<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 March 25, 2000
--------------
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 May 1, 2000
----------------------------- -----------------------------
Common stock, no par value 20,123,163
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Page 1 of 22
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets at March 25, 2000
and December 25, 1999. 3
Consolidated Condensed Statements of Earnings for the Three
Months Ended March 25, 2000 and March 27, 1999. 4
Consolidated Condensed Statements of Shareholders' Equity for the
Three Months Ended March 25, 2000 and March 27, 1999. 5
Consolidated Condensed Statements of Cash Flows for the Three
Months Ended March 25, 2000 and March 27, 1999. 6
Notes to Consolidated Condensed Financial Statements. 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Changes in Securities. 20
Item 3. Defaults Upon Senior Securities - NONE.
Item 4. Submission of Matters to a Vote of Security Holders - NONE.
Item 5. Other Information - NONE.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index. 22
(b) No reports were filed on Form 8-K during the three
months ended March 25, 2000.
</TABLE>
2
<PAGE> 3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands, except share data.)
<TABLE>
<CAPTION>
March 25, December 25,
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 2,405 $ 4,106
Accounts receivable (net of allowance for doubtful accounts of
$1,626 and $1,379)....................................................... 107,051 70,012
Inventories:
Raw materials......................................................... 54,275 44,722
Finished goods........................................................ 105,354 86,813
------------ -----------
159,629 131,535
Other current assets....................................................... 7,231 9,853
------------ -----------
TOTAL CURRENT ASSETS.............................................. 276,316 215,506
OTHER ASSETS.................................................................... 10,988 10,836
GOODWILL AND NON-COMPETE AGREEMENTS, NET........................................ 92,424 93,183
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost..................................... 229,170 222,742
Accumulated depreciation and amortization.................................. (76,738) (73,629)
------------ -----------
PROPERTY, PLANT AND EQUIPMENT, NET................................ 152,432 149,113
------------ -----------
TOTAL ASSETS.................................................................... $ 532,160 $ 468,638
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt............................................................ $ 1,428 $ 1,520
Accounts payable........................................................... 69,359 46,621
Accrued liabilities:
Compensation and benefits............................................. 17,457 32,491
Other ................................................................ 9,311 3,148
Current portion of long-term debt and capital lease obligations............ 7,277 7,402
------------ -----------
TOTAL CURRENT LIABILITIES......................................... 104,832 91,182
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion.............................................. 191,702 146,896
DEFERRED INCOME TAXES........................................................... 8,398 8,398
OTHER LIABILITIES............................................................... 8,264 7,600
------------ -----------
TOTAL LIABILITIES................................................. 313,196 254,076
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, 20,060,181 and 20,212,385............................... 20,060 20,212
Additional paid-in capital................................................. 78,709 78,625
Retained earnings.......................................................... 119,519 115,327
Accumulated other comprehensive earnings................................... 1,187 1,033
------------ -----------
219,475 215,197
Officers' stock notes receivable........................................... (511) (635)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY........................................ 218,964 214,562
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................... $ 532,160 $ 468,638
============ ===========
</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 data.)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 25, March 27,
2000 1999
----------- ----------
<S> <C> <C>
NET SALES.......................................................................... $ 304,072 $ 300,180
COST OF GOODS SOLD................................................................. 263,661 260,423
----------- ----------
GROSS PROFIT....................................................................... 40,411 39,757
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.......................................................... 27,318 28,385
----------- ----------
EARNINGS FROM OPERATIONS........................................................... 13,093 11,372
INTEREST, NET:
Interest expense.............................................................. 3,168 2,919
Interest income............................................................... (86) (149)
----------- ----------
3,082 2,770
----------- ----------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST
AND EQUITY IN EARNINGS OF INVESTEE............................................... 10,011 8,602
INCOME TAXES....................................................................... 3,953 3,355
----------- ----------
EARNINGS BEFORE MINORITY INTEREST AND EQUITY IN
EARNINGS OF INVESTEE............................................................. 6,058 5,247
MINORITY INTEREST.................................................................. (23) (81)
EQUITY IN EARNINGS OF INVESTEE..................................................... 46 195
----------- ----------
NET EARNINGS....................................................................... $ 6,081 $ 5,361
=========== ==========
EARNINGS PER SHARE - BASIC......................................................... $ 0.30 $ 0.26
EARNINGS PER SHARE - DILUTED....................................................... $ 0.30 $ 0.25
WEIGHTED AVERAGE SHARES OUTSTANDING............................................... 20,135 20,710
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON
STOCK EQUIVALENTS................................................................ 20,524 21,415
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share data.) Accumulated Officers'
Additional Other Stock
Common Paid-In Retained Comprehensive Notes
Stock Capital Earnings Earnings Receivable Total
---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF 12/25/99................ $ 20,212 $ 78,625 $ 115,327 $ 1,033 ($ 635) $ 214,562
Comprehensive earnings:
Net earnings.................... 6,081
Foreign currency translation
adjustment.................... 154
Total comprehensive earnings...... 6,235
Issuance of 7,296 shares.......... 7 84 91
Repurchase of 159,500 shares...... (159) (1,889) (2,048)
Payments received on officers'
stock notes receivable.......... 124 124
---------- ---------- --------- --------- -------- ----------
BALANCE AS OF 3/25/00................. $ 20,060 $ 78,709 $ 119,519 $ 1,187 ($ 511) $ 218,964
BALANCE AS OF 12/26/98................ $ 20,710 $ 77,526 $ 95,221 ($ 1,072) ($ 802) $ 191,583
Comprehensive earnings:
Net earnings.................... 5,361
Foreign currency translation
adjustment.................... 303
Total comprehensive earnings...... 5,664
Issuance of 5,237 shares.......... 6 92 98
Repurchase of 50,000 shares....... (50) (887) (937)
Payments received on officers'
stock notes receivable.......... 153 153
---------- ---------- --------- --------- -------- ----------
BALANCE AS OF 3/27/99................. $ 20,666 $ 77,618 $ 99,695 ($ 769) ($ 649) $ 196,561
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands.)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 25, March 27,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................................................... $ 6,081 $ 5,361
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation................................................................. 3,830 3,571
Amortization of non-compete agreements and goodwill.......................... 791 821
(Gain) loss on sale of property, plant and equipment......................... (88) 17
Changes in:
Accounts receivable........................................................ (37,040) (29,767)
Inventories................................................................ (28,095) (40,314)
Accounts payable........................................................... 22,737 21,755
Accrued liabilities and other.............................................. (5,089) (3,109)
------------ ------------
NET CASH FROM OPERATING ACTIVITIES........................................... (36,873) (41,665)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment........................................ (7,271) (9,746)
Proceeds from sale of property, plant and equipment............................... 209
Other............................................................................. (261) 831
------------ ------------
NET CASH FROM INVESTING ACTIVITIES........................................... (7,323) (8,915)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt....................................................... (379) (836)
Proceeds from issuance of long-term debt.......................................... 1,949 20,300
Net borrowings under revolving credit facilities and notes payable................ 42,908 33,262
Proceeds from issuance of common stock............................................ 65 60
Repurchase of common stock........................................................ (2,048) (937)
------------ ------------
NET CASH FROM FINANCING ACTIVITIES........................................... 42,495 51,849
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS........................................... (1,701) 1,269
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................................... 4,106 920
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................................... $ 2,405 $ 2,189
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest..................................................................... $ 611 $ 455
Income taxes................................................................. (2,913) (1,439)
NON-CASH FINANCING ACTIVITIES:
Accounts receivable exchanged for a note receivable............................... $ 441
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE> 7
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 and majority-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 transactions and
balances have been eliminated. The equity method of accounting has been
used for the Company's 50% or less owned affiliates over which the
Company has the ability to exercise a significant influence.
In the opinion of management, the Financial Statements contain all
material adjustments necessary to present fairly the consolidated
financial position, results of operations and cash flows, and changes in
shareholders' equity 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 consolidated financial
statements, and footnotes thereto, included in the Company's Annual
Report to Shareholders on Form 10-K for the fiscal year ended December
25, 1999.
Certain reclassifications have been made to the Financial Statements for
1999 to conform to the classifications used in 2000.
B. EARNINGS PER COMMON SHARE
A reconciliation of the changes in the numerator and the denominator from
the calculation of basic EPS to the calculation of diluted EPS follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended 03/25/00 Three Months Ended 03/27/99
---------------------------------- ----------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
NET EARNINGS................... $ 6,081 $ 5,361
EPS - BASIC
Income available to
common stockholders.......... 6,081 20,135 $0.30 5,361 20,710 $0.26
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 389 705
--------- --------
EPS - DILUTED
Income available to common
stockholders and assumed
options exercised............ $ 6,081 20,524 $0.30 $ 5,361 21,415 $0.25
========= ========= ===== ========= ======== =====
</TABLE>
7
<PAGE> 8
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Options to purchase 664,362 shares of common stock at exercise prices
ranging from $13.18 to $36.01 were outstanding at March 25, 2000, 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 OPTIONS AND STOCK-BASED COMPENSATION
Options to purchase 40,000 and 60,000 shares were granted in the three
months ended March 25, 2000 and March 27, 1999, respectively, at exercise
prices which exceeded the market price on the date of grant.
Weighted-average exercise prices were $21.56 and $29.31 for options
granted in the three month periods ended March 25, 2000 and March 27,
1999, respectively.
As permitted under Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," the Company
continues to apply the provisions of APB Opinion No. 25 which recognizes
compensation expense under the intrinsic value method. Had compensation
cost for the stock options granted in the first quarter of 2000 and the
first quarter of 1999 been determined under 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 data).
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 25, March 27,
2000 1999
----------------- -------------------
<S> <C> <C>
Net Earnings:
As Reported......... $6,081 $5,361
Pro Forma........... 5,933 5,306
EPS - Basic:
As Reported......... $0.30 $0.26
Pro Forma........... $0.29 $0.26
EPS - Diluted:
As Reported......... $0.30 $0.25
Pro Forma........... $0.29 $0.25
</TABLE>
The fair value of each option granted in the three months ended March 25,
2000 and March 27, 1999 is estimated on the date of the grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions.
2000
----
Risk Free Interest Rate............. 6.20%
Expected Life....................... 5.7 years
Expected Volatility................. 27.17%
Expected Dividend Yield............. 0.40%
8
<PAGE> 9
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Stock option activity for the three months ended March 25, 2000 is as
follows:
<TABLE>
<CAPTION>
Shares of Weighted-
Common Stock Average
Attributable to Exercise Price
Options of Options
------------------- -----------------
<S> <C> <C>
Outstanding on December 25, 1999 1,317,515 $12.66
Granted 355,964 $13.58
Exercised 0 n/a
Forfeited (70,065) $16.42
------------------------------------------ -------------------
Outstanding on March 25, 2000 1,603,414 $12.72
===================
</TABLE>
The following table summarizes information concerning options on March
25, 2000 (there are no options exercisable at March 25, 2000):
<TABLE>
<CAPTION>
Weighted-Average Remaining
Range of Exercise Prices Number Outstanding Contractual Life
------------------------ ------------------ --------------------------
<S> <C> <C>
$4.25 - $10.00 652,500 3.31
$10.01 - $25.00 840,914 5.00
$25.01 - $36.01 110,000 11.27
----------
1,603,414
==========
</TABLE>
D. SUBSEQUENT EVENTS
On March 29, 2000, the Company and Aljoma Lumber, Inc. announced its
intention to acquire certain assets of Aljoma Lumber, Inc. The proposed
transaction is subject to certain conditions, including the execution of
a definitive agreement, completion of normal due diligence and approval
of the Board of Directors. With plants located in Medley, Florida and
Ponce, Puerto Rico, Aljoma Lumber is a leading supplier of pressure
treated lumber and specialty wood products to South Florida and Carribean
markets.
On April 12, 2000, the Company announced its intention to acquire the
lumber treating facilities of Walker-Williams Lumber Company located in
Youngstown, OH; Blanchester, OH; and Westville, IN. The proposed
transaction is subject to certain conditions, including the execution of
a definitive agreement, completion of normal due diligence and approval
of the Board of Directors.
On April 17, 2000, the Company acquired fifty percent of the stock of
ECJW Holdings, Inc. and its two subsidiaries, Thorndale Roof Systems,
Inc. and Edcor Floor Systems, Inc. in exchange for $3.1 million. The
terms of the agreement allow for the remaining fifty percent of the stock
to be sold to the Company in 2001. Thorndale Roof Systems, Inc.
manufactures engineered roof trusses for residential and light commercial
building applications. Edcor Floor Systems, Inc. is a licensed
manufacturer of the patented Open Joist(TM) web floor truss system.
Located in London, Ontario, Canada, both companies service Ontario,
Eastern Michigan and Northern Ohio, including the major markets of
Detroit and Toronto.
9
<PAGE> 10
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. The forward-looking
statements are based on the beliefs and assumptions of management of the Company
together with information available to the Company when the statements were
made. Future results could differ materially from those included in such
forward- looking statements as a result of, among other things, the factors set
forth below and certain economic and business factors which may be beyond 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 commodity
lumber products from primary producers. A variety of factors over which the
Company has no control, including government regulations, environmental
regulations, weather conditions, economic conditions and natural disasters,
impact the cost of lumber products and the Company's selling prices. The Company
attempts to minimize its risk from severe price fluctuations. However, prolonged
trends in lumber prices can affect the Company's financial results. The Company
anticipates that price fluctuations will continue in the future. The Company
relies on the Random Lengths composite price (see "Fluctuations in Lumber
Prices"), which is a weighted average of nine key framing lumber prices chosen
from major producing areas and species, as a broad measure of price movement in
the commodity lumber market ("Lumber Market").
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 of the
markets it serves. If the Company's markets do not achieve anticipated growth,
or if the Company fails to maintain its market share, financial results could be
impaired. Certain segments of the manufactured housing industry served by the
Company have an oversupply of product. The Company has planned for a modest
reduction in sales and production, but if the manufactured housing industry
enters into a prolonged downturn, it could adversely affect the Company's
operating results.
10
<PAGE> 11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Economic Trends:
Management believes the Company's ability to achieve growth in sales and
margins to the site-built construction market is somewhat dependent on housing
starts. If housing starts decline significantly, the Company's financial results
could be impacted.
Business Combinations:
A key component of the Company's growth strategy is to complete business
combinations. Business combinations involve inherent risks, including
assimilation and successfully managing growth. While the Company conducts
extensive due diligence and has taken steps to ensure successful assimilation,
factors beyond the Company's control could influence the results of these
acquisitions.
Consolidation:
The Company, like most companies, is witnessing consolidation by its
customers. These consolidations will result in a larger portion of the Company's
sales being made to some customers. Consolidation may limit the number of
customers the Company is able to serve.
Government Regulations:
The Company is subject to a variety of government regulations which
create a financial burden on the Company. If additional laws and regulations are
enacted in the future, or if existing laws are interpreted differently, it could
increase the financial cost to the Company.
Weather Conditions:
The majority of the Company's products are used in outdoor construction
activities, therefore its sales volume and profits can be negatively affected by
adverse weather conditions. In addition, adverse weather conditions can
negatively impact its productivity and costs per unit.
Seasonality:
Some aspects of the Company's business are seasonal in nature and results
of operations vary from quarter to quarter. The Company's treated lumber and
outdoor specialty products, such as fencing, decking and lattice, experience the
greatest seasonal effects. Sales of treated lumber, primarily consisting of
Southern Yellow Pine ("SYP"), also experience the greatest Lumber Market risk.
Treated lumber sales are generally at their highest levels between the months of
April through August. This sales peak, combined with capacity constraints in the
wood treatment process, requires the Company to build its inventory of treated
lumber throughout the winter and spring. Since sales prices of treated lumber
products are generally indexed to the Lumber Market at the time they are
11
<PAGE> 12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
shipped, the Company's profits can be negatively affected by prolonged declines
in the Lumber Market during its primary selling season. To mitigate this risk,
programs are maintained with certain vendors and customers that are intended to
decrease the Company's exposure. These programs include those materials which
are most susceptible to adverse changes in the Lumber Market. Vendor programs
also allow the Company to carry a lower investment in inventories.
E-Business/E-Commerce:
While the Company has invested heavily in technology and established
electronic business-to- business efficiencies with certain customers and
vendors, the willingness of customers and vendors to modify existing
distribution strategies poses a potential risk. The Company believes the nature
of its products, together with the value-added services the Company provides,
ensure that it has a solid position in the supply chain.
When analyzing this report to assess the future performance of the Company,
please recognize the potential impact of the various factors set forth above.
FLUCTUATIONS IN LUMBER PRICES
The following table presents the Random Lengths framing lumber composite
price for the three months ended March 25, 2000 and March 27, 1999:
<TABLE>
<CAPTION>
Random Lengths Composite
Average $/MBF
------------------------
2000 1999
---- ----
<S> <C> <C>
January............................ $386 $370
February........................... 385 386
March.............................. 382 394
First quarter average.............. $384 $383
First quarter percentage
increase from 1999............... 0.3%
</TABLE>
In addition, a SYP composite price, prepared and used by the Company, is
presented below. Sales of products produced using this species comprise up to
fifty percent of the Company's sales volume.
12
<PAGE> 13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
Random Lengths SYP
Average $/MBF
-------------
2000 1999
---- ----
<S> <C> <C>
January............................ $488 $471
February........................... 490 497
March.............................. 494 513
First quarter average.............. $491 $494
First quarter percentage
decrease from 1999............. -0.6%
</TABLE>
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."
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components
of the Company's Consolidated Condensed Statement of Earnings as a percentage of
net sales.
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
March 25, 2000 March 27, 1999
-------------- --------------
<S> <C> <C>
Net sales................................................... 100.0% 100.0%
Cost of goods sold.......................................... 86.7 86.7
------ ------
Gross profit................................................ 13.3 13.3
Selling, general, and administrative expenses............... 9.0 9.5
------ ------
Earnings from operations.................................... 4.3 3.8
Interest, net............................................... 1.0 0.9
------ ------
Earnings before income taxes, minority interest
and equity in earnings of investee.......................... 3.3 2.9
Income taxes................................................ 1.3 1.1
------ ------
Earnings before minority interest and equity
in earnings of investee..................................... 2.0 1.8
Minority interest........................................... 0.0 0.0
Equity in earnings of investee.............................. 0.0 0.0
------ ------
Net earnings................................................ 2.0% 1.8%
====== ======
</TABLE>
13
<PAGE> 14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
NET SALES
The Company engineers, manufactures, treats and distributes lumber and
other building products to the do-it-yourself ("DIY"), manufactured housing,
wholesale lumber, industrial and conventional site-built construction markets.
The Company's strategic sales objectives include:
- - Diversifying the Company's end market sales mix by increasing its sales of
specialty wood packaging to industrial users and engineered wood products to
the site-built construction market. Engineered wood products include roof
trusses, wall panels and engineered floor systems.
- - Increasing sales of "value-added" products. Value-added product sales
consist of fencing, decking, lattice and other specialty products sold to
the DIY market; specialty wood packaging; and engineered wood products. A
long-term goal of the Company is to achieve a ratio of value-added sales to
total sales of at least 50%. Although the Company considers the treatment of
dimensional lumber with certain chemical preservatives a value-added
process, treated lumber is not presently included as a component of
value-added sales.
- - Maximizing profitable top-line sales growth while increasing DIY market
share.
- - Maintaining manufactured housing market share.
In order to measure its progress toward attaining these objectives,
management analyzes the following financial data:
- - 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.
The following table presents, for the periods indicated, the Company's
net sales (in thousands) and percentage of total net sales by market
classification.
14
<PAGE> 15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
March 25, March 27,
Market Classification 2000 % 1999 %
- --------------------- -------- ------ -------- ------
<S> <C> <C> <C> <C>
DIY............................ $134,280 44.2% $120,177 40.2%
Manufactured Housing........... 78,182 25.7 96,258 32.0
Site-Built Construction........ 48,615 16.0 47,507 15.8
Industrial..................... 26,380 8.7 20,136 6.6
Wholesale Lumber............... 16,615 5.4 16,102 5.4
-------- ------ -------- ------
Total.......................... $304,072 100.0% $300,180 100.0%
======== ====== ======== ======
</TABLE>
The following table estimates, for the periods indicated, the Company's
percentage change in net sales which were attributable to changes in overall
selling prices versus changes in units shipped.
<TABLE>
<CAPTION>
% Change
-----------------------------------------------
in Sales in Selling Prices in Units
-------- ------------------- ----------
<S> <C> <C> <C>
First quarter 2000 versus 1999.............. +1% +0% +1%
First quarter 1999 versus 1998.............. +26% -6% +32%
</TABLE>
The Company estimates that its net sales increase was attributable to
overall increases in units sold in the first quarter of 2000 compared to 1999.
The Lumber Market was flat on average during the same period.
The following table presents, for the periods indicated, the Company's
percentage of value-added and commodity-based sales to total sales.
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------
March 25, 2000 March 27, 1999
-------------- --------------
<S> <C> <C>
Value-Added........................... 40.9% 41.0%
Commodity-Based....................... 59.1% 59.0%
</TABLE>
This ratio remained substantially unchanged from the first quarter of
1999 as a decline in sales of trusses to the manufactured housing market was
offset by an increase in sales of engineered wood products and fencing.
DIY:
Net sales to the DIY market increased approximately $14.1 million, or
11.7%, in the first quarter of 2000 compared to the same period of 1999. This
increase is primarily due to an increase in unit sales to the Company's largest
customer. This sales increase was partially offset by a reduction in sales to
three national customers.
15
<PAGE> 16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Manufactured Housing:
Net sales to the manufactured housing market decreased approximately
$18.1 million, or 18.8%, in the first quarter of 2000 compared to the same
period of 1999, primarily due to a decrease in unit sales to certain large
customers. These customers continued to reduce production in the first quarter
of 2000 due to an oversupply of finished homes at the retail level. The industry
expects this situation to continue for the remainder of the year.
Site-Built Construction:
Net sales to the site-built construction market increased approximately
$1.1 million, or 2.3%, in the first quarter of 2000 compared to the same period
of 1999. This increase is due to sales from several new facilities which opened
after the first quarter of 1999, offset by a decline in sales due to adverse
weather conditions in the Mid-Atlantic states in the first quarter of 2000.
Industrial:
Net sales to the industrial market increased approximately $6.2 million,
or 31.0%, in the first quarter of 2000 compared to the same period of 1999. This
increase was primarily due to increased market share in several regions due to
continued focus on growth, combined with the effects of redirecting sales
efforts and manufacturing capacity at certain plants as a result of the downturn
in the manufactured housing market.
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales increased slightly in the first
quarter of 2000 compared to the same period of 1999. This increase was primarily
due to increased sales of certain higher margin products relative to total
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased approximately $1.1
million, or 3.8%, comparing the first quarter of 2000 to the same period of 1999
primarily due to a reduction in research and development related costs.
INTEREST, NET
Net interest costs increased approximately $0.3 million comparing the
first quarter of 2000 to the same period of 1999. This increase is primarily due
to a higher average debt balance as a result of increased working capital
requirements, combined with an increase in short-term, variable borrowing rates.
16
<PAGE> 17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
INCOME TAXES
The Company's effective tax rate was 39.5% in the first quarter of 2000
compared to 39.0% in the same period of 1999. Effective tax rates differ from
statutory federal income tax rates, primarily due to:
- - Provisions for state and local income taxes.
- - Permanent tax differences.
This increase is primarily due to an estimated increase in state and
local income taxes which can vary from year to year based on changes in income
generated by the Company in each of the states in which it operates.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities for the first quarter of 2000
totaled approximately $36.9 million compared to $41.7 million in the same period
of 1999. This improvement was primarily due to a change in the Company's buying
practices for certain inventory from December of 1999 through March of 2000
compared to the same period of the prior year. This positive cash flow effect
related to inventory was offset by an increase in accounts receivable resulting
from strong sales in March of 2000.
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 good
indicator of its working capital management. The Company's cash cycle increased
to 52 days in the first quarter of 2000 from 49 days in the first quarter of
1999, primarily due to a change in inventory buying practices on certain
products, offset by the effect of obtaining extended terms from certain vendors.
Capital expenditures totaled $7.3 million in the first quarter of 2000
compared to $9.7 million in the same period of 1999. The decrease was primarily
due to higher capital expenditures related to new facilities and an investment
in a fractional ownership of an airplane in 1999. The Company expects to spend
between $20 million and $25 million on capital expenditures for the balance of
2000, which includes outstanding purchase commitments on capital projects
totaling approximately $6.8 million on March 25, 2000. The Company intends to
satisfy these commitments utilizing its revolving credit facility.
In April of 2000, the Company announced its intention to acquire certain
operating assets of lumber treating facilities located in Youngstown, OH;
Blanchester, OH; and Westville, IN from Walker-Williams Lumber Company, and two
combination lumber treating and remanufacturing facilities
17
<PAGE> 18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
located in Medley, FL and Ponce, Puerto Rico from Aljoma Lumber, Inc. Completion
of each transaction is subject to normal due diligence and Board approval. In
addition, on April 17, 2000, the Company acquired fifty percent of the
outstanding shares of ECJW Holdings, Inc. of London, Ontario, and its
wholly-owned subsidiaries, Thorndale Roof Systems and Edcor Floor Systems. The
terms of the agreement allow for the remaining fifty percent to be sold to the
Company in 2001. The Company plans to use its revolving credit facility to
finance each transaction. On March 25, 2000, the Company had $54.8 million
outstanding on its $175 million revolving credit facility.
Cash flows provided by financing activities decreased to $42.5 million in
the first quarter of 2000 from $51.8 million in the same period of 1999,
primarily due to the increase in operating cash flow discussed above.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
The Company is self-insured for environmental impairment liability, and
accrues for the estimated cost of monitoring or remediation activities. As of
May 1, 2000, the Company owns and/or operates nineteen wood preserving
facilities throughout the United States that treat lumber products with a
chemical preservative. In accordance with applicable federal, state and local
environmental laws, ordinances and regulations, the Company may be potentially
liable for costs and expenses related to the environmental condition of the
Company's real property. The Company has established reserves for remediation
activities at its North East, MD; Union City, GA; Stockertown, PA; Elizabeth
City, NC; Auburndale, FL; and Schertz, TX facilities.
The Company has accrued, in other long-term liabilities, amounts totaling
$2.3 million on March 25, 2000 and March 27, 1999 for the activities described
above. 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.
18
<PAGE> 19
UNIVERSAL FOREST PRODUCTS, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks related to fluctuations in
interest rates on its variable rate debt, which consists of a revolving credit
facility and industrial development revenue bonds. The Company does not
currently use interest rate swaps, futures contracts or options on futures, or
other types of derivative financial instruments to mitigate this risk.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. The Company does not have an
obligation to prepay fixed rate debt prior to maturity, and as a result,
interest rate risk and changes in fair market value should not have a
significant impact on such debt until the company would be required to refinance
it.
19
<PAGE> 20
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(a) None.
(b) None.
(c) Sales of equity securities in the first quarter 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 Gift Program Various Common 50 Eligible persons None
Directors' Stock Grant Program 01/04/00 Common 1,700 Directors Director
services
</TABLE>
20
<PAGE> 21
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: May 5, 2000 By: /s/ William G. Currie
-------------------- -----------------------------------------------
William G. Currie
Its: Vice Chairman of the Board and Chief Executive
Officer
Date: May 5, 2000 By: /s/ Michael R. Cole
-------------------- -----------------------------------------------
Michael R. Cole
Its: Vice President of Finance and Acting Chief
Financial Officer
21
<PAGE> 22
UNIVERSAL FOREST PRODUCTS, INC.
EXHIBIT INDEX
Exhibit No. Description Page No.
27.1QTR00 Financial Data Schedule 23
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> DEC-26-1999
<PERIOD-END> MAR-25-2000
<CASH> 2,405
<SECURITIES> 0
<RECEIVABLES> 107,051
<ALLOWANCES> 1,626
<INVENTORY> 159,629
<CURRENT-ASSETS> 276,316
<PP&E> 229,170
<DEPRECIATION> 76,738
<TOTAL-ASSETS> 532,160
<CURRENT-LIABILITIES> 104,832
<BONDS> 0
0
0
<COMMON> 20,060
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 532,160
<SALES> 304,072
<TOTAL-REVENUES> 304,072
<CGS> 263,661
<TOTAL-COSTS> 263,661
<OTHER-EXPENSES> 27,318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,168
<INCOME-PRETAX> 10,011
<INCOME-TAX> 3,953
<INCOME-CONTINUING> 6,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,081
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
</TABLE>
