<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
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 49505
- --------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 364-6161
NONE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of November 1, 1996
- --------------------------------- ----------------------------------
Common stock, no par value 17,040,442
Page 1 of 19
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets at September 28, 1996
and December 30, 1995. 3
Consolidated Condensed Statements of Earnings for the Three and
Nine Months Ended September 28, 1996 and September 30, 1995. 4
Consolidated Condensed Statements of Cash Flows for the Nine
Months Ended September 28, 1996 and September 30, 1995. 5
Notes to Consolidated Condensed Financial Statements. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8-16
Forward-Looking Statements and Risk Factors. 17
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Changes in Securities - NONE.
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. 19
(b) No reports were filed on Form 8-K during the
nine months ended September 28, 1996.
</TABLE>
2
<PAGE> 3
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 28, December 30,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,988,083 $ 21,471,821
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,954,997 24,569,330
Inventories:
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,369,451 22,409,785
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,287,000 43,501,348
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 810,666
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,697,836 3,566,812
------------ ------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . 145,297,367 116,329,762
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,025,418 4,041,369
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost. . . . . . . . . . . . . . . . . . . 98,094,339 91,766,778
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . (41,996,529) (36,481,076)
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET . . . . . . . . . . . . . . . . 56,097,810 55,285,702
------------ ------------
$206,420,595 $175,656,833
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,872,160 $ 14,138,012
Accrued liabilities:
Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . 16,959,748 14,572,566
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,345,455
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,604,510 4,131,833
Current portion of long-term debt
and capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . 4,006,041 3,928,433
------------ ------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . 53,787,914 36,770,844
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion . . . . . . . . . . . . . . . . . . . . . . . 50,206,536 52,455,513
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,169,806 2,991,622
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; shares authorized
1,000,000; issued and outstanding, none
Common stock, no par value; shares authorized
25,000,000; issued & outstanding, 17,039,070
and 17,041,496 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,039,070 17,041,496
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 28,786,751 28,615,581
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,898,508 39,525,149
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . (799,346) (997,549)
------------ ------------
98,924,983 84,184,677
Officers' stock notes receivable . . . . . . . . . . . . . . . . . . . . . . (668,644) (745,823)
------------ ------------
98,256,339 83,438,854
------------ ------------
$206,420,595 $175,656,833
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ----------------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . $243,886,515 $188,801,286 $679,194,681 $599,226,037
COST OF GOODS SOLD . . . . . . . . . . . . 221,922,934 170,966,527 609,364,671 539,030,964
------------ ------------ ------------ ------------
GROSS PROFIT . . . . . . . . . . . . . . 21,963,581 17,834,759 69,830,010 60,195,073
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES . . . . . . . 13,570,919 12,522,783 41,707,398 37,942,307
------------ ------------ ------------ ------------
EARNINGS FROM OPERATIONS . . . . . . . . . 8,392,662 5,311,976 28,122,612 22,252,766
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . 334,761 562,366 624,440 716,669
Interest expense . . . . . . . . . . . (996,151) (1,006,206) (3,041,842) (3,626,768)
Other, net . . . . . . . . . . . . . . 294,914 319,472 496,176 728,951
------------ ------------ ------------ ------------
TOTAL OTHER
INCOME (EXPENSE) . . . . . . . . . (366,476) (124,368) (1,921,226) (2,181,148)
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES . . . . . . . 8,026,186 5,187,608 26,201,386 20,071,618
INCOME TAXES . . . . . . . . . . . . . . . 3,234,000 2,083,000 10,595,000 8,149,000
------------ ------------ ------------ ------------
NET EARNINGS . . . . . . . . . . . . . . . $ 4,792,186 $ 3,104,608 $ 15,606,386 $ 11,922,618
============ ============ ============ ============
EARNINGS PER SHARE . . . . . . . . . . . . $ 0.27 $ 0.18 $ 0.88 $ 0.68
WEIGHTED AVERAGE SHARES
OUTSTANDING . . . . . . . . . . . . . 17,776,000 17,711,000 17,701,000 17,618,000
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September 28, September 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,606,386 $11,922,618
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 6,176,595 5,100,264
Stock Gift Program expense . . . . . . . . . . . . . . . . . . . . . . . . . 2,656
Gain on disposal of property, plant and equipment . . . . . . . . . . . . . (41,005) (247,305)
Changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,187,464) (5,812,437)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,745,319) 21,470,101
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (144,491) (124,742)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,734,147 6,139,627
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,015,981 5,003,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . 8,417,486 43,451,126
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . 210,276 334,822
Purchase of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . (164,085)
Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . . . (6,864,318) (11,989,748)
Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . 223,193 1,192,499
Payments for deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,859) (259)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . (6,603,793) (10,462,686)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . (1,600,000)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . 266,089
Cash dividends paid to shareholders . . . . . . . . . . . . . . . . . . . . . . . (511,146) (426,012)
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,230,492) (2,708,769)
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (821,882)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . (3,297,431) (4,734,781)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . (1,483,738) 28,253,659
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . 21,471,821 103,355
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . . $19,988,083 $28,357,014
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,208,167 $ 2,895,387
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,438,879 6,884,254
NONCASH INVESTING ACTIVITIES:
Equipment acquired with long term debt . . . . . . . . . . . . . . . . . . . . . $ 59,000
Real estate received in lieu of note receivable . . . . . . . . . . . . . . . . . 347,000
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
A. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial
statements (the "Financial Statements") of Universal Forest Products, Inc.
and its wholly-owned subsidiaries (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 accounts and
transactions have been eliminated in consolidation.
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 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
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995.
Certain reclassifications have been made in the Consolidated Condensed
statements of Earnings for the 1995 periods presented to conform to the
classifications in 1996.
B. EARNINGS PER COMMON SHARE
Earnings per common share have been computed based on the weighted average
number of common and common equivalent shares outstanding during the
periods presented, giving effect to options granted in 1989 and 1993,
utilizing the "treasury stock" method. Primary and fully-diluted earnings
per common share were not materially different during the periods
presented. Weighted average shares outstanding are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Issued and outstanding . . . . . . . . . . 17,039,000 17,041,000 17,027,000 17,040,000
Effect of stock options . . . . . . . . . 737,000 670,000 674,000 578,000
---------- ---------- ---------- ----------
Weighted average shares outstanding . . . 17,776,000 17,711,000 17,701,000 17,618,000
========== ========== ========== ==========
</TABLE>
C. NON-COMPETE
In February 1996, the Company entered into a consulting and non-compete
agreement with one of its former officers. Included in the agreement are
conditions that the former officer provide certain consulting services and
agree not to compete with the Company for a period of eleven years. In
6
<PAGE> 7
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996 - CONTINUED
consideration for these services and agreement not to compete, the Company
agreed to make payments to the officer as follows:
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . $ 325,000
1997 . . . . . . . . . . . . . . . 450,000
1998 . . . . . . . . . . . . . . . 350,000
1999 . . . . . . . . . . . . . . . 100,000
----------
$1,225,000
==========
</TABLE>
The Company recorded the present value of this obligation to "Other Assets"
and "Other Liabilities," based on an imputed interest rate of 8% per annum.
Amortization of the asset is computed on a straight-line basis over the
eleven year non-compete period. In March 1996, the $325,000 obligation
listed above was paid.
D. ACQUISITION
Effective October 1, 1996, the Company acquired certain assets of Hi-Tek
Forest Products, Inc. for an amount totaling approximately $10,908,000 and
assumed accounts payable totaling approximately $495,000 (the
"Acquisition"). The aggregate purchase price, funded through the Company's
cash reserves, consists of the following amounts:
<TABLE>
<S> <C>
Account receivable . . . . . . . . . . . $ 2,116,000
Inventory . . . . . . . . . . . . . . . 3,066,000
Property, plant and equipment . . . . . 3,601,000
Accounts payable . . . . . . . . . . . . (495,000)
Non-compete agreement . . . . . . . . . 2,125,000
-----------
$10,413,000
===========
</TABLE>
The non-compete agreement spans a five year time period and covers the
geographic regions in which the acquired plants operate. The acquired
operations are located in Bend, Oregon; Boise, Idaho; and Corona,
California.
The Acquisition has been accounted for as a purchase; accordingly, the
aggregate purchase price has been allocated to assets acquired and accounts
payable assumed, based on their relative fair market values, subsequent to
the balance sheet date.
7
<PAGE> 8
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL IMPACT OF FLUCTUATIONS IN LUMBER PRICES AND SEASONALITY
The Company experiences significant fluctuations in the cost of lumber products
from primary producers. The table below highlights such fluctuations for the
nine months ended September 28, 1996 and September 30, 1995. A variety of
factors over which the Company has no control, including environmental
regulations, weather conditions, and natural disasters, impact the cost of
lumber products. The Company anticipates that these fluctuations will continue
in the future.
The following table presents the Random Lengths framing lumber composite price.
The composite price is a weighted average of nine key framing lumber prices
chosen from major producing areas and species. The composite price is designed
as a broad measure of price movement in the commodity lumber market ("Lumber
Market"). The effects of the Lumber Market on the Company's results of
operations are discussed below under the captions "Net Sales" and "Cost of
Goods Sold and Gross Profit." Depending on the extent of the fluctuation, the
type of product and other factors, it could take up to a month for a
fluctuation in the Lumber Market to be reflected in the Company's selling
prices.
<TABLE>
<CAPTION>
Random Lengths
Average $/MBF
---------------
1996 1995
---- ----
<S> <C> <C>
January . . . . . . . . . . . $329 $379
February . . . . . . . . . . . 347 383
March . . . . . . . . . . . . 353 358
April . . . . . . . . . . . . 374 335
May . . . . . . . . . . . . . 420 313
June . . . . . . . . . . . . . 409 292
July . . . . . . . . . . . . . 402 328
August . . . . . . . . . . . . 443 330
September . . . . . . . . . . 443 346
</TABLE>
The Company's business is seasonal in nature and results of operations vary
from quarter to quarter. The demand for many of the Company's products is
highest during the period of April to August. Accordingly, the Company's sales
tend to be greater during its second and third quarters. To support this sales
peak, the Company builds its inventory of finished goods throughout the winter
and spring. Therefore, quantities of raw materials and finished goods
inventories tend to be at their highest, relative to sales, during the
Company's first and fourth quarters. Although the Company maintains unique
supply programs with vendors which have greatly reduced its inventory levels
compared to historical averages, this seasonal requirement still exists. As a
result, the Company has some exposure related to sharp
8
<PAGE> 9
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
declines in the Lumber Market during its primary selling season. Beginning in
1995, the Company took the following steps to decrease its exposure:
- - Negotiated unique supply programs with vendors. These programs have
substantially reduced the Company's inventory quantities, and include those
materials which are most susceptible to adverse changes in the Lumber
Market.
- - Instituted inventory management initiatives to accelerate the throughput of
material in its plants and reduce the average supply of inventory.
- - Set a goal of improving its sales mix by selling more value-added products
in relationship to total sales. Value-added products are less susceptible
to the adverse effects a decline in the Lumber Market can have on the
Company's profitability. See further discussion under the caption "Net
Sales."
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of the
Company's Consolidated Condensed Statements of Earnings as a percentage of net
sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- --------------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of goods sold . . . . . . . . . . . . 91.0 90.6 89.7 89.9
------- ------- ------- -------
Gross profit . . . . . . . . . . . . . . . 9.0 9.4 10.3 10.1
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 5.6 6.6 6.1 6.3
------- ------- ------- -------
Earnings from operations . . . . . . . . . 3.4 2.8 4.2 3.8
Other expense, net . . . . . . . . . . . . 0.1 0.1 0.3 0.4
------- ------- ------- -------
Earnings before income taxes . . . . . . . 3.3 2.7 3.9 3.4
Income taxes . . . . . . . . . . . . . . . 1.3 1.1 1.6 1.4
------- ------- ------- -------
Net earnings . . . . . . . . . . . . . . . 2.0% 1.6% 2.3% 2.0%
======= ======= ======= =======
</TABLE>
9
<PAGE> 10
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
NET SALES
Net sales in the third quarter of 1996 increased $55 million, or 29%, compared
to the same period of 1995, due to an increase in the overall Lumber Market
(see Random Lengths table), supplemented by an increase in unit sales to the
Do-It-Yourself (DIY) and Manufactured Housing (MH) markets. Net sales in the
first nine months of 1996 increased $80 million, or 13%, compared to the same
period of 1995, due to the same factors mentioned above.
The Company's ratio of value-added product sales to total sales was 28.8% and
29.9% in the third quarter of 1996 and 1995, respectively, and 31.6% and 31.9%
in the first nine months of 1996 and 1995, respectively. Value-added products
consist primarily of items sold to the DIY market under the Company's Fence
Fundamentals(TM), Lattice Basics(TM), Deck Necessities(R), Outdoor
Essentials(R), Storage Solutions(TM) and YardLine(R) trade names, trusses sold
to the MH market, and products sold to the industrial market. The decreases in
this ratio in the third quarter and first nine months of 1996 are discussed
under the captions "DIY" and "MH" below. A long-term goal of the Company is to
achieve a ratio of value-added product sales to total sales of at least 50%.
The following table presents, for the periods indicated, the Company's net
sales (in thousands) and percentage of total net sales by market
classification.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- ------------------------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
Market Classification 1996 % 1995 % 1996 % 1995 %
- --------------------- -------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIY . . . . . . . . . . . $125,342 51.4% $ 99,498 52.7% $359,973 53.0% $315,792 52.7%
MH . . . . . . . . . . 90,392 37.1 68,477 36.3 238,397 35.1 212,126 35.4
Wholesale Lumber . . . . 14,547 6.0 10,852 5.7 44,148 6.5 38,350 6.4
Industrial . . . . . . . 13,606 5.5 9,974 5.3 36,677 5.4 32,958 5.5
-------- ------- -------- ------ --------- ------ ---------- ------
$243,887 100.0% $188,801 100.0% $679,195 100.0% $599,226 100.0%
======== ======= ======== ====== ========= ====== ========== ======
</TABLE>
DIY:
Net sales to the DIY market increased approximately $26 million, or 26%, in the
third quarter of 1996 compared to the same period of 1995, due to an increase
in the Lumber Market which substantially increased the overall selling prices
of the Company's commodity-based products, supplemented by an increase in unit
sales of commodity-based and value-added products. Net sales in the first nine
months of 1996 increased approximately $44 million, or 14%, compared to the
same period of 1995, due to the same factors mentioned above.
10
<PAGE> 11
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
The following table presents, for the periods indicated, the Company's
value-added and commodity-based product sales to the DIY market, in thousands:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
September 28, % of September 30, % of %
1996 Total 1995 Total Change
---------------- -------- ---------------- -------- ------
<S> <C> <C> <C> <C> <C>
Value-added product sales . . . . . . . . $ 32,136 25.6% $27,221 27.4% 18.1%
Commodity-based product sales . . . . . . 93,206 74.4 72,277 72.6 29.0
-------- ------ ------- ------
Total $125,342 100.0% $99,498 100.0% 26.0%
======== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------------------
September 28, % of September 30, % of %
1996 Total 1995 Total Change
---------------- -------- ---------------- -------- ------
<S> <C> <C> <C> <C> <C>
Value-added product sales . . . . . . . . $112,892 31.4% $100,444 31.8% 12.4%
Commodity-based product sales . . . . . . 247,081 68.6 215,348 68.2 14.7
-------- ------ -------- ------
Total $359,973 100.0% $315,792 100.0% 14.0%
======== ====== ======== ======
</TABLE>
Decreases in the Company's ratio of value-added product sales to total sales in
the third quarter and first nine months of 1996 are due to the effects of the
Lumber Market on the Company's sales of commodity-based products. Sales of
commodity-based products are generally indexed to the Lumber Market, while
value-added products sold to the DIY market generally have fixed sales prices
for a specified time period or quantity. Therefore, a substantial increase in
the Lumber Market, which has occurred in the first nine months of 1996, will
cause commodity-based products to represent a proportionately higher percentage
of total DIY sales dollars.
MH:
Net sales to the MH market increased approximately $22 million, or 32%, in the
third quarter of 1996 compared to the same period of 1995 due to an increase in
the Lumber Market which substantially increased the selling prices of the
Company's products, supplemented by an increase in unit sales. The effect of
the higher Lumber Market on the selling prices of trusses was offset to some
extent by increased competition in certain geographic areas forcing selling
prices down. Net sales in the first nine months of 1996 increased
approximately $26 million, or 12%, compared to the same period of 1995, due to
the same factors mentioned above. In its August 1996 report, the Manufactured
Housing Institute reported a 10% increase in year-to-date industry unit
shipments of manufactured homes.
11
<PAGE> 12
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
The following table presents, for the periods indicated, the Company's truss
and commodity-based product sales to the MH market, in thousands:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
September 28, % of September 30, % of %
1996 Total 1995 Total Change
---------------- -------- ---------------- -------- ------
<S> <C> <C> <C> <C> <C>
Truss sales . . . . . . . . . . . . . . . $23,678 26.2% $19,597 28.6% 20.8%
Commodity-based product sales . . . . . . 66,714 73.8 48,880 71.4 36.5
------- ------ ------- ------
Total $90,392 100.0% $68,477 100.0% 32.0%
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------------------------
September 28, % of September 30, % of %
1996 Total 1995 Total Change
---------------- -------- ---------------- -------- ------
<S> <C> <C> <C> <C> <C>
Truss sales . . . . . . . . . . . . . . . $ 64,993 27.3% $ 59,883 28.2% 8.5%
Commodity-based product sales . . . . . . 173,404 72.7 152,243 71.8 13.9
--------- ------ -------- ------
Total $ 238,397 100.0% $212,126 100.0% 12.4%
========= ====== ======== ======
</TABLE>
Decreases in the Company's ratio of truss sales to total sales in the third
quarter and first nine months of 1996 are due to the effects of the Lumber
Market and geographic competition on selling prices of commodity-based products
and trusses, respectively.
Wholesale:
Net sales to the wholesale lumber market increased approximately $3.7 million,
or 34%, in the third quarter of 1996, compared to the same period of 1995,
while year-to-date net sales in 1996 have increased approximately $5.8 million,
or 15%, compared to the same period of 1995. These increases are primarily due
to the effects of the higher Lumber Market, although unit sales in the third
quarter of 1996 showed a slight increase. The Company does not expect unit
sales to this market to increase in the foreseeable future as a result of its
goal to increase its ratio of value-added product sales to total sales.
Industrial:
Net sales to the industrial market increased approximately $3.6 million, or
36%, in the third quarter of 1996 compared to the same period of 1995, while
year-to-date net sales in 1996 have increased approximately $3.7 million, or
11%, compared to the same period of 1995. The Company plans to grow its sales
to this market in the future through strategic acquisitions.
12
<PAGE> 13
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales decreased to 9.0% in the third
quarter of 1996 compared to 9.4% in the same period of 1995, despite the
results of the Company's efforts to improve production efficiencies and lower
production costs per unit. This decrease was due to the following:
- - The effects of trends in the Lumber Market, comparing the third quarter of
1996 with the same period of 1995, on sales of products which are considered
"at risk." The Company considers its "at risk" products to be commodity
products subject to high price volatility which are not supplied under its
unique supply programs with vendors. In a period of rising Lumber Market
prices, the Company will realize a higher gross profit percentage on sales
of these products than it will in a period of flat or declining lumber
prices, due to the price increase which occurs between the time of purchase
and sale. In June through September of 1996, the Lumber Market fell through
the month of July (a high sales month), rose in August and was stable
through September. Conversely, in June through September of 1995, the
Company benefited from a steadily rising Lumber Market.
- - The effect of the higher Lumber Market on the gross profit percentage of the
Company's commodity-based products. Selling prices of these products are
generally indexed to the Lumber Market, along with a fixed dollar "adder" to
cover production costs plus profit. Therefore, in a stable but high Lumber
Market, the Company's gross profit percentage will be lower than the gross
profit percentage it would realize with a stable but low Lumber Market.
This is the situation the Company faced in the third quarter of 1996,
compared to the same period of 1995, as the average monthly Random Lengths
composite price ranged from $74/MBF to $113/MBF higher during the third
quarter of 1996.
- - Increased competition in the manufactured housing market, in certain
geographic regions, has caused some downward pressure on the selling prices
of trusses as the Company continues to maintain market share.
Gross profit as a percentage of net sales was 10.3% for the first nine months
of 1996 compared to 10.1% for the same period of 1995. This year-to-date
increase is primarily due to the trend in the Lumber Market from March through
May of 1996, which was steadily increasing at a time when the Company's sales
are at a peak, combined with the Company's efforts to improve production
efficiencies and lower production costs per unit.
13
<PAGE> 14
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses have increased $1.0 million and
$3.8 million, or 8% and 10%, respectively, comparing the third quarter and
first nine months of 1996 and 1995, respectively. Such increases are primarily
due to increases in accrued incentive compensation expenses related to profit
and certain variable expenses related to sales.
OTHER EXPENSE, NET
Other expense, net is primarily comprised of interest expense. Net interest
costs (interest expense less interest income) increased by approximately
$220,000, comparing the third quarter of 1996 with the same period of 1995, due
to a lower average balance of cash reserves in the third quarter of 1996. The
decrease in cash reserves during the period was due to an increase in working
capital requirements as a result a higher Lumber Market.
Net interest costs decreased by approximately $500,000, comparing the first
nine months of 1996 and 1995, due to the Company's substantial cash reserves
during the first six months of the year compared to the same period of 1995.
INCOME TAXES
The Company's effective tax rate in the third quarter and first nine months of
1996 and 1995 ranges from 40.2% to 40.6%. Effective tax rates differ from
statutory federal income tax rates primarily due to provisions for state and
local income taxes and are not expected to increase significantly in the
foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities for the first nine months of 1996
was $8.4 million compared with $43.4 million in the same period of 1995. The
$35.0 million decrease is due primarily to the higher Lumber Market in the
third quarter of 1996 which increased the cost of lumber, and consequently, the
Company's investment in working capital at the end of the period. The Company
expects to generate positive cash flows from operations in the fourth quarter
of 1996 as existing receivables and inventory are collected and sold.
14
<PAGE> 15
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
The Company continues to improve its working capital management practices,
evidenced by a 7% decrease in its cash cycle (days sales outstanding plus days
supply of inventory less days payables outstanding) to 40.7 days from 43.8
days, comparing the first nine months of 1996 with the same period of 1995.
This improvement, along with the Company's strong cash position at the
beginning of the year, allowed it to avoid borrowing on its lines of credit
during the period, leaving $116 million available on its revolving credit
facilities at September 28, 1996.
Capital expenditures totaled almost $6.9 million in the first nine months of
1996 as the Company remains on pace to spend approximately $10 million for the
year to upgrade its machinery and equipment and information systems and expand
operations at certain plants. In addition, the Company is currently
investigating strategic acquisitions. The Company's current plan involves
pursuing acquisitions in the following markets:
- - Manufacturers of commercial and residential trusses.
- - Manufacturers of industrial packaging products.
- - Truss manufacturers which supply the MH market.
- - Low cost treating operations which supply the DIY market.
The Company may finance any potential future acquisition using its cash
reserves or credit facilities, through an issuance of common stock or a
combination of the above.
On October 1, 1996, the Company acquired Hi-Tek Forest Products, Inc.
("Hi-Tek") for $10.4 million, plus accounts payable assumed totaling
approximately $495,000. The acquired plants are located in Bend, Oregon;
Boise, Idaho; and Corona, California, with operations consisting of truss
manufacturing and lumber remanufacturing. The acquired plants primarily supply
the MH market and have historical annual sales totaling approximately $30
million. The Company acquired Hi-Tek using a portion of its cash reserves.
Cash flows from financing activities in the first nine months of 1996 consisted
of repayments on long-term debt, repurchases of common stock, proceeds from the
issuance of common stock and dividends paid to shareholders at a rate of $.03
per common share. In January 1996, the Company repurchased 100,000 shares of
its common stock for an amount totaling $822,000. Management is authorized to
repurchase an additional 900,000 common shares under its current stock
repurchase program. While the Company has no current obligation to buy back
additional shares, it will continue to evaluate market conditions and
alternative uses of its cash to determine when it will make repurchases. In
February and April 1996, one former officer and seven current officers of the
Company exercised options to purchase 95,000 shares of common stock for an
amount totaling approximately $247,000.
15
<PAGE> 16
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
On October 23, 1996, the Company's Board of Directors declared a semi-annual
cash dividend of $0.03 per share on its common stock. The dividend is payable
on December 15, 1996 to shareholders of record as of December 1, 1996.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
The Company is self-insured for environmental impairment liability, and accrues
for the estimated cost of remedial actions when situations requiring such
action arise. The Company owns and operates sixteen facilities throughout the
United States that chemically treat lumber products. In connection with the
ownership and operation of these and other real properties, and the disposal or
treatment of hazardous or toxic substances, the Company 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. Remediation and/or site assessment
activities are currently being conducted at the Company's Granger, Indiana;
Union City, Georgia; and Elizabeth City, North Carolina treatment facilities.
The Company has accrued, in current liabilities, amounts totaling $2.5 million
and $2.8 million at September 28, 1996 and December 30, 1995, respectively,
representing the estimated costs to complete remediation efforts currently in
process and those expected to occur in the future. The Company 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.
16
<PAGE> 17
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
From time to time the Company may make certain statements which are considered
forward-looking. Statements regarding future performance are contingent on a
variety of risk factors which may impact the Company's ability to meet its
projections. In addition to the other risks contained herein, the risk factors
described below may negatively impact future financial results, and should be
considered when evaluating forward-looking statements made by the Company.
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 projections may be based on certain growth assumptions for the
overall markets which it serves. If the Company's markets do not maintain
anticipated growth projections, or if the Company fails to maintain its market
share, financial results could be impaired.
Government Regulations:
The Company is subject to a substantial amount of existing government
regulations which create a burden on the Company. Should the Company become
subject to additional laws and regulations enacted in the future, or charges in
interpretation of existing laws, it could have an adverse affect on the
Company's financial results.
Lumber Market Volatility:
As previously stated, the Company experiences significant fluctuations in the
cost of lumber products from primary producers. While the Company attempts to
minimize its risk from severe price fluctuations, substantial, rapid changes in
lumber prices can affect the Company's financial results.
17
<PAGE> 18
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL FOREST PRODUCTS, INC.
Date: November 8, 1996 By: /s/ William G. Currie
------------------------ -----------------------------------
William G. Currie
Its: President and Chief Executive
Officer
Date: November 8, 1996 By: /s/ Elizabeth A. Bowman
------------------------ -----------------------------------
Elizabeth A. Bowman
Its: Executive Vice President of
Finance and Administration and
Treasurer (Principal Financial
Officer)
18
<PAGE> 19
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule 20
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 19,988,083
<SECURITIES> 0
<RECEIVABLES> 48,395,651
<ALLOWANCES> 1,440,654
<INVENTORY> 74,656,451
<CURRENT-ASSETS> 145,297,367
<PP&E> 98,094,339
<DEPRECIATION> 41,996,529
<TOTAL-ASSETS> 206,420,595
<CURRENT-LIABILITIES> 53,787,914
<BONDS> 50,206,536
0
0
<COMMON> 17,039,070
<OTHER-SE> 81,217,269
<TOTAL-LIABILITY-AND-EQUITY> 206,420,595
<SALES> 679,194,681
<TOTAL-REVENUES> 679,194,681
<CGS> 609,364,671
<TOTAL-COSTS> 609,364,671
<OTHER-EXPENSES> 41,707,398
<LOSS-PROVISION> 1,437,929
<INTEREST-EXPENSE> 3,041,842
<INCOME-PRETAX> 26,201,386
<INCOME-TAX> 10,595,000
<INCOME-CONTINUING> 15,606,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,606,386
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
</TABLE>
