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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED). FOR FISCAL YEAR ENDED DECEMBER 28, 1996.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED). For the transition period from
________________ to ________________.
Commission File No.: 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 No.)
2801 E. BELTLINE, N.E., GRAND RAPIDS, MICHIGAN 49505
(Address of principal executive offices) (Zip Code)
(616) 364-6161
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
NONE __________________________________________
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
As of March 1, 1997, 17,072,720 shares of the registrant's common stock, no par
value, were outstanding. The aggregate market value of the common stock held
by non-affiliates of the registrant (i.e., excluding shares held by executive
officers, directors, and control persons as defined in Rule 405, 17 CFR
230.405) on that date was $153,148,948 computed at the closing price of $13.875
on that date.
Documents incorporated by reference:
1. Certain portions of the Company's Proxy Statement and Appendix for its
1997 Annual Meeting of Shareholders are incorporated by reference into
Parts II and III of this Report.
Exhibit Index located on page E-1.
Page 1 of 15
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ANNUAL REPORT ON FORM 10-K
DECEMBER 28, 1996
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business. 3
Item 2. Properties. 8
Item 3. Legal Proceedings. 9
Item 4. Submission of Matters to a Vote of Security Holders. 9
PART II
Item 5. Market for the Registrant's Common Stock and Related 11
Stockholder Matters.
Item 6. Selected Financial Data. 11
Item 7. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations.
Item 8. Financial Statements and Supplemental Data. 11
Item 9. Changes in and Disagreements with Accountants on 11
Accounting and Financial Disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant. 12
Item 11. Executive Compensation. 12
Item 12. Security Ownership of Certain Beneficial Owners 12
and Management.
Item 13. Certain Relationships and Related Transactions. 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports 13
on Form 8-K.
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PART I
ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS.
Universal Forest Products, Inc. ("the Company") was organized as a
Michigan corporation in 1955. The Company's business originally consisted of
purchasing lumber in carload lots from primary producers and reselling those
carloads, mostly to manufacturers of mobile and modular homes, without any
intermediate handling. In the early 1970s, the Company developed a "component
yard" concept that featured distribution facilities with manufacturing
capabilities located adjacent to major railroads in proximity to its clustered
manufactured housing customers. Carload shipments of lumber were received at
these regional facilities where the material was either broken down and shipped
to customers without further processing or manufactured to the customer's
specifications before shipment to the customer by truck. Subsequently, the
Company began to manufacture roof trusses for its manufactured housing
customers. In 1978, the Company entered the wood preservation business by
building a facility utilizing a pressure-treatment process for protecting wood
from damage by insects, moisture and fungi in outdoor applications. In the
late 1980s, the Company began to supply warehouse-format mass merchandisers
when those customers became strong retail outlets for the do-it-yourself
market.
Effective December 28, 1996, the Company transferred substantially all of
its operating assets to the following corporations in exchange for 100% of the
common stock of these entities: Universal Forest Products Eastern Company,
Inc.; Universal Forest Products Far West Company, Inc.; Universal Forest
Products Midwest Company, Inc.; Universal Forest Products Southern Company,
Inc.; and Universal Forest Products Southwest Company, Inc.
Immediately following the transfer, certain wholly-owned subsidiaries
contributed certain assets, net of liabilities, to various partnership
entities. These transactions qualify as part of a tax-free reorganization.
Each of the newly formed entities utilizes the trade name Universal Forest
Products(R) in its operations. The Company also has operations in Canada and
Mexico which are wholly-owned subsidiaries and were not included in the
reorganization mentioned above. All references to the "Company" include the
Company's subsidiaries and partnerships unless otherwise indicated by the
context.
(B) FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS.
The Company's operations comprise a single industry segment - the
manufacture, treatment and distribution of lumber products. Accordingly,
separate industry segment information is not presented.
(C) NARRATIVE DESCRIPTION OF BUSINESS.
The Company manufactures, treats and distributes lumber products
for the do-it-yourself (DIY), manufactured housing, wholesale lumber and
industrial markets. The Company's principal
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products are preservative-treated wood, engineered roof trusses, dimension
lumber and value-added lumber products, including lattice, fence panels, deck
components and kits for various outdoor products. The Company currently
operates 44 manufacturing, treating and distribution facilities throughout
North America at sites located in proximity to significant customers, providing
the Company a cost effective means of distribution.
DIY MARKET. The customers comprising this market are primarily
warehouse-format home improvement retailers, chain lumberyards and contractor
oriented wholesalers. The Company is currently selling to more than 1,300
customers in this market. One customer in this market, The Home Depot, Inc.,
accounted for 15%, 15% and 13% of net sales for fiscal 1996, 1995 and 1994,
respectively.
National customers in this market are serviced by the Company's sales
staff in each region and are assisted by personnel from the Company's
headquarters. Generally, terms of sale are established for annual periods, and
orders are thereafter placed with the Company's regional facilities in
accordance with the pre-established terms. Depending upon market size, these
regional facilities employ three to ten salespeople who focus on their
respective regional markets.
The Company currently supplies customers in this market from 31 of its
locations. These regional facilities are able to supply customers with mixed
truckloads of products which can be delivered to customers with rapid
turnaround from order receipt to delivery by the Company's captive fleet of
trucks. Freight costs are a factor in the ability to competitively service
this market, especially with treated wood products because of their heavier
weight. The proximity of the Company's regional facilities to the various
outlets of these customers is a significant advantage when negotiating master
supply agreements.
The products offered to customers in this market include dimension lumber
(both treated and untreated) and various value-added products sold under the
Company's trademarks. Treated lumber is sold under the Company's PRO-WOOD(R)
trademark. Value-added products, described in the following paragraph, may be
preserved by pressure-treatment, unpreserved and/or painted.
Products in the Deck Necessities(R) group consist of decking, balusters,
spindles, decorative posts, handrails, stair risers, stringers and treads. The
Fence Fundamentals(TM) group of products includes various styles of fences,
such as solid, picket and shadowbox, as well as gates, posts and other
components. Products in the Outdoor Essentials(TM) group consist of various
home and garden items, including kits for picnic tables and mailbox posts, and
landscape timbers. Large volumes of lattice are sold by the Company under its
Lattice Basics(TM) trademark for use as skirting on decks, trellises and
various outdoor home improvement projects. The Storage Solutions(TM) product
line consists primarily of building frames and trusses, and an outdoor ready-to
assemble storage structure sold under the YardLine(R) trademark.
The Company knows of no competitor that currently manufactures, treats
and distributes a full line of both proprietary and commodity products on a
national basis. The Company faces competition on individual products from
several different producers, but these competitors tend to be regional in their
marketing efforts and/or do not offer a full line of outdoor lumber products.
The
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Company believes that the breadth of its product offering and the flexibility
and geographic dispersal of its regional facilities provide significant
competitive advantages in this market.
MANUFACTURED HOUSING MARKET. The customers comprising the manufactured
housing market are producers of mobile, modular and prefabricated homes and
recreational vehicles. The Company is currently selling to over 200 customers
in this market.
Products sold by the Company to customers in this market consist
primarily of roof and floor trusses, lumber cut and shaped to the customer's
specification, plywood, particle board, and dimension lumber, all intended for
use in the construction of manufactured housing. The Company is the largest
manufacturer of roof trusses for manufactured housing in North America. Sales
are made by personnel located at each regional facility. The Company's
engineering and support staff of approximately 14 persons acts as a sales
support resource to assist the customer with truss designs, obtaining various
building code approvals for the designs, and aiding in the development of new
products and manufacturing processes.
While no competitor operates in as widely dispersed geographic area as
the Company, it does face vigorous competition from suppliers in all geographic
regions. The Company estimates that it produces approximately 70% of the HUD
Code roof trusses supplied to this market based on data published by the
Manufactured Housing Institute. The Company's principal competitive advantages
are its product knowledge, the capacity to supply all of the customer's lumber
requirements, the ability to deliver engineering support services, the
proximity of its regional facilities to core customers and its ability to
provide national sales programs to certain customers. In addition, the
Company's financial resources enable it to carry a sufficient inventory of raw
materials to minimize turnaround time from receipt of an order to delivery of
the product. The Company's financial resources, in combination with its
ability to regrade and reshape lumber, enable it to purchase a large percentage
of a primary producer's output of a particular category (as opposed to only
those dimensions in immediate need), thereby lowering its average cost of raw
materials.
WHOLESALE LUMBER MARKET. The wholesale lumber market is comprised of
lumber wholesalers who resell to retail outlets or other end users. A large
part of the Company's activity in this market consists of the purchase and
resale of lumber in carload and truckload quantities, generally without any
handling or processing by the Company. To a lesser extent, the Company also
sells its preservative-treated and value-added products into this market.
There are numerous competitors in this market and competition is intense.
The Company's market share is very small and not expected to increase.
INDUSTRIAL MARKET. The Company defines its industrial market as
industrial manufacturers who use lumber for packaging, shipping and material
handling purposes, such as users of pallets, crates and crating stock. The
Company has increased its emphasis on this market in recent years. Competition
is fragmented and includes virtually every supplier of lumber convenient to the
customer. The Company intends to continue to service this market with its
regional sales personnel and to emphasize service and reliability as
competitive strengths. It also plans to increase its penetration into this
market through strategic acquisitions.
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WOOD PRESERVATION TREATMENT. The Company is the largest producer of
preservative-treated lumber in the nation based on data published by the
American Wood Preservers Institute. The Company operates treatment facilities
in thirteen different states, with capacity to process over 1.03 billion board
feet annually.
The process for preserving wood utilized by the Company involves the
application of a Chromated Copper Arsenate (CCA) solution under pressure. This
process originated in India approximately sixty years ago as a means for
protecting timbers utilized in the construction of mine shafts and tunnels.
The basic process is no longer protected by any U.S. patent, and is widely used
by numerous producers of treated lumber. The process consists of mixing the
chemicals with water and impregnating the wood by alternating vacuum and
pressure in specially designed pressure chambers. Thereafter, the CCA becomes
a permanent component of the wood. The preservative in the wood acts as both
an insecticide and a fungicide, thereby effectively eliminating the two
principal causes of wood deterioration that exist in North America. The
preservative in water solution is a toxic substance. The Company has developed
and implemented numerous refinements to the basic CCA treatment process, some
of which the Company considers trade secrets. The Company considers its
process to be "state of the art." There is no water disposal problem resulting
from the process since the water evaporates from the lumber and the CCA remains
fixed in the wood.
In order to alleviate environmental concerns, in the mid-1980's the
Company began installing monitoring wells at all of its treating facilities
where groundwater contamination was a potential problem. Quality assurance
personnel from the Company's headquarters perform audits, including soil and
groundwater sampling at least semi-annually to assure that the treating process
is being performed in accordance with the Company's stringent standards for
both environmental safety and product quality.
At the time the monitoring wells were installed at the Company's Granger,
Indiana facility in 1986, chromium was discovered in the groundwater in excess
of the EPA limit for drinking water at one end of the Company's property.
Subsequent testing also revealed surface water and soil contamination in excess
of EPA limits in three other areas of the plant. In 1991, the Company
discovered chromium in the groundwater in excess of the EPA drinking water
limit in connection with the replacement of a treating facility previously
purchased in Union City, Georgia. Each of the groundwater problems mentioned
above is being corrected through a groundwater recovery program in which large
volumes of groundwater are pumped from the wells for use in the Company's
treatment process. In addition, at the Granger, Indiana facility, the Company
has implemented an in-situ remediation process whereby contaminated groundwater
is pumped from the wells and reinjected with chemicals added which remove the
contaminants. Monitoring wells at each of the sites continue to show
improvement, and the Company expects its remediation programs will bring
groundwater and soil quality to within applicable regulatory limits in the
foreseeable future.
Based on the acquisition agreements between the Company and Chesapeake
Corporation, the environmental conditions existing at the Company's Elizabeth
City, NC, Stockertown, PA, and North East, MD sites are the responsibility of
the Company. Environmental conditions consist of soil and/or groundwater
contamination of CCA components. Based on the results of the final
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baseline environmental reports and the research of its consultants, the Company
believed the reduction in its capital lease obligation offset the estimated
environmental liability it assumed as a result of the agreement with
Chesapeake.
Except for the situations described above, the Company is not aware of
any material environmental problems affecting its properties. As to the
problem situations described above, the Company does not believe that aggregate
costs of remediation will have a material adverse impact on the Company's
financial condition, results of operations or liquidity.
SEASONAL INFLUENCES. The Company's manufactured housing business is
affected by seasonal influences in the northern states during the winter months
when installation is difficult.
The activities in the DIY market have substantial seasonal impacts on the
Company. The demand for many of the Company's DIY products is highest during
the period of April to August. Accordingly, the Company's sales to the DIY
market tend to be greater during the Company's second and third quarters.
Historically, the Company built its inventory of finished goods throughout the
winter and spring to support this sales peak. Restraints on production
capacity made this a necessary practice which potentially exposed the Company
to greater adverse effects of changes in economic and industry trends. Since
1995, the Company has utilized inventory management initiatives and supply
programs with vendors to reduce its exposure to adverse changes in the
commodity lumber market, and decrease demands on cash resources.
Normal fluctuations in wood prices generally do not have a material
impact on the Company. To the extent the Company obtains forecasts for future
delivery, it contracts for the purchase of lumber and includes the carrying
cost in its pricing to its customers. In most other situations, the Company's
price to the customer is indexed to the market price for lumber or the
customer's price is determined when the cost of lumber is known.
SUPPLIERS. The Company uses primarily southern yellow pine in its
pressure treating operations, which it obtains from primary producers located
through the states comprising the sun belt. Lumber for all other purposes, in
addition to southern yellow pine, consists primarily of "spruce-pine-fir," from
Ontario, Quebec, British Columbia, and Alberta, Canada; hemlock, Douglas fir
and cedar from the Pacific Northwest (Oregon, Washington, and British
Columbia); inland species of Ponderosa pine; and Brazilian pine. There are
numerous primary producers for all varieties used by the Company, and the
Company is not dependent on any particular source of supply.
INTELLECTUAL PROPERTY. The Company owns a patent relating to automated
equipment for the manufacture of lattice and a tie-down strap patent related to
truss components. In addition, the Company owns five registered trademarks:
PRO-WOOD(R) relating to the Company's preservative-treated wood products; Deck
Necessities(R) relating to the Company's deck component products; YardLine(R)
relating to outdoor ready to assemble storage structures; the name Universal
Forest Products(R); and a pine tree logo. The Company has applied for two
additional registered trademarks related to its ProLok(TM) and Advanced Vinyl
Systems(TM) products. In addition, the Company claims common law trademark
rights to several other trademarks of lesser importance. While the Company
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believes its patent and trademark rights are valuable, the loss of its patent
or any trademark would not have a material adverse impact on the competitive
position of the Company.
RESEARCH AND DEVELOPMENT. Research and development efforts by the
Company in connection with the development of new products fall into four
categories: engineering and testing of new truss designs; design and
development of wood treatment systems; design and development of machinery and
tooling of various wood shaping devices; and product development for new
products intended for use by contractors, DIY consumers, and manufactured
housing customers. Although important to the Company's competitive strengths
and growth, the dollar amount of research and development expenditures have not
been material to the Company in recent years.
EMPLOYEES. At March 1, 1997, the Company employed approximately 2,700
persons. No Company employees are represented by a labor union, the Company
has never experienced a work stoppage due to a labor dispute, and the Company
believes its relations with its employees are good.
BACKLOG. Due to the nature of the Company's business, backlog
information is not meaningful. The maximum time between receipt of a firm
order and shipment does not usually exceed a few days. Therefore, the Company
would not normally have a backlog of unfilled orders in a material amount. The
Company's relationships with its major customers are such that the Company is
either the exclusive supplier of certain products and/or certain geographic
areas, or the designated source for a specified portion of the customer's
requirements. In such cases, either the Company is able to forecast the
customer's requirements or the customer will provide the Company with an
estimate of its future needs. In neither case, however, will the Company
receive firm orders until just prior to the anticipated delivery dates for the
products in question.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
The dominant portion of the Company's operations and sales occur in the
United States. Accordingly, separate financial information about foreign and
domestic operations and export sales is not presented.
ITEM 2. PROPERTIES.
The Company's headquarters are located on a ten acre site adjacent to a
main thoroughfare in suburban Grand Rapids, Michigan. The headquarters
building consists of several one and two story structures of wood construction
containing approximately 49,000 square feet of office space.
The Company currently has 44 facilities at 39 locations. These
facilities are located in twenty U.S. states, one Canadian province, and one
Mexican state, and are involved in either the manufacture, preservative
treatment, or distribution of lumber products, or a combination of these
activities. These facilities are generally of steel frame and aluminum
construction and situated on fenced sites ranging in size from seven acres to
thirty acres. Depending upon function and location, these facilities typically
utilize office space between 1,500 and 5,000 square feet, manufacturing
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space between 10,000 and 50,000 square feet, treating space between 25,000 and
300,000 square feet, and covered storage ranging from 10,000 to 100,000 square
feet.
The Company owns all of its properties, free from any significant
mortgage or other encumbrance, except for nine regional facilities which are
leased. The Company believes that all of these operating facilities are
adequate in capacity and condition to service existing customer locations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any pending legal proceedings other than
routine litigation incidental to the ordinary conduct of its business, none of
which would result in a material impact on the Company, individually or in the
aggregate, in the event of an adverse outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1996.
ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT. The following table
lists the names, ages and positions of all of the Company's executive officers
as of March 1, 1997. Officers are elected annually by the Board of Directors
at the first meeting of the Board following the annual meeting of shareholders.
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Name Age Position
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Peter F. Secchia 59 Chairman of the Board, Universal Forest Products, Inc.
William G. Currie 49 Chief Executive Officer and President, Universal Forest Products, Inc.
Donald L. Harris 49 President, Universal Forest Products Eastern Company, Inc.
James H. Ward 53 President, Universal Forest Products Southern Company, Inc.
Michael B. Glenn 45 President, Universal Forest Products Southwest Company, Inc.
Robert K. Hill 49 Executive Vice President, Universal Forest Products Far West Company, Inc.
Robert D. Coleman 42 Executive Vice President, Universal Forest Products Midwest Company, Inc.
Matthew J. Missad 36 Exec. Vice Pres. Operations Services & Secty., Universal Forest Products, Inc.
Elizabeth A. Bowman 34 Exec. Vice Pres. Finance and Admin. & Treas., Universal Forest Products, Inc.
Eric S. Maxey 38 Vice Pres. of Admin. & Principal Acctg. Officer, Universal Forest Products, Inc.
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Peter F. Secchia, Chairman of the Board of Directors, began his service
with the Company in 1962 and has been a director of the Company since 1967.
Mr. Secchia served as President, Chief Executive Officer, and Chairman of the
Company from 1971 until 1989, when he was appointed U.S. Ambassador to Italy.
Mr. Secchia completed his tenure as Ambassador on January 20, 1993, when he
rejoined the Company as Chairman of the Board.
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William G. Currie, the Chief Executive Officer and President of the
Company, joined the Company in 1971. From 1983 to 1990, Mr. Currie was
President of Universal Forest Products, Inc. and he was the President and Chief
Executive Officer of The Universal Companies, Inc. from 1989 until the merger
to form the Company in 1993.
Donald L. Harris has been with the Company since 1972, and was the Senior
Vice President of the Company's Eastern operations since 1986. Effective with
the December 28, 1996 reorganization, Mr. Harris became the President of
Universal Forest Products Eastern Company, Inc.
James H. Ward joined the Company in 1972 as a regional salesman. From
1979 to 1987, he served as Vice President of the Company's Southern operations,
and was elected to Senior Vice President in June of 1987. Effective with the
December 28, 1996 reorganization, Mr. Ward became the President of Universal
Forest Products Southern Company, Inc.
Michael B. Glenn has been employed by the Company since 1974. In June of
1989, Mr. Glenn was elected Senior Vice President of the Company's Southwest
operations. From September 1983 to June 1989, Mr. Glenn was Vice President of
those operations. Effective with the December 28, 1996 reorganization, Mr.
Glenn became the President of Universal Forest Products Southwest Company, Inc.
Robert K. Hill has been with the Company since 1986. In March of 1993,
he was elected Senior Vice President of the Company's Far West operations.
From 1989 to 1993, he served as Vice President of those operations, from 1988
to 1989 he was General Manager of Operations, and from 1986 to 1988 he served
the Company as a sales manager. Effective with the December 28, 1996
reorganization, Mr. Hill became the Executive Vice President of Universal
Forest Products Far West Company, Inc.
Robert D. Coleman, an employee of the Company since 1979, served as
Senior Vice President of the Company's Midwest operations since September 1,
1993. From 1986 to 1993 he served as Vice President of the Company's Atlantic
Division. Effective with the December 28, 1996 reorganization, Mr. Coleman
became the Executive Vice President of Universal Forest Products Midwest
Company, Inc.
Matthew J. Missad has been employed by the Company since 1985. Mr.
Missad has served as Secretary since December 1, 1987, and Vice President
Corporate Compliance since August 1989. In February 1996, Mr. Missad was
promoted to Executive Vice President of Operations Services.
Elizabeth A. Bowman, CPA, joined the Company in July of 1993 as Vice
President of Finance and Treasurer. From 1990 to 1993, Ms. Bowman served as
Vice President of Operations of The Waypointe Companies, Inc., a company
involved in construction, engineering, software design, and marketing. From
1986 to 1990, Ms. Bowman served as Controller of Riebel Development
Corporation, a real estate development company. In February 1996, Ms. Bowman
was promoted to Executive Vice President of Finance and Administration.
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Eric S. Maxey, an employee of the Company since 1981, has served as Vice
President of Administration since 1992. Prior to that time and since 1984, he
served as Controller.
PART II
The Registrant's Appendix to its definitive Proxy Statement for the 1997
Annual Meeting of Shareholders is filed as Exhibit 13 with this Form 10-K
Report. The following information items in this Part II, which are contained
in the Appendix on the pages noted, are specifically incorporated by reference
into this Form 10-K Report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The information required by this Item is incorporated by reference from
page B-26 of the Appendix to the Company's definitive Proxy Statement for the
1997 Annual Meeting of Shareholders, under the caption "Price Range of Common
Stock and Dividends."
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is incorporated by reference from
page B-1 of the Appendix to the Company's definitive Proxy Statement for the
1997 Annual Meeting of Shareholders, under the caption "Selected Financial
Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this Item is incorporated by reference from
pages B-2 through B-10 of the Appendix to the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders, under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated by reference from
pages B-11 through B-25 of the Appendix to the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to executive officers is included in this report in
the last section of Part I under the caption "Executive Officers of the
Registrant." Information relating to directors and compliance with Section
16(a) of the Securities and Exchange Act of 1934 is incorporated by reference
to the Company's definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders, as filed with the Commission, under the captions "Board of
Directors" and "Compliance with Reporting Requirements."
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is incorporated by
reference to the Company's definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders under the caption "Executive Compensation," excluding
information under the captions "Compensation Committee Report" and "Stock
Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to security ownership of certain beneficial owners
and management is incorporated by reference to the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders under the captions
"Ownership of Common Stock" and "Securities Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
Information relating to certain relationships and related party
transactions is incorporated by reference to the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Shareholders under the caption
"Election of Directors."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. The following Independent Auditors'
Report and Consolidated Financial Statements are incorporated by reference,
under Item 8 of this report, from the Appendix to the Company's definitive
Proxy Statement for the 1997 Annual Meeting of Shareholders, filed as Exhibit
13 hereto:
Title Page
Independent Auditors' Report B-11
Consolidated Balance Sheets as of December 28, 1996 B-12
and December 30, 1995
Consolidated Statements of Earnings for the Years Ended B-13
December 28, 1996, December 30, 1995 and
December 31, 1994
Consolidated Statements of Shareholders' Equity for the B-14
Years Ended December 28, 1996, December 30, 1995
and December 31, 1994
Consolidated Statements of Cash Flows for the Years B-15
Ended December 28, 1996, December 30, 1995
and December 31, 1994
Notes to Consolidated Financial Statements B-16
2. Financial Statement Schedules. All schedules required by this
Form 10-K Report have been omitted because they were inapplicable, included in
the Consolidated Financial Statements or Notes to Consolidated Financial
Statements, or otherwise not required under instructions contained in
Regulation S-X.
3. Exhibits. Reference is made to the Exhibit Index which is found
on pages E-1 through E-5 of this Form 10-K Report.
(b) No reports on Form 8-K were filed in 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 26, 1997 UNIVERSAL FOREST PRODUCTS, INC.
By: /s/ PETER F. SECCHIA
----------------------------------------
PETER F. SECCHIA, CHAIRMAN OF THE BOARD
and
/s/ WILLIAM G. CURRIE
----------------------------------------
WILLIAM G. CURRIE, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
and
/s/ ELIZABETH A. BOWMAN
----------------------------------------
ELIZABETH A. BOWMAN, EXECUTIVE VICE
PRESIDENT OF FINANCE AND ADMINISTRATION
(PRINCIPAL FINANCIAL OFFICER)
and
/s/ ERIC S. MAXEY
----------------------------------------
ERIC S. MAXEY, PRINCIPAL ACCOUNTING
OFFICER
14
<PAGE> 15
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this 26th day of March, 1997, by the following
persons on behalf of the Company and in the capacities indicated.
Each Director of the Company whose signature appears below hereby appoints
Matthew J. Missad and Elizabeth A. Bowman, and each of them individually, as
his attorney-in-fact to sign in his name and on his behalf as a Director of the
Company, and to file with the Commission any and all amendments to this report
on Form 10-K to the same extent and with the same effect as if done personally.
/s/ PETER F. SECCHIA /s/ JOHN W. GARSIDE
- ---------------------------- -----------------------------
PETER F. SECCHIA, DIRECTOR JOHN W. GARSIDE, DIRECTOR
/s/ WILLIAM G. CURRIE /s/ PHILIP M. NOVELL
- ---------------------------- -----------------------------
WILLIAM G. CURRIE, DIRECTOR PHILIP M. NOVELL, DIRECTOR
/s/ RICHARD M. DEVOS /s/ LOUIS A. SMITH
- ---------------------------- -----------------------------
RICHARD M. DEVOS, DIRECTOR LOUIS A. SMITH, DIRECTOR
/s/ JOHN C. CANEPA
- ----------------------------
JOHN C. CANEPA, DIRECTOR
15
<PAGE> 16
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2 An Agreement to acquire the Wood Treating Operations of
Chesapeake Corporation was filed as Exhibit 2 to a
Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
2(a) A Lease Termination Agreement with Chesapeake Corporation
dated July 20, 1995 was filed as Exhibit 2(a) to a Form 10-Q
Quarterly Report for the quarter period ended July 1, 1995,
and the same is incorporated herein by reference.
3(a) Registrant's Articles of Incorporation were filed as Exhibit 3(a
to a Registration Statement on Form S-1 (No. 33-69474) and the
same is incorporated herein by reference.
3(b) Registrant's Bylaws were filed as Exhibit 3(b) to a Registration
Statement on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
4(a) Specimen form of Stock Certificate for Common Stock
was filed as Exhibit 4(a) to a Registration
Statement on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
4(b)(1) Loan Agreement with Old Kent Bank and Trust
Company dated April 18, 1988 was filed as
Exhibit 4(b)(1) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
4(b)(2) Business Loan Agreement with Michigan National
Bank dated August 17, 1988, as amended was
filed as Exhibit 4(b)(2) to a Registration
Statement on Form S-1 (No. 33-69474) and
the same is incorporated herein by reference.
4(b)(3) Series A, Senior Unsecured Note Agreement dated
May 5, 1994, was filed as Exhibit 4(b)(3) to a Form 10-Q
Quarterly Report for the quarter period ended March 26, 1994,
and the same is incorporated herein by reference.
E-1
<PAGE> 17
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10(a) Redemption Agreement with Peter F. Secchia, dated
August 26, 1993, was filed as Exhibit 10(a) to a
Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
10(b) Form of Indemnity Agreement entered into
between the Registrant and each of its directors
was filed as Exhibit 10(b) to a Registration
Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
10(c)(1) Lease guarantee dated April 26, 1978, given by
Registrant on behalf of Universal Restaurants,
Inc. to Hol-Steak, Inc. was filed as Exhibit
10(c)(1) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
10(c)(2) Lease guarantee, dated March 10, 1978, given by
Registrant on behalf of Universal Restaurants,
Inc. to Jackson Properties was filed as Exhibit
10(c)(2) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
10(c)(3) Lease guarantee, dated November 15, 1977,
by Registrant on behalf of Great Lakes
Steak Company of Ann Arbor, Inc. to William C.
and Sally A. Martin was filed as Exhibit
10(c)(3) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
10(c)(4) Lease guarantee, dated March 10, 1978, by
Registrant on behalf of Universal Restaurants,
Inc. to Forbes/Cohen Properties was filed
as Exhibit 10(c)(4) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
E-2
<PAGE> 18
[CAPTION]
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10(c)(5) Lease guarantee, dated April 26, 1978, by
Registrant on behalf of Universal Restaurants,
Inc. to Dorr D. and Nettie R. Granger was filed
as Exhibit 10(c)(5) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
10(d)(1) Lease between Registrant and its Employee Profit
Sharing and Retirement Trust Fund as lessor regarding
Registrant's Shakopee, Minnesota facility was filed
as Exhibit 10(d)(1) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
10(d)(2) Lease between Registrant and McIntosh Lumber Co.
as lessor regarding Registrant's Huntington Beach,
California facility was filed as Exhibit 10(d)(2)
to a Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
10(d)(3) Sublease between Registrant and the Community
Development Authority of the City of Moreno Valley
regarding Registrant's Moreno Valley, California
facility, with main lease attached was filed as
Exhibit 10(d)(3) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
10(d)(4) Lease between Registrant and Germania-Sykes as lessor
regarding land adjacent to Registrant's Moreno Valley
facility was filed as Exhibit 10(d)(4) to a
Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
10(d)(5) Lease between Registrant and Niagara Industrial Mall, Inc.
as lessor regarding Registrant's Niagara, Ontario facility,
as amended was filed as Exhibit 10(d)(5) to a
Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
E-3
<PAGE> 19
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*10(e)(1) Form of Executive Stock Option Agreement was filed
as Exhibit 10(e)(1) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
*10(e)(2) Form of Officers' Stock Option Agreement
was filed as Exhibit 10(e)(2) to a Registration
Statement on Form S-1 (No. 33-69474) and the same
is incorporated herein by reference.
*10(f) Salaried Employee Bonus Plan was filed as
Exhibit 10(f) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
10(g)(1) Term Loan Agreement between Registrant and NBD
Bank, N.A. dated December 1, 1992, was filed as
Exhibit 10(g)(1) to a Registration Statement
on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference.
10(g)(2) Promissory Note with Old Kent Bank and Trust Company,
dated September 1, 1993, was filed as Exhibit 10(g)(2)
to a Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
10(g)(3) Installment Business Loan Note with NBD Bank, N.A. dated
December 1, 1992, was filed as Exhibit 10(g)(3) to
a Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
10(g)(4) Business Loan Agreement with Michigan National Bank
executed April 14, 1987, was filed as Exhibit 10(g)(4)
to a Registration Statement on Form S-1 (No. 33-69474)
and the same is incorporated herein by reference.
10(g)(5) Promissory Note with NBD Bank, N.A., dated January 20, 1994,
was filed as Exhibit 10(g)(5) to a Form 10-K Annual Report
for the year ended December 25, 1993, and the same is
incorporated herein by reference.
E-4
<PAGE> 20
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10(g)(6) Promissory Note with Old Kent Bank and Trust Company, dated
January 24, 1994, was filed as Exhibit 10(g)(6) to a Form
10-K Annual Report for the year ended December 25, 1993, and
the same is incorporated herein by reference.
10(g)(7) Promissory Note with Michigan National Bank, dated
January 27, 1994, was filed as Exhibit 10(g)(7) to a Form
10-K Annual Report for the year ended December 25, 1993,
and the same is incorporated herein by reference.
10(g)(8) Promissory Note with Comerica Bank, dated February 14, 1994,
was filed as Exhibit 10(g)(8) to a Form 10-K Annual Report for
the year ended December 25, 1993, and the same is incorporated
herein by reference.
10(h)(1) Land Contract Agreement dated May 26, 1994, was filed as
Exhibit 10(h)(1) to a Form 10-Q Quarterly Report for the
quarter period ended June 25, 1994, and the same is
incorporated herein by reference.
13 Appendix to Proxy Statement for Annual Meeting of Shareholders
to be held April 23, 1997. This Appendix was delivered to the
Company's shareholders in compliance with Rule 14(a)-3 of the
Securities Exchange Act of 1934, as amended.
21 List of Registrant's subsidiaries.
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
- -----------------
*Indicates a compensatory arrangement.
E-5
<PAGE> 1
EXHIBIT 13
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
<PAGE> 2
UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Data..................................... B-1
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. B-2
Independent Auditors' Report................................ B-11
Consolidated Balance Sheets as of December 28, 1996 and
December 30, 1995......................................... B-12
Consolidated Statements of Earnings for the Years Ended
December 28, 1996, December 30, 1995,
and December 31, 1994..................................... B-13
Consolidated Statements of Shareholders' Equity for the
Years Ended December 28, 1996, December 30, 1995, and
December 31, 1994......................................... B-14
Consolidated Statements of Cash Flows for the Years Ended
December 28, 1996, December 30, 1995, and December 31,
1994...................................................... B-15
Notes to Consolidated Financial Statements.................. B-16
Price Range of Common Stock and Dividends................... B-26
</TABLE>
<PAGE> 3
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AND STATISTICS DATA.)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA(1)
Net sales................................ $867,718 $739,277 $865,971 $644,163 $449,502
Gross profit(2).......................... 87,730 73,746 68,867 57,906 37,656
Earnings from continuing operations
before income taxes.................... 29,721 23,613 18,245 17,008 7,245
Net earnings from continuing
operations............................. 17,750 14,050 10,745 10,038 4,347
Earnings per share from continuing
operations............................. $ 1.000 $ 0.800 $ 0.610 $ 0.660 $ 0.290
Dividends per share...................... $ 0.060 $ 0.105 $ 0.050 $ 0.050 $ 0.050
Weighted average shares outstanding(3)... 17,723 17,649 17,624 15,282 15,009
CONSOLIDATED BALANCE SHEET DATA(1)
Working capital.......................... $ 88,495 $ 82,367 $ 78,465 $ 45,442 $ 29,936
Total assets............................. 193,377 175,657 169,076 185,704 129,160
Long-term debt and capital lease
obligations............................ 52,628 56,384 63,037 27,900 29,908
Shareholders' equity..................... 99,878 83,439 71,568 61,936 35,077
STATISTICS(1)
Gross profit as a percentage of net
sales.................................. 10.1% 10.0% 7.9% 9.0% 8.4%
Net earnings from continuing operations 2.1% 1.9% 1.2% 1.5% 1.0%
as a percentage of net sales........... 21.3% 19.6% 17.3% 28.6% 13.9%
Return on shareholders' equity........... 3.33 3.43 3.19 1.46 1.49
Current ratio............................ .53 .68 .88 .45 .74
Debt to equity ratio..................... $ 5.90 $ 4.94 $ 4.25 $ 3.70 $ 2.89
Book value per common share..............
</TABLE>
- -------------------------
(1) The financial data for the Company included herein has been restated for all
periods to reflect the balances and activities of Universal Restaurants,
Inc., a former subsidiary, as discontinued operations.
(2) In 1995, the Company reclassified delivery expense to include it as a
component of cost of goods sold and gross profit. For comparability, gross
profit for 1994, 1993 and 1992 has been restated to include delivery
expense.
(3) Includes the effect of shares of common stock issued since December 29,
1992, and shares of common stock to be issued pursuant to the exercise of
outstanding options.
B-1
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL IMPACT OF FLUCTUATIONS IN LUMBER PRICES & SEASONALITY
The Company experiences fluctuations in the cost of lumber products from
primary producers. The table below highlights such fluctuations for the years
ended December 28, 1996, December 30, 1995 and December 31, 1994. A variety of
factors over which the Company has no control, including government regulations,
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 1994
------------------------
<S> <C> <C> <C>
January..................................................... $329 $379 $491
February.................................................... 347 383 476
March....................................................... 353 358 466
April....................................................... 374 335 388
May......................................................... 420 313 413
June........................................................ 409 292 418
July........................................................ 402 328 388
August...................................................... 443 330 396
September................................................... 443 346 373
October..................................................... 421 321 376
November.................................................... 459 324 405
December.................................................... 428 332 373
---- ---- ----
Annual average.............................................. $402 $337 $414
</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. As a result, the Company has some exposure related to
sharp declines in the Lumber Market during its primary selling season. Since
1995, the Company has decreased its exposure by:
- - Negotiating unique supply programs with vendors. These programs have
substantially reduced the Company's investment in inventories, and include
those materials which are most susceptible to adverse changes in the Lumber
Market.
- - Instituting inventory management initiatives to accelerate the throughput of
material in its plants and reduce the average supply of inventory.
- - 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."
B-2
<PAGE> 5
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of
the Company's Consolidated Statement of Earnings as a percentage of net sales.
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0%
Cost of goods sold................................. 89.9 90.0 92.1
----- ----- -----
Gross profit....................................... 10.1 10.0 7.9
Selling, general, and administrative expenses...... 6.4 6.4 5.3
----- ----- -----
Earnings from operations........................... 3.7 3.6 2.6
Other expense, net................................. 0.3 0.4 0.5
----- ----- -----
Earnings before income taxes....................... 3.4 3.2 2.1
Income taxes....................................... 1.3 1.3 0.9
----- ----- -----
Net earnings....................................... 2.1% 1.9% 1.2%
===== ===== =====
</TABLE>
NET SALES
The Company manufactures, treats, and distributes lumber products to the
do-it-yourself (DIY), manufactured housing, wholesale lumber, and industrial
markets. Its sales comprise a single industry segment. 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>
YEARS ENDED
-----------------------------------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 % 1995 % 1994 %
MARKET CLASSIFICATION -----------------------------------------------------------------------
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DIY................................. $426,396 49.1% $372,595 50.4% $432,120 49.9%
Manufactured Housing................ 336,240 38.8 279,447 37.8 299,626 34.6
Wholesale Lumber.................... 56,575 6.5 47,314 6.4 87,463 10.1
Industrial.......................... 48,507 5.6 39,921 5.4 46,762 5.4
-------- ----- -------- ----- -------- -----
$867,718 100.0% $739,277 100.0% $865,971 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Net sales in 1996 increased $128 million, or 17%, compared to 1995,
reflecting an estimated 11% increase in overall selling prices combined with an
estimated 6% increase in the volume of units shipped. In 1995, a lower Lumber
Market substantially reduced the overall selling prices of the Company's
products resulting in a 15% decrease in net sales to $739 million. Unit sales
comparing 1995 with 1994 remained flat primarily due to the Company's selective
selling efforts.
In 1995, the Company began selective selling initiatives to increase its
sales of value-added products in relationship to total sales. In the course of
doing this, it successfully eliminated a significant amount of
preservative-treated and untreated commodity lumber sales which did not meet
targeted gross profit percentages. Value-added product sales consist primarily
of items sold to the DIY market under the Company's Fence Fundamentals(TM),
Lattice Basics(TM), Deck Necessities(R), Outdoor Essentials(TM), Storage
Solutions(TM) and YardLine(R) trade names, trusses sold to the manufactured
housing market, and products sold to the industrial market. The Company defines
these products as "value-added" due to the higher margins it recognizes on the
sale of these products versus those recognized on commodity-based products such
as treated, untreated and remanufactured lumber. The Company's ratio of
value-added product sales to total sales in 1996, 1995 and 1994 was 31.3%, 31.8%
and 26.2%, respectively. A long-term goal of the Company is to achieve a ratio
of value-added product sales to total sales of at least 50%. It plans to achieve
this goal through strategic acquisitions into new markets, new product
introduction and eliminating sales of commodity-based products which do not meet
profitability targets.
B-3
<PAGE> 6
DIY:
Net sales to the DIY market increased approximately $54 million, or 14%, in
1996 compared to 1995, due to an increase in the Lumber Market which 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. In 1995, a lower Lumber Market decreased overall selling prices
resulting in a 14% decrease in sales to $373 million compared to 1994. Although
unit sales increased, this was more than offset by the 19% decrease in the
Lumber Market in 1995 compared to 1994.
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>
YEARS ENDED
------------------------------------------------------------------
DECEMBER 28, % OF DECEMBER 30, % OF DECEMBER 31, % OF
1996 TOTAL 1995 TOTAL 1994 TOTAL
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Value-added product sales....... $129,336 30.3% $116,198 31.2% $106,239 24.6%
Commodity-based product sales... 297,060 69.7 256,397 68.8 325,881 75.4
-------- ----- -------- ----- -------- -----
Total........................... $426,396 100.0% $372,595 100.0% $432,120 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
A decrease in the Company's ratio of value-added product sales to total
sales in 1996 is due to the effects of the Lumber Market on the Company's sales
of commodity-based products. Sales of these 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 occurred in 1996, will cause
commodity-based products to represent a proportionately higher percentage of
total DIY sales dollars.
An increase in the ratio of value-added product sales to total sales in
this market to 31.2% in 1995 from 24.6% in 1994 was primarily due to the
Company's selective selling efforts and the closure of two plants. At the end of
1994, the Company shut down and subsequently disposed of the unprofitable
operations of two East Coast treating plants. Sales from these plants consisted
primarily of preservative-treated dimension lumber, timber and boards which
carried relatively low gross margins and whose profits were very susceptible to
fluctuations in the Lumber Market. In 1995, the Company completed construction
of new, more efficient treating plants in Hamilton, OH and Harrisonville, MO
which have a higher ratio of value-added product sales to total sales.
MANUFACTURED HOUSING:
Net sales to the manufactured housing market increased approximately $57
million, or 20%, in 1996 compared to 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,
however, by increased competition in certain geographic areas forcing selling
prices down. Unit shipments improved further in the fourth quarter of 1996,
compared to the same period of 1995, as a result of the acquisition of certain
net assets of Hi-Tek Forest Products, Inc. ("Hi-Tek"), a former competitor of
the Company, on October 1, 1996. Hi-Tek primarily sold to the manufactured
housing market.
B-4
<PAGE> 7
The following table presents, for the periods indicated, the Company's
truss and commodity-based product sales to the manufactured housing market, in
thousands:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------------------------------
DECEMBER 28, % OF DECEMBER 30, % OF DECEMBER 31, % OF
1996 TOTAL 1995 TOTAL 1994 TOTAL
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Truss sales............. $ 93,751 27.9% $ 80,528 28.8% $ 73,454 24.5%
Commodity-based product
sales................. 242,489 72.1 198,919 71.2 226,172 75.5
-------- ----- -------- ----- -------- -----
Total................... $336,240 100.0% $279,447 100.0% $299,626 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
A decrease in the Company's ratio of truss sales to total sales in 1996
compared to 1995 is due to the effect of the Lumber Market which increased the
overall selling prices of commodity-based products in 1996, while certain
regional competition caused the selling prices of trusses to remain flat. A 20%
increase in trusses shipped in 1995 compared to 1994 resulted in an increase in
the ratio of truss sales to total sales.
WHOLESALE:
Net sales to the wholesale lumber market increased $9 million, or 20%, in
1996 compared to 1995 due to the effect of the higher Lumber Market in 1996. 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 and increase overall gross margins.
Net sales to this market decreased $40 million, or 46%, in 1995 compared to
1994, due to the lower Lumber Market which decreased overall selling prices,
combined with a decrease in units shipped as a result of selective selling
efforts.
INDUSTRIAL:
Net sales to the industrial market increased $9 million, or 22%, in 1996
compared to 1995. The Company plans to grow its sales to this market in the
future through internal expansion and strategic acquisitions. In many cases, the
products sold to this market are produced from the by-product of manufactured
products sold to other markets. Therefore, products produced for the industrial
market provide an opportunity for the Company to improve its raw material
yields. In addition, customer demand for products sold to this market are less
susceptible to seasonal trends.
Net sales to this market decreased $7 million, or 15%, in 1995 compared to
1994, due primarily to the lower Lumber Market comparing the two periods.
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales increased to 10.1% in 1996 from
10.0% in 1995. The following factors affected the Company's gross profit
percentage during the year resulting in the overall increase mentioned above:
- - The upward Lumber Market trend during the second quarter of 1996, the
Company's primary selling season. In a period of rising Lumber Market prices,
the Company will realize a higher gross profit percentage on the sale of its
commodity-based products than it will in a period of flat or declining lumber
prices. This is due to the price increase which occurs between the time of
purchase and subsequent sale. The Company realized a gross profit percentage
of 11.2% in the second quarter of 1996 compared with 9.9% in the same period
of 1995 due to this situation. In the second quarter of 1995 the Lumber Market
was on a downward trend.
- - The effect of the higher Lumber Market on the gross profit percentage of the
Company's commodity-based products during the last six months of 1996 compared
to the last six months of 1995. Selling
B-5
<PAGE> 8
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 last six
months of 1996 compared to 1995. Gross profit percentages in the third and
fourth quarters of 1996 were 9.0% and 9.4%, respectively, compared with 9.4%
and 10.7% in the third and fourth quarters of 1995, respectively, offsetting
the increase mentioned in the first point above.
- - Increased competition in the manufactured housing market, in certain
geographic regions, has caused some downward pressure on the selling prices of
trusses throughout the year as the Company continues to maintain market share.
Although the Company estimates it maintains approximately 70% market share in
the supply of HUD-code trusses to the manufactured housing market, there are
relatively few barriers to entry into this market which can result in
competitive pressures impacting gross margins. This situation also offset the
positive gross margin effect mentioned in the first point above.
In 1995, gross profit as a percentage of net sales improved to 10.0% in
1995 from 7.9% in 1994. This increase was due to the following:
- - The Company substantially increased its sales of higher margin, value-added
products to the DIY and manufactured housing markets.
- - Commodity-based product sales which didn't meet certain profitability targets
were eliminated.
- - Supply programs with vendors were implemented which were designed to help the
Company decrease its average investment in inventory and reduce the effects of
the Lumber Market on gross profits.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $7.7 million, or
16.2%, comparing 1996 and 1995. This increase is primarily due to increases in
accrued incentive compensation expenses related to profitability, certain
variable expenses related to sales, selling and administrative headcount,
management training expenses, and depreciation related to upgraded information
systems. In 1995, selling, general and administrative expenses increased $1.2
million compared with 1994, primarily due to increases in accrued incentive
compensation expenses related to profitability and increased depreciation
expenses due to the Company's investment in upgrading its information systems.
OTHER EXPENSE, NET
Other expense, net is primarily comprised of interest expense and interest
income. Net interest costs (interest expense less interest income) decreased by
approximately $555,000 comparing 1996 and 1995, and by approximately $2,143,000
comparing 1995 and 1994. The trend of declining net interest costs resulted from
continued reductions in debt from 1994 through 1996, due to ongoing improvements
in working capital management (see "Liquidity and Capital Resources").
INCOME TAXES
The Company's effective tax rates in 1996, 1995 and 1994 were 40.3%, 40.5%
and 41.1%, respectively. Effective tax rates differ from statutory federal
income tax rates primarily due to provisions for state and local income taxes,
which can vary from year to year based on changes in income generated by the
Company in each of the states in which it operates.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities in 1996 was $4.3 million
compared with $41.7 million in 1995. The $37.4 million decrease is due primarily
to the higher Lumber Market in the fourth quarter of
B-6
<PAGE> 9
1996 which increased the cost of lumber, and consequently, the Company's
investment in working capital at the end of the period. The Company continues to
improve its working capital management practices, evidenced by an 8.5% decrease
in its cash cycle (days sales outstanding plus days supply of inventory less
days payables outstanding) to 43.25 days from 47.25 days, comparing 1996 and
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 year, leaving $119 million available on its revolving credit
facilities at December 28, 1996.
Capital expenditures totaled $19.5 million in 1996. Approximately $9.1
million was spent to upgrade machinery and equipment and information systems and
expand operations at certain plants. An additional $10.4 million was spent on
the October 1, 1996 acquisition of certain net assets of Hi-Tek. 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 manufactured housing market and have
historical annual sales totaling approximately $30 million. The Company acquired
Hi-Tek net assets using a portion of its invested cash.
Cash flows used in financing activities in 1996 totaled $5.4 million and
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
semi-annual rate of $.03 per common share. In January 1996, the Company
repurchased 100,000 shares of its common stock for an amount totaling
approximately $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 whether and 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 approximately $247,000. In January
1997, the Company sold 30,188 shares of common stock to four officers in
exchange for notes receivable totaling $399,991. Interest on the notes will be
calculated at a rate of 7% per annum, and paid annually. The principal balance
on the notes is due on or before April 1, 2007.
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 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 other long-term liabilities, amounts totaling
$1.7 million and $2.8 million at December 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 decrease in
the liability from December 30, 1995 to December 28, 1996 is primarily due to
payments made in 1996 for remediation efforts at one of the Company's locations.
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.
FORWARD OUTLOOK
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. Such forward-looking
statements are based on the beliefs of the Company's management as
B-7
<PAGE> 10
well as on assumptions made by and information currently available to the
Company at the time such statements were made. Actual results could differ
materially from those included in such forward-looking statements as a result
of, among other things, the factors set forth below, the matters included in
this report generally and certain economic and business factors, some of which
may be beyond the control of the Company. Investors are cautioned that all
forward-looking statements involve risks and uncertainty.
COMPETITION:
The Company is subject to competitive selling and pricing pressures in its
major markets. While the Company is generally aware of its existing competitors'
capabilities, it is subject to entry in its markets by new competitors, which
could negatively impact financial results.
MARKET GROWTH:
The Company's sales growth is dependent, in part, upon growth within the
markets it serves. If the Company's markets do not maintain anticipated growth,
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 changes 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.
NET SALES
Independent sources forecast continued growth in the Company's two primary
markets -- DIY and manufactured housing. The Company has no means of
ascertaining the accuracy of these industry-wide projections, and actual results
could vary significantly. Moreover, irrespective of any growth in industry
sales, the Company's sales could vary materially, due to a variety of factors,
such as increased competition and the Lumber Market, as well as other factors,
some of which are beyond the Company's control.
Do-It-Yourself Retailing, in its November 1996 edition, projected the
following total retail sales by home improvement retailers for 1997 through 2000
(in billions).
<TABLE>
<S> <C>
1997........................................................ $140.7
1998........................................................ $146.4
1999........................................................ $152.3
2000........................................................ $158.4
</TABLE>
Manufactured Home Merchandiser, in its January 1997 edition, forecasted
growth in this market of 5% to 7% in 1997. As a result of the acquisition of
certain net assets of Hi-Tek, the Company has increased market share and
believes it is in a position to grow at an even greater pace.
Management believes the following strategies will drive the future sales
growth of the Company in existing and new markets.
B-8
<PAGE> 11
EXISTING MARKETS:
- - The Company has opportunities to grow sales to existing markets in certain key
geographic areas where it does not currently have a presence.
- - The Company expects to increase sales of its YardLine(R) and Storage
Solutions(TM) product lines. These were new products the Company began to
manufacture in 1995 and 1996, and management expects sales of these products
to increase in 1997. In addition, the Company is investigating other new
value-added product opportunities for the DIY and manufactured housing
markets.
NEW MARKETS:
- - The Company is currently pursuing growth opportunities, including acquisitions
of suppliers to the commercial and residential building components market,
industrial packaging market, and international markets.
- - The Company is currently planning to produce commercial and residential
trusses utilizing three of its existing locations.
GROSS PROFIT
The Company has recognized continued improvement in gross profit as a
percentage of net sales over the last three years as follows:
<TABLE>
<S> <C>
1994........................................................ 7.9%
1995........................................................ 10.0%
1996........................................................ 10.1%
</TABLE>
Management will continue to increase its efforts to improve its gross
profit percentage in the future by means of the following goals:
- - Increasing its ratio of value-added sales to total sales in existing markets
through new product introduction and enhanced marketing of existing
value-added products. The Company created a centralized marketing department
at the end of 1996.
- - Acquiring businesses which supply the new markets mentioned above.
- - Implementing manufacturing initiatives to continue to automate and upgrade
existing plants and processes to lower production costs per unit.
Achievement of these goals is dependent upon, in part, certain factors that
are beyond the control of management.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
A goal of the Company is to continue to contain these costs despite a
period of expected growth. However, increased expenses are expected in the
following areas in the future:
- - At the end of 1996, the Company created a centralized marketing department
which will result in additional staff of approximately 8-10 professionals in
1997.
- - Depreciation associated with recent investments in information technology.
- - Personnel and benefit costs associated with increased headcount to support the
growth of the business.
CORPORATE REORGANIZATION
Effective December 28, 1996, the Company transferred substantially all of
its operating assets to several corporations in exchange for 100% of the common
stock of these entities. Immediately following
B-9
<PAGE> 12
this transfer, certain wholly-owned subsidiaries contributed certain assets, net
of liabilities, to various partnership entities. These transactions qualify as
part of a tax-free reorganization. Each of the newly formed entities utilizes
the trade name Universal Forest Products(R) in its operations.
The purpose of the reorganization was to formalize the existing structure
of the Company, which had separate regional operating divisions since the mid
1980's. Two additional benefits the Company expects to achieve are reductions in
its liability exposure and a reduction in state income taxes. Based on current
projections, the Company expects a reduction in its effective tax rate of
approximately three percentage points in future years. However, achieving this
reduction is subject to several factors, including the absence of changes in
future tax laws, which are beyond the control of management.
LIQUIDITY AND CAPITAL RESOURCES
Since 1994, the Company has achieved continued improvements in its working
capital management resulting in record cash flows from operations in 1994 and
1995. Management reduced its cash cycle to 43.25 days in 1996 from 47.25 days in
1995 and 71.3 days in 1994. Given the significant progress the Company has made
in this area, management believes any further reduction in the cash cycle will
be difficult to achieve. In addition, as the Company achieves its goals for
sales growth, amounts invested in working capital are expected to increase
despite a strong cash cycle.
Management expects to spend between $13 and $15 million related to capital
expenditures for 1997, primarily to upgrade and expand existing facilities and
upgrade machinery and equipment and information systems. In addition, the
Company's goal is to complete strategic acquisitions in existing and new
markets. The Company may finance any potential future acquisition using its
lines of credit, through an issuance of common stock, or a combination of both.
Cash flows used in financing activities in 1997 are expected to consist of
repayments of long-term debt totaling $3.7 million and dividends of
approximately $.03 per common share paid semi-annually in June and December.
B-10
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
Board of Directors
Universal Forest Products, Inc.
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Universal Forest
Products, Inc. and subsidiaries as of December 28, 1996 and December 30, 1995,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended December 28, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Universal Forest Products, Inc. and
subsidiaries as of December 28, 1996 and December 30, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 28, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
February 6, 1997
B-11
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
NOTE 1996 1995
---------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 1,275,636 $ 21,471,821
Accounts receivable................................ 32,102,276 24,569,330
Inventories:
Raw materials................................... 32,752,316 22,409,785
Finished goods.................................. 55,767,455 43,501,348
------------ ------------
88,519,771 65,911,133
Prepaid income taxes............................... L 810,666
Other current assets............................... 474,085 481,481
Deferred income taxes.............................. L 4,185,664 3,085,331
------------ ------------
Total Current Assets............................ 126,557,432 116,329,762
NON-COMPETE AGREEMENTS............................... B, O 3,051,727
OTHER ASSETS......................................... C, F, J 4,092,038 4,041,369
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements.............................. B, M 14,281,620 14,180,869
Buildings and improvements......................... B, M 34,298,281 30,303,990
Machinery, equipment and office furniture.......... B, M 50,227,125 43,796,931
Construction in progress........................... 4,836,120 3,484,988
------------ ------------
103,643,146 91,766,778
Less accumulated depreciation and amortization..... M (43,967,364) (36,481,076)
------------ ------------
59,675,782 55,285,702
------------ ------------
$193,376,979 $175,656,833
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 14,100,269 $ 14,138,012
Accrued liabilities:
Compensation and benefits....................... K 17,736,451 14,503,002
Income taxes.................................... L 810,927
Other........................................... 1,761,486 1,393,474
Current portion of long-term debt and capital lease
obligations..................................... E, M 3,652,900 3,928,433
------------ ------------
Total Current Liabilities....................... 38,062,033 33,962,921
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS
CURRENT PORTION.................................... E, M 48,975,502 52,455,513
DEFERRED INCOME TAXES................................ L 2,389,063 1,923,633
OTHER LIABILITIES.................................... F, N, O 4,072,580 3,875,912
COMMITMENTS AND CONTINGENCIES........................ N
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 and outstanding, 17,040,467
and 17,041,496.................................. G, H 17,040,467 17,041,496
Additional paid-in capital......................... G 28,801,707 28,615,581
Retained earnings.................................. 55,530,786 39,525,149
Foreign currency translation adjustment............ (830,459) (997,549)
------------ ------------
100,542,501 84,184,677
Officers' stock notes receivable................... I (664,700) (745,823)
------------ ------------
99,877,801 83,438,854
------------ ------------
$193,376,979 $175,656,833
============ ============
</TABLE>
See notes to consolidated financial statements.
B-12
<PAGE> 15
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
NOTE 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES................................... B $867,718,385 $739,276,801 $865,971,432
COST OF GOODS SOLD.......................... B, K, M 779,988,362 665,530,528 797,104,055
------------ ------------ ------------
GROSS PROFIT................................ 87,730,023 73,746,273 68,867,377
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. B, K, M 55,237,363 47,517,966 46,275,761
------------ ------------ ------------
EARNINGS FROM OPERATIONS.................... 32,492,660 26,228,307 22,591,616
OTHER EXPENSE (INCOME):
Interest, net............................. D, E 3,033,632 3,588,146 5,731,427
Other, net................................ B (261,849) (972,521) (1,384,771)
------------ ------------ ------------
TOTAL OTHER EXPENSE..................... 2,771,783 2,615,625 4,346,656
------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES................ 29,720,877 23,612,682 18,244,960
INCOME TAXES................................ B, L 11,971,000 9,563,000 7,500,000
------------ ------------ ------------
NET EARNINGS................................ $17,749,877 $14,049,682 $ 10,744,960
============ ============ ============
PRIMARY AND FULLY-DILUTED EARNINGS PER
SHARE..................................... $ 1.00 $ 0.80 $ 0.61
WEIGHTED AVERAGE SHARES OUTSTANDING......... 17,723,000 17,649,000 17,624,000
</TABLE>
See notes to consolidated financial statements.
B-13
<PAGE> 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY OFFICERS'
PAID-IN RETAINED TRANSLATION STOCK NOTES
COMMON STOCK CAPITAL EARNINGS ADJUSTMENT RECEIVABLE TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
December 25, 1993.......... $16,979,865 $28,531,568 $17,371,840 ($947,714) $61,935,559
Net earnings............... 10,744,960 10,744,960
Cash dividends -- $.05 per
share.................... (852,000) (852,000)
Issuance of 60,250
shares................... 60,250 74,063 134,313
Foreign currency
translation adjustment... ($532,921) (532,921)
Payments received on
officers' stock notes
receivable............... 138,449 138,449
----------- ----------- ----------- --------- --------- -----------
BALANCE,
December 31, 1994.......... 17,040,115 28,605,631 27,264,800 (532,921) (809,265) 71,568,360
Net earnings............... 14,049,682 14,049,682
Cash dividends -- $.105 per
share.................... (1,789,333) (1,789,333)
Issuance of 1,381 shares... 1,381 9,950 11,331
Foreign currency
translation adjustment... (464,628) (464,628)
Payments received on
officers' stock notes
receivable............... 63,442 63,442
----------- ----------- ----------- --------- --------- -----------
BALANCE,
December 30, 1995.......... 17,041,496 28,615,581 39,525,149 (997,549) (745,823) 83,438,854
Net earnings............... 17,749,878 17,749,878
Cash dividends -- $.06 per
share.................... (1,022,360) (1,022,360)
Issuance of 98,971
shares................... 98,971 186,126 285,097
Repurchase of 100,000
shares................... (100,000) (721,881) (821,881)
Foreign currency
translation adjustment... 167,090 167,090
Payments received on
officers' stock notes
receivable............... 81,123 81,123
----------- ----------- ----------- --------- --------- -----------
BALANCE,
December 28, 1996.......... $17,040,467 $28,801,707 $55,530,786 ($830,459) ($664,700) $99,877,801
=========== =========== =========== ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
B-14
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
NOTE 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................. $17,749,877 $14,049,682 $ 10,744,960
Adjustments to reconcile net earnings to net
cash provided by operations:
Depreciation and amortization............... 8,344,839 7,635,780 5,730,450
Deferred income taxes....................... L (634,903) 1,117,337 944,056
Loss (gain) on sale of property, plant and
equipment................................. 14,625 (272,476) (1,353,843)
Stock Gift Program expense.................. G 5,428 4,146 1,713
Changes in:
Accounts receivable....................... (5,416,946) 4,682,049 (289,800)
Inventories............................... (19,542,638) 12,775,433 28,600,982
Other..................................... (902,263) 208,445 (437,043)
Accounts payable.......................... (532,744) (661,083) 1,091,062
Accrued liabilities....................... 5,223,058 2,148,906 (2,013,733)
------------ ------------ ------------
Net cash provided by operations......... 4,308,333 41,688,219 43,018,804
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.... (9,074,262) (14,345,894) (18,006,878)
Acquisition of certain net assets of Hi-Tek... B (10,413,000)
Proceeds from sale of property, plant and
equipment................................... 232,542 1,381,770 450,590
Purchases of notes receivable................. (164,085) (60,000)
Collection of notes receivable................ I 297,900 346,714 978,950
Purchases of other assets..................... (4,374) (32,820) (54,419)
------------ ------------ ------------
Net cash used in investing activities... (19,125,279) (12,650,230) (16,691,757)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of notes payable............... D (1,600,000) (46,292,028)
Proceeds from issuance of long-term debt...... E 39,735,861
Repayment of long-term debt................... E (3,814,667) (4,287,375) (5,004,693)
Final payment for Chesapeake inventory........ (2,171,000)
Proceeds from issuance of common stock........ G 279,669 7,185 132,600
Cash dividends paid........................... (1,022,360) (1,789,333) (852,000)
Repurchase of common stock.................... G (821,881)
Repayment of note payable to shareholder...... (13,060,000)
------------ ------------ ------------
Net cash used in financing activities... (5,379,239) (7,669,523) (27,511,260)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (20,196,185) 21,368,466 (1,184,213)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.... 21,471,821 103,355 1,287,568
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR.......... $ 1,275,636 $21,471,821 $ 103,355
============ ============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................... $ 4,045,000 $ 4,815,000 $ 5,710,000
Income taxes................................ 10,984,000 8,174,000 8,340,000
NON-CASH INVESTING ACTIVITIES:
Property, plant and equipment acquired through
capital leases and long-term debt........... E $ 59,000 $ 59,000 $ 141,000
Receivables on sale of property, plant and
equipment................................... C 1,976,000
Net book value of real property contributed to
profit sharing plan......................... 285,000
Net book value of assets disposed through
lease termination agreement................. M 864,000
Real estate received in lieu of note
receivable.................................. 347,000
Assumption of accounts payable with the
acquisition of certain net assets of
Hi-Tek...................................... B 495,000
</TABLE>
See notes to consolidated financial statements.
B-15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Universal Forest Products, Inc. (the "Company") manufactures, treats and
distributes lumber products for the do-it-yourself (DIY), manufactured housing,
wholesale lumber and industrial markets. The Company's principal products are
preservative-treated wood, engineered roof trusses, dimension lumber, and
value-added lumber products including lattice, fence panels, deck components,
and kits for various outdoor products sold under the Company's many trademarks.
The Company currently operates manufacturing, treating, and distribution
facilities throughout North America and comprises a single industry segment. In
1996, 1995 and 1994 approximately 15%, 15% and 13% of net sales, respectively,
were to a single customer.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and partnerships. All intercompany
transactions and balances have been eliminated.
FISCAL YEAR
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
last Saturday in December of each year. Fiscal years 1996 and 1995 were
comprised of 52 weeks each and fiscal year 1994 was comprised of 53 weeks.
Unless otherwise stated, references to 1996, 1995 and 1994 relate to the years
ended December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
107, "Disclosures about Fair Value of Financial Instruments," the estimated fair
values of financial instruments have been determined by the Company; significant
differences in fair market values and recorded values are disclosed in Note E.
The estimated fair value amounts have been determined using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The fair value estimates presented herein are based on pertinent
information available to management as of December 28, 1996. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management believes its estimates to be reasonable, however,
actual results could differ from these estimates.
B-16
<PAGE> 19
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly-liquid investments
purchased with an original maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of average cost or market. Raw
materials consist primarily of unfinished wood products expected to be
manufactured or treated prior to sale, while finished goods represent various
manufactured and treated wood products ready for sale.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for renewals
and betterments are capitalized, and maintenance and repairs are expensed as
incurred. Depreciation is computed principally by the straight-line method over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements........................... 15 to 31.5 years
Land improvements.................................... 5 to 15 years
Machinery and equipment.............................. 3 to 8 years
Office furniture..................................... 5 to 8 years
</TABLE>
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the
applicable local currency. The translation from the applicable foreign
currencies to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using an average exchange rate during the period. The gains or losses
resulting from such translation are included as a separate component of
shareholders' equity. Gains or losses resulting from foreign currency
transactions were not material in 1996, 1995 or 1994, and are reflected in
earnings from continuing operations.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future. Such deferred income
tax asset and liability computations are based on enacted tax laws and rates
applicable to periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped to the customer.
The Company's policy is to evaluate individual accounts receivable balances on a
monthly basis and charge to bad debt expense those balances which may be
uncollectible. Collections of amounts previously written off are recorded as an
offset to bad debt expense. Such recoveries were not significant in any period
presented. Bad debt expense, net of recoveries, amounted to approximately
$707,000, $143,000 and $926,000, for 1996, 1995 and 1994, respectively.
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 stock options granted in 1989 and 1993 (see Note H),
utilizing the "treasury stock" method. Primary and
B-17
<PAGE> 20
fully-diluted earnings per common share were not materially different during the
periods presented. Weighted average shares outstanding are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Issued and outstanding....................... 17,030,000 17,041,000 17,028,000
Effect of stock options...................... 693,000 608,000 596,000
---------- ---------- ----------
Weighted average shares outstanding.......... 17,723,000 17,649,000 17,624,000
========== ========== ==========
</TABLE>
RECLASSIFICATIONS
Certain reclassifications have been made in the 1995 consolidated balance
sheet to conform to the classifications used in 1996.
B. ACQUISITION
Effective October 1, 1996, the Company acquired certain assets of Hi-Tek
Forest Products, Inc. ("Hi-Tek") for approximately $10,908,000 and assumed
accounts payable totaling approximately $495,000 (the "Acquisition"). The
aggregate purchase price, funded through the Company's cash balances, consisted
of the following amounts:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 2,116,000
Inventories................................................. 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, covers the
geographic regions in which the acquired plants operate, and is being amortized
over the five year term of the agreement on a straight-line basis. 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 estimated fair market values. Hi-Tek's results
of operations since the date of the acquisition are included in the Company's
earnings from operations.
C. NOTE RECEIVABLE
In May 1994, the Company entered into a land contract agreement to sell
real estate for $1,600,000. The agreement required a $25,000 payment at the time
the agreement was executed, and an additional $375,000 was received on November
1, 1994, the date on which all conditions of the sale were completed or waived.
Annual installments of interest are to be made on November 1 at a rate of 7.5%
per annum, with the entire balance of principal and accrued interest due
November 1, 1999. In November 1994, the Company recorded a gain on the
transaction of approximately $810,000. The remaining principal amount
outstanding of $1,200,000 is included in "Other Assets." At December 28, 1996,
the estimated fair value of the note receivable approximated its carrying value.
D. NOTES PAYABLE
At December 28, 1996, the Company had unsecured lines of credit available
with banks totaling $122,000,000, including amounts reserved for letters of
credit. The agreements are subject to annual renewal. The Company had no amounts
outstanding on unsecured lines of credit with banks at December 28, 1996 and
December 30, 1995. Borrowings under the lines are at negotiated rates which are
at or below each respective bank's prime rate. The average rates for 1995 and
1994 were 6.9% and
B-18
<PAGE> 21
5.6%, respectively. The Company did not draw on its lines in 1996. A bank has
extended letters of credit on the Company's behalf aggregating $2,581,720 at
December 28, 1996.
E. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations are summarized as follows at
December 28, 1996 and December 30, 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
Senior unsecured notes, $5,714,285 due annually commencing
May 1998 through May 2004, interest due semi-annually at
7.15% per annum........................................... $40,000,000 $40,000,000
Bank term loan, $119,048 due monthly through November 1999,
interest due monthly at 7.75% per annum................... 4,285,714 5,595,238
Bank term loan, $500,000 due semi-annually through December
2000, interest due monthly at 5.25% per annum............. 5,000,000 6,000,000
Bank term loan, $350,000 due semi-annually through December
1999, interest due monthly at 9.67% per annum............. 2,100,000 2,800,000
Bank term loan, $350,000 due semi-annually through April
1997, interest due monthly at 9.89% per annum............. 350,000 1,050,000
Capital lease obligations, interest imputed at rates ranging
from 7.25% to 8.00% per annum............................. 823,058 824,456
Mortgage note, $2,391 due monthly including interest at
12.00% per annum through January 1997..................... 2,391 30,962
Other....................................................... 67,239 83,290
----------- -----------
52,628,402 56,383,946
Less current portion........................................ 3,652,900 3,928,433
----------- -----------
Long-term portion........................................... $48,975,502 $52,455,513
=========== ===========
</TABLE>
The terms of the senior unsecured note agreement require annual principal
payments on such indebtedness of $5,714,286 commencing in May 1998 and
continuing through May 2004. The terms of the note agreement require, in part,
the Company to maintain a minimum net worth and comply with certain financial
ratios. The agreement also restricts the amount of additional indebtedness the
Company may incur and the amount of assets which may be sold.
The bank term loans and the line of credit agreements require the
maintenance of certain financial ratios and place specified limits on new
indebtedness and stock redemptions.
At December 28, 1996, the principal maturities of long-term debt and
capital lease obligations are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 3,652,900
1998........................................................ 9,674,631
1999........................................................ 8,727,295
2000........................................................ 6,716,434
2001........................................................ 6,714,286
Thereafter.................................................. 17,142,856
-----------
$52,628,402
===========
</TABLE>
At December 28, 1996, the estimated fair value of the Company's long-term
debt, including the current portion, was approximately $50,992,000, which was
approximately $1,636,000 less than the carrying value. The estimated fair value
is based on rates anticipated to be available to the Company for debt with
similar terms and maturities. The estimated fair value of notes payable included
in current liabilities approximated the carrying value.
B-19
<PAGE> 22
F. DEFERRED COMPENSATION
The Company has established a program whereby certain executives
irrevocably elected to defer receipt of certain compensation in 1985 through
1988. Deferred compensation payments to these executives will commence upon
their retirement from the Company. The Company has purchased life insurance on
such executives, payable to the Company in amounts which, if assumptions made as
to mortality experience, policy dividends and other factors are realized, will
accumulate cash values adequate to reimburse the Company for all payments for
insurance and deferred compensation obligations. In the event cash values are
not sufficient to fund such obligations, the program allows the Company to
reduce benefit payments to such amounts as may be funded by accumulated cash
values.
G. COMMON STOCK
On January 27, 1994, the Company's Board of Directors approved the Employee
Stock Purchase Plan ("Stock Purchase Plan"), Director Retainer Stock Plan
("Stock Retainer Plan") and Employee Stock Gift Program ("Stock Gift Program").
The Stock Purchase Plan allows eligible employees to purchase shares of
Company stock at a share price equal to 90% of fair market value on the purchase
date. In 1996 and 1995, 3,471 and 831 shares, respectively, were issued under
this Plan for an amount totaling approximately $33,000 and $7,200, respectively.
The Stock Retainer Plan allows eligible members of the Board of Directors
to defer their retainer fees and receive shares of Company stock at the time of
their retirement, disability or death. The number of shares to be received is
equal to the amount of the retainer fee deferred multiplied by 110% divided by
the fair market value of a share of Company stock at the time of deferral, and
is increased for dividends declared. The Company has accrued approximately
$83,000, $50,000 and $25,000 at December 28, 1996, December 30, 1995 and
December 31, 1994, respectively, for amounts incurred under this Plan.
The Stock Gift Program allows the Board of Directors to gift shares of
stock to eligible employees based on length of service. The Company gifted 500,
550 and 250 shares of stock under this Plan in 1996, 1995 and 1994,
respectively, and recognized the market value of the shares at the date of
issuance as expense.
At December 28, 1996, a total of 1,464,398 shares are reserved for issuance
under the Plans mentioned above and under Note H below.
On October 27, 1995, the Board of Directors approved a share repurchase
program for up to 1,000,000 shares of the Company's common stock. In 1996, the
Company repurchased 100,000 shares of its common stock for approximately
$822,000.
H. STOCK OPTIONS
On June 8, 1989, the Company granted non-qualified stock options to certain
executive officers. In February 1996 and March 1994, two former officers
exercised all of their options and each purchased 60,000 shares of common stock
for $132,600. At December 28, 1996 options for 90,000 and 50,000 shares were
outstanding at prices of $2.21 and $3.31 per share, respectively. Such options
are exercisable currently, and expire on June 1, 1997 and June 1, 2000,
respectively.
On June 1, 1993, the shareholders approved the Incentive Stock Option Plan
(the "Plan") for officers of the Company. Options for the purchase of all
1,200,000 shares of the Company's common stock authorized under the Plan have
been granted. The Plan provides that the options are exercisable only if the
officer is employed by the Company at the time of exercise and holds at least
seventy-five percent of the individuals' shares held on April 1, 1993. The Plan
also requires the option shares to be held for periods of six months to three
years. In April 1996, seven officers exercised options and
B-20
<PAGE> 23
purchased 35,000 shares of common stock for $113,750. The remaining options are
exercisable within thirty days of the anniversary of the Plan in the years and
at the prices shown below:
<TABLE>
<CAPTION>
NUMBERS OF OPTION
PLAN ANNIVERSARY SHARES PRICE
- --------------- ---------- ------
<S> <C> <C>
1997........................................................ 37,500 $3.50
1998........................................................ 80,000 3.75
1999........................................................ 170,000 4.00
2000........................................................ 80,000 4.25
2001........................................................ 162,500 4.50
2002........................................................ 185,000 5.00
2005........................................................ 190,000 5.75
2006........................................................ 60,000 6.00
2007........................................................ 60,000 6.25
2008........................................................ 40,000 6.50
---------
1,065,000
=========
</TABLE>
On November 10, 1993, the Company granted an option to purchase 10,000
shares of common stock to an officer of the Company at an option price of $7.25
per share. The option is exercisable for a period of thirty days prior to
November 10, 2003, and the officer must be employed by the Company at the time
of exercise. The agreement also requires the purchased shares to be held at
least one year.
On January 27, 1994, the Company's Board of Directors approved the Employee
Stock Option Plan (the "Plan"). The Plan allows the Board of Directors to grant
options to purchase shares of Company stock to eligible members of management.
Under the provisions of the Plan, the exercise price of the options must not be
less than 100% of the fair market value of a share of Company stock at the time
of grant, and the options expire after five years or ten years from the date of
grant. The exercise price and option period are dependent upon an employee's
percentage of ownership of Company stock. An employee must continue to be
employed by the Company to exercise the options. No options have been granted
under this Plan as of December 28, 1996.
I. OFFICERS' STOCK NOTES RECEIVABLE
The officers' stock notes receivable represent notes obtained by the
Company from certain officers for the purchase of the Company's common stock.
Interest on the notes ranges from fixed rates of seven to eleven percent per
annum and a variable rate of the prime rate less 10% (minimum 6%, maximum 12%).
At December 28, 1996, payments on the notes are due as follows:
<TABLE>
<S> <C>
1997........................................................ $100,968
1998........................................................ 107,953
1999........................................................ 146,726
2000........................................................ 96,039
2001........................................................ 102,777
Thereafter.................................................. 110,237
--------
$664,700
========
</TABLE>
On January 1, 1997, the Company sold 30,188 shares of common stock to four
officers in exchange for notes receivable totaling $399,991. Interest on the
four notes will be calculated at a rate of 7% per annum, and paid annually. The
principal balance on the notes is due on or before April 1, 2007.
J. LIFE INSURANCE
In September 1995, the Company acquired a second-to-die life insurance
policy on its Chairman of the Board and his spouse, the Company's largest
shareholders. The death benefit on the policy totals
B-21
<PAGE> 24
$8,700,000 and the Company is the beneficiary. The cash surrender value on the
policy at December 28, 1996 is included in "Other Assets."
K. RETIREMENT PLAN
The Company has a profit sharing plan for the benefit of substantially all
of its employees. Amounts contributed to the plan are made at the discretion of
the Board of Directors. The Company contributed approximately $1,528,000,
$1,506,000 and $1,296,000 in 1996, 1995 and 1994, respectively. In addition, on
July 1, 1994, the Company amended and restated the plan to include a 401(k)
feature. During 1996, 1995 and 1994, the Company matched 25% of employee
contributions, on a discretionary basis, totaling approximately $440,000,
$393,000 and $87,000, respectively. The basis for matching contributions may not
exceed the lesser of 6% of the employee's annual compensation or $9,500.
L. INCOME TAXES
Income tax provisions for the years ended December 28, 1996, December 30,
1995, and December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal................................................... $10,140,615 $6,829,363 $4,989,796
State and local........................................... 2,465,288 1,616,300 1,566,148
----------- ---------- ----------
12,605,903 8,445,663 6,555,944
Net Deferred:
Federal................................................... (504,094) 883,896 697,393
State and local........................................... (130,809) 233,441 246,663
----------- ---------- ----------
(634,903) 1,117,337 944,056
----------- ---------- ----------
$11,971,000 $9,563,000 $7,500,000
=========== ========== ==========
</TABLE>
The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
State and local taxes....................................... 4.9 5.4 6.0
Other....................................................... .4 .1 .1
---- ---- ----
Effective income tax rate................................... 40.3% 40.5% 41.1%
==== ==== ====
</TABLE>
Temporary differences which give rise to deferred tax assets and
liabilities at December 28, 1996 and December 30, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
DEFERRED DEFERRED TAX DEFERRED DEFERRED TAX
TAX ASSETS LIABILITIES TAX ASSETS LIABILITIES
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee benefits......................... $2,593,033 $ (453,503) $2,269,431
Depreciation.............................. 2,801,951 $2,092,820
Inventory................................. 538,385 389,411
Accrued expenses.......................... 783,820 247,057 379,925
All other................................. 270,426 (206,442) 46,564 (169,187)
--------- ---------- ---------- ----------
$4,185,664 $2,389,063 $3,085,331 $1,923,633
========= ========== ========== ==========
</TABLE>
B-22
<PAGE> 25
M. LEASES
Leased property included in the balance sheet at December 28, 1996 and
December 30, 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Land and improvements...................................... $ 275,904 $ 275,904
Buildings and improvements................................. 319,305 319,305
Machinery and equipment.................................... 251,340 251,340
--------- ---------
846,549 846,549
Less accumulated amortization.............................. (175,440) (115,132)
--------- ---------
$ 671,109 $ 731,417
========= =========
</TABLE>
The Company leases certain real estate under operating lease agreements
with original terms ranging from one to ten years. The Company is required to
pay real estate taxes and other occupancy costs under these leases. Certain of
these leases carry renewal options of five to fifteen years. The Company also
leases motor vehicles and equipment under operating lease agreements, for
periods of one to seven years. Future minimum payments under noncancellable
leases at December 28, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
-------------------------------------
<S> <C> <C> <C>
1997............................................ $ 65,086 $2,401,809 $2,466,895
1998............................................ 864,903 1,694,842 2,559,745
1999............................................ 3,758 716,358 720,116
2000............................................ 2,192 199,393 201,585
2001............................................ 91,735 91,735
--------- ---------- ----------
Total minimum lease payments.................... 935,939 $5,104,137 $6,040,076
========== ==========
Less imputed interest........................... (112,881)
---------
Present value of minimum lease payments......... $ 823,058
=========
</TABLE>
Rent expense was approximately $3,718,000, $3,363,000 and $3,084,000 in
1996, 1995 and 1994, respectively, including approximately $100,000 paid
annually to the Company's profit-sharing plan for the lease of certain property.
On July 28, 1995, the Company entered into a lease termination agreement
with Chesapeake Corporation covering four of the five facilities the Company
acquired on October 4, 1993. The significant terms of the agreement are outlined
as follows:
- - The lease for the Fredericksburg, Virginia facility was terminated, effective
May 8, 1995. The Company had ceased operations at this facility on December
31, 1994. The Company will continue to be responsible for any environmental
liability which may have resulted from its operating and occupying this
facility from October 4, 1993 to May 8, 1995, the date of lease termination.
- - Titles to the Elizabeth City, North Carolina; Stockertown, Pennsylvania; and
Holly Hill, South Carolina facilities were transferred to the Company without
any further lease payments by the Company. The Company accepted these sites
"as is." As a result, the Company is responsible for any potential
environmental liability at these sites.
On July 28, 1995, the Company sold all of the assets of the Holly Hill,
South Carolina facility. As a condition of the sale agreement, the buyer is
responsible for any environmental liability existing at the site at the time of
the sale.
Based on the results of the final baseline environmental reports and the
research of its consultants, the Company believed the reduction in its capital
lease obligation substantially offset the estimated
B-23
<PAGE> 26
environmental liability it assumed as a result of the agreement with Chesapeake.
Accordingly, there was no effect to the Company's results of operations as a
result of the transaction.
N. COMMITMENTS AND CONTINGENCIES
The Company is self-insured for environmental impairment liability and
accrues an expense for the estimated cost of required remedial actions when
situations requiring such action arise. The Company owns and operates a number
of facilities throughout the United States that chemically treat lumber
products. In connection with the ownership and operation of these and other real
properties, and the disposal or treatment of hazardous or toxic substances, 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
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 other long-term liabilities, amounts totaling
approximately $1,738,000 and $2,808,000 at December 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
accrued costs include operating ground water reclamation wells, estimated costs
of chemical treatments and consultant fees.
Various lawsuits and claims, including those involving ordinary routine
litigation incidental to its business, to which the Company is a party, are
pending, or have been asserted, against the Company. Although the outcome of
these matters cannot be predicted with certainty, and some of them may be
disposed of unfavorably to the Company, management has no reason to believe that
their disposition will have a material adverse effect on the consolidated
financial position, operating results or liquidity of the Company.
O. NON-COMPETE AGREEMENT
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 consideration
of 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.
B-24
<PAGE> 27
P. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth selected financial information for all of
the quarters during the years ended December 28, 1996 and December 30, 1995 (in
thousands, except per-share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------------------- ------------------- ------------------- -------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $159,581 $174,988 $275,727 $235,437 $243,887 $188,801 $188,523 $140,051
Gross profit......... 16,983 18,986 30,882 23,374 21,964 17,835 17,901 13,551
Net earnings......... 2,617 3,517 8,197 5,301 4,792 3,105 2,144 2,127
Earnings per share... .15 .20 .46 .30 .27 .18 .12 .12
</TABLE>
B-25
<PAGE> 28
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's common stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol UFPI. The following table sets forth the
range of high and low sales prices as reported by Nasdaq.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
- -------------------------------------------
<S> <C> <C>
Fourth Quarter....... 13.500 11.250
Third Quarter........ 13.375 10.000
Second Quarter....... 10.875 9.000
First Quarter........ 10.125 7.625
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
- -------------------------------------------
<S> <C> <C>
Fourth Quarter....... 10.125 8.750
Third Quarter........ 10.375 8.000
Second Quarter....... 8.625 6.000
First Quarter........ 8.250 6.375
</TABLE>
There were approximately 6,200 shareholders of record as of March 1, 1997.
In 1996, the Company paid dividends on its common stock at a semi-annual
rate of $.03 per share. The Company intends to continue with its current
dividend policy for the foreseeable future, and retain the balance of its
earnings for use in the expansion of its business.
B-26
<PAGE> 1
EXHIBIT 21
LIST OF REGISTRANT'S SUBSIDIARIES
1. Universal Forest Products of Canada, Inc., a Canadian Corporation.
2. Universal Forest Products de Mexico, S.A. de C.V., a Mexican
Corporation.
3. Universal Forest Products Eastern Company, Inc., a Michigan
Corporation.
4. Universal Forest Products Southern Company, Inc., a Michigan
Corporation.
5. Universal Forest Products Midwest Company, Inc., a Michigan
Corporation.
6. Universal Forest Products Southwest Company, Inc., a Michigan
Corporation.
7. Universal Forest Products Far West Company, Inc., a Michigan
Corporation.
8. Universal Forest Products Properties Company, Inc., a Michigan
Corporation.
9. Universal Forest Products Holding Company, Inc., a Michigan
Corporation.
10. Universal Forest Products - FSC, Inc., a Barbados Corporation.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement No.
33-1465835 of Universal Forest Product, Inc. on Form S-8 of our report dated
February 6, 1997, incorporated by reference in the Annual Report on Form 10-K
of Universal Forest Products, Inc. for the year ended December 28, 1996.
DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 1,275,636
<SECURITIES> 0
<RECEIVABLES> 32,102,276
<ALLOWANCES> 0
<INVENTORY> 88,519,771
<CURRENT-ASSETS> 126,557,432
<PP&E> 103,643,146
<DEPRECIATION> 43,967,364
<TOTAL-ASSETS> 193,376,979
<CURRENT-LIABILITIES> 38,062,033
<BONDS> 48,975,502
<COMMON> 17,040,467
0
0
<OTHER-SE> 82,837,334
<TOTAL-LIABILITY-AND-EQUITY> 193,376,979
<SALES> 867,718,385
<TOTAL-REVENUES> 867,718,385
<CGS> 779,988,362
<TOTAL-COSTS> 779,988,362
<OTHER-EXPENSES> 55,237,363
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,047,064
<INCOME-PRETAX> 29,720,877
<INCOME-TAX> 11,971,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,749,877
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
