EX-13 5 ufpi-20161231xexhibit13.htm EXHIBIT 13 Exhibit
 
 

Exhibit 13
 
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION

Table of Contents

Selected Financial Data
2
 
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
3-17
 
 
Management's Annual Report on Internal Control Over Financial Reporting
18
 
 
Report of Independent Registered Public Accounting Firm
19
 
 
Report of Independent Registered Public Accounting Firm
20
 
 
Consolidated Balance Sheets as of December 31, 2016 and December 26, 2015
22-23
 
 
Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 31, 2016, December 26, 2015, and December 27, 2014
24
 
 
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2016, December 26, 2015, and December 27, 2014
25-27
 
 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, December 26, 2015, and December 27, 2014
28-29
 
 
Notes to Consolidated Financial Statements
30-49
 
 
Price Range of Common Stock and Dividends
50
 
 
Stock Performance Graph
51
 
 
Directors and Executive Officers
52
 
 
Shareholder Information
53



SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)
 
 
2016
 
2015
 
2014
 
2013
 
2012
Consolidated Statement of Earnings Data
 
 
 
 
 
 
 
 
 
Net sales
$
3,240,493

 
$
2,887,071

 
$
2,660,329

 
$
2,470,448

 
$
2,054,933

Gross profit
474,590

 
399,904

 
325,342

 
280,552

 
225,109

Earnings before income taxes
160,671

 
131,002

 
95,713

 
70,258

 
41,064

Net earnings attributable to controlling interest
$
101,179

 
$
80,595

 
$
57,551

 
43,082

 
23,934

Diluted earnings per share
$
4.96

 
$
3.99

 
$
2.86

 
$
2.15

 
$
1.21

Dividends per share
$
0.870

 
$
0.820

 
$
0.610

 
$
0.410

 
$
0.400

Consolidated Balance Sheet Data
 

 
 

 
 

 
 

 
 

Working capital(1)
$
484,661

 
$
444,057

 
$
397,546

 
$
357,299

 
$
338,389

Total assets
1,292,058

 
1,107,679

 
1,023,800

 
916,987

 
860,540

Total debt
111,693

 
85,895

 
98,645

 
84,700

 
95,790

Shareholders' equity
860,466

 
766,409

 
699,560

 
649,734

 
607,525

Statistics
 

 
 

 
 

 
 

 
 

Gross profit as a percentage of
 

 
 

 
 

 
 

 
 

net sales
14.6
%
 
13.9
%
 
12.2
%
 
11.4
%
 
11.0
%
Net earnings attributable to controlling interest as a percentage of net sales
3.1
%
 
2.8
%
 
2.2
%
 
1.7
%
 
1.2
%
Return on beginning equity(2)
13.2
%
 
11.5
%
 
8.8
%
 
7.1
%
 
4.1
%
Current ratio(4)
2.78

 
3.17

 
3.27

 
3.59

 
3.95

Debt to equity ratio(5)
0.13

 
0.11

 
0.14

 
0.13

 
0.16

Book value per common share(3)
$
42.30

 
$
38.05

 
$
35.01

 
$
32.57

 
$
30.68


(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.

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 2016.

OVERVIEW
 
Our results for 2016 were impacted by the following:

Our sales increased 12% in 2016 due to an 11% increase in our unit sales and a 1% increase in overall selling prices (see “Historical Lumber Prices”).  Our unit sales increased in all three of our markets - retail, industrial, and construction - and were driven by a combination of acquisition and organic growth. Businesses we acquired contributed 3% to our unit sales growth in 2016 (see Note C of the Notes to Consolidated Financial Statements).

The Home Improvement Research Institute reported a 6% increase in home improvement sales in 2016. Comparatively, our unit sales to the retail market increased 10% in 2016.

Our sales to the industrial market increased 11% in 2016. Businesses we acquired contributed 10% to unit sales growth. Comparatively, the Federal Reserve's Industrial Production noted that national industrial production increased less than 1% in 2016.
National housing starts increased approximately 5% in the period from December 2015 through November 2016, compared to the same period of the prior year (our sales trail housing starts by about a month).  Comparatively, our unit sales to residential construction customers increased 17% in 2016. 
Production of HUD code manufactured homes were up 15% in the period from January through December 2016, compared to the same period of the prior year, and year over year modular home starts increased 9% in the first six months of 2016 (the last period reported). Comparatively, our unit sales to the manufactured housing market increased 5% in 2016.
Our profitability improved to $101.2 million in net earnings attributable to controlling interest from $80.6 million last year primarily due to a combination of strong organic sales growth and favorable improvements in sales mix.
Our cash flow from operating activities increased to $172 million due to our improved profitability and working capital management. Additionally, we invested almost $173 million in newly acquired businesses in 2016.




3

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


HISTORICAL LUMBER PRICES

The following table presents the Random Lengths framing lumber composite price.

 
Random Lengths Composite
Average $/MBF
 
2016
 
2015
 
2014
January
$
316

 
$
379

 
$
395

February
310

 
361

 
394

March
321

 
339

 
387

April
345

 
334

 
367

May
356

 
315

 
377

June
353

 
328

 
375

July
351

 
346

 
381

August
367

 
327

 
401

September
354

 
300

 
398

October
356

 
308

 
381

November
346

 
326

 
367

December
357

 
314

 
375

Annual average
$
344

 
$
331

 
$
383

Annual percentage change
3.9
%
 
(13.6
)%
 
 

 
In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprises approximately 43% of total lumber purchases for 2016 and 2015.

 
Random Lengths SYP
Average $/MBF
 
2016
 
2015
 
2014
January
$
358

 
$
411

 
$
375

February
357

 
399

 
398

March
366

 
393

 
406

April
389

 
400

 
392

May
397

 
368

 
402

June
382

 
354

 
406

July
380

 
344

 
396

August
391

 
321

 
419

September
375

 
290

 
416

October
385

 
318

 
393

November
387

 
348

 
386

December
400

 
347

 
399

Annual average
$
381

 
$
358

 
$
399

Annual percentage change
6.4
%
 
(10.3
)%
 
 


 
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

4

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


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 48.5%, 48.9%, and 53.5% of our sales in 2016, 2015, and 2014, 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 re-price our products for changes in lumber costs from our suppliers.

Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and profits.  These products primarily include treated lumber, remanufactured lumber, and trusses sold to the manufactured housing industry.  For these products, we estimate the customers' needs and we carry anticipated levels of inventory.  Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins.  For these products, our margins are exposed to changes in the trend of lumber prices. 
 
The greatest risk associated with changes in the trend of lumber prices is on the following products:

Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market.  In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprises approximately 19% of our total sales.  This exposure is less significant with remanufactured lumber, trusses sold to the manufactured housing market, and other similar products, due to the higher rate of inventory turnover.  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.

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.

 
Period 1
 
Period 2
Lumber cost
$
300

 
$
400

Conversion cost
50

 
50

 = Product cost
350

 
450

Adder
50

 
50

 = Sell price
$
400

 
$
500

Gross margin
12.5
%
 
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 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 as a method of evaluating profitability.

5

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



BUSINESS COMBINATIONS AND ASSET PURCHASES
 
We completed five business acquisitions during 2016 and two during 2015 and each was accounted for using the purchase method.  The aggregate annual sales of these acquisitions totals $362 million and collectively they contributed $100 million to net sales in 2016.  These business combinations were not significant to our operating results individually or in aggregate, and thus pro forma results for 2016 and 2015 are not presented.
 
See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information.
 
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.

 
Years Ended
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014
Net sales
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of goods sold
85.4

 
86.1

 
87.8

Gross profit
14.6

 
13.9

 
12.2

Selling, general, and administrative expenses
9.6

 
9.2

 
8.6

Loss contingency for anti-dumping duty assessments

 

 
0.1

Net loss (gain) on disposition of assets and other impairment charges

 

 
(0.1
)
Earnings from operations
5.1

 
4.7

 
3.7

Other expense, net
0.1

 
0.2

 
0.1

Earnings before income taxes
5.0

 
4.5

 
3.6

Income taxes
1.7

 
1.6

 
1.3

Net earnings
3.3

 
2.9

 
2.3

Less net earnings attributable to noncontrolling interest
(0.1
)
 
(0.2
)
 
(0.2
)
Net earnings attributable to controlling interest
3.1
 %
 
2.8
 %
 
2.2
 %

Note: Actual percentages are calculated and may not sum to total due to rounding.

GROSS SALES
 
We design, manufacture and market wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, specialty wood packaging, components and packing materials for various industries, and customized interior fixtures used in a variety of retail stores, commercial and other structures.  Our strategic long-term sales objectives include:
Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our penetration of the concrete forming market, increasing our sales of engineered wood components for custom home, multi-family, military and light commercial construction, increasing our market share with independent retailers, and increasing our sales of customized interior fixtures used in a variety of markets.
Expanding geographically in our core businesses, domestically and internationally.
Increasing sales of "value-added" products, which primarily consist of fencing, decking, lattice, and other specialty products sold to the retail market, specialty wood packaging, engineered wood components, customized interior fixtures, and "wood alternative" products. Engineered wood components include roof trusses, wall panels, and floor systems.  Wood alternative products consist primarily of composite wood and plastics. Although we consider the treatment of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals.

6

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Maximizing unit sales growth while achieving return on investment goals
Developing new products and expanding our product offering for existing customers.  New product sales were $354.3 million in 2016, $274.9 million in 2015, and $200.7 million in 2014. (Certain prior year product reclassifications resulted in an increase in new product sales in 2015 and 2014.)
 
New Product Sales by Market
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014
Retail
$
205,934

 
$
153,880

 
$
116,119

Industrial
94,844

 
74,424

 
33,077

Construction
53,505

 
46,572

 
51,537

Total New Product Sales
$
354,283

 
$
274,876

 
$
200,733


The following table presents, for the periods indicated, our gross sales (in thousands) and percentage change in gross sales by market classification.

 
Years Ended
Market Classification
December
31,
2016
 
%
Change
 
December
26,
2015
 
%
Change
 
December
27,
2014
Retail
$
1,292,892

 
13.7
 
$
1,136,643

 
10.9
 
$
1,024,788

Industrial
988,040

 
10.6
 
893,149

 
13.3
 
788,450

Construction
1,009,317

 
12.5
 
897,301

 
1.4
 
884,698

Total Gross Sales
3,290,249

 
12.4
 
2,927,093

 
7.8
 
2,697,936

Sales Allowances
(49,756
)
 
24.3
 
(40,022
)
 
6.4
 
(37,607
)
Total Net Sales
$
3,240,493

 
12.2
 
$
2,887,071

 
8.5
 
$
2,660,329


Note: During 2016, 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.

 
% Change
 
in Sales
 
in Selling Prices
 
in Units
2016 versus 2015
12.4
%
 
1.2
 %
 
11.2
%
2015 versus 2014
8.5
%
 
(3.0
)%
 
11.5
%
2014 versus 2013
7.7
%
 
 %
 
7.7
%

Retail:

Gross sales to the retail market increased almost 14% in 2016 compared to 2015 due to a 10% increase in unit sales and a 4% increase in selling prices.  Within this market, sales to our big box customers increased 17% while our sales to other retailers increased 10%.  Our increase in unit sales was primarily organic growth achieved through a combination of share gains in existing product lines with certain retailers, an improvement in consumer demand, and growth in our new product sales. Our large retail customers reported year over year same store sales growth of approximately 6% during the first nine months of 2016. 
 
Gross sales to the retail market increased almost 11% in 2015 compared to 2014 due to a 12% increase in unit sales, offset by a 1% decrease in selling prices.  Within this market, sales to our big box customers increased 15% while our sales to other retailers increased 5%.  We believe that our increase in unit sales was primarily due to share gains in existing product lines with certain

7

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


retailers, an improvement in consumer demand, and growth in our new product sales. Our large retail customers reported year over year same store sales growth of approximately 5% during the first nine months of 2015.

Industrial:

Gross sales to the industrial market increased 11% in 2016 compared to 2015, resulting from a 13% increase in overall unit sales, offset by a 2% decrease in selling prices. Businesses we acquired contributed 10% to our growth in unit sales. Our organic growth in unit sales was 3% as a result of share gains achieved by adding 191 new customers during the year and increasing the number of locations we serve of certain large customers. We believe overall market demand decreased in 2016.

Gross sales to the industrial market increased 14% in 2015 compared to 2014, resulting from a 17% increase in overall unit sales, offset by a 3% decrease in selling prices. Businesses we acquired contributed 12% to our growth in unit sales. Our organic growth in unit sales of 5% was due to share gains achieved with several existing customers, as well as adding 168 new customers.


See Notes to Consolidated Financial Statements, Note C, "Business Combinations" for additional information concerning acquired businesses.

Construction:

Gross sales to the construction market increased over 12% in 2016 compared to 2015, due to a unit sales increase of 11% and a 1% increase in selling prices. Unit sales increased due to a 17% increase in units shipped to residential construction customers, a 10% increase in shipments to commercial construction customers, and a 5% increase in shipments to manufactured housing customers. Businesses we acquired in 2016 contributed 2% in unit sales growth to manufactured housing customers. Comparatively, Mortgage Bankers Association of America reported year over year national housing starts increased 5%, the commercial construction market increased 5%, National Association of Home Builders reported industry production of HUD-code homes increased 14%, and modular home starts increased 9% for the first six months of 2016 (the last period reported). The increases in our sales to residential and commercial construction above nationally recognized market data are primarily due to a combination of increased demand and market share in certain areas of our geographic footprint. Our growth in the manufactured housing market was less than the national average, which was primarily due to a reduction in market share resulting from the loss of certain customers.

Gross sales to the construction market increased approximately 1% in 2015 compared to 2014, due to a unit sales increase of 5%, offset by a 4% decrease in selling prices. Unit sales increased due to a 4% increase in units shipped to residential construction customers, a 15% increase in shipments to commercial construction customers, and a 2% increase in shipments to manufactured housing customers. Comparatively, Mortgage Bankers Association of America reported year over year housing starts increased 11% nationally, the commercial construction market increased 11%, National Association of Home Builders reported industry production of HUD-code homes increased 8.7%, and modular home starts remained flat for the first nine months of 2015 (the last period reported). 

Value-Added and Commodity-Based Sales:

The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales.  Value-added products generally carry higher gross margins than our commodity-based products.

 
Value-Added
 
Commodity-Based
2016
62.6
%
 
37.4
%
2015
59.8
%
 
40.2
%
2014
58.5
%
 
41.5
%

COST OF GOODS SOLD AND GROSS PROFIT

Our gross profit percentage increased from 13.9% in 2015 to 14.6% in 2016.  Additionally, our gross profit dollars increased by almost $75 million, or 19%, which exceeds our 11% increase in unit sales.  The improvement in our profitability in 2016 is attributable to the following factors:

8

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Approximately $38 million of the increase is attributable to our growth in unit sales to the retail market and an improvement in margin on those sales. New product sales, effective inventory positioning leading to lower lumber costs, and the favorable impact of selling into a rising lumber market on variable priced products contributed to our margin improvement.

Our growth in unit sales to the industrial market and margin improvement on those sales for most of the year resulted in a $22 million improvement in our gross profit. Businesses we acquired in 2016 contributed $16 million of this increase. The gross margin improvement is attributable to a favorable improvement in our product sales mix of more value-added products.

Almost $16 million of our gross profit improvement was due to growth in sales to the residential construction, commercial construction, and manufactured housing markets as our gross margins remained relatively flat.

Our gross profit percentage increased from 12.2% in 2014 to 13.9% in 2015.  Additionally, our gross profit dollars increased by almost $75 million, or 23%, which exceeds our 11.5% increase in unit sales.  The improvement in our profitability in 2015 is attributable to the following factors:

Our growth in unit sales to the industrial market and a significant margin improvement on those sales contributed almost $50 million to our gross profit improvement. The gross margin improvement is attributable to an improvement in our sales mix and benefiting from lower lumber costs relative to our fixed selling prices in the last six months of 2015. We estimate lower lumber costs contributed $17 million to $20 million to our overall improvement in gross profits.

Approximately $17 million of the increase is attributable to our growth in unit sales to the retail market and a slight improvement in margin on those sales. New product sales contributed to our margin improvement;

Over $9 million of our gross profit improvement was due to growth in sales and an improvement in margins on sales to the residential construction market. Margins improved primarily as a result of efforts to be more selective in the business that we take as market conditions have improved.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased by approximately $45.9 million, or 17%, in 2016 compared to 2015, while we reported an 11% increase in unit sales.  Acquired businesses contributed $17 million to our increase. The remaining increase in SG&A was primarily due to an $11 million increase in compensation and benefit costs resulting from annual raises, other cost increases, and hiring additional personnel to support sales growth, and a $14 million increase in incentive compensation expense tied to profitability and return on investment.

Selling, general and administrative ("SG&A") expenses increased by approximately $34.5 million, or 15%, in 2015 compared to 2014, while we reported an 11.5% increase in unit sales.  The increase in SG&A was primarily due to a $12 million increase in compensation and related expenses resulting from annual raises and hiring additional sales and design personnel to support sales growth, and a $16 million increase in incentive compensation expense tied to profitability and return on investment. Our SG&A has increased as a percentage of sales due to the favorable change in our sales mix of more value-added products which require higher SG&A costs and incentive compensation.

ANTI-DUMPING DUTY ASSESSMENTS

We accrued $1.6 million related to estimated anti-dumping duty assessments in 2014, imposed by the US government on plywood and steel nails imported from China. During a 2016 assessment, it was determined that the estimated anti-dumping duty accrual was no longer necessary.

NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT CHARGES

The net gain on disposition and impairment of assets totaled $3.4 million in 2014.  Included within the $3.4 million net gain was a gain on the sale of certain real estate totaling $2.7 million completed by a 50% owned subsidiary of the Company.    During 2014, we also recognized a net gain on the sale of other properties and equipment totaling $1.9 million. These gains were offset by a $1.2 million impairment loss recorded to reduce the value of one of our vacant properties.

INTEREST, NET

9

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Net interest costs were lower in 2016 compared to 2015, due to a lower outstanding balance on our revolving line of credit throughout 2016 resulting in less associated interest expense. 

Net interest costs were higher in 2015 compared to 2014, due to a higher outstanding balance on our revolving line of credit throughout 2015 resulting in additional associated interest expense and the loss of interest income related to notes receivable collected in late 2014 and 2015. 

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 decreased to 34.3% in 2016 compared to 35.0% in 2015.  The decrease in the 2016 tax rate is primarily due to a reduction in our estimated state tax rate.

Our effective tax rate decreased to 35.0% in 2015 compared to 35.7% in 2014.  The decrease in the 2015 tax rate is due to an increase in our domestic manufacturing deduction and a reduction in our estimated state tax rate.

SEGMENT REPORTING

The following table presents, for the periods indicated, our net sales and earnings from operations by reportable segment.

(in thousands)
Net Sales
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014
 
2016 vs 2015
 
2015 vs 2014
North
$
1,000,426

 
$
922,092

 
$
840,277

 
8.5
%
 
9.7
%
South
711,862

 
656,550

 
611,700

 
8.4

 
7.3

West
1,251,093

 
1,133,398

 
1,062,565

 
10.4

 
6.7

idX
87,001

 

 

 

 

All Other
190,111

 
175,031

 
145,787

 
8.6

 
20.1

Total
$
3,240,493

 
$
2,887,071

 
$
2,660,329

 
12.2
%
 
8.5
%

(in thousands)
Earnings from Operations
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014
 
2016 vs 2015
 
2015 vs 2014
North
$
59,408

 
$
53,879

 
$
32,988

 
10.3
 %
 
63.3
 %
South
47,146

 
30,740

 
24,474

 
53.4

 
25.6

West
76,875

 
70,220

 
53,575

 
9.5

 
31.1

idX
627

 

 

 

 

All Other
16,012

 
3,038

 
3,155

 
427.1

 
(3.7
)
Corporate1
(35,630
)
 
(22,410
)
 
(16,825
)
 
(59.0
)
 
(33.2
)
Total
$
164,438

 
$
135,467

 
$
97,367

 
21.4
 %
 
39.1
 %

1Corporate primarily represents over (under) allocated administrative costs and certain incentive compensation expense.

North


10

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


 
Net Sales
 
North Segment by Market
(in thousands)
Twelve Months Ended
Market Classification
December 31, 2016
December 26, 2015
December 27, 2014
% Change
2016 vs 2015
% Change
2015 vs 2014
Retail
$
465,823

$
415,709

$
351,734

12.1

18.2

Industrial
118,492

119,890

122,189

(1.2
)
(1.9
)
Construction
436,121

402,534

379,011

8.3

6.2

Total Gross Sales
1,020,436

938,133

852,934

8.8

10.0

Sales Allowances
(20,010
)
(16,041
)
(12,657
)
(24.7
)
(26.7
)
Total Net Sales
$
1,000,426

$
922,092

$
840,277

8.5

9.7



Net sales attributable to the North reportable segment increased by 8.5% in 2016, due to increases in sales to our retail and residential construction markets, offset by a decrease in sales to our industrial customers as a result of the same factors discussed under "Gross Sales".

Earnings from operations for the North reportable segment increased in 2016 primarily due to the growth in our sales to retail and residential construction customers.  Additionally, margin improvements were achieved on sales to the retail and industrial markets due to a more favorable product sales mix focused on value-added products. These improvements were offset by a 12.6% increase in our SG&A expenses from 2015 to 2016.

Net sales attributable to the North reportable segment increased by 9.7% in 2015, due to an increase in sales to our retail, residential construction, and manufactured housing customers, offset by a decline in sales to our industrial customers, as a result of the same factors discussed under "Gross Sales".

Earnings from operations for the North reportable segment increased in 2015 primarily due to the growth in our sales to retail and residential construction customers.  Margin improvements were also achieved due to a more favorable product sales mix and a decline in lumber costs in the last six months of 2015 on products we sell with fixed selling prices. These improvements were offset by an 11.4% increase in our SG&A expenses from 2014 to 2015.

South

 
Net Sales
 
South Segment by Market
(in thousands)
Twelve Months Ended
Market Classification
December 31, 2016
December 26, 2015
December 27, 2014
% Change
2016 vs 2015
% Change
2015 vs 2014
Retail
$
315,109

$
288,395

$
259,121

9.3

11.3

Industrial
249,599

245,539

234,271

1.7

4.8

Construction
161,382

134,400

127,603

20.1

5.3

Total Gross Sales
726,090

668,334

620,995

8.6

7.6

Sales Allowances
(14,228
)
(11,784
)
(9,295
)
(20.7
)
(26.8
)
Total Net Sales
$
711,862

$
656,550

$
611,700

8.4

7.3


Net sales attributable to the South reportable segment increased by 8.4% in 2016, primarily due to an increase in sales to our retail and manufactured housing customers, as a result of the same factors discussed under "Gross Sales".

Earnings from operations for the South reportable segment increased in 2016 primarily due to the growth in our sales to retail and manufactured housing customers. Additionally, we achieved margin improvements primarily due to improvements in our sales

11

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


mix of more value-added products and closure of certain under-performing operations. The overall improvement in gross profit was offset by a 4.7% increase in SG&A expenses from 2015 to 2016.

Net sales attributable to the South reportable segment increased by 7.3% in 2015, primarily due to an increase in sales to our retail, industrial, and manufactured housing customers, as a result of the same factors discussed under "Gross Sales".

Earnings from operations for the South reportable segment increased in 2015 primarily due to our growth in sales and margin improvements. Margin improvements were primarily due to a more favorable product sales mix and low lumber costs in the last six months of 2015 on products we sell with fixed selling prices. The overall improvement in gross profit was offset by a 9.5% increase in SG&A expenses from 2014 to 2015.


West

 
Net Sales
 
West Segment by Market
(in thousands)
Twelve Months Ended
Market Classification
December 31, 2016
December 26, 2015
December 27, 2014
% Change
2016 vs 2015
% Change
2015 vs 2014
Retail
$
384,666

$
322,639

$
313,403

19.2

2.9

Industrial
471,055

463,908

384,265

1.5

20.7

Construction
411,810

360,353

378,059

14.3

(4.7
)
Total Gross Sales
1,267,531

1,146,900

1,075,727

10.5

6.6

Sales Allowances
(16,438
)
(13,502
)
(13,162
)
(21.7
)
(2.6
)
Total Net Sales
$
1,251,093

$
1,133,398

$
1,062,565

10.4

6.7



Net sales of the West reportable segment increased by 10.4% in 2016, primarily due to an increase in sales to the retail and construction markets, as a result of the same factors discussed under "Gross Sales". Additionally, newly acquired businesses contributed $11.3 million in gross sales to the retail and construction markets in 2016.

Earnings from operations for the West reportable segment increased in 2016 primarily due to growth in our sales to the retail and construction markets, and an improvement in margins. Our margins increased due to an improvement in our sales mix of value-added products. These improvements were offset by a 14.2% increase in SG&A expenses during 2016.

Net sales of the West reportable segment increased by 6.7% in 2015, due to an increase in sales to the retail, commercial construction, and industrial markets. Businesses we acquired in 2015 and at the end of 2014 contributed $92.3 million to our growth in sales to the industrial market. These increases were offset by a decline in sales to manufactured housing and residential construction customers.

Earnings from operations for the West reportable segment increased in 2015 primarily due to the growth in our sales to the retail and industrial markets and an improvement in margins. Our margins increased due to an improvement in our sales mix of value-add products and lower lumber prices in the last six months of 2015 on products we sell with fixed selling prices.  These improvements were offset by a 9.9% increase in SG&A expenses during 2015.

idX



12

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


 
Net Sales
 
idX Segment by Market
(in thousands)
Twelve Months Ended
Market Classification
December 31, 2016
December 26, 2015
December 27, 2014
% Change
2016 vs 2015
% Change
2015 vs 2014
Industrial
87,262





Total Gross Sales
87,262





Sales Allowances
(261
)




Total Net Sales
$
87,001

$

$




On September 16, 2016, we acquired idX Holdings, Inc. ("idX"). idX is a designer, manufacturer and installer of highly customized in-store environments that are used in a range of end markets. Prior to acquisition, idX had annual sales and earnings from operations of approximately $300 million and $23 million, respectively.

All Other

 
Net Sales
 
All Other Segment by Market
(in thousands)
Twelve Months Ended
Market Classification
December 31, 2016
December 26, 2015
December 27, 2014
% Change
2016 vs 2015
% Change
2015 vs 2014
Retail
$
127,295

$
109,900

$
100,530

15.8

9.3

Industrial
61,632

63,813

47,724

(3.4
)
33.7

Construction
3

12

26

(75.0
)
(53.8
)
Total Gross Sales
188,930

173,725

148,280

8.8

17.2

Sales Allowances
1,181

1,306

(2,493
)
9.6

152.4

Total Net Sales
$
190,111

$
175,031

$
145,787

8.6

20.1



Net sales of all other segments increased 8.6% in 2016 primarily due to an increase in sales by our Alternative Materials operations, primarily due to an increase in market share with certain Big Box retailers.

Earnings from operations for all other segments increased in 2016, primarily due to the sales growth and operational improvements of our Alternative Materials operations and to a lesser extent the performance of our captive insurance subsidiary, Ardellis.

Net sales of all other segments increased 20.1% in 2015 primarily due to:
An increase in sales by our Alternative Materials operations to retail customers. Our Alternative Materials operations primarily manufacture, distribute, and sell composite decking, decorative post caps and balusters, and a variety of other deck accessories to retail customers.
An increase in sales to the Industrial market by our Pinelli Universal partnership. Pinelli Universal manufactures moulding and millwork products out of its plant in Durango, Mexico.
Our Integra Packaging partnership, acquired in 2015, which manufactures and distributes specialty packaging products.

Earnings from operations for all other segments decreased slightly in 2015, primarily due to a gain on the sale of certain real estate in Mexico recorded in the third quarter of 2014 totaling $2.7 million and a 28% increase in SG&A expenses in 2015, offset by margin improvements achieved by our Pinelli Universal partnership on its sales to industrial customers in 2015.

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 31, 2016 (in thousands).

13

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



 
Payments Due by Period
Contractual Obligation
Less than
1 Year
 
1 – 3
Years
 
3 – 5
Years
 
After
5 Years
 
Total
Long-term debt and capital lease obligations
$
2,595

 
$
24,348

 
$
41,490

 
$
43,260

 
$
111,693

Estimated interest on long-term debt and capital lease obligations
3,548

 
6,954

 
6,114

 
6,296

 
22,912

Operating leases
17,664

 
23,014

 
10,214

 
4,974

 
55,866

Capital project purchase obligations
10,075

 

 

 

 
10,075

Total
$
33,882

 
$
54,316

 
$
57,818

 
$
54,530

 
$
200,546


As of December 31, 2016, we also had $25.5 million in outstanding letters of credit issued during the normal course of business, as required by some vendor contracts.

LIQUIDITY AND CAPITAL RESOURCES
 
The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):

 
December 31,
2016
 
December 26,
2015
 
December 27,
2014
Cash from operating activities
172,520

 
168,796

 
73,120

Cash used in investing activities
(227,469
)
 
(46,817
)
 
(67,063
)
Cash from (used in) financing activities
3,211

 
(33,002
)
 
(5,205
)
Effect of exchange rate changes on cash
(1,927
)
 
(1,221
)
 
(852
)
Net change in cash and cash equivalents
(53,665
)
 
87,756

 

Cash and cash equivalents, beginning of year
87,756

 
0

 
0

Cash and cash equivalents, end of year
$
34,091

 
$
87,756

 
$


In general, we financed our growth in the past through a combination of operating cash flows, our revolving credit facility, industrial development bonds (when circumstances permit), and issuance of long-term notes payable at times when interest rates are favorable.  We have not issued equity to finance growth except in the case of a large acquisition.  We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization.  We believe this is one of many important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.

Seasonality has a significant impact on our working capital due to our primary selling season which occurs during the period from March to August. Consequently, our working capital increases during our first and second quarter resulting in negative or modest cash flows from operations during those periods. Conversely, we experience a substantial decrease in working capital once we move beyond our peak selling season which typically results in significant cash flows from operations in our third and fourth quarters.

Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle decreased to 48 days in 2016 from 53 days in 2015.


14

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


 
Twelve Months Ended
 
December 31, 2016
 
December 26, 2015
 
December 27, 2014
Days of sales outstanding
$
31

 
$
31

 
$
31

Days supply of inventory
38

 
43

 
41

Days payables outstanding
(21
)
 
(21
)
 
(22
)
Days in cash cycle
48

 
53

 
50



Improvements in our days supply of inventory in 2016 was due, in part, to strong customer demand, particularly in our retail market which typically requires a greater investment in inventory than our other markets, as well as certain improvements in inventory management. Additionally, during 2015 we carried higher levels of safety stock inventory due to inclement weather early in the year and expected industry transportation challenges. Each of our operating segments achieved significant improvements in their days supply of inventory. Our North, South, and West segments improved their days supply of inventory by 9%, 22%, and 12%, respectively, through 2016.

Our cash flows from operating activities in 2016 was $172.5 million, which was comprised of net earnings of $105.5 million, $48.2 million of non-cash expenses, and a $18.8 million decrease in working capital since the end of December 2015. Comparatively, cash generated from operating activities was approximately $168.8 million in 2015, which was comprised of net earnings of $85.1 million, $41.6 million of non-cash expenses, and a $42.1 million decrease in working capital since the end of 2014. In 2015, working capital declined primarily due to reducing inventory to targeted levels and an increase in accrued liabilities resulting from a $17 million increase in accrued compensation.

Acquisitions comprised most of our cash used in investing activities during 2016 and totaled $172.9 million, which includes $92.8 million paid to retire all of idX's debt and certain other obligations on the acquisition date. Additionally purchases of property, plant, and equipment totaled $53.8 million and included approximately $16 million of investments we believe will contribute to future sales and profit growth. Outstanding purchase commitments on existing capital projects totaled approximately $10.1 million on December 31, 2016.  Comparatively, capital expenditures were $43.5 million in 2015, and we had outstanding purchase commitments on existing capital projects totaling approximately $3.3 million on December 26, 2015.

Cash flows from financing activities primarily consisted of net borrowings under our revolving credit facility of approximately $23.7 million, offset by $17.7 million in dividend payments in June at $0.42 per share and December at $0.45 per share. In 2015, cash flows used in financing activities included $16.5 million of dividends paid to shareholders. Additionally in 2015, we repaid the $13.9 million outstanding balance on our revolving credit facility.

On December 31, 2016, we had $23.9 million outstanding on our $295 million revolving credit facility. The revolving credit facility also supports letters of credit totaling approximately $9.8 million on December 31, 2016. As a result, we have approximately $261 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 31, 2016.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Consolidated Financial Statements, Note M, “Commitments, Contingencies, and Guarantees”.

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States.  These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations.  We continually review our accounting policies and financial information disclosures.  Following is a summary of our more significant accounting policies that require the use of estimates and judgments in preparing the financial statements.

ACCOUNTS RECEIVABLE ALLOWANCES


15

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


We record provisions against gross revenues for estimated returns and cash discounts in the period when the related revenue is recorded.  These estimates are based on factors that include, but are not limited to, historical discounts taken, analysis of credit memorandums activity, and customer demand.  We also evaluate the allowance for uncollectible accounts receivable and discounts based on historical collection experience and specific identification of other potential problems, including the economic climate.  Actual collections can differ, requiring adjustments to the allowances.

LONG-LIVED ASSETS AND GOODWILL

We evaluate long-lived assets for indicators of impairment when events or circumstances indicate that this risk may be present. Our judgments regarding the existence of impairment are based on market conditions, operational performance and estimated future cash flows.  As a result of favorable factors in each of these areas combined with substantial excess equity value over carrying value from the prior year analysis, management has determined that the carryforward method is appropriate to use. The discounted cash flow analysis, from prior years, uses the following assumption:  a business is worth today what it can generate in future cash flows; cash received today is worth more than an equal amount of cash received in the future; and future cash flows can be reasonably estimated.  The discounted cash flow analysis is based on the present value of projected cash flows and residual values.

As of September 25, 2016, based on the carryforward method and the analysis, the fair values would exceed the carrying values for each of the Company's operating segments.

If the carrying value of a long-lived asset is considered impaired, a level two analysis will be conducted and an impairment charge is recorded to adjust the asset to its fair value.  Changes in forecasted operations and changes in discount rates can materially affect these estimates.  In addition, we test goodwill annually for impairment or more frequently if changes in circumstances or the occurrence of other events suggest impairments exist.  The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples.  Changes in these estimates may result in the recognition of an impairment loss.

INSURANCE RESERVES

We are primarily self-insured for certain employee health benefits, and have self-funded retentions for general liability, automobile liability, property and workers' compensation.  We are fully self-insured for environmental liabilities.  The general liability, automobile liability, property, workers' compensation, and certain environmental liabilities are managed through a wholly-owned insurance company; the related assets and liabilities of which are included in the consolidated financial statements as of December 31, 2016.  Our accounting policies with respect to the reserves are as follows:
General liability, automobile, and workers' compensation reserves are accrued based on third party actuarial valuations of the expected future liabilities.
Health benefits are self-insured up to our pre-determined stop loss limits.  These reserves, including incurred but not reported claims, are based on internal computations.  These computations consider our historical claims experience, independent statistics, and trends.
The environmental reserve is based on known remediation activities at certain wood preservation facilities and the potential for undetected environmental matters at other sites. The reserve for known activities is based on expected future costs and is computed by in-house experts responsible for managing our monitoring and remediation activities.

In addition to providing coverage for the Company, our wholly-owned insurance company provides Excess Loss Insurance (primarily medical and prescription drug) to certain third parties.  As of December 31, 2016, there were 26 such contracts in place.  Reserves associated with these contracts were $2.5 million at December 31, 2016 and $2.0 million at December 26, 2015, 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.


16

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Tax laws are complex and subject to different interpretations by taxpayers and respective government taxing authorities, which results in judgment in determining our tax expense and in evaluating our tax positions.  Our tax positions are reviewed quarterly and adjusted as new information becomes available.

REVENUE RECOGNITION

Revenue for product sales is recognized at the time the product is shipped to the customer. Generally, title passes at the time of shipment.  In certain circumstances, the customer takes title when the shipment arrives at the destination.  However, our shipping process is typically completed the same day.

Performance on construction contracts is reflected in operations using percentage-of-completion accounting, under either the cost to cost or units of delivery methods, depending on the nature of the business at individual operations.  Under percentage-of-completion using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs.  Under percentage-of-completion using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units per the contract.  Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions 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.

FORWARD OUTLOOK

GOALS

The Company’s goal is to achieve sales growth that exceeds positive GDP growth by 4 percent to 6 percent.

Our general long-term objectives also include:
Achieving sales growth primarily through new product introduction, international business expansion, and gaining additional market share, particularly in our retail, industrial and commercial construction markets;
Increasing our profitability through cost reductions, productivity improvements as volume improves, and a more favorable mix of value-added products; and
Earning a return on invested capital in excess of our weighted average cost of capital.

RETAIL MARKET
 
The Home Improvement Research Institute (“HIRI”) anticipates growth in home improvement spending and has forecasted a 3.9% compounded annual growth rate through 2020.

We continue to compete for market share for certain retail customers and face intense pricing pressure from other suppliers to this market. 

Our long-term goal is to achieve sales growth by:
Increasing our market share of value-added and preservative-treated products, particularly with independent retail customers.
Developing new, value-added products, such as our Eovations product line.
Adding new products and customers through strategic business acquisitions or alliances.
Increasing our emphasis on product innovation and product differentiation in order to counter commoditization trends and influences.


17

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


INDUSTRIAL MARKET

Our goal is to increase our sales of wood and alternative packaging products to a wide variety of industrial and OEM users.  We believe the vast amount of hardwood and softwood lumber consumed for industrial applications, combined with the highly fragmented nature of this market, provides us with growth opportunities as a result of our competitive advantages in manufacturing, purchasing, and material utilization.  We plan to continue to obtain market share by expanding our manufacturing capabilities and product offerings and increasing the size of our dedicated industrial design and sales personnel. We also plan to pursue strategic acquisition opportunities.

On September 16, 2016, we acquired idX. See Footnote C "Business Combinations" in the Notes to Consolidated Financial Statements. We plan to pursue opportunities to grow this business in the future including strategic acquisition opportunities.

CONSTRUCTION MARKET

The National Association of Home Builders forecasts an 8% decrease in manufactured home shipments in 2017 followed by a 13% increase in 2018. We will strive to maintain our market share of trusses produced for this market.

The Mortgage Bankers Association of America forecasts an 8% increase in national housing starts to an estimated 1.3 million starts in 2017.  The National Association of Home Builders forecasts starts of 1.2 million, a 7% increase from 2016.  We believe we are well-positioned to capture our share of any increase that may occur in housing starts in the regions we operate.  However, due to our conservative approach to adding capacity to serve this market and focus on managing potential channel conflicts with certain customers, our growth may trail the market in future years.

GROSS PROFIT

We believe the following factors may impact our gross profits and margins in 2017:
End market demand.
Our ability to maintain market share and gross margins on products sold to our largest customers.  We believe our level of service, geographic diversity, and quality of products provides an added value to our customers.  However, if our customers are unwilling to pay for these advantages, our sales and gross margins may be reduced.  Excess capacity exists for suppliers in certain of our markets.  As a result, we may experience pricing pressure in the future.
Sales mix of value-added and commodity products.
Fluctuations in the relative level of the Lumber Market and the trend in the market place of lumber.  (See "Impact of the Lumber Market on our Operating Results.")
Fuel and transportation costs.
Rising labor and benefit costs.
Our ability to continue to achieve productivity improvements as our unit sales increase and planned cost reductions through our continuous improvement and other initiatives.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

In recent years, selling, general and administrative (SG&A) expenses have increased as we have added personnel needed to take advantage of growth opportunities and execute our initiatives designed to increase our sales of new products and improve our sales mix of value-added products.  We anticipate our trend of increases in these costs will continue in 2017, but it is an objective to reduce these costs as a percentage of sales (assuming lumber prices remain stable) as we grow as a result of fixed costs and through the improved productivity of our people.  In addition, bonus and other incentive expenses for all salaried and sales employees is based on 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, as industry conditions continue to improve, the residential construction market.  Our sales to these markets require a higher ratio of SG&A costs due, in part, to product design and engineering requirements.

18

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Sales of new products which generally require higher development, marketing, advertising, and other selling costs.
Our incentive compensation programs which are tied to gross profits, pre-bonus earnings from operations, and return on investment.
Our growth and success in achieving continuous improvement objectives designed to improve our productivity and leveraging our fixed costs.

LIQUIDITY AND CAPITAL RESOURCES

Our cash cycle will continue to be impacted in the future by our mix of sales by market.  Sales to the residential and commercial construction and industrial markets require a greater investment in working capital (inventory and accounts receivable) than our sales to the retail and manufactured housing markets.  Additionally, our investment in trade receivables and inventory will continue to be impacted by the level of lumber prices.

In 2017, management expects to spend approximately $65 million on capital expenditures, incur depreciation of approximately $42 million, and incur amortization and other non-cash expenses of approximately $10 million.  On December 31, 2016, we had outstanding purchase commitments on capital projects of approximately $10.1 million.  We intend to fund capital expenditures and purchase commitments through our operating cash flows and availability under our revolving credit facility which is considered sufficient to meet these commitments and working capital needs.

We have no present plan to change our dividend policy, which was recently increased to a semi-annual rate of $0.45 per share.  Our dividend rates are reviewed and approved at our April and October board meetings and payments are made in June and December of each year.

We have a share repurchase program approved by our Board of Directors, and as of December 31, 2016, we have authorization to buy back approximately 2.9 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.

19


Management’s Annual Report on Internal Control Over Financial Reporting

The management of Universal Forest Products, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control system was designed to provide reasonable assurance to us and the Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2016, 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 31, 2016, our internal control over financial reporting was effective.

Management excluded the assessment of our effectiveness of internal control over financial reporting for idX Holdings, Inc. ("idX"), which was acquired on September 16, 2016. We have made the election to complete the evaluation of internal controls over financial reporting in 2017 for idX. idX constitutes 14% of total assets, 3% of net sales, and less than 1% of earnings from operations of Universal Forest Products, Inc.'s consolidated financial statements as of December 31, 2016.

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.

March 1, 2017


20


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Universal Forest Products, Inc.
Grand Rapids, Michigan

We have audited the internal control over financial reporting of Universal Forest Products, Inc. and subsidiaries (the "Company") as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Controls Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at idX Holdings, Inc., which was acquired on September 16, 2016 and whose financial statements constitute 14% of total assets, 3% of net sales, and less than 1% of earnings from operations of the consolidated financial statement amounts as of and for the year ended December 31, 2016. Accordingly, our audit did not include the internal control over financial reporting of idX Holdings, Inc. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2016 of the Company and our report dated March 1, 2017 expressed an unqualified opinion on those consolidated financial statements.


/s/ Deloitte & Touche LLP

Grand Rapids, Michigan
March 1, 2017

21


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Universal Forest Products, Inc.
Grand Rapids, Michigan

We have audited the accompanying consolidated balance sheets of Universal Forest Products, Inc. and subsidiaries (the "Company") as of December 31, 2016 and December 26, 2015, and 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 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Universal Forest Products, Inc. and subsidiaries as of December 31, 2016 and December 26, 2015, and the results of their operations and their cash flows for each of the three years then in the period ended December 31, 2016, 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), the Company's internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.


/s/ Deloitte & Touche LLP

Grand Rapids, Michigan
March 1, 2017




22


UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)
 
December 31,
2016
 
December 26,
2015
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
34,091

 
$
87,756

Investments
10,348

 
6,743

Restricted cash
398

 
586

Accounts receivable, net
282,253

 
222,964

Inventories:
 

 
 

Raw materials
198,954

 
168,548

Finished goods
198,273

 
136,370

Total inventories
397,227

 
304,918

Refundable  income taxes
11,459

 
7,784

Other current assets
20,662

 
17,481

TOTAL CURRENT ASSETS
756,438

 
648,232

DEFERRED INCOME TAXES
1,546

 
1,312

OTHER ASSETS
8,617

 
8,298

GOODWILL
198,535

 
180,990

INDEFINITE-LIVED INTANGIBLE ASSETS
2,340

 
2,340

OTHER INTANGIBLE ASSETS, NET
26,731

 
15,357

PROPERTY, PLANT AND EQUIPMENT:
 

 
 

Land and improvements
124,316

 
118,701

Building and improvements
204,586

 
180,066

Machinery and equipment
332,397

 
303,081

Furniture and fixtures
22,570

 
21,682

Construction in progress
15,593

 
4,515

PROPERTY, PLANT AND EQUIPMENT, GROSS
699,462

 
628,045

Less accumulated depreciation and amortization
(401,611
)
 
(376,895
)
PROPERTY, PLANT AND EQUIPMENT, NET
297,851

 
251,150

TOTAL ASSETS
$
1,292,058

 
$
1,107,679

 
See notes to consolidated financial statements.


23


UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)
 
December 31,
2016
 
December 26,
2015
LIABILITIES AND SHAREHOLDERS' EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Cash overdraft
$
19,761

 
$

Accounts payable
124,660

 
95,041

Accrued liabilities:
 

 
 

Compensation and benefits
92,441

 
78,877

Other
32,281

 
29,112

Current portion of long-term debt
2,634

 
1,145

TOTAL CURRENT LIABILITIES
271,777

 
204,175

LONG-TERM DEBT
109,059

 
84,750

DEFERRED INCOME TAXES
20,817

 
23,838

OTHER LIABILITIES
29,939

 
28,507

TOTAL LIABILITIES
431,592

 
341,270

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 40,000,000; issued and outstanding, 20,342,069 and 20,141,709
20,342

 
20,142

Additional paid-in capital
185,333

 
171,562

Retained earnings
649,135

 
565,636

Accumulated other comprehensive earnings
(5,630
)
 
(4,585
)
Total controlling interest shareholders' equity
849,180

 
752,755

Noncontrolling interest
11,286

 
13,654

TOTAL SHAREHOLDERS' EQUITY
860,466

 
766,409

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,292,058

 
$
1,107,679


See notes to consolidated financial statements.


24


UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(in thousands, except per share data)
 
Year Ended
 
December 31,
2016
 
December 26,
2015
 
December 27,
2014
NET SALES
$
3,240,493

 
$
2,887,071

 
$
2,660,329

COST OF GOODS SOLD
2,765,903

 
2,487,167

 
2,334,987

GROSS PROFIT
474,590

 
399,904

 
325,342

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
310,152

 
264,265

 
229,775

ANTI-DUMPING DUTY ASSESSMENTS

 

 
1,600

NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND IMPAIRMENT CHARGES

 
172

 
(3,400
)
EARNINGS FROM OPERATIONS
164,438

 
135,467

 
97,367

INTEREST EXPENSE
4,575

 
5,133

 
4,267

INTEREST INCOME
(541
)
 
(294
)
 
(2,235
)
EQUITY IN EARNINGS OF INVESTEE
(267
)
 
(374
)
 
(378
)
 
3,767

 
4,465

 
1,654

EARNINGS BEFORE INCOME TAXES
160,671

 
131,002

 
95,713

INCOME TAXES
55,174

 
45,870

 
34,149

NET EARNINGS
105,497

 
85,132

 
61,564

LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST
(4,318
)
 
(4,537
)
 
(4,013
)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST
$
101,179

 
$
80,595

 
$
57,551

 
 
 
 
 
 
EARNINGS PER SHARE - BASIC
$
4.97

 
$
3.99

 
$
2.87

EARNINGS PER SHARE - DILUTED
$
4.96

 
$
3.99

 
$
2.86

 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME:
 

 
 

 
 

OTHER COMPREHENSIVE LOSS
(2,703
)
 
(7,257
)
 
(3,116
)
COMPREHENSIVE INCOME
102,794

 
77,875

 
58,448

LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
(2,660
)
 
(3,213
)
 
(3,015
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST
$
100,134

 
$
74,662

 
$
55,433


See notes to consolidated financial statements.

25


UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands, except share and per share data)
 
Controlling Interest Shareholders' Equity
 
 
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehen-sive Earnings
 
Employees Stock Notes Receivable
 
Noncontrolling Interest
 
Total
Balance at December 28, 2013
$
19,948

 
$
156,129

 
$
461,812

 
$
3,466

 
$
(732
)
 
$
9,111

 
$
649,734

Net earnings
 

 
 

 
57,551

 
 

 
 

 
4,013

 
61,564

Foreign currency translation adjustment
 

 
 

 
 

 
(2,118
)
 
 

 
(998
)
 
(3,116
)
Noncontrolling interest associated with business acquisitions
 

 
 

 
 

 
 

 
 

 
3,650

 
3,650

Distributions to noncontrolling interest
 

 
 

 
 

 
 

 
 

 
(1,910
)
 
(1,910
)
Cash dividends - $0.210 & $0.400 per share - semiannually
 

 
 

 
(12,205
)
 
 

 
 

 
 

 
(12,205
)
Issuance of 15,639 shares under employee stock plans
16

 
525

 
 

 
 

 
 

 
 

 
541

Issuance of 77,970 shares under stock grant programs
78

 
1,125

 
13

 
 

 
 

 
 

 
1,216

Issuance of 49,337 shares under deferred compensation plans
49

 
(49
)
 
 

 
 

 
 

 
 

 

Repurchase of 105,012 shares
(105
)
 
 
 
(4,761
)
 
 
 
 
 
 
 
(4,866
)
Tax benefits from non-qualified stock options exercised
 

 
319

 
 

 
 

 
 

 
 

 
319

Expense associated with share-based compensation arrangements
 

 
1,919

 
 

 
 

 
 

 
 

 
1,919

Accrued expense under deferred compensation plans
 

 
2,515

 
 

 
 

 
 

 
 

 
2,515

Note receivable adjustment
(2
)
 
 
 
(76
)
 
 

 
78

 
 

 

Payments received on employee stock notes receivable
 

 
 

 
 

 
 

 
199

 
 

 
199

Balance at December 27, 2014
$
19,984

 
$
162,483

 
$
502,334

 
$
1,348

 
$
(455
)
 
$
13,866

 
$
699,560

 
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
 
 
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehen-sive Earnings
 
Employees Stock Notes Receivable
 
Noncontrolling Interest
 
Total
Net earnings
 

 
 

 
80,595

 
 

 
 

 
4,537

 
85,132

Foreign currency translation adjustment
 

 
 

 
 

 
(5,892
)
 
 

 
(1,324
)
 
(7,216
)
Unrealized gain (loss) on investment
 
 
 
 
 
 
(41
)
 
 
 
 
 
(41
)
Noncontrolling interest associated with business acquisitions
 

 
 

 
 

 
 

 
 

 
1,019

 
1,019

Distributions to noncontrolling interest
 

 
 

 
 

 
 

 
 

 
(3,188
)
 
(3,188
)
Purchase of noncontrolling interest
 
 
 
 
 
 
 
 
 
 
(1,256
)
 
(1,256
)
Cash dividends - $0.400 & $0.420 per share - semiannually
 

 
 

 
(16,507
)
 
 

 
 

 
 

 
(16,507
)
Issuance of 30,213 shares under employee stock plans
31

 
1,044

 
 

 
 

 
 

 
 

 
1,075

Issuance of 75,604 shares under stock grant programs
76

 
1,836

 
 
 
 

 
 

 
 

 
1,912

Issuance of 65,054 shares under deferred compensation plans
65

 
(65
)
 
 

 
 

 
 

 
 

 

Repurchase of 13,613 shares
(14
)
 
 

 
(786
)
 
 

 
304

 
 

 
(496
)
Tax benefits from non-qualified stock options exercised
 

 
370

 
 

 
 

 
 

 
 

 
370

Expense associated with share-based compensation arrangements
 

 
1,846

 
 

 
 

 
 

 
 

 
1,846

Accrued expense under deferred compensation plans
 

 
4,048

 
 

 
 

 
 

 
 

 
4,048

Payments received on employee stock notes receivable
 

 
 

 
 

 
 

 
151

 
 

 
151

Balance at December 26, 2015
$
20,142

 
$
171,562

 
$
565,636

 
$
(4,585
)
 
$

 
$
13,654

 
$
766,409

 
See notes to consolidated financial statements

27


UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands, except share and per share data)
 
Controlling Interest Shareholders' Equity
 
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Earnings
 
Noncontrolling Interest
 
Total
Net earnings
 

 
 

 
101,179

 
 

 
4,318

 
105,497

Foreign currency translation adjustment
 

 
 

 
 

 
(1,316
)
 
(1,658
)
 
(2,974
)
Unrealized gain (loss) on investment
 
 
 
 
 
 
271

 
 
 
271

Distributions to noncontrolling interest
 

 
 

 
 

 
 

 
(3,280
)
 
(3,280
)
Net purchase and dissolution of noncontrolling interest
 
 
856

 
 
 
 
 
(1,748
)
 
(892
)
Cash dividends - $0.420 & $0.450 per share - semiannually
 

 
 

 
(17,680
)
 
 

 
 

 
(17,680
)
Issuance of 6,813 shares under employee stock plans
7

 
529

 
 

 
 

 
 

 
536

Issuance of 135,757 shares under stock grant programs
135

 
5,162

 
 
 
 

 
 

 
5,297

Issuance of 57,790 shares under deferred compensation plans
58

 
(58
)
 
 

 
 

 
 

 

Expense associated with share-based compensation arrangements
 

 
2,208

 
 

 
 

 
 

 
2,208

Accrued expense under deferred compensation plans
 

 
5,074

 
 

 
 

 
 

 
5,074

Balance at December 31, 2016
$
20,342

 
$
185,333

 
$
649,135

 
$
(5,630
)
 
$
11,286

 
$
860,466


See notes to consolidated financial statements


28


UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
 
Year Ended
 
December 31,
2016
 
December 26,
2015
 
December 27,
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
Net earnings
$
105,497

 
$
85,132

 
$
61,564

Adjustments to reconcile net earnings attributable to controlling interest to net cash from operating activities:
 

 
 

 
 

Depreciation
40,823

 
37,710

 
33,913

Amortization of intangibles
2,795

 
3,531

 
2,410

Expense associated with share-based compensation arrangements
2,208

 
1,846

 
1,919

Excess tax benefits from share-based compensation arrangements

 
(33
)
 
(14
)
Expense associated with stock grant plans
127

 
109

 
94

Deferred income taxes
2,464

 
(1,369
)
 
4,926

Equity in earnings of investee
(267
)
 
(374
)
 
(378
)
Net loss (gain) on disposition and impairment of assets

 
172

 
(3,400
)
Changes in:
 

 
 

 
 

Accounts receivable
(5,119
)
 
(26,007
)
 
(9,710
)
Inventories
(3,245
)
 
34,139

 
(49,575
)
Accounts payable and cash overdraft
11,259

 
4,798

 
15,390

Accrued liabilities and other
15,978

 
29,142

 
15,981

NET CASH FROM OPERATING ACTIVITIES
172,520

 
168,796

 
73,120

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 

Purchases of property, plant and equipment
(53,762
)
 
(43,522
)
 
(45,305
)
Proceeds from sale of property, plant and equipment
3,126

 
2,843

 
9,005

Acquisitions, net of cash received
(80,077
)
 
(2,505
)
 
(34,641
)
Repayment of debt of acquiree
(92,830
)
 

 

Purchase and dissolution of remaining noncontrolling interest in subsidiary
(892
)
 
(1,256
)
 

Advances on notes receivable
(6,012
)
 
(6,994
)
 
(6,201
)
Collections on notes receivable
7,899

 
11,446

 
9,926

Purchases of investments
(5,666
)
 
(7,858
)
 

Proceeds from sale of investments
2,568

 
1,115

 

Cash restricted as to use
188

 
(181
)
 
315

Other
(2,011
)
 
95

 
(162
)
NET CASH FROM INVESTING ACTIVITIES
(227,469
)
 
(46,817
)
 
(67,063
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 

Borrowings under revolving credit facilities
131,002

 
297,711

 
211,770

Repayments under revolving credit facilities
(107,294
)
 
(311,271
)
 
(197,825
)
Proceeds from issuance of common stock
536

 
1,074

 
541

Distributions to noncontrolling interest
(3,280
)
 
(3,188
)
 
(1,910
)
Dividends paid to shareholders
(17,680
)
 
(16,507
)
 
(12,205
)
Repurchase of common stock

 
(800
)
 
(4,866
)
Other
(73
)
 
(21
)
 
(710
)
NET CASH FROM FINANCING ACTIVITIES
3,211

 
(33,002
)
 
(5,205
)
Effect of exchange rate changes on cash
(1,927
)
 
(1,221
)
 
(852
)

29


NET CHANGE IN CASH AND CASH EQUIVALENTS
(53,665
)
 
87,756

 

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
87,756

 
0

 

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
34,091

 
$
87,756

 
$
0

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: