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	3-24
Management’s Annual Report on Internal Control Over Financial Reporting	25
Report of Independent Registered Public Accounting Firm	26
Report of Independent Registered Public Accounting Firm	27
Consolidated Balance Sheets as of December 29, 2018 and December 30, 2017	28
Consolidated Statements of Earnings and Comprehensive Income for the Years Ended December 29, 2018, December 30, 2017, and December 31, 2016	29
Consolidated Statements of Shareholders’ Equity for the Years Ended December 29, 2018, December 30, 2017, and December 31, 2016	30
Consolidated Statements of Cash Flows for the Years Ended December 29, 2018, December 30, 2017, and December 31, 2016	31
Notes to Consolidated Financial Statements	32-54
Market Information for our Common Stock	55
Stock Performance Graph	56
Directors and Executive Officers	57
Shareholder Information	58

SELECTED FINANCIAL DATA

(In thousands, except per share and statistics data)

	2018			2017				2016			2015			2014
Consolidated Statement of Earnings Data
Net sales	$	4,489,180		$	3,941,182		$	3,240,493		$	2,887,071		$	2,660,329
Gross profit		592,894			542,826			474,590			399,904			325,342
Earnings before income taxes(6)		197,853			176,007			160,671			131,002			95,713
Net earnings attributable to controlling interest	$	148,598		$	119,512		$	101,179		$	80,595			57,551
Diluted earnings per share	$	2.40		$	1.94		$	1.65		$	1.33		$	0.95
Dividends per share	$	0.360		$	0.320		$	0.290		$	0.273		$	0.203
Consolidated Balance Sheet Data
Working capital(1)	$	685,108		$	560,241		$	484,661		$	444,057		$	397,546
Total assets		1,647,548			1,464,677			1,292,058			1,107,679			1,023,800
Total debt		202,278			146,003			111,693			85,895			98,645
Shareholders’ equity		1,088,684			974,023			860,466			766,409			699,560
Statistics
Gross profit as a percentage of net sales		13.2	%		13.8	%		14.6	%		13.9	%		12.2	%
Net earnings attributable to controlling interest as a percentage of net sales		3.3	%		3.0	%		3.1	%		2.8	%		2.2	%
Return on beginning equity(2)		15.3	%		13.9	%		13.2	%		11.5	%		8.8	%
Current ratio(4)		3.21			2.85			2.78			3.17			3.27
Debt to equity ratio(5)		0.19			0.15			0.13			0.11			0.14
Book value per common share(3)	$	17.88		$	15.92		$	14.10		$	12.68		$	11.67

(1)Current assets less current liabilities.

(2)Net earnings attributable to controlling interest divided by beginning shareholders’ equity.

(3)Shareholders’ equity divided by common stock outstanding.

(4)Current assets divided by current liabilities.

(5)Total debt divided by shareholders’ equity.

(6)  2018 includes an approximately $7 million gain on the sale of one of our facilities.

Acquisition growth is one of the primary contributing factors to material increases over the period from 2014 to 2018.  Refer to Note C under the “Notes to the Consolidated Financial Statements” for further discussion on the Company’s business combinations and impact on financials.

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Universal Forest Products, Inc. is a holding company with subsidiaries throughout North America, Europe, Asia, and in Australia that supply wood, wood composite and other products to three robust markets: retail, industrial, and construction. The Company is headquartered in Grand Rapids, Mich. For more information about Universal Forest Products, Inc., or its affiliated operations, go to www.ufpi.com.

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the markets we serve, the economy and the Company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. The Company does not undertake to update forward-looking statements to reflect facts, circumstances, events, or assumptions that occur after the date the forward-looking statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: fluctuations in the price of lumber; adverse or unusual weather conditions; adverse economic conditions in the markets we serve; government regulations, particularly involving environmental and safety regulations; and our ability to make successful business acquisitions. Certain of these risk factors as well as other risk factors and additional information are included in the Company’s reports on Form 10‑K and 10‑Q on file with the Securities and Exchange Commission. We are pleased to present this overview of 2018.

OVERVIEW

Our results for 2018 were impacted by the following:

· Our sales increased almost 14% in 2018 due to a 7% increase in our unit sales and a 7% increase in overall selling prices (see “Historical Lumber Prices”). Our unit sales increased in all three of our markets - retail, industrial, and construction - and were driven by a combination of acquisition and organic growth. Overall, businesses we acquired contributed 3% to our unit sales growth in 2018 (see Note C of the Notes to Consolidated Financial Statements) and we achieved 4% organic unit sales growth. 

· The Home Improvement Research Institute reported a 5% increase in home improvement sales in 2018. Comparatively, our unit sales to the retail market increased 4% in 2018, including approximately 2% contributed from acquired businesses.

· Our unit sales to the industrial market increased 10% in 2018. Businesses we acquired contributed 5% to unit sales growth. Comparatively, the Federal Reserve’s Industrial Production noted that national industrial production increased almost 4% in 2018.

· National housing starts increased approximately 4% in the period from December 2017 through November 2018, compared to the same period of the prior year (our sales trail housing starts by about a month). Comparatively, our unit sales to residential construction customers increased 7% in 2018.

· Production of HUD code manufactured homes were up 5% in the period from January through November 2018, compared to the same period of the prior year. Comparatively, our unit sales to the manufactured housing market increased 4% in 2018.

· Our earnings from operations increased 14.2% to $207.3 million in 2018 from $181.5 million in 2017, which includes a pre-tax gain of approximately $6.7 million as a result of the sale of certain assets including our Medley,

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FL, plant for $36.0 million in proceeds.  Acquired businesses contributed approximately $1.1 million to earnings from operations for the year.  The remaining $18.0 million, or 9.9%, increase was primarily driven by our strong organic unit sales growth and favorable improvements in sales mix, among other factors.

· Net earnings attributable to controlling interest increased 24% to $148.6 million due to the factors above along with the reduction in our U.S Federal income tax rate in 2018.  Our overall effective rate decreased from 29.5% in 2017 to 23.0% in 2018.

· Our cash flow from operating activities decreased by  $20 million due to an increase in our investment in working capital (See “Liquidity and Capital Resources”) and opportunistic purchases of inventory in the second half of 2018.

· We re-invested $95.9 million in capital expenditures to support and grow our business organically and invested $54.0 million in acquired businesses.

· We returned $22.1 million to shareholders through dividends and bought back $24.6 million of our common stock at an average price of $28.62 per share.

· Finally, our net debt (debt plus cash overdraft less surplus cash) increased to $202.3 million, representing a ratio of 0.76x earnings before interest, taxes, depreciation and amortization, which we believe along with other factors, indicates a strong credit profile.

HISTORICAL LUMBER PRICES

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

	Random Lengths Composite
	Average $/MBF
	2018			2017			2016
January	$	449		$	356		$	316
February		496			393			310
March		505			401			321
April		496			424			345
May		554			416			356
June		572			399			353
July		525			411			351
August		449			417			367
September		443			416			354
October		375			437			356
November		339			436			346
December		338			433			357
Annual average	$	462		$	412		$	344
Annual percentage change		12.1	%		19.8	%

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Our purchases of this species comprise approximately 58% of total lumber purchases, excluding plywood, for 2018 and 2017.

	Southern Yellow Pine
	Average $/MBF
	2018			2017			2016
January	$	418		$	397		$	358
February		459			420			357
March		480			433			366
April		483			438			389
May		535			416			397
June		562			399			382
July		512			381			380
August		449			383			391
September		440			387			375
October		410			417			385
November		378			412			387
December		377			418			400
Annual average	$	459		$	408		$	381
Annual percentage change		12.5	%		7.1	%

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

We experience significant fluctuations in the cost of commodity lumber products from primary producers ("Lumber Market"). We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution, engineering, and other services we provide. As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products. Lumber costs were 50.6%, 49.1%, and 48.4% of our gross sales in 2018, 2017, and 2016, respectively.

Our gross margins are impacted by (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.

Below is a general description of the primary ways in which our products are priced.

· Products with fixed selling prices. These products include value-added products such as decking and fencing sold to retail building materials customers, as well as trusses, wall panels and other components sold to the residential construction market, and most industrial packaging products. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time or are based upon a specific quantity. In order to maintain margins and reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs with our suppliers for these sales commitments. Also, the time period and quantity limitations generally allow us to eventually re-price our products for changes in lumber costs from our suppliers.

· Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and profits. These products primarily include treated lumber, remanufactured lumber, and

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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trusses sold to the manufactured housing industry. For these products, we estimate the customers’ needs and we carry anticipated levels of inventory. Because lumber costs are incurred in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our profitability.  In other words, for these products, our margins are exposed to changes in the trend of lumber prices.  We believe our sales of these products are at their highest relative level in our second quarter, primarily due to treated lumber sold to the retail market.

The greatest risk associated with changes in the trend of lumber prices is on the following products:

· Products with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprises approximately 18% of our total sales. This exposure is less significant with remanufactured lumber, trusses sold to the manufactured housing market, and other similar products, due to our higher rate of inventory turnover of these products. We attempt to mitigate the risk associated with treated lumber through vendor consignment inventory programs. (Please refer to the “Risk Factors” section of our annual report on form 10‑K, filed with the United States Securities and Exchange Commission.)

· Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices by locking in costs or including re-pricing triggers if lumber prices change in excess of an agreed upon percentage.

In addition to the impact of the Lumber Market trends on gross margins, changes in the level of the market cause fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period.

	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 and operating margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low. As a result of this factor, we believe it is useful to compare our change in units shipped with our change in gross profits, operating profits, and selling, general, and administrative expenses as a method of evaluating our profitability and efficiency.

BUSINESS COMBINATIONS AND ASSET PURCHASES

We completed seven business acquisitions during 2018 and four during 2017. The annual historical sales attributable to acquisitions in 2018 and 2017 were approximately $140 million and $127 million, respectively. These business combinations were not significant to our operating results individually or in aggregate, and thus pro forma results for 2018 and 2017 are not presented.

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

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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.

	Year Ended
	December 29,		December 30,		December 31,
	2018		2017		2016
Net sales	100.0	%	100.0	%	100.0	%
Cost of goods sold	86.8		86.2		85.4
Gross profit	13.2		13.8		14.6
Selling, general, and administrative expenses	8.8		9.1		9.6
Net gain on disposition  and impairment of assets	(0.1)		—		—
Earnings from operations	4.6		4.6		5.1
Other expense (income), net	0.2		0.1		0.1
Earnings before income taxes	4.4		4.5		5.0
Income taxes	1.0		1.3		1.7
Net earnings	3.4		3.1		3.3
Less net earnings attributable to noncontrolling interest	(0.1)		(0.1)		(0.1)
Net earnings attributable to controlling interest	3.3	%	3.0	%	3.1	%

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

The following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a percentage of sales,  adjusted to restate 2017 and 2018 sales and cost of goods sold at lumber prices.  The restated sales amounts were calculated by applying unit sales growth from 2017 and 2018 to 2016 sales levels.  By eliminating the “pass-through” impact of higher or lower lumber prices on sales and cost of goods sold from year to year, we believe this provides an enhanced view of our change in profitability and costs as a percentage of sales.  The amount of the adjustment to 2017 and 2018 sales was also applied to cost of goods sold so that gross profit remains unchanged.

	Adjusted for Lumber Market Volatility
	Year Ended
	December 29,		December 30,		December 31,
	2018		2017		2016
Net sales	100.0	%	100.0	%	100.0	%
Cost of goods sold	85.1		85.4		85.4
Gross profit	14.9		14.6		14.6
Selling, general, and administrative expenses	9.9		9.7		9.6
Net gain on disposition  and impairment of assets	(0.2)		—		—
Earnings from operations	5.2		4.9		5.1
Other expense (income), net	0.2		0.1		0.1
Earnings before income taxes	5.0		4.7		5.0
Income taxes	1.1		1.4		1.7
Net earnings	3.8		3.3		3.3
Less net earnings attributable to noncontrolling interest	(0.1)		(0.1)		(0.1)
Net earnings attributable to controlling interest	3.7	%	3.2	%	3.1	%

The following table presents, for the periods included, our selling, general, and administrative (SG&A) costs as a percentage of gross profit.  Given our strategies to enhance our capabilities and improve our value-added product offering

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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and recognizing the higher relative level of SG&A costs these strategies require, we believe this ratio provides an enhanced view of our efficiency in managing these costs.

	SG&A as a Percentage of Gross Profit
	Year Ended
	December 29,	December 30,	December 31,
	2018	2017	2016
Gross profit	592,894	542,826	474,590
Selling, general, and administrative expenses	392,235	362,220	310,152
SG&A as percentage of gross profit	66.2%	66.7%	65.4%

GROSS SALES

We design, manufacture and market wood and wood-alternative products for national home centers and other retailers, structural lumber and other products for the manufactured housing industry, engineered wood components for residential and commercial construction, specialty wood packaging, components and packing materials for various industries, and customized interior fixtures used in a variety of retail stores, commercial and other structures. Our strategic long-term sales objectives include:

· Maximizing unit sales growth while achieving return on investment goals

· Diversifying our end market sales mix by increasing sales of specialty wood and other packaging to industrial users, increasing our penetration of the concrete forming market, increasing our sales of engineered wood components for custom home, multi-family, military and light commercial construction, increasing our market share with independent retailers, and increasing our sales of customized interior fixtures used in a variety of markets.

· Expanding geographically in our core businesses, domestically and internationally.

· Increasing sales of "value-added" products, which primarily consist of fencing, decking, lattice, and other specialty products sold to the retail  market, specialty wood packaging, engineered wood components, customized interior fixtures, and "wood alternative" products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist primarily of composite wood and plastics. Although we consider the treatment of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales.

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

	Value-Added			Commodity-Based
2018		62.5	%		37.5	%
2017		63.3	%		36.7	%
2016		62.6	%		37.4	%

· Developing new products and expanding our product offering. New product sales are presented by market in the table below (in thousands).

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	New Product Sales by Market
	Twelve Months Ended
	December 29,		%	December 30,		%	December 31,
Market Classification	2018		Change	2017		Change	2016
Retail	$	291,654	20.7	$	241,662	26.1	$	191,619
Industrial		141,791	25.3		113,120	15.8		97,718
Construction		79,735	17.4		67,929	37.8		49,290
Total New Product Sales		513,180	21.4		422,711	24.8		338,627

Note:  Certain prior year product reclassifications resulted in a decrease and increase in new product sales in 2017 and 2016,        respectively.

Our goal is for our new product sales to comprise at least 10% of our total sales.

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

	Year Ended
	December 29,		%	December 30,		%	December 31,
Market Classification	2018		Change	2017		Change	2016
Retail	$	1,662,895	11.4	$	1,492,552	15.4	$	1,293,797
Industrial		1,557,011	16.1		1,341,319	35.8		988,050
Construction		1,345,843	14.8		1,172,332	15.4		1,015,530
Total Gross Sales		4,565,749	14.0		4,006,203	21.5		3,297,377
Sales Allowances		(76,569)	17.8		(65,021)	14.3		(56,884)
Total Net Sales	$	4,489,180	13.9	$	3,941,182	21.6	$	3,240,493

Note: During 2018, certain customers were reclassified to a different market. Prior year information has been restated to reflect these changes.

The following table presents estimates, for the periods indicated, of our percentage change in gross sales which were attributable to changes in overall selling prices versus changes in units shipped.

	% Change
	in Sales		in Selling Prices		in Units
2018 versus 2017	14.0	%	7.0	%	7.0	%
2017 versus 2016	21.5	%	6.6	%	14.9	%
2016 versus 2015	12.4	%	1.2	%	11.2	%

Retail:

Gross sales to the retail market increased over 11% in 2018 compared to 2017 due to a 4% increase in unit sales and a 7% increase in selling prices. Within this market, sales to our big box customers increased 8% while our sales to other retailers increased 17%. Businesses we acquired contributed 2% to our growth, while new products contributed to our 2% organic unit sales growth. Comparatively, our large retail customers reported year over year store sales growth of approximately 6% during the first nine months of 2018, the latest information available to us.  In the third and fourth quarter of 2017, our sales increased due to hurricanes Irma and Harvey.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Gross sales to the retail market increased over 15% in 2017 compared to 2016 due to a 10% increase in unit sales and a 5% increase in selling prices. Within this market, sales to our big box customers increased 16% while our sales to other retailers increased 14%. Businesses we acquired contributed 7% to our growth, while new products contributed to our 3% organic unit sales growth. Comparatively, our large retail customers reported year over year same store sales growth of approximately 8% during the first nine months of 2017, the latest information available to us.

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

Industrial:

Gross sales to the industrial market increased 16% in 2018 compared to 2017, resulting from a 10% increase in overall unit sales and a 6% increase in selling prices. Businesses we acquired contributed 5% to our growth in unit sales. Our organic unit sales growth of 5% was primarily achieved through share gains including adding 200 new customers during the year and increasing the number of locations we serve of existing customers by 346.

Gross sales to the industrial market increased 36% in 2017 compared to 2016, resulting from a 30% increase in overall unit sales and a 6% increase in selling prices. Businesses we acquired contributed 25% to our growth in unit sales. Our organic unit sales growth of 5% was primarily achieved through share gains including adding 390 new customers during the year and increasing the number of locations we serve existing customers by 142.

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

Construction:

Gross sales to the construction market increased almost 15% in 2018 compared to 2017, due to a unit sales increase of 7% and an 8% increase in selling prices. Unit sales increased due to a 7% increase in units shipped to residential construction customers, a 4% increase in shipments to manufactured housing customers, and a 14% increase in unit sales to commercial construction customers. Businesses we acquired in 2018 contributed 4% to our commercial construction unit sales growth. Comparatively, the Mortgage Bankers Association of America reported year over year national housing starts increased 4%, the United States Census Bureau reported commercial construction market increased 6% and the National Association of Home Builders reportedindustry production of HUD-code homes increased almost 5%.

Gross sales to the construction market increased almost 16% in 2017 compared to 2016, due to a unit sales increase of 7% and a 9% increase in selling prices. Unit sales increased due to a 7% increase in units shipped to residential construction customers and a 9% increase in shipments to manufactured housing customers while unit sales to commercial construction customers remained flat. Businesses we acquired in 2017 contributed 1% to unit sales growth. Comparatively, the Mortgage Bankers Association of America reported year over year national housing starts increased 4%, the United States Census Bureau reported commercial construction market increased 3% and the National Association of Home Builders reportedindustry production of HUD-code homes increased over 15%.

COST OF GOODS SOLD AND GROSS PROFIT

Our gross profit percentage decreased from 13.8% in 2017 to 13.2% in 2018 due, in part, to the high level of lumber prices in 2018. This is evident when comparing our increase in gross profits with our increase in units shipped.  Our gross profit

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dollars increased by over $50 million, or 9.2%, which exceeds our 6.8% increase in unit sales. Our profitability in 2018 was impacted by the following factors:

· An $8 million, or 5%, increase in our gross profit on sales to the retail market, primarily driven by a 4% increase in unit sales.

· A $27 million, or 13%, increase in our gross profit on sales to the industrial market, primarily driven by a 10% increase in unit sales as well as favorable changes in product mix and a decline in lumber prices in the last six months of 2018.  Most products sold to this market have fixed selling prices for a period of time.

· A $24 million, or 15%, increase in gross profit  on sales to the construction market, primarily driven by unit growth and a decline in lumber prices in the last six months of 2018.  Acquired businesses contributed $1 million of this gross profit increase.

· The remaining $9 million decrease in our gross profit was due to a variety of factors including unfavorable labor and overhead cost variances in certain areas of our business and an increase in customer rebates compared to 2017.

Our gross profit percentage decreased from 14.6% in 2016 to 13.8% in 2017 due, in part, to the high level of lumber prices. This is evident when comparing our increase in gross profits with our increase in units shipped.  Our gross profit dollars increased by over $68 million, or 14%, which is slightly below our 15% increase in unit sales. Our profitability in 2017 was impacted by the following factors:

· An  $8 million, or 5%, increase in our gross profit on sales to the retail market,  was primarily driven by a 10% increase in unit sales to that market. Businesses we acquired in 2017 contributed $1.6 million of our gross profit increase.  Our increase in gross profit was less than our increase in unit sales as a result of adverse changes in lumber prices, particularly in the second quarter which is our primary selling season, and the acquisition of Robbins in the first quarter of 2017, which primarily sells lower margin treated lumber products.

· Our 30% growth in unit sales to the industrial market resulted in a $34 million, or 20%, increase in our gross profit, which was due primarily to businesses we acquired in 2017 and 2016. Our increase in gross profit was less than our increase in unit sales primarily due to the impact of higher lumber prices on our products sold with fixed selling prices during part of the year.

· Almost $13 million, or 9%, of our gross profit improvement was primarily due to 7% unit sales growth on sales to the construction market.  Our gross profit increase exceeded our increase in unit sales primarily due to leveraging our fixed manufacturing costs, which helped offset the impact of higher lumber prices on products sold with fixed selling prices during part of the year and higher labor rates and benefit costs.

· The remaining $13 million increase in our gross profit was due to a variety of factors including favorable labor and overhead cost variances in certain areas of our business, increases in vendor rebates, and a decrease in customer rebates compared to 2016.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased by approximately $30.0 million, or 8.3%, in 2018 compared to 2017, while we reported a 7% increase in unit sales. Acquired businesses contributed $8.3 million to our increase. The remaining increase in SG&A was primarily due to an $11.4 million increase in compensation and benefit costs resulting from annual raises, healthcare cost increases, and hiring additional personnel to support sales growth, and

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

a $6.1 million increase in sales and other incentive compensation.  Finally, our annual bonus expense increased by $4 million to almost $48 million in 2018 compared to last year.  Our annual bonus expense is tied to operating profits and return on investment.

Selling, general and administrative ("SG&A") expenses increased by approximately $52.1 million, or 16.7%, in 2017 compared to 2016, while we reported a 15% increase in unit sales. Acquired businesses contributed $41.0 million to our increase. The remaining increase in SG&A was primarily due to an $11.1 million increase in compensation and related costs resulting from annual raises, greater benefit costs, and hiring additional personnel to support sales growth.  Finally, our annual bonus expense was almost $44 million compared to $45 million in 2016.  This decrease, in spite of an increase in profits, was due to a decline in our return on investment, a key performance metric for determining the annual bonus amount.

INTEREST, NET

Net interest costs were higher in 2018 compared to 2017, due to a higher outstanding balance on our revolving line of credit throughout 2018, an increase in variable borrowing rates, and issuance of additional long-term Senior Notes under our shelf facility at an average rate of 4.23%.

Net interest costs were higher in 2017 compared to 2016, due to a higher outstanding balance on our revolving line of credit throughout 2017 as well as an increase in the borrowing rate on our revolving credit facility which is tied to LIBOR.

INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes, permanent tax differences, and the impact of the Tax Act in the U.S. Our effective tax rate decreased to 23.0% in 2018 compared to 29.5% in 2017.  The decrease in the 2018 effective tax rate was primarily due to the impact of the Tax Act, which reduced the statutory federal income tax rate from 35% to 21%.

Our effective tax rate decreased to 29.5% in 2017 compared to 34.3% in 2016.  The decrease in the 2017 tax rate was primarily due to the impact of the Tax Act, which resulted in a $6.4 million reduction in our net deferred tax liability at the end of December 2017.  The remaining decrease was due to increases in tax credits and permanent tax differences.

SEGMENT REPORTING

The following tables present, for the periods indicated, our net sales and earnings from operations by reportable segment (in thousands).

	Net Sales
	December 29,		December 30,		December 31,		% Change		% Change
	2018		2017		2016		2018 vs 2017		2017 vs 2016
North	$	1,279,459	$	1,133,656	$	1,000,426	12.9	%	13.3	%
South		1,024,747		837,370		711,862	22.4		17.6
West		1,599,274		1,417,924		1,251,093	12.8		13.3
All Other		585,700		552,232		277,112	6.1		99.3
Total	$	4,489,180	$	3,941,182	$	3,240,493	13.9	%	21.6	%

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	Earnings from Operations
	December 29,		December 30,		December 31,		% Change		% Change
	2018		2017		2016		2018 vs 2017		2017 vs 2016
North	$	66,239	$	61,326	$	59,408	8.0	%	3.2	%
South		60,049		46,646		47,146	28.7		(1.1)
West		103,357		82,465		76,875	25.3		7.3
All Other		6,779		17,296		16,639	(60.8)		3.9
Corporate1		(29,161)		(26,264)		(35,630)	(11.0)		26.3
Total	$	207,263	$	181,469	$	164,438	14.2	%	10.4	%

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

North

	Net Sales of North Segment by Market
	Twelve Months Ended
	December 29,		December 30,		December 31,		% Change		% Change
Market Classification	2018		2017		2016		2018 vs 2017		2017 vs 2016
Retail	$	541,798	$	489,269	$	465,601	10.7	%	5.1	%
Industrial		213,178		157,633		115,867	35.2		36.0
Construction		550,630		510,144		438,968	7.9		16.2
Total Gross Sales		1,305,606		1,157,046		1,020,436	12.8	%	13.4	%
Sales Allowances		(26,147)		(23,390)		(20,010)	(11.8)		(16.9)
Total Net Sales	$	1,279,459	$	1,133,656	$	1,000,426	12.9	%	13.3	%

Net sales attributable to the North reportable segment increased by $145.8 million, or 12.9%, in 2018, due primarily to the following factors:

· Acquired operations contributed almost $27 million and $6 million to our growth in sales to the industrial and construction markets, respectively.

· Higher lumber prices resulted in an increase in our selling prices.

· Organic unit sales growth primarily to the retail and industrial markets.

Earnings from operations for the North reportable segment increased in 2018 by $4.9 million, or 8.0%, due to an increase in gross profit of $7.9 million, offset by a $3.0 million increase in SG&A expenses compared to last year.  Acquired operations contributed $1.6 million to the North’s operating profits in 2018.  Gross profits and SG&A were impacted by the same factors discussed under “Cost of Goods Sold and Gross Profit” and “Selling, General, and Administrative Expenses.”

Net sales attributable to the North reportable segment increased by $133 million, or 13.3%, in 2017, due primarily to the following factors:

· Acquired operations contributed over $29 million to our growth in sales to the industrial market.

· Higher lumber prices resulted in an increase in our selling prices.

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

· Organic unit sales growth to the industrial and construction markets was offset slightly by a decrease in unit sales to the retail market due to a decline in demand from certain customers.

Earnings from operations for the North reportable segment increased in 2017 by $1.9 million, or 3.2%, due to an increase in gross profit of $9.2 million, offset by a $7.3 million increase in SG&A expenses compared to last year.  Acquired operations contributed $1.5 million to the North’s operating profits in 2017.  Gross profits and SG&A were impacted by the same factors discussed under “Cost of Goods Sold and Gross Profit” and “Selling, General, and Administrative Expenses.”

South

	Net Sales of South Segment by Market
	Twelve Months Ended
	December 29,		December 30,		December 31,		% Change		% Change
Market Classification	2018		2017		2016		2018 vs 2017		2017 vs 2016
Retail	$	441,050	$	388,273	$	317,003	13.6	%	22.5	%
Industrial		392,971		276,848		251,475	41.9		10.1
Construction		211,792		191,139		157,612	10.8		21.3
Total Gross Sales		1,045,813		856,260		726,090	22.1	%	17.9	%
Sales Allowances		(21,066)		(18,890)		(14,228)	(11.5)		(32.8)
Total Net Sales	$	1,024,747	$	837,370	$	711,862	22.4	%	17.6	%

Net sales attributable to the South reportable segment increased by $187 million, or 22.4%, in 2018, primarily due to the following factors:

· Acquired operations contributed $33 million and $40 million to our retail and industrial markets, respectively.

· Higher lumber prices increased our selling prices.

· Strong organic unit sales growth, particularly to the industrial market.

Earnings from operations for the South reportable segment increased in 2018 by $13.4 million, or 28.7%, which includes a $6.7 million gain from the sale of our Medley, Florida, plant and an increase in gross profit of $8.9 million, which was offset by a $2.2 million increase in SG&A expenses compared to last year.  Acquired operations had a $0.3 million operating loss in 2018. 

Net sales attributable to the South reportable segment increased by $125 million, or 17.6%, in 2017, primarily due to the following factors:

· Acquired operations contributed $88.4 million, $5.0 million, and $6.1 million to our retail, industrial, and construction markets, respectively.

· Higher lumber prices increased our selling prices.

· Organic unit sales growth to the construction and industrial markets was offset by a decline in unit sales to the retail market as a result of transferring our import and export business to our International segment and

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

management team.  Our International segment was formed, among other reasons, to gain efficiencies by consolidating our international business into one unit.

Earnings from operations for the South reportable segment decreased in 2017 by $0.5 million, or 1.1%, as the increase in gross profit of $3.9 million was more than offset by a $4.4 million increase in SG&A expenses compared to last year.  Acquired operations contributed $3.5 million to our operating profits in 2017.  Our decline in profitability was due to customer attrition in our East Central and Southeast regions.

West

	Net Sales of West Segment by Market
	Twelve Months Ended
	December 29,		December 30,		December 31,		% Change		% Change
Market Classification	2018		2017		2016		2018 vs 2017		2017 vs 2016
Retail	$	479,494	$	438,967	$	383,899	9.2	%	14.3	%
Industrial		559,277		525,946		464,686	6.3		13.2
Construction		582,761		470,346		418,946	23.9		12.3
Total Gross Sales		1,621,532		1,435,259		1,267,531	13.0	%	13.2	%
Sales Allowances		(22,258)		(17,335)		(16,438)	28.4		5.5
Total Net Sales	$	1,599,274	$	1,417,924	$	1,251,093	12.8	%	13.3	%

Net sales of the West reportable segment increased by $181 million, or 12.8%, in 2018, primarily due to the following factors:

· Higher lumber prices increased our selling prices.

· Organic unit sales growth to the retail and construction markets.

Earnings from operations for the West reportable segment increased in 2018 by $20.9 million, or 25.3%, due to an increase in gross profit of $26.3 million, offset by a $5.4 million increase in SG&A expenses compared to last year due to the same factors discussed under “Cost of Goods Sold and Gross Profit” and “Selling, General, and Administrative Expenses.”

Net sales of the West reportable segment increased by $167 million, or 13.3%, in 2017, primarily due to the following factors:

· Acquired operations contributed $4.9 million, $3.2 million, and $6.8 million to our retail, industrial, and construction markets, respectively.

· Higher lumber prices increased our selling prices.

· Organic unit sales growth in each of our markets due to the factors discussed under “Gross Sales”.

Earnings from operations for the West reportable segment increased in 2017 by $5.6 million, or 7.3%, due to an increase in gross profit of $12.1 million, offset by a $6.5 million increase in SG&A expenses compared to last year due to the same factors discussed under “Cost of Goods Sold and Gross Profit” and “Selling, General, and Administrative Expenses.”

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All Other

	Net Sales of All Other Segment by Market
	Twelve Months Ended
	December 29,		December 30,		December 31,		% Change	% Change
Market Classification	2018		2017		2016		2018 vs 2017	2017 vs 2016
Retail	$	200,554	$	176,043	$	127,294	13.9	38.3
Industrial		391,585		380,892		156,022	2.8	144.1
Construction		659		289		3	128.0	9,533.3
Total Gross Sales		592,798		557,224		283,319	6.4	96.7
Sales Allowances		(7,098)		(4,992)		(6,207)	42.2	(19.6)
Total Net Sales	$	585,700	$	552,232	$	277,112	6.1	99.3

Note that prior years have been restated to reflect the reclassification of captive insurance external revenue from the sales allowances line item into the industrial market.  We believe these amounts to be immaterial to the financial statements.

Our All Other reportable segment consists of our Alternative Materials, International, idX, and certain other segments which are not significant.

Net sales of all other segments increased $33.5 million, or 6.1%, in 2018 primarily due to:

· Acquired operations contributed $2 million to our sales growth to the industrial market. 

· Our increase in sales to the retail and industrial markets was primarily due to an increase in our import and export business within the international segment.

Earnings from operations for the All Other reportable segment decreased in 2018 by $10.5 million, or 60.8%, due to a decrease in gross profit of $5.2 million and a $5.3 million increase in SG&A expenses compared to last year.  The decrease in earnings from operations was primarily due to our idX operations, as a result of increased costs related to a facility relocation and unfavorable labor and overhead cost variances due in part to new business and related inefficiencies.

Net sales of all other segments increased $275.1 million, or 99.3%, in 2017 primarily due to:

· Acquired operations, including idX, contributed $196 million to our sales growth to the industrial market.  Additionally, the Mexico reporting unit of our international segment increased its sales to the industrial market.

· Our increase in sales to the retail market was due to the transfer of our import and export business into our international segment.

Earnings from operations for the All Other reportable segment increased in 2017 by $0.7 million, or 3.9%, due to an increase in gross profit of $46.5 million, offset by a $45.8 million increase in SG&A expenses compared to last year.  Acquired operations increased earnings from operations by $1.7 million in 2017.

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OFF-BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS

We have no significant off-balance sheet commitments other than operating leases. The following table summarizes our contractual obligations as of December 29, 2018 (in thousands).

	Payments Due by Period
	Less than		1 – 3		3 – 5		After
Contractual Obligation	1 Year		Years		Years		5 Years		Total
Long-term debt and capital lease obligations	$	81	$	2,780	$	81,161	$	118,256	$	202,278
Estimated interest on long-term debt and capital lease obligations		7,717		15,163		13,825		19,155		55,860
Operating leases		17,242		21,753		14,728		22,498		76,221
Capital project purchase obligations		14,316		—		—		—		14,316
Total	$	39,356	$	39,696	$	109,714	$	159,909	$	348,675

As of December 29, 2018, we also had $30.3 million in outstanding letters of credit issued during the normal course of business, as required by some vendor contracts.

LIQUIDITY AND CAPITAL RESOURCES

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

	December 29,		December 30,		December 31,
	2018		2017		2016
Cash from operating activities		116,685		136,583		172,520
Cash used in investing activities		(121,232)		(137,659)		(227,657)
Cash from (used in) financing activities		4,393		(5,247)		3,211
Effect of exchange rate changes on cash		(464)		650		(1,927)
Net change in cash and cash equivalents		(618)		(5,673)		(53,853)
Cash, cash equivalents, and restricted cash, beginning of year		28,816		34,489		88,342
Cash, cash equivalents, and restricted cash, end of year	$	28,198	$	28,816	$	34,489

In general, we financed our growth in the past through a combination of operating cash flows, our revolving credit facility, industrial development bonds (when circumstances permit), and issuance of long-term notes payable at times when interest rates are favorable. We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe these financial ratios are among many other important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed.

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

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management. As indicated in the table below, our cash cycle increased to 54 days in 2018 from 52 days in 2017.

	Twelve Months Ended
	December 29,		December 30,		December 31,
	2018		2017		2016
Days of sales outstanding		32		31		31
Days supply of inventory		43		41		38
Days payables outstanding		(21)		(20)		(21)
Days in cash cycle		54		52		48

The increase in our days’ supply of inventory from 2016 to 2017 was due to idX as its business requires a higher investment in inventory due to the long project lead time of its customers.  The increase in our days’ supply of inventory from 2017 to 2018 was primarily due to opportunistic lumber purchases in the second half of 2018.

Our cash flows from operating activities in 2018 was $116.7 million, which was comprised of net earnings of $152.4 million and $61.1 million of non-cash expenses, offset by a $96.8 million increase in working capital since the end of December 2017. Comparatively, cash generated from operating activities was approximately $136.6 million in 2017, which was comprised of net earnings of $124.0 million, $47.7 million of non-cash expenses, and an $35.1 million increase in working capital since the end of 2016.   The increase in working capital is primarily due to planned increases in inventory.

Our cash used in investing activities during 2018 was $121.2 million, which was comprised primarily of purchases of property, plant, and equipment totaling $95.9 million and business acquisitions totaling $54.0 million, offset by the sale of property, plant, and equipment totaling $38.4 million, including the sale of our Medley, FL, plant for $36 million.   The increase in our capital expenditures in 2018 is primarily due to the additional requirements of our recently acquired operations and an increase in our “expansionary and efficiency” capital expenditures tied to initiatives including new products, value-added product capacity expansion, automation, and the purchase of certain real estate related to geographical expansion.  Outstanding purchase commitments on existing capital projects totaled approximately $14.3 million on December 29, 2018.  The sale and purchase of investments totaling $3.7 million and $13.3 million, respectively, are due to investment activity in our captive insurance subsidiary.

In 2017, investments in business acquisitions and purchases of property, plant, and equipment were $60.6 million and $71.1 million, respectively.  Outstanding purchase commitments on existing capital projects totaled approximately $7.7 million on December 30, 2017.

Cash flows from financing activities primarily consisted of the issuance of $75 million in Senior Notes under our shelf facility (See Notes to Consolidated Financial Statements “Debt”), offset by net repayments under our revolving credit facility of approximately $16.1 million,  $22.1 million in dividend payments, and $24.6 million in repurchases of our common stock.  We paid semi-annual dividends in June and December at a rate of $0.18 per share.  Repurchases of our common stock were at an average price of $28.62 per share.  Comparatively in 2017, cash flows from financing activities primarily consisted of net borrowings under our revolving credit facility of approximately $35.6 million, offset by $19.6 million in dividend payments and almost $13 million of stock repurchases at an average price of $29.11 per share. 

On November 1, 2018, we entered into a five-year, $375 million unsecured revolving credit facility with a syndicate of U.S. and Canadian banks led by JPMorgan Chase Bank, N.A., as administrative agent and Wells Fargo Bank, N.A., as syndication agent.  The facilities include up to $40 million which may be advanced in the form of letters of credit, and up to $100 million (U.S. dollar equivalent) which may be advanced in Canadian dollars, Australian dollars, pounds Sterling,

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Euros and such other foreign currencies as may subsequently be agreed upon among the parties. This facility replaced our $295 million unsecured revolving credit facility.

On December 29, 2018, we had $42.5 million outstanding on our $375 million revolving credit facility. The revolving credit facility also supports letters of credit totaling approximately $9.8 million on December 29, 2018. As a result, we have approximately $323 million in remaining availability on our revolver. Additionally, we have $150 million in availability under a "shelf agreement" for long term debt with a current lender. Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were in compliance with all our covenant requirements on December 29, 2018.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

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

CRITICAL ACCOUNTING POLICIES

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

ACCOUNTS RECEIVABLE ALLOWANCES

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

LONG-LIVED ASSETS AND GOODWILL

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

As our annual testing date of October 1, 2018, based on the carryforward method and the analysis, the fair values would exceed the carrying values for each of the Company’s reporting units.

If the carrying value of a long-lived asset is considered impaired, a level two analysis will be conducted and an impairment charge is recorded to adjust the asset to its fair value. Changes in forecasted operations and changes in discount rates can materially affect these estimates. In addition, we test goodwill annually for impairment or more frequently if changes in

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

circumstances or the occurrence of other events suggest impairments exist. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows and market valuation multiples. Changes in these estimates may result in the recognition of an impairment loss.

INSURANCE RESERVES

We are primarily self-insured for certain employee health benefits, and have self-funded retentions for general liability, automobile liability, property and workers’ compensation. We are fully self-insured for environmental liabilities. The general liability, automobile liability, property, workers’ compensation, and certain environmental liabilities are managed through a wholly-owned insurance company, the related assets and liabilities of which are included in the consolidated financial statements as of December 29, 2018. Our accounting policies with respect to the reserves are as follows:

· General liability, automobile, and workers’ compensation reserves are accrued based on third party actuarial valuations of the expected future liabilities.

· Health benefits are self-insured up to our pre-determined stop loss limits. These reserves, including incurred but not reported claims, are based on internal computations. These computations consider our historical claims experience, independent statistics, and trends.

· The environmental reserve is based on known remediation activities at certain wood preservation facilities and the potential for undetected environmental matters at other sites. The reserve for known activities is based on expected future costs and is computed by in-house experts responsible for managing our monitoring and remediation activities.

In addition to providing coverage for the Company, our wholly-owned insurance company, Ardellis Insurance Ltd., provides Excess Loss Insurance (primarily medical and prescription drug) to certain third parties. As of December 29, 2018, there were 39 such contracts in place. Reserves associated with these contracts were $4.9 million at December 29, 2018 and $3.4 million at December 30, 2017, and are accrued based on third party actuarial valuations of the expected future liabilities.

On April 14, 2017 the U.S. Branch of Ardellis Insurance Ltd. was granted its Certificate of Authority to transact property and casualty insurance lines as an admitted carrier in the State of Michigan.

INCOME TAXES

Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred income tax assets to the amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities.

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

REVENUE RECOGNITION

Revenue for product sales is recognized at the time the performance obligation is satisfied, which is primarily when the goods are delivered to the carrier, Free On Board (FOB) shipping point.  Generally, title passes at the time of shipment. In

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day.

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

Our construction contracts are generally entered into with a fixed price and completion of the projects can range from 6 to 18 months in duration. Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs. During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist.

FORWARD OUTLOOK

GOALS

The Company’s goal is to achieve long-term sales growth that exceeds positive U.S. GDP growth by 4 percent to 6 percent.

Our general long-term objectives also include:

· Achieving sales growth primarily through new product introduction, international business expansion, and gaining additional market share, particularly in our core retail, industrial and commercial construction markets;

· Identifying new growth opportunities in businesses with adjacencies to our core businesses, primarily through strategic business acquisitions;

· Increasing our profitability through cost reductions, productivity improvements as volume improves, and a more favorable mix of value-added products; and

· Earning a return on invested capital in excess of our weighted average cost of capital.

RETAIL MARKET

The Home Improvement Research Institute (“HIRI”) anticipates growth in home improvement spending and has forecasted a 3.5% compounded annual growth rate through 2022.

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

Our long-term goal is to achieve sales growth by:

· Increasing our market share of value-added products, including our Deckorators product line.

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UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

· Developing new, value-added products, such as our Eovations product line.

· Adding new products and customers through strategic business acquisitions or alliances.

· Increasing our emphasis on product innovation and product differentiation in order to counter commoditization trends and influences.

INDUSTRIAL MARKET

Our goal is to increase our sales of wood, wood alternative, and other packaging products to a wide variety of industrial and OEM users. We believe the vast amount of hardwood and softwood lumber consumed for industrial applications, combined with the highly fragmented nature of this market, provides us with growth opportunities as a result of our competitive advantages in manufacturing, purchasing, and material utilization. In addition, purchasers of packaging products increasingly desire to reduce the number of suppliers they buy from, which provides an opportunity to gain market share due to our geographic footprint.  We plan to continue to obtain market share by expanding our manufacturing capacity capabilities and product offerings and increasing the size of our dedicated industrial design and sales personnel. We also plan to pursue strategic acquisition opportunities.

CONSTRUCTION MARKET

The National Association of Home Builders forecasts a 14% increase in manufactured home shipments in 2019 followed by an 8% increase in 2020. We currently supply approximately 40% of the trusses used in manufactured housing and we will strive to maintain our market share of trusses produced for this market.

The Mortgage Bankers Association of America forecasts a 2% increase in national housing starts to an estimated 1.3 million starts in 2019. The National Association of Home Builders forecasts starts of 1.3 million, a 1% increase from 2018. We believe we are well-positioned to capture our share of any increase that may occur in housing starts in the regions we operate. However, due to our conservative approach to adding capacity to serve this market and focus on managing potential channel conflicts with certain customers, our growth may trail the market in future years.

GROSS PROFIT

We believe the following factors may impact our gross profits and margins in the future:

· End market demand and our ability to grow and leverage fixed costs.

· Our ability to maintain market share and gross margins on products sold to our largest customers. We believe our level of service, geographic diversity, and quality of products provides an added value to our customers. However, if our customers are unwilling to pay for these advantages, our sales and gross margins may be reduced. Excess capacity exists for suppliers in certain of our markets. As a result, we may experience pricing pressure in the future.

· Sales mix of value-added and commodity products.

· Fluctuations in the relative level of the Lumber Market and the trend in the market place of lumber. (See "Impact of the Lumber Market on our Operating Results.")

· Fuel and transportation costs.

22

UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

· Rising labor and benefit costs.

· Our ability to continue to achieve productivity improvements as our unit sales increase and planned cost reductions through our continuous improvement, automation, and other initiatives.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

In recent years, selling, general and administrative (SG&A) expenses have increased as we have added personnel needed to take advantage of growth opportunities and execute our initiatives designed to increase our sales of new products and improve our sales mix of value-added products. We anticipate our trend of increases in these costs will continue in 2019; however, our objective is to reduce these costs on a per unit basis and as a percentage of gross profits as we grow as a result of fixed costs and through the improved productivity of our people. In addition, bonus and other incentive expenses for all salaried and sales employees is based on our profitability and the effective management of our assets and will continue to fluctuate based on our results.

On a long-term basis, we expect that our SG&A expenses will primarily be impacted by:

· Our growth in sales to the industrial market and the construction market. Our sales to these markets require a higher ratio of SG&A costs due, in part, to product design and engineering requirements.

· Sales of new products which generally require higher development, marketing, advertising, and other selling costs.

· Our incentive compensation programs which are tied to gross profits, pre-bonus earnings from operations and return on investment.

· Our growth and success in achieving continuous improvement objectives designed to improve our productivity and leveraging our fixed costs.

LIQUIDITY AND CAPITAL RESOURCES

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

Additionally, management expects to spend approximately $95 million on capital expenditures, incur depreciation of approximately $60 million, and incur amortization and other non-cash expenses of approximately $12 million in 2019.

On December 29, 2018, we had outstanding purchase commitments on capital projects of approximately $14 million. We intend to fund capital expenditures and purchase commitments through our operating cash flows and availability under our revolving credit facility which is considered sufficient to meet these commitments and working capital needs.

We have no present plan to change our dividend policy, which was recently increased by 6% to a semi-annual rate of $0.18 per share. Our dividend rates are reviewed and approved at our April and October board meetings and payments are made in June and December of each year.

We have a share repurchase program approved by our Board of Directors, and as of December 29, 2018, we have authorization to buy back approximately 1.9 million shares. In the past, we have repurchased shares in order to offset the

23

UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

effect of issuances resulting from our employee benefit plans and at opportune times when our stock price falls to predetermined levels.

24

Management’s Annual Report on Internal Control Over Financial Reporting

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

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

We assessed the effectiveness of our internal control over financial reporting as of December 29, 2018, based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)  (“COSO”). Based on that evaluation, management has concluded that as of December 29, 2018, our internal control over financial reporting was effective.

The effectiveness of the Company’s internal control over financial reporting has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which follows our report.

Universal Forest Products, Inc.

February 27, 2019

25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the shareholders and the Board of Directors of Universal Forest Products, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Universal Forest Products, Inc. and subsidiaries (the “Company”) as of December 29, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 29, 2018, of the Company and our report dated February 27, 2019, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Grand Rapids, Michigan   

February 27, 2019

26

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the shareholders and the Board of Directors of Universal Forest Products, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Universal Forest Products, Inc. and subsidiaries (the "Company") as of December 29, 2018 and December 30, 2017, the related consolidated statements of earnings and comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended December 29, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Grand Rapids, Michigan  

February 27, 2019

We have served as the Company's auditor since 2014.

27

UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)
	December 29,		December 30,
	2018		2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	27,316	$	28,339
Investments		14,755		11,269
Restricted cash		882		477
Accounts receivable, net		343,450		327,751
Inventories:
Raw materials		271,871		234,354
Finished goods		284,349		225,954
Total inventories		556,220		460,308
Refundable income taxes		14,130		7,228
Other current assets		38,525		28,115
TOTAL CURRENT ASSETS		995,278		863,487
DEFERRED INCOME TAXES		2,668		1,865
RESTRICTED INVESTMENTS		13,267		8,359
OTHER ASSETS		8,662		7,368
GOODWILL		224,117		212,644
INDEFINITE-LIVED INTANGIBLE ASSETS		7,360		7,415
OTHER INTANGIBLE ASSETS, NET		41,486		34,910
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements		120,324		134,916
Building and improvements		239,906		213,384
Machinery and equipment		419,115		372,628
Furniture and fixtures		16,960		25,251
Construction in progress		18,340		16,922
PROPERTY, PLANT AND EQUIPMENT,GROSS		814,645		763,101
Less accumulated depreciation and amortization		(459,935)		(434,472)
PROPERTY, PLANT AND EQUIPMENT, NET		354,710		328,629
TOTAL ASSETS	$	1,647,548	$	1,464,677
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Cash overdraft	$	27,367	$	25,851
Accounts payable		136,901		140,106
Accrued liabilities:
Compensation and benefits		104,109		97,556
Other		41,645		38,404
Current portion of long-term debt		148		1,329
TOTAL CURRENT LIABILITIES		310,170		303,246
LONG-TERM DEBT		202,130		144,674
DEFERRED INCOME TAXES		15,687		14,079
OTHER LIABILITIES		30,877		28,655
TOTAL LIABILITIES		558,864		490,654
SHAREHOLDERS’ EQUITY:
Controlling interest shareholders’ equity:
Preferred stock, no par value; shares authorized 1,000,000; issued and outstanding, none	$	—	$	—
Common stock, $1 par value; shares authorized 80,000,000; issued and outstanding,  60,883,749 and 61,191,888		60,884		61,192
Additional paid-in capital		178,540		161,928
Retained earnings		839,917		736,212
Accumulated other comprehensive income		(5,938)		144
Total controlling interest shareholders’ equity		1,073,403		959,476
Noncontrolling interest		15,281		14,547
TOTAL SHAREHOLDERS’ EQUITY		1,088,684		974,023
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,647,548	$	1,464,677

See notes to consolidated financial statements.

28

UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(in thousands, except per share data)
	Year Ended
	December 29,		December 30,		December 31,
	2018		2017		2016
NET SALES	$	4,489,180	$	3,941,182	$	3,240,493
COST OF GOODS SOLD		3,896,286		3,398,356		2,765,903
GROSS PROFIT		592,894		542,826		474,590
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		392,235		362,220		310,152
NET (GAIN) ON DISPOSITION OF ASSETS		(6,604)		(863)		—
EARNINGS FROM OPERATIONS		207,263		181,469		164,438
INTEREST EXPENSE		8,893		6,218		4,575
INTEREST INCOME		(1,371)		(731)		(541)
UNREALIZED LOSS (GAIN) ON INVESTMENTS AND OTHER		1,888		(25)		(267)
		9,410		5,462		3,767
EARNINGS BEFORE INCOME TAXES		197,853		176,007		160,671
INCOME TAXES		45,441		51,967		55,174
NET EARNINGS		152,412		124,040		105,497
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(3,814)		(4,528)		(4,318)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST	$	148,598	$	119,512	$	101,179
EARNINGS PER SHARE - BASIC	$	2.41	$	1.95	$	1.66
EARNINGS PER SHARE - DILUTED	$	2.40	$	1.94	$	1.65
OTHER COMPREHENSIVE INCOME:
NET EARNINGS		152,412		124,040		105,497
OTHER COMPREHENSIVE GAIN (LOSS)		(5,076)		6,130		(2,703)
COMPREHENSIVE INCOME		147,336		130,170		102,794
LESS COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST		(3,873)		(4,884)		(2,660)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	143,463	$	125,286	$	100,134

See notes to consolidated financial statements.

29

UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share and per share data)
	Controlling Interest Shareholders’ Equity
							Accumulated
			Additional				Other
	Common		Paid-In		Retained		Comprehensive		Noncontrolling
	Stock		Capital		Earnings		Earnings		Interest		Total
Balance at  December 26, 2015	$	60,425	$	131,279	$	565,636	$	(4,585)	$	13,654	$	766,409
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
Noncontrolling interest associated with business acquisitions										—		—
Distributions to noncontrolling interest										(3,280)		(3,280)
Net purchase and dissolution of noncontrolling interest				856						(1,748)		(892)
Cash dividends - $0.140 & $0.150 per share - semiannually						(17,680)						(17,680)
Issuance of 20,439 shares under employee stock plans		21		515								536
Issuance of 407,271 shares under stock grant programs		407		4,890								5,297
Issuance of 173,370 shares under deferred compensation plans		173		(173)								—
Repurchase of 13,613 shares		—				—						—
Tax benefits from non-qualified stock options exercised				—								—
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	$	61,026	$	144,649	$	649,135	$	(5,630)	$	11,286	$	860,466
Net earnings						119,512				4,528		124,040
Foreign currency translation adjustment								5,070		356		5,426
Unrealized gain (loss) on investment & foreign currency								704				704
Distributions to noncontrolling interest										(4,032)		(4,032)
Additional purchases of noncontrolling interest										2,409		2,409
Net purchase and dissolution of noncontrolling interest										—		—
Cash dividends - $0.150 & $0.170 per share - semiannually						(19,607)						(19,607)
Issuance of 23,691 shares under employee stock plans		24		637								661
Issuance of 428,622 shares under stock grant programs		429		5,769								6,198
Issuance of 159,108 shares under deferred compensation plans		159		(159)								—
Repurchase of 445,740 shares		(446)		297		(12,828)						(12,977)
Expense associated with share-based compensation arrangements				3,618								3,618
Accrued expense under deferred compensation plans				7,117								7,117
Balance at December 30, 2017	$	61,192	$	161,928	$	736,212	$	144	$	14,547	$	974,023
Net earnings						148,598				3,814		152,412
Foreign currency translation adjustment								(4,973)		59		(4,914)
Unrealized gain (loss) on investment & foreign currency						947		(1,109)				(162)
Distributions to noncontrolling interest										(3,139)		(3,139)
Cash dividends - $0.180 per share - semiannually						(22,072)						(22,072)
Issuance of 37,794 shares under employee stock purchase plans		38		988								1,026
Issuance of 348,208 shares under stock grant programs		348		4,827								5,175
Issuance of 166,528 shares under deferred compensation plans		167		(167)								—
Repurchase of 860,669 shares		(861)				(23,768)						(24,629)
Expense associated with share-based compensation arrangements				3,379								3,379
Accrued expense under deferred compensation plans				7,585								7,585
Balance at December 29, 2018	$	60,884	$	178,540	$	839,917	$	(5,938)	$	15,281	$	1,088,684

See notes to consolidated financial statements

30

UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)	Year Ended
	December 29,		December 30,		December 31,
	2018		2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	152,412	$	124,040	$	105,497
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation		54,949		48,536		40,823
Amortization of intangibles		6,393		4,860		2,795
Expense associated with share-based and grant compensation arrangements		3,574		3,805		2,335
Deferred income taxes (credits)		857		(8,629)		2,464
Unrealized loss (gain) on investments and other		1,888		(25)		(267)
Net (gain) on disposition of assets		(6,604)		(863)		—
Changes in:
Accounts receivable		(8,512)		(30,787)		(5,119)
Inventories		(84,304)		(49,262)		(3,245)
Accounts payable and cash overdraft		(5,213)		21,159		11,259
Accrued liabilities and other		1,245		23,749		15,978
NET CASH FROM OPERATING ACTIVITIES		116,685		136,583		172,520
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(95,862)		(71,116)		(53,762)
Proceeds from sale of property, plant and equipment		38,373		2,919		3,126
Acquisitions, net of cash received		(54,017)		(60,587)		(80,077)
Repayments of debt of acquiree		—		—		(92,830)
Purchase and dissolution of remaining noncontrolling interest in subsidiary		—		—		(892)
Advances of notes receivable		(434)		(234)		(6,012)
Collections on notes receivable		768		1,509		7,899
Purchases of investments		(13,338)		(13,518)		(5,666)
Proceeds from sale of investments		3,678		5,103		2,568
Other		(400)		(1,735)		(2,011)
NET CASH USED IN INVESTING ACTIVITIES		(121,232)		(137,659)		(227,657)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities		732,370		758,287		131,002
Repayments under revolving credit facilities		(748,496)		(722,725)		(107,294)
Borrowings of debt		927		8,525		—
Repayment of debt		(5,540)		(13,347)		—
Issuance of long-term debt		75,000		—		—
Proceeds from issuance of common stock		1,026		660		536
Dividends paid to shareholders		(22,072)		(19,607)		(17,680)
Distributions to noncontrolling interest		(3,139)		(4,032)		(3,280)
Repurchase of common stock		(24,629)		(12,977)		—
Other		(1,054)		(31)		(73)
NET CASH FROM (USED IN) FINANCING ACTIVITIES		4,393		(5,247)		3,211
Effect of exchange rate changes on cash		(464)		650		(1,927)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(618)		(5,673)		(53,853)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR		28,816		34,489		88,342
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	28,198	$	28,816	$	34,489
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents, beginning of period	$	28,339	$	34,091	$	87,756
Restricted cash, beginning of period		477		398		586
Cash, cash equivalents, and restricted cash, beginning of period	$	28,816	$	34,489	$	88,342
Cash and cash equivalents, end of period	$	27,316	$	28,339	$	34,091
Restricted cash, end of period		882		477		398
Cash, cash equivalents, and restricted cash, end of period	$	28,198	$	28,816	$	34,489
SUPPLEMENTAL INFORMATION:
Interest paid	$	8,860	$	6,020	$	4,550
Income taxes paid		51,578		56,663		57,311
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans	$	5,837	$	5,116	$	4,353

See notes to consolidated financial statements

31

UNIVERSAL FOREST PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OPERATIONS

We design, manufacture and market wood and wood-alternative products for large home centers and other retailers; structural lumber, engineered wood components, framing services, and other products for the construction market; specialty wood packaging, components, packing materials, and other wood-based products for various industries; and design, manufacture, and install customized interior fixtures used in retail and commercial structures for various markets.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include our accounts and those of our wholly-owned and majority-owned subsidiaries and partnerships. In addition, we consolidate any entity which we own 50% or more and exercise control. Intercompany transactions and balances have been eliminated.

NONCONTROLLING INTEREST IN SUBSIDIARIES

Noncontrolling interest in results of operations of consolidated subsidiaries represents the noncontrolling shareholders’ share of the income or loss of various consolidated subsidiaries. The noncontrolling interest reflects the original investment by these noncontrolling shareholders combined with their proportional share of the earnings or losses of these subsidiaries, net of distributions paid.

FISCAL YEAR

Our fiscal year is a 52 or 53 week period, ending on the last Saturday of December. Unless otherwise stated, references to 2018, 2017, and 2016 relate to the fiscal years ended December 29, 2018, December 30, 2017, and December 31, 2016, respectively. Fiscal year 2016 was comprised of 53 weeks, which contributed an additional $60 million in sales in 2016 compared to fiscal years 2018 and 2017, which were comprised of 52 weeks.

FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

We follow ASC Topic 820, Fair Value Measurements and Disclosures, which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. This topic requires fair value measurements to be classified and disclosed in one of the following three categories:

· Level 1 — Financial instruments with unadjusted, quoted prices listed on active market exchanges.

· Level 2 — Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over-the-counter traded financial instruments. Financial instrument values are determined using prices for recently traded financial instruments with similar underlying terms and direct or indirect observational inputs, such as interest rates and yield curves at commonly quoted intervals.

· Level 3 — Financial instruments not actively traded on a market exchange and there is little, if any, market activity. Values are determined using significant unobservable inputs or valuation techniques.

32

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly-liquid investments purchased with an original maturity of three months or less.

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-18, “Statement of Cash Flows (Topic 230)” (ASU 2016-18). Under ASU 2016-18, an entity will be required to explain changes in the statement of cash flows during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.  Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  The amendments in this update should be applied using retrospective transition method to each period presented.  Companies are required to adopt the new standard for fiscal years beginning after December 15, 2017. Early adoption of ASU 2016-18 is permitted, including adoption in an interim period. The Company has early adopted this standard during the first quarter of 2017.

INVESTMENTS

Investments are deemed to be "available for sale" and are, accordingly, carried at fair value being the quoted market value.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends ASC 825-10, Financial Instruments – Overall, this ASU changes the treatment for available-for-sale equity investments by recognizing unrealized fair value changes directly in net income and no longer in other comprehensive income. For public entities, the amendment is effective for fiscal years beginning after December 15, 2017.  The ASU was adopted during fiscal 2018 with a cumulative-effect adjustment to retained earnings of $0.9 million at the beginning of 2018. The available-for-sale equity securities balance at December 29, 2018 is $10.7 million, which resulted in an unrealized loss recorded as a non-operating expense of $1.9 million.

ACCOUNTS RECEIVABLE AND ALLOWANCES

We perform periodic credit evaluations of our customers and generally do not require collateral. Accounts receivable are due under a range of terms we offer to our customers. Discounts are offered, in most instances, as an incentive for early payment.

We base our allowances related to receivables on historical credit and collections experience, and the specific identification of other potential problems, including the general economic climate. Actual collections can differ, requiring adjustments to the allowances. Individual accounts receivable balances are evaluated on a monthly basis, and those balances considered uncollectible are charged to the allowance.

The following table presents the activity in our accounts receivable allowances (in thousands):

			Additions
			Charged to
	Beginning		Costs and				Ending
	Balance		Expenses		Deductions*		Balance
Year Ended December 29,2018:
Allowance for possible losses on accounts receivable	$	2,424	$	38,963	$	(38,786)	$	2,601
Year Ended December 30, 2017:
Allowance for possible losses on accounts receivable	$	2,845	$	28,102	$	(28,523)	$	2,424
Year Ended December 31, 2016:
Allowance for possible losses on accounts receivable	$	2,672	$	28,405	$	(28,232)	$	2,845

*Includes accounts charged off, discounts given to customers and actual customer returns and allowances.

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We record estimated sales returns, discounts, and other applicable adjustments as a reduction of net sales in the same period revenue is recognized.

Accounts receivable retainage amounts related to long term construction contracts totaled $5.5 million and $4.8 million as of December 29, 2018 and December 30, 2017, respectively. All amounts are expected to be collected within 18 months. Concentration of accounts receivable related to our largest customer totaled $44.5 million and $55.9 million as of December 29, 2018 and December 30, 2017, respectively.

INVENTORIES

Inventories are stated at the lower of cost or market. The cost of inventories includes raw materials, direct labor, and manufacturing overhead. Cost is determined on a weighted average basis. Raw materials consist primarily of unfinished wood products expected to be manufactured or treated prior to sale, while finished goods represent various manufactured and treated wood products ready for sale. We have inventory on consignment at customer locations valued at $16.8 million as of December 29, 2018 and $14.8 million as of December 30, 2017.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are stated at cost. Expenditures for renewals and betterments are capitalized, and maintenance and repairs are expensed as incurred. Amortization of assets held under capital leases is included in depreciation and amortized over the shorter of the estimated useful life of the asset or the lease term. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets as follows:

Land improvements	5 to 15 years
Buildings and improvements	10 to 32 years
Machinery, equipment and office furniture	2 to 8 years

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.

LEASES

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016‑02, “Leases (Topic 842)” (ASU 2016‑02). Under ASU 2016‑02, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term of 12 months or less, an entity can elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016‑02 will require new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity’s leases. Companies are required to adopt the new standard for annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016‑02 is permitted. The FASB has decided to amend certain aspects of its new leasing standard in an attempt to provide a relief from implementation costs.  Specifically, entities may elect not to restate their comparative periods in the period of adoption when transitioning to the new standard.  The Company will elect practical expedients permitted under the transition guidance within the new standard, which among other things, allows the carryforward of historical lease classification, lease and related non-lease components accounted as a single component, and hindsight practical expedient to determine the reasonably certain lease term for existing leases. As required by the standard, the Company expects to make additional disclosures related to the nature and type of leases, practical expedients applied, and adoption method in the first quarter of 2019 fiscal year.  The Company expects $60-80 million impact on our consolidated balance sheets and no material impact on our consolidated income statement.

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GOODWILL

Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually in accordance with ASC 350, Intangibles-Goodwill and Other. We review the carrying amounts of goodwill and other non-amortizable intangibles by reporting unit to determine if such assets may be impaired. As the carrying amount of these assets are recoverable based upon a discounted cash flow and market approach analysis, no impairment was recognized.

Our annual testing date for evaluating goodwill and indefinite-lived intangible asset impairment is the first day of the Company’s fourth fiscal quarter for all reporting units. Additionally, the Company reviews various triggering events throughout the year to ensure that a mid-year impairment analysis is not required.

FOREIGN CURRENCY

Our foreign operations use the local currency as their functional currency. Accordingly, assets and liabilities are translated at exchange rates as of the balance sheet date and revenues and expenses are translated using weighted average rates, with translation adjustments included as a separate component of shareholders’ equity. Gains and losses arising from re-measuring foreign currency transactions are included in earnings.

INSURANCE RESERVES

Our wholly-owned insurance company, Ardellis Insurance Ltd.(“Ardellis”), was incorporated on April 21, 2001 under the laws of Bermuda and is licensed as a Class 3A insurer under the Insurance Act 1978 of Bermuda.  On April 14, 2017 the U.S. Branch of Ardellis Insurance Ltd. was granted its Certificate of Authority to transact property and casualty insurance lines as an admitted carrier in the State of Michigan.

We are primarily self-insured for certain employee health benefits, and have self-funded retentions for general liability, automobile liability, property and workers’ compensation. We are fully self-insured for environmental liabilities. The general liability, automobile liability, property, workers’ compensation, and certain environmental liabilities are managed through Ardellis; the related assets and liabilities of which are included in the consolidated financial statements as of December 29, 2018 and December 30, 2017. Our policy is to accrue amounts equal to actuarially determined or internally computed liabilities. The actuarial and internal valuations are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical cost trends, and changes in claims experience could cause these estimates to change in the future.

In addition to providing coverage for the Company, Ardellis provides Excess Loss Insurance (primarily medical and prescription drug) to certain third parties. As of December 29, 2018, Ardellis had 39 such contracts in place. Reserves associated with these contracts were $4.9 million at December 29, 2018 and $3.4 million at December 30, 2017, and are accrued based on third party actuarial valuations of the expected future liabilities.

INCOME TAXES

Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred income tax assets to the amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities.

REVENUE RECOGNITION

On May 28, 2014, the FASB issued ASU No. 2014-09 (Accounting Standard Codification 606), Revenue from Contracts with Customers.  Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and requires the recognition of revenue when promised goods or services

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are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services.  The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The Company has adopted the requirements of the new standard as of January 1, 2018, and utilized the modified retrospective method of transition which was applied to all contracts.

The Company completed the new revenue recognition standard assessment and determined that there was no material impact to our consolidated financial statements, aside from additional required disclosures, thus no needed adjustment to the opening retained earnings for the annual reporting period.

Within the three markets (retail, industrial, and construction) that the Company operates, there are a variety of written and oral contracts that are utilized to generate revenue from the sale of wood, wood composite and other products.  The transaction price is stated at the purchase order level, which includes shipping and/or freight costs and any applicable governmental authority taxes.  The majority of our contracts have a single performance obligation concentrated around the delivery of goods to the carrier, Free On Board (FOB) shipping point.  Therefore, revenue is recognized when this performance obligation is satisfied.  Generally, title and control passes at the time of shipment. In certain circumstances, the customer takes title when the shipment arrives at the destination. However, our shipping process is typically completed the same day.

Certain customer products that we provide require installation by the Company or a 3rd party.  Installation revenue is recognized upon completion, which is typically 2-3 days after receipt.  If it is determined to utilize a 3rd party for installation, the party will act as an agent to the Company until completion of the installation.  Installation revenue represents an immaterial share of the Company’s total sales.

The Company utilizes rebates, credits, discounts and/or cash-based incentives with certain customers which are accounted for as variable consideration. We estimate these amounts based on historical and anticipated customer sales and reduce recognized revenues accordingly. We believe that there will not be significant changes to our estimates of variable consideration.  Our estimates of variable consideration are considered not constrained as the likelihood and magnitude of a significant reversal are not probable.  The allocation of these costs are applied at the invoice level and recognized in conjunction with revenue.  Additionally, the volume returns and refunds are estimated on a historical and expected basis which is a reduction of revenue recognized.

Earnings on construction contracts are reflected in operations using over time accounting, under either cost to cost or units of delivery methods, depending on the nature of the business at individual operations, which is in accordance with ASC 606 as revenue is recognized when certain performance obligations are performed. Under over time accounting using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under over time accounting using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent. 

Our construction contracts are generally entered into with a fixed price and completion of the projects and performance obligations can range from 6 to 18 months in duration.    Therefore, our operating results are impacted by, among many other things, labor rates and commodity costs.  Invoices are issued routinely throughout the projects’ life and payments are primarily due 45-60 days after invoice date.  During the year, we update our estimated costs to complete our projects using current labor and commodity costs and recognize losses to the extent that they exist.

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The following table presents our gross revenues disaggregated by revenue source:

(in thousands)	December 29,		December 30,
Market Classification	2018		2017		% Change
FOB Shipping Point Revenue	$	4,440,098	$	3,867,781	14.8%
Construction Contract Revenue		125,651		138,422	-9.2%
Total Gross Sales		4,565,749		4,006,203	14.0%
Sales Allowances		(76,569)		(65,021)	17.8%
Total Net Sales	$	4,489,180	$	3,941,182	13.9%

In 2018, $77.8 million and $47.8 million of our construction contract revenue was attributable to our North and West segments, respectively.  Construction contract revenue is primarily made up of site-built and framing customers.

The following table presents the balances of percentage-of-completion accounts on December 29, 2018 and December 30, 2017 which are included in other current assets and other accrued liabilities, respectively (in thousands):

	December 29,		December 30,
	2018		2017
Cost and Earnings in Excess of Billings	$	6,945	$	5,005
Billings in Excess of Cost and Earnings		3,245		4,435

SHIPPING AND HANDLING OF PRODUCT

Shipping and handling costs that are charged to and reimbursed by the customer are recognized as revenue. Costs incurred related to the shipment and handling of products are classified in cost of goods sold.

EARNINGS PER SHARE

The computation of earnings per share (“EPS”) is as follows (in thousands), which incorporate the retroactive effect of the Company’s 3 for 1 stock split:

	December 29,		December 30,		December 31,
	2018		2017		2016
Numerator:
Net earnings attributable to controlling interest	$	148,598	$	119,512	$	101,179
Adjustment for earnings allocated to non-vested restricted common stock		(3,396)		(2,225)		(1,595)
Net earnings for calculating EPS	$	145,202	$	117,287	$	99,584
Denominator:
Weighted average shares outstanding		61,762		61,416		61,089
Adjustment for non-vested restricted common stock		(1,411)		(1,143)		(963)
Shares for calculating basic EPS		60,351		60,273		60,126
Effect of dilutive restricted common stock		82		90		99
Shares for calculating diluted EPS		60,433		60,363		60,225
Net earnings per share:
Basic	$	2.41	$	1.95	$	1.66
Diluted	$	2.40	$	1.94	$	1.65

No options were excluded from the computation of diluted EPS for 2018, 2017, or 2016.

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USE OF ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. We believe our estimates to be reasonable; however, actual results could differ from these estimates.

B.FAIR VALUE

We apply the provisions of ASC 820, Fair Value Measurements and Disclosures, to assets and liabilities measured at fair value. Assets and liabilities measured at fair value are as follows:

	December 29, 2018								December 30, 2017
	Quoted		Prices with						Quoted		Prices with
	Prices in		Other			Prices with			Prices in		Other
	Active		Observable			Unobservable			Active		Observable
	Markets		Inputs			Inputs			Markets		Inputs
(in thousands)	(Level 1)		(Level 2)			(Level 3)	Total		(Level 1)		(Level 2)		Total
Money market funds	$	56	$	5,267	$	—	$	5,323	$	64	$	3,071	$	3,135
Fixed income funds		3,387		9,738		—		13,125		1,182		6,974		8,156
Equity securities		7,262		—		—		7,262		10,710		—		10,710
Hedge funds		—		—		1,756		1,756
Mutual funds:
Domestic stock funds		2,846		—		—		2,846		367		—		367
International stock funds		937		—		—		937		91		—		91
Target funds		237		—		—		237		270		—		270
Bond funds		796		—		—		796		209		—		209
Alternative funds		1,318		—		—		1,318
Total mutual funds		6,134		—		—		6,134		937		—		937
Total	$	16,839	$	15,005		1,756	$	33,600	$	12,893	$	10,045	$	22,938
Assets at fair value	$	16,839	$	15,005		1,756	$	33,600	$	12,893	$	10,045	$	22,938

We maintain money market, mutual funds, bonds, and/or stocks in our non-qualified deferred compensation plan and our wholly owned licensed captive insurance company. These funds are valued at prices quoted in an active exchange market and are included in "Cash and Cash Equivalents", "Investments", and "Other Assets". We have elected not to apply the fair value option under ASC 825, Financial Instruments, to any of our financial instruments except for those expressly required by U.S. GAAP.

The valuations of the Level 2 assets or liabilities rely on quoted prices in markets that are not active or observable inputs over the full term of the asset or liability.

During 2018, we purchased a private real estate income trust which will be valued as a Level 3 asset.  We did not maintain any Level 3 assets or liabilities at December 30, 2017.

In 2017, our wholly-owned captive, Ardellis Insurance Ltd. (“Ardellis”) transferred fixed income securities to a newly formed collateral trust account in line with regulatory requirements in the State of Michigan to allow Ardellis to act as an admitted carrier in the State.  These funds are intended to safeguard the insureds of the Michigan Branch of Ardellis.  The funds are classified as “Restricted Investments”.

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In accordance with our investment policy, our wholly-owned company, Ardellis Insurance Ltd. ("Ardellis"), maintains an investment portfolio, totaling $27.4 million as of December 29, 2018, consisting of mutual funds, domestic and international stocks, and fixed income bonds.

Ardellis’ available for sale investment portfolio consists of the following:

	December 29,2018						December 30,2017
			Unrealized						Unrealized
	Cost		Gain/(Loss)		Fair Value		Cost		Gain/(Loss)		Fair Value
Fixed Income	$	13,301	$	(176)	$	13,125	$	8,170	$	(14)	$	8,156
Equity		7,141		121		7,262		9,185		1,524		10,709
Mutual Funds		5,815		(567)		5,248		—		—		—
Hedge Funds		1,722		34		1,756		—		—		—
Total	$	27,979	$	(588)	$	27,391	$	17,355	$	1,510	$	18,865

Our fixed income investments consist of a blend of US Government and Agency bonds and investment grade corporate bonds with varying maturities.  Our equity investments consist of small, mid, and large cap growth and value funds, as well as international equity. Our hedge funds consist of the private real estate income trust which is valued as a Level 3 asset.  The net pre-tax unrealized loss was $0.5 million. Carrying amounts above are recorded in the investments and restricted investments line items within the balance sheet as of December 29, 2018.

C.BUSINESS COMBINATIONS

We completed the following business combinations in fiscal 2018 and 2017, which were accounted for using the purchase method (in thousands).

					Net
Company	Acquisition		Intangible		Tangible		Operating
Name	Date	Purchase Price	Assets		Assets		Segment
	October 22, 2018	$15,115 cash paid for 100% asset purchase	$	8,592	$	6,523	North
Pak-Rite, LTD ("Pak-Rite")	A designer and manufacturer of packaging for high-value products, such as medical, aerospace and automation equipment.  Pak-Rite had annual sales of approximately $15 million.  The acquisition of Pak-Rite allows us to grow our portfolio of packaging products and our presence in this region.
	July 31, 2018	$1,016 cash paid for 100% asset purchase	$	250	$	766	West
The Pallet Place, LLC ("Pallet Place")	A manufacturer and distributor of total packaging solutions in timber, crates, skids, and pallets.  Pallet Place had annual sales of approximately $5 million.  The acquisition of Pallet Place allows us to increase our industrial business and creates operating leverage by consolidating with another regional operation.
	June 1, 2018	$23,866 cash paid for 100% asset purchase	$	12,497	$	11,369	South
North American Container Corporation ("NACC")	A manufacturer of structural packaging products, including steel, corrugated and hardwood packaging.  NACC had annual sales of approximately $71 million.  The acquisition of NACC allows us to enhance our presence in this region, expand our product offering, and serve customers more cost effectively.

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					Net
Company	Acquisition		Intangible		Tangible		Operating
Name	Date	Purchase Price	Assets		Assets		Segment
	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.
	January 15, 2018	$5,784 cash paid for 100% asset purchase	$	50	$	5,734	North
Great Northern Lumber, LLC	A manufacturer of industrial products as well as serving the concrete forming market in the Chicago area.  Great Northern Lumber had annual sales of approximately $25 million.  The acquisition of Great Northern Lumber enables us to expand our concrete forming product offering and regional coverage.
	October 16, 2017	$931 cash paid for 100% asset purchase	$	909	$	22	All Other
Silverwater Box	A manufacturer and distributor of total packaging solutions in timber, plastic, steel, fiberglass, and cardboard.  Silverwater Box has annual sales of approximately $2.8 million.  The acquisition of Silverwater Box allows us to make progress on our goal of becoming a global provider of packaging solutions.
	May 26, 2017	$5,042 cash paid for 100% asset purchase	$	4,880	$	162	South
Go Boy Pallets, LLC ("Go Boy")	A manufacturer and distributor of industrial pallets and packaging in Georgia and North Carolina.  Go Boy has annual sales of approximately $8 million.  The acquisition of Go Boy enabled us to expand our industrial packaging product offering and lumber sourcing in this region.
	March 6, 2017	$31,818 cash paid for 100% asset purchase	$	7,653	$	24,165	South
Robbins Manufacturing Co. ("Robbins")	A manufacturer of treated wood products with facilities in Florida, Georgia, and North Carolina.  Robbins has annual sales of approximately $86 million.  The acquisition of Robbins allowed us to expand our presence in this region and serve customers more cost effectively.
	March 6, 2017	$22,789 cash paid for 100% asset purchase	$	14,341	$	8,448	North
Quality Hardwood Sales, LLC ("Quality")	A manufacturer and supplier of hardwood products, including components of cabinets used in homes and recreational vehicles.  Quality has annual sales of approximately $30 million.  The acquisition of Quality enabled us to expand our product offering to include hardwood-based products.

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The intangible assets for each acquisition were finalized and allocated to their respective identifiable intangible asset and goodwill accounts during 2018, except for our NACC and Pak-Rite acquisitions.  In aggregate, acquisitions not consolidated with other operations contributed approximately $110.1 million in revenue and a $1.1 million in operating profit during 2018.

At December 29, 2018, the amounts assigned to major intangible classes for the business combinations mentioned above are as follows (in thousands):

	Non-										Goodwill -
	Compete		Customer								Tax
	Agreements		Relationships			Tradename		Goodwill			Deductible
Pak-Rite	$	—	$	4,300	*	$	—	$	4,292	*	$	8,592
Pallet Place		—		250			—		—			250
NACC		—		3,500	*		—		8,997	*		12,497
Fontana		—		2,235			—		—			2,235
Expert Packaging		221		809			257		—			—
Spinner		850		—			—		—			850
Great Northern Lumber		50		—			—		—			50
Silverwater Box		—		—			—		909			—
Go Boy		225		4,655			—		—			4,880
Robbins		560		3,530			450		3,113			7,653
Quality		830		5,720			400		7,391			14,341
*(estimate)

The business combinations mentioned above were not significant to our operating results individually or in aggregate, and thus pro forma results for 2018 and 2017 are not presented.

D.GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the net carrying amount of goodwill by reporting segment for the years ended December 29, 2018 and December 30, 2017, are as follows (in thousands):

	North		South		West		All Other		Total
Balance as of December 31, 2016		43,386		43,625		87,730		23,794		198,535
2017 Acquisitions		7,391		3,113		—		909		11,413
Foreign Exchange, Net		350		—		—		2,346		2,696
Balance as of December 30, 2017		51,127		46,738		87,730		27,049		212,644
2018 Acquisitions		4,292		8,996		—		—		13,288
Foreign Exchange, Net		(365)		—		—		(1,450)		(1,815)
Balance as of December 29, 2018	$	55,054	$	55,734	$	87,730	$	25,599	$	224,117

Indefinite-lived intangible assets totaled $7.4 million as of December 29, 2018 and December 30, 2017 related to the idX, International, and Consumer Products reporting units which is included in the All Other reportable segment.

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The following amounts were included in other amortizable intangible assets, net as of December 29, 2018 and December 30, 2017 (in thousands):

	2018				2017
			Accumulated				Accumulated
	Assets		Amortization		Assets		Amortization
Non-compete agreements	$	10,232	$	(5,517)	$	9,841	$	(4,208)
Customer relationships		40,307		(6,843)		31,630		(5,986)
Licensing agreements		4,589		(3,909)		4,589		(3,450)
Patents		792		(284)		792		(254)
Tradename		2,879		(760)		2,420		(464)
Total	$	58,799	$	(17,313)	$	49,272	$	(14,362)

Amortization is computed principally by the straight-line method over the estimated useful lives of the intangible assets as follows:

		Weighted Average
Intangible Asset Type	Estimated Useful Life	Amortization Period
Non-compete agreements	3 to 15 years	6.8 years
Customer relationship	5 to 15 years	11.4 years
Licensing agreements	10 years	10 years
Tradename (amortizable)	5 to 15 years	11.7 years

Amortization expense of intangibles totaled $6.4 million, $4.9 million and $2.8 million in 2018, 2017 and 2016, respectively. The estimated amortization expense for intangibles for each of the five succeeding fiscal years is as follows (in thousands):

2019	$	6,908
2020		5,802
2021		5,503
2022		5,119
2023		3,800
Thereafter		14,354
Total	$	41,486

E.DEBT

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

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the Company, plus a margin that is determined based upon the index selected and upon the financial performance of the Company and certain of its subsidiaries. The Company is charged a facility fee on the entire amount of the lending commitment, at a per annum rate ranging from 12.5 to 30.0 basis points, also determined based upon the Company’s performance. The facility fee is payable quarterly in arrears.

Outstanding letters of credit extended on our behalf on December 29, 2018 and December 30, 2017 aggregated $30.3 million and $26.5 million; respectively, which includes approximately $9.8 million related to industrial development revenue bonds. The Company had an outstanding balance of $42.5 million and $59.4 million on its revolver at December 29, 2018, and December 30, 2017, respectively.   After considering letters of credit, the Company had $322.7 million and $225.7 million in remaining availability on its revolver on December 29, 2018, and December 30, 2017, respectively.  Additionally, we have $150 million in availability under a "shelf agreement" for long term debt with a current lender. Letters of credit have one year terms and include an automatic renewal clause. The letters of credit related to industrial development revenue bonds are charged an annual interest rate of 112.5 basis points, based upon our financial performance. The letters of credit related to workers’ compensation are charged an annual interest rate of 75 basis points.

Long-term debt obligations are summarized as follows on December 29, 2018 and December 31, 2017 (amounts in thousands):

	2018		2017
Series 2018 Senior Notes C, due on June 14, 2028, interest payable semi-annually at 4.20%	$	40,000	$	—
Series 2018 Senior Notes D, due on June 14, 2030, interest payable semi-annually at 4.27%		35,000		—
Series 2012 Senior Notes Tranche A, due on December 17, 2022, interest payable semi-annually at 3.89%		35,000		35,000
Series 2012 Senior Notes Tranche B, due on December 17, 2024, interest payable semi-annually at 3.98%		40,000		40,000
Revolving credit facility totaling $375 million due on November 1, 2023, interest payable monthly at a floating rate (3.39% on December 29, 2018 and 2.41% on December 30, 2017)		42,490		59,422
Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest payable monthly at a floating rate (1.94% on December 29, 2018 and 1.08% on December 30, 2017)		3,300		3,300
Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest payable monthly at a floating rate (2.00% on December 29, 2018 and 1.14% on December 30, 2017)		2,700		2,700
Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest payable monthly at a floating rate (1.99% on December 29, 2018 and 1.13% on December 30, 2017)		3,700		3,700
Capital leases and foreign affiliate debt		311		2,058
		202,501		146,180
Less current portion		(148)		(1,329)
Less debt issuance costs		(223)		(177)
Long-term portion	$	202,130	$	144,674

Financial covenants on the unsecured revolving credit facility and unsecured notes include minimum interest coverage tests and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold among other industry standard covenants. We were within all of our lending requirements on December 29, 2018 and December 30, 2017.

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On December 29, 2018, the principal maturities of long-term debt and capital lease obligations are as follows (in thousands):

2019	$	148
2020		2,834
2021		29
2022		38,700
2023		42,490
Thereafter		118,300
Total	$	202,501

On December 29, 2018, the estimated fair value of our long-term debt, including the current portion, was $203.1 million, which was $0.6 million more than the carrying value. The estimated fair value is based on rates anticipated to be available to us for debt with similar terms and maturities. We consider the valuations of our long-term debt, including the current portion, to be Level 2 liabilities which rely on quoted prices in markets that are not active or observable inputs over the full term of the liability.

F.LEASES

We lease certain real estate under operating lease agreements with original terms ranging from one to ten years. We are required to pay real estate taxes and other occupancy costs under these leases. Certain leases carry renewal options of five to fifteen years. We also lease motor vehicles, equipment, and an aircraft under operating lease agreements for periods of one to ten years. Future minimum payments under non-cancelable operating leases on December 29, 2018 are as follows (in thousands): 

	Operating
	Leases
2019	$	17,242
2020		11,969
2021		9,784
2022		8,346
2023		6,382
Thereafter		22,498
Total minimum lease payments	$	76,221

Rent expense was approximately $25.0 million, $22.3 million, and $10.5million in 2018, 2017, and 2016, respectively.

G.DEFERRED COMPENSATION

We have a program whereby certain executives irrevocably elected to defer receipt of certain compensation in 1985 through 1988. Deferred compensation payments to these executives will commence upon their retirement. We purchased life insurance on these executives, payable to us in amounts which, if assumptions made as to mortality experience, policy dividends, and other factors are realized, will accumulate cash values adequate to reimburse us for all payments for insurance and deferred compensation obligations. In the event cash values are not sufficient to fund such obligations, the program allows us to reduce benefit payments to such amounts as may be funded by accumulated cash values. The deferred compensation liabilities and related cash surrender value of life insurance policies totaled $2.0 million on December 29, 2018 and December 30, 2017,  and are included in "Other Liabilities" and "Other Assets," respectively.

We also maintain a non-qualified deferred compensation plan (the "Plan") for the benefit of senior management employees who may elect to defer a portion of their annual bonus payments and salaries. The Plan provides investment options similar to our 401(k) plan, including our stock. The investment in our stock is funded by the issuance of shares to a Rabbi trust, and may only be distributed in kind. Assets held by the Plan totaled approximately$1.0 million on December 29, 2018 and December 30, 2017, and are included in "Other Assets."  Related liabilities totaled $27.8 million

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and $22.6 million on December 29, 2018 and December 30, 2017, respectively, and are included in "Other Liabilities" and "Shareholders’ Equity."  Assets associated with the Plan are recorded at fair market value. The related liabilities are recorded at fair market value, with the exception of obligations associated with investments in our stock which are recorded at the market value on the date of deferral.

H.COMMON STOCK

We maintain and administer our shareholder approved Employee Stock Purchase Plan ("Stock Purchase Plan"). The Stock Purchase Plan allows eligible employees to purchase shares of our stock at a share price equal to 85% of fair market value on the purchase date. We have expensed the fair value of the compensation associated with these awards, which approximates the discount. The amount of expense is nominal.

We maintain and administer our shareholder approved Directors’ Retainer Stock Plan ("Stock Retainer Plan").  The Stock Retainer Plan allows eligible members of the Board of Directors to defer the cash portion of their retainer and committee fees and receive shares of our stock at the time of or following their retirement, disability or death. The number of shares to be received is equal to the amount of the cash portion of their retainer and committee fees deferred multiplied by 110%, divided by the fair market value of a share of our stock at the time of deferral. The number of shares is increased by the amount of dividends paid on the Company’s common stock. We recognized expense for this plan of $1.7 million in 2018, $1.7 million in 2017, and $0.7 million in 2016. Effective January 1, 2017, this plan was amended to allow directors to defer payment of the annual retainer paid in the form of our common stock.

Finally, we maintain and administer our shareholder approved Long Term Stock Incentive Plan (the "LTSIP”). The LTSIP provides for the grant of stock options,  stock appreciation rights, restricted stock, performance shares and other stock-based awards.

On October 18, 2017, the Board of Directors approved a three-for-one split of the Company's outstanding shares of common stock effected as a stock dividend.  On November 14, 2017, shareholders of record as of October 31, 2017, received two additional shares for each share held on the record date.

There is no unrecognized compensation expense remaining for stock options in 2018, 2017, and 2016.

Below is a summary of common stock issuances for 2018 and 2017:

	December 29, 2018
Share Issuance Activity	Common Stock		Average Share Price
Shares issued under the employee stock purchase plan	38	$	35.58
Shares issued under the employee stock gift program	3		33.56
Shares issued under the director retainer stock program	101		17.17
Shares issued under the long term stock incentive plan	164		35.16
Shares issued under the executive stock match grants	94		32.94
Forfeitures	(14)		-
Total shares issued under stock grant programs	348	$	29.37
Shares issued under the deferred compensation plans	167	$	36.98

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	December 30, 2017
Share Issuance Activity	Common Stock		Average Share Price
Shares issued under the employee stock purchase plan	24	$	32.80
Shares issued under the employee stock gift program	3		31.92
Shares issued under the director retainer stock program	62		19.02
Shares issued under the long term stock incentive plan	240		31.81
Shares issued under the executive stock match grants	129		32.03
Forfeitures	(5)		-
Total shares issued under stock grant programs	429	$	30.06
Shares issued under the deferred compensation plans	159	$	32.16

A summary of the nonvested restricted stock awards granted under the LTSIP is as follows:

						Weighted-
				Unrecognized		Average
		Weighted-		Compensation		Period to
	Restricted	Average Grant		Expense		Recognize
	Awards	Date Fair Value		(in millions)		Expense
Nonvested at December 26, 2015	623,748		13.66		5.2	2.53 years
Granted	350,892		23.96
Vested	(180,465)		15.66
Forfeited	(2,643)		21.45
Nonvested at December 31, 2016	791,532		19.32		4.8	1.51 years
Granted	388,248		32.03
Vested	(141,111)		12.71
Forfeited	(5,043)		30.14
Nonvested at December 30, 2017	1,033,626		24.24		7.1	1.31 years
Granted	247,068		36.52
Vested	(107,865)		18.11
Forfeited	(12,750)		24.19
Nonvested at December 29, 2018	1,160,079	$	23.32	$	7.6	1.12 years

Under the Stock Purchase Plan and LTSIP, we recognized share-based compensation expense of $3.6 million, $3.6 million, and $2.2 million and the related total income tax benefits of $0.7 million, $1.0 million, and $1.1 million in 2018, 2017 and 2016, respectively.

In 2018, 2017 and 2016, cash received from share issuances under our plans was $1.0 million, $0.7 million and $0.5 million, respectively.

On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common stock. On October 14, 2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. We repurchased 860,669 and 445,740 shares under this program in 2018 and 2017, respectively. As of December 29, 2018, the cumulative total authorized shares available for repurchase is approximately 1.9 million shares. 

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

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of Directors. We matched 25% of employee contributions in 2018, 2017, and 2016, on a discretionary basis, totaling $3.4 million, $4.8 million, and $4.4 million respectively. The basis for matching contributions may not exceed the lesser of 6% of the employee’s annual compensation or the IRS limitation.

On July 14, 2011, the compensation committee of the board of directors approved a retirement plan for certain officers of the Company (who have at least 20 years of service with the Company and at least 10 years of service as an officer) whereby we will pay, upon retirement, benefits totaling 150% of the officer’s highest base salary in the three years immediately preceding separation from service plus health care benefits for a specified period of time if certain eligibility requirements are met. Approximately $9.1 million and $7.8 million are accrued in “Other Liabilities” for this plan at December 29, 2018 and December 30, 2017, respectively.

J.INCOME TAXES

Income tax provisions for the years ended December 29, 2018, December 30, 2017, and December 31, 2016 are summarized as follows (in thousands):

	2018		2017		2016
Currently Payable:
Federal	$	31,492	$	44,413	$	42,397
State and local		7,544		8,579		6,341
Foreign		5,527		6,240		6,143
		44,563		59,232		54,881
Net Deferred:
Federal		2,965		(7,681)		(455)
State and local		(522)		(864)		438
Foreign		(1,565)		1,280		310
		878		(7,265)		293
	$	45,441	$	51,967	$	55,174

The components of earnings before income taxes consist of the following:

	2018		2017		2016
U.S.	$	180,261	$	151,395	$	140,106
Foreign		17,592		24,612		20,565
Total	$	197,853	$	176,007	$	160,671

The effective income tax rates are different from the statutory federal income tax rates for the following reasons:

	2018		2017		2016
Statutory federal income tax rate	21.0	%	35.0	%	35.0	%
State and local taxes (net of  federal benefits)	3.8		3.0		3.1
Effect of noncontrolling owned interest in earnings of partnerships	(0.1)		(0.2)		(0.2)
Manufacturing deduction	n/a		(2.5)		(2.4)
Tax credits, including foreign tax credit	(1.6)		(2.0)		(1.4)
Change in uncertain tax positions reserve	0.1		0.4		0.4
Other permanent differences	0.6		(0.1)		0.1
Other, net	(0.7)		(0.6)		(0.3)
Impact of Tax Act and reduction of corporate tax rate	(0.1)		(3.5)		—
Effective income tax rate	23.0	%	29.5	%	34.3	%

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Temporary differences which give rise to deferred income tax assets and (liabilities) on December 29, 2018 and December 30, 2017 are as follows (in thousands):

	2018		2017
Employee benefits	$	20,914	$	17,048
Net operating loss carryforwards		6,520		8,592
Foreign subsidiary capital loss carryforward		504		546
Other tax credits		586		709
Inventory		1,090		358
Reserves on receivables		802		714
Accrued expenses		1,593		2,060
Other, net		2,785		1,879
Gross deferred income tax assets		34,794		31,906
Valuation allowance		(2,707)		(4,706)
Deferred income tax assets		32,087		27,200
Depreciation		(24,881)		(19,992)
Intangibles		(20,225)		(19,422)
Other, net		—		—
Deferred income tax liabilities		(45,106)		(39,414)
Net deferred income tax liability	$	(13,019)	$	(12,214)

As of December 29, 2018, the company had federal, state and foreign net operating loss carryforwards of $6.5 million and state tax credit carryforwards of $0.4 million, which will expire at various dates. 

The NOL and credit carryforwards expire as follows:

	Net Operating Losses						Tax Credits
	U.S.		State		Foreign		U.S.		State
2018 – 2022	$	—	$	165	$	347	$	—	$	381
2023 - 2027		—		526		635		—		—
2028 - 2032		2,859		672		114		—		—
2033 - 2037		41		812		—		—		—
Thereafter		—		293		56		—		—
Total	$	2,900	$	2,468	$	1,152	$	—	$	381

As of December 29, 2018, we believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards as well as certain state tax credit carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance against various NOL and tax credit carryforwards. Furthermore, there is a valuation allowance of $0.5 million against a capital loss carryforward we have for a wholly-owned subsidiary, UFP Canada, Inc. Based upon the business activity and the nature of the assets of this subsidiary, our ability to realize a future benefit from this carryforward is doubtful. The capital loss has an unlimited carryforward and therefore will not expire unless there is a change in control of the subsidiary.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the ”Tax Act”).  The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property.

The Tax Act also established new tax laws that will affect 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate; (2) elimination of the corporate alternative minimum tax (AMT); (3) the creation of the  base erosion anti-abuse tax (BEAT), a new minimum tax: (4) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (5) a new provision designed to tax global intangible low-taxed income (GILTI), which allows

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for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (6) a new limitation on deductible interest expense; (7) the repeal of the domestic production activity deduction; (8) limitations on the deductibility of certain executive compensation; (9) limitations on the use of FTCs to reduce the U.S. income tax liability; and (10) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80 percent of taxable income.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act.  SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740.  In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete.  To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.  If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In connection with our initial analysis of the impact of the Tax Act, we recorded a provisional discrete net tax benefit of $6.1 million in the period ending December 30, 2017 which consisted primarily of (1) a net benefit for the corporate rate reduction of $8.2 million; (2) a net expenses for the write-down of deferred tax assets for stock based compensation that will no longer be deductible for $1.9 million; and (3) a net expense for the transition tax of $0.2 million. We completed our accounting for the income tax effects of the Tax Act in 2018 and have recognized an additional measurement-period adjustment of a net tax benefit of $0.3 million in the period ending December 29, 2018.  The adjusted total impact of the Tax Act is now $6.4 million which consists of the following: (1) the net benefit for the corporate rate reduction remained the same at $8.2 million; (2) a net expense for the write-down of the deferred tax assets for stock based compensation was reduced by $0.1 million to $1.8 million, and (3) the net expense for the transition tax was eliminated and reduced by $0.2 million. The effect of the measurement-period adjustment on the 2018 effective tax rate was a reduction of approximately 0.1 percent.

Global intangible low taxed income (GILTI):  The Tax Act created a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder.  GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.

In our evaluation of this provision of the Tax Act and the application of ASC 740, we elected under U.S. GAAP,  to make the accounting policy of treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) as opposed to factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”).  For the year ended December 29, 2018, we determined that no GILTI tax inclusion was applicable.

K.ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

ASC 740, Income Taxes (“ASC 740”) clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740 also provides guidance on derecognition, measurement, classification, interest and penalties, and disclosure requirements.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2018		2017		2016
Gross unrecognized tax benefits beginning of year	$	4,000	$	3,381	$	2,209
Increase in tax positions for prior years		(366)		4		243
Increase in tax positions due to acquisitions		—		—		362
Increase in tax positions for current year		1,326		1,107		905
Settlements with taxing authorities		—		(2)		(32)
Lapse in statute of limitations		(582)		(490)		(306)
Gross unrecognized tax benefits end of year	$	4,378	$	4,000	$	3,381

Our effective tax rate would have been affected by the unrecognized tax benefits had this amount been recognized as a reduction to income tax expense.

We recognized interest and penalties for unrecognized tax benefits in our provision for income taxes. The liability for unrecognized tax benefits included accrued interest and penalties of $0.5 million,  $0.7 million, and $0.6 million at December 29, 2018, December 30, 2017, and December 31, 2016, respectively.

We file income tax returns in the United States and in various state, local and foreign jurisdictions. The federal and a majority of state and foreign jurisdictions are no longer subject to income tax examinations for years before 2015. A number of routine state and local examinations are currently ongoing. Due to the potential for resolution of state examinations, and the expiration of various statutes of limitation, and new positions that may be taken, it is reasonably possible that the amounts of unrecognized tax benefits could change in the next twelve months is $0.8 million.

L.COMMITMENTS, CONTINGENCIES, AND GUARANTEES

We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, Ardellis Insurance Ltd., a licensed captive insurance company.

We own and operate a number of facilities throughout the United States that chemically treat lumber products. In connection with the ownership and operation of these and other real properties, and the disposal or treatment of hazardous or toxic substances, we may, under various federal, state, and local environmental laws, ordinances, and regulations, be potentially liable for removal and remediation costs, as well as other potential costs, damages, and expenses. Environmental reserves, calculated with no discount rate, have been established to cover remediation activities at wood preservation facilities in Stockertown, PA; Elizabeth City, NC; and Auburndale, FL. In addition, a reserve was established for our facility in Thornton, CA to remove certain lead containing materials which existed on the property at the time of purchase.

On a consolidated basis, we have reserved approximately $2.1 million and $3.0 million on December 29, 2018 and December 30, 2017, respectively, representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance receivable.

Many of our wood treating operations utilize “Subpart W” drip pads, defined as hazardous waste management units by the Environmental Protection Agency. The rules regulating drip pads require that a pad be “closed” at the point that it is no longer intended to be used for wood treating operations or to manage hazardous waste. Closure involves identification and disposal of contaminants which are required to be removed from the facility. The cost of closure is dependent upon a number of factors including, but not limited to, identification and removal of contaminants, cleanup standards that vary from state to state, and the time period over which the cleanup would be completed. Based on our present knowledge of existing circumstances, it is considered probable that these costs will approximate  $0.1 million. As a result, this amount is recorded in other long-term liabilities on December 29, 2018.

In addition, on December 29, 2018, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims.

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On December 29, 2018, we had outstanding purchase commitments on commenced capital projects of approximately $14.3 million.

We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material. We distribute products manufactured by other companies, some of which are no longer in business. While we do not warrant these products, we have received claims as a distributor of these products when the manufacturer no longer exists or has the ability to pay. Historically, these costs have not had a material affect on our consolidated financial statements.

As part of our operations, we supply building materials and labor to site-built construction projects or we jointly bid on contracts with framing companies for such projects. In some instances we are required to post payment and performance bonds to insure the project owner that the products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety for claims made against the bonds. As of December 29, 2018, we had approximately $21.1 million in outstanding payment and performance bonds for open projects. We had approximately $1.0million in payment and performance bonds outstanding for completed projects which are still under warranty.

On December 29, 2018 we had outstanding letters of credit totaling $30.3 million, primarily related to certain insurance contracts and industrial development revenue bonds described further below.

In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our performance under certain insurance contracts. We currently have irrevocable letters of credit outstanding totaling approximately $20.5 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements.

We are required to provide irrevocable letters of credit in favor of the bond trustees for all industrial development revenue bonds that have been issued. These letters of credit guarantee principal and interest payments to the bondholders. We currently have irrevocable letters of credit outstanding totaling approximately $9.8 million related to our outstanding industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the issuing banks.

Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products, Inc. in certain debt agreements, including the Series 2012 Senior Notes, the Series 2018 Senior Notes, and our revolving credit facility. The maximum exposure of these guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire concurrent with the expiration of the debt agreements.

We did not enter into any new guarantee arrangements during 2018 which would require us to recognize a liability on our balance sheet.

M.SEGMENT REPORTING

ASC 280, Segment Reporting (“ASC 280”), defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company operates manufacturing, treating and distribution facilities throughout North America, Europe, Asia and Australia, but primarily in the United States. The Company manages the operations of its individual locations primarily through a geographic reporting structure under which each location is included in a region and regions are included in our North, South, West, and International divisions. The exceptions to this geographic reporting and management structure are (a) the Company’s Alternative Materials Division, which offers a portfolio of non-wood products and distributes those products nation-wide and is accounted for as a reporting unit within the All Other segment, (b) the Company’s distribution unit (referred to as UFPD) which distributes a variety of products to the manufactured housing industry and is accounted for as a reporting unit within the North segment, and (c) idX division, which designs, manufactures, and installs customized interior fixtures and is accounted for within the All Other segment.

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With respect to the facilities in the north, south, and west segments, these facilities generally supply the three markets the Company serves nationally - Retail, Industrial, and Construction. Also, substantially all of our facilities support customers in the immediate geographical region surrounding the facility.  One customer, The Home Depot, accounted for approximately 19% of our total sales in fiscal 2018 and 2017, and 20% in 2016.

Our Alternative Materials, International, and idX divisions have been included in the “All Other” column of the table below. The “Corporate” column includes unallocated administrative costs and certain incentive compensation expense.

	2018
							All
	North		South		West		Other		Corporate		Total
Net sales to outside customers	$	1,279,459	$	1,024,747	$	1,599,274	$	585,700	$	—	$	4,489,180
Intersegment net sales		56,682		76,297		56,004		235,905		—		424,888
Interest expense (income)		58		(6)		197		(1,486)		10,130		8,893
Amortization expense		830		1,292		1,998		2,273		—		6,393
Depreciation expense		12,062		8,244		14,836		10,341		9,466		54,949
Segment earnings from operations		66,239		60,049		103,357		6,779		(29,161)		207,263
Segment assets		386,483		266,503		496,939		395,727		101,896		1,647,548
Capital expenditures		17,820		9,185		26,024		39,168		3,665		95,862

	2017
							All
	North		South		West		Other		Corporate		Total
Net sales to outside customers	$	1,133,656	$	837,370	$	1,417,924	$	552,232	$	—	$	3,941,182
Intersegment net sales		67,161		74,566		83,245		167,568		—		392,540
Interest expense		4		160		293		(473)		6,234		6,218
Amortization expense		559		607		1,723		1,971		—		4,860
Depreciation expense		10,511		6,880		14,116		8,586		8,443		48,536
Segment earnings from operations		61,326		46,646		82,465		17,296		(26,264)		181,469
Segment assets		351,270		240,661		462,311		356,264		54,171		1,464,677
Capital expenditures		23,026		12,286		23,212		9,865		2,727		71,116

	2016
							All
	North		South		West		Other		Corporate		Total
Net sales to outside customers	$	1,000,426	$	711,862	$	1,251,093	$	277,112	$	—	$	3,240,493
Intersegment net sales		57,770		38,641		88,311		19,322		—		204,044
Interest expense		1		307		387		143		3,737		4,575
Amortization expense		115		—		1,858		822		—		2,795
Depreciation expense		8,948		6,190		13,326		4,531		7,828		40,823
Segment earnings from operations		59,408		47,146		76,875		16,639		(35,630)		164,438
Segment assets		302,009		192,085		438,674		313,304		45,986		1,292,058
Capital expenditures		10,902		5,571		19,648		6,037		11,604		53,762

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Information regarding principal geographic areas was as follows (in thousands):

	2018				2017				2016
			Long-Lived				Long-Lived				Long-Lived
			Tangible				Tangible				Tangible
	Net Sales		Assets		Net Sales		Assets		Net Sales		Assets
United States	$	4,382,356	$	342,326	$	3,821,366	$	313,976	$	3,162,331	$	280,362
Foreign		106,824		34,312		119,816		30,380		78,162		26,106
Total	$	4,489,180	$	376,638	$	3,941,182	$	344,356	$	3,240,493	$	306,468

Sales generated in Canada and Mexico are primarily to customers in the United States of America.

The following table presents, for the periods indicated, our gross sales (in thousands) by major product classification.

	Year Ended
	December 29,		December 30,		December 31,
	2018		2017		2016
Value-Added Sales
Trusses – residential, modular and manufactured housing	$	421,996	$	368,591	$	334,956
Fencing		179,037		187,905		176,668
Decking and railing – composite,  wood and other		271,499		244,910		200,004
Turn-key framing and installed sales		151,260		149,520		141,474
Industrial packaging and components		581,622		471,262		391,610
Engineered wood products (eg. LVL; i-joist)		83,212		76,507		76,503
In-store fixtures		252,341		260,174		87,262
Manufactured brite and other lumber		102,333		78,638		68,517
Wall panels		69,889		61,226		53,279
Outdoor DIY products (eg. stakes; landscape ties)		124,907		110,327		106,284
Construction and building materials (eg. door packages; drywall)		305,374		265,048		204,732
Lattice – plastic and wood		48,614		48,736		50,556
Manufactured brite and other panels		97,314		75,742		60,753
Siding, trim and moulding		98,370		85,016		66,048
Hardware		24,662		21,218		20,713
Manufactured treated lumber		20,889		17,584		17,412
Other		21,342		12,604		10,967
Total Value-Added Sales	$	2,854,661	$	2,535,008	$	2,067,738
Commodity-Based Sales
Non-manufactured brite and other lumber		718,456		576,374		469,042
Non-manufactured treated lumber		647,222		575,505		479,333
Non-manufactured brite and other panels		285,888		271,310		238,806
Non-manufactured treated panels		39,768		34,970		30,374
Other		19,754		13,036		12,084
Total Commodity-Based Sales	$	1,711,088	$	1,471,195	$	1,229,639
Total Gross Sales	$	4,565,749	$	4,006,203	$	3,297,377
Sales allowances		(76,569)		(65,021)		(56,884)
Total Net Sales	$	4,489,180	$	3,941,182	$	3,240,493

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N.QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table sets forth selected financial information for all of the quarters, consisting of 13 and 14 weeks during the years ended December 29, 2018 and December 30, 2017, respectively, (in thousands, except per share data):

	First				Second				Third				Fourth
	2018		2017		2018		2017		2018		2017		2018		2017
Net sales	$	993,857	$	846,130	$	1,294,440	$	1,072,375	$	1,212,702	$	1,056,586	$	988,179	$	966,091
Gross profit		130,889		120,740		165,689		148,240		158,673		144,687		137,643		129,159
Net earnings		33,582		21,634		45,130		34,574		42,068		34,669		31,633		33,162
Net earnings attributable to controlling interest		32,833		21,062		44,044		33,642		41,219		33,693		30,502		31,115
Basic earnings per share		0.53		0.34		0.71		0.55		0.67		0.55		0.50		0.51
Diluted earnings per share		0.53		0.34		0.71		0.55		0.66		0.55		0.50		0.51

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MARKET INFORMATION FOR OUR COMMON STOCK

Our common stock trades on The Nasdaq Stock Market (“NASDAQ”) under the symbol UFPI.

55

STOCK PERFORMANCE GRAPH

The following graph depicts the cumulative total return on our common stock compared to the cumulative total return on the indices for The Nasdaq Stock Market (all U.S. companies) and an industry peer group we selected. The graph assumes an investment of $100 on December 28, 2013, and reinvestment of dividends in all cases.

The companies included in our self-determined industry peer group are as follows:

American Woodmark Corporation	Louisiana-Pacific Corporation
Bemis Company, Inc.	Masco Corporation
BlueLinx Holdings, Inc.	NCI Building Systems, Inc.
BMC Stock Holdings, Inc.	Simpson Manufacturing Company,Inc.
Boise Cascade, LLC	Sonoco Products Company
Builders FirstSource, Inc.	Trex Company, Inc.
Gibraltar Industries, Inc.	Westrock Company
Greif Bros. Corporation

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.

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Directors and Executive Officers

BOARD OF DIRECTORS	EXECUTIVE OFFICERS
William G. Currie Chairman of the Board Universal Forest Products, Inc.	Matthew J. Missad Chief Executive Officer
Matthew J. Missad Chief Executive Officer Universal Forest Products, Inc.	Patrick M. Webster President and Chief Operating Officer
John M. Engler	Michael R. Cole Chief Financial Officer and Treasurer
Thomas W. Rhodes President and Chief Executive Officer TWR Enterprises, Inc. Bruce A. Merino	Allen T. Peters President UFP Western Division
Mary E. Tuuk President and Chief Executive Officer Grand Rapids Symphony	Patrick Benton President UFP Northern Division
Brian C. Walker Partner-Strategic Leadership Huron Capital	Jonathan West President UFP Southern Division
Michael G. Wooldridge Partner Varnum, LLP	Robert D. Coleman Executive Vice President Manufacturing
Joan A. Budden President Priority Health	C. Scott Greene Executive Vice President Strategy & Development
	Donald L. James Executive Vice President National Sales
	Michael F. Mordell Executive Vice President International Operations
	Chad C. Uhlig Eastin Executive Vice President Purchasing

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Shareholder Information

ANNUAL MEETING

The annual meeting of Universal Forest Products, Inc. will be held at 8:30 a.m. on April 24, 2019, at 2880 East Beltline Lane NE, Grand Rapids, MI 49525.

SHAREHOLDER INFORMATION

Shares of the Company’s stock are traded under the symbol UFPI on the NASDAQ Stock Market. The Company’s 10‑K report, filed with the Securities and Exchange Commission, will be provided free of charge to any shareholder upon written request. For more information contact:

Investor Relations Department

Universal Forest Products, Inc.

2801 East Beltline NE

Grand Rapids, MI 49525

Telephone:  (616) 364‑6161

Web:  www.ufpi.com

SECURITIES COUNSEL

Varnum, LLP

Grand Rapids, MI

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP

Grand Rapids, MI

TRANSFER AGENT/SHAREHOLDER INQUIRIES

American Stock Transfer & Trust Company serves as the transfer agent for the Corporation. Inquiries relating to stock transfers, changes of ownership, lost or stolen stock certificates, changes of address, and dividend payments should be addressed to:

American Stock Transfer & Trust Co.

6201 15th Ave

Brooklyn, NY 11219

Telephone:  (800) 937‑5449

UNIVERSAL FOREST PRODUCTS®, INC., CORPORATE HEADQUARTERS

2801 East Beltline NE

Grand Rapids, MI 49525

Telephone:  (616) 364‑6161

Facsimile:  (616) 364‑5558

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UNIVERSAL FOREST PRODUCTS®, INC., AND ITS AFFILIATES

Locations:

Adairsville, GA	Newnan, GA	Freewater, OR
Ashburn, GA	Ooltewah, TN	Gainesville, GA
Atco, NJ	Parker, PA	Gilmer, TX
Auburn , NY	Pearisburg, VA	Grand Haven, MI
Auburndale, FL	Peru, IL	Grand Rapids, MI
Belchertown, MA	Prairie Du Chien, WI	Greene, ME
Belle Glade, FL	Ranson, WV	Hawkins County, TN
Berlin, NJ	Riverside, CA	Hendersonville, NC
Blanchester, OH	Rowesville, SC	Jeffersonville, IN
Blue Island, IL	Saginaw, TX	Kansas City, MO
Bomaderry, Australia	Saint Bernard De Lacolle, Quebec	Kearneysville, WV
Burlington, NC	Salisbury, NC	Kyle, TX
Cameron, SC	San Antonio, TX	Lockhart, FL
Cedar Hill, TX	Santee, SC	Maricopa County, AZ
Chaffee, NY	Sauk Rapids, MN	Marietta, GA
Chandler, AZ	Schertz, TX	Martin, TN
Chesapeake, VA	Selma, AL	Mayville, WI
Clinton, NC	Shawnee, OK	Mcminnville, OR
Conway, SC	Sidney , NY	Medley, FL
Dayton, OH	Silsbee, TX	Mexico City, MX
Eatonton, GA	Snohomish, WA	Morristown, TN
Edwardsburg, MI	Stanfield , NC	Moultrie, GA
Elizabeth City, NC	Stockertown, PA	Nampa, ID
Elkhart, IN	Thornton, CA	Nappanee, IN
Fernley, NV	Union City, GA	Naugatuck, CT
Folkston, GA	Warrens, WI	New Delhi, India
Franklinton, NC	Washington, NC	New Hartford, NY
Fredericksburg, VA	Waterbury, CT	New York, NY
Gilmer, TX	Wenatchee, WA	Ontario, CA
Gordon, PA	White Bear Lake, MN	Orangeburg, SC
Grand Rapids, MI	White Pigeon, MI	Parker, PA
Grandview, TX	Windsor, CO	Pitts, GA
Granger, IN	Woodburn, OR	Plainville, MA
Haleyville, AL	Yakima, WA	Poulsbo, WA
Hamilton, OH	Aiea, HI	Prairie Du Chien, WI
Harrisonville, MO	Athena, OR	Puerto Rico
Highland Square, NY	Auburndale, FL	Puyallup, WA
Hillsboro, TX	Aurora, CO	Rockwell, NC
Huntsville, TX	Bangalore, India	Salina, KS
Janesville, WI	Barnesville, GA	San Antonio, TX
Jefferson, GA	Biscoe, NC	Shanghai, China
Kearneysville, WV	Boise , ID	Sharon, TN
Kyle, TX	Bridgeton, MO	Shawnee, OK
Lafayette, CO	Chandler, AZ	South Marston Swindon, Wiltshire
Lansing, MI	Chicago, IL	Spring Lake, MI
Lawrenceburg, TN	Chino, CA	St Bernard De Lacolle, Quebec
Liberty, NC	Columbia, MD	Stevens Point, WI
Locust, NC	Comal County, TX	Tampa, FL
Lodi, OH	Condord, ON	Thomaston, GA
Magna, UT	Cordele, GA	Tokyo, Japan
Mcintyre, GA	Dallas, TX	Vesper, WI
Mcminnville, OR	Delano, PA	White Bear Lake, MN
Milwaukee, WI	Eagan, MN	Wilcox County, GA
Minneota, MN	Earth City, MO	Windsor, CO
Morristown, TN	Edina, MN	Wintrop, ME
Moultrie, GA	Elkhart, IN	Woodburn, OR
Naches, WA	Elkwood, VA	Wujiang City , Jiangsu Province
New London, NC	Emlenton, PA	Yeerongpilly, Australia
New Waverly, TX	Erskine Park, Australia
New Windsor, MD	Fort Worth, TX

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