017 and 2016, respectively. The estimated amortization expense for intangibles for each of the five succeeding fiscal years is as follows (in thousands): 2019 2020 2021 2022 2023 Thereafter Total E. DEBT $ $ 6,908 5,802 5,503 5,119 3,800 14,354 41,486 On June 14, 2018, we entered into an unsecured Note Purchase Agreement (the "Agreement") under which we issued our 4.20% Series 2018 C Senior Notes, due June 14, 2028, in the aggregate principal amount of $40 million and our 4.27% Series 2018 D Senior Notes, due June 14, 2030, in the aggregate principal amount of $35 million. Proceeds from the sale of the Series C Senior Notes and Series D Senior Notes were used to pay down our revolving credit facility. 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 1, 2018, we entered into a five-year, $375 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 $40 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 $295 million unsecured revolving credit facility. Cash borrowings are charged interest based upon an index selected by 42 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 12.5 to 30.0 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 29, 2018 and December 30, 2017 aggregated $30.3 million and $26.5 million; respectively, which includes approximately $9.8 million related to industrial development revenue bonds. The Company had an outstanding balance of $42.5 million and $59.4 million on its revolver at December 29, 2018, and December 30, 2017, respectively. After considering letters of credit, the Company had $322.7 million and $225.7 million in remaining availability on its revolver on December 29, 2018, and December 30, 2017, 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 112.5 basis points, based upon our financial performance. The letters of credit related to workers’ compensation are charged an annual interest rate of 75 basis points. Long-term debt obligations are summarized as follows on December 29, 2018 and December 31, 2017 (amounts in thousands): 2018 2017 35,000 Series 2018 Senior Notes C, due on June 14, 2028, interest payable semi-annually at 4.20% $ 40,000 Series 2018 Senior Notes D, due on June 14, 2030, interest payable semi-annually at 4.27% 35,000 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 $375 million due on November 1, 2023, interest payable monthly at a floating rate (3.39% on December 29, 2018 and 2.41% on December 30, 2017) Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest payable monthly at a floating rate (1.94% on December 29, 2018 and 1.08% on December 30, 2017) Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest payable monthly at a floating rate (2.00% on December 29, 2018 and 1.14% on December 30, 2017) Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest payable monthly at a floating rate (1.99% on December 29, 2018 and 1.13% on December 30, 2017) Capital leases and foreign affiliate debt 40,000 42,490 3,300 2,700 $ — — 35,000 40,000 59,422 3,300 2,700 3,700 2,058 146,180 (1,329) (177) $ 144,674 3,700 311 202,501 (148) (223) $ 202,130 Less current portion Less debt issuance costs Long-term portion 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 29, 2018 and December 30, 2017. 43 On December 29, 2018, the principal maturities of long-term debt and capital lease obligations are as follows (in thousands): 2019 2020 2021 2022 2023 Thereafter Total $ $ 148 2,834 29 38,700 42,490 118,300 202,501 On December 29, 2018, the estimated fair value of our long-term debt, including the current portion, was $203.1 million, which was $0.6 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. F. LEASES We lease certain real estate under operating lease agreements with original terms ranging from one to ten years. We are required to pay real estate taxes and other occupancy costs under these leases. Certain leases carry renewal options of five to fifteen years. We also lease motor vehicles, equipment, and an aircraft under operating lease agreements for periods of one to ten years. Future minimum payments under non-cancelable operating leases on December 29, 2018 are as follows (in thousands): 2019 2020 2021 2022 2023 Thereafter Total minimum lease payments Operating Leases $ $ 17,242 11,969 9,784 8,346 6,382 22,498 76,221 Rent expense was approximately $25.0 million, $22.3 million, and $10.5 million in 2018, 2017, and 2016, respectively. G. 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 on December 29, 2018 and December 30, 2017, and are included in "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 on December 29, 2018 and December 30, 2017, and are included in "Other Assets." Related liabilities totaled $27.8 million 44 and $22.6 million on December 29, 2018 and December 30, 2017, 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. H. COMMON STOCK We maintain and administer our shareholder approved Employee Stock Purchase Plan ("Stock Purchase Plan"). The Stock Purchase 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. We maintain and administer our shareholder approved Directors’ Retainer Stock Plan ("Stock Retainer 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 2018, $1.7 million in 2017, and $0.7 million in 2016. 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. Finally, we maintain and administer our shareholder approved Long Term Stock Incentive Plan (the "LTSIP”). 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 2018, 2017, and 2016. Below is a summary of common stock issuances for 2018 and 2017: Share Issuance Activity Shares issued under the employee stock purchase plan Shares issued under the employee stock gift program Shares issued under the director retainer stock program Shares issued under the long term stock incentive plan Shares issued under the executive stock match grants Forfeitures Total shares issued under stock grant programs Shares issued under the deferred compensation plans Share Issuance Activity 45 December 29, 2018 Common Stock 38 $ Average Share Price 35.58 3 101 164 94 (14) 348 167 33.56 17.17 35.16 32.94 - 29.37 36.98 $ $ December 30, 2017 Common Stock Average Share Price Shares issued under the employee stock purchase plan Shares issued under the employee stock gift program Shares issued under the director retainer stock program Shares issued under the long term stock incentive plan Shares issued under the executive stock match grants Forfeitures Total shares issued under stock grant programs Shares issued under the deferred compensation plans 24 $ 32.80 3 62 240 129 (5) 429 159 31.92 19.02 31.81 32.03 - 30.06 32.16 $ $ A summary of the nonvested restricted stock awards granted under the LTSIP is as follows: Nonvested at December 26, 2015 Granted Vested Forfeited Nonvested at December 31, 2016 Granted Vested Forfeited Nonvested at December 30, 2017 Granted Vested Forfeited Nonvested at December 29, 2018 Restricted Awards 623,748 350,892 (180,465) (2,643) 791,532 388,248 (141,111) (5,043) 1,033,626 247,068 (107,865) (12,750) 1,160,079 Weighted- Average Grant Date Fair Value 13.66 23.96 15.66 21.45 19.32 32.03 12.71 30.14 24.24 36.52 18.11 24.19 23.32 $ $ Weighted- Unrecognized Average Compensation Period to Recognize Expense 2.53 years Expense (in millions) 5.2 4.8 1.51 years 7.1 1.31 years 7.6 1.12 years Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation expense of $3.6 million, $3.6 million, and $2.2 million and the related total income tax benefits of $0.7 million, $1.0 million, and $1.1 million in 2018, 2017 and 2016, respectively. In 2018, 2017 and 2016, cash received from share issuances under our plans was $1.0 million, $0.7 million and $0.5 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 860,669 and 445,740 shares under this program in 2018 and 2017, respectively. As of December 29, 2018, the cumulative total authorized shares available for repurchase is approximately 1.9 million shares. 46 I. RETIREMENT PLANS We have a profit sharing and 401(k) plan for the benefit of substantially all of our employees, excluding the employees of certain wholly-owned subsidiaries. Amounts contributed to the plan are made at the discretion of the Board of Directors. We matched 25% of employee contributions in 2018, 2017, and 2016, on a discretionary basis, totaling $3.4 million, $4.8 million, and $4.4 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 $9.1 million and $7.8 million are accrued in “Other Liabilities” for this plan at December 29, 2018 and December 30, 2017, respectively. J. INCOME TAXES Income tax provisions for the years ended December 29, 2018, December 30, 2017, and December 31, 2016 are summarized as follows (in thousands): Currently Payable: Federal State and local Foreign Net Deferred: Federal State and local Foreign The components of earnings before income taxes consist of the following: U.S. Foreign Total 2018 2017 2016 $ 31,492 $ 44,413 8,579 6,240 59,232 7,544 5,527 44,563 $ 42,397 6,341 6,143 54,881 2,965 (522) (1,565) 878 (7,681) (864) 1,280 (7,265) $ 45,441 $ 51,967 (455) 438 310 293 $ 55,174 2018 2017 $ 180,261 $ 151,395 24,612 $ 197,853 $ 176,007 17,592 2016 $ 140,106 20,565 $ 160,671 The effective income tax rates are different from the statutory federal income tax rates for the following reasons: Statutory federal income tax rate State and local taxes (net of federal benefits) Effect of noncontrolling owned interest in earnings of partnerships Manufacturing deduction Tax credits, including foreign tax credit Change in uncertain tax positions reserve Other permanent differences Other, net Impact of Tax Act and reduction of corporate tax rate Effective income tax rate 47 2018 21.0 % 3.8 (0.1) n/a (1.6) 0.1 0.6 (0.7) (0.1) 23.0 % 2017 35.0 % 3.0 (0.2) (2.5) (2.0) 0.4 (0.1) (0.6) (3.5) 29.5 % 2016 35.0 % 3.1 (0.2) (2.4) (1.4) 0.4 0.1 (0.3) — 34.3 % Temporary differences which give rise to deferred income tax assets and (liabilities) on December 29, 2018 and December 30, 2017 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 2018 $ 20,914 6,520 504 586 1,090 802 1,593 2,785 34,794 (2,707) 32,087 (24,881) (20,225) — (45,106) $ (13,019) 2017 $ 17,048 8,592 546 709 358 714 2,060 1,879 31,906 (4,706) 27,200 (19,992) (19,422) — (39,414) $ (12,214) As of December 29, 2018, the company had federal, state and foreign net operating loss carryforwards of $6.5 million and state tax credit carryforwards of $0.4 million, which will expire at various dates. The NOL and credit carryforwards expire as follows: Net Operating Losses Tax Credits 2018 – 2022 2023 - 2027 2028 - 2032 2033 - 2037 Thereafter Total U.S. $ — $ — 2,859 41 — $ 2,900 State 165 526 672 812 293 $ 2,468 $ Foreign U.S. 347 $ 635 114 — 56 $ 1,152 $ State 381 — — — — 381 — $ — — — — — $ As of December 29, 2018, 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 affected 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 48 from foreign subsidiaries; (5) a new provision designed to tax global intangible low-taxed income (GILTI), which allows 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 recorded a provisional discrete net tax benefit of $6.1 million in the period ending December 30, 2017 which consisted primarily of (1) a net benefit for the corporate rate reduction of $8.2 million; (2) a net expenses 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. We completed our accounting for the income tax effects of the Tax Act in 2018 and have recognized an additional measurement-period adjustment of a net tax benefit of $0.3 million in the period ending December 29, 2018. The adjusted total impact of the Tax Act is now $6.4 million which consists of the following: (1) the net benefit for the corporate rate reduction remained the same at $8.2 million; (2) a net expense for the write-down of the deferred tax assets for stock based compensation was reduced by $0.1 million to $1.8 million, and (3) the net expense for the transition tax was eliminated and reduced by $0.2 million. The effect of the measurement-period adjustment on the 2018 effective tax rate was a reduction of approximately 0.1 percent. Global intangible low taxed income (GILTI): The Tax Act created 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. In our evaluation of this provision of the Tax Act and the application of ASC 740, we elected under U.S. GAAP, to make the accounting policy of 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”) as opposed to factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). For the year ended December 29, 2018, we determined that no GILTI tax inclusion was applicable. K. 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. 49 A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): Gross unrecognized tax benefits beginning of year Increase in tax positions for prior years Increase in tax positions 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 2018 2017 $ 4,000 $ 3,381 4 — 1,107 (2) (490) $ 4,378 $ 4,000 (366) — 1,326 — (582) 2016 $ 2,209 243 362 905 (32) (306) $ 3,381 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 $0.5 million, $0.7 million, and $0.6 million at December 29, 2018, December 30, 2017, and December 31, 2016, respectively. We file income tax returns in the United States and in various state, local and foreign jurisdictions. The federal and a majority of state and foreign jurisdictions are no longer subject to income tax examinations for years before 2015. 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 $0.8 million. L. 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; and Auburndale, 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 $2.1 million and $3.0 million on December 29, 2018 and December 30, 2017, 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 $0.1 million. As a result, this amount is recorded in other long-term liabilities on December 29, 2018. In addition, on December 29, 2018, 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. 50 On December 29, 2018, we had outstanding purchase commitments on commenced capital projects of approximately $14.3 million. We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material. We distribute products manufactured by other companies, some of which are no longer in business. While we do not warrant these products, we have received claims as a distributor of these products when the manufacturer no longer exists or has the ability to pay. Historically, these costs have not had a material affect on our consolidated financial statements. As part of our operations, we supply building materials and labor to site-built construction projects or we jointly bid on contracts with framing companies for such projects. In some instances we are required to post payment and performance bonds to insure the project owner 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 29, 2018, we had approximately $21.1 million in outstanding payment and performance bonds for open projects. We had approximately $1.0 million in payment and performance bonds outstanding for completed projects which are still under warranty. On December 29, 2018 we had outstanding letters of credit totaling $30.3 million, primarily related to certain insurance contracts and industrial development revenue bonds described further below. In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our performance under certain insurance contracts. We currently have irrevocable letters of credit outstanding totaling approximately $20.5 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements. We are required to provide irrevocable letters of credit in favor of the bond trustees for all 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, the Series 2018 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 2018 which would require us to recognize a liability on our balance sheet. M. 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. 51 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. One customer, The Home Depot, accounted for approximately 19% of our total sales in fiscal 2018 and 2017, and 20% in 2016. 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. 2018 All Net sales to outside customers Intersegment net sales Interest expense (income) Amortization expense Depreciation expense Segment earnings from operations Segment assets Capital expenditures North $ 1,279,459 56,682 58 830 12,062 66,239 386,483 17,820 South $ 1,024,747 76,297 (6) 1,292 8,244 60,049 266,503 9,185 West $ 1,599,274 56,004 197 1,998 14,836 103,357 496,939 26,024 Other Corporate Total $ 585,700 $ 235,905 (1,486) 2,273 10,341 6,779 395,727 39,168 — $ 4,489,180 424,888 — 8,893 10,130 6,393 — 54,949 9,466 207,263 (29,161) 1,647,548 101,896 95,862 3,665 2017 All Net sales to outside customers Intersegment net sales Interest expense Amortization expense Depreciation expense Segment earnings from operations Segment assets Capital expenditures North $ 1,133,656 67,161 4 559 10,511 61,326 351,270 23,026 South $ 837,370 74,566 160 607 6,880 46,646 240,661 12,286 West $ 1,417,924 83,245 293 1,723 14,116 82,465 462,311 23,212 Other Corporate Total $ 552,232 $ 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 8,443 181,469 (26,264) 1,464,677 54,171 71,116 2,727 2016 All Net sales to outside customers Intersegment net sales Interest expense Amortization expense Depreciation expense Segment earnings from operations Segment assets Capital expenditures North $ 1,000,426 57,770 1 115 8,948 59,408 302,009 10,902 South $ 711,862 38,641 307 — 6,190 47,146 192,085 5,571 West $ 1,251,093 88,311 387 1,858 13,326 76,875 438,674 19,648 Other Corporate Total $ 277,112 $ 19,322 143 822 4,531 16,639 313,304 6,037 — $ 3,240,493 204,044 — 4,575 3,737 2,795 — 40,823 7,828 164,438 (35,630) 1,292,058 45,986 53,762 11,604 52 Information regarding principal geographic areas was as follows (in thousands): 2018 2017 2016 United States Foreign Total Net Sales $ 4,382,356 106,824 $ 4,489,180 Long-Lived Tangible Assets $ 342,326 34,312 $ 376,638 Net Sales $ 3,821,366 119,816 $ 3,941,182 Long-Lived Tangible Assets Net Sales $ 313,976 $ 3,162,331 78,162 $ 344,356 $ 3,240,493 30,380 Long-Lived Tangible Assets $ 280,362 26,106 $ 306,468 Sales generated in Canada and Mexico are primarily to customers in the United States of America. The following table presents, for the periods indicated, our gross sales (in thousands) by major product classification. Year Ended December 29, December 30, December 31, 2017 2016 2018 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 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 $ 421,996 $ 368,591 $ 334,956 176,668 200,004 141,474 391,610 76,503 87,262 68,517 53,279 106,284 204,732 50,556 60,753 66,048 20,713 17,412 10,967 $ 2,854,661 $ 2,535,008 $ 2,067,738 187,905 244,910 149,520 471,262 76,507 260,174 78,638 61,226 110,327 265,048 48,736 75,742 85,016 21,218 17,584 12,604 179,037 271,499 151,260 581,622 83,212 252,341 102,333 69,889 124,907 305,374 48,614 97,314 98,370 24,662 20,889 21,342 718,456 647,222 285,888 39,768 19,754 576,374 575,505 271,310 34,970 13,036 469,042 479,333 238,806 30,374 12,084 $ 1,711,088 $ 1,471,195 $ 1,229,639 $ 4,565,749 $ 4,006,203 $ 3,297,377 (56,884) $ 4,489,180 $ 3,941,182 $ 3,240,493 (65,021) (76,569) N. 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 29, 2018 and December 30, 2017, respectively, (in thousands, except per share data): First Second Third Fourth 2018 2017 $ 993,857 $ 846,130 $ 1,294,440 165,689 120,740 45,130 21,634 130,889 33,582 2018 2017 $ 1,072,375 148,240 34,574 2018 $ 1,212,702 158,673 42,068 2017 2018 $ 1,056,586 $ 988,179 137,643 31,633 144,687 34,669 2017 $ 966,091 129,159 33,162 Net sales Gross profit Net earnings Net earnings attributable to controlling interest Basic earnings per share Diluted earnings per share 32,833 21,062 44,044 33,642 41,219 33,693 30,502 31,115 0.53 0.34 0.53 0.34 0.71 0.71 0.55 0.55 0.67 0.66 0.55 0.55 0.50 0.50 0.51 0.51 54 MARKET INFORMATION FOR OUR COMMON STOCK Our common stock trades on The Nasdaq Stock Market (“NASDAQ”) under the symbol UFPI. 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 28, 2013, 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 Thomas W. Rhodes President and Chief Executive Officer TWR Enterprises, Inc. Bruce A. Merino Mary E. Tuuk President and Chief Executive Officer Grand Rapids Symphony Brian C. Walker Partner-Strategic Leadership Huron Capital Michael G. Wooldridge Partner Varnum, LLP Joan A. Budden President Priority Health 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 Strategy & Development 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 24, 2019, 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 UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES Locations: Adairsville, GA Ashburn, GA Atco, NJ Auburn , NY Auburndale, FL Belchertown, MA Belle Glade, FL Berlin, NJ Blanchester, OH Blue Island, IL Bomaderry, Australia Burlington, NC Cameron, SC Cedar Hill, TX Chaffee, NY Chandler, AZ Chesapeake, VA Clinton, NC Conway, SC Dayton, OH Eatonton, GA Edwardsburg, MI Elizabeth City, NC Elkhart, IN Fernley, NV Folkston, GA Franklinton, NC Fredericksburg, VA Gilmer, TX Gordon, PA Grand Rapids, MI Grandview, TX Granger, IN Haleyville, AL Hamilton, OH Harrisonville, MO Highland Square, NY Hillsboro, TX Huntsville, TX Janesville, WI Jefferson, GA Kearneysville, WV Kyle, TX Lafayette, CO Lansing, MI Lawrenceburg, TN Liberty, NC Locust, NC Lodi, OH Magna, UT Mcintyre, GA Mcminnville, OR Milwaukee, WI Minneota, MN Morristown, TN Moultrie, GA Naches, WA New London, NC New Waverly, TX New Windsor, MD Freewater, OR Gainesville, GA Gilmer, TX Grand Haven, MI Grand Rapids, MI Greene, ME Hawkins County, TN Hendersonville, NC Jeffersonville, IN Kansas City, MO Kearneysville, WV Kyle, TX Lockhart, FL Maricopa County, AZ Marietta, GA Martin, TN Mayville, WI Mcminnville, OR Medley, FL Mexico City, MX Morristown, TN Moultrie, GA Nampa, ID Nappanee, IN Naugatuck, CT New Delhi, India New Hartford, NY New York, NY Ontario, CA Orangeburg, SC Parker, PA Pitts, GA Plainville, MA Poulsbo, WA Prairie Du Chien, WI Puerto Rico Puyallup, WA Rockwell, NC Salina, KS San Antonio, TX Shanghai, China Sharon, TN Shawnee, OK South Marston Swindon, Wiltshire Spring Lake, MI St Bernard De Lacolle, Quebec Stevens Point, WI Tampa, FL Thomaston, GA Tokyo, Japan Vesper, WI White Bear Lake, MN Wilcox County, GA Windsor, CO Wintrop, ME Woodburn, OR Wujiang City , Jiangsu Province Yeerongpilly, Australia Newnan, GA Ooltewah, TN Parker, PA Pearisburg, VA Peru, IL Prairie Du Chien, WI Ranson, WV Riverside, CA Rowesville, SC Saginaw, TX Saint Bernard De Lacolle, Quebec Salisbury, NC San Antonio, TX Santee, SC Sauk Rapids, MN Schertz, TX Selma, AL Shawnee, OK Sidney , NY Silsbee, TX Snohomish, WA Stanfield , NC Stockertown, PA Thornton, CA Union City, GA Warrens, WI Washington, NC Waterbury, CT Wenatchee, WA White Bear Lake, MN White Pigeon, MI Windsor, CO Woodburn, OR Yakima, WA Aiea, HI Athena, OR Auburndale, FL Aurora, CO Bangalore, India Barnesville, GA Biscoe, NC Boise , ID Bridgeton, MO Chandler, AZ Chicago, IL Chino, CA Columbia, MD Comal County, TX Condord, ON Cordele, GA Dallas, TX Delano, PA Eagan, MN Earth City, MO Edina, MN Elkhart, IN Elkwood, VA Emlenton, PA Erskine Park, Australia Fort Worth, TX 59 LIST OF REGISTRANT'S SUBSIDIARIES AND AFFILIATES UFP Gear, LLC UFP Global Holdings Limited 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 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 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 Mexico Mexico Puerto Rico Michigan Michigan Delaware Australia Mexico Michigan New York Mexico Michigan Michigan Michigan Michigan Michigan Michigan 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 UFP Parker, LLC 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 UFP Aurora, LLC UFP Australia Pty Ltd UFP Australia Real Estate Pty Ltd UFP Barnesville, LLC UFP Belchertown, LLC UFP Berlin, LLC UFP Biscoe, LLC UFP Blanchester, LLC UFP Caldwell, LLC UFP Canada, Inc. UFP Central Plains, LLC UFP Chandler, LLC UFP Chicago, LLC UFP Dallas, LLC UFP Distribution, LLC UFP Eagan, LLC UFP East Central, LLC 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 Australia Australia Michigan Michigan Michigan Michigan Michigan Michigan Canada Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan UFP Thornton, LLC UFP Transportation, Inc. Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Alabama Michigan Michigan Michigan Michigan Alberta Michigan 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 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 Pinelli Lumber, Inc. Texas 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 Nos. 33-81128, 333-60630, 333-150345, 333- 156596, and 33-84632 on Form S-8 of our reports dated February 27, 2019, 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 29, 2018. Exhibit 23 /s/ Deloitte & Touche LLP Grand Rapids, Michigan February 27, 2019 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 27, 2019 /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 27, 2019 /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 29, 2018, 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 29, 2018 fairly presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc. Date: February 27, 2019 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 29, 2018, 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 29, 2018 fairly presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc. Date: February 27, 2019 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. 

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