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.