<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 September 26, 1998
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
Commission File Number 0-22684
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UNIVERSAL FOREST PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Michigan 38-1465835
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2801 East Beltline NE, Grand Rapids, Michigan 49525
----------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 364-6161
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NONE
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(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- ------
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of November 1, 1998
- ----------------------------------- ----------------------------------
Common stock, no par value 20,710,138
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Page 1 of 28
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION.
<S> <C> <C>
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets at September 26, 1998
and December 27, 1997. 3
Consolidated Condensed Statements of Earnings for the Three and
Nine Months Ended September 26, 1998 and September 27, 1997. 4
Consolidated Condensed Statements of Cash Flows for the Nine
Months Ended September 26, 1998 and September 27, 1997. 5
Consolidated Condensed Statements of Shareholders' Equity for the
Periods Ended September 26, 1998 and September 27, 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 - NONE.
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index. 28
(b) Reports on Form 8-K - NONE.
</TABLE>
2
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UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
September 26, December 27,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 2,285 $ 3,157
Accounts receivable (net of allowance for doubtful accounts of
$1,956 and $449)......................................................... 82,447 35,616
Inventories:
Raw materials......................................................... 35,755 38,240
Finished goods........................................................ 68,487 72,923
------------ -----------
104,242 111,163
Other current assets....................................................... 6,127 7,701
------------ -----------
TOTAL CURRENT ASSETS.............................................. 195,101 157,637
OTHER ASSETS.................................................................... 4,941 4,474
GOODWILL AND NON-COMPETE AGREEMENTS, NET........................................ 93,597 2,525
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost..................................... 182,700 116,715
Accumulated depreciation and amortization.................................. (60,024) (51,968)
------------ -----------
PROPERTY, PLANT AND EQUIPMENT, NET................................ 122,676 64,747
------------ -----------
$ 416,315 $ 229,383
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable.............................................................. $ 95,600 $ 4,500
Accounts payable........................................................... 43,771 34,053
Accrued liabilities:
Compensation and benefits............................................. 21,078 16,345
Other ................................................................ 6,617 3,167
Current portion of long-term debt and capital lease obligations............ 13,885 9,789
------------ -----------
TOTAL CURRENT LIABILITIES......................................... 180,951 67,854
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion.............................................. 33,330 39,752
DEFERRED INCOME TAXES........................................................... 7,162 1,766
OTHER LIABILITIES............................................................... 5,709 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, 20,705,622 and 17,572,262........................ 20,706 17,572
Additional paid-in capital................................................. 77,467 29,855
Retained earnings.......................................................... 92,726 70,253
Foreign currency translation adjustment.................................... (923) (882)
------------ -----------
189,976 116,798
Officers' stock notes receivable (813) (900)
------------ -----------
189,163 115,898
------------ -----------
$ 416,315 $ 229,383
============ ===========
</TABLE>
See notes to consolidated condensed financial statements.
3
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UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ---------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES ................................... $ 341,071 $ 292,264 $ 967,945 $ 859,774
COST OF GOODS SOLD............................... 298,192 267,141 854,178 780,687
---------- ---------- ---------- ----------
GROSS PROFIT..................................... 42,879 25,123 113,767 79,087
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........................ 26,406 15,886 68,927 47,259
---------- ---------- ---------- ----------
EARNINGS FROM OPERATIONS......................... 16,473 9,237 44,840 31,828
OTHER EXPENSE (INCOME):
Interest expense............................ 2,569 1,021 7,301 3,353
Interest income............................. (125) (77) (204) (238)
Other, net.................................. 166 (92) 25 (138)
---------- ---------- ---------- ----------
TOTAL OTHER EXPENSE.................... 2,610 852 7,122 2,977
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES..................... 13,863 8,385 37,718 28,851
INCOME TAXES..................................... 5,365 2,889 14,520 10,212
---------- ---------- ---------- ----------
NET EARNINGS..................................... $ 8,498 $ 5,496 $ 23,198 $ 18,639
========== ========== ========== ==========
EARNINGS PER SHARE - BASIC....................... $ 0.41 $ 0.31 $ 1.18 $ 1.06
EARNINGS PER SHARE - DILUTED..................... $ 0.40 $ 0.30 $ 1.14 $ 1.02
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC............................ 20,705 17,569 19,652 17,514
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED.......................... 21,371 18,311 20,344 18,249
</TABLE>
See notes to consolidated condensed financial statements.
4
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UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 26, September 27,
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................................................... $ 23,198 $ 18,639
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization of capital leases.............................. 8,875 6,907
Amortization of non-compete agreements and goodwill.......................... 1,648 395
(Gain) loss on disposal of property, plant and equipment..................... 114 (38)
Stock Gift Program and Directors' Stock Grant Program expense................ 25 3
Changes in:
Accounts receivable........................................................ (28,193) (26,620)
Inventories................................................................ 22,930 (2,714)
Other .................................................................... (888) (881)
Accounts payable........................................................... 6,934 29,146
Accrued liabilities........................................................ 9,103 (1,307)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................... 43,746 23,530
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of notes receivable.................................................... 105 231
Purchases of property, plant and equipment........................................ (18,002) (9,500)
Proceeds from sale of property, plant and equipment............................... 431 248
Acquisitions, net of cash received................................................ (92,931) 0
Other............................................................................. (159) (172)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES........................................ (110,556) (9,193)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of notes payable................................................... 91,100 0
Proceeds from issuance of common stock............................................ 446 577
Cash dividends to shareholders.................................................... (725) (515)
CBC shareholder distributions..................................................... 0 (18)
Repayment of long-term debt....................................................... (24,883) (3,234)
Repurchase of common stock........................................................ 0 (1,118)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.......................... 65,938 (4,308)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................. (872) 10,029
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................... 3,157 1,330
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................................... $ 2,285 $ 11,359
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................................... $ 6,385 $ 2,451
Income taxes................................................................. 10,560 10,460
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
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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
Net earnings....................... 8,498 8,498
Issuance of 5,685 shares........... 6 79 85
Foreign currency translation
adjustment....................... (176) (176)
Payments received on officers'
stock notes receivable........... 5 5
---------- ------------ ---------- --------- ---------- ----------
BALANCE AS OF 9/26/98.................. $ 20,706 $ 77,467 $ 92,726 ($ 923) ($ 813) $ 189,163
========== ============ ========== ========= ========== ==========
</TABLE>
6
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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
Net earnings....................... 5,496 5,496
Issuance of 2,235 shares........... 2 28 30
Foreign currency translation
adjustment....................... 81 81
Payments received on officers'
stock notes receivable........... 4 4
----------- ---------- ---------- ------------ -------- ----------
BALANCE AS OF 9/27/97................... $ 17,570 $ 29,212 $ 73,497 ($ 765) ($ 905) $ 118,609
========== ========== ========== ============ ======== ==========
</TABLE>
See notes to consolidated condensed financial statements.
7
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial
statements (the "Financial Statements") of Universal Forest Products,
Inc. and its wholly-owned 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
Statement 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
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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 amounts).
<TABLE>
<CAPTION>
Three Months Ended 9/26/98 Three Months Ended 9/27/97
-------------------------- --------------------------
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............ $ 8,498 20,705 $0.41 $ 5,496 17,569 $0.31
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 666 742
--------- ------ --------- ------
EPS - DILUTED
Net earnings available to
common shareholders and
assumed conversions............ $ 8,498 21,371 $0.40 $ 5,496 18,311 $0.30
========= ====== ===== ========= ====== =====
<CAPTION>
Nine Months Ended 9/26/98 Nine Months Ended 9/27/97
-------------------------- --------------------------
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............ $ 23,198 19,652 $1.18 $18,639 17,514 $1.06
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 692 735
--------- ------ ------- ------
EPS - DILUTED
Net earnings available to
common shareholders and
assumed conversions............ $ 23,198 20,344 $1.14 $18,639 18,249 $1.02
========= ====== ===== ======= ====== =====
</TABLE>
9
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Options to purchase 305,000 shares of common stock at exercise prices
ranging from $15.77 to $31.30 were outstanding at September 26, 1998,
but were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of
the common stock and, therefore, would be antidilutive.
C. STOCK 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 $24.46, 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 $31.30, 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 the fair value based method
defined in SFAS 123, the Company's net earnings and earnings per share
would have been reduced to the following pro forma amounts (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 26, 1998 September 26, 1998
-------------------- ------------------
<S> <C> <C>
Net Earnings:
As Reported.............. $8,498 $23,198
Pro Forma................ 8,498 20,621
EPS - Basic:
As Reported.............. $ 0.41 $ 1.18
Pro Forma................ $ 0.41 $ 1.05
EPS - Diluted:
As Reported.............. $ 0.40 $ 1.14
Pro Forma................ $ 0.40 $ 1.01
</TABLE>
10
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Because the fair value based 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.
<TABLE>
<S> <C>
Risk Free Interest Rate............. 6.20%
Expected Life....................... 8.0 years
Expected Volatility................. 28.35%
Expected Dividend Yield............. 0.41%
</TABLE>
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 $8.3 million and $5.6 million for
the three months ended September 26, 1998 and September 27, 1997,
respectively, and $23.2 million and $18.7 million for the nine months
ended September 26, 1998 and September 27, 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.
11
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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 nine 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 nine months ended September 26, 1998 and September 27, 1997
assumes the acquisitions of CBC, SLP, Shoffner, and ACS occurred on
December 29, 1996 (in thousands, except per share data). The pro forma
effects of AGP, ILC and certain other acquisitions are not included
because they are not material individually, or in the aggregate.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 26, 1998 September 27, 1997
------------------- ------------------
<S> <C> <C>
Net sales........................... $998,165 $973,602
Net earnings........................ 23,765 24,397
Earnings per share:
Basic........................ $ 1.15 $ 1.19
Diluted...................... $ 1.11 $ 1.15
Weighted average shares outstanding:
Basic........................ 20,674 20,572
Diluted...................... 21,367 21,307
</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 nine months ended September 26, 1998 and September 27,
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
July............................... 345 429
August............................. 355 413
September.......................... 328 393
Period average..................... $352 $431
Percentage decrease................ 18.3%
</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.
16
<PAGE> 17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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 resulting in fewer exports of North
American lumber products.
- - Greater production efficiencies and increased capacity of sawmills.
- - The emergence and growing acceptance of substitute products for solid-sawn
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 being the largest
manufacturer of engineered wood components (e.g. roof and floor trusses, wall
panels, and I-joists) for conventional site built construction, a new market for
the Company, and specialty wood packaging products for industrial users. 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.
17
<PAGE> 18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- - 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 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 wood 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 Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
---------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 87.4 91.4 88.3 90.8
----- ----- ----- -----
Gross profit............................ 12.6 8.6 11.7 9.2
Selling, general, and
administrative expenses............... 7.8 5.4 7.1 5.5
----- ----- ----- -----
Earnings from operations................ 4.8 3.2 4.6 3.7
Other expense, net...................... 0.7 0.3 0.7 0.3
----- ----- ----- -----
Earnings before income taxes............ 4.1 2.9 3.9 3.4
Income taxes............................ 1.6 1.0 1.5 1.2
----- ----- ----- -----
Net earnings............................ 2.5% 1.9% 2.4% 2.2%
===== ===== ===== =====
</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 conventional site built construction 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 specialty wood packaging sold to
industrial users, and engineered wood components. Value-added products
generally carry higher gross margins than sales of commodity-based products
and are somewhat less susceptible to
19
<PAGE> 20
\
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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 Nine Months Ended
----------------------------------------- ------------------------------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
Market Classification 1998 % 1997 % 1998 % 1997 %
- --------------------- ----------- ----- ---------- ------ -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIY................................. $154,815 45.4% $141,970 48.6% $463,629 47.9% $427,175 49.7%
Manufactured Housing................ 103,387 30.3 106,772 36.5 303,248 31.3 309,317 36.0
Site Built Construction............. 42,388 12.4 5,918 2.0 85,903 8.9 15,725 1.8
Wholesale Lumber.................... 18,624 5.5 22,161 7.6 57,283 5.9 64,385 7.5
Industrial.......................... 21,857 6.4 15,443 5.3 57,882 6.0 43,172 5.0
-------- ----- -------- ----- -------- ----- -------- -----
Total............................... $341,071 100.0% $292,264 100.0% $967,945 100.0% $859,774 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
1997 sales by market include sales attributable to CBC, whose financial
results have been pooled with the Company's.
Net sales in the third quarter of 1998 increased $48.8 million, or
16.7%, compared to the third quarter of 1997, reflecting an estimated 26.4%
increase in units shipped offset by an estimated 9.7% decrease in overall
selling prices. Net sales in the first nine months of 1998 increased $108.2
million, or 12.6% compared to the same period of 1997 due to an estimated 20.7%
increase in units shipped offset by an estimated 8.1% decrease in overall
selling prices. The increase in units shipped were primarily driven by sales
from the plants acquired from SLP, Shoffner, and ACS, while the overall decrease
in price was due to the Lumber Market. The average level of the Lumber Market
20
<PAGE> 21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
for the first nine months of 1998 was 18.3% lower compared to the same period of
1997. (See table, Page 16.)
The following table presents, for the periods indicated, the Company's
percentage of value added and commodity-based sales to total sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ -----------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
Value-Added........................... 39.0% 27.3% 38.1% 29.6%
Commodity Based....................... 61.0% 72.7% 61.9% 70.4%
</TABLE>
The ratios above include the effect of pooling CBC.
DIY:
Net sales to the DIY market increased approximately $12.8 million, or
9% in the third quarter of 1998, compared to the third 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 recently acquired plants to certain national retail
customers and lumber yards. Net sales to the DIY market for the first nine
months of 1998 increased $36.5 million, or 9% due primarily to increased unit
sales to certain national retail customers as discussed above, supplemented by
increased value-added sales at certain of the Company's existing facilities.
Manufactured Housing:
Net sales to the manufactured housing market decreased approximately
$3.4 million, or 3%, in the third quarter of 1998, compared to the third quarter
of 1997. Net sales to this market for the first nine months of 1998 decreased
approximately $6.1 million, or 2%, compared to the same period of 1997. These
decreases are primarily due to a decline 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 nine months of
1998, compared to the first nine months of 1997.
Site Built Construction:
Net sales to the site built construction market increased approximately
$36.5 million and $70.2 million in the third quarter and first nine months of
1998, respectively, compared to the same periods of 1997, due to increased unit
sales driven by Company's recent business combinations. Sales in the
21
<PAGE> 22
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
third quarter and first nine months of 1997 primarily represent the commercial
and residential sales of CBC.
Wholesale:
Net sales to the wholesale market decreased approximately $3.5 million,
or 16%, in the third quarter of 1998, compared to the third quarter of 1997. Net
sales to this market decreased $7.1 million, or 11%, for the first nine months
of 1998, compared to the first nine months of 1997. The decrease in sales for
the third quarter and the first nine 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 $6.4 million
and $14.7 million in the third quarter and first nine months of 1998, 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 its recent business combinations.
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales increased to 12.6% in the
third quarter of 1998 compared to 8.6% in the third quarter of 1997. Gross
profit as a percentage of net sales increased to 11.7% for the first nine months
of 1998 compared to 9.2% for the same period of 1997. These 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.
- - Increased sales of value-added products in certain regions of the country.
- - Increased sales of specialty wood packaging and components to the industrial
market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately
$10.5 million, or 66%, comparing the third quarter of 1998 to the same period of
1997. Selling, general and administrative expenses for the first nine months of
1998 increased approximately $21.6 million, or 46%, compared to the same period
of 1997. These increases were primarily due to:
22
<PAGE> 23
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- - Expenses added through business acquisitions, combined with the new wood
preservation facility in Lodi, Ohio.
- - 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 variable selling and marketing 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 $1.5 million, comparing the third quarter of 1998 to the
third 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. Net interest costs for the first nine months of 1998 increased
approximately $4.0 million compared to the same period of 1997 due to the
factors mentioned above, combined with short term borrowings to fund its working
capital requirements as average investment in inventories at its existing plants
increased during the first six month of 1998 in order to support strong second
quarter 1998 sales.
INCOME TAXES
The Company's effective tax rate is 38.7% for the third quarter of 1998
compared to 34.4% for the third 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 third quarter of
1998 due to an expected increase in state and local income taxes combined with a
permanent tax differences related to a recent acquisition. The Company's 1997
tax rate is unusually low due to 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 nine months of 1998 was 38.4%, compared to 35.3% 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
23
<PAGE> 24
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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 has incurred $446,000 in charges related to the
reorganization during the first nine months of 1998 and expects to incur an
additional $1.1 million for the balance of 1998. Capital expenditures related to
the reorganization totaled approximately $1.2 million in the third quarter of
1998, while remaining capital expenditures are expected to total $2.3 million
for the balance of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities for the first nine months
of 1998 improved to approximately $43.7 million versus the first nine months of
1997 when cash flows provided by operating activities totaled $23.5 million. The
increase in cash from operating activities was primarily due to a reduction in
inventory levels at the end of the third 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 47.3 days for the first nine months of 1998 from 42.8 days for the first nine
months of 1997, due in part to an increase in the Company's average investment
in inventories relative to sales.
Cash flows used in investing activities increased to approximately
$110.6 million for the first nine months of 1998, compared to approximately $9.2
million for the first nine months of 1997. The Company used approximately $92.9
million for business combinations. Capital expenditures totaled $18.0 million
for the first nine months of 1998, primarily to replace existing machinery and
equipment, expand current operating capacity, improve production efficiencies,
and set up conventional site built truss manufacturing lines at two existing
facilities. Also included in this total is approximately $3.1 million in capital
expenditures for two new facilities, and approximately $1.9 million in capital
expenditures at facilities recently acquired which were not included in the
Company's original budgeted capital expenditures. The Company plans to spend
approximately $24.0 million for the year on capital expenditures.
Cash flows provided by financing activities for the first nine 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 $95.6 million on
September 26, 1998, and had approximately $97.0 million which remained available
on such
24
<PAGE> 25
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
lines. Management is currently pursuing up to $250 million in available
long-term financing (variable and fixed rate) to replace its lines of credit,
including a five year revolving credit facility and private placement of debt.
In connection with this long term financing, the Company entered into a treasury
lock swap agreement on September 14, 1998, based on a 10 year U.S. Treasury rate
of 4.9%, a $50 million notional amount, and a determination date of December 18,
1998.
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 $2.1 million and $1.5 million at September 26, 1998 and
September 27, 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.
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>
Employee Stock Gift Program Various Common 125 Eligible officers None
and employees
</TABLE>
Item 5. Other Information
In connection with the solicitation by the Company of proxies for shares to be
voted at the Company's Annual Meeting of Shareholders in 1999, holders of such
proxies shall be entitled to exercise discretionary voting on any matters
submitted for consideration by shareholders, and not included in the Company's
Proxy Statement, unless the Company receives notice of the matter on or before
January 30, 1999. In addition, the Company's Bylaws contain certain notice and
procedural requirements applicable to shareholder proposals that are not to be
included in the Company's proxy materials in compliance with Rule 14a-8 of the
Securities Exchange Act of 1934. A copy of the Company's Bylaws has been filed
with the Securities and Exchange Commission and can be obtained from the public
reference section of the Commission or from the Company.
26
<PAGE> 27
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: November 10, 1998 By: /s/ William G. Currie
------------------- -----------------------------------------
William G. Currie
Its: President and Chief Executive Officer
Date: November 10, 1998 By: /s/ Elizabeth A. Bowman
------------------- -----------------------------------------
Elizabeth A. Bowman
Its: Executive Vice President of Finance and
Administration and Treasurer (Principal
Financial Officer)
27
<PAGE> 28
UNIVERSAL FOREST PRODUCTS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<C> <C> <C>
27.3QTR98 Financial Data Schedule 29
27.3QTR97 Financial Data Schedule 30
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> SEP-26-1998
<CASH> 2,285
<SECURITIES> 0
<RECEIVABLES> 84,403
<ALLOWANCES> 1,956
<INVENTORY> 104,242
<CURRENT-ASSETS> 195,101
<PP&E> 182,700
<DEPRECIATION> 60,024
<TOTAL-ASSETS> 416,315
<CURRENT-LIABILITIES> 180,951
<BONDS> 0
0
0
<COMMON> 20,706
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 416,315
<SALES> 967,945
<TOTAL-REVENUES> 967,945
<CGS> 854,178
<TOTAL-COSTS> 854,178
<OTHER-EXPENSES> 68,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,301
<INCOME-PRETAX> 37,718
<INCOME-TAX> 14,520
<INCOME-CONTINUING> 23,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,198
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
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