UFP Industries
Annual Report 2019

Plain-text annual report

Report to Shareholders 2019 "Great companies foster a productive tension between continuity and change." --James C. Collins Dear Shareholders: In our history, there have been few years as energizing, as regenerating, or as bold as 2019. And there have been few years as successful. In fact, 2019 was our most successful year, with record profits (and a record fourth quarter to close it out). It also was the most transformational: After years of planning, we undertook the largest restructuring in our company’s history, changing an organization that had developed over 65 years and had brought us success after success. But we knew it couldn’t support our growth for the decades ahead, so we did something about it. Today, we are UFP Industries, made of business units defined by our markets instead of the geographic regions we serve. And today, our people are specialists in their industries instead of their territories, opening doors of opportunity worldwide and changing the way we do business. From the outside, it might have looked simply like a new name and a refreshed logo. From inside, it was big and complex. And the people of this company undertook this change like they do everything else – with hard work and determination. Unlike many corporate restructurings, our transformation wasn’t designed to eliminate jobs. Instead, it positioned us for more growth and opened doors of opportunity for scores of our employees to lead new units and new efforts and to help us realize success in 2020 and beyond. In fact, in 2019, dozens of people were either promoted or earned exciting new assignments. As is our custom, we went about change with respect for our history. For decades, Universal Forest Products was commonly called “UFP” in the industry and by our employees. We worked for “UFP,” we were part of the “UFP family” and we answered phones with “UFP.” Our new name, UFP Industries, is a nod to our past and a better reflection of who we are and what we do. We’re more than wood, more than lumber manufacturing, more than trusses and decks and crates. Today, we’re defined by new materials, products and technologies that are instrumental to our growth and to our future. Today, UFP Industries is a dynamic holding company with three major business segments: UFP Construction, UFP Industrial and UFP Retail. As we write this, we have approximately 150 facilities and 13,000 employees on four continents. And we’re growing. It’s a long way from a single office in Alma, Michigan, with two employees and a few customers who bought lumber from us to build manufactured homes. But we still have that small-town culture built of a strong Midwest work ethic, a work-hard-play-hard attitude, a demand for respect for people at all levels in the organization, and a great pride in what we do and who we are. Some of that has to do with the fact that many in leadership have been with the company for 35, 40 years and more (including us). These leaders have trained others well. As long-time employees begin to retire, we have a strong bench of new leaders who know our company and our business well, and who have opportunity to be part of a vibrant future led by a smart plan for growth, and a strong vision. Someday two of them will be signing this letter and reporting annual results. But, for now, we have the honor of doing that as we complete our 65th year in business. In 2019, UFP Industries had record results, including net earnings of $180 million, up 21 percent over the previous year. EBITDA of $317 million was up 19 percent, exceeding the company’s unit sales increase of 6 percent. New product sales of $540 million were up 13 percent over the previous year. Our net sales of $4.42 billion reflected a 2 percent decline from 2018, attributable in part to lower lumber prices, which affect selling prices. Here’s how we did by market: Retail: In this market, we saw $1.64 billion in gross sales, down 1 percent from 2018 due to a 7 percent increase in unit sales and an 8 percent decrease in selling prices. We enjoyed solid unit sales growth both with our big box customers and our independent retailers. Deckorators® ii decking and railing products, and notably Voyage and Vault decking, continue to grow interest and take market share. Other products, like ProWood® FR, a fire-retardant lumber product, and our Outdoor Essentials® line of products, including fencing and outdoor decorative accessories, saw solid growth in 2019. And we expect great things from additional product lines like UFP- Edge™ fascia and trim boards. Industrial: Gross sales in Industrial were $1.33 billion in 2019, up 2 percent over the previous year. Unit sales increased 7 percent; 5 percent came from acquisitions and 2 percent from organic growth. We are focusing these days more on designed, engineered and manufactured sales, and de-emphasizing commodity sales. Despite the lower growth rate, our overall profitability improved—again. Construction: In Construction, we had $1.52 billion in gross sales, down 5 percent from 2018 due to a 10 percent decrease in selling prices, and a 5 percent increase in unit sales. Unit sales to commercial and residential customers rose 11 percent and 5 percent, respectively. Manufactured housing sales were flat. Our backlog remained strong for site-built components, and we continued to add capacity in the markets we serve and promote value-added products. We are pleased with our results, but never content. We already have identified $20 million in improvements we can make, and we are executing on strong paths to growth in each of our markets. Our financial and organizational results tell only part of the UFP Industries story in 2019. The rest is best told by the UFP people who work hard to provide for their families: by the person who, never having attended college, worked his way up to become a vice president; by the satisfaction of a worker who figured out a better way to use her machine, resulting in significant cost-savings and recognition by her coworkers; and by the countless employees who don’t just work together, but raise their families together, attend their children’s baptisms, graduations and weddings, and simply enjoy each other. We are UFP Industries, a strong family made up of great people, clear strategies, and blood, sweat and tears—and a fire in the belly to be the best. We’re proud of what we’ve accomplished in 65 years. And while that magic number spells retirement for many, for UFP, it’s just the beginning of a new phase of opportunity and success. iii Thanks for joining us on our journey and for your faith in us. We’re working hard to make sure you remain pleased you chose us as an investment for your hard-earned dollars. Cordially, William G. Currie Chairman of the Board Matthew J. Missad Chief Executive Officer iv 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 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 28, 2019 and December 29, 2018 Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 28, 2019, December 29, 2018, and December 30, 2017 Exhibit 13 2 3 22 23 24 25 26 Consolidated Statements of Shareholders’ Equity for the Years Ended December 28, 2019, December 29, 2018, 27 and December 30, 2017 Consolidated Statements of Cash Flows for the Years Ended December 28, 2019, December 29, 2018, and 28 December 30, 2017 Notes to Consolidated Financial Statements Market Information for our Common Stock Stock Performance Graph Directors and Executive Officers Shareholder Information 29-51 52 53 54 55 SELECTED FINANCIAL DATA (In thousands, except per share and statistics data) 2019 2018 2017 2016 2015 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) $ 4,416,009 685,518 240,674 $ 179,650 2.91 $ 0.400 $ $ 739,030 1,889,477 163,683 1,257,733 $ 4,489,180 592,894 197,853 $ 3,941,182 542,826 176,007 $ 3,240,493 474,590 160,671 $ 2,887,071 399,904 131,002 $ 148,598 2.40 $ 0.360 $ $ 119,512 1.94 $ 0.320 $ $ 101,179 $ 1.65 0.290 $ $ $ $ 80,595 1.33 0.273 $ 685,108 1,647,548 202,278 1,088,684 $ 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 15.5 % 13.2 % 13.8 % 14.6 % 13.9 % 4.1 % 16.5 % 3.09 0.13 20.48 $ 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 $ (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 2015 to 2019. 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 2019. Our results for 2019 were impacted by the following: OVERVIEW  Our sales decreased almost 2% in 2019 due to an 8% decrease in overall selling prices (see “Historical Lumber Prices”) offset by a 6% increase in our unit sales. Our unit sales increase was primarily driven by our organic growth in the retail and construction markets and acquiring businesses that serve the industrial market. Overall, businesses we acquired contributed 1% to our unit sales growth in 2019 (see Note C of the Notes to Consolidated Financial Statements) and we achieved 5% organic unit sales growth.  The Home Improvement Research Institute reported a 4% increase in home improvement sales in 2019. Comparatively, our unit sales to the retail market increased organically by 7%.  Our unit sales to the industrial market increased 7% in 2019 as businesses we acquired contributed 5% to unit sales growth and organic growth was 2%. Comparatively, the Federal Reserve’s Industrial Production Index noted that national industrial production decreased almost 1% in the period from December 2018 to November 2019.  National housing starts were up approximately 3% in 2019 compared to 2018. Comparatively, our unit sales to residential construction customers increased 5% in 2019.  Production of HUD code manufactured homes declined 3% in the period from January through November 2019, compared to the same period of the prior year. Comparatively, our unit sales to the manufactured housing market were flat in 2019 compared to 2018. We estimate that 72% of our sales volume is for HUD homes, 25% is for modular homes, and 3% is for recreational vehicles.  Earnings from operations increased 18% to $244.9 million. Acquired businesses contributed approximately $4.1 million to earnings from operations for the year. The remaining $240.8 million, or 16.1%, increase was primarily 3 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS due to an increase in gross profits driven by low lumber prices and opportunistic buying, organic unit sales growth combined with leveraging fixed costs, and favorable improvements in sales mix, among other factors.  Our cash flow from operating activities increased by $233 million due to a $46 million increase in our net earnings and non-cash expenses and a $187 million favorable change in our investment in working capital (See “Liquidity and Capital Resources”). The decline in working capital was primarily driven by opportunistic purchases of inventory during the fourth quarter of 2018, which was sold in the first six months of 2019. Lower lumber prices of Southern Yellow Pine in the fourth quarter of 2019 also contributed to the increase in cash flow from operating activities.  We invested $84.9 million in capital expenditures to support and grow our business and invested $39.1 million in acquired businesses.  We returned $24.5 million to shareholders through dividends.  Finally, our net cash surplus (interest bearing debt and cash overdraft less available cash) was $4.7 million at the end of 2019, which when considered with our earnings before interest, taxes, depreciation and amortization, indicates a strong credit profile and abundant unused debt capacity available for future investments to grow the business. The following table presents the Random Lengths framing lumber composite price. HISTORICAL LUMBER PRICES January February March April May June July August September October November December Annual average Annual percentage change Random Lengths Composite Average $/MBF 2018 2019 $ $ 331 370 365 354 346 329 356 346 364 360 373 371 449 496 505 496 554 572 525 449 443 375 339 338 $ 355 $ (23.2)% 462 12.1 % 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 64% of total lumber purchases, excluding plywood, for 2019 and 2018. January February March April May June July August September October November December Annual quarter average Annual percentage change $ Southern Yellow Pine Average $/MBF 2018 2019 $ 370 403 408 401 383 344 359 348 355 345 344 335 418 459 480 483 535 562 512 449 440 410 378 377 $ 366 $ (20.3)% 459 12.5 % 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 42.7% and 50.6% of our gross sales in 2019 and 2018, 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 trusses sold to the manufactured housing industry. For these products, we estimate the customers’ needs and we 5 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 16% 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 $ Period 2 $ 300 50 350 50 400 $ 12.5 % 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 three business acquisitions during 2019 and seven during 2018. The annual historical sales attributable to acquisitions in 2019 and 2018 were approximately $37 million and $140 million, respectively. These business combinations were not significant to our operating results individually or in aggregate, and thus pro forma results for 2019 and 2018 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. Please see our 2018 10-K for discussion of our 2018 results of operations compared to 2017. 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, net Earnings before income taxes Income taxes Net earnings Less net earnings attributable to noncontrolling interest Net earnings attributable to controlling interest Year Ended December 28, December 29, 2019 100.0 % 84.5 15.5 10.0 — 5.5 0.1 5.5 1.3 4.1 (0.1) 4.1 % 2018 100.0 % 86.8 13.2 8.8 (0.1) 4.6 0.2 4.4 1.0 3.4 (0.1) 3.3 % 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 2019 sales and cost of goods sold to be based on 2018 lumber prices. The restated sales amounts were calculated by applying unit sales growth from 2019 to 2018 sales. 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 2019 sales was also applied to cost of goods sold so that gross profit remains unchanged. Adjusted for Lumber Market Change Year Ended December 28, December 29, 2019 2018 100.0 % 85.6 14.4 9.2 — 5.1 0.1 5.0 1.2 3.8 (0.1) 3.8 % 100.0 % 86.8 13.2 8.8 (0.1) 4.6 0.2 4.4 1.0 3.4 (0.1) 3.3 % 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, net Earnings before income taxes Income taxes Net earnings Less net earnings attributable to noncontrolling interest Net earnings attributable to controlling interest 7 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 and recognizing the higher relative level of SG&A costs these strategies require, we believe this ratio provides an enhanced view of our effectiveness in managing these costs and mitigates the impact of changing lumber prices. Gross profit Selling, general, and administrative expenses SG&A as percentage of gross profit GROSS SALES SG&A as a Percentage of Gross Profit Year Ended December 28, 2019 December 29, 2018 685,518 439,047 64.0% 592,894 392,235 66.2% We primarily 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, customized interior fixtures used in a variety of retail stores, commercial and other structures, and specialty wood packaging, components and other packing materials for various industries. 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 protective 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, casework and millwork used in a variety of commercial 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, casework and millwork, 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, preservative treated lumber is not presently included in the value-added sales, unless it has been processed in another manner. 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. 2019 2018 Value-Added Commodity-Based 30.9 % 35.6 % 69.1 % 64.4 %  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 New Product Sales by Market Twelve Months Ended % Change December 28, 2019 December 29, 2018 $ 361,954 97,765 80,067 539,786 $ 14.5 11.0 6.5 12.6 316,017 88,063 75,173 479,253 Note: Certain prior year product reclassifications resulted in a decrease and increase in new product sales in 2018. Our annual goal is for 2019 was to achieve new product sales of $525 million. The definition we use for a new product includes sales of products developed and launched in a previous year that are continuing to increase each year. We remove new products from the reporting above in the year following when growth in sales has stopped. The following table presents, for the periods indicated, our gross sales (in thousands) and percentage change in gross sales by market classification. December 28, December 29, Year Ended % Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales 2019 $ 1,638,885 1,329,245 1,524,053 4,492,183 (76,174) $ 4,416,009 Change 2018 (1.2) $ 1,659,503 1,307,350 1.7 1,598,896 (4.7) 4,565,749 (1.6) (76,569) (0.5) (1.6) $ 4,489,180 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. 2019 versus 2018 2018 versus 2017 Retail: % Change in Sales in Selling Prices in Units Acquisition Unit Change Organic Unit Change (1.6)% 14.0 % (7.9)% 8.0 % 6.3 % 6.0 % 1.5 % 3.0 % 4.8 % 3.0 % Gross sales to the retail market decreased 1% in 2019 compared to 2018 due to a 7% increase in unit sales and an 8% decrease in selling prices. Within this market, sales to our big box customers increased 5% while our sales to other retailers decreased 10%. Comparatively, our large retail customers reported year over year store sales growth of approximately 3% during the first nine months of 2019, the latest information available to us. New products and market share gains we achieved, including our Deckorators product category with one of our big box customers, contributed to our 7% organic unit sales growth. 9 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information concerning acquired businesses. Industrial: Gross sales to the industrial market increased 2% in 2019 compared to 2018, resulting from a 7% increase in overall unit sales offset by a 5% decrease in selling prices. Businesses we acquired contributed 5% to our growth in unit sales. Our organic unit sales growth of 2% was primarily due to adding $15 million of sales to new customers in 2019 (net of customers that we sold to in the prior year that we did not sell to this year) and $26 million of sales added from selling to additional locations of existing customers. See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information concerning acquired businesses. Construction: Gross sales to the construction market decreased 5% in 2019 compared to 2018, due to a 10% decrease in selling prices offset by a unit sales increase of 5%. Unit sales increased due to a 5% increase in units shipped to residential construction customers and an 11% increase in unit sales to commercial construction customers, while unit sales to manufactured housing customers remained flat. Comparatively, the United States Census Bureau reported year over year national housing starts increased 3% and the commercial construction market was flat compared to last year. The National Association of Home Builders reported industry production of HUD-code homes decreased 3%. COST OF GOODS SOLD AND GROSS PROFIT Our gross profit percentage increased from 13.2% in 2018 to 15.5% in 2019 due, in part, to the low lumber prices in 2019, which we believe contributed 110 basis points of the 230 basis-point increase. We believe the remaining 120 basis point increase reflects improvements we have made in our business and profitability. The improvement in our profitability is also evident when comparing our increase in gross profits compared with our increase in units shipped. Our gross profit dollars increased by nearly $93 million, or 15.6%, which exceeds our 6% increase in unit sales. Factors contributing to our improved profitability include a more favorable sales mix of value added products, including new products, the impact of lower lumber costs on products we sell with fixed prices, and organic growth combined with leveraging fixed manufacturing costs. Gross profit increases by market area are as follows:  A $32 million, or 20%, increase in our gross profit on sales to the retail market, primarily driven by a 7% increase in unit sales and an increase in value-added and new product sales, which include sales of our Deckorators branded products.  A $43 million, or 22%, increase in our gross profit on sales to the industrial market, primarily driven by a 7% increase in unit sales, favorable changes in product mix, and lower lumber costs in 2019 as most products sold to this market have fixed selling prices for a period of time.  An $8 million, or 3%, increase in gross profit on sales to the construction market, primarily driven by unit growth in the residential construction market and the impact of lower lumber costs on products we sell with fixed selling prices. These factors were offset by $13 million of losses incurred on a small number of construction projects.  The remaining $10 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. 10 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses increased by approximately $46.8 million, or 11.9%, in 2019 compared to 2018, while we reported a 6% increase in unit sales. Acquired businesses contributed $7.2 million to our increase. The remaining increase in SG&A was primarily due to:  A $21 million increase in our annual bonus expense to almost $69 million in 2019 due to an increase in our bonus rate and an increase in operating profit. Our bonus rate is tied to return on investment, which increased in 2019.  An $8.1 million increase in compensation and benefit costs resulting primarily from annual raises and hiring additional personnel to support sales growth.  A $3.5 million increase in sales and other incentive compensation.  A $3 million increase in marketing costs mostly related to our Deckorators branded product.  A variety of other smaller increases. INTEREST, NET Net interest costs were lower in 2019 compared to 2018, due to a lower outstanding balance on our revolving line of credit throughout 2019 and a decrease in variable borrowing rates. INCOME TAXES Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes, and permanent tax differences. Our effective tax rate was 24.2% in 2019 compared to 23.0% in 2018. The increase was primarily due to recording certain discrete tax benefits in 2018 related to state income taxes, which lowered the effective tax rate last year. SEGMENT REPORTING The following tables present, for the periods indicated, our net sales and earnings from operations by reportable segment (in thousands). Net Sales December 28, 2019 December 29, 2018 $ 1,302,067 $ 1,279,459 1,024,747 1,599,274 585,700 $ 4,416,009 $ 4,489,180 936,964 1,548,098 628,880 % Change 2019 vs 2018 1.8 % (8.6) (3.2) 7.4 (1.6)% North South West All Other Total 11 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings from Operations $ 2019 95,728 $ 64,517 118,444 8,913 (42,696) December 28, December 29, % Change 2018 66,239 60,049 103,357 6,779 (29,161) $ 244,906 $ 207,263 2019 vs 2018 44.5 % 7.4 14.6 31.5 (46.4) 18.2 % North South West All Other Corporate1 Total 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, % Change 2019 vs 2018 $ December 28, 2019 557,491 $ 247,985 522,223 1,327,699 (25,632) 2018 541,105 215,882 550,200 1,307,187 (27,728) $ 1,302,067 $ 1,279,459 3.0 % 14.9 (5.1) 1.6 % 7.6 1.8 % In spite of lower lumber prices, net sales attributable to the North segment increased by $22.6 million, or 1.8%, due primarily to the following factors:  An increase in unit sales to retail customers due to organic growth with existing customers.  An increase in unit sales to industrial customers due to acquired operations, which contributed $21 million of growth, new customer growth, and selling to more locations of existing customers.  These increases were offset by a decline in sales to our manufactured housing customers. Earnings from operations of the North segment increased in 2019 by $29.4 million, or 44.5%, due to:  An increase in gross profit of $43.2 million, primarily consisting of increases of $11.8 million, $11.7 million, and $12 million in our retail, industrial, and construction market gross profits, respectively, and $7.7 million of favorable labor and overhead cost variances. These changes in gross profits are primarily due to the same factors discussed “Cost of Goods Sold and Gross Profits”.  A $13.8 million increase in SG&A expenses compared to last year. The change in SG&A expenses was primarily due to the same factors discussed under “Selling, General, and Administrative Expenses”. In addition, earnings from operations of acquired operations was $1.9 million in 2019. 12 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Sales of South Segment by Market Twelve Months Ended December 29, % Change 2019 vs 2018 $ December 28, 2019 390,031 384,894 180,742 955,667 (18,703) 936,964 $ $ 2018 440,701 390,533 213,000 1,044,234 (19,487) $ 1,024,747 (11.5)% (1.4) (15.1) (8.5)% 4.0 (8.6)% South Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales Net sales attributable to the South segment decreased by $88 million, or 8.6%, in 2019, primarily due to:  Lower lumber prices decreased our selling prices of products sold to the retail, industrial, and construction markets, which primarily consist of or are manufactured from lumber.  An increase in unit sales to the industrial market due to acquired operations, which contributed $37 million of growth, offset by a decline in demand of existing customers. Earnings from operations of the South segment increased in 2019 compared to 2018. Excluding the gain from the sale of our Medley, Florida, plant in 2018, our earnings from operations increased $11.2 million due to:  An increase in gross profits of $20.7 million, comprised of increases of $5.4 million, $15.1 million, and $3.3 million in our retail, industrial, and construction market gross profits, respectively, offset by $3.1 million of unfavorable labor and overhead cost variances. These changes in gross profits are primarily due to the same factors discussed “Cost of Goods Sold and Gross Profits”.  A $9.7 million increase in SG&A expenses compared to last year. The change in SG&A expenses was primarily due to the same factors discussed under “Selling, General, and Administrative Expenses”. West Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales % Change 2019 vs 2018 $ Net Sales of West Segment by Market Twelve Months Ended December 29, 2018 477,134 561,701 582,697 1,621,532 (22,258) 1,599,274 December 28, 2019 471,104 553,495 545,744 1,570,343 (22,245) $ 1,548,098 $ $ (1.3)% (1.5) (6.3) (3.2)% 0.1 (3.2)% Net sales of the West reportable segment decreased by $51.2 million, or 3.2%, in 2019, primarily due to: 13 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  Lower lumber prices decreased our selling prices.  An increase in unit sales to the retail market due to acquired operations, which contributed $6 million of growth, and an increase in demand of existing customers.  An increase in unit sales to the industrial market due to organic growth of value-added products with existing customers.  An increase in unit sales to the construction market due to new customers in our Texas region. Earnings from operations of the West segment increased in 2019 by $15.1 million, or 14.6%, due to:  An increase in gross profit of $26.3 million, comprised of increases of $4.8 million and $16.4 million to the retail and industrial markets, respectively, and $5.1 million of favorable labor and overhead cost variances. These changes in gross profits are primarily due to the same factors discussed “Cost of Goods Sold and Gross Profits”.  An $11.2 million increase in SG&A expenses compared to last year. The change in SG&A expenses was primarily due to the same factors discussed under “Selling, General, and Administrative Expenses”. All Other Market Classification Retail Industrial Construction Total Gross Sales Sales Allowances Total Net Sales Net Sales of All Other Segment by Market Twelve Months Ended December 28, December 29, % Change 2019 2018 $ 220,259 $ 200,562 139,237 252,999 592,798 (7,098) $ 628,880 $ 585,700 142,871 275,156 638,286 (9,406) 2019 vs 2018 9.8 % 2.6 8.8 7.7 % (32.5) 7.4 % 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. In addition, we reclassified idX from industrial to the construction market to better align idX’s core business, design, manufacture, distribution and installation of customized interior fixtures for a variety of retail and commercial structures, with the commercial construction market. The reclassification was recorded retrospectively. All Other consists of our Alternative Materials, International, idX, and certain other segments which are not significant. Net sales of all other segments increased $43.2 million, or 7.4%, in 2019 primarily due to:  An increase in sales to the retail market primarily due to a market share gain our Alternative Materials segment achieved with our Deckorators branded product with one of our big box customers.  Our sales to the construction market increased primarily due to our idX business unit. Earnings from operations for the All Other reportable segment increased in 2019 by $2.1 million, or 31.5%, due to an increase in gross profit of $5.7 million, offset by a $3.6 million increase in SG&A expenses compared to last year. 14 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 28, 2019 (in thousands). Payments Due by Period Contractual Obligation Long-term debt and capital lease obligations Estimated interest on long-term debt and capital lease obligations Operating leases Capital project purchase obligations Total Less than 1 Year 3 – 5 Years $ 2,752 $ 38,705 $ 43,953 $ 78,273 $ 163,683 After 5 Years 1 – 3 Years Total 6,376 17,633 33,806 42,897 92,728 33,806 $ 60,567 $ 78,937 $ 71,876 $ 121,734 $ 333,114 14,346 29,115 — 9,641 18,282 — 12,534 27,698 — As of December 28, 2019, we also had $37.3 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 December 28, December 29, 2019 2018 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 349,291 116,685 (142,037) (121,232) 4,393 (464) (618) 28,816 $ 168,666 $ 28,198 (67,268) 482 140,468 28,198 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. 15 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 sales are outstanding plus days supply of inventory less days payables are outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle increased to 56 days in 2019 from 54 days in 2018. Days of sales outstanding Days supply of inventory Days payables outstanding Days in cash cycle Twelve Months Ended December 28, December 29, 2019 2018 33 44 (21) 56 32 43 (21) 54 The increase in our days’ supply of inventory was primarily due to opportunistic lumber purchases in the fourth quarter of 2018 of product that was sold in the first six months of 2019 and contributed to our improved profitability. Our cash flows from operating activities in 2019 was $349.3 million, which was comprised of net earnings of $182.4 million, $77 million of non-cash expenses, and an $89.8 million decrease in working capital since the end of December 2018. Comparatively, cash generated from operating activities was approximately $116.7 million in 2018, which was comprised of net earnings of $152.4 million, $61.1 million of non-cash expenses, and a $96.8 million increase in working capital since the end of 2017. The trends in working capital discussed above were primarily due to opportunistic purchases of lumber purchases in the fourth quarter of 2018 as well as higher lumber prices in 2018 which declined in 2019. Non-cash expenses increased primarily due to depreciation and deferred income taxes. Our cash used in investing activities during 2019 was $142 million, which was comprised primarily of purchases of property, plant, and equipment totaling $84.9 million, business acquisitions totaling $39.1 million, and investments in life insurance contracts totaling $15.2 million. The decrease in our capital expenditures in 2019 was primarily due to extended lead times with contractors and equipment suppliers on capital projects. Consequently, our outstanding purchase commitments on existing capital projects totaled approximately $34 million on December 28, 2019. Our capital expenditures primarily consist of “maintenance” capital expenditures totaling approximately $54.2 million, as well as “expansionary and efficiency” capital expenditures tied to initiatives including adding capacity in South Florida to replace the Medley plant we sold last year, expanding our capacity to produce new and valued value-added products, and automation. We also purchased real estate and equipment for geographic expansion. The sale and purchase of investments totaling $9.8 million and $13.3 million, respectively, are due to investment activity in our captive insurance subsidiary. In 2018, investments in business acquisitions and purchases of property, plant, and equipment were $54 million and $95.9 million, respectively, and proceeds from the sale of property, plant and equipment were $38.4 million, primarily due to the sale of the Medley, FL, plant for $36 million. Outstanding purchase commitments on existing capital projects totaled approximately $14.3 million on December 29, 2018. Cash flows from financing activities primarily consisted of $422.1 million of borrowings under the revolving credit facilities (See Notes to Consolidated Financial Statements “Debt”), repayments under these facilities of approximately $460.1 million, and $24.5 million in dividend payments. We paid semi-annual dividends in June and December of 2019 at a semi-annual rate of $0.20 per share. Comparatively in 2018, cash flows from financing activities primarily consisted of $75 million in proceeds from the issuance of Senior A and B Notes, net borrowings under our revolving credit facility of approximately $16.1 million, $22.1 million in dividend payments at a semi-annual rate of $0.18 per share, and $24.6 million of stock repurchases at an average price of $28.62 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 16 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. On December 28, 2019, we had $4 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 28, 2019. As a result, we have approximately $361 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 28, 2019. ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS See Notes to Consolidated Financial Statements, Note L, “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. GOODWILL We evaluate goodwill 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. Determining whether an impairment has occurred requires the valuation of the respective reporting unit, which the Company has consistently estimated using primarily a weighted average between income and market approach. The Company believes this approach is the most appropriate and accurate method to measure the fair value of our intangible assets. We use the discounted cash flow analysis with 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 September 28, 2019, the fair values exceed the carrying values for each of the Company’s reporting units. If the carrying value of goodwill is considered impaired, an impairment charge is recorded to adjust it to its fair value. Changes in forecasted operations and changes in discount rates can materially affect these estimates. In addition, we test goodwill annually for impairment or more frequently if changes in circumstances or the occurrence of other events suggest impairments exist. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. Changes in these estimates may result in the recognition of an impairment loss. For 2019, there were no indicators for impairment for any of the reporting units, but we continue to monitor the results of the idX reporting unit. They have performed below expectations through year-end; however, management believes the long-term projection for idX is still reasonable and attainable. While the risk of impairment exists, management does not 17 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS feel an impairment is necessary. Should the Company’s future analysis indicate a significant change in any of the triggering events for this reporting unit, it could result in impairment of the carrying value of goodwill to its implied fair value. There can be no assurance that the Company’s future goodwill impairment testing will not result in a charge to earnings. The goodwill and identifiable intangibles of the idX reporting unit total $10.3 million and $4.5 million, respectively, on September 28, 2019. 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 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 unit sales growth that exceeds positive U.S. GDP growth by 4 percent to 6 percent, including business acquisitions. 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 resulting in growth in earnings from operations in excess of our unit sales growth; and  Earning a return on invested capital in excess of our weighted average cost of capital. 18 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Under our new structure starting January 1, 2020, the Company will be re-organized around the markets it serves (retail, construction, and industrial) rather than geography. We believe this change in segmentation will, among other factors, allow for a more specialized and consistent sales approach among all Universal operations, more efficient use of resources and capital, and quicker introduction of new products and services, which will enhance our ability to achieve the long term objectives noted above. RETAIL MARKET The Home Improvement Research Institute (“HIRI”) anticipates growth in home improvement spending and has forecasted a 2.7% compounded annual growth rate through 2023. 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.  Developing new products.  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 with a wide geographic footprint increasingly desire to reduce the number of suppliers they buy from, which provides an opportunity to gain market share due to our national presence. We plan to continue to obtain market share by expanding our manufacturing capacity, enhancing our capabilities and product offerings, and improving our ability to serve large regional and national customers in targeted markets. We plan to pursue acquisition opportunities that meet our strategic criteria and help us meet these objectives. CONSTRUCTION MARKET The National Association of Home Builders forecasts a 13.8% increase in manufactured home shipments in 2020 followed by an 11.2% increase in 2021. 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 3.3% increase in national housing starts to an estimated 1.3 million starts in 2020. The National Association of Home Builders forecasts starts of 1.3 million, a 1.6% increase from 2019. We believe we are well-positioned to capture our share of any increase that may occur in housing starts in the regions we operate, which is primarily Texas, Colorado, the Southeast, and the Northeast. 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. 19 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.  Sales mix of value-added and commodity products.  Fluctuations in the relative level of the Lumber Market and trends in the market price of lumber. (See "Impact of the Lumber Market on our Operating Results.")  Fuel and transportation costs.  Rising labor and benefit costs.  Our ability to continue to achieve productivity improvements as our unit sales increase and planned cost reductions through continuous improvement activities, 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 intended 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 2020; however, our objective is to reduce these costs on a per unit basis and as a percentage of gross profits as we grow through the improved productivity of our people and as a result of fixed costs. 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 and value-added products to the retail market, 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 leverage our fixed costs. 20 UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 $100 million on capital expenditures, incur depreciation of approximately $65 million, and incur amortization and other non-cash expenses of approximately $11 million in 2020. On December 28, 2019, we had outstanding purchase commitments on capital projects of approximately $34 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. In January 2020, our Board approved a plan to increase the frequency of our dividend payments from semi-annually to quarterly and increased the pro-rata rate by 25%. Our dividend rates are reviewed and approved at each of our January, April, July, and October board meetings and payments are made in March, June, September, and December of each year. We have a share repurchase program approved by our Board of Directors, and as of December 28, 2019, we have authorization to buy back approximately 1.9 million shares. In the past, we have repurchased shares in order to offset the effect of issuances resulting from our employee benefit plans and at opportune times when our stock price falls to predetermined levels. 21 Management’s 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 28, 2019, 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 28, 2019, 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 26, 2020 22 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 28, 2019, 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 28, 2019, 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 28, 2019, of the Company and our report dated February 26, 2020, 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 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 26, 2020 23 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 28, 2019 and December 29, 2018, 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 28, 2019, 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 28, 2019 and December 29, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2019, 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 28, 2019, 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 26, 2020, 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. Critical Audit Matters Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Deloitte & Touche LLP Grand Rapids, Michigan February 26, 2020 We have served as the Company's auditor since 2014. 24 UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS CURRENT ASSETS: Cash and cash equivalents Restricted cash Investments Accounts receivable, net Inventories: Raw materials Finished goods Total inventories Refundable income taxes Other current assets TOTAL CURRENT ASSETS DEFERRED INCOME TAXES RESTRICTED INVESTMENTS RIGHT OF USE ASSETS 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 lease liability Current portion of long-term debt TOTAL CURRENT LIABILITIES LONG-TERM DEBT LEASE LIABILITY DEFERRED INCOME TAXES OTHER LIABILITIES TOTAL LIABILITIES SHAREHOLDERS’ EQUITY: Controlling interest shareholders’ equity: Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding, 61,408,589 and 60,883,749 Additional paid-in capital Retained earnings Accumulated other comprehensive income Total controlling interest shareholders’ equity Noncontrolling interest TOTAL SHAREHOLDERS’ EQUITY December 28, 2019 December 29, 2018 $ 168,336 $ 330 18,527 364,027 236,283 250,591 486,874 13,272 41,706 1,093,072 2,763 16,214 80,167 24,884 229,536 7,354 48,313 125,097 253,589 467,963 16,972 21,342 884,963 (497,789) 387,174 1,889,477 $ — $ 142,479 141,892 51,572 15,283 2,816 354,042 160,867 64,884 22,880 29,071 631,744 $ $ 27,316 882 14,755 343,450 271,871 284,349 556,220 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 $ — $ — 61,409 192,173 995,022 (4,889) 1,243,715 14,018 1,257,733 1,889,477 $ 60,884 178,540 839,917 (5,938) 1,073,403 15,281 1,088,684 1,647,548 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ See notes to consolidated financial statements. 25 UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (in thousands, except per share data) December 28, 2019 Year Ended December 29, December 30, 2018 2017 NET SALES COST OF GOODS SOLD GROSS PROFIT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES NET (GAIN) LOSS ON DISPOSITION OF ASSETS AND IMPAIRMENT 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 $ 4,416,009 $ 4,489,180 $ 3,941,182 3,730,491 3,896,286 3,398,356 542,826 362,220 592,894 392,235 685,518 439,047 1,565 244,906 8,700 (1,945) (2,523) 4,232 240,674 58,270 182,404 (6,604) 207,263 8,893 (1,371) 1,888 9,410 197,853 45,441 152,412 (863) 181,469 6,218 (731) (25) 5,462 176,007 51,967 124,040 (2,754) 179,650 $ (3,814) 148,598 $ (4,528) 119,512 2.91 $ 2.91 $ 2.41 $ 2.40 $ 1.95 1.94 $ $ $ OTHER COMPREHENSIVE INCOME: NET EARNINGS OTHER COMPREHENSIVE GAIN (LOSS) COMPREHENSIVE INCOME LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST 182,404 1,513 183,917 152,412 (5,076) 147,336 124,040 6,130 130,170 (3,218) (3,873) (4,884) $ 180,699 $ 143,463 $ 125,286 See notes to consolidated financial statements. 26 UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands, except share and per share data) Controlling Interest Shareholders’ Equity $ Balance at December 31, 2016 Net earnings Foreign currency translation adjustment Unrealized gain (loss) on investment & foreign currency Distributions to noncontrolling interest Additional purchase 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 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 Net earnings Foreign currency translation adjustment Unrealized gain on debt securities Distributions to noncontrolling interest Additional purchase of noncontrolling interest Cash dividends - $0.200 per share - semiannually Issuance of 33,647 shares under employee stock plans Issuance of 309,628 shares under stock grant programs Issuance of 181,565 shares under deferred compensation plans Expense associated with share-based compensation arrangements Accrued expense under deferred compensation plans Balance at December 28, 2019 $ $ $ Common Stock 61,026 $ Additional Paid-In Capital 144,649 $ 24 429 159 (446) 61,192 $ 637 5,769 (159) 297 3,618 7,117 161,928 $ Accumulated Other Retained Earnings Comprehensive Noncontrolling Earnings Interest Total 649,135 $ 119,512 (5,630) $ 5,070 704 11,286 $ 4,528 356 (4,032) 2,409 (19,607) (12,828) 736,212 $ 148,598 144 $ 947 (4,973) (1,109) 14,547 $ 3,814 59 (3,139) 38 348 167 (861) 988 4,827 (167) (22,072) (23,768) 3,379 7,585 178,540 $ 60,884 $ (4,737) 1,059 5,654 (181) 3,843 7,995 192,173 $ 34 310 181 61,409 $ 839,917 $ 179,650 (5,938) $ 568 481 15,281 $ 2,754 464 (2,143) (2,338) (24,549) 4 995,022 $ (4,889) $ 14,018 $ 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 1,088,684 182,404 1,032 481 (2,143) (7,075) (24,549) 1,093 5,968 — 3,843 7,995 1,257,733 See notes to consolidated financial statements 27 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 (gain) loss on investments Net (gain) loss on disposition of assets and impairment of assets Changes in: Accounts receivable Inventories Accounts payable and cash overdraft Accrued liabilities and other NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Acquisitions and purchases of non-controlling interest, net of cash received Investment in life insurance contracts 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 (USED IN) PROVIDED BY 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 Year Ended December 28, December 29, December 30, 2019 2018 2017 $ 182,404 $ 152,412 $ 124,040 60,494 6,325 4,007 7,176 (2,523) 1,565 (16,872) 73,120 (24,132) 57,727 349,291 (84,933) 1,777 (39,122) (15,253) (13,352) 9,828 (982) (142,037) 422,057 (460,537) — (3,136) — 1,093 (24,549) (2,216) — 20 (67,268) 482 140,468 28,198 168,666 27,316 882 28,198 168,336 330 168,666 $ $ $ $ $ $ 8,763 50,224 $ $ $ $ $ $ 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) — (13,338) 3,678 (66) (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) — (13,518) 5,103 (460) (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 $ 6,229 $ 5,837 $ 5,116 28 UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OPERATIONS We primarily 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, customized interior fixtures used in a variety of retail stores, commercial and other structures, and specialty wood packaging, components and other packing materials for various industries. 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 2019, 2018, and 2017 relate to the fiscal years ended December 28, 2019, December 29, 2018, and December 30, 2017, respectively. Fiscal years 2019, 2018, and 2017 were comprised of 52 weeks. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS We follow ASC Topic 820, Fair Value Measurements and Disclosures, which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. This topic requires fair value measurements to be classified and disclosed in one of the following three categories:  Level 1 — Financial instruments with unadjusted, quoted prices listed on active market exchanges.  Level 2 — Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over- the-counter traded financial instruments. Financial instrument values are determined using prices for recently traded financial instruments with similar underlying terms and direct or indirect observational inputs, such as interest rates and yield curves at commonly quoted intervals.  Level 3 — Financial instruments not actively traded on a market exchange and there is little, if any, market activity. Values are determined using significant unobservable inputs or valuation techniques. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and highly liquid investments purchased with an original maturity of three months or less. 29 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 28, 2019, and December 29, 2018 was $14.7 million and $11.0 million, respectively. The adoption of ASU No. 2016-01 resulted in an unrealized gain recorded as a non-operating income of $2.5 million in 2019, and an unrealized loss of $1.9 million recorded in non-operating expense in 2018. 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 28, 2019: Allowance for possible losses on accounts receivable $ 2,601 $ 39,481 $ (37,642) $ 4,440 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 * Includes accounts charged off, discounts given to customers and actual customer returns and allowances. We record estimated sales returns, discounts, and other applicable adjustments as a reduction of net sales in the same period revenue is recognized. Accounts receivable retainage amounts related to long term construction contracts totaled $7.4 million and $5.5 million as of December 28, 2019 and December 29, 2018, respectively. All amounts are expected to be collected within 18 months. Concentration of accounts receivable related to our largest customer totaled $42.8 million and $44.5 million as of December 28, 2019 and December 29, 2018, respectively. In June 2016, the FASB issued ASU 2016-13, Financial Instrument-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which changes the current incurred loss model to a forward looking expected credit loss model for most financial assets, such as trade and other receivables, loans and other instruments. The ASU is effective for fiscal years beginning December 15, 2019, with early adoption permitted. Entities are required to apply the provisions of the standard through a cumulative-effect adjustment to retained earnings as of effective date. The Company evaluated the impact of the standard on its consolidated statements, particularly over accounts receivable, and 30 does not expect the standard to have a material impact on its consolidated financial statements and disclosures, accounting processes, and internal controls. 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 $20.2 million as of December 28, 2019 and $16.8 million as of December 29, 2018. 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 5 to 15 years 10 to 32 years 2 to 20 years Software costs are included in machinery and equipment on the balance sheet with gross amounts and accumulated amortization totaling $6.1 million and $5.2 million as of December 28, 2019, and $7.3 million and $5.7 million as of December 29, 2018, respectively. LONG-LIVED ASSETS 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. 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 and 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. 31 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 28, 2019 and December 29, 2018. 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 28, 2019, Ardellis had 42 such contracts in place. Reserves associated with these contracts were $5.7 million at December 28, 2019 and $4.9 million at December 29, 2018 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 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. 32 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. 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 28, 2019 December 29, 2018 % Change $ $ 4,348,757 $ 143,426 4,492,183 (76,174) 4,416,009 $ 4,440,098 125,651 4,565,749 (76,569) 4,489,180 -2.1% 14.1% -1.6% -0.5% -1.6% In 2019, $100.5 million and $42.9 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 28, 2019 and December 29, 2018 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 28, 2019 December 29, 2018 $ 4,690 $ 6,622 6,945 3,245 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. 33 EARNINGS PER SHARE The computation of earnings per share (“EPS”) is as follows (in thousands), which incorporate the retroactive effect of the Company’s 3 for 1 stock split: Numerator: December 28, December 29, December 30, 2019 2018 2017 Net earnings attributable to controlling interest Adjustment for earnings allocated to non-vested restricted common stock Net earnings for calculating EPS $ $ 179,650 $ 148,598 $ 119,512 (2,225) 175,154 $ 145,202 $ 117,287 (4,496) (3,396) 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 61,649 (1,543) 60,106 24 60,130 61,762 (1,411) 60,351 82 60,433 61,416 (1,143) 60,273 90 60,363 $ $ 2.91 $ 2.91 $ 2.41 $ 2.40 $ 1.95 1.94 No options were excluded from the computation of diluted EPS for 2019, 2018, or 2017. 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. 34 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) December 28, 2019 Prices with Other Prices with Observable Unobservable December 29, 2018 Quoted Prices in Active Prices with Other Prices with Observable Unobservable Inputs (Level 2) 562 $ 15,495 — Inputs (Level 3) Total — $ 163,188 $ — 15,729 9,734 — Inputs Markets (Level 1) (Level 2) 56 $ 5,267 9,738 — 3,387 7,262 Inputs (Level 3) Total — $ 5,323 — 13,125 7,262 — (in thousands) Money market funds $ 162,626 $ Fixed income funds Equity securities Alternative investments Mutual funds: 234 9,734 — — 1,941 1,941 — — 1,756 1,756 — Domestic stock funds International stock funds Target funds Bond funds Alternative funds Total mutual funds Total Assets at fair value 3,308 — — 3,308 2,846 — — 2,846 1,741 281 850 1,747 7,927 — — — — — $ 180,521 $ 16,057 $ 180,521 $ 16,057 — — — — — 1,741 281 850 1,747 7,927 — — — — — 1,941 $ 198,519 $ 16,839 $ 15,005 1,941 $ 198,519 $ 16,839 $ 15,005 937 237 796 1,318 6,134 — — — — — 937 237 796 1,318 6,134 1,756 $ 33,600 1,756 $ 33,600 From the assets measured at fair value as of December 28, 2019, listed in the table above, $162.6 million of money market funds are held in Cash and Cash Equivalents, $18.5 million of mutual funds, equity securities, and alternative investments are held in Investments, $1.1 million of money market and mutual funds are held in Other Assets for our deferred compensation plan, and $15.7 million of fixed income funds and $0.6 million of money market funds are held in Restricted Investments. 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, and assets held in financial institutions. These funds are valued at prices quoted in an active exchange market and are included in "Cash and Cash Equivalents", "Investments", "Other Assets", and “Restricted Investments.” 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. During 2018, we purchased a private real estate income trust which is valued as a Level 3 asset and is categorized as an “Alternative Investment.” In accordance with our investment policy, our wholly-owned company, Ardellis Insurance Ltd. ("Ardellis"), maintains an investment portfolio, totaling $34.3 million as of December 28, 2019, consisting of domestic and international stocks, alternative investments, and fixed income bonds. 35 Ardellis’ available for sale investment portfolio, including funds held with the State of Michigan, consists of the following (in thousands): Fixed Income Equity Mutual Funds Alternative Investments Total December 28, 2019 Unrealized Gain/(Loss) Fair Value Cost Cost $ 15,376 $ 7,958 6,568 1,811 $ 31,713 $ 353 $ 15,729 $ 13,301 $ 1,776 284 130 9,734 6,852 1,941 7,141 5,815 1,722 2,543 $ 34,256 $ 27,979 $ December 29,2018 Unrealized Gain/(Loss) Fair Value (176) $ 13,125 7,262 121 5,248 (567) 1,756 34 (588) $ 27,391 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 alternative investments consist of the private real estate income trust which is valued as a Level 3 asset. The net pre-tax unrealized gain was $2.5 million for the year ended December 28, 2019. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of December 28, 2019. C. BUSINESS COMBINATIONS We completed the following business combinations in fiscal 2019 and 2018, which were accounted for using the purchase method (in thousands). Company Name Acquisition Date September 16, 2019 Purchase Price $12,422 cash paid for 100% asset purchase Net Intangible Assets Tangible Operating Segment Assets $ 7,464 $ 4,958 North Pallet USA, LLC ("Pallet USA") A manufacturer and recycler of wood pallet and crating products in the Midwest. Pallet USA had annual sales of approximately $18 million. The acquisition of Pallet USA allows us to expand our capacity to manufacture wood-based industrial packaging products and offer new services to customers in the Midwest. August 12, 2019 $17,809 cash paid for 100% asset purchase and estimated earnout $ 8,089 $ 9,720 West Northwest Painting, Inc. ("Northwest") A supplier of pre-painted building materials, including composite lap siding, soffit, panels and trim to the Western U.S. Northwest had annual sales of approximately $14 million. The acquisition of Northwest will expand our capacity to produce coated siding and trim for customers in the Northwest and Mountain West regions. May 1, 2019 $7,168 cash paid for 100% asset purchase and estimated earnout $ 6,180 $ 988 North Wolverine Wood Products, Inc. ("Wolverine") A manufacturer of wood panel components for furniture, store fixtures and case goods. Wolverine had annual sales of approximately $5 million. The acquisition of Wolverine allows us to expand capacity to produce value-added wood components for customers in the Midwest. Pak-Rite, LTD ("Pak-Rite") October 22, 2018 $15,115 cash paid for 100% asset purchase $ 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 customer markets, and expand our presence in this region. 36 Company Name Acquisition Date July 31, 2018 Purchase Price $1,016 cash paid for 100% asset purchase $ Net Intangible Assets Tangible Operating Segment Assets 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 $25,866 cash paid for 100% asset purchase and estimated earnout $ 9,496 $ 16,370 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. April 9, 2018 $3,890 cash paid for 100% asset purchase $ 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. The intangible assets for each acquisition were finalized and allocated to their respective identifiable intangible asset and goodwill accounts during 2019, except for our Wolverine, Northwest, and Pallet USA acquisitions. In aggregate, acquisitions not consolidated with other operations contributed approximately $70.3 million in revenue and $4.1 million in operating profit during 2019. 37 At December 28, 2019, the amounts assigned to major intangible classes for the business combinations mentioned above are as follows (in thousands): Pallet USA Northwest Wolverine Pak-Rite Pallet Place NACC Fontana Expert Packaging Spinner Great Northern Lumber *(estimate) Tax Intangibles - Customer Non- Compete Agreements Relationships Tradename Goodwill Deductible 7,464 $ 8,089 6,180 8,592 250 9,496 2,235 — 850 50 1,400 * $ 1,898 *$ 4,166 * $ 1,000 * 2,589 * 4,500 * 3,232 * 864 * 2,084 * 3,750 250 2,810 2,235 809 — — — $ — — 30 — — — 221 850 50 3,752 — 5,916 — — — — 1,060 — 770 — 257 — — The business combinations mentioned above were not significant to our operating results individually or in aggregate, and thus pro forma results for 2019 and 2018 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 28, 2019 and December 29, 2018, are as follows (in thousands): Balance as of December 30, 2017 2018 Acquisitions Foreign Exchange, Net Balance as of December 29, 2018 2019 Acquisitions Foreign Exchange, Net Balance as of December 28, 2019 Total South West All Other 4,292 (365) 8,996 — North 51,127 46,738 87,730 27,049 212,644 13,288 (1,815) 55,054 55,734 87,730 25,599 224,117 5,219 200 $ 60,946 $ 52,654 $ 90,319 $ 25,617 $ 229,536 5,710 (3,080) — — — — (1,450) 2,589 — — 18 182 Indefinite-lived intangible assets totaled $7.4 million as of December 28, 2019 and December 29, 2018 related to the idX, International, and Consumer Products reporting units which is included in the All Other reportable segment. The following amounts were included in other amortizable intangible assets, net as of December 28, 2019 and December 29, 2018 (in thousands): Non-compete agreements Customer relationships Licensing agreements Patents Tradename Total (2,262) $ 2,830 $ 10,232 $ 2019 Accumulated Amortization Net Value 2018 Accumulated Amortization Net Value (5,517) $ 4,715 33,464 (6,843) 680 (3,909) 508 (284) 2,119 (760) $ 66,645 $ (18,332) $ 48,313 $ 58,799 $ (17,313) $ 41,486 Assets $ 5,092 $ 48,084 4,589 914 7,966 (10,079) (4,368) (421) (1,202) 40,307 4,589 792 2,879 38,005 221 493 6,764 Assets 38 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 9.7 years 10.5 years 10 years 11.5 years 3 to 15 years 5 to 15 years 10 years 3 to 15 years Amortization expense of intangibles totaled $6.3 million, $6.4 million and $4.9 million in 2019, 2018 and 2017, respectively. The estimated amortization expense for intangibles for each of the five succeeding fiscal years is as follows (in thousands): 2020 2021 2022 2023 2024 Thereafter Total E. DEBT $ $ 6,095 5,572 5,243 4,497 3,772 23,134 48,313 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 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 28, 2019 and December 29, 2018 aggregated $37.3 million and $30.3 million; respectively, which includes approximately $9.8 million related to industrial development revenue bonds. The Company had an outstanding balance of $4.0 million and $42.5 million, which includes foreign subsidiary borrowings, on its revolver at December 28, 2019, and December 29, 2018, respectively. After considering letters of credit, the Company had $361.2 million and $322.7 million in remaining availability on its revolver on December 28, 2019, and December 29, 2018, 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 39 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 28, 2019 and December 29, 2018 (amounts in thousands): 2019 2018 Series 2018 Senior Notes C, due on June 14, 2028, interest payable semi-annually at 4.20% Series 2018 Senior Notes D, due on June 14, 2030, interest payable semi-annually at 4.27% 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 (2.54% on December 28, 2019 and 3.39% on December 29, 2018) Foreign subsidiary borrowings under revolving credit facility, due on November 1, 2023, interest payable monthly at a floating rate (1.88% on December 28, 2019 and 2.94% on December 29, 2018) Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest payable monthly at a floating rate (1.14% on December 28, 2019 and 1.94% on December 29, 2018) Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest payable monthly at a floating rate (1.57% on December 28, 2019 and 2.00% on December 29, 2018) Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest payable monthly at a floating rate (1.79% on December 28, 2019 and 1.99% on December 29, 2018) Capital leases and foreign affiliate debt Less current portion Less debt issuance costs Long-term portion $ 40,000 $ 40,000 35,000 35,000 35,000 35,000 40,000 40,000 — 39,010 3,976 3,480 3,300 3,300 2,700 2,700 3,700 174 163,850 (2,816) (167) 3,700 311 202,501 (148) (223) $ 160,867 $ 202,130 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 28, 2019 and December 29, 2018. On December 28, 2019, the principal maturities of long-term debt and capital lease obligations are as follows (in thousands): 2020 2021 2022 2023 2024 Thereafter Total $ $ 2,816 58 38,700 3,976 40,000 78,300 163,850 On December 28, 2019, the estimated fair value of our long-term debt, including the current portion, was $170.8 million, which was $7.0 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 40 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 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 requires 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 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. Upon adoption of ASC 842 on December 30, 2018, the Company recognized right-of-use assets and lease liabilities of approximately $69 million. As a result of the adoption of ASC 842, there was no cumulative effect adjustment to beginning retained earnings. We elected the package of practical expedients whereby we are not required to 1) reassess whether any expired or existing contracts contain leases, 2) reassess the lease classification of existing leases, and 3) reassess initial direct costs for any existing leases. Additionally, we did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. We did elect to account for lease and related non-lease components as a single lease component. We elected to not recognize leases with an original term of 12 months or less as they are not significant to our consolidated balance sheet and income statement. We have assessed and updated our business processes, systems, and controls to ensure compliance with the new accounting and disclosure requirements in accordance with the new standard. We determine if an arrangement is a lease at inception. We lease certain real estate under non-cancelable operating lease agreements with typical original terms ranging from one to ten years. We are required to pay real estate taxes and other occupancy costs under certain leases, which are variable in nature and not included in the right of use asset or lease liability. Certain leases carry renewal options of five to fifteen years. We believe that future leases will likely have similar terms. We also lease motor vehicles, equipment, and an aircraft under operating lease agreements for periods of one to ten years. We do not typically enter into leases with residual value guarantees. There were no restrictions or covenants imposed by any lease agreements. We believe finance leases have no significant impact to our consolidated balance sheet and income statement as of December 28, 2019. As of December 28, 2019, we have no leases that have not yet commenced that would significantly impact the rights, obligations, and financial position of the Company. There were no lease transactions between related parties as of December 28, 2019. The rates implicit in our leases are primarily not readily available. To determine the discount rate used to present value the lease payments, the Company utilized the 7-year treasury note rate plus a blend of rate spreads associated with our revolver and 10-12-year senior notes along with estimated spreads based on current market conditions. We feel the determined rate is a reasonable representation of our lease population. 41 Lease costs under non-cancelable operating leases on December 28, 2019 are as follows (in thousands): Operating lease cost Short-term lease cost Variable lease cost Sublease income Total lease cost Operating Leases 20,771 110 1,484 (676) 21,689 $ $ The amounts paid for operating leases, included in the measurement of lease liabilities, were $20 million for year ended December 28, 2019. In addition, right-of-use assets obtained in exchange for new operating leases liabilities were approximately $33.4 million for year ended December 29, 2019. Future minimum payments under non-cancelable operating leases on December 28, 2019 are as follows (in thousands): 2020 2021 2022 2023 2024 Thereafter Total minimum lease payments Less present value discount Total lease liability Operating Leases 17,633 15,074 12,624 10,434 7,848 29,115 92,728 (12,561) 80,167 $ $ $ Rent expense was approximately $29.9 million, $28.1 million, and $24.2 million in 2019, 2018, and 2017, respectively. During the first quarter of 2018, the Company completed a sale and leaseback transaction related to one facility in Medley, Florida. The sale price for the property was approximately $36 million and created a $7 million pre-tax gain, which was entirely recognized in 2018. The Company leased back the facility for two years as it executes its long-term plan for Florida and the Southeast region. As of December 28, 2019, the weighted average lease term for operating leases is 7.29 years. Similarly, the weighted average discount rate for operating leases is 3.10%. 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. Premiums payments, deferred compensation obligations, and accrued interest payments were funded through policy and premium loans provided by the insurer. 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. During 2019, the Company settled with the program participants and paid out the remaining cash value due to them, with the exception of two participants who chose to take the settlement payment over a five-year period. The deferred compensation liability related to the remaining participant payouts on the balance sheet as of 42 December 28, 2019, was $0.3 million. Also, during 2019, the Company increased its investment in life insurance contracts by $15.3 million to $16.6 million by extinguishing the previously mentioned policy and premium loans. 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 $1.1 million and $1 million on December 28, 2019 and December 29, 2018, respectively, and are included in "Other Assets." Related liabilities totaled $33.1 million and $27.8 million on December 28, 2019 and December 29, 2018, 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 $1.8 million in 2019, $1.7 million in 2018, and $1.7 million in 2017. 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. The number of shares to be received for their portion of the retainer that is deferred is equal to the amount of shares plus the number of shares attributable to cash dividends payable on those deferred shares. 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 2019, 2018, and 2017. 43 Below is a summary of common stock issuances for 2019 and 2018: 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 Total 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 Total A summary of the nonvested restricted stock awards granted under the LTSIP is as follows: December 28, 2019 Common Stock 34 $ 4 5 211 109 (19) 310 181 525 $ $ $ Average Share Price 32.47 35.68 38.44 30.83 31.57 - 31.25 34.31 32.35 December 29, 2018 Common Stock 38 $ 3 101 164 94 (14) 348 167 553 $ $ $ Average Share Price 35.58 33.56 17.17 35.16 32.94 - 29.37 36.98 31.78 Restricted Awards 791,532 388,248 (141,111) (5,043) 1,033,626 247,068 (107,865) (12,750) 1,160,079 318,496 (224,894) (50,786) 1,202,895 $ Weighted- Average Grant Date Fair Value 19.32 32.03 12.71 30.14 24.24 36.52 18.11 24.19 23.32 32.60 23.42 24.18 29.68 $ Weighted- Unrecognized Average Compensation Period to Recognize Expense 4.8 1.51 years Expense (in millions) 7.1 1.31 years 7.6 1.12 years 7.9 0.86 years Nonvested at December 31, 2016 Granted Vested Forfeited Nonvested at December 30, 2017 Granted Vested Forfeited Nonvested at December 29, 2018 Granted Vested Forfeited Nonvested at December 28, 2019 44 Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation expense of $4.0 million, $3.6 million, and $3.6 million and the related total income tax benefits of $0.8 million, $0.7 million, and $1.0 million in 2019, 2018 and 2017, respectively. In 2019, 2018 and 2017, cash received from share issuances under our plans was $1.1 million, $1.0 million and $0.7 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 existing share repurchase program. We repurchased no shares in 2019 and 860,669 shares under this program in 2018. As of December 28, 2019, the cumulative total authorized shares available for repurchase is approximately 1.9 million shares. 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 2019, 2018, and 2017, on a discretionary basis, totaling $6.5 million, $3.4 million, and $4.8 million respectively. For years 2019 and 2017, hourly employee contributions included additional matched contributions of $2.6 million and $1.9 million for 2019 and 2017, respectively, based on meeting certain performance goals during those years. The basis for matching contributions may not exceed the lesser of 6% of the employee’s annual compensation or the IRS limitation. The Company maintains a retirement plan for certain officers of the Company, excluding the Company’s CEO, (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 $10.6 million and $9.1 million are accrued in “Other Liabilities” for this plan at December 28, 2019 and December 29, 2018, respectively. J. INCOME TAXES Income tax provisions for the years ended December 28, 2019, December 29, 2018, and December 30, 2017 are summarized as follows (in thousands): 2019 2018 2017 Currently Payable: Federal State and local Foreign Net Deferred: Federal State and local Foreign $ 35,267 $ 31,492 $ 44,413 8,579 6,240 59,232 7,544 5,527 44,563 10,071 5,834 51,172 6,895 805 (602) 7,098 (7,681) (864) 1,280 (7,265) $ 58,270 $ 45,441 $ 51,967 2,965 (522) (1,565) 878 The components of earnings before income taxes consist of the following: 2019 2018 2017 U.S. Foreign Total 45 $ 220,532 $ 180,261 $ 151,395 24,612 $ 240,674 $ 197,853 $ 176,007 20,142 17,592 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 (a) Effective income tax rate 2019 21.0 % 3.9 (0.1) n/a (1.3) (0.1) 0.5 0.3 n/a 24.2 % 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 % (a) On December 22, 2017, the U.S government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. Shortly after the Tax Act was enacted, the SEC issued accounting guidance, which provided a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act. As a result of the U.S. federal corporate rate reduction, the Company recorded a tax benefit of $6.1 million for the period ending December 30, 2017, and an additional tax benefit of $0.3 million for the period ending December 29, 2018. Temporary differences which give rise to deferred income tax assets and (liabilities) on December 28, 2019 and December 29, 2018 are as follows (in thousands): Employee benefits Lease liability 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 Right of use assets Other, net Deferred income tax liabilities Net deferred income tax liability 2019 2018 $ 22,420 $ 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) $ (20,117) $ (13,019) 20,255 6,411 519 620 993 1,266 2,318 3,159 57,961 (2,447) 55,514 (34,001) (21,375) (20,255) — (75,631) As of December 28, 2019, the company had federal, state and foreign net operating loss carryforwards of $6.4 million and state tax credit carryforwards of $0.6 million, which will expire at various dates. 46 The NOL and credit carryforwards expire as follows: Net Operating Losses Tax Credits 2019 - 2023 2024 - 2028 2029 - 2033 2034 - 2038 Thereafter Total Foreign U.S. — $ U.S. $ State — $ 173 $ — 2,124 28 — 285 748 854 243 $ 2,152 $ 2,303 $ 1,956 $ 1,279 213 — 464 State — $ 620 — — — — — — — — — $ 620 As of December 28, 2019, 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. The Company early adopted FASB ASU No. 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The adoption of this update resulted in a reclassification between accumulative other comprehensive income and accumulated earnings in 2018. 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. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): 2019 2018 2017 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 $ 4,378 $ 4,000 $ 3,381 4 — 1,107 (2) (490) $ 4,166 $ 4,378 $ 4,000 (366) — 1,326 — (582) (129) — 768 — (851) 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, $0.5 million, and $0.7 million at December 28, 2019, December 29, 2018, and December 30, 2017, 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 2016. 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 $0.9 million. 47 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 $2.0 million and $2.1 million on December 28, 2019 and December 29, 2018, respectively, representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance receivable. In addition, on December 28, 2019, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims. On December 28, 2019, we had outstanding purchase commitments on commenced capital projects of approximately $33.8 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 effect 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 28, 2019, we had approximately $10.8 million in outstanding payment and performance bonds for open projects. We had approximately $9.2 million in payment and performance bonds outstanding for completed projects which are still under warranty. On December 28, 2019, we had outstanding letters of credit totaling $37.3 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 $27.5 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. 48 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 2019 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 an operating segment 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. 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 2019, 2018 and 2017. Our Alternative Materials, International, and idX divisions have been included in the “All Other” column of the table below. The “Corporate” column includes unallocated administrative costs and certain incentive compensation expense. North South West Other Corporate Total 2019 All Net sales to outside customers Intersegment net sales Interest expense (income) Amortization expense Depreciation expense Segment earnings from operations Segment assets Capital expenditures Net sales to outside customers Intersegment net sales Interest expense Amortization expense Depreciation expense Segment earnings from operations Segment assets Capital expenditures $ 1,302,067 $ 936,964 $ 1,548,098 $ 628,880 $ 57,675 (36) 1,217 13,624 95,728 396,010 21,292 81,875 — 1,200 9,310 64,517 249,053 18,051 52,601 108 2,049 17,062 118,444 485,674 19,682 225,913 (1,949) 1,859 10,254 8,913 513,081 23,576 — $ 4,416,009 418,064 — 8,700 10,577 6,325 — 60,494 10,244 244,906 (42,696) 1,889,477 245,659 84,933 2,332 North South West Other Corporate Total 2018 All $ 1,279,459 $ 1,024,747 $ 1,599,274 $ 585,700 $ 56,682 58 830 12,062 66,239 386,483 17,820 76,297 (6) 1,292 8,244 60,049 266,503 9,185 56,004 197 1,998 14,836 103,357 496,939 26,024 235,905 (1,486) 2,273 10,341 6,779 395,727 39,168 49 — $ 4,489,180 424,888 — 8,893 10,130 6,393 — 54,949 9,466 (29,161) 207,263 1,647,548 101,896 95,862 3,665 Net sales to outside customers Intersegment net sales Interest expense Amortization expense Depreciation expense Segment earnings from operations Segment assets Capital expenditures North South West Other Corporate Total 2017 All $ 1,133,656 $ 837,370 $ 1,417,924 $ 552,232 $ 67,161 4 559 10,511 61,326 351,270 23,026 74,566 160 607 6,880 46,646 240,661 12,286 83,245 293 1,723 14,116 82,465 462,311 23,212 167,568 (473) 1,971 8,586 17,296 356,264 9,865 — $ 3,941,182 392,540 — 6,218 6,234 4,860 — 48,536 8,443 (26,264) 181,469 1,464,677 54,171 71,116 2,727 Beginning on January 1, 2020, the Company will be re-organized around the markets it serves rather than geography. The business segments will primarily align with the following markets: UFP Retail, UFP Construction and UFP Industrial. We believe this change in segmentation will, among other factors, allow for a more specialized and consistent approach among all UFP operations, more efficient use of resources and capital, and quicker introduction of new products and services. Information regarding principal geographic areas was as follows (in thousands): 2019 Long-Lived Tangible 2018 Long-Lived Tangible 2017 Long-Lived Tangible United States Foreign Total Assets Net Sales $ 4,308,618 $ 469,605 $ 4,382,356 $ 342,326 $ 3,821,366 $ 313,976 30,380 $ 4,416,009 $ 506,483 $ 4,489,180 $ 376,638 $ 3,941,182 $ 344,356 34,312 Net Sales Net Sales 119,816 106,824 107,391 36,878 Assets Assets Sales generated in Canada and Mexico are primarily to customers in the United States of America. 50 The following table presents, for the periods indicated, our gross sales (in thousands) by major product classification. Year Ended December 28, December 29, December 30, 2019 2018 2017 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 $ 438,621 $ 421,996 $ 368,591 187,905 244,910 149,520 471,262 76,507 260,174 109,582 61,226 110,327 265,048 48,736 81,143 85,016 21,218 69,844 10,632 $ 3,104,336 $ 2,938,729 $ 2,621,641 180,772 310,311 159,307 676,214 86,954 274,580 68,725 64,357 124,586 320,603 70,448 79,122 111,230 16,069 92,277 30,160 180,783 261,778 151,397 591,314 83,222 252,341 92,255 69,889 128,711 314,965 62,598 94,469 107,873 16,742 96,450 11,946 700,143 585,628 278,898 42,958 19,393 594,534 525,030 205,678 39,340 23,266 545,430 523,245 265,909 36,913 13,065 $ 1,387,848 $ 1,627,020 $ 1,384,562 $ 4,492,184 $ 4,565,749 $ 4,006,203 (65,021) $ 4,416,009 $ 4,489,180 $ 3,941,182 (76,175) (76,569) Note that the prior year information has been restated due to reclassification of certain products. 51 N. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table sets forth selected financial information for all of the quarters, consisting of 13 weeks during the years ended December 28, 2019 and December 29, 2018, respectively, (in thousands, except per share data): First Second Third Fourth 2019 2018 2019 2018 2019 2018 2019 2018 $ 1,015,125 $ 993,857 $ 1,239,817 $ 1,294,440 $ 1,163,026 $ 1,212,702 $ 998,041 $ 988,181 137,643 31,632 157,255 38,676 130,889 33,582 158,673 42,068 165,689 45,130 154,267 36,002 187,270 52,581 186,726 55,145 35,540 32,833 54,515 44,044 51,859 41,219 37,736 30,502 0.58 0.53 0.58 0.53 0.88 0.88 0.71 0.71 0.84 0.84 0.67 0.61 0.50 0.66 0.61 0.50 Net sales Gross profit Net earnings Net earnings attributable to controlling interest Basic earnings per share Diluted earnings per share MARKET INFORMATION FOR OUR COMMON STOCK Our common stock trades on The Nasdaq Stock Market (“NASDAQ”) under the symbol UFPI. 52 STOCK PERFORMANCE GRAPH The following graph depicts the cumulative total return on our common stock compared to the cumulative total return on the indices for The Nasdaq Stock Market (all U.S. companies) and an industry peer group we selected. The graph assumes an investment of $100 on December 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 Louisiana-Pacific Corporation BlueLinx Holdings, Inc. BMC Stock Holdings, Inc. Boise Cascade, LLC Builders FirstSource, Inc. Cornerstone Building Brands Gibraltar Industries, Inc. Greif, Inc. Masco Corporation Simpson Manufacturing Company, Inc. Sonoco Products Company Trex Company, Inc. Westrock Company The returns of each company included in the self-determined peer group are weighted according to each respective company’s stock market capitalization at the beginning of each period presented in the graph above. In determining the members of our peer group, we considered companies who selected UFPI as a member of their peer group, and looked for similarly sized companies or companies that are a good fit with the markets we serve. 53 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. 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 and Chief Operating Officer UFP Retail, LLC Patrick Benton President UFP Construction, LLC Scott A. Worthington President UFP Industrial, LLC Chad C. Uhlig Eastin Executive Vice President ProWood Scott T. Bravata Vice President of Accounting Benjamin McLean Chief Executive Officer Ruan Transportation Management Systems, Inc. David A. Tutas Chief Compliance Officer 54 ANNUAL MEETING Shareholder Information The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 22, 2020, at 2880 East Beltline Lane NE, Grand Rapids, MI 49525. SHAREHOLDER INFORMATION Shares of the Company’s stock are traded under the symbol UFPI on the NASDAQ Stock Market. The Company’s 10-K report, filed with the Securities and Exchange Commission, will be provided free of charge to any shareholder upon written request. For more information contact: Investor Relations Department Universal Forest Products, Inc. 2801 East Beltline NE Grand Rapids, MI 49525 Telephone: (616) 364-6161 Web: www.ufpi.com SECURITIES COUNSEL Varnum, LLP Grand Rapids, MI INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Deloitte & Touche LLP Grand Rapids, MI TRANSFER AGENT/SHAREHOLDER INQUIRIES American Stock Transfer & Trust Company serves as the transfer agent for the Corporation. Inquiries relating to stock transfers, changes of ownership, lost or stolen stock certificates, changes of address, and dividend payments should be addressed to: American Stock Transfer & Trust Co. 6201 15th Ave Brooklyn, NY 11219 Telephone: (800) 937-5449 UNIVERSAL FOREST PRODUCTS®, INC., CORPORATE HEADQUARTERS 2801 East Beltline NE Grand Rapids, MI 49525 Telephone: (616) 364-6161 Facsimile: (616) 364-5558 55  Riverside, CA Rockwell, NC Rowesville, SC Saginaw, TX Saint Bernard De Lacolle, Quebec Salina, KS Salisbury, NC San Antonio, TX Santee, NC Sauk Rapids, MN Schertz, TX Selma, AL Shanghai, China Sharon, TN Shawnee, OK Shippenville, PA Sidney, NY Silsbee, TX Snohomish, WA St. Louis, MO Stanfield, NC Stockertown, PA Tampa, FL Thomaston, GA Thornton, CA Tokyo, Japan Union City, GA Vaughan, Ontario Vesper, WI Warrens, WI Washington, NC Wenatchee, WA White Bear Lake, MN White City, OR White Pigeon, MI Windsor, CO Winthrop, ME Woodburn, OR Wujiang City, Jiangsu Province Yakima, WA Yeerongpilly, Austrailia UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES Locations: Adairsville, GA Aiea, HI Ashburn, GA Athena, OR Auburn, NY Auburndale, FL Aurora, CO Bangalore, India Belchertown, MA Belle Glade, FL Berlin, NJ Blanchester, OH Blue Island, IL Boise, ID Bonner, MT Burlington, IA Burlington, NC Cabo San Lucas, Mexico Cameron, SC Captiva, FL Cedar Hill, TX Chaffee, NY Chandler, AZ Chateauguay, Quebec Chesapeake, VA Chicago, IL Chino, CA Church Hill, TN Clinton, NC Columbia, MD Comal County, TX Conway, SC Cordele, GA Dallas, TX Dayton, OH Delano, PA Eagan, MN Earth City, MO Eatonton, GA Edina, MN Edwardsburg, MI Elizabeth City, NC Elkhart, IN Elkwood, VA Emlenton, PA Erskine Park, AUS Fernley, NV Fisherville, VA Folkston, GA Fort Worth, TX Franklinton, NC Fredericksburg, VA Gainesville, GA Georgetown, DE Gilmer, TX Gordon, PA Grand Rapids, MI Grandview, TX Granger, IN Haleyville, AL Hamilton, OH Harrisonville, MO Hartford, WI Hendersonville, NC Hillsboro, TX Hudson, NY Huntsville, TX Janesville, WI Jefferson, GA Jeffersonville, IN Kansas City, MO Kearneysville, WV Kyle, TX Lafayette, CO Langdon, ND Lansing, MI Lawrenceburg, TN Liberty, NC Lockhart, FL Locust, NC Lodi, OH London, United Kingdom Magna, UT Maricopa County, AZ Marietta, GA Martin, TN McMinnville, OR Medley, FL Memphis, TN Mexico City, Mexico Miami, FL Milwaukee, WI Minneota, MN Morristown, TN Moultrie, GA Naches, WA Nampa, ID Nappanee, IN Naugatuck, CT New Delhi, India New Hartford, NY New London, NC New Windsor, MD New York, NY Newnan, GA Norton Shores, MI Ogden, TX Ontario, CA Ooltewah, TN Orangeburg, SC Parker, PA Pearisburg, VA Peru, IL Pitts, GA Plainville, MA Poulsbo, WA Prairie du Chien, WI Puerto Rico Puyallup, WA Ranson, WV 56 LIST OF REGISTRANT'S SUBSIDIARIES AND AFFILIATES EXHIBIT 21 Michigan Michigan Michigan Michigan England/Wales Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Wisconsin Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Delaware Delaware Delaware Delaware Michigan Florida Bermuda Michigan Michigan Michigan Mexico Indiana Idaho China India Netherlands Hong Kong Hong Kong Delaware Delaware England/Wales UFP Kyle, LLC Delaware Delaware Delaware Delaware Delaware Mexico China Australia Australia Texas Michigan Michigan Mexico Michigan Texas Mexico Mexico Mexico Puerto Rico Michigan Michigan Delaware Australia Australia 11032 Tidewater Trail, LLC 234 Springs Rd., LLC 2875 Needmore Rd. LLC 621 Hall St., LLC Aljoma Holding Company, LLC Aljoma Lumber, Inc. Ardellis Insurance Ltd. Caliper Building Systems, LLC Deckorators, Inc. Eovations, LLC Forestal Universal SA de CV Horizon Terra, Incorporated Idaho Western, Inc. idX (China) Display Co., Ltd. idX (India) Display Private Limited idX Amsterdam B.V. idX Asia Fixtures Ltd idX Asia Trading Ltd idX Chicago, LLC idX Corporation idX Corporation London Ltd. 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 Metaworld Technologies, LLC Mid-Atlantic Framing, LLC Norpal S. de R.L. de C.V. North Atlantic Framing, LLC Pinelli Lumber, Inc. Pinelli Universal Chile S.A. Pinelli Universal TKT, S de R.L. de C.V. Pinelli Universal, S de R.L. de C.V. PR Distribution, LLC Shawnlee Construction LLC Shepardville Construction, LLC Store Fixtures Canada Holdings, Inc. The Ubeeco Group Pty Ltd The UBEECO Group Pty Ltd. Tibasa Universal Forest Products S. de R.L. de C.V. Mexico 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 UFP Aurora, LLC UFP Australia Pty Ltd Michigan Delaware Mexico Michigan Michigan Michigan Michigan Michigan Michigan Michigan Australia 57 UFP Folkston, LLC UFP Franklinton, LLC UFP Gainesville, LLC UFP Gear, LLC UFP Global Holdings Limited UFP Gordon, LLC UFP Grand Rapids, LLC UFP Grandview, LLC UFP Granger, LLC UFP Great Lakes, LLC UFP Gulf, LLC UFP Haleyville, LLC UFP Hamilton, LLC UFP Harrisonville, LLC UFP Hartford, LLC UFP Hillsboro, LLC UFP Industrial, LLC UFP International Employment Services, LLC UFP International, LLC UFP Janesville, LLC UFP Lafayette, LLC UFP Lansing, LLC UFP Magna, LLC UFP McMinnville, LLC UFP Mexico Embalaje y Distribution, S. de R.L. de C. V. Mexico UFP Mexico Investment, LLC UFP Mid-Atlantic, LLC UFP Milwaukee, LLC UFP Minneota, LLC UFP Morristown, LLC UFP Moultrie, LLC UFP Mountain West, LLC UFP NAC, LLC UFP Nappanee, LLC 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 Packaging, LLC UFP Palm Beach, LLC UFP Parker, LLC UFP Purchasing, Inc. UFP Ranson, LLC UFP Real Estate, LLC UFP Retail, LLC UFP Riverside, LLC UFP RMS, LLC UFP Rockwell, LLC UFP Saginaw, LLC UFP Salisbury, LLC UFP San Antonio, LLC UFP Sauk Rapids, LLC UFP Schertz, LLC 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 Australia Real Estate Pty Ltd UFP Barnesville, LLC UFP Belchertown, LLC UFP Berlin, LLC UFP Biscoe, LLC UFP Blanchester, LLC UFP Bonner LLC UFP Caldwell, LLC UFP Cameron, LLC UFP Canada, Inc. UFP Central Plains, LLC UFP Chandler, LLC UFP Chicago, LLC UFP Concrete Forming Solutions, Inc. UFP Construction, LLC UFP Dallas, LLC UFP de Mexico S.A. de C.V. UFP Distribution, LLC UFP Eagan, LLC UFP East Central, LLC UFP Eastern Division, Inc. Australia Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Canada Michigan Michigan Michigan Michigan Michigan Michigan Mexico Michigan Michigan Michigan Michigan UFP Shawnee, LLC UFP Southeast, LLC UFP Southwest, LLC UFP Stockertown, LLC UFP Tampa, LLC UFP Thomaston, LLC UFP Thornton, LLC UFP Transportation, Inc. UFP Union City, LLC UFP Ventures II, Inc. UFP Warranty Corporation UFP Warrens, LLC UFP Washington, LLC UFP Western Division, Inc. UFP White Bear Lake, LLC UFP Windsor, LLC UFP Woodburn, LLC United Lumber & Reman, LLC Universal Forest Products Texas, LLC Universal Forest Products, Inc. Universal Showcase ULC Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Michigan Alabama Michigan Michigan Alberta 58 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 26, 2020, 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 28, 2019. Exhibit 23 /s/ Deloitte & Touche LLP Grand Rapids, Michigan February 26, 2020 59 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 26, 2020 /s/ Matthew J. Missad Matthew J. Missad Chief Executive Officer and Principal Executive Officer 60 Exhibit 31(b) Universal Forest Products, Inc. Certification 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 26, 2020 /s/ Michael R. Cole Michael R. Cole Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer 61 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 28, 2019 fairly presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc. Date: February 26, 2020 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. 62 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 28, 2019 fairly presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc. Date: February 26, 2020 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. 63 DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 Exhibit 4(b) The following is a brief description of the common stock of Universal Forest Products, Inc. (the “Company”). This summary does not purport to be complete in all respects and is subject to and qualified in its entirety by reference to the Company’s Restated and Amended Articles of Incorporation (the "Articles of Incorporation") and Amended Bylaws (the "Bylaws"), each of which are filed as exhibits to the Annual Report on Form 10-K of which this Exhibit 4(b) is a part. Authorized Capital Stock The Company’s authorized capital stock consists of 80,000,000 shares of common stock and 1,000,000 shares of preferred stock. As of December 28, 2019, there were no shares of preferred stock outstanding. Dividend and Liquidation Rights Subject to the prior rights of the holders of shares of preferred stock that may be issued and outstanding, if any, the holders of common stock are entitled to receive:   dividends when, as, and if declared by the Company’s Board of Directors out of funds legally available for the payment of dividends; and in the event of dissolution of the Company, to share ratably in all assets remaining after payment of liabilities and satisfaction of the liquidation preferences, if any, of then outstanding shares of preferred stock, as provided in the Articles of Incorporation. Voting Rights Each holder of common stock is entitled to one vote for each share held of record on all matters presented to a vote at a shareholders meeting, including the election of directors. Holders of common stock have no cumulative voting rights. The Company’s Articles of Incorporation provide that the Company’s Board of Directors be divided into three classes of nearly equal size, with the classes to hold office for staggered terms of three years each. The vote required for the election of a director shall, except in a contested election, be the affirmative vote of a majority of the votes cast in the election of a nominee. For this purpose, a “majority of the votes cast” means that the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election. Abstentions and broker non-votes are not counted as votes cast either “for” or “against” a director’s election. In a contested election, directors are elected by a plurality of the votes cast at the meeting of shareholders. 64 An election is considered contested if there are more nominees for election than positions on the Board of Directors to be filled by election at that meeting. Listing The Company’s common stock is currently traded on the Nasdaq Global Select Market under the symbol “ufpi.” Applicable Anti-Takeover Provisions The Company's Articles of Incorporation and Bylaws contain provisions that could also have an anti-takeover effect. Some of the provisions also may make it difficult for shareholders to replace incumbent directors with new directors who may be willing to entertain changes that shareholders may believe will lead to improvements in the combined company’s business. Other All of the outstanding shares of the Company’s common stock are fully paid and non-assessable. Holders of common stock have no preemptive rights to purchase or subscribe for any additional shares of common stock or other securities, and there are no conversion rights or redemption or sinking fund provisions with respect to the Company’s common stock. The transfer agent for the Company’s common stock is American Stock Transfer & Trust Co., 6201 15th Avenue, Brooklyn, NY 11219. 65 BR913543-0320-10K

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