1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 23, 2000
------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-22684
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UNIVERSAL FOREST PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1465835
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2801 East Beltline NE, Grand Rapids, Michigan 49525
--------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 364-6161
--------------
NONE
----------------------------------------------------
(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of November 1, 2000
-------------------------- ----------------------------------
Common stock, no par value 19,982,025
Page 1 of 26
2
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets at September 23, 2000
and December 25, 1999. 3
Consolidated Condensed Statements of Earnings for the Three and
Nine Months Ended September 23, 2000 and September 25, 1999. 4
Consolidated Condensed Statements of Shareholders' Equity for
the Nine Months Ended September 23, 2000 and September 25,
1999. 5-6
Consolidated Condensed Statements of Cash Flows for the Nine
Months Ended September 23, 2000 and September 25, 1999. 7
Notes to Consolidated Condensed Financial Statements. 8-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Changes in Securities. 24
Item 3. Defaults Upon Senior Securities - NONE.
Item 4. Submission of Matters to a Vote of Security Holders - NONE
Item 5. Other Information - NONE.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index. 26
(b) No reports were filed on Form 8-K during
the third quarter.
2
3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
September 23, December 25,
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................................... $ 7,780 $ 4,106
Accounts receivable (net of allowance for doubtful accounts of
$1,383 and $1,379) ................................................................ 100,430 70,012
Inventories:
Raw materials .................................................................. 38,807 44,722
Finished goods ................................................................. 75,332 86,813
--------- ---------
114,139 131,535
Other current assets ................................................................ 7,046 9,853
--------- ---------
TOTAL CURRENT ASSETS ....................................................... 229,395 215,506
OTHER ASSETS ............................................................................. 11,446 10,836
GOODWILL AND NON-COMPETE AGREEMENTS, NET ................................................. 106,547 93,183
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment ....................................................... 252,646 222,742
Accumulated depreciation and amortization ........................................... (84,370) (73,629)
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET ......................................... 168,276 149,113
--------- ---------
TOTAL ASSETS ............................................................................. $ 515,664 $ 468,638
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ..................................................................... $ 2,860 $ 1,520
Accounts payable .................................................................... 54,510 46,621
Accrued liabilities:
Compensation and benefits ...................................................... 26,551 32,491
Other .......................................................................... 14,582 3,148
Current portion of long-term debt and capital lease obligations ..................... 7,291 7,402
--------- ---------
TOTAL CURRENT LIABILITIES .................................................. 105,794 91,182
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion ....................................................... 153,836 146,896
DEFERRED INCOME TAXES .................................................................... 8,548 8,398
OTHER LIABILITIES ........................................................................ 9,482 7,600
--------- ---------
TOTAL LIABILITIES .......................................................... 277,660 254,076
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; shares authorized 1,000,000; issued
and outstanding, none .............................................................
Common stock, no par value; shares authorized 40,000,000; issued
and outstanding, 20,062,311 and 20,212,385 ........................................ 20,062 20,212
Additional paid-in capital .......................................................... 79,748 78,625
Retained earnings ................................................................... 138,324 115,327
Accumulated other comprehensive earnings ............................................ 1,136 1,033
--------- ---------
239,270 215,197
Officers' stock notes receivable .................................................... (1,266) (635)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ................................................. 238,004 214,562
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................................... $ 515,664 $ 468,638
========= =========
See notes to consolidated condensed financial statements.
3
4
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
September 23, September 25, September 23, September 25,
2000 1999 2000 1999
------------- ------------- ------------- -------------
NET SALES...................................... $ 371,030 $ 388,402 $1,106,680 $1,135,333
COST OF GOODS SOLD............................. 322,103 342,319 960,044 995,433
--------- --------- ----------- ---------
GROSS PROFIT................................... 48,927 46,083 146,636 139,900
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES...................... 31,885 27,922 91,248 86,269
--------- --------- ----------- ---------
EARNINGS FROM OPERATIONS....................... 17,042 18,161 55,388 53,631
INTEREST, NET:
Interest expense.......................... 3,648 2,993 10,423 9,230
Interest income........................... (135) (182) (381) (486)
--------- --------- ----------- ---------
3,513 2,811 10,042 8,744
--------- --------- ----------- ---------
EARNINGS BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY IN
EARNINGS (LOSS) OF INVESTEE.................. 13,529 15,350 45,346 44,887
INCOME TAXES................................... 5,177 6,004 17,693 17,818
--------- --------- ----------- ---------
EARNINGS BEFORE MINORITY
INTEREST AND EQUITY IN EARNINGS
(LOSS) OF INVESTEE........................... 8,352 9,346 27,653 27,069
MINORITY INTEREST.............................. (144) (144) (474) (278)
EQUITY IN EARNINGS (LOSS)
OF INVESTEE.................................. (60) 355 (33) 875
--------- --------- ----------- ---------
NET EARNINGS................................... $ 8,148 $ 9,557 $ 27,146 $ 27,666
========= ========= =========== =========
EARNINGS PER SHARE - BASIC..................... $ 0.40 $ 0.46 $ 1.35 $ 1.33
EARNINGS PER SHARE - DILUTED................... $ 0.40 $ 0.45 $ 1.32 $ 1.30
WEIGHTED AVERAGE SHARES
OUTSTANDING.................................. 20,123 20,746 20,134 20,734
WEIGHTED AVERAGE SHARES
OUTSTANDING WITH COMMON
STOCK EQUIVALENTS............................ 20,481 21,265 20,502 21,324
See notes to consolidated condensed financial statements.
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5
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands, except share data)
Accumulated Officers'
Additional Other Stock
Common Paid-In Retained Comprehensive Notes
Stock Capital Earnings Earnings Receivable Total
--------- ---------- ---------- ------------- ----------- ---------
BALANCE AS OF 12/25/99................. $ 20,212 $ 78,625 $ 115,327 $ 1,033 ($ 635) $ 214,562
Comprehensive earnings:
Net earnings..................... 6,081
Foreign currency translation
adjustment..................... 154
Total comprehensive earnings....... 6,235
Issuance of 7,296 shares........... 7 84 91
Repurchase of 159,500 shares....... (159) (1,889) (2,048)
Payments received on officers'
stock notes receivable........... 124 124
--------- --------- --------- --------- --------- ---------
BALANCE AS OF 03/25/00................. $ 20,060 $ 78,709 $ 119,519 $ 1,187 ($ 511) $ 218,964
Comprehensive earnings:
Net earnings..................... 12,917
Foreign currency translation
adjustment..................... (12)
Total comprehensive earnings....... 12,905
Dividends paid..................... (808) (808)
Issuance of 65,132 shares.......... 65 251 316
Repurchase of 2,000 shares......... (2) (20) (22)
Issuance of officers' stock
notes receivable................. 61 740 (801) 0
Payments received on officers'
stock notes receivable........... 38 38
--------- --------- --------- --------- --------- ---------
BALANCE AS OF 06/24/00 $ 20,184 $ 79,700 $ 131,608 $ 1,175 ($ 1,274) $ 231,393
Comprehensive earnings:
Net earnings..................... 8,148
Foreign currency translation
adjustment..................... (39)
Total comprehensive earnings....... 8,109
Issuance of 4,822 shares........... 4 48 52
Repurchase of 126,200 shares....... (126) (1,432) (1,558)
Payments received on officers'
stock notes receivable........... 8 8
--------- --------- --------- --------- --------- ---------
BALANCE AS OF 09/23/00................. $ 20,062 $ 79,748 $ 138,324 $ 1,136 ($ 1,266) $ 238,004
========= ========= ========= ========= ========= =========
See notes to consolidated condensed financial statements.
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UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(in thousands, except share data) Accumulated Officers'
Additional Other Stock
Common Paid-In Retained Comprehensive Notes
Stock Capital Earnings Earnings Receivable Total
--------- ---------- ---------- ------------- ----------- ---------
BALANCE AS OF 12/26/98................... $ 20,710 $ 77,526 $ 95,221 ($ 1,072) ($ 802) $ 191,583
Comprehensive earnings:
Net earnings....................... 5,361
Foreign currency translation
adjustment....................... 303
Total comprehensive earnings......... 5,664
Issuance of 5,237 shares............. 6 92 98
Repurchase of 50,000 shares.......... (50) (887) (937)
Payments received on officers'
stock notes receivable............. 153 153
--------- --------- --------- ---------- ------- ---------
BALANCE AS OF 3/27/99.................... $ 20,666 $ 77,618 $ 99,695 ($ 769) ($ 649) $ 196,561
Comprehensive earnings:
Net earnings....................... 12,748
Foreign currency translation
adjustment....................... 512
Total comprehensive earnings......... 13,260
Dividends paid....................... (728) (728)
Issuance of 164,743 shares........... 164 560 724
Repurchase of 57,201 shares.......... (57) (1,071) (1,128)
Payments received on officers'
stock notes receivable............. 12 12
--------- --------- --------- ---------- ------- ---------
BALANCE AS OF 6/26/99.................... $ 20,773 $ 78,178 $ 110,644 ($ 257) ($ 637) $ 208,701
Comprehensive earnings:
Net earnings....................... 9,557
Foreign currency translation
adjustment....................... 233
Total comprehensive earnings......... 9,790
Issuance of 4,247 shares............. 4 75 79
Repurchase of 100,000 shares......... (100) (1,609) (1,709)
Payments received on officers'
stock notes receivable............. 1 1
--------- --------- --------- ---------- ------- ---------
BALANCE AS OF 9/25/99.................... $ 20,677 $ 78,253 $ 118,592 ($ 24) ($ 636) $ 216,862
========= ========= ========= ========== ======= =========
See notes to consolidated condensed financial statements.
6
7
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
-------------------------------
September 23, September 25,
2000 1999
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................................................... $ 27,146 $ 27,666
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation................................................................. 12,361 11,301
Amortization of non-compete agreements and goodwill.......................... 2,673 2,423
(Gain) loss on sale of property, plant and equipment......................... 72 (513)
Changes in:
Accounts receivable........................................................ (21,470) (32,491)
Inventories................................................................ 22,053 (7,829)
Accounts payable........................................................... 6,822 16,638
Accrued liabilities and other.............................................. 7,901 5,514
------------ ------------
NET CASH FROM OPERATING ACTIVITIES........................................... 57,558 22,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment........................................ (23,677) (27,508)
Business acquisitions, net of cash received....................................... (32,561)
Proceeds from sale of property, plant and equipment............................... 642 2,491
Other............................................................................. (816) 1,915
------------ ------------
NET CASH FROM INVESTING ACTIVITIES........................................... (56,412) (23,102)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt....................................................... (7,535) (9,919)
Proceeds from issuance of long-term debt.......................................... 2,118 27,742
Net borrowings (repayments) of revolving credit facilities and notes payable...... 11,950 (4,984)
Cash dividends paid............................................................... (808) (728)
Proceeds from issuance of common stock............................................ 431 863
Repurchase of common stock........................................................ (3,628) (3,774)
------------ ------------
NET CASH FROM FINANCING ACTIVITIES........................................... 2,528 9,200
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS........................................... 3,674 8,807
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................................... 4,106 920
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................................... $ 7,780 $ 9,727
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................................... $ 7,776 $ 6,929
Income taxes................................................................. 7,624 14,824
NON-CASH FINANCING ACTIVITIES:
Property, plant and equipment acquired through capital leases..................... $ 220
NON-CASH INVESTING ACTIVITIES:
Stock exchanged for note receivable............................................... $ 801
See notes to consolidated condensed financial statements.
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8
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial
statements (the "Financial Statements") of Universal Forest Products,
Inc. and its wholly-owned and majority-owned subsidiaries and
partnerships (together, the "Company"), have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, the Financial Statements do not include all of the
information and footnotes normally included in the annual consolidated
financial statements prepared in accordance with generally accepted
accounting principles. All significant intercompany transactions and
balances have been eliminated. The equity method of accounting has been
used for the Company's less than 50% owned affiliates over which the
Company has the ability to exercise a significant influence.
In the opinion of management, the Financial Statements contain all
material adjustments necessary to present fairly the consolidated
financial position, results of operations and cash flows, and changes in
shareholders' equity of the Company for the interim periods presented.
All such adjustments are of a normal recurring nature. These Financial
Statements should be read in conjunction with the consolidated financial
statements, and footnotes thereto, included in the Company's Annual
Report to Shareholders on Form 10-K for the fiscal year ended December
25, 1999.
Certain reclassifications have been made to the Financial Statements for
1999 to conform to the classifications used in 2000.
B. EARNINGS PER COMMON SHARE
A reconciliation of the changes in the numerator and the denominator from
the calculation of basic EPS to the calculation of diluted EPS follows
(in thousands, except per share data):
Three Months Ended 09/23/00 Three Months Ended 09/25/99
----------------------------------- ---------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
NET EARNINGS ........................... $ 8,148 $ 9,557
EPS - BASIC
Income available to
common stockholders .................. 8,148 20,123 $0.40 9,557 20,746 $0.46
===== =====
EFFECT OF DILUTIVE SECURITIES
Options ................................ 358 519
------- ------
EPS - DILUTED
Income available to
common stockholders and
assumed options
exercised ........................... $ 8,148 20,481 $0.40 $ 9,557 21,265 $0.45
======= ======= ===== ======= ======= =====
8
9
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Nine Months Ended 09/23/00 Nine Months Ended 09/25/99
------------------------------------ ----------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ------------- ------ ----------- ------------- ------
NET EARNINGS ........................... $27,146 $27,666
EPS - BASIC
Income available to
common stockholders .................. 27,146 20,134 $1.35 27,666 20,734 $1.33
===== =====
EFFECT OF DILUTIVE SECURITIES
Options ................................ 368 590
------- -----
EPS - DILUTED
Income available to
common stockholders and
assumed options
exercised ............................ $27,146 20,502 $1.32 $27,666 21,324 $1.30
======= ======= ===== ======= ======= =====
Options to purchase 649,386 shares of common stock at exercise prices
ranging from $13.18 to $36.01 were outstanding at September 23, 2000, but
were not included in the computation of diluted EPS for the quarter and
nine months ended September 23, 2000 because the options' exercise prices
were greater than the average market price of the common stock and,
therefore, would be antidilutive.
C. STOCK OPTIONS AND STOCK-BASED COMPENSATION
Options to purchase 40,000 and 80,000 shares were granted during the nine
months ended September 23, 2000 and September 25, 1999, respectively, at
exercise prices which equaled or exceeded the market price on the date of
grant. Weighted-average exercise prices were $21.56 and $29.25 for
options granted during the nine month periods ended September 23, 2000
and September 25, 1999, respectively.
As permitted under Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," the Company
continues to apply the provisions of APB Opinion No. 25 which recognizes
compensation expense under the intrinsic value method. Had compensation
cost for the stock options granted been determined under the fair value
based method defined in SFAS 123, the Company's net earnings and earnings
per share would have been reduced to the following pro forma amounts (in
thousands, except per share data).
9
10
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 23, September 25, September 23, September 25,
2000 1999 2000 1999
-------------- ------------ ------------- -------------
Net Earnings:
As Reported.............. $8,148 $9,557 $27,146 $27,666
Pro Forma................ 7,981 9,418 26,665 27,252
EPS - Basic:
As Reported.............. $0.40 $0.46 $1.35 $1.33
Pro Forma................ $0.40 $0.45 $1.32 $1.31
EPS - Diluted:
As Reported.............. $0.40 $0.45 $1.32 $1.30
Pro Forma................ $0.39 $0.44 $1.30 $1.28
The fair value of each option granted in the nine months ended
September 23, 2000 and September 25, 1999 is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions.
2000 1999
---- ----
Risk Free Interest Rate............. 6.20% 6.20%
Expected Life....................... 6.1 years 6.3 years
Expected Volatility................. 27.09% 27.75%
Expected Dividend Yield............. 0.40% 0.40%
Stock option activity for the nine months ended September 23, 2000 is as
follows:
Shares of Weighted-
Common Stock Average
Attributable to Exercise Price
Options of Options
--------------- --------------
Outstanding on December 25, 1999 1,317,515 $12.66
Granted 355,964 $13.58
Exercised 0 n/a
Forfeited (70,065) $16.42
----------
Outstanding on March 25, 2000 1,603,414 $12.72
Granted 150,000 $12.38
Exercised (60,000) $4.25
Forfeited (15,703) $15.23
----------
Outstanding on June 24, 2000 1,677,711 $12.97
Granted 0 n/a
Exercised 0 n/a
Forfeited (11,532) $14.48
----------
Outstanding on September 23, 2000 1,666,179 $12.96
==========
10
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
The following table summarizes information concerning options on
September 23, 2000 (there are no options exercisable at September 23,
2000):
Weighted-Average Remaining
Range of Exercise Prices Number Outstanding Contractual Life
------------------------ ------------------ --------------------------
$4.50 - $10.00 592,500 3.64
$10.01 - $25.00 963,679 5.33
$25.01 - $36.01 110,000 11.27
---------
1,666,179
=========
D. BUSINESS COMBINATIONS
On April 17, 2000, the Company acquired fifty percent of the stock of
ECJW Holdings, Inc. which has two subsidiaries, Thorndale Roof Systems,
Inc. and Edcor Floor Systems, Inc. ("TED"). Thorndale Roof Systems, Inc.
manufactures engineered roof trusses for residential and light commercial
building applications. Edcor Floor Systems, Inc. is a licensed
manufacturer of the patented Open Joist 2000(TM) web floor truss system.
Located in London, Ontario, both companies service Ontario, Eastern
Michigan and Northern Ohio, including the major markets of Detroit and
Toronto. The total purchase price for the stock of TED was approximately
$3.2 million, funded through the Company's revolving credit facility.
This transaction has been accounted for as a purchase and, accordingly,
the purchase price has been allocated to the assets acquired based on
their estimated fair market values at the date of acquisition. The excess
of the purchase price over the estimated fair value of the acquired
assets, assumed liabilities and minority interest was $2.3 million, and
has been recorded as goodwill, to be amortized on a straight-line basis
over 20 years. TED's results of operations are included in the Company's
consolidated condensed financial statements since the date of
acquisition.
On June 5, 2000, the Company acquired substantially all of the assets and
assumed certain liabilities of Gang-Nail Components, Inc. ("Gang-Nail")
of Fontana, CA, a manufacturer of engineered wood components. The new
name of this operation is Universal Truss, Inc. ("UTI"). The total
purchase price for the net assets was approximately $29.4 million, funded
through the Company's revolving credit facility. This transaction has
been accounted for as a purchase and, accordingly, the purchase price has
been allocated to the assets acquired based on their estimated fair
market values at the date of acquisition. The excess of the purchase
price over the estimated fair value of the acquired assets and assumed
liabilities was $13.4 million, and has been recorded as goodwill, to be
amortized on a straight-line basis over 20 years. UTI's results of
operations are included in the Company's consolidated condensed financial
statements since the date of acquisition.
The following unaudited pro forma consolidated results of operations for
the nine months ended September 23, 2000 and September 25, 1999 assumes
the acquisitions of TED and Gang-Nail occurred as of the beginning of the
periods presented (in thousands, except per share data).
11
12
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Nine Months Ended Nine Months Ended
September 23, 2000 September 25, 1999
------------------ ------------------
Net sales ................................. $1,125,711 $1,162,770
Net earnings .............................. 27,926 29,528
Earnings per share:
Basic .............................. $1.39 $1.42
Diluted ............................ $1.36 $1.38
Weighted average shares outstanding:
Basic .............................. 20,134 20,734
Diluted ............................ 20,502 21,324
The pro forma results above include certain adjustments to give effect to
amortization of goodwill, interest expense, compensation of management,
certain other adjustments and related income tax effects. The pro forma
results are not necessarily indicative of the operating results that
would have occurred had the acquisitions been completed as of the
beginning of the period presented, nor are they necessarily indicative of
future operating results.
12
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RISK FACTORS
Included in this report are certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The forward-looking
statements are based on the beliefs and assumptions of management of the Company
together with information available to the Company when the statements were
made. Future results could differ materially from those included in such
forward-looking statements as a result of, among other things, the factors set
forth below and certain economic and business factors which may be beyond the
control of the Company. Investors are cautioned that all forward-looking
statements involve risks and uncertainty.
Lumber Market Volatility:
The Company experiences significant fluctuations in the cost of commodity
lumber products from primary producers. A variety of factors over which the
Company has no control, including government regulations, environmental
regulations, weather conditions, economic conditions and natural disasters,
impact the cost of lumber products and the Company's selling prices. The Company
attempts to minimize its risk from severe price fluctuations. However, prolonged
trends in lumber prices can affect the Company's financial results. The Company
anticipates that price fluctuations will continue in the future. Management
utilizes the Random Lengths composite price (see "Fluctuations in Lumber
Prices"), which is a weighted average of nine key framing lumber prices chosen
from major producing areas and species, as a broad measure of price movement in
the commodity lumber market ("Lumber Market").
Competition:
The Company is subject to competitive selling and pricing pressures in
its major markets. While the Company is generally aware of its existing
competitors' capabilities, it is subject to entry in its markets by new
competitors, which could negatively impact financial results.
Market Growth:
The Company's sales growth is dependent, in part, upon growth of the
markets it serves. If the Company's markets do not achieve anticipated growth,
or if the Company fails to maintain its market share, financial results could be
impaired. Certain segments of the manufactured housing industry are hampered by
market conditions, including an oversupply of product and tightened credit
policies, which have impacted the Company's ability to achieve short-term growth
objectives. A prolonged downturn in this market could adversely affect the
Company's operating results.
13
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Economic Trends:
Management believes the Company's ability to achieve growth in sales and
margins to the site-built construction market is somewhat dependent on housing
starts. If housing starts decline significantly, the Company's financial results
could be impacted. One factor which could impact housing starts is an increase
in mortgage interest rates.
Business Combinations:
A key component of the Company's growth strategy is to complete business
combinations. Business combinations involve inherent risks, including
assimilation and successfully managing growth. While the Company conducts
extensive due diligence and has taken steps to ensure successful assimilation,
factors beyond the Company's control could influence the results of these
acquisitions.
Consolidation:
The Company, like most companies, is witnessing consolidation by its
customers. These consolidations will result in a larger portion of the Company's
sales being made to some customers. Consolidation may limit the number of
customers the Company is able to serve.
Government Regulations:
The Company is subject to a variety of government regulations which
create a financial burden on the Company. If additional laws and regulations are
enacted in the future, or if existing laws are interpreted differently, it could
increase the financial cost to the Company.
Weather Conditions:
The majority of the Company's products are used in outdoor construction
activities, therefore its short-term sales volume and profits can be negatively
affected by adverse weather conditions. In addition, adverse weather conditions
can negatively impact its productivity and costs per unit.
Seasonality:
Some aspects of the Company's business are seasonal in nature and results
of operations vary from quarter to quarter. The Company's treated lumber and
outdoor specialty products, such as fencing, decking and lattice, experience the
greatest seasonal effects. Sales of treated lumber, primarily consisting of
Southern Yellow Pine ("SYP"), also experience the greatest Lumber Market risk.
Treated lumber sales are generally at their highest levels between the months of
April through August. This sales peak, combined with capacity constraints in the
wood treatment process, requires the Company to build its inventory of treated
lumber throughout the winter and spring. Since sales
14
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
prices of treated lumber products are generally indexed to the Lumber Market at
the time they are shipped, the Company's profits can be negatively affected by
prolonged declines in the Lumber Market during its primary selling season. To
mitigate this risk, programs are maintained with certain vendors and customers
that are intended to decrease the Company's exposure. These programs include
those materials which are most susceptible to adverse changes in the Lumber
Market. Vendor programs also allow the Company to carry a lower investment in
inventories.
E-Business/E-Commerce:
While the Company has invested heavily in technology and established
electronic business-to-business efficiencies with certain customers and vendors,
the willingness of customers and vendors to modify existing distribution
strategies poses a potential risk. The Company believes the nature of its
products, together with the value-added services the Company provides, ensures
that it has a solid position in the supply chain.
When analyzing this report to assess the future performance of the Company,
please recognize the potential impact of the various factors set forth above.
BUSINESS COMBINATIONS
On April 17, 2000, the Company acquired fifty percent of the stock of
ECJW Holdings, Inc. which has two subsidiaries, Thorndale Roof Systems, Inc. and
Edcor Floor Systems, Inc. ("TED"). Thorndale Roof Systems, Inc. manufactures
engineered roof trusses for residential and light commercial building
applications. Edcor Floor Systems, Inc. is a licensed manufacturer of the
patented Open Joist 2000(TM) web floor truss system. Located in London, Ontario,
both companies service Ontario, Eastern Michigan and Northern Ohio, including
the major markets of Detroit and Toronto. The total purchase price for the stock
of TED was approximately $3.2 million. TED had net sales in fiscal 1999 totaling
$11.2 million.
On June 5, 2000, the Company acquired substantially all of the assets
and assumed certain liabilities of Gang-Nail Components, Inc. ("Gang-Nail") of
Fontana, CA, a manufacturer of engineered wood components. The total purchase
price for the net assets was approximately $29.4 million. Gang-Nail had net
sales in fiscal 1999 totaling $41.7 million.
FLUCTUATIONS IN LUMBER PRICES
The following table presents the Random Lengths framing lumber composite
price for the nine months ended September 23, 2000 and September 25, 1999:
15
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Random Lengths Composite
Average $/MBF
------------------------
2000 1999
---- ----
January............................ $386 $370
February........................... 385 386
March.............................. 382 394
April.............................. 359 393
May................................ 326 421
June............................... 331 454
July............................... 308 480
August............................. 289 404
September.......................... 287 392
Third quarter average.............. $295 $425
Year-to-date average............... $339 $410
Third quarter percentage
decrease from 1999............... -30.6%
Year-to-date percentage
decrease from 1999............... -17.3%
In addition, a SYP composite price, prepared and used by the Company, is
presented below. Sales of products produced using this species comprise up to
fifty percent of the Company's sales volume.
Random Lengths SYP
Average $/MBF
------------------
2000 1999
---- ----
January............................ $488 $471
February........................... 490 497
March.............................. 494 513
April ............................. 483 496
May................................ 439 523
June............................... 456 563
July............................... 432 590
August............................. 403 492
September.......................... 395 473
Third quarter average.............. $410 $518
Year-to-date average............... $453 $513
Third quarter percentage
decrease from 1999............... -20.9%
Year-to-date percentage
decrease from 1999 .............. -11.7%
16
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
The effects of the Lumber Market on the Company's results of operations
are discussed below under the caption "Net Sales."
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components
of the Company's Consolidated Condensed Statements of Earnings as a percentage
of net sales.
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 23, September 25, September 23,September 25,
2000 1999 2000 1999
------------ ------------- -------------- -------------
Net sales .............................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ..................................... 86.8 88.1 86.8 87.7
----- ----- ----- -----
Gross profit ........................................... 13.2 11.9 13.2 12.3
Selling, general, and
administrative expenses .............................. 8.6 7.2 8.2 7.6
----- ----- ----- -----
Earnings from operations ............................... 4.6 4.7 5.0 4.7
Interest, net .......................................... 1.0 0.7 0.9 0.8
----- ----- ----- -----
Earnings before income taxes,
minority interest and equity in
earnings (loss) of investee .......................... 3.6 4.0 4.1 3.9
Income taxes ........................................... 1.4 1.6 1.6 1.6
----- ----- ----- -----
Earnings before minority interest and
equity in earnings (loss) of investee ................ 2.2 2.4 2.5 2.3
Minority interest ...................................... (0.0) (0.0) (0.0) (0.0)
Equity in earnings (loss) of investee .................. (0.0) 0.1 (0.0) 0.1
----- ----- ----- -----
Net earnings ........................................... 2.2% 2.5% 2.5% 2.4%
===== ===== ===== =====
NET SALES
The Company engineers, manufactures, treats and distributes lumber and
other building products to the do-it-yourself ("DIY"), manufactured housing,
wholesale lumber, industrial and conventional site-built construction markets.
The Company's strategic sales objectives include:
- - Diversifying the Company's end market sales mix by increasing its sales of
specialty wood packaging to industrial users and engineered wood products to
the site-built construction market. Engineered wood products include roof
trusses, wall panels and engineered floor systems.
17
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- - Increasing sales of "value-added" products. Value-added product sales consist
of fencing, decking, lattice and other specialty products sold to the DIY
market; specialty wood packaging; and engineered wood products. A long-term
goal of the Company is to achieve a ratio of value-added sales to total sales
of at least 50%. Although the Company considers the treatment of dimensional
lumber with preservatives a value-added process, management does not include
treated lumber as a component of value-added sales.
- - Maximizing profitable top-line sales growth while increasing DIY market
share.
- - Maintaining manufactured housing market share.
In order to measure its progress toward attaining these objectives,
management analyzes the following financial data:
- - Sales by market classification.
- - The percentage change in sales attributable to changes in overall selling
prices versus changes in the quantity of units shipped.
- - The ratio of value-added product sales to total sales.
The following table presents, for the periods indicated, the Company's
net sales (in thousands) and percentage of total net sales by market
classification.
For the Three Months Ended For the Nine Months Ended
------------------------------------------ ---------------------------------------------
Sept. 23, Sept. 25, Sept. 23, Sept 25,
Market Classification 2000 % 1999 % 2000 % 1999 %
- --------------------- ---------- ----- ---------- ----- ---------- ----- ---------- -----
DIY ........................ $ 179,701 48.4% $ 177,892 45.8% $ 543,690 49.1% $ 534,850 47.1%
Manufactured Housing ....... 76,909 20.7 103,990 26.8 243,024 22.0 309,222 27.2
Site-Built Construction .... 68,372 18.4 58,062 14.9 180,006 16.3 159,412 14.0
Industrial ................. 27,272 7.4 26,188 6.8 83,602 7.5 71,182 6.4
Wholesale Lumber ........... 18,776 5.1 22,270 5.7 56,358 5.1 60,667 5.3
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total ...................... $ 371,030 100.0% $ 388,402 100.0% $1,106,680 100.0% $1,135,333 100.0%
========== ===== ========== ===== ========== ===== ========== =====
Net sales in the third quarter of 2000 decreased $17.4 million, or 4.5%,
compared to the third quarter of 1999, reflecting a decrease in overall selling
prices, partially offset by a substantial increase in units shipped. Overall
selling prices decreased due to the deflated Lumber Market (see "Fluctuations in
Lumber Prices"). The increase in units shipped was primarily driven by sales
from newly acquired plants serving the site-built construction market, increased
unit sales to the industrial market and additional business with the Company's
largest DIY customer. Net sales in the first nine months of 2000 decreased $28.7
million, or 2.5%, compared to the same period of 1999, primarily due to the same
factors listed above.
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19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
The following table presents, for the periods indicated, the Company's
percentage of value-added and commodity-based sales to total sales.
Three Months Ended Nine Months Ended
----------------------------- -------------------------------
September 23, September 25, September 23, September 25,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Value-Added ................................ 43.4% 39.2% 42.8% 40.4%
Commodity-Based ............................ 56.6% 60.8% 57.2% 59.6%
Note: In the second quarter of 2000, the Company reviewed the
classification of its value-added and commodity-based products and made
certain reclassifications. Prior year information has been restated due
to these reclassifications.
The third quarter and year-to-date increases in the ratio of value-added
sales to total sales are primarily due to increased sales of engineered roof
trusses, I-joists and Open Joist 2000 products to the site-built construction
market and fencing to the DIY market. In addition, treated and commodity lumber
sales decreased due to a decline in units shipped to the manufactured housing
market and a decline in overall selling prices due to the deflated Lumber
Market.
DIY:
Net sales to the DIY market increased approximately $1.8 million, or
1.0%, in the third quarter of 2000 compared to the same period of 1999. This
increase is primarily due to an increase in sales to the Company's largest
customer as a substantial increase in unit sales was partially offset by a
decrease in overall selling prices caused by the deflated Lumber Market. This
increase helped offset a decrease in business with two national customers due to
a decline in their financial position. Net sales in the first nine months of
2000 increased $8.8 million, or 1.7% compared to the same period of 1999, due
primarily to the same factors discussed above.
Manufactured Housing:
Net sales to the manufactured housing market decreased approximately
$27.1 million, or 26.0%, in the third quarter of 2000 and decreased $66.2
million, or 21.4%, in the first nine months of 2000. The Company's unit sales
have decreased as these customers continue to struggle with an oversupply of
finished homes at the retail level, tightening credit for consumers and a recent
increase in repossessions. The industry expects this situation to continue well
into the year 2001. In addition, overall selling prices declined due to the
deflated Lumber Market.
Site-Built Construction:
Net sales to the site-built construction market increased approximately
$10.3 million, or 17.8%, in the third quarter of 2000 and increased $20.6
million, or 12.9%, in the first nine months of 2000. These increases were
primarily due to increased unit sales as a result of the acquisition of TED and
19
20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Gang-Nail along with increases at certain existing locations. These increases
were partially offset by decreased unit sales at certain locations servicing the
Mid-Atlantic Region as a result of fewer housing starts.
Industrial:
Net sales to the industrial market increased approximately $1.1 million,
or 4.1%, in the third quarter of 2000 and increased $12.4 million, or 17.4%, in
the first nine months of 2000. These increases were primarily due to increased
market share in several regions due to continued focus on growth, combined with
the effects of redirecting sales efforts and manufacturing capacity at certain
plants as a result of the downturn in the manufactured housing market.
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales increased to 13.2% in the third
quarter of 2000 compared to 11.9% in the same period of 1999. Gross profit as a
percentage of net sales increased to 13.2% for the first nine months of 2000
compared to 12.3% for the same period of 1999. These increases were primarily
due to:
- - An increase in the ratio of value-added product sales to the Company's total
sales due to increased sales of engineered wood products to the site-built
construction market, specialty packaging products to the industrial market
and fencing and lattice products to the DIY market.
- - An increase in gross margins on certain products due to the low level of the
Lumber Market throughout 2000 compared to 1999. The selling prices of many
products are indexed to the Lumber Market along with a fixed dollar "adder"
to cover conversion costs and profits. Therefore, in periods when the Lumber
Market is down, the fixed adder will result in higher gross margins.
- - The above increases were offset by lower gross margins on sales to the
manufactured housing market due to the effect of price competition and lower
volumes on manufacturing efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately $4.0
million, or 14.2%, in the third quarter of 2000 and increased approximately $5.0
million, or 5.8%, in the first nine months of 2000. These increases were
primarily due to new operations and increased compensation related to headcount.
Emphasis on growing the site-built business has required additional sales,
engineering and other technical professionals.
INTEREST, NET
Net interest costs increased approximately $0.7 million in the third
quarter of 2000 and increased approximately $1.3 million in the first nine
months of 2000. These increases were due to
20
21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
a higher average debt balance as a result of recent business acquisitions and
share repurchases combined with higher short-term borrowing rates on variable
rate debt.
INCOME TAXES
The Company's effective tax rate was 38.3% in the third quarter of 2000
compared to 39.1% in the same period of 1999. The effective tax rate was 39.0%
in the first nine months of 2000 compared to 39.7% in the same period of 1999.
Effective tax rates differ from statutory federal income tax rates, primarily
due to provisions for state and local income taxes, provisions for Canadian
income taxes and permanent tax differences. The decreases noted above are
primarily due to lower estimated state and local income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities for the first nine months of
2000 increased $34.8 million over the same period of 1999. This improvement is
primarily due to the impact of a lower Lumber Market on sales, receivables and
inventory, combined with a change in buying practices on certain products. At
the end of 1999, the Company purchased certain inventory well in advance of the
spring DIY selling season in order to meet expected demand.
Due to the seasonality of its business and the effects of the Lumber
Market, management believes the Company's cash cycle (days sales outstanding
plus days supply of inventory less days payables outstanding) is a good
indicator of its working capital management. The Company's cash cycle increased
to 44 days in the first nine months of 2000 from 41 days in the first nine
months of 1999 primarily due to higher average inventory levels associated with
the change in buying practices discussed above and longer trade terms associated
with the site-built construction market. These factors were partially offset by
a longer payment cycle with certain vendors.
Capital expenditures totaled $23.7 million in the first nine months of
2000 compared to $27.5 million in the same period of 1999. The Company's capital
expenditures during the third quarter of 2000 primarily consisted of several
projects to improve efficiencies, expand manufacturing capacity at existing
plants and costs to complete or acquire several new plants. The Company expects
to spend between $14 million and $16 million on capital expenditures for the
balance of 2000, which includes outstanding purchase commitments on capital
projects totaling approximately $9.3 million on September 23, 2000. The Company
intends to satisfy these commitments utilizing its revolving credit facility.
The Company spent approximately $32.4 million in the first nine months
of 2000 related to business acquisitions which are discussed earlier under the
caption "Business Combinations." The Company funded the purchase price of these
acquisitions using its revolving credit facility.
21
22
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Cash flows provided by financing activities decreased to $2.5 million
in the first nine months of 2000 from $9.2 million in the same period of 1999.
On September 23, 2000, the Company had $23.0 million outstanding on its $175
million revolving credit facility. Financial covenants on the Company's
revolving credit facility and senior unsecured notes include a minimum net worth
requirement, a minimum interest coverage test and a maximum leverage ratio. The
Company is well within its requirements at September 23, 2000.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
The Company is self-insured for environmental impairment liability and
accrues for the estimated cost of monitoring or remediation activities. As of
November 1, 2000, the Company owns or operates 21 wood preserving facilities
throughout the United States that treat lumber products with a chemical
preservative. In accordance with applicable federal, state and local
environmental laws, ordinances and regulations, the Company may be potentially
liable for costs and expenses related to the environmental condition of the
Company's real property. The Company has established reserves for remediation
activities at its North East, MD; Union City, GA; Stockertown, PA; Elizabeth
City, NC; Auburndale, FL; and Schertz, TX facilities.
The Company has accrued in other long-term liabilities amounts totaling
$2.3 million on September 23, 2000 and September 25, 1999 for the activities
described above. Management believes that the potential future costs of known
remediation efforts will not have a material adverse effect on its future
financial position, results of operations or liquidity.
22
23
UNIVERSAL FOREST PRODUCTS, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks related to fluctuations in
interest rates on its variable rate debt, which consists of a revolving credit
facility and industrial development revenue bonds. The Company does not
currently use interest rate swaps, futures contracts or options on futures, or
other types of derivative financial instruments to mitigate this risk.
For fixed rate debt, changes in interest rates generally affect the
fair market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. The Company does not have an
obligation to prepay fixed rate debt prior to maturity, and as a result,
interest rate risk and changes in fair market value should not have a
significant impact on such debt until the company would be required to refinance
it.
23
24
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(a) None.
(b) None.
(c) Sales of equity securities in the third quarter not registered under the
Securities Act.
Date of Class of Number Consideration
Sale Stock of Shares Purchasers Exchanged
----------- ---------- --------- ---------- -------------
Stock Gift Program Various Common 50 Eligible persons None
24
25
UNIVERSAL FOREST PRODUCTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL FOREST PRODUCTS, INC.
Date: November 3, 2000 By: /s/ William G. Currie
-------------------- -----------------------------------------
William G. Currie
Its: Vice Chairman of the Board and
Chief Executive Officer
Date: November 3, 2000 By: /s/ Michael R. Cole
-------------------- -----------------------------------------
Michael R. Cole
Its: Chief Financial Officer
25
26
UNIVERSAL FOREST PRODUCTS, INC.
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27.3QTR00 Financial Data Schedule 27
26