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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 29, 2003
--------------
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 checkmark 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 by checkmark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). 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 March 29, 2003
-------------------------- --------------------------------
Common stock, no par value 17,694,133
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Page 1 of 31
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION. -------
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets at March 29, 2003,
December 28, 2002, and March 30, 2002. 3
Consolidated Condensed Statements of Earnings for the Three
Months Ended March 29, 2003 and March 30, 2002. 4
Consolidated Condensed Statements of Cash Flows for the Three
Months Ended March 29, 2003 and March 30, 2002. 5
Notes to Consolidated Condensed Financial Statements. 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 23
Item 4. Controls and Procedures. 24
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Changes in Securities and Use of Proceeds. 25
Item 3. Defaults Upon Senior Securities - NONE.
Item 4. Submission of Matters to a Vote of Security Holders - NONE.
Item 5. Other Information. 26
Item 6. Exhibits and Reports on Form 8-K. 26
CERTIFICATION OF CHIEF EXECUTIVE OFFICER. 28
CERTIFICATION OF CHIEF FINANCIAL OFFICER. 30
2
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
March 29, December 28, March 30,
2003 2002 2002
--------- --------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 7,295 $ 13,454 $ 12,503
Restricted cash equivalents ...................................... 1,383 1,383
Accounts receivable (net of allowances of $2,580, $2,427
and $2,394) ................................................. 149,327 105,217 135,218
Inventories:
Raw materials ............................................... 89,873 83,557 57,005
Finished goods .............................................. 106,355 82,449 110,656
--------- --------- ---------
196,228 166,006 167,661
Other current assets ............................................. 7,851 8,037 3,472
--------- --------- ---------
TOTAL CURRENT ASSETS .................................... 362,084 294,097 318,854
OTHER ASSETS .......................................................... 6,608 6,738 6,548
GOODWILL .............................................................. 126,620 126,299 120,276
NON-COMPETE AND LICENSING AGREEMENTS (net of
accumulated amortization of $2,713, $2,463 and $1,731) ........... 5,122 4,516 3,247
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment .................................... 338,185 328,499 298,112
Accumulated depreciation and amortization ........................ (131,064) (125,355) (110,581)
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET ...................... 207,121 203,144 187,531
--------- --------- ---------
TOTAL ASSETS .......................................................... $ 707,555 $ 634,794 $ 636,456
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt .................................................. $ 1,701 $ 1,758 $ 2,025
Accounts payable ................................................. 72,012 57,515 69,988
Accrued liabilities:
Compensation and benefits ................................... 25,656 36,610 25,924
Other ....................................................... 9,137 6,463 15,655
Current portion of long-term debt and capital lease obligations .. 6,611 6,495 20,512
--------- --------- ---------
TOTAL CURRENT LIABILITIES ............................... 115,117 108,841 134,104
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current portion ............................................. 297,020 235,319 240,174
DEFERRED INCOME TAXES ................................................. 12,922 13,328 10,413
MINORITY INTEREST ..................................................... 7,263 7,040 6,659
OTHER LIABILITIES ..................................................... 6,567 5,832 6,386
--------- --------- ---------
TOTAL LIABILITIES ....................................... 438,889 370,360 397,736
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, 17,694,133, 17,741,982 and 17,792,986 ......... 17,694 17,742 17,793
Additional paid-in capital ....................................... 82,957 82,139 81,091
Deferred stock compensation ...................................... 1,424 1,434 1,504
Retained earnings ................................................ 167,191 164,221 138,759
Accumulated other comprehensive earnings ......................... 617 299 674
--------- --------- ---------
269,883 265,835 239,821
Officers' stock notes receivable ................................. (1,217) (1,401) (1,101)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY .............................. 268,666 264,434 238,720
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $ 707,555 $ 634,794 $ 636,456
========= ========= =========
See notes to consolidated condensed financial statements.
3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share data)
Three Months Ended
----------------------
March 29, March 30,
2003 2002
--------- ---------
NET SALES ........................................ $ 355,619 $ 341,656
COST OF GOODS SOLD ............................... 303,815 290,379
--------- ---------
GROSS PROFIT ..................................... 51,804 51,277
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ..... 40,188 37,798
--------- ---------
EARNINGS FROM OPERATIONS ......................... 11,616 13,479
OTHER EXPENSE (INCOME):
Interest expense ............................ 3,787 2,908
Interest income ............................. (47) (113)
--------- ---------
3,740 2,795
--------- ---------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 7,876 10,684
INCOME TAXES ..................................... 2,791 3,973
--------- ---------
EARNINGS BEFORE MINORITY INTEREST ................ 5,085 6,711
MINORITY INTEREST ................................ (585) (629)
--------- ---------
NET EARNINGS ..................................... $ 4,500 $ 6,082
========= =========
EARNINGS PER SHARE - BASIC ....................... $ 0.25 $ 0.33
EARNINGS PER SHARE - DILUTED ..................... $ 0.25 $ 0.32
WEIGHTED AVERAGE SHARES OUTSTANDING .............. 17,729 18,210
WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS .................. 18,252 19,024
See notes to consolidated condensed financial statements.
4
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
--------------------
March 29, March 30,
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ............................................................... $ 4,500 $ 6,082
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation .......................................................... 5,949 5,611
Amortization of intangible assets ..................................... 322 301
Deferred income taxes ................................................. (405) (153)
Loss on sale or impairment of property, plant, and equipment .......... 86 66
Changes in:
Accounts receivable ................................................. (44,110) (46,490)
Inventories ......................................................... (30,222) (44,856)
Accounts payable .................................................... 14,497 22,111
Accrued liabilities and other ....................................... (7,715) 1,068
-------- --------
NET CASH FROM OPERATING ACTIVITIES .................................... (57,098) (56,260)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment .................................. (9,809) (5,255)
Acquisitions, net of cash received ......................................... (359)
Proceeds from sale of property, plant and equipment ........................ 144 161
Other ...................................................................... 44 1,222
-------- --------
NET CASH FROM INVESTING ACTIVITIES .................................... (9,621) (4,231)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of notes payable and revolving credit facilities ............ 61,752 86,453
Repayment of long-term debt ................................................ (22) (158)
Proceeds from issuance of common stock ..................................... 730 62
Distributions to minority shareholder ...................................... (273) (250)
Repurchase of common stock ................................................. (1,627) (36,000)
-------- --------
NET CASH FROM FINANCING ACTIVITIES .................................... 60,560 50,107
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................................... (6,159) (10,384)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................... 13,454 22,887
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................... $ 7,295 $ 12,503
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest .............................................................. $ 863 $ 719
Income taxes .......................................................... 820 (2,097)
NON-CASH INVESTING ACTIVITIES:
Non-compete agreements in exchange for future payments ..................... $ 216
Non-compete agreements with Chairman of the Board in exchange for
future payments ....................................................... $ 856
See notes to consolidated condensed financial statements.
5
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited, interim, consolidated, condensed financial
statements (the "Financial Statements") include our accounts and those of
our wholly-owned and majority-owned subsidiaries and partnerships, and
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
accounting principles generally accepted in the United States. All
significant intercompany transactions and balances have been eliminated.
In our opinion, the Financial Statements contain all material adjustments
necessary to present fairly our consolidated financial position, results
of operations and cash flows for the interim periods presented. All such
adjustments are of a normal recurring nature. These Financial Statements
should be read in conjunction with the annual consolidated financial
statements, and footnotes thereto, included in our Annual Report to
Shareholders on Form 10-K for the fiscal year ended December 28, 2002.
Certain reclassifications have been made to the Financial Statements for
2002 to conform to the classifications used in 2003.
B. COMPREHENSIVE INCOME
Comprehensive income consists of net income and foreign currency
translation adjustments. Comprehensive income was approximately $4.8
million and $6.2 million for the quarter ended March 29, 2003 and March
30, 2002, respectively.
C. 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):
6
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Three Months Ended 03/29/03 Three Months Ended 03/30/02
------------------------------------ -------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
NET EARNINGS................... $4,500 $6,082
EPS - BASIC
Income available to
common stockholders.......... 4,500 17,729 $0.25 6,082 18,210 $0.33
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 523 814
-------- --------
EPS - DILUTED
Income available to
common stockholders and
assumed options
exercised.................... $4,500 18,252 $0.25 $6,082 19,024 $0.32
====== ====== ===== ====== ====== =====
Options to purchase 918,109 shares of common stock at exercise prices
ranging from $18.25 to $36.01 were outstanding at March 29, 2003, but
were not included in the computation of diluted EPS for the quarter ended
March 29, 2003 because the options' exercise prices were greater than the
average market price of the common stock during the period and,
therefore, would be antidilutive.
Options to purchase 195,000 shares of common stock at exercise prices
ranging from $22.88 to $36.01 were outstanding at March 30, 2002, but
were not included in the computation of diluted EPS for the quarter ended
March 30, 2002 because the options' exercise prices were greater than the
average market price of the common stock during the period and,
therefore, would be antidilutive.
D. GOODWILL AND OTHER INTANGIBLE ASSETS
On December 31, 2002, the Chairman of the Board of Directors ("Chairman")
retired as an employee of Universal Forest Products, Inc., and we entered
into a non-compete agreement with the Chairman which provides for monthly
payments of $12,500 for a term of seven years. The present value of these
payments has been recorded in Other Liabilities.
On March 29, 2003, non-compete assets totaled $5.6 million with
accumulated amortization totaling $2.2 million, and licensing agreements
totaled $2.2 million with accumulated amortization totaling $0.5 million.
7
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Estimated amortization expense for intangible assets as of March 29, 2003
for each of the five succeeding fiscal years is as follows (in
thousands):
2003...............................$ 839
2004............................... 1,120
2005............................... 1,119
2006............................... 1,050
2007............................... 530
Thereafter......................... 464
The changes in the net carrying amount of goodwill for the quarter ended
March 29, 2003 are as follows (in thousands):
Balance as of December 28, 2002...................................... $126,299
Goodwill acquired....................................................
Foreign currency translation effects and other, net.................. 321
--------
Balance as of March 29, 2003......................................... $126,620
========
E. BUSINESS COMBINATIONS
The acquisitions in 2002 were not significant to the operating results
individually nor in aggregate, and thus pro forma results are not
presented.
The purchase price allocations for Quality Wood Treating Co., Inc. and
J.S. Building Products, Inc., acquired in the fourth quarter of 2002,
remain preliminary and will be revised as final estimates of intangible
asset values are made in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 141, Business Combinations.
F. STOCK-BASED COMPENSATION
As permitted under SFAS No.123, Accounting for Stock-Based Compensation,
("SFAS 123"), we continue to apply the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, which recognizes compensation
expense under the intrinsic value method. Had compensation cost for the
stock options granted and stock purchased in the first quarter of 2003
and 2002 been determined under the fair value based method defined in
SFAS 123, our net earnings and earnings per share would have been reduced
to the following pro forma amounts (in thousands, except per share data):
8
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Three Months Ended
March 29, 2003 March 30, 2002
-------------- --------------
Net Earnings:
As reported .................................... $ 4,500 $ 6,082
Deduct: compensation expense - fair value method (385) (318)
--------- ---------
Pro Forma ...................................... $ 4,115 $ 5,764
========= =========
EPS - Basic:
As reported .................................... $ 0.25 $ 0.33
Pro forma ...................................... $ 0.23 $ 0.32
EPS - Diluted:
As reported .................................... $ 0.25 $ 0.32
Pro forma ...................................... $ 0.23 $ 0.31
G. COMMITMENTS, CONTINGENCIES, AND GUARANTEES
We are self-insured for environmental impairment liability through a
wholly owned subsidiary, UFP Insurance Ltd., a licensed captive insurance
company. We own and operate a number of facilities throughout the United
States that treat lumber products with chemical preservatives. In
connection with the ownership and operation of these and other real
properties, and the disposal or treatment of hazardous or toxic
substances, we may, under various federal, state and local environmental
laws, ordinances and regulations, be potentially liable for removal and
remediation costs, as well as other potential costs, damages and
expenses. Insurance reserves have been established to cover remediation
activities at our Union City, GA; Stockertown, PA; Elizabeth City, NC;
and Schertz, TX wood preservation facilities. Additionally, a reserve is
in place to cover the removal of lead and asbestos containing materials
from property we purchased in Thornton, CA.
Including amounts recorded in our captive insurance company, we reserved
amounts totaling approximately $1.9 million and $2.4 million on March 29,
2003 and March 30, 2002, respectively, representing the estimated costs
to complete remediation efforts.
As part of its re-registration process and in response to allegations by
certain environmental groups that CCA poses health risks, the EPA has
been conducting a scientific review of CCA, a wood preservative we use to
extend the useful life of wood fiber. In April of 2003, the EPA announced
the re-registration of CCA preservative for certain industrial and
commercial uses. The manufacturers of CCA preservative agreed to
voluntarily discontinue the registration of CCA for certain residential
applications by December 31, 2003. All of our facilities are presently
capable of using a new preservative to treat wood products.
9
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
In addition to the EPA review, an environmental group petitioned the
Consumer Products Safety Commission ("CPSC") to ban the use of CCA
treated wood in playsets. On February 7, 2003, the CPSC issued a staff
report on its study of the risks of children playing on treated playsets.
While the staff report indicates potential for elevated risks associated
with arsenic, it relies in part on a flawed Taiwanese study to measure
this risk. The study does not recommend removal of product, and proposes
the CPSC take no further action until the EPA concludes its assessment.
The EPA has previously stated that CCA treated lumber does not pose an
unreasonable risk to human health.
We have been requested by a customer to defend it from purported class
action lawsuits filed against it in Florida and Louisiana. The complaints
allege that CCA treated lumber is defective. While our customer has
charged us for certain expenses incurred in the defense of these claims,
we have not formally accepted liability of these costs. In February 2003,
the judge in the Florida case denied the plaintiff's motion for
certification of the class.
We, along with others in the industry, were previously named as a
defendant in the purported class action lawsuit in Louisiana. We have
been dismissed from this litigation.
In addition, various special interest environmental groups have
petitioned certain states requesting restrictions on the use or disposal
of CCA treated products. The wood preservation industry trade groups are
working with the individual states and their regulatory agencies to
provide an accurate, factual background which demonstrates that the
present method of uses and disposal is scientifically supported.
On March 29, 2003, we were parties either as plaintiff or a defendant to
a number of lawsuits and claims arising through the normal course of our
business. In the opinion of management, our consolidated financial
statements will not be materially affected by the outcome of these legal
proceedings.
On March 29, 2003, we had outstanding purchase commitments on capital
projects of approximately $11 million.
We provide a variety of warranties for products we manufacture.
Historically, warranty claims have not been material.
In certain cases we jointly bid on contracts with framing companies to
supply building materials to site-built construction projects. In some of
these instances we are required to post payment and performance bonds to
insure the owner that the products and installation services are
completed in accordance with our contractual obligations. We have agreed
to indemnify the surety for claims made against the bonds. Historically,
we have not had any claims for
10
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
indemnity from our sureties. As of March 29, 2003, we had approximately
$22.3 million in outstanding performance bonds which expire during the
next three to eighteen months.
We have entered into operating leases for certain assets that include a
guarantee of a portion of the residual value of the leased assets. If at
the expiration of the initial lease term we do not exercise our option to
purchase the leased assets and these assets are sold by the lessor for a
price below a predetermined amount, we are required to reimburse the
lessor for a certain portion of the shortfall. These operating leases
will expire periodically over the next five years. The estimated maximum
aggregate exposure of these guarantees is less than $350,000.
On March 29, 2003, we had outstanding letters of credit totaling $31.1
million, primarily related to certain insurance contracts and industrial
development revenue bonds.
In lieu of cash deposits, we provide irrevocable letters of credit in
favor of our insurers to guarantee our performance under certain
insurance contracts. We currently have irrevocable letters of credit
outstanding totaling approximately $11 million for these types of
insurance arrangements. We have reserves recorded on our balance sheet,
in accrued liabilities, that reflect our expected future liabilities
under these insurance arrangements.
We are required to provide irrevocable letters of credit in favor of the
bond trustees for all of the industrial development revenue bonds that we
have issued. These letters of credit guarantee principal and interest
payments to the bondholders. We currently have irrevocable letters of
credit outstanding totaling approximately $18.3 million related to our
outstanding industrial development revenue bonds. These letters of credit
have varying terms but may be renewed at the option of the issuing banks.
Our wholly owned domestic subsidiaries have guaranteed the indebtedness
of Universal Forest Products, Inc. in certain debt agreements, including
the 1994 Senior Notes, Series 1998-A Senior Notes, Series 2002-A Senior
Notes and our revolving credit facility. The maximum exposure of these
guarantees is limited to the indebtedness outstanding under these debt
arrangements and this exposure will expire concurrent with the expiration
of the debt agreements.
We did not enter into any new guarantee arrangements during the first
quarter of 2003 which would require us to recognize a liability on our
balance sheet.
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, together with
information available to us 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 our control. Investors are cautioned
that all forward-looking statements involve risks and uncertainty.
RISK FACTORS
WE ARE SUBJECT TO FLUCTUATIONS IN THE PRICE OF LUMBER. We experience significant
fluctuations in the cost of commodity lumber products from primary producers
(the "Lumber Market"). A variety of factors over which we have no control,
including government regulations, environmental regulations, weather conditions,
economic conditions and natural disasters, impact the cost of lumber products
and our selling prices. While we attempt to minimize our risk from severe price
fluctuations, substantial, prolonged trends in lumber prices can negatively
affect our sales volume, our gross margins and our profitability. We anticipate
that these fluctuations will continue in the future.
OUR GROWTH MAY BE LIMITED BY THE MARKETS WE SERVE. Our sales growth is
dependent, in part, upon the growth of the markets we serve. If our markets do
not achieve anticipated growth, or if we fail to maintain our market share,
financial results could be impaired.
The manufactured housing industry is currently hampered by market conditions,
including a high rate of repossessions and tightened credit policies.
Significant lenders who previously provided financing to consumers of these
products and industry participants have either restricted credit or exited the
market. A continued shortage of financing to this industry could adversely
affect our operating results.
Our 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, our financial results could be negatively impacted.
We are witnessing consolidation by our customers. These consolidations will
result in a larger portion of our sales being made to some customers and may
limit the customer base we are able to serve.
A SIGNIFICANT PORTION OF OUR SALES ARE CONCENTRATED WITH ONE CUSTOMER. Our sales
to The Home Depot comprised 28% of our total sales in the first quarter of 2003.
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
OUR GROWTH MAY BE LIMITED BY OUR ABILITY TO MAKE SUCCESSFUL ACQUISITIONS. A key
component of our growth strategy is to complete business combinations. Business
combinations involve inherent risks, including assimilation and successfully
managing growth. While we conduct extensive due diligence and have taken steps
to ensure successful assimilation, factors beyond our control could influence
the results of these acquisitions.
WE MAY BE ADVERSELY AFFECTED BY THE IMPACT OF ENVIRONMENTAL AND SAFETY
REGULATIONS. We are subject to the requirements of federal, state and local
environmental and occupational health and safety laws and regulations. There can
be no assurance that we are at all times in complete compliance with all of
these requirements. We have made and will continue to make capital and other
expenditures to comply with environmental regulations. If additional laws and
regulations are enacted in the future, which restrict our ability to manufacture
and market our products, including our treated lumber products, it could
adversely affect our sales and profits. If existing laws are interpreted
differently, it could also increase the financial cost to us. Several states
have proposed legislation to limit the uses of CCA treated lumber. (See
"Environmental Considerations and Regulations.")
SEASONALITY AND WEATHER CONDITIONS COULD ADVERSELY AFFECT US. Some aspects of
our business are seasonal in nature and results of operations vary from quarter
to quarter. Our 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 (see "Historical Lumber Prices"). Treated lumber
sales are generally at their highest levels between April and August. This sales
peak, combined with capacity constraints in the wood treatment process, requires
us to build our inventory of treated lumber throughout the winter and spring.
This also has an impact on our receivables balances, which tend to be
significantly higher at the end of the second and third quarters. Because sales
prices of treated lumber products may be indexed to the Lumber Market at the
time they are shipped, our profits can be negatively affected by prolonged
declines in the Lumber Market during our primary selling season. To mitigate
this risk, programs are maintained with certain vendors and customers that are
intended to decrease our exposure. These programs include those materials which
are most susceptible to adverse changes in the Lumber Market. Vendor programs
also allow us to carry a lower investment in inventories.
The majority of our products are used or installed in outdoor construction
activities; therefore, short-term sales volume, our gross margins and our
profits can be negatively affected by adverse weather conditions. In addition,
adverse weather conditions can negatively impact our productivity and costs per
unit.
WE MAY BE ADVERSELY AFFECTED IF OUR CUSTOMERS AND VENDORS ARE NOT WILLING TO
MODIFY OUR EXISTING DISTRIBUTION STRATEGIES. While we have invested heavily in
technology and established electronic
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
business-to-business efficiencies with certain customers and vendors, the
willingness of customers and vendors to modify existing distribution strategies
poses a potential risk. We believe the nature of our products, together with our
value-added services, ensures that we have a secure position in the supply
chain.
When analyzing this report to assess our future performance, please recognize
the potential impact of the various factors set forth above.
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price
for the three months ended March 29, 2003 and March 30, 2002:
Random Lengths Composite
Average $/MBF
------------------------
2003 2002
---- ----
January............................ $278 $297
February........................... 295 317
March.............................. 277 339
First quarter average.............. $283 $318
First quarter percentage
decrease from 2002................ (11.0%)
In addition, a SYP composite price, which we prepare and use, is presented
below. Sales of products produced using this species comprise up to 50% of our
sales volume.
Random Lengths SYP
Average $/MBF
------------------
2003 2002
---- ----
January............................ $387 $410
February........................... 394 434
March.............................. 392 464
First quarter average.............. $391 $436
First quarter percentage
decrease from 2002................ (10.3%)
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
We generally price our products to pass lumber costs through to our customers so
that our profitability is based on the value-added manufacturing, distribution
and services we provide. As a result, our sales levels (and working capital
requirements) are impacted by the lumber costs of our products.
Our gross margins are impacted by both (1) the relative level of the Lumber
Market (i.e. whether prices are higher or lower from comparative periods), and
(2) the trend in the market price of lumber (i.e. whether the price of lumber is
increasing or decreasing within a period or from period to period). Moreover, as
explained below, our products are priced differently. Some of our products have
fixed selling prices, while the selling prices of other products are indexed to
the reported Lumber Market with a fixed dollar adder to cover conversion costs
and profits. Consequently, the level and trend of the Lumber Market impact our
products differently.
Below is a general description of the primary ways in which our products are
priced.
- - Products with fixed selling prices. These products include value-added
products such as decking and fencing sold to do-it-yourself/retail
("DIY/retail") customers, as well as trusses, wall panels and other
components sold to the site-built construction market. Prices for these
products are generally fixed at the time of the sales quotation for a
specified period of time or are based upon a specific quantity. In order to
maintain margins and eliminate or reduce any exposure to adverse trends in
the price of component lumber products, we attempt to lock in costs for these
sales commitments with our suppliers. Also, the time periods and quantity
limitations generally allow us to reprice our products for changes in lumber
prices from our suppliers.
- - Products with selling prices indexed to the reported Lumber Market with
a fixed dollar "adder" to cover conversion costs and profits. These products
include treated lumber, remanufactured lumber and trusses sold to the
manufactured housing industry. For these products, we estimate the customers'
needs and carry anticipated levels of inventory. Because lumber costs are
incurred in advance of final sale prices, subsequent increases or decreases
in the market price of lumber impact our gross margins. For these products,
our margins are exposed to changes in the trend of lumber prices.
Changes in the trend of lumber prices have their greatest impact on those
products that have significant inventory levels with low turnover rates. This
particularly impacts treated lumber, which comprises almost twenty-five percent
of our total annual sales. In other words, the longer the period of time that
products remain in inventory, the greater the exposure to changes in the price
of lumber.
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
This exposure is less significant with remanufactured lumber, trusses
sold to the manufactured housing market and other similar products, due to the
higher rate of inventory turnover.
In addition to the impact of Lumber Market trends on gross margins, changes in
the level of the market causes fluctuations in gross margins when comparing
operating results from period to period. This is explained in the following
example, which assumes the price of lumber has increased from period one to
period two, with no changes in the trend within each period.
Period 1 Period 2
-------- --------
Lumber cost.................................... $300 $400
Conversion cost................................ 50 50
= Product cost................................. 350 450
Adder.......................................... 50 50
= Sell price................................... 400 500
Gross margin................................... 12.5% 10.0%
As is apparent from the preceding example, the level of lumber prices does not
impact our overall profits, but does impact our margins. Gross margins are
negatively impacted during periods of high lumber prices; conversely, we
experience margin improvement when lumber prices are relatively low.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our
Consolidated Condensed Statements of Earnings as a percentage of net sales.
For the Three Months Ended
------------------------------
March 29, March 30,
2003 2002
-------------- ------------
Net sales.................................................................. 100.0% 100.0%
Cost of goods sold......................................................... 85.4 85.0
-------- --------
Gross profit............................................................... 14.6 15.0
Selling, general, and administrative expenses.............................. 11.3 11.0
-------- --------
Earnings from operations................................................... 3.3 4.0
Other expense, (income).................................................... 1.1 0.8
-------- --------
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
For the Three Months Ended
------------------------------
March 29, March 30,
2003 2002
-------------- ------------
Earnings before income taxes and minority interest......................... 2.2 3.2
Income taxes............................................................... 0.8 1.2
-------- --------
Earnings before minority interest.......................................... 1.4 2.0
Minority interest.......................................................... (0.1) (0.2)
-------- --------
Net earnings............................................................... 1.3% 1.8%
======== ========
NET SALES
We engineer, manufacture, treat, distribute and install lumber, composite,
plastic, and other building products for the DIY/retail, site-built
construction, manufactured housing, industrial and other lumber markets. Our
strategic sales objectives include:
- - Diversifying our end market sales mix by increasing 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/retail market, specialty wood packaging, engineered wood products, and
"wood alternative" products. Although we consider the treatment of
dimensional lumber with certain chemical preservatives a value-added process,
treated lumber is not presently included in the value-added sales totals.
- - Maximizing profitable top-line sales growth while increasing DIY/retail
market share.
- - Maintaining manufactured housing market share.
The following table presents, for the periods indicated, our net sales (in
thousands) and percentage of total net sales by market classification.
For the Three Months Ended
-------------------------------------------------
March 29, March 30,
Market Classification 2003 % 2002 %
- --------------------- ---------- ------- --------- ------
DIY/Retail........................................... $156,968 44.1% $146,757 43.0%
Site-Built Construction.............................. 76,724 21.6 68,591 20.0
Manufactured Housing................................. 57,382 16.1 67,368 19.7
Industrial and Other................................. 64,545 18.2 58,940 17.3
-------- ------ -------- ------
Total................................................ $355,619 100.0% $341,656 100.0%
======== ====== ======== ======
Note: In the first quarter of 2003, we reviewed the classification of our
customers and made certain reclassifications. Prior year information has
been restated to reflect these classifications.
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Net sales in the first quarter of 2003 increased 4% compared to the first
quarter of 2002 resulting from an increase in units shipped of approximately 7%.
Overall selling prices decreased as a result of the Lumber Market (see
Historical Lumber Prices). We estimate that our unit sales increased by 4% as a
result of business acquisitions completed after the first quarter of 2002. Our
unit sales out of existing facilities increased by 3% in the first quarter of
2003, despite being hampered by inclement weather in February in several regions
of the country.
The following table presents, for the periods indicated, our percentage of
value-added and commodity-based sales to total sales.
Three Months Ended
--------------------------------
March 29, March 30,
2003 2002
-------------- --------------
Value-Added........................... 54.6% 52.7%
Commodity-Based....................... 45.4% 47.3%
Value-added sales increased 8% in the first quarter of 2003, primarily due to
increased sales of engineered wood products, industrial products and other
specialty products supplied to the DIY/retail market. Commodity-based sales
remained flat.
DIY/Retail:
Net sales to the DIY/retail market increased $10 million, or 7%, in the first
quarter of 2003 compared to 2002. This increase was primarily due to an $11
million, or 13%, increase in sales to our largest customer, partially
attributable to acquisitions completed in 2002. We experienced an 8% increase in
unit sales to this customer out of existing facilities primarily due to
increased fencing sales.
Site-Built Construction:
Net sales to the site-built construction market increased 12% in the first
quarter of 2003 compared to the same period of 2002 due to increased sales from
acquisitions completed in 2002, new operations, and increased sales out of
several existing plants that were unaffected by adverse weather conditions.
Manufactured Housing:
Net sales to the manufactured housing market decreased 15% in the first quarter
of 2003 compared to the same period of 2002 as a result of a 28% decrease in
industry production.
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Industrial and Other:
Net sales to the industrial and other market increased 10% in the first quarter
of 2003 compared to the same period of 2002 due to an increase in unit sales out
of several of our existing facilities, offset partially by a decline in selling
prices due to the Lumber Market.
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales decreased in the first quarter of 2003
compared to the same period of 2002 despite lower overall selling prices
(approximately 3%) and material costs due to the Lumber Market. Generally, a
lower Lumber Market results in higher gross margins. (See "Impact of the Lumber
Market on Our Operating Results."). The decrease was due to cost inefficiencies
and lost profit primarily associated with 154 lost production days and lost
sales due to inclement winter weather in several regions of the country. These
inefficiencies resulted in unfavorable cost variances which totaled
approximately $2.5 million and are included in our cost of goods sold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of sales increased
to 11.3% compared to 11.0% in the same period of 2002. This increase was
primarily due to the impact of the lower Lumber Market on our selling prices and
lost sales due to inclement weather.
INTEREST, NET
Net interest costs increased in the first quarter of 2003 compared to the same
period of 2002. The increase was due to a higher average debt balance combined
with an increase in our average borrowing rates as a result of issuing $55
million of unsecured notes payable in December 2002. The proceeds from the note
issuance were used to reduce amounts outstanding under our revolving credit
facility, which bears interest at a lower rate.
INCOME TAXES
Our effective tax rate was 35.4% in the first quarter of 2003 compared to 37.2%
in the same period of 2002. Effective tax rates differ from statutory federal
income tax rates, primarily due to provisions for state and local income taxes
and permanent tax differences. The decrease in our effective tax rate was
primarily due to a permanent tax difference associated with the effect of
minority interest in earnings of a subsidiary.
OFF-BALANCE SHEET TRANSACTIONS
We have no significant off-balance sheet transactions other than operating
leases.
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 in the first three months of 2003 were
comparable to the same period of 2002. Our operating cash flows in the first
quarter are negative due to seasonality. For comparative purposes, we have
included the March 30, 2002 balances in the accompanying unaudited consolidated
condensed balance sheets.
Due to the seasonality of our business and the effects of the Lumber Market, we
believe our cash cycle (days sales outstanding plus days supply of inventory
less days payables outstanding) is a good indicator of our working capital
management. Our cash cycle increased to 62 days in the first three months of
2003 from 53 days in the first three months of 2002, primarily due to an
increase in our days supply of inventory. This increase was primarily due to a
combination of "opportunity buying" by our purchasing managers at the end of
2002 due to the low level of the Lumber Market and the effect of winter weather
on sales. This resulted in higher inventory levels carried for a longer period
of time in 2003.
Capital expenditures totaled $10 million in the first three months of 2003
compared to $5 million in the same period of 2002. Our capital expenditures
increased during the first quarter of 2003 primarily due to a project to expand
the manufacturing capacity of the wood composite plant we purchased in November
2002. We expect to spend approximately $31 million on capital expenditures for
the balance of 2003, which includes outstanding purchase commitments on capital
projects totaling approximately $11 million on March 29, 2003. We intend to
fund capital expenditures and purchase commitments through a combination of
operating cash flow and availability under our revolving credit facility.
We spent approximately $1.6 million to repurchase 98,234 shares of our common
stock. We have authorization from the Board of Directors to purchase an
additional 1.6 million shares.
On March 29, 2003, we had $115 million outstanding on our $200 million revolving
credit facility. The revolving credit facility supports letters of credit
totaling approximately $17.9 million on March 29, 2003. Financial covenants on
our revolving credit facilities and senior unsecured notes include a minimum net
worth requirement, a minimum interest coverage test and a maximum leverage
ratio. The agreements also restrict the amount of additional indebtedness we may
incur and the amount of assets which may be sold. We were within our
requirements at March 29, 2003.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
We are self-insured for environmental impairment liability through a wholly
owned subsidiary, UFP Insurance Ltd., a licensed captive insurance company. We
own and operate a number of facilities throughout the United States that treat
lumber products with chemical preservatives. In connection
20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
with the ownership and operation of these and other real properties, and the
disposal or treatment of hazardous or toxic substances, we may, under various
federal, state and local environmental laws, ordinances and regulations, be
potentially liable for removal and remediation costs, as well as other potential
costs, damages and expenses. Insurance reserves have been established to cover
remediation activities at our Union City, GA; Stockertown, PA; Elizabeth City,
NC; and Schertz, TX wood preservation facilities. Additionally, a reserve is in
place to cover the removal of lead and asbestos containing material from
property we purchased in Thornton, CA.
Including amounts recorded in our captive insurance company, we reserved amounts
totaling approximately $1.9 million and $2.4 million on March 29, 2003 and March
30, 2002, respectively, representing the estimated costs to complete remediation
efforts.
As part of its re-registration process and in response to allegations by certain
environmental groups that CCA poses health risks, the EPA has been conducting a
scientific review of CCA, a wood preservative we use to extend the useful life
of wood fiber. In April of 2003, the EPA announced the re-registration of CCA
preservative for certain industrial and commercial uses. The manufacturers of
CCA preservative agreed to voluntarily discontinue the registration of CCA for
certain residential applications by December 31, 2003. All of our facilities are
presently capable of using a new preservative to treat wood products.
In addition to the EPA review, an environmental group petitioned the Consumer
Products Safety Commission ("CPSC") to ban the use of CCA treated wood in
playsets. On February 7, 2003, the CPSC issued a staff report on its study of
the risks of children playing on treated playsets. While the staff report
indicates potential for elevated risks associated with arsenic, it relies in
part on a flawed Taiwanese study to measure this risk. The study does not
recommend removal of product, and proposes the CPSC take no further action until
the EPA concludes its assessment. The EPA has previously stated that CCA treated
lumber does not pose an unreasonable risk to human health.
We have been requested by a customer to defend it from purported class action
lawsuits filed against it in Florida and Louisiana. The complaints allege that
CCA treated lumber is defective. While our customer has charged us for certain
expenses incurred in the defense of these claims, we have not formally accepted
liability of these costs. In February 2003, the judge in the Florida case denied
the plaintiff's motion for certification of the class.
We, along with others in the industry, were previously named as a defendant in
the purported class action lawsuit in Louisiana. We have been dismissed from
this litigation.
21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
In addition, various special interest environmental groups have petitioned
certain states requesting restrictions on the use or disposal of CCA treated
products. The wood preservation industry trade groups are working with the
individual states and their regulatory agencies to provide an accurate, factual
background which demonstrates that the present method of uses and disposal is
scientifically supported.
On March 29, 2003, we were parties either as plaintiff or a defendant to a
number of lawsuits and claims arising through the normal course of our business.
In the opinion of management, our consolidated financial statements will not be
materially affected by the outcome of these legal proceedings.
CRITICAL ACCOUNTING POLICIES
In preparing our consolidated financial statements, we follow accounting
principles generally accepted in the United States. These principles require us
to make certain estimates and apply judgments that affect our financial position
and results of operations. We continually review our accounting policies and
financial information disclosures. There have been no material changes in our
policies or estimates since December 28, 2002.
22
UNIVERSAL FOREST PRODUCTS, INC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risks related to fluctuations in interest rates on our
variable rate debt, which consists of a revolving credit facility and industrial
development revenue bonds. We do 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. We do 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 we would be required to refinance it.
23
UNIVERSAL FOREST PRODUCTS, INC.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. With the participation
of management, our chief executive officer and chief financial officer,
after evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) on
March 29, 2003 (the "Evaluation Date"), have concluded that, as of such
date, our disclosure controls and procedures were adequate and effective
to ensure that material information relating to us and our consolidated
subsidiaries would be made known to them in connection with our filing of
this first quarter report on Form 10-Q.
(b) Changes in Internal Controls. There were no significant changes in our
internal controls or in other factors that could significantly affect
these controls subsequent to the Evaluation Date through the date of this
filing of Form 10-Q, nor were there any significant deficiencies or
material weaknesses in our internal controls that would require
corrective actions.
24
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(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 375 Eligible persons None
Directors Stock Grant Program 01/06/03 Common 1,600 Directors Directors'
Services
25
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 5. Other Information.
In the first quarter of 2003, the audit committee approved up to $50,000 of tax
compliance services to be provided by our independent auditors, Ernst & Young
LLP.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits (listed by number corresponding to the Exhibit
Table as Item 601 in Regulation S-K) are filed with this report:
99.1 Certificate of the Chief Executive Officer of Universal Forest
Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
99.2 Certificate of the Chief Financial Officer of Universal Forest
Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
26
UNIVERSAL FOREST PRODUCTS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL FOREST PRODUCTS, INC.
Date: April 28, 2003 By: /s/ William G. Currie
--------------------- ---------------------------------------
William G. Currie
Its: Vice Chairman of the Board and Chief
Executive Officer
Date: April 28, 2003 By: /s/ Michael R. Cole
--------------------- ---------------------------------------
Michael R. Cole
Its: Chief Financial Officer
27
UNIVERSAL FOREST PRODUCTS, INC.
CERTIFICATION
I, William G. Currie, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Universal Forest
Products, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have;
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
28
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: April 28, 2003 /s/ William G. Currie
---------------- ---------------------------------------
William G. Currie
Chief Executive Officer
29
UNIVERSAL FOREST PRODUCTS, INC.
CERTIFICATION
I, Michael R. Cole, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Universal Forest
Products, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have;
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
30
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: April 28, 2003 /s/ Michael R. Cole
---------------- ----------------------------------------
Michael R. Cole
Chief Financial Officer
31
EXHIBIT INDEX
99.1 Certificate of the Chief Executive Officer of Universal Forest
Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350).
99.2 Certificate of the Chief Financial Officer of Universal Forest
Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350).