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.
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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.
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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.
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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.
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BR913543-0320-10K