1
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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 March 31, 2001
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
Commission File Number 0-22684
-----
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
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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 May 1, 2001
- ----------------------------------- -----------------------------
Common stock, no par value 19,802,383
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Page 1 of 23
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INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets at March 31, 2001
and December 30, 2000. 3
Consolidated Condensed Statements of Earnings for the Three
Months Ended March 31, 2001 and March 25, 2000. 4
Consolidated Condensed Statements of Shareholders' Equity for the
Three Months Ended March 31, 2001 and March 25, 2000. 5
Consolidated Condensed Statements of Cash Flows for the Three
Months Ended March 31, 2001 and March 25, 2000. 6
Notes to Consolidated Condensed Financial Statements. 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Changes in Securities. 22
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 - NONE.
(b) No reports were filed on Form 8-K during the three
months ended March 31, 2001.
2
3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
March 31, December 30,
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 5,273 $ 2,392
Restricted cash equivalents................................................ 1,281 1,364
Accounts receivable (net of allowance for doubtful accounts of
$1,700 and $1,340)....................................................... 105,338 64,386
Inventories:
Raw materials......................................................... 50,384 41,885
Finished goods........................................................ 97,803 81,306
------------ -----------
148,187 123,191
Other current assets....................................................... 8,852 9,026
------------ -----------
TOTAL CURRENT ASSETS.............................................. 268,931 200,359
OTHER ASSETS.................................................................... 11,758 11,392
GOODWILL AND NON-COMPETE AGREEMENTS, NET........................................ 113,671 105,579
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment.............................................. 263,351 256,658
Accumulated depreciation and amortization.................................. (92,599) (88,668)
------------ -----------
PROPERTY, PLANT AND EQUIPMENT, NET................................ 170,752 167,990
------------ -----------
TOTAL ASSETS.................................................................... $ 565,112 $ 485,320
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt............................................................ $ 795 $ 1,270
Accounts payable........................................................... 59,277 35,589
Accrued liabilities:
Compensation and benefits............................................. 19,096 29,423
Other ................................................................ 11,425 4,973
Current portion of long-term debt and capital lease obligations............ 18,260 8,783
------------ -----------
TOTAL CURRENT LIABILITIES......................................... 108,853 80,038
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion.............................................. 197,336 150,807
DEFERRED INCOME TAXES........................................................... 9,139 9,092
OTHER LIABILITIES............................................................... 9,319 9,614
------------ -----------
TOTAL LIABILITIES................................................. 324,647 249,551
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, 19,715,974 and 19,719,114............................... 19,716 19,719
Additional paid-in capital................................................. 79,995 79,800
Retained earnings.......................................................... 141,386 136,645
Accumulated other comprehensive earnings................................... 523 860
------------ -----------
241,620 237,024
Officers' stock notes receivable........................................... (1,155) (1,255)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY........................................ 240,465 235,769
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................... $ 565,112 $ 485,320
============= ===========
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
----------------------------
March 31, March 25,
2001 2000
------------- ------------
NET SALES ..................................................................... $ 284,638 $ 304,072
COST OF GOODS SOLD................................................................. 241,519 263,661
----------- ----------
GROSS PROFIT....................................................................... 43,119 40,411
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.......................................................... 32,273 27,318
----------- ----------
EARNINGS FROM OPERATIONS........................................................... 10,846 13,093
INTEREST, NET:
Interest expense.............................................................. 3,199 3,168
Interest income............................................................... (72) (86)
----------- ----------
3,127 3,082
----------- ----------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST
AND EQUITY IN EARNINGS OF INVESTEE............................................... 7,719 10,011
INCOME TAXES....................................................................... 2,856 3,953
----------- ----------
EARNINGS BEFORE MINORITY INTEREST AND EQUITY IN
EARNINGS OF INVESTEE............................................................. 4,863 6,058
MINORITY INTEREST.................................................................. (67) (23)
EQUITY IN EARNINGS OF INVESTEE..................................................... 181 46
----------- ----------
NET EARNINGS....................................................................... $ 4,977 $ 6,081
=========== ==========
EARNINGS PER SHARE - BASIC......................................................... $ 0.25 $ 0.30
EARNINGS PER SHARE - DILUTED....................................................... $ 0.25 $ 0.30
WEIGHTED AVERAGE SHARES OUTSTANDING............................................... 19,714 20,135
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON
STOCK EQUIVALENTS................................................................ 20,243 20,524
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 12/30/00................ $ 19,719 $ 79,800 $ 136,645 $ 860 ($ 1,255) $ 235,769
Comprehensive earnings:
Net earnings.................... 4,977
Foreign currency translation
adjustment.................... (337)
Total comprehensive earnings...... 4,640
Issuance of 16,160 shares......... 16 195 211
Repurchase of 19,300 shares....... (19) (236) (255)
Payments received on officers'
stock notes receivable.......... 100 100
---------- ---------- --------- --------- -------- ----------
BALANCE AS OF 03/31/01................ $ 19,716 $ 79,995 $ 141,386 $ 523 ($ 1,155) $ 240,465
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
See notes to consolidated condensed financial statements.
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UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands.)
Three Months Ended
--------------------------
March 31, March 25,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................................................... $ 4,977 $ 6,081
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation................................................................. 4,577 3,830
Amortization of non-compete agreements and goodwill.......................... 1,045 791
(Gain) loss on sale of property, plant and equipment......................... (88)
Changes in:
Accounts receivable........................................................ (37,032) (37,040)
Inventories................................................................ (23,587) (28,095)
Accounts payable........................................................... 22,600 22,737
Accrued liabilities and other.............................................. (7,198) (5,089)
--------- ---------
NET CASH FROM OPERATING ACTIVITIES........................................... (34,618) (36,873)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment........................................ (7,781) (7,271)
Acquisitions, net of cash received................................................ (10,498)
Proceeds from sale of property, plant and equipment............................... 481 209
Other............................................................................. (391) (261)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES........................................... (18,189) (7,323)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of notes payable and revolving credit facilities................... 58,759 42,908
Proceeds from issuance of long-term debt.......................................... 1,949
Repayment of long-term debt, net.................................................. (2,864) (379)
Proceeds from issuance of common stock............................................ 48 65
Repurchase of common stock........................................................ (255) (2,048)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES........................................... 55,688 42,495
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS........................................... 2,881 (1,701)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................................... 2,392 4,106
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................................... $ 5,273 $ 2,405
========= =========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................................... $ 731 $ 611
Income taxes paid (refunded)................................................. 289 (2,913)
NON-CASH FINANCING ACTIVITIES:
Accounts receivable exchanged for a note receivable............................... $ 441
See notes to consolidated condensed financial statements.
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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
30, 2000.
Certain reclassifications have been made to the Financial Statements for
2000 to conform to the classifications used in 2001.
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 03/31/01 Three Months Ended 03/25/00
---------------------------------- -----------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------- ------------- ------ ----------- ------------- ------
NET EARNINGS................... $ 4,977 $ 6,081
EPS - BASIC
Income available to
common stockholders.......... 4,977 19,714 $0.25 6,081 20,135 $0.30
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 529 389
--------- --------
EPS - DILUTED
Income available to
common stockholders and
assumed options
exercised.................... $ 4,977 20,243 $0.25 $ 6,081 20,524 $0.30
========= ========= ===== ========= ======== =====
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8
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Options to purchase 502,971 shares of common stock at exercise prices
ranging from $14.75 to $36.01 were outstanding at March 31, 2001, but
were not included in the computation of diluted EPS 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
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).
Three Months Ended
-------------------------
March 31, March 25,
2001 2000
--------- ---------
Net Earnings:
As Reported.............. $4,977 $6,081
Pro Forma................ 4,639 5,933
EPS - Basic:
As Reported.............. $0.25 $0.30
Pro Forma................ $0.24 $0.29
EPS - Diluted:
As Reported.............. $0.25 $0.30
Pro Forma................ $0.23 $0.29
The fair value of each option granted in the three months ended March 31,
2001 and March 25, 2000 was estimated on the date of the grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions.
2001 2000
---- ----
Risk Free Interest Rate............. 4.6% 6.20%
Expected Life....................... 4.5 years 5.7 years
Expected Volatility................. 26.62% 27.17%
Expected Dividend Yield............. 0.40% 0.40%
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Stock option activity for the three months ended March 31, 2001 is as
follows:
Shares of Weighted-
Common Stock Average
Attributable to Exercise Price
Options of Options
--------------- --------------
Outstanding on December 30, 2000 1,661,538 $12.95
Granted 390,597 14.13
Exercised 0 n/a
Forfeited (50,887) 8.34
------------------------------------------ ---------------
Outstanding on March 31, 2001 2,001,248 $13.28
The following table summarizes information concerning options on March
31, 2001 (there are no options exercisable at March 31, 2001):
Weighted-Average
Number Remaining
Range of Exercise Prices Outstanding Contractual Life
------------------------ ----------- ----------------
$4.50 - $10.00 557,500 2.64
$10.01 - $25.00 1,333,748 4.40
$25.01 - $36.01 110,000 10.27
----------
2,001,248
==========
No options to purchase shares were granted during the first three months
ended March 31, 2001 at exercise prices which exceeded the market price
on the date of grant. Options to purchase 40,000 shares with a
weighted-average exercise price of $21.56 were granted during the three
months ended March 25, 2000 at exercise prices which exceeded the market
price on the date of grant.
D. BUSINESS COMBINATIONS
On February 28, 2001, a subsidiary of the Company acquired 50% of the
assets of D&R Framing Contractors ("D&R") of Englewood, Colorado. The
total purchase price to the Company was approximately $7.6 million. The
excess of the purchase price over the estimated fair value of the
acquired assets, assumed liabilities and minority interest was $7.0
million, and has been recorded as goodwill, to be amortized over a
straight-line basis for 20 years. D&R's results of operations are
included in the Company's consolidated condensed financial statements
since the date of acquisition.
On March 2, 2001, a subsidiary of the Company acquired the remaining 50%
of ECJW Holdings, Inc. and its two subsidiaries, Thorndale Roof Systems,
Inc. and Edcor Floor Systems, Inc. (collectively "TED"). The second
purchase price for the remaining stock of TED was approximately $3.5
million. The excess of the purchase price over the previously recorded
9
10
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
minority interest was $2.3 million, and has been recorded as goodwill, to
be amortized over a straight-line basis for 20 years.
E. SUBSEQUENT EVENT
On April 3, 2001, a subsidiary of the Company acquired certain assets of
the Sunbelt Wood Components Division of Kevco Manufacturing, L.P. The
assets include component-manufacturing facilities in North Carolina,
Alabama, Georgia and Arizona, which serve the manufactured housing and
industrial markets. The total purchase price for the assets was $7.8
million.
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11
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. While the
Company attempts to minimize its risk from severe price fluctuations,
substantial, prolonged trends in lumber prices can affect the Company's
financial results. The Company anticipates that these 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. The manufactured housing industry is currently 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 continued downturn in this market could adversely affect the
Company's operating results.
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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.
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 is witnessing consolidation by its customers. These
consolidations will result in a larger portion of the Company's sales being made
to some customers and may limit the customer base 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 which restrict the ability of the Company to manufacture
or market its products, including its preservative-treated products, it could
adversely affect the Company's sales and profits. If existing laws are
interpreted differently, it could increase the financial cost to the Company.
The Company's wood preservation process involves the use of a chromated
copper arsenate (CCA) solution that is applied to wood products under pressure.
The Company understands, based on published industry reports, that CCA is a safe
and effective product to prolong the use of many of the Company's wood products.
The Company is aware of certain allegations that the existence of arsenic in
such products presents a threat to public health. To date, the Company has no
evidence supporting the validity of any of these allegations. Nevertheless, and
presumably due to these allegations, the State of Florida has imposed a
moratorium on the use of CCA treated wood in Florida state parks. The expansion
of limits on the use of CCA treated lumber within Florida or by other states
could have a negative impact on the Company's results of operations.
The United States government recently suspended the implementation of
proposed changes in the arsenic drinking water standards adopted in the last
days of the Clinton administration. If the proposed changes are adopted, which
reduce the current standard for arsenic of 50 parts per billion, the Company
anticipates that other threshold levels, such as storm water and soil
limitations, will
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
be reduced. These requirements, if adopted, could have a significant adverse
impact on the Company's cost of operations.
Weather Conditions:
The majority of the Company's products are used or installed 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 the Company's 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 prices of treated lumber
products may be 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 its value-added services, ensures that it has a
secure 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.
FLUCTUATIONS IN LUMBER PRICES
The following table presents the Random Lengths framing lumber composite
price for the three months ended March 31, 2001 and March 25, 2000:
13
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Random Lengths Composite
Average $/MBF
------------------------
2001 2000
---- ----
January............................ $269 $386
February........................... 285 385
March.............................. 306 382
First quarter average.............. $287 $384
First quarter percentage
decrease from 2000............... (25.3%)
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
------------------
2001 2000
---- ----
January............................ $369 $488
February........................... 393 490
March.............................. 408 494
First quarter average.............. $390 $491
First quarter percentage
decrease from 2000............... (20.6%)
The effects of the Lumber Market on the Company's results of operations
are discussed below under the caption "Net Sales."
BUSINESS COMBINATIONS
On February 28, 2001, a subsidiary of the Company acquired 50% of the
assets of D&R Framing Contractors ("D&R") of Englewood, Colorado for
approximately $7.6 million. D&R had net sales in fiscal 2000 totaling
approximately $44 million.
On March 2, 2001, a subsidiary of the Company acquired the remaining 50%
of ECJW Holdings, Inc. and its two subsidiaries, Thorndale Roof Systems, Inc.
and Edcor Floor Systems, Inc. (collectively "TED"). The second purchase price
for the remaining stock of TED was approximately $3.5 million.
14
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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
--------------------------
March 31, March 25,
2001 2000
--------- ---------
Net sales.................................... 100.0% 100.0%
Cost of goods sold........................... 84.9 86.7
--------- ---------
Gross profit................................. 15.1 13.3
Selling, general, and
administrative expenses.................... 11.3 9.0
--------- ----------
Earnings from operations..................... 3.8 4.3
Interest, net................................ 1.0 1.0
--------- ---------
Earnings before income taxes,
minority interest and equity in
earnings of investee....................... 2.8 3.3
Income taxes................................. 1.0 1.3
--------- ----------
Earnings before minority interest and
equity in earnings of investee............. 1.8 2.0
Minority interest............................ (0.0) (0.0)
Equity in earnings of investee............... 0.0 0.0
-------- ---------
Net earnings................................. 1.8% 2.0%
======= =======
NET SALES
The Company engineers, manufactures, installs, 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 floor systems.
- - 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
15
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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 certain chemical
preservatives a value-added process, treated lumber is not presently
included in the value-added sales totals.
- - 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.
This information is included in the tables and narrative that follow.
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
---------------------------------------------------
March 31, March 25,
Market Classification 2001 % 2000 %
- --------------------- ---------- ---------- ---------- ----------
DIY/Retail..................... $127,704 44.8% $134,280 44.2%
Manufactured Housing........... 50,835 17.9 78,182 25.7
Site-Built Construction........ 62,198 21.9 48,615 16.0
Industrial..................... 26,774 9.4 26,380 8.7
Wholesale Lumber............... 17,127 6.0 16,615 5.4
---------- ---------- ---------- ----------
Total.......................... $284,638 100.0% $304,072 100.0%
========== ========== ========== ==========
Net sales in the first quarter of 2001 decreased compared to the first
quarter of 2000, reflecting a decrease in overall selling prices, partially
offset by an 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.
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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
------------------------------
March 31, March 25,
2001 2000
----------- -----------
Value-Added........................... 50.3% 44.0%
Commodity-Based....................... 49.7% 56.0%
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 increase in the ratio of value-added sales to total sales in the
first quarter was primarily due to increased sales of engineered roof trusses,
I-joists and Open Joist 2000 products to the site-built construction and retail
markets. In addition, commodity and treated 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. The above factors were
partially offset by a 31% decline in truss sales to the manufactured housing
market.
DIY/Retail:
Net sales to the DIY/retail market decreased in the first quarter of 2001
compared to the same period of 2000. This decrease was primarily due to a
decrease in overall selling prices caused by the deflated Lumber Market, offset
by a 10% increase in unit sales to the Company's largest customer.
Manufactured Housing:
Net sales to the manufactured housing market decreased in the first
quarter of 2001 compared to the same period 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, tight credit conditions and an increase in
repossessions. The industry expects this situation to continue for the next
three or four quarters. In addition, overall selling prices declined due to the
deflated Lumber Market.
Site-Built Construction:
Net sales to the site-built construction market increased in the first
quarter of 2001 compared to the same period of 2000. This increase was primarily
due to increased unit sales as a result of the acquisition of TED and Gang-Nail
Components in the second quarter of 2000 and D&R in the first quarter of 2001.
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Industrial:
Net sales to the industrial market increased slightly in the first
quarter of 2001 compared to the same period of 2000. This increase was primarily
due to increased market share in several regions from 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 in the first quarter
of 2001 compared to the same period of 2000. This increase was 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.
- - An increase in gross margins on many products due to the low level of the
Lumber Market in the first quarter of 2001 compared to 2000. The selling
prices of several 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased in the first
quarter of 2001 compared to the same period of 2000. This increase was primarily
due to:
- - Expenses added through business acquisitions and other new operations.
- - An increase in selling and administrative headcount to support the growth of
the business and to pursue strategic initiatives.
INTEREST, NET
Net interest costs increased slightly in the first quarter of 2001
compared to the same period of 2000. This increase was due to a higher average
debt balance as a result of recent business acquisitions, offset by a decrease
in short-term borrowing rates on variable rate debt.
INCOME TAXES
The Company's effective tax rate was 37.0% in the first quarter of 2001
compared to 39.5% in the same period of 2000. Effective tax rates differ from
statutory federal income tax rates, primarily due to provisions for state and
local income taxes and permanent tax differences.
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19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities decreased slightly in the first
quarter of 2001 compared to the same period of 2000. This improvement was
primarily due to the impact of a lower Lumber Market on sales, receivables and
inventory.
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 55 days in the first three months of 2001 from 52 days in the first three
months of 2000 primarily due to a longer receivables cycle. The receivables
cycle increased primarily due to a greater percentage of the Company's sales
being made to the site-built construction market and a general lag in the
receivable cycle.
Capital expenditures totaled $7.8 million in the first three months of
2001 compared to $7.3 million in the same period of 2000. The Company's capital
expenditures during the first quarter of 2001 primarily consisted of several
projects to improve efficiencies, expand manufacturing capacity at existing
plants and costs to acquire new plants. The Company expects to spend between $28
million and $32 million on capital expenditures for the balance of 2001, which
includes outstanding purchase commitments on capital projects totaling
approximately $11.2 million on March 31, 2001. The Company intends to satisfy
these commitments utilizing its revolving credit facilities.
The Company spent approximately $10.5 million in the first three months
of 2001 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 facilities.
Cash flows provided by financing activities increased in the first three
months of 2001 compared to the same period of 2000, primarily due to borrowings
to fund business acquisitions. On March 31, 2001, the Company had $64 million
outstanding on its $175 million primary revolving credit facility and $17.7
million Canadian ($11.7 million U.S.) outstanding on its $20 million Canadian
revolving credit facility. Financial covenants on the Company's revolving credit
facilities and senior unsecured notes include a minimum net worth requirement, a
minimum interest coverage test and a maximum leverage ratio. The Company was
within its requirements at March 31, 2001.
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20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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
March 31, 2001, 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
$2.4 million and $2.3 million on March 31, 2001 and March 25, 2000,
respectively, 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.
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21
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 revolving credit
facilities 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.
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UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(a) None.
(b) None.
(c) Sales of equity securities in the first quarter not registered under the
Securities Act.
Date of Class of Number Consideration
Sale Stock of Shares Purchasers Exchanged
-------- -------- --------- ---------- -------------
Stock Gift Program Various Common 450 Eligible persons None
Directors' Stock Grant Program 01/08/01 Common 1,500 Directors Director
services
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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: May 11, 2001 By: /s/ William G. Currie
----------------------- ----------------------------------------
William G. Currie
Its: Vice Chairman of the Board and Chief
Executive Officer
Date: May 11, 2001 By: /s/ Michael R. Cole
----------------------- ---------------------------------------
Michael R. Cole
Its: Chief Financial Officer
23