<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1998
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-22684
UNIVERSAL FOREST PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1465835
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2801 East Beltline NE, Grand Rapids, Michigan 49525
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 364-6161
NONE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of August 1, 1998
- ----------------------------------- --------------------------------
Common stock, no par value 20,722,437
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Page 1 of 30
<PAGE> 2
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets at June 27, 1998
and December 27, 1997. 3
Consolidated Condensed Statements of Earnings for the Three and
Six Months Ended June 27, 1998 and June 28, 1997. 4
Consolidated Condensed Statements of Cash Flows for the Six
Months Ended June 27, 1998 and June 28, 1997. 5
Consolidated Condensed Statements of Shareholders' Equity
for the Periods Ended June 27, 1998 and June 28, 1997. 6-7
Notes to Consolidated Condensed Financial Statements. 8-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 15-25
Item 3. Quantitative and Qualitative Disclosures About Market Risk. -
NOT APPLICABLE
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Changes in Securities. 26
Item 3. Defaults Upon Senior Securities - NONE.
Item 4. Submission of Matters to a Vote of Security Holders. 27
Item 5. Other Information - NONE.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index. 29
(b) Reports on Form 8-K 30
2
<PAGE> 3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
June 27, December 27,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 7,562 $ 3,157
Accounts receivable (net of allowance for doubtful accounts of
$1,442 and $449).............................................................. 91,500 35,616
Inventories:
Raw materials............................................................... 42,918 38,240
Finished goods.............................................................. 82,208 72,923
----------- ----------
125,126 111,163
Other current assets............................................................ 4,993 7,701
----------- ----------
TOTAL CURRENT ASSETS................................................... 229,181 157,637
OTHER ASSETS......................................................................... 4,943 4,474
GOODWILL AND NON-COMPETE AGREEMENTS, NET............................................. 94,356 2,525
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost.......................................... 176,147 116,715
Accumulated depreciation and amortization....................................... (57,149) (51,968)
----------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET..................................... 118,998 64,747
----------- ----------
$ 447,478 $ 229,383
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable................................................................... $ 120,400 $ 4,500
Accounts payable................................................................ 50,657 34,053
Accrued liabilities:
Compensation and benefits................................................... 19,188 16,345
Other ...................................................................... 6,160 3,167
Current portion of long-term debt and capital lease obligations................. 12,771 9,789
----------- ----------
TOTAL CURRENT LIABILITIES.............................................. 209,176 67,854
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion................................................... 44,401 39,752
DEFERRED INCOME TAXES................................................................ 7,162 1,766
OTHER LIABILITIES.................................................................... 5,988 4,113
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; shares authorized 1,000,000;
issued and outstanding, none
Common stock, no par value; shares authorized 40,000,000;
issued and outstanding, 20,699,937 and 17,572,262............................. 20,700 17,572
Additional paid-in capital...................................................... 77,388 29,855
Retained earnings............................................................... 84,228 70,253
Foreign currency translation adjustment......................................... (747) (882)
----------- ----------
181,569 116,798
Officers' stock notes receivable................................................ (818) (900)
----------- ----------
180,751 115,898
----------- ----------
$ 447,478 $ 229,383
=========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ---------------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
--------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
NET SALES ................................... $ 388,677 $ 348,060 $ 626,874 $ 567,510
COST OF GOODS SOLD............................... 342,362 314,616 555,986 513,546
---------- ---------- ---------- ----------
GROSS PROFIT..................................... 46,315 33,444 70,888 53,964
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........................ 25,251 17,412 42,521 31,373
---------- ---------- ---------- ----------
EARNINGS FROM OPERATIONS......................... 21,064 16,032 28,367 22,591
OTHER EXPENSE (INCOME):
Interest expense............................ 3,060 1,266 4,732 2,332
Interest income............................. (44) (47) (79) (161)
Other, net.................................. (97) (79) (141) (47)
---------- ---------- ---------- ----------
TOTAL OTHER EXPENSE.................... 2,919 1,140 4,512 2,124
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES..................... 18,145 14,892 23,855 20,467
INCOME TAXES..................................... 7,022 5,375 9,155 7,323
---------- ---------- ---------- ----------
NET EARNINGS..................................... $ 11,123 $ 9,517 $ 14,700 $ 13,144
========== ========== ========== ==========
EARNINGS PER SHARE - BASIC....................... $ 0.54 $ 0.54 $ 0.77 $ 0.75
EARNINGS PER SHARE - DILUTED..................... $ 0.52 $ 0.52 $ 0.74 $ 0.72
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC............................ 20,677 17,520 19,126 17,487
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED.......................... 21,391 18,209 19,831 18,218
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 27, June 28,
1998 1997
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ...................................................................... $ 14,700 $ 13,144
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization of capital leases................................ 5,363 4,532
Amortization of non-compete agreements and goodwill............................ 924 132
(Gain) loss on disposal of property, plant and equipment....................... 46 29
Stock Gift Program and Directors' Stock Grant Program expense.................. 21 3
Changes in:
Accounts receivable.......................................................... (37,247) (38,910)
Inventories.................................................................. 3,086 (12,269)
Other ...................................................................... (335) (762)
Accounts payable............................................................. 13,820 36,202
Accrued liabilities.......................................................... 6,755 (4,267)
----------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES....................... 7,133 (2,166)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of notes receivable...................................................... 94 203
Purchases of property, plant and equipment.......................................... (10,513) (7,188)
Proceeds from sale of property, plant and equipment................................. 199 132
Acquisitions, net of cash received.................................................. (92,931)
Other............................................................................... (190)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES..................................... (103,341) (6,853)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of notes payable..................................................... 115,900 12,100
Proceeds from issuance of common stock.............................................. 364 548
Cash dividends to shareholders...................................................... (725) (515)
CBC shareholder distributions....................................................... (18)
Repayment of long-term debt......................................................... (14,926) (2,501)
Repurchase of common stock.......................................................... (1,118)
----------- ----------
NET OF CASH PROVIDED BY FINANCING ACTIVITIES.............................. 100,613 8,496
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 4,405 (523)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................... 3,157 1,330
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................ $ 7,562 $ 807
========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest...................................................................... $ 4,502 $ 2,173
Income taxes.................................................................. 4,513 6,318
NON-CASH INVESTING ACTIVITIES:
Note payable issued in exchange for non-compete agreements.......................... $ 2,373
Note payable issued in business combination......................................... 820
Property, plant and equipment acquired through capital leases....................... 179
Fair market value of common stock issued in business combinations................... 50,511
Officer's stock note receivable .................................................... $ 400
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, except share data) Foreign Officers'
Additional Currency Stock
Common Paid-In Retained Translation Notes
Stock Capital Earnings Adjustment Receivable Total
---------- ---------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF 12/27/97.................. $ 17,572 $ 29,855 $ 70,253 ($ 882) ($ 900) $ 115,898
Net earnings....................... 3,577 3,577
Issuance of 4,585 shares........... 5 51 56
Foreign currency translation
adjustment........................ 266 266
Payments received on officers'
stock notes receivable........... 66 66
----------- ---------- ---------- ---------- ---------- ----------
BALANCE AS OF 3/28/98.................. $ 17,577 $ 29,906 $ 73,830 ($ 616) ($ 834) $ 119,863
Net earnings....................... 11,123 11,123
Dividend paid...................... (725) (725)
Issuance of 3,123,090 shares....... 3,123 47,482 50,605
Foreign currency translation
adjustment....................... (131) (131)
Payments received on officers'
stock notes receivable........... 16 16
----------- ---------- ----------- ---------- ---------- ----------
BALANCE AS OF 6/27/98.................. $ 20,700 $ 77,388 $ 84,228 ($ 747) ($ 818) $ 180,751
=========== ========== =========== ========== ========== ==========
</TABLE>
6
<PAGE> 7
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, except share data) Foreign Officers'
Additional Currency Stock
Common Paid-In Retained Translation Notes
Stock Capital Earnings Adjustment Receivable Total
---------- ---------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF 12/28/96.................. $ 17,438 $ 28,446 $ 56,426 ($ 830) ($ 665) $ 100,815
Net earnings....................... 3,627 3,627
Issuance of 32,253 shares.......... 32 392 424
Foreign currency translation
adjustment....................... 64 64
Issuance of officers' stock
notes receivable................. (400) (400)
Payments received on officers'
stock notes receivable........... 128 128
---------- ---------- ----------- ------------ -------- ----------
BALANCE AS OF 3/29/97................... $ 17,470 $ 28,838 $ 60,053 ($ 766) ($ 937) $ 104,658
Net earnings....................... 9,517 9,517
Dividend paid...................... (515) (515)
Issuance of 180,105 shares......... 180 346 526
Repurchase of 82,502 shares........ (82) (1,036) (1,118)
CBC shareholder distributions...... (18) 18)
Foreign currency translation
adjustment....................... (80) (80)
Payments received on officers'
stock notes receivable........... 28 28
---------- ---------- ---------- ------------ -------- ----------
BALANCE AS OF 6/28/97................... $ 17,568 $ 29,184 $ 68,001 ($ 846) ($ 909) $ 112,998
========== ========== ========== ============ ======== ==========
</TABLE>
See notes to consolidated condensed financial statements.
7
<PAGE> 8
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial
statements (the "Financial Statements") of Universal Forest Products,
Inc. and its wholly-owned subsidiaries and partnerships (together, the
"Company"), have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, the Financial
Statements do not include all of the information and footnotes normally
included in the annual consolidated financial statements prepared in
accordance with generally accepted accounting principles. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
In the opinion of management, the Financial Statements contain all
material adjustments necessary to present fairly the consolidated
financial position, results of operations, changes in shareholders'
equity and cash flows of the Company for the interim periods presented.
All such adjustments are of a normal recurring nature. These Financial
Statements should be read in conjunction with the financial statements,
and footnotes thereto, included in the Company's Annual Report to
Shareholders on Form 10-K for the fiscal year ended December 27, 1997.
Certain reclassifications have been made to the 1997 consolidated
condensed statement of earnings to conform to the classifications used in
1998.
B. EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share." SFAS 128 requires companies with complex capital
structures that have publicly held common stock or common stock
equivalents to present both basic and diluted earnings per share ("EPS")
on the face of the income statement. The presentation of basic EPS
replaces the presentation of primary EPS previously required by
Accounting Principles Board Opinion No. 15 ("APB No. 15"), "Earnings Per
Share." Basic EPS is calculated as net earnings available to common
shareholders divided by the weighted average number of common shares
outstanding during the period. Diluted EPS (previously referred to as
fully diluted EPS) is calculated using an approach similar to the "if
converted" method for convertible securities and the treasury stock
method for options and warrants as previously prescribed by APB No. 15.
This new statement was effective for financial statements issued for the
interim and annual periods ending after December 15, 1997.
8
<PAGE> 9
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Pursuant to the above-mentioned accounting standard, basic EPS is
calculated based on the weighted average number of common shares
outstanding during the periods presented, while diluted EPS is calculated
based on the weighted average number of common and common equivalent
shares outstanding during the periods presented, giving effect to stock
options granted in 1993 and 1998, utilizing the "treasury stock" method.
A reconciliation of the changes in the numerator and the denominator from
the calculation of basic EPS to the calculation of diluted EPS follows
(in thousands, except per share data).
<TABLE>
<CAPTION>
Three Months Ended 6/27/98 Three Months Ended 6/28/97
--------------------------------- ----------------------------------
Net Per Net Per
Earnings Shares Share Earnings Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
EPS - BASIC
Net earnings available to
common shareholders............ $ 11,123 20,677 $0.54 $ 9,517 17,520 $0.54
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 714 689
--------- ------ --------- ------
EPS - DILUTED
Net earnings available to
common shareholders and
assumed conversions............ $ 11,123 21,391 $0.52 $ 9,517 18,209 $0.52
========= ====== ===== ========= ====== =====
<CAPTION>
Six Months Ended 6/27/98 Six Months Ended 6/28/97
----------------------------------- ---------------------------------
Net Per Net Per
Earnings Shares Share Earnings Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
EPS - BASIC
Net earnings available to
common shareholders............ $ 14,700 19,126 $0.77 $ 13,144 17,487 $0.75
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 705 731
--------- ------ --------- ------
EPS - DILUTED
Net earnings available to
common shareholders and
assumed conversions............ $ 14,700 19,831 $0.74 $ 13,144 18,218 $0.72
========= ====== ===== ========= ====== =====
</TABLE>
Options to purchase 260,000 shares of common stock at exercise prices ranging
from $17.4375 to $31.3000 were outstanding at June 27, 1998, but were not
included in the computation of
9
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
diluted EPS because the options' exercise prices were greater than the
average market price of the common stock and, therefore, would be
antidilutive.
C. STOCK BASED COMPENSATION
In January 1998, the Company granted incentive stock options for 346,506
shares of common stock under its Long Term Stock Incentive Plan. Options
were granted to certain employees and officers of the Company at exercise
prices ranging from $13.1875 to $24.4600, which equaled or exceeded the
market value of the stock on the date of each grant. The options are
exercisable on various dates from 2001 through 2013, and the option
recipients must be employed by the Company at the time of exercise.
On April 22, 1998, the Company granted incentive stock options for
125,000 shares of common stock under its Long Term Stock Incentive Plan.
Options were granted to certain employees and officers of the Company at
exercise prices ranging from $17.4375 to $31.300, which equaled or
exceeded the market value of the stock on the date of each grant. The
options are exercisable on various dates from 2001 through 2013, and the
option recipients must be employed by the Company at the time of
exercise.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which permits entities to continue to apply the provisions
of APB Opinion No. 25, providing pro forma net earnings and pro forma
earnings per share disclosures. Had compensation cost for these plans
been determined consistent with SFAS 123, the Company's net earnings and
earnings per share would have been reduced to the following pro forma
amounts (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 27, 1998 June 27, 1998
------------------ ----------------
<S> <C> <C>
Net Earnings:
As Reported.............. $ 11,123 $ 14,700
Pro Forma................ 10,294 12,123
EPS - Basic:
As Reported.............. $ 0.54 $ 0.77
Pro Forma................ $ 0.50 $ 0.63
EPS - Diluted:
As Reported.............. $ 0.52 $ 0.74
Pro Forma................ $ 0.48 $ 0.61
</TABLE>
10
<PAGE> 11
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Because the SFAS 123 method of accounting has not been applied to options
granted prior to fiscal year 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The fair value of each option granted in 1998 is estimated on the date of
the grant using the Black-Scholes option pricing model with the following
weighted average assumptions.
Risk Free Interest Rate............. 6.20%
Expected Life....................... 8.0 years
Expected Volatility................. 28.35%
Expected Dividend Yield............. 0.41%
D. NEW ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement established standards for reporting
and display of comprehensive income and its components. Comprehensive
income reflects the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company's comprehensive income includes net earnings
adjusted for foreign currency translation adjustments. Comprehensive
income was approximately $11.0 million and $9.4 million for the three
months ended June 27, 1998 and June 28, 1997, respectively, and $14.8
million and $13.1 million for the six months ended June 27, 1998 and June
28, 1997, respectively.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes standards for reporting information about operating segments
in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. This statement requires reporting segment profit
or loss, certain specific revenue and expense items and segment assets.
It also requires reconciliations of total segment revenues, total segment
profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts reported in the consolidated financial
statements. Restatement of comparative information for earlier periods
presented is required in the initial year of application. Interim
information is not required until the second year of application, at
which time comparative information is required. The Company does not
expect that the adoption of this new accounting standard will have a
significant effect on its consolidated financial statement disclosures,
as the Company currently operates as a single operating segment.
11
<PAGE> 12
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
E. BUSINESS COMBINATIONS
On December 22, 1997, a subsidiary of the Company completed a merger with
Consolidated Building Components, Inc. ("CBC"), a manufacturer of
engineered trusses, wall panels and I-joist products for commercial and
residential builders and producers of manufactured homes. CBC operates
two plants in Northwest Pennsylvania. The Company issued approximately
398,000 shares of its common stock in exchange for all of the stock of
CBC. This transaction has been accounted for as a pooling of interests;
therefore, prior financial statements have been restated to reflect this
merger for all periods presented. In addition, CBC's shareholders elected
to be taxed as an S-Corporation; therefore, no provision for federal or
state income taxes was included in CBC's financial statements for 1997.
On December 29, 1997, a partnership of the Company acquired substantially
all of the assets of Structural Lumber Products, Inc. ("SLP"), a
manufacturer of engineered trusses and wall panels for residential
builders. SLP operates plants in San Antonio, Austin and Dallas, Texas.
The total purchase price of the transaction was approximately $18.5
million, funded through the Company's lines of credit. This transaction
has been accounted for as a purchase and, accordingly, the purchase price
has been allocated to the assets acquired based on their estimated fair
market values at the date of the acquisition. The excess of the purchase
price over the estimated fair value of the acquired assets, was
approximately $13.0 million and has been recorded as goodwill, to be
amortized on a straight-line basis over 40 years. SLP's results of
operations are included in the Company's consolidated condensed financial
statements since the date of the acquisition.
On March 30, 1998, a subsidiary of the Company acquired 100% of the
outstanding shares of privately held Shoffner Industries, Inc.
("Shoffner") in exchange for $41.1 million in cash, funded through the
Company's lines of credit and 3 million shares of the Company's common
stock. Shoffner is a manufacturer of roof and floor trusses for
commercial and residential builders with 14 facilities in 7 states. This
transaction has been accounted for as a purchase and, accordingly, the
purchase price has been allocated to the assets acquired based on their
estimated fair market values at the date of the acquisition. The excess
of the purchase price over the estimated fair value of the acquired
assets was approximately $66.6 million and has been recorded as goodwill,
to be amortized on a straight-line basis over 40 years. Shoffner's
results of operations are included in the Company's consolidated
condensed financial statements since the date of the acquisition.
On April 14, 1998, a subsidiary of the Company acquired substantially all
of the assets and assumed certain liabilities of Atlantic General
Packaging, Inc. ("AGP"), a manufacturer of specialty wood packaging
products. AGP operates one facility in Warrenton, North Carolina. The
total purchase price for the net assets of AGP comprised cash of $1.0
million, a note payable of $820,000, and 57,950 shares of the Company's
common stock. This transaction has
12
<PAGE> 13
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
been accounted for as a purchase and AGP's results of operations are
included in the Company's consolidated condensed financial statements
since the date of the acquisition.
On April 20, 1998, a subsidiary of the Company acquired substantially all
of the assets and assumed certain liabilities of Advanced Component
Systems, Inc. ("ACS"), a manufacturer of roof trusses and engineered
building components for commercial and residential builders. ACS operates
one facility in Lafayette, Colorado. The total purchase price for the net
assets of ACS was approximately $27.0 million, funded through the
Company's lines of credit. This transaction has been accounted for as a
purchase and, accordingly, the purchase price has been allocated to the
assets acquired based on their estimated fair market values at the date
of the acquisition. The excess of the purchase price over the estimated
fair value of the acquired assets was approximately $10.5 million and has
been recorded as goodwill, to be amortized on a straight-line basis over
40 years. ACS's results of operations are included in the Company's
consolidated condensed financial statements since the date of the
acquisition.
On June 4, 1998, a subsidiary of the Company acquired substantially all
of the assets of Industrial Lumber Company, Inc. ("ILC"), a distributor
of low grade cut lumber for packaging. ILC's assets will be consolidated
with the Company's current operation in Stockton, CA. The total purchase
price for the net assets of ILC consisted of $3.0 million in cash, funded
through the Company's lines of credit, and notes payable totaling
approximately $2.2 million exchanged for non-compete agreements. This
transaction has been accounted for as a purchase. ILC's results of
operations are included in the Company's consolidated condensed financial
statements since the date of the acquisition.
In addition, the Company completed other business combinations during the
first six months of 1998 which are insignificant and have been excluded
from the discussion above.
13
<PAGE> 14
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
The following unaudited pro forma consolidated results of operations for
the six months ended June 27, 1998 and June 28, 1997 assumes the
acquisitions of CBC, SLP, Shoffner, and ACS occurred on December 29,
1996 (in thousands, except per share data). The pro forma effect of AGP,
ILC and certain other acquisitions are not included because they are
not material individually, or in the aggregate:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 27, 1998 June 28, 1997
---------------- ----------------
<S> <C> <C>
Net sales........................... $ 657,094 $ 638,270
Net earnings........................ 15,267 16,238
Earnings per share:
Basic........................ $ 0.74 $ 0.79
Diluted...................... $ 0.71 $ 0.76
Weighted average shares outstanding:
Basic........................ 20,659 20,545
Diluted...................... 21,364 21,276
</TABLE>
The pro forma results above include certain adjustments to give effect to
amortization of goodwill, interest expense, compensation of management,
certain other adjustments, and related income tax effects. The pro forma
results are not necessarily indicative of the operating results that
would have occurred had the acquisitions been completed as of the
beginning of the period presented, nor are they necessarily indicative of
future operating results.
14
<PAGE> 15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RISK FACTORS
Included in this report are certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements are based on the beliefs of the Company's management as 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.
Lumber Market Volatility:
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, prolonged trends in lumber prices
can affect the Company's financial results.
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.
15
<PAGE> 16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Cyclicality:
As a result of recent business combinations, management believes the
Company's ability to achieve growth in sales and margins has become more
dependent than it was in the past on general economic conditions (i.e. interest
rates, housing starts, and unemployment levels). To the extent these conditions
change significantly in the future, the Company's financial results could be
impacted.
FLUCTUATIONS IN LUMBER PRICES
The following table presents the Random Lengths framing lumber composite
price for the six months ended June 27, 1998 and June 28, 1997:
<TABLE>
<CAPTION>
Random Lengths
Average $/MBF
--------------
1998 1997
---- ----
<S> <C> <C>
January............................ $360 $436
February........................... 375 444
March.............................. 369 433
April.............................. 369 457
May................................ 331 444
June............................... 332 430
Period average..................... $356 $441
Percentage decrease................ 19.3%
</TABLE>
The Random Lengths 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.
Management believes the overall decline in the Lumber Market can be
attributed to the following factors which have caused an over supply of lumber
in North America.
- - Current economic conditions in Asia.
- - Greater production efficiencies by sawmills.
16
<PAGE> 17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- - The emergence and growing acceptance of substitute products for traditional
lumber. For example, wood I-joists are increasingly used in place of certain
sizes of lumber.
SEASONALITY
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's financial performance may
be negatively affected by prolonged declines in the Lumber Market during its
primary selling season. The Company attempts to mitigate this risk through
certain supply programs with vendors. These programs allow the Company to carry
a lower investment in inventories, including those materials which are most
susceptible to adverse changes in the Lumber Market.
BUSINESS COMBINATIONS
The Company has strategic objectives which include manufacturing and
distributing engineered wood components for site-built construction, a new
market for the Company, and increasing its sales of specialty wood packaging
products to industrial users. Management plans to accomplish these objectives
through internal growth and by acquiring profitable market leaders with strong
management. In line with this strategy, the Company completed the following
acquisitions in fiscal year 1998:
- - On December 29, 1997, a partnership of the Company acquired substantially all
of the assets of Structural Lumber Products, Inc. ("SLP"), a manufacturer of
engineered trusses and wall panels for residential builders. SLP operates
plants in San Antonio, Austin and Dallas, Texas. The total purchase price of
the transaction was approximately $18.5 million, funded through the Company's
lines of credit. SLP had net sales in fiscal 1997 totaling approximately
$22.0 million.
- - On March 30, 1998, a subsidiary of the Company acquired 100% of the
outstanding shares of privately held Shoffner Industries, Inc. ("Shoffner")
in exchange for $41.1 million in cash and 3 million shares of the Company's
common stock. Shoffner is a manufacturer of roof and floor trusses for
commercial and residential builders with 14 facilities in 7 states. Shoffner
had net sales in fiscal 1997 totaling approximately $90.0 million.
- - On April 14, 1998, a subsidiary of the Company acquired substantially all of
the assets and assumed certain liabilities of Atlantic General Packaging,
Inc. ("AGP"), a manufacturer of specialty wood packaging products. AGP
operates one facility in Warrenton, North Carolina. The
17
<PAGE> 18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
total purchase price for the net assets of AGP was comprised of cash
totaling approximately $1.0 million, a note payable of $820,000, and 57,950
shares of the Company's common stock. AGP had net sales in fiscal 1997
totaling approximately $4.0 million.
- - On April 20, 1998, a subsidiary of the Company acquired substantially all of
the assets and assumed certain liabilities of Advanced Component Systems,
Inc. ("ACS"), a manufacturer of roof trusses and engineered building
components for commercial and residential builders. ACS operates one facility
in Lafayette, Colorado. The total purchase price of ACS was approximately
$27.0 million, funded through the Company's lines of credit. ACS had net
sales in fiscal 1997 totaling approximately $39.0 million.
- - On June 4, 1998, a subsidiary of the Company acquired substantially all of
the assets of Industrial Lumber Company, Inc. ("ILC"), a distributor of low
grade cut lumber for packaging. The total purchase price for the net assets
of ILC was comprised of cash totaling approximately $3.0 million and notes
payable totaling approximately $2.2 million, exchanged for non-compete
agreements. ILC had net sales in fiscal 1997 totaling approximately $15.0
million.
18
<PAGE> 19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components
of the Company's Consolidated Statement of Earnings as a percentage of net
sales.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................... 88.1 90.4 88.7 90.5
----- ----- ----- -----
Gross profit................................ 11.9 9.6 11.3 9.5
Selling, general, and
administrative expenses................... 6.5 5.0 6.8 5.5
----- ----- ----- -----
Earnings from operations.................... 5.4 4.6 4.5 4.0
Other expense, net.......................... 0.7 0.3 0.7 0.4
----- ----- ----- -----
Earnings before income taxes................ 4.7 4.3 3.8 3.6
Income taxes................................ 1.8 1.6 1.5 1.3
----- ----- ----- -----
Net earnings................................ 2.9% 2.7% 2.3% 2.3%
===== ===== ===== =====
</TABLE>
NET SALES
The Company manufactures, treats and distributes lumber and other
products to the do-it-yourself (DIY), manufactured housing, wholesale lumber,
industrial and commercial and residential building markets. Its operations
comprise a single industry segment. The Company's strategic objectives relative
to sales include:
- - Diversifying the Company's end market sales mix by increasing its sales to
industrial users of specialty wood packaging and builders of conventional
site-built housing and commercial structures.
- - Maximizing its sales of "value-added" products. 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(R), Storage Solutions(TM), and YardLine(R) trade names, specialty
wood packaging sold to industrial users, and engineered wood components
(e.g. roof and floor trusses, wall panels, and I-joists). Value-added
products generally carry higher gross margins than
19
<PAGE> 20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
sales of commodity-based products and are somewhat less susceptible to
Lumber Market volatility. A long-term goal of the Company is to achieve a
ratio of value-added sales to total sales of at least 50%.
- - Increasing unit sales to each of the Company's core markets, DIY and
manufactured housing.
In order to measure its progress toward attaining these objectives,
management analyzes the following financial data relative to sales:
- - Sales by market classification.
- - The percentage change in sales attributable to changes in overall selling
prices versus changes in the quantity of units shipped.
- - The ratio of value-added product sales to total sales.
- - This information is presented in the narrative and tables which follow.
The following table presents, for the periods indicated, the Company's net
sales (in thousands) and percentage of total net sales by market classification.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------------------- -------------------------------------
June 27, June 28, June 27, June 28,
Market Classification 1998 % 1997 % 1998 % 1997 %
- --------------------- --------- ------ --------- ------ --------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIY................................. $207,899 53.5% $ 193,086 55.5% $ 308,814 49.3% $ 285,204 50.3%
Manufactured Housing................ 104,532 26.9 109,320 31.4 199,861 31.9 202,545 35.7
Commercial and Residential.......... 34,699 8.9 5,886 1.7 43,515 6.9 9,807 1.7
Wholesale Lumber.................... 20,853 5.4 24,807 7.1 38,659 6.2 42,224 7.4
Industrial.......................... 20,694 5.3 14,961 4.3 36,025 5.7 27,730 4.9
-------- ----- --------- ----- --------- ----- --------- -----
Total............................... $388,677 100.0% $ 348,060 100.0% $ 626,874 100.0% $ 567,510 100.0%
======== ===== ========= ===== ========= ===== ========= =====
</TABLE>
1997 sales by market include sales attributable to CBC, whose financial
results have been pooled with the Company's.
Net sales in the second quarter of 1998 increased $40.6 million or 11.7%
compared to the second quarter of 1997, reflecting an estimated 20.0% increase
in units shipped offset by an estimated 8.3% decrease in overall selling prices.
The increase in units shipped was primarily driven by sales from the plants
acquired from SLP, Shoffner, and ACS. The average level of the Lumber Market for
the first six months of 1998 declined 19.3% compared to the same period of 1997.
The comparatively lower level of the Lumber Market caused the Company's overall
selling prices to
20
<PAGE> 21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
decrease for the second quarter and first six months of 1998, compared to the
same periods of 1997 (see graph, Page 16). Net sales in the first six months of
1998 increased $59.3 million, or 10.5% compared to the same period of 1997, due
to an estimated 17.7% increase in units shipped offset by an estimated 7.2%
decrease in overall selling prices.
The following table presents, for the periods and markets indicated, the
Company's percentage of value added and commodity-based sales to total sales.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Value-Added........................... 39.9% 29.2% 38.2% 29.9%
Commodity Based....................... 60.1% 70.8% 61.8% 70.1%
</TABLE>
The ratios above include the effect of pooling CBC.
The Company implemented a new sales information system in the third
quarter of 1997, improving its ability to analyze sales by product and market.
As a result of this new system, and with consideration to the strategic
objectives outlined above, management reclassified certain products between the
value-added and commodity-based categories. Under the prior classifications,
value-added sales to total sales for the second quarter of 1998 and 1997 were
43.0% and 31.8%, respectively, and the first six months of 1998 and 1997 were
41.7% and 32.9%, respectively.
DIY:
Net sales to the DIY market increased approximately $14.8 million or 8%
in the second quarter of 1998, compared to the second quarter of 1997, due to an
increase in unit sales, as overall selling prices declined compared to the prior
period. The increase in unit sales is primarily due to sales of engineered
wood components from recent acquisitions to certain large national retail
customers and lumber yards. Net sales to the DIY market for the first six months
of 1998 increased $23.6 million, or 8% due primarily to increased unit sales to
certain national retail customers as discussed above, supplemented by increased
value-added sales at existing plants within the Company's Eastern Division.
Manufactured Housing:
Net sales to the manufactured housing market decreased approximately $4.8
million, or 4%, in the second quarter of 1998, compared to the second quarter of
1997. Net sales to this market for the first six months of 1998 decreased
approximately $2.7 million, or 1%, compared to the same
21
<PAGE> 22
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
period of 1997. The decrease in sales for the second quarter and first six
months of 1998 is primarily due to a decrease in overall selling prices offset
by an increase in unit sales. Overall selling prices to this market decreased as
a result of the lower level of the Lumber Market during the first six months of
1998, compared to the first six months of 1997.
Commercial and Residential:
Net sales to the commercial and residential market increased
approximately $28.8 million and $33.7 million in the second quarter and first
six months of 1998, respectively, compared to the same periods of 1997,
primarily due to increased unit sales driven by the acquisition of SLP,
Shoffner, and ACS. Sales in the second quarter and first six months of 1997
represent the commercial and residential sales of CBC.
Wholesale:
Net sales to the wholesale market decreased approximately $4.0 million,
or 16%, in the second quarter of 1998, compared to the second quarter of 1997.
Net sales to this market decreased $3.5 million, or 8%, for the first six months
of 1998, compared to the first six months of 1997. The decrease in sales for the
second quarter and first six months of 1998 is primarily due to an overall
decrease in selling prices attributable to the comparatively lower level of the
Lumber Market during these periods.
Industrial:
Net sales to the industrial market increased approximately $5.7 million
and $8.3 million in the second quarter and first six months of 1998,
respectively, compared to the same periods of 1997, primarily due to an
increase in unit sales. The Company continues to obtain market share through
its internal growth strategy, combined with the acquisitions of AGP and ILC.
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales increased to 11.9% in the
second quarter of 1998 compared to 9.6% in the second quarter of 1997. Gross
profit as a percentage of net sales increased to 11.3% for the first six months
of 1998 compared to 9.5% for the same period of 1997. The increases were
primarily due to a combination of the following factors:
- - The effect of increased sales of engineered wood components as a result of
acquisitions.
22
<PAGE> 23
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- - Increased sales of value-added products in the Company's Eastern Division.
- - Increased sales of specialty wood packaging and components to the industrial
market.
- - The factors discussed above were offset by the adverse effect the downward
trend in the Lumber Market had on the Company's overall selling prices of
certain products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately $7.8
million, or 45%, comparing the second quarter of 1998 to the same period of
1997. Selling, general and administrative expenses for the first six months of
1998 increased approximately $11.1 million, or 36%, compared to the same period
of 1997. These increases were primarily due to:
- - Expenses added through business acquisitions, combined with new operations in
Albuquerque, New Mexico (I-joist plant) and Lodi, Ohio (treating plant).
- - General increases in selling and administrative headcount to support the
growth of the business.
- - Increases in accrued incentive compensation expenses related to
profitability.
- - Increases in certain other variable expenses tied to sales.
OTHER EXPENSE, NET
Other expense, net is primarily comprised of interest expense and
interest income. Net interest costs (interest expense less interest income)
increased approximately $1.8 million, comparing the second quarter of 1998 to
the second quarter of 1997, due to an increase in short-term debt. The Company
funded the cash portion of the purchase price for recent acquisitions utilizing
its lines of credit, and its working capital requirements increased as average
investment in inventories at its existing plants increased in order to support
strong second quarter 1998 sales. Net interest costs for the first six months
of 1998 increased approximately $2.5 million compared to the same period of
1997, due to the same factors.
INCOME TAXES
The Company's effective tax rate is 38.7% for the second quarter of 1998
compared to 36.1% for the second quarter of 1997. 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. The
Company recognized a comparatively higher effective tax rate in the second
quarter of 1998 due to
23
<PAGE> 24
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
an expected increase in state and local income taxes and a permanent tax
difference related to a recent acquisition, combined with the effect of pooling
the pre-tax earnings of CBC (a former S-Corporation) for 1997. The Company's
effective tax rate for the first six months of 1998 was 38.4%, compared to 35.8%
for the same period of 1997, due to the same factors discussed above.
REORGANIZATION AND OTHER COSTS
In the fourth quarter of 1997, the Company announced a plan of
reorganization, which was discussed in the Company's Annual Report to
Shareholders on Form 10-K for the fiscal year ended December 27, 1997.
Management believes the reorganization will allow the Company to be more
efficient in its procurement of raw materials, improve the utilization of its
assets, and take advantage of its national presence to create new business
opportunities with national customers and vendors.
The Company did not incur any material charges associated with the
reorganization during the first six months of 1998. The Company expects to incur
additional costs of approximately $1.2 million and capital expenditures of
approximately $3.5 million related to the reorganization for the balance of
1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities for the first six months
of 1998 improved to approximately $7.1 million versus the first six months of
1997 when cash flows used in operating activities totaled $2.2 million. The
increase in cash from operating activities was primarily due to a reduction in
inventory levels at the end of the second quarter, combined with an increase
in accrued liabilities, offset by a decrease in accounts payable.
Due to the seasonality of its business and the effects of the Lumber
Market, management believes the Company's cash cycle (days sales outstanding
plus days supply of inventory less days payables outstanding) is a better
indicator of its working capital management. The Company's cash cycle increased
to 50.3 days for the first six months of 1998 from 43.9 days for the first six
months of 1997 as the Company's average investment in inventories relative to
sales increased.
Cash flows used in investing activities increased to approximately
$103.3 million for the first six months of 1998, compared to approximately $6.9
million for the first six months of 1997. The Company used approximately $92.9
million for business combinations. Capital expenditures totaled $10.5 million
for the first six months of 1998, primarily to replace existing machinery and
equipment, expand current operating capacity, improve production efficiencies,
and set up commercial and residential truss manufacturing lines at two existing
facilities. The Company plans to spend approximately $19 million for the year
on capital expenditures.
24
<PAGE> 25
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Cash flows provided by financing activities for the first six months of
1998 consisted primarily of net borrowings on notes payable to fund recent
acquisitions and working capital requirements, offset by cash dividends paid to
shareholders totaling $.035 per share, and repayments of long-term debt. The
Company had amounts outstanding on lines of credit totaling $120.4 million on
June 27, 1998, and had approximately $73 million which remained available on
such lines. Management is currently pursuing long-term variable and fixed rate
financing to replace its lines of credit, including a five-year revolving
credit facility.
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 or planned at the Company's Granger, Indiana; North East, Maryland;
Union City, Georgia; and Elizabeth City, North Carolina treatment facilities.
The Company has accrued, in other current and long-term liabilities,
amounts totaling $2.0 million and $1.6 million at June 27, 1998 and June 28,
1997, respectively. These represent estimated costs to complete remediation
efforts currently in process and those expected to occur in the future.
Management believes that the potential future costs of known remediation efforts
will not have a material adverse effect on its future financial position,
results of operations or liquidity.
"THE YEAR 2000"
The Company has undertaken a complete review of its business and
financial systems, and has concluded it will not have any material "Year 2000"
issues with the computer programs which drive these systems. Accordingly,
management does not expect to incur any significant programming costs in this
area. The Company continues to review its other ancillary systems and the
systems of its significant customers and vendors to ensure there are no material
issues with respect to these programs. The Company does not believe that adverse
findings in the review of its significant customers' and vendors' systems would
have a material effect on its operating results.
BOARD OF DIRECTORS
On April 22, 1998, the Company's Board of Directors appointed Carroll M.
Shoffner as a member of the Board of Directors of the Company for a term which
expires as of the date of the annual shareholders meeting in 1999.
25
<PAGE> 26
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(a) None.
(b) None.
(c) Sales of equity securities not registered under the Securities Act.
<TABLE>
<CAPTION>
Date of Class of Number Consideration
Sale Stock of Shares Purchasers Exchanged
------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Stock Option Exercises 04/30/98 Common 80,000 Eligible officers $ 300,000
Employee Stock Gift Program Various Common 50 Eligible officers None
and employees
</TABLE>
26
<PAGE> 27
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The following matters were voted upon at the Company's Annual Meeting of
Shareholders on April 22, 1998.
(1) Election of the following Directors for three year terms expiring in 2001:
For Withheld
---------- --------
William G. Currie 14,005,195 85,237
Phillip M. Novell 14,014,057 76,375
Other Directors whose terms of office continued after the meeting are
as follows:
Peter F. Secchia
Richard M. DeVos
John W. Garside
Louis A. Smith
John C. Canepa
Carroll M. Shoffner*
*See "Board of Directors" on page 25.
27
<PAGE> 28
UNIVERSAL FOREST PRODUCTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL FOREST PRODUCTS, INC.
Date: August 11, 1998 By: /s/ William G. Currie
-------------------------------------
William G. Currie
Its: President and Chief Executive Officer
Date: August 11, 1998 By: /s/ Elizabeth A. Bowman
-------------------------------------
Elizabeth A. Bowman
Its: Executive Vice President of Finance
and Administration and Treasurer
(Principal Financial Officer)
28
<PAGE> 29
UNIVERSAL FOREST PRODUCTS, INC.
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedule
27.2QTR97 Financial Data Schedule
99 Reports on 8-K
29
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> JUN-27-1998
<CASH> 7,562
<SECURITIES> 0
<RECEIVABLES> 92,942
<ALLOWANCES> 1,442
<INVENTORY> 125,126
<CURRENT-ASSETS> 229,181
<PP&E> 176,147
<DEPRECIATION> 57,149
<TOTAL-ASSETS> 447,478
<CURRENT-LIABILITIES> 209,176
<BONDS> 0
0
0
<COMMON> 20,700
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 447,478
<SALES> 626,874
<TOTAL-REVENUES> 626,874
<CGS> 555,986
<TOTAL-COSTS> 555,986
<OTHER-EXPENSES> 42,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,732
<INCOME-PRETAX> 23,855
<INCOME-TAX> 9,155
<INCOME-CONTINUING> 14,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,700
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.74
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 807
<SECURITIES> 0
<RECEIVABLES> 73,462
<ALLOWANCES> 910
<INVENTORY> 102,666
<CURRENT-ASSETS> 181,211
<PP&E> 112,936
<DEPRECIATION> 48,747
<TOTAL-ASSETS> 252,508
<CURRENT-LIABILITIES> 82,930
<BONDS> 0
0
0
<COMMON> 17,568
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 252,508
<SALES> 567,510
<TOTAL-REVENUES> 567,510
<CGS> 513,546
<TOTAL-COSTS> 513,546
<OTHER-EXPENSES> 31,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,332
<INCOME-PRETAX> 20,467
<INCOME-TAX> 7,323
<INCOME-CONTINUING> 13,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,144
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.72
</TABLE>
<PAGE> 1
EXHIBIT 99
REPORTS ON FORM 8-K
On April 13, 1998, the Company filed a Current Report on Form 8-K related to the
acquisition of Shoffner Industries, Inc. on March 30, 1998 by a wholly owned
subsidiary of the Company. As provided in Item 7(a)(4) of the instructions to
Form 8-K, the Current Report on Form 8-K excluded the required financial
statements for Shoffner Industries, Inc. On June 12, 1998, the Company filed an
Amendment to the Current Report on Form 8-K, dated April 13, 1998, relating to
events occurring on March 30, 1998. This Amendment was filed to provide the
required audited consolidated financial statements of Shoffner Industries, Inc.
and the required consolidating condensed pro forma financial information.
On May 1, 1998, the Company filed a Current Report on Form 8-K related to the
acquisition of Advanced Component Systems, Inc., T.F. Investments, L.L.C., and
F.T.G. Leasing, Inc. (together "ACS") on April 20, 1998 by a wholly owned
subsidiary of the Company. The financial statements of ACS were not required to
be filed pursuant to Regulation S-X.
30
