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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1997
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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.
(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
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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 August 1, 1997
-------------------------- --------------------------------
Common stock, no par value 17,172,533
Page 1 of 20
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INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets at June 28, 1997
and December 28, 1996. 3
Consolidated Condensed Statements of Earnings for the Three and
Six Months Ended June 28, 1997 and June 29, 1996. 4
Consolidated Condensed Statements of Cash Flows for the Six
Months Ended June 28, 1997 and June 29, 1996. 5
Notes to Consolidated Condensed Financial Statements. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8-15
Forward-Looking Statements and Risk Factors. 16
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Changes in Securities. 17
Item 3. Defaults Upon Senior Securities - NONE.
Item 4. Submission of Matters to a Vote of Security Holders. 18
Item 5. Other Information - NONE.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index. 20
(b) No reports were filed on Form 8-K during the
six months ended June 28, 1997.
2
3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 28, December 28,
1997 1996
------------ ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 807,178 $ 1,275,636
Accounts receivable ........................................... 70,008,803 32,102,276
Inventories:
Raw materials ............................................... 32,301,936 32,752,316
Finished goods .............................................. 68,641,614 55,767,455
------------- ------------
100,943,550 88,519,771
Other current assets .......................................... 5,015,234 4,659,749
------------- ------------
TOTAL CURRENT ASSETS ...................................... 176,774,765 126,557,432
OTHER ASSETS .................................................... 4,293,223 4,092,038
NON-COMPETE AGREEMENTS .......................................... 2,814,039 3,051,727
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment,
at cost. .................................................... 109,789,000 103,643,146
Accumulated depreciation
and amortization ............................................ (47,584,169) (43,967,364)
------------- ------------
PROPERTY, PLANT AND EQUIPMENT, NET ........................ 62,204,831 59,675,782
------------- ------------
$ 246,086,858 $193,376,979
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ................................................. $ 12,100,000
Accounts payable .............................................. 49,624,367 $ 14,100,269
Accrued liabilities:
Compensation and benefits ................................... 13,398,717 17,736,451
Income taxes ................................................ 1,815,006 810,927
Other ....................................................... 994,978 1,761,486
Current portion of long-term debt
and capital lease obligations................................ 3,158,474 3,652,900
------------- ------------
TOTAL CURRENT LIABILITIES ................................. 81,091,542 38,062,033
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current portion .......................................... 47,399,046 48,975,502
OTHER LIABILITIES ............................................... 6,385,713 6,461,643
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, 17,170,323 and 17,040,467 ........... 17,170,323 17,040,467
Additional paid-in capital .................................... 29,540,153 28,801,707
Retained earnings ............................................. 66,255,198 55,530,786
Foreign currency translation adjustment ....................... (846,407) (830,459)
------------- ------------
112,119,267 100,542,501
Officers' stock notes receivable............................... (908,710) (664,700)
------------- ------------
111,210,557 99,877,801
------------- ------------
$ 246,086,858 $193,376,979
============= ============
See notes to consolidated condensed financial statements.
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UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
------------------------------- -----------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
------- --------- -------- --------
NET SALES................................. $ 341,288,493 $ 275,727,249 $ 555,980,500 $ 435,308,166
COST OF GOODS SOLD ....................... 308,817,103 244,760,871 503,802,682 387,515,823
------------- -------------- -------------- --------------
GROSS PROFIT.............................. 32,471,390 30,966,378 52,177,818 47,792,343
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES................. 17,035,778 16,170,465 30,571,333 27,861,028
------------- -------------- -------------- --------------
EARNINGS FROM OPERATIONS.................. 15,435,612 14,795,913 21,606,485 19,931,315
OTHER EXPENSE (INCOME):
Interest expense......................... 1,219,253 1,017,646 2,233,769 2,045,691
Interest income.......................... (47,392) (119,504) (160,922) (289,679)
Other, net............................... (131,285) 121,389 (64,341) 103
------------- -------------- -------------- --------------
TOTAL OTHER EXPENSE ............. 1,040,576 1,019,531 2,008,506 1,756,115
------------- -------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES.............. 14,395,036 13,776,382 19,597,979 18,175,200
INCOME TAXES.............................. 5,374,768 5,579,000 7,322,638 7,361,000
------------- -------------- -------------- --------------
NET EARNINGS.............................. $ 9,020,268 $ 8,197,382 $ 12,275,341 $ 10,814,200
============= ============ ============== ==============
PRIMARY AND FULLY-DILUTED
EARNINGS PER SHARE............... $ .51 $ .46 $ .69 $ .61
WEIGHTED AVERAGE SHARES
OUTSTANDING...................... 17,811,000 17,658,000 17,820,000 17,663,000
See notes to consolidated condensed financial statements.
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5
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
-----------------------------------
June 28, June 29,
1997 1996
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................................. $12,275,341 $ 10,814,200
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization ............................. 4,434,083 4,109,978
Stock Gift Program expense ................................ 2,703 1,764
Loss on disposal of property, plant and equipment ......... 28,621 613
Change in:
Accounts receivable ..................................... (37,906,527) (36,637,552)
Inventories ............................................. (12,423,779) (12,127,131)
Other ................................................... (457,829) (80,756)
Accounts payable ........................................ 35,524,098 18,008,597
Accrued liabilities ..................................... (4,100,164) 1,927,298
----------- ------------
NET CASH USED IN OPERATING ACTIVITIES ................ (2,623,453) (13,982,989)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of notes receivable ................................ 202,914 177,571
Purchases of property, plant and equipment..................... (7,124,292) (4,549,359)
Proceeds from sale of property, plant and equipment ........... 132,578 49,770
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES ................... (6,788,800) (4,322,018)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of notes payable ............................... 12,100,000
Proceeds from issuance of common stock ........................ 548,109 258,652
Cash dividends paid to shareholders ........................... (515,108) (511,146)
Repayment of long-term debt ................................... (2,070,882) (1,965,794)
Repurchase of common stock .................................... (1,118,324) (821,882)
----------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ..... 8,943,795 (3,040,170)
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ..................... (468,458) (21,345,177)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................. 1,275,636 21,471,821
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 807,178 $ 126,644
=========== ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 2,173,368 $ 2,063,538
Income taxes ................................................ 6,318,554 4,151,771
NONCASH INVESTING ACTIVITIES:
Equipment acquired through long-term debt ..................... $ 59,000
See notes to consolidated condensed financial statements.
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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 and cash flows of the Company for the
interim periods presented. All such adjustments are of a normal recurring
nature. These Financial Statements should be read in conjunction with the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996.
Certain reclassifications have been made to the 1996 consolidated condensed
statement of earnings to conform to the classifications used in 1997.
B. EARNINGS PER COMMON SHARE
Earnings per common share have been computed based on the weighted average
number of common and common equivalent shares outstanding during the
periods presented, giving effect to options granted in 1989 and 1993,
utilizing the "treasury stock" method, as if the options were granted and
outstanding as of the earliest period presented. Primary and fully-diluted
earnings per common share were not materially different during the periods
presented. Weighted average shares outstanding are as follows:
Three Months Ended Six Months Ended
------------------------------- ------------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
--------- --------- --------- ---------
Issued and outstanding............. 17,122,000 17,020,000 17,089,000 17,021,000
Effect of stock options............ 689,000 638,000 731,000 642,000
---------- ---------- ---------- ----------
Weighted average shares
outstanding..................... 17,811,000 17,658,000 17,820,000 17,663,000
========== ========== ========== ==========
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UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) - CONTINUED
C. NEW ACCOUNTING STANDARDS
In March 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
currently required by Accounting Principles Board Opinion No. 15 ("APB No.
15"), "Earnings Per Share." Basic EPS is calculated as income available to
common stockholders 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 the "if converted" method for convertible
securities and the treasury stock method for options and warrants as
prescribed by APB No. 15. This new statement is effective for financial
statements issued for interim and annual periods ending after December 15,
1997. The Company does not believe the adoption of SFAS 128 in fiscal 1997
will have a significant impact on the Company's reported EPS.
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL IMPACT OF FLUCTUATIONS IN LUMBER PRICES
AND SEASONALITY
The Company experiences significant fluctuations in the cost of lumber products
from primary producers. The table below highlights such fluctuations for the
six months ended June 28, 1997 and June 29, 1996. A variety of factors over
which the Company has no control, including government regulations,
environmental regulations, weather conditions, and natural disasters, impact
the cost of lumber products. The Company anticipates these fluctuations will
continue in the future.
The following table presents the Random Lengths framing lumber composite price.
The composite price is a weighted average of nine key framing lumber prices
chosen from major producing areas and species. The composite price is designed
as a broad measure of price movement in the commodity lumber market ("Lumber
Market"). The effects of the Lumber Market on the Company's results of
operations are discussed below under the captions "Net Sales" and "Cost of
Goods Sold and Gross Profit."
Random Lengths
Average $/MBF
----------------
1997 1996
------- -------
January ......... $ 436 $ 329
February ........ 444 347
March ........... 433 353
April ........... 457 374
May ............. 444 420
June ............ 430 409
------- -------
Period Average .. $ 441 $ 372
======= =======
The Company's business is seasonal in nature and results of operations vary
from quarter to quarter. The demand for many of the Company's products is
highest during the period of April to August. Accordingly, the Company's sales
tend to be greater during its second and third quarters. To support this sales
peak, the Company builds its inventory of finished goods throughout the winter
and spring. Therefore, quantities of raw materials and finished goods
inventories tend to be at their highest, relative to sales, during the
Company's first and fourth quarters. As a result, the Company has some
exposure related to sharp declines in the Lumber Market during its primary
selling season. However, the Company maintains supply programs with vendors
which are intended to decrease its exposure. These programs have substantially
reduced the Company's investment in inventories, and include those materials
which are most susceptible to adverse changes in the Lumber Market.
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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 Condensed Statements of Earnings as a percentage of net
sales.
Three Months Ended Six Months Ended
-------------------- ------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
--------- --------- -------- --------
Net sales ..................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ............................ 90.5 88.8 90.6 89.0
--------- --------- -------- --------
Gross profit .................................. 9.5 11.2 9.4 11.0
Selling, general and administrative expenses .. 5.0 5.9 5.5 6.4
--------- --------- -------- --------
Earnings from operations ...................... 4.5 5.3 3.9 4.6
Other expense, net ............................ 0.3 0.3 0.4 0.4
--------- --------- -------- --------
Earnings before income taxes .................. 4.2 5.0 3.5 4.2
Income taxes .................................. 1.6 2.0 1.3 1.7
--------- --------- -------- --------
Net earnings .................................. 2.6% 3.0% 2.2% 2.5%
========= ========= ======== ========
NET SALES
The Company manufactures, treats and distributes lumber products to the
do-it-yourself (DIY), manufactured housing, wholesale lumber, and industrial
markets. Its sales comprise a single industry segment. The following table
presents, for the periods indicated, the Company's net sales (in thousands) and
percentage of total net sales by market classification.
Three Months Ended Six Months Ended
-------------------------------- ------------------------------------
June 28, June 29, June 28, June 29,
Market Classification 1997 % 1996 % 1997 % 1996 %
- --------------------- -------- ----- -------- ----- -------- ---- -------- ----
Do-It-Yourself ........ $197,305 57.8% $163,617 59.3% $290,120 52.2% $234,631 53.9%
Manufactured Housing .. 105,158 30.8 81,619 29.6 196,267 35.3 148,005 34.0
Wholesale Lumber ...... 19,676 5.8 17,313 6.3 34,603 6.2 29,601 6.8
Industrial ............ 19,150 5.6 13,178 4.8 34,990 6.3 23,071 5.3
-------- ------ -------- ------ -------- ------ -------- ------
Total ................. $341,289 100.0% $275,727 100.0% $555,980 100.0% $435,308 100.0%
======== ====== ======== ====== ======== ====== ======== ======
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Net Sales in the second quarter of 1997 increased $65.6 million, or 23.8%,
compared to the same period of 1996, reflecting an estimated 12% increase in
overall selling prices combined with an estimated 12% increase in the volume of
units shipped. Net sales in the first six months of 1997 increased $120.7
million, or 27.7%, compared to the same period of 1996 due to an estimated 16%
increase in overall selling prices combined with a 12% increase in the volume
of units shipped.
The Company's ratio of value-added product sales to total sales decreased
slightly to 31.4% in the second quarter of 1997 compared to 32.5% for the same
period in 1996. Comparing the first six months of 1997 with the same period of
1996, this ratio decreased slightly to 32.5% from 33.3%. Value-added product
sales consist primarily of items sold to the DIY market under the Company's
Fence Fundamentals(TM), Lattice Basics(TM), Deck Necessities(R), Outdoor
Essentials(R), Storage Solutions(TM), and YardLine(R) trade names, trusses sold
to the manufactured housing market, and all products sold to the industrial
market. The Company defines these products as "value-added" due to the higher
margins it generally recognizes on the sale of these products versus those
recognized on commodity-based products such as treated, untreated, and
remanufactured lumber. A long-term goal of the Company is to achieve a ratio
of value-added product sales to total sales of at least 50%.
Do-It-Yourself (DIY):
Net sales to the DIY market increased approximately $33.7 million, or 20.6%, in
the second quarter of 1997 compared to the same period of 1996, due to an
increase in the Lumber Market which increased overall selling prices of the
Company's commodity-based products, combined with an increase in unit sales of
commodity-based and value-added products. Net sales to the DIY market in the
first six months of 1997 increased $55.5 million, or 23.7%, compared to the
same period of 1996 due to these same factors.
The following table presents, for the periods indicated, the Company's value
added and commodity-based and distributed product sales to the DIY market, in
thousands:
Three Months Ended Six Months Ended
-------------------------------- --------------------------------
June 28, June 29, June 28, June 29,
1997 % 1996 % 1997 % 1996 %
-------- ----- -------- ---- -------- ---- ------- -----
Value-added product
sales ............. $ 59,852 30.3% $ 54,622 33.4% $ 92,965 32.0% $ 81,503 34.7%
Commodity-based and
distributed product
sales ............. 137,453 69.7 108,995 66.6 197,155 68.0 153,128 65.3
-------- ------ -------- ------ -------- ------ -------- ------
Total .............. $197,305 100.0% $163,617 100.0% $290,120 100.0% $234,631 100.0%
======== ====== ======== ====== ======== ====== ======== ======
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UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Although unit sales of value-added products increased, the Company's ratio of
value-added product sales to total sales decreased in the second quarter and
first six months of 1997 compared to the same periods of 1996, primarily due to
the effects of the higher Lumber Market on selling prices of commodity-based
products. Sales of these products are generally indexed to the Lumber Market,
while value-added products generally have fixed sales prices for a specified
time period or quantity. Therefore, a higher Lumber Market caused
commodity-based products to represent a proportionately higher percentage of
total DIY sales dollars.
Manufactured Housing (MH):
Net sales to the manufactured housing market increased approximately $23.5
million, or 28.8%, in the second quarter of 1997 compared to the same period in
1996, primarily due to an increase in unit sales as a result of the
acquisition of three plants from Hi-Tek Forest Products, Inc. on October 1,
1996 ("Hi-Tek"). Net sales to the manufactured housing market in the first six
months of 1997 increased $48.2 million, or 32.6%, compared to the same period
of 1996, due primarily to the new Hi-Tek plants.
The following table presents, for the periods indicated, the Company's truss
and commodity-based and distributed product sales to the manufactured housing
market, in thousands:
Three Months Ended Six Months Ended
-------------------------------- -------------------------------
June 28, June 29, June 28, June 29,
1997 % 1996 % 1997 % 1996 %
-------- ----- -------- ----- -------- ---- -------- ----
Truss sales ........ $ 29,030 27.6% $22,646 27.7% $ 54,152 27.6% $ 41,725 28.2%
Commodity-based and
distributed product
sales ............. 76,128 72.4 58,973 72.3 142,115 72.4 106,280 71.8
-------- ------ ------- ------ -------- ------ -------- ------
Total .............. $105,158 100.0% $81,619 100.0% $196,267 100.0% $148,005 100.0%
======== ====== ======= ====== ======== ====== ======== ======
The Company's ratio of truss sales to total sales in the second quarter and
first six months of 1997 compared to the same periods of 1996 remained flat.
Although unit sales of trusses increased, the effect of the higher Lumber
Market caused overall selling prices of commodity-based and distributed
products to increase in 1997, while regional competition prevented selling
prices of trusses from rising with the Lumber Market.
11
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Wholesale:
Net sales to the wholesale lumber market increased $2.4 million, or 13.7%, in
the second quarter of 1997 compared to the same period in 1996 primarily due to
the effect of the higher Lumber Market in 1997. The Company does not expect
unit sales to this market to increase in the foreseeable future as a result of
its goals to increase its ratio of value-added product sales to total sales,
and increase the Company's geographic coverage to sell directly to customers.
Net sales to this market in the first six months of 1997 increased $5.0
million, or 16.9%, compared to the same period of 1996.
Industrial:
Net sales to the industrial market increased $6.0 million, or 45.3%, in the
second quarter of 1997 compared to the same period in 1996. This increase was
primarily due to an increase in units shipped. In many cases, products sold to
this market are produced from the by-products of manufactured products sold to
other markets. Therefore, products produced for the industrial market provide
the Company with opportunities to improve its raw material yields. The Company
plans to grow its sales to this market in the future through internal expansion
and strategic acquisitions. New sales positions have been created to
exclusively serve and grow this market, and sales incentive programs have been
implemented to achieve this growth strategy. Net sales to this market in the
first six months of 1997 increased $11.9 million, or 51.7%, compared to the
same period of 1996 due to the same factors discussed above.
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales decreased to 9.5% in the second
quarter of 1997 compared to 11.2% in the same period of 1996. This decrease
was due to a combination of the following factors:
* The effect of the higher Lumber Market on the gross profit percentage of
the Company's commodity-based products. Selling prices of these
products are generally indexed to the Lumber Market, along with a fixed
dollar "adder" to cover production costs plus profit. Therefore, in a
stable but high Lumber Market, the Company's gross profit percentage will be
lower than the gross profit percentage it would realize with a stable but
low Lumber Market. This is the situation the Company encountered during the
second quarter of 1997, as the average monthly Random Lengths composite
price ranged from $21/MBF to $83/MBF higher compared to the second quarter
of 1996.
12
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- - The Lumber Market was on an upward trend in the second quarter of 1996,
compared to a stable to downward trending Lumber Market in the second quarter
of 1997. This resulted in a comparatively lower gross profit percentage on
the sale of commodity-based products in the second quarter of 1997 compared
to the same period of 1996.
- - The effect of the higher Lumber Market on the gross profit percentage of
the Company's value-added products. Selling prices of these products tend to
be fixed for a specific time period or quantity. Therefore, in periods of
high or increasing lumber costs, the Company's gross profit percentage will
decrease.
- - The effect of competition in the manufactured housing market in certain
geographic regions.
Gross profit as a percentage of net sales decreased to 9.4% for the first six
months of 1997 compared to 11.0% for the same period of 1996 due primarily to
the same factors discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased approximately $0.9
million, or 5.4%, comparing the second quarter of 1997 to the same period of
1996. This net increase was primarily due to:
- - General increases in selling and administrative head count.
- - Expenses added through the acquisition of Hi-Tek.
- - The creation of new centralized Marketing, National Sales, and
Manufacturing Design departments.
- - Increased depreciation expense related to upgraded information systems.
- - Increases in certain variable expenses related to sales.
These increases were offset by a decrease in accrued incentive compensation
expenses related to return on investment objectives. Selling, general and
administrative expenses for the first six months
13
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
of 1997 increased approximately $2.7 million, or 9.7%, compared to the same
period of 1996, primarily due to the same factors discussed above.
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 $275,000 comparing the second quarter of 1997 to the same period
of 1996, as average indebtedness increased due to increased working capital
requirements as a result of a growth in business. Net interest costs for the
first six months of 1997 increased approximately $317,000 compared to the same
period of 1996 due to the same factors.
INCOME TAXES
The Company's effective tax rate in the second quarter and first six months of
1997 was 37.4% in each period compared to 40.5% in each of the same periods of
1996. 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. Due to the reorganization it completed on
December 28, 1996 to formalize its existing operating structure, the Company
anticipates realizing a reduction in its state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities for the first six months of 1997
improved to $2.6 million from $14.0 million in the same period of 1996. This
improvement in cash flow used in operations was due to an increase in the
Company's net earnings, combined with a net decrease in its working capital
investment comparing June 28, 1997 and June 29, 1996. The Company's cash cycle
(days sales outstanding plus days supply of inventory less days payable
outstanding) remained flat at 43 days for the first six months of 1997 compared
to the same period of 1996.
Capital expenditures totaled $7.1 million in the first six months of 1997, as
the Company remains on pace to spend approximately $13 to $15 million for the
year to replace existing machinery and equipment, upgrade information systems,
improve production efficiencies, and expand current
14
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
production capacity. The largest capital expenditures were made to construct a
new wood preservation facility and specialty products plant in Moultrie,
Georgia and acquire real estate previously leased from the Company's profit
sharing and 401(k) plan.
Cash flows from financing activities consisted primarily of short-term
borrowings on lines of credit offset by repayments of long-term debt and
payments to repurchase common stock from certain officers of the Company. On
June 28, 1997, approximately $107 million remained available on revolving
credit facilities.
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 seventeen facilities throughout
the United States that chemically treat lumber products. In connection with
the ownership and operation of these and other real properties, and the
disposal or treatment of hazardous or toxic substances, the Company may, under
various federal, state, and local environmental laws, ordinances, and
regulations, be potentially liable for removal and remediation costs, as well
as other potential costs, damages, and expenses. Remediation activities are
currently being conducted at the Company's Granger, Indiana; Union City,
Georgia; and Elizabeth City, North Carolina wood preservation facilities.
The Company has accrued, in other long-term liabilities, amounts totaling $1.6
million and $1.7 million at June 28, 1997 and December 28, 1996, respectively,
representing the estimated costs to complete remediation efforts currently in
process and those expected to occur in the future. The Company believes 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.
15
16
UNIVERSAL FOREST PRODUCTS, INC.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Included in this report, and from time to time, certain forward-looking
statements may be made by the Company 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 are
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, rapid changes 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.
16
17
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.
Date of Class of Number Consideration
Sale Stock of Shares Purchasers Exchanged
-------- -------- --------- ----------------- -------------
Stock Option Exercises 04/12/97 Common 140,000 Eligible officers $364,400
Employee Stock Gift Program 05/19/97 Common 50 Eligible officers None
and employees
Employee Stock Gift Program 06/23/97 Common 50 Eligible officers None
and employees
17
18
UNIVERSAL FOREST PRODUCTS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The following matters were voted upon at the Company's Annual Meeting of
Shareholders on April 23, 1997.
(1) Election of the following Directors for three year terms expiring in 2000:
For Withheld
---------- ------------
Richard M. DeVos 11,999,023 9,168
John W. Garside 11,355,526 652,665
Peter F. Secchia 11,911,824 96,367
Other Directors whose terms of office continued after the meeting are
as follows:
William G. Currie
Philip M. Novell
Louis A. Smith
John C. Canepa
(2) Proposal to amend the Articles of Incorporation to authorize an
additional 15,000,000 shares of common stock.
For: 11,575,757
Against: 421,795
Abstain: 10,639
(3) Proposal to approve the Long Term Stock Incentive Plan.
For: 9,111,368
Against: 1,331,988
Abstain: 45,477
18
19
UNIVERSAL FOREST PRODUCTS, INC.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL FOREST PRODUCTS, INC.
Date: August 12, 1997 By:
----------------------------
William G. Currie
Its: President and Chief Executive
Officer
Date: August 12, 1997 By:
----------------------------
Elizabeth A. Bowman
Its: Executive Vice President of Finance
and Administration and Treasurer
(Principal Financial Officer)
19
20
UNIVERSAL FOREST PRODUCTS, INC.
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------------------- --------
27 Financial Data Schedule 21
20
5
6-MOS
DEC-27-1997
DEC-29-1996
JUN-28-1997
807,178
0
70,918,982
910,179
100,943,550
176,774,765
109,789,000
47,584,169
246,086,858
81,091,542
0
0
0
17,070,323
0
246,086,858
555,980,500
555,980,500
503,802,682
503,802,682
29,648,361
697,709
2,233,769
19,597,979
7,322,638
12,275,341
0
0
0
12,275,341
.69
.69
