================================================================================ 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 28, 2002 ------------------ 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 October 15, 2002 -------------------------- ---------------------------------- Common stock, no par value 17,736,708 ================================================================================ Page 1 of 30
INDEX PAGE NO. PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. Consolidated Condensed Balance Sheets at September 28, 2002 and December 29, 2001. 3 Consolidated Condensed Statements of Earnings for the Three and Nine Months Ended September 28, 2002 and September 29, 2001. 4 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 28, 2002 and September 29, 2001. 5 Notes to Consolidated Condensed Financial Statements. 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10-22 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 4. Controls and Procedures. 24 PART II. OTHER INFORMATION. Item 1. Legal Proceedings - NONE. Item 2. Changes in Securities and Use of Proceeds. 25 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. 26 CERTIFICATION OF VICE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. 28 CERTIFICATION OF CHIEF FINANCIAL OFFICER. 29 2
UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (in thousands, except share data) September 28, December 29, 2002 2001 ---------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents.................................................. $ 12,800 $ 22,887 Accounts receivable (net of allowance for doubtful accounts of $2,702 and $1,803)....................................................... 149,962 86,256 Inventories: Raw materials......................................................... 43,806 41,061 Finished goods........................................................ 85,035 79,708 ------------ ----------- 128,841 120,769 Other current assets....................................................... 3,279 5,054 ------------ ----------- TOTAL CURRENT ASSETS.............................................. 294,882 234,966 OTHER ASSETS.................................................................... 6,311 11,585 GOODWILL........................................................................ 120,333 119,550 NON-COMPETE AND LICENSING AGREEMENTS (net of accumulated amortization of $2,214 and $3,644)......................................... 4,764 3,446 PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment.............................................. 311,652 286,883 Accumulated depreciation and amortization.................................. (120,303) (105,221) ------------ ----------- PROPERTY, PLANT AND EQUIPMENT, NET................................ 191,349 181,662 ------------ ----------- TOTAL ASSETS.................................................................... $ 617,639 $ 551,209 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt............................................................ $ 1,494 $ 1,402 Accounts payable........................................................... 76,303 46,862 Accrued liabilities: Compensation and benefits............................................. 38,092 34,029 Other ................................................................ 12,507 8,187 Current portion of long-term debt and capital lease obligations............ 18,645 20,415 ------------ ----------- TOTAL CURRENT LIABILITIES......................................... 147,041 110,895 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion............................................................ 185,091 154,370 DEFERRED INCOME TAXES........................................................... 10,320 9,580 MINORITY INTEREST............................................................... 7,558 2,405 OTHER LIABILITIES............................................................... 7,715 7,097 ------------ ----------- TOTAL LIABILITIES................................................. 357,725 284,347 TEMPORARY SHAREHOLDERS' EQUITY: Value of shares subject to redemption agreement; 2,000,000 shares issued and outstanding................................................... 36,000 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, 17,816,613 and 17,787,860............................... 17,817 17,788 Additional paid-in capital................................................. 81,970 80,994 Retained earnings.......................................................... 161,850 132,677 Accumulated other comprehensive earnings................................... (322) 558 ----------- ----------- 261,315 232,017 Officers' stock notes receivable........................................... (1,401) (1,155) ------------ ----------- TOTAL SHAREHOLDERS' EQUITY........................................ 259,914 230,862 ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................... $ 617,639 $ 551,209 ============ =========== See notes to consolidated condensed financial statements. 3
UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share data) Three Months Ended Nine Months Ended --------------------------- ------------------------------ September 28, September 29, September 28, September 29, 2002 2001 2002 2001 ------------ -------------- ------------ -------------- NET SALES................................................... $ 452,959 $ 431,861 $1,299,559 $1,201,083 COST OF GOODS SOLD.......................................... 391,294 375,679 1,117,994 1,035,385 ---------- ---------- ---------- ---------- GROSS PROFIT................................................ 61,665 56,182 181,565 165,698 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................................. 41,148 37,525 120,291 108,667 ---------- ---------- ---------- ---------- EARNINGS FROM OPERATIONS.................................... 20,517 18,657 61,274 57,031 OTHER EXPENSE (INCOME): Interest expense....................................... 2,542 2,948 8,497 9,686 Interest income........................................ (31) (151) (196) (468) Gain on sale of assets................................. (1,082) ---------- ---------- ---------- ---------- 2,511 2,797 7,219 9,218 ---------- ---------- ---------- ---------- EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND EQUITY IN EARNINGS OF INVESTEE.............................................. 18,006 15,860 54,055 47,813 INCOME TAXES................................................ 6,678 5,519 20,051 17,554 ---------- ---------- ---------- ---------- EARNINGS BEFORE MINORITY INTEREST AND EQUITY IN EARNINGS OF INVESTEE............................ 11,328 10,341 34,004 30,259 MINORITY INTEREST........................................... (684) (618) (1,924) (1,479) EQUITY IN EARNINGS OF INVESTEE.............................. 85 243 ---------- ---------- ---------- ---------- REPORTED NET EARNINGS....................................... $ 10,644 $ 9,808 $ 32,080 $ 29,023 ADD: Goodwill amortization, net of tax................. 774 2,231 ---------- ---------- ---------- ---------- ADJUSTED NET EARNINGS.................................. $ 10,644 $ 10,582 $ 32,080 $ 31,254 ========== ========== ========== ========== REPORTED EARNINGS PER SHARE - BASIC......................... $ 0.60 $ 0.50 $ 1.78 $ 1.47 ADD: Goodwill amortization, net of tax................. 0.04 0.11 ---------- ---------- ---------- ---------- ADJUSTED EARNINGS PER SHARE - BASIC.................... $ 0.60 $ 0.53 $ 1.78 $ 1.58 ========== ========== ========== ========== REPORTED EARNINGS PER SHARE - DILUTED....................... $ 0.58 $ 0.48 $ 1.71 $ 1.43 ADD: Goodwill amortization, net of tax................. 0.04 0.11 ---------- ---------- ---------- ---------- ADJUSTED EARNINGS PER SHARE - DILUTED.................. $ 0.58 $ 0.52 $ 1.71 $ 1.54 ========== ========== ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING......................... 17,845 19,803 17,980 19,769 WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON STOCK EQUIVALENTS............................. 18,427 20,450 18,719 20,360 See notes to consolidated condensed financial statements. 4
UNIVERSAL FOREST PRODUCTS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended ---------------------------- September 28, September 29, 2002 2001 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings .................................................................... $ 32,080 $ 29,023 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation................................................................. 17,235 14,586 Amortization of intangible assets............................................ 851 3,348 Deferred income taxes........................................................ (246) 13 (Gain) loss on sale or impairment of property, plant, and equipment.......... (152) 588 Changes in: Accounts receivable........................................................ (61,235) (52,660) Inventories................................................................ (6,020) 3,891 Accounts payable........................................................... 28,076 20,786 Accrued liabilities and other.............................................. 11,353 15,083 ------------ ------------ NET CASH FROM OPERATING ACTIVITIES........................................... 21,942 34,658 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment......................................... (21,136) (22,166) Purchase of licensing agreement................................................... (2,000) Acquisitions, net of cash received................................................ (2,519) (21,559) Proceeds from sale of property, plant and equipment............................... 3,310 886 Other............................................................................. 430 1,608 ------------ ------------ NET CASH FROM INVESTING ACTIVITIES........................................... (21,915) (41,231) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings of notes payable and revolving credit facilities................... 37,004 23,106 Repayment of long-term debt....................................................... (8,205) (9,838) Proceeds from issuance of common stock............................................ 769 827 Distributions to minority shareholder............................................. (660) (1,275) Dividends paid to shareholders.................................................... (806) (792) Repurchase of common stock........................................................ (38,216) (1,537) ------------ ------------ NET CASH FROM FINANCING ACTIVITIES........................................... (10,114) 10,491 ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS........................................... (10,087) 3,918 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................................... 22,887 2,392 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD.......................................... $ 12,800 $ 6,310 ============ ============ SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest..................................................................... $ 6,659 $ 7,590 Income taxes................................................................. 16,406 9,169 NON-CASH FINANCING ACTIVITIES: Property, plant and equipment acquired through capital leases..................... $ 248 NON-CASH INVESTING ACTIVITIES: Note payable issued in exchange for non-compete agreements........................ $ 216 Stock exchanged for officers' notes receivable.................................... 300 See notes to consolidated condensed financial statements. 5
UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS A. BASIS OF PRESENTATION The accompanying unaudited, interim, consolidated, condensed financial statements (the "Financial Statements") include our accounts and those of our wholly-owned and majority-owned subsidiaries and partnerships, and 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 accounting principles generally accepted in the United States. All significant intercompany transactions and balances have been eliminated. The equity method of accounting is used for our less than 50% owned affiliates. In our opinion, the Financial Statements contain all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows 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 our Annual Report to Shareholders on Form 10-K for the fiscal year ended December 29, 2001. Certain reclassifications have been made to the Financial Statements for 2001 to conform to the classifications used in 2002. B. COMPREHENSIVE INCOME Comprehensive income consists of net income and foreign currency translation adjustments. Comprehensive income was approximately $10.0 million and $9.7 million for the quarters ended September 28, 2002 and September 29, 2001, respectively. During the nine months ended September 28, 2002 and September 29, 2001, comprehensive income was approximately $31.2 million and $28.9 million, respectively. 6
UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED C. 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): Three Months Ended 09/28/02 Three Months Ended 09/29/01 ----------------------------------- ---------------------------------- Per Per Income Shares Share Income Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ---------- ------------- --------- ------------ ----------- ------- NET EARNINGS................... $10,644 $9,808 EPS - BASIC Income available to common stockholders.......... 10,644 17,845 $0.60 9,808 19,803 $0.50 ===== ===== EFFECT OF DILUTIVE SECURITIES Options........................ 582 647 -------- -------- EPS - DILUTED Income available to common stockholders and assumed options exercised.................... $10,644 18,427 $0.58 $9,808 20,450 $0.48 ======= ====== ===== ====== ====== ===== Nine Months Ended 09/28/02 Nine Months Ended 09/29/01 ------------------------------------ ------------------------------------- Per Per Income Shares Share Income Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ---------- ------------- --------- ------------ ----------- ------- NET EARNINGS................... $32,080 $29,023 EPS - BASIC Income available to common stockholders.......... 32,080 17,980 $1.78 29,023 19,769 $1.47 ===== ===== EFFECT OF DILUTIVE SECURITIES Options........................ 739 591 ------- -------- EPS - DILUTED Income available to common stockholders and assumed options exercised.................... $32,080 18,719 $1.71 $29,023 20,360 $1.43 ======= ====== ===== ======= ====== ===== Options to purchase 950,481 shares of common stock at exercise prices ranging from $19.75 to $36.01 were outstanding at September 28, 2002, but were not included in the computation of diluted EPS for the quarter ended September 28, 2002 because the options' exercise prices were greater than the average market price of the common stock during the period and, therefore, would be antidilutive. 7
UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED Options to purchase 335,000 shares of common stock at exercise prices ranging from $22.88 to $36.01 were outstanding at September 28, 2002, but were not included in the computation of diluted EPS for the nine months ended September 28, 2002 because the options' exercise prices were greater than the average market price of the common stock during the period and, therefore, would be antidilutive. D. GOODWILL AND OTHER INTANGIBLE ASSETS Effective December 30, 2001 (the first day of our fiscal year ending December 28, 2002), we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). This statement changed the accounting and reporting for goodwill and other intangible assets. Goodwill is no longer amortized, however tests for impairment are performed annually or when a triggering event occurs. SFAS 142 required that we test all goodwill for impairment within six months of implementation. We tested for impairment by utilizing the discounted cash flow method, as well as comparing the results to other widely acceptable valuation methods, none of which resulted in impairment of goodwill. On September 28, 2002, non-compete assets totaled $4.7 million with accumulated amortization totaling $2.0 million, and licensing agreements totaled $2.3 million with accumulated amortization of $0.3 million. Estimated amortization expense for intangible assets as of September 28, 2002 for each of the succeeding fiscal years is as follows: Remaining 2002..................... $250 2003............................... 997 2004............................... 997 2005............................... 997 2006............................... 928 Thereafter......................... 595 E. LONG-LIVED ASSETS Effective December 30, 2001, we adopted SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 superceded SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of the Accounting Principles Board Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS 144 also amends Accounting Research Bulletin No. 51, Consolidated Financial Statements. SFAS 144 retains the provisions of SFAS 121 for recognition and measurement of impairment of long- 8
UNIVERSAL FOREST PRODUCTS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED lived assets to be held and used, and measurement of long- lived assets to be disposed of by sale. Discontinued operations are no longer measured on a net realizable value basis, and future operating losses are no longer recognized before they occur. The impact of adopting this statement has not been significant to our financial statements. F. BUSINESS COMBINATIONS On January 15, 2002, one of our subsidiaries acquired an additional 5% interest in Pinelli-Universal S. de R.L. de C.V. ("Pinelli"), increasing our ownership to 50%. The purchase price for the additional 5% was approximately $0.9 million, allocating $0.3 million to net assets acquired and $0.6 million to goodwill. As a result of this transaction, we obtained additional rights of control and thus began consolidating the results of Pinelli in the 2002 financial statements. In 2001, we accounted for Pinelli under the equity method. On April 10, 2002, one of our subsidiaries acquired certain assets and entered into an exclusive licensing agreement with Inno-Tech Plastics, Inc. ("Inno-Tech"), which operates one facility in Springfield, IL. The total purchase price for these assets was approximately $4.1 million, allocating $2.1 million to net assets acquired and $2.0 million to identifiable intangibles (licensing agreement). Inno-Tech had net sales in fiscal 2001 totaling approximately $1.3 million. On September 9, 2002, one of our subsidiaries acquired certain assets of J.S. Building Products, a site-built component manufacturer in Modesto, CA. The total purchase price for the assets was approximately $2.2 million. On October 22, 2002, we purchased the real property from J.S. Building Products where the operation is located. The total purchase price was $1.9 million. Production capacity at this facility is approximately $20 million annually. The purchase price allocation will be completed when appraisals are finalized. G. SUBSEQUENT EVENTS On November 4, 2002, one of our subsidiaries acquired a facility from Quality Wood Treating Co., Inc. ("Quality") in Prairie du Chien, WI, which produces Everx(R) composite decking. The total purchase price for the real estate, equipment, inventory, and intangible assets was approximately $14.7 million. The purchase price allocation will be completed when appraisals are finalized. In addition, we entered into a treating services agreement with Quality. Under the terms of this agreement, we purchased substantially all of the inventory of Quality for approximately $7.5 million, Quality agreed to provide exclusive treating services to us for a five year term, and we have agreed to monthly and annual minimum volumes. Quality had composite and treating sales of $6 million and $92 million, respectively, through the third quarter of 2002. 9
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, together with information available to us 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 our control. Investors are cautioned that all forward-looking statements involve risks and uncertainty. RISK FACTORS WE ARE SUBJECT TO FLUCTUATIONS IN THE PRICE OF LUMBER. We experience significant fluctuations in the cost of commodity lumber products from primary producers (the "Lumber Market"). A variety of factors over which we have no control, including government regulations, environmental regulations, weather conditions, economic conditions and natural disasters, impact the cost of lumber products and our selling prices. While we attempt to minimize our risk from severe price fluctuations, substantial, prolonged trends in lumber prices can negatively affect our sales volume, our gross margins and our profitability. We anticipate that these fluctuations will continue in the future. OUR GROWTH MAY BE LIMITED BY THE MARKETS WE SERVE. Our sales growth is dependent, in part, upon the growth of the markets we serve. If our markets do not achieve anticipated growth, or if we fail to maintain our market share, financial results could be impaired. The manufactured housing industry is currently hampered by market conditions, including tightened credit policies. Significant lenders who previously provided financing to consumers of these products and industry participants have either restricted credit or exited the market. A continued shortage of financing to this industry could adversely affect our operating results. Our 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, our financial results could be negatively impacted. We are witnessing consolidation by our customers. These consolidations will result in a larger portion of our sales being made to some customers and may limit the customer base we are able to serve. 10
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED OUR GROWTH MAY BE LIMITED BY OUR ABILITY TO MAKE SUCCESSFUL ACQUISITIONS. A key component of our growth strategy is to complete business combinations. Business combinations involve inherent risks, including assimilation and successfully managing growth. While we conduct extensive due diligence and have taken steps to ensure successful assimilation, factors beyond our control could influence the results of these acquisitions. WE MAY BE ADVERSELY AFFECTED BY THE IMPACT OF ENVIRONMENTAL AND SAFETY REGULATIONS. We are subject to the requirements of federal, state and local environmental and occupational health and safety laws and regulations. There can be no assurance that we are at all times in complete compliance with all of these requirements. We have made and will continue to make capital and other expenditures to comply with environmental regulations. If additional laws and regulations are enacted in the future, which restrict our ability to manufacture and market our products, including our treated lumber products, it could adversely affect our sales and profits. If existing laws are interpreted differently, it could also increase the financial cost to us. See additional discussion below under the caption "Environmental Considerations and Regulations." SEASONALITY AND WEATHER CONDITIONS COULD ADVERSELY AFFECT US. Some aspects of our business are seasonal in nature and results of operations vary from quarter to quarter. Our 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 (see Historical Lumber Prices). Treated lumber sales are generally at their highest levels between April and August. This sales peak, combined with capacity constraints in the wood treatment process, requires us to build our inventory of treated lumber throughout the winter and spring. This also has an impact on our receivables balances, which tend to be significantly higher at the end of the second and third quarters. Because sales prices of treated lumber products may be indexed to the Lumber Market at the time they are shipped, our profits can be negatively affected by prolonged declines in the Lumber Market during our primary selling season. To mitigate this risk, programs are maintained with certain vendors and customers that are intended to decrease our exposure. These programs include those materials which are most susceptible to adverse changes in the Lumber Market. Vendor programs also allow us to carry a lower investment in inventories. The majority of our products are used or installed in outdoor construction activities; therefore, short- term sales volume, our gross margins and our profits can be negatively affected by adverse weather conditions. In addition, adverse weather conditions can negatively impact our productivity and costs per unit. WE MAY BE ADVERSELY AFFECTED IF OUR CUSTOMERS AND VENDORS ARE NOT WILLING TO MODIFY OUR EXISTING DISTRIBUTION STRATEGIES. While we have invested heavily in technology and established electronic business-to-business efficiencies with certain customers and vendors, the willingness of customers 11
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED and vendors to modify existing distribution strategies poses a potential risk. We believe the nature of our products, together with our value-added services, ensures that we have a secure position in the supply chain. When analyzing this report to assess our future performance, please recognize the potential impact of the various factors set forth above. HISTORICAL LUMBER PRICES The following table presents the Random Lengths framing lumber composite price for the nine months ended September 28, 2002 and September 29, 2001: Random Lengths Composite Average $/MBF ----------------------- 2002 2001 ---- ---- January............................ $297 $269 February........................... 317 285 March.............................. 339 306 April.............................. 323 331 May................................ 312 411 June............................... 302 365 July............................... 306 325 August............................. 291 336 September.......................... 279 309 Third quarter average.............. $292 $323 Year-to-date average............... $307 $326 Third quarter percentage decrease from 2001................ (9.6%) Year-to-date percentage decrease from 2001................ (5.8%) In addition, a SYP composite price, which we prepare and use, is presented below. Sales of products produced using this species comprise up to 50% of our sales volume. 12
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED Random Lengths SYP Average $/MBF --------------------- 2002 2001 ---- ---- January............................ $410 $369 February........................... 434 393 March.............................. 464 408 April.............................. 457 427 May................................ 408 509 June............................... 383 496 July............................... 409 426 August............................. 375 419 September ......................... 361 406 Third quarter average.............. $382 $417 Year-to-date average............... $411 $428 Third quarter percentage decrease from 2001............... (8.4%) Year-to-date percentage decrease from 2001................ (4.0%) IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS We generally price our products to pass lumber costs through to our customers so that our profitability is based on the value-added manufacturing, distribution and services we provide. As a result, our sales levels (and working capital requirements) are impacted by the lumber costs of our products. Our gross margins are impacted by both (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trends of the Lumber Market impact our products differently. Below is a general description of the primary ways in which our products are priced. - - Products with fixed selling prices. These products include value-added products such as decking and fencing sold to do-it-yourself/retail ("DIY/retail") customers, as well as trusses, wall panels and other components sold to the site-built construction market. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time or are based upon a specific quantity. In order to maintain margins and eliminate or reduce any exposure to changes in the price of component lumber products, we attempt to lock in prices for these sales 13
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED commitments with our suppliers. Also, the time periods and quantity limitations generally allow us to reprice our products for changes in lumber prices from our suppliers. - - Products with selling prices indexed to the reported Lumber Market with a fixed dollar "adder" to cover conversion costs and profits. These products include treated lumber, remanufactured lumber and trusses sold to the manufactured housing industry. For these products, we estimate the customers' needs and carry anticipated levels of inventory. Because lumber costs are set in advance of final sale prices, subsequent increases or decreases in the market price of lumber impact our gross margins. For these products, our margins are exposed to changes in the trend of lumber prices. Changes in the trend of lumber prices have their greatest impact on those products that have significant inventory levels with low turnover rates. This particularly impacts treated lumber, which comprises over twenty five percent of our total annual sales. In other words, the longer the period of time that products remain in inventory, the greater the exposure to changes in the price of lumber. This exposure is less significant with remanufactured lumber, trusses sold to the manufactured housing market and other similar products, due to the higher level of inventory turnover. In addition to the impact of Lumber Market trends on gross margins, changes in the level of the market causes fluctuations in gross margins when comparing operating results from period to period. This is explained in the following example, which assumes the price of lumber has increased from period one to period two, with no changes in the trend within each period. Period 1 Period 2 -------- -------- Lumber cost.................................... $300 $400 Conversion cost................................ 50 50 = Product cost................................. 350 450 Adder.......................................... 50 50 = Sell price................................... 400 500 Gross margin................................... 12.5% 10.0% As is apparent from the preceding example, the level of lumber prices does not impact our overall profits, but does impact our margins. Gross margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low. 14
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED BUSINESS COMBINATIONS On January 15, 2002, one of our subsidiaries acquired an additional 5% interest in Pinelli-Universal S. de R.L. de C.V. ("Pinelli"), increasing our ownership to 50%. The purchase price for the additional 5% was approximately $0.9 million, allocating $0.3 million to net assets acquired and $0.6 million to goodwill. As a result of this transaction, we obtained additional rights of control and thus began consolidating the results of Pinelli in the 2002 financial statements. In 2001, we accounted for Pinelli under the equity method. On April 10, 2002, one of our subsidiaries acquired certain assets and entered into an exclusive licensing agreement with Inno-Tech Plastics, Inc. ("Inno-Tech"), which operates one facility in Springfield, IL. The total purchase price for these assets was approximately $4.1 million, allocating $2.1 million to net assets acquired and $2.0 million to identifiable intangibles (licensing agreement). Inno-Tech had net sales in fiscal 2001 totaling approximately $1.3 million. On September 9, 2002, one of our subsidiaries acquired certain assets of J.S. Building Products, a site-built component manufacturer in Modesto, CA. The total purchase price for the assets was approximately $2.2 million. On October 22, 2002, we purchased the real property from J.S. Building Products where the operation is located. The total purchase price was $1.9 million. Production capacity at this facility is approximately $20 million annually. The purchase price allocation will be completed when appraisals are finalized. On November 4, 2002, one of our subsidiaries acquired a facility from Quality Wood Treating Co., Inc. ("Quality") in Prairie du Chien, WI, which produces Everx(R) composite decking. The total purchase price for the real estate, equipment, inventory, and intangible assets was approximately $14.7 million. The purchase price allocation will be completed when appraisals are finalized. Additional capital expenditures to expand capacity are expected to total $2 million through the end of 2002, plus $7 million by June 2003. In addition, we have entered into a treating services agreement with Quality. Under the terms of this agreement, we purchased substantially all of the inventory of Quality for approximately $7.5 million, Quality agreed to provide exclusive treating services to us for a five year term, and we have agreed to monthly and annual minimum volumes. Quality had composite and treating sales of $6 million and $92 million, respectively, through the third quarter of 2002. RESULTS OF OPERATIONS The following table presents, for the periods indicated, the components of our Consolidated Condensed Statements of Earnings as a percentage of net sales. 15
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED For the Three Months Ended For the Nine Months Ended -------------------------------- ------------------------------ September 28, September 29, September 28, September 29, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Net sales....................................... 100.0% 100.0% 100.0% 100.0% Cost of goods sold.............................. 86.4 87.0 86.0 86.2 ---------- ---------- --------- -------- Gross profit.................................... 13.6 13.0 14.0 13.8 Selling, general, and administrative expenses....................... 9.1 8.7 9.3 9.0 ---------- ---------- --------- -------- Earnings from operations........................ 4.5 4.3 4.7 4.8 Interest, net................................... 0.5 0.6 0.6 0.8 Gain on sale of assets.......................... (0.0) 0.0 (0.1) 0.0 ---------- ---------- --------- -------- Earnings before income taxes, minority interest and equity in earnings of investee.......................... 4.0 3.7 4.2 4.0 Income taxes.................................... 1.5 1.3 1.5 1.5 ---------- ---------- --------- -------- Earnings before minority interest and equity in earnings of investee................ 2.5 2.4 2.7 2.5 Minority interest............................. (0.1) (0.1) (0.2) (0.1) Equity in earnings of investee................ 0.0 0.0 0.0 0.0 ---------- ---------- --------- -------- Reported net earnings........................... 2.4 2.3 2.5 2.4 Add: Goodwill amortization, net of tax 0.0 0.2 0.0 0.2 ---------- ---------- --------- -------- Adjusted net earnings......................... 2.4% 2.5% 2.5% 2.6% ========== ========== ========= ======== NET SALES We engineer, manufacture, treat and distribute lumber and other building products to the DIY/retail, site-built construction, manufactured housing, industrial and wholesale lumber markets. Our strategic sales objectives include: - - Diversifying our end market sales mix by increasing 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 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/retail market, specialty wood packaging, and engineered wood products. One of our goals is to achieve a ratio of value-added sales to total sales of at least 50%. Although we consider the treatment of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals. 16
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED - - Maximizing profitable top-line sales growth while increasing DIY/retail market share. - - Maintaining manufactured housing market share. The following table presents, for the periods indicated, our net sales (in thousands) and percentage of total net sales by market classification. For the Three Months Ended For the Nine Months Ended --------------------------------------- ------------------------------------------ Sept. 28, Sept. 29, Sept. 28, Sept. 29, Market Classification 2002 % 2001 % 2002 % 2001 % - --------------------- --------- ------ -------- ------ ---------- ------ ---------- ------ DIY/Retail................... $215,689 47.6% $201,786 46.7% $ 628,279 48.3% $ 600,777 50.0% Site-Built Construction...... 88,635 19.6 90,316 20.9 245,408 18.9 233,819 19.5 Manufactured Housing......... 79,449 17.5 84,410 19.5 227,496 17.5 208,519 17.4 Industrial................... 41,736 9.2 34,456 8.0 116,606 9.0 97,134 8.1 Wholesale Lumber............. 27,450 6.1 20,893 4.9 81,770 6.3 60,834 5.0 -------- ------ -------- ------ ---------- ------ ---------- ------ Total........................ $452,959 100.0% $431,861 100.0% $1,299,559 100.0% $1,201,083 100.0% ======== ====== ======== ====== ========== ====== ========== ====== Net sales in the third quarter of 2002 increased 4.9% compared to the third quarter of 2001 resulting from an increase in units shipped of approximately 11%. Overall selling prices decreased as a result of the Lumber Market (see Historical Lumber Prices). Net sales in the first nine months of 2002 increased 8.2% compared to last year due to an 11% increase in units shipped. Overall selling prices decreased in 2002 comparing the year-to-date periods. The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales. Three Months Ended Nine Months Ended ----------------------------- ---------------------------- September 28, September 29, September 28, September 29, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Value-Added........................... 49.5% 47.1% 49.6% 47.2% Commodity-Based....................... 50.5% 52.9% 50.4% 52.8% Value-added sales increased 10.2% and 13.6% in the third quarter and first nine months of 2002, respectively, primarily due to increased sales of engineered wood products and industrial packaging. Commodity-based sales remained flat during the third quarter, and increased 3.4% during the first nine months. 17
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED DIY/Retail: Net sales to the DIY/retail market increased $14 million, or 6.9%, in the third quarter of 2002 compared to 2001. This increase was primarily due to a $7 million increase in sales to our largest customer and an $8 million increase in sales from acquiring the assets of P&R Truss Company, Inc. ("P&R") on October 15, 2001. P&R is a manufacturer of engineered wood products used in site- built construction and sells through retail channels. Net sales to the DIY/retail market increased 4.6% in the first nine months of 2002 compared to 2001 primarily due to the acquisition of P&R. In addition, sales to one customer increased approximately $8 million. Site-Built Construction: Net sales to the site-built construction market decreased 1.9% in the third quarter of 2002 compared to the same period of 2001 due to the lower Lumber Market. Net sales to the site-built construction market increased 5.0% in the first nine months of 2002 compared to the same period of 2001. This increase was due to increased unit sales as a result of operations acquired in 2001, combined with increased sales in several existing regions. Manufactured Housing: Net sales to the manufactured housing market decreased 5.9% in the third quarter of 2002 compared to the same period of 2001 primarily due to a decrease in unit sales. The industry recently reported a decline in shipments of 17.3% for the third quarter to date. Net sales to the manufactured housing market increased 9.1% in the first nine months of 2002 compared to the same period of 2001. Industry shipments were down 7.9% for the first eight months. We increased our market share by acquiring certain assets of the Sunbelt Wood Components Division of Kevco, Inc. on April 3, 2001. Sales growth at existing plants also contributed to the increase. Industrial: Net sales to the industrial market increased 21.1% and 20.0% in the third quarter and first nine months of 2002, respectively, compared to the same periods of 2001. Sales from our existing facilities increased approximately 11% in both periods. The remaining increase in sales was due to the consolidation of Pinelli in our operating results in 2002. See "Business Combinations." 18
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED COST OF GOODS SOLD AND GROSS PROFIT Gross profit as a percentage of net sales increased in the third quarter and first nine months of 2002 compared to the same period of 2001. This increase was primarily due to an increase in sales of value-added products, offset by a decline in lumber prices which adversely impacted our gross margins on commodity-based products not covered under managed inventory programs. As previously discussed, a decline in the trend of lumber prices adversely impacts margins on products with selling prices indexed to the Lumber Market. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses as a percentage of sales increased to 9.1% and 9.3% in the third quarter and first nine months of 2002, respectively, compared to 8.7% and 9.0% in the same periods of 2001, respectively. On a pro forma basis, excluding amortization of goodwill in 2001, the third quarter and first nine months percentages were 8.5% and 8.8%, respectively. These increases were primarily due to new acquisitions that have comparatively higher selling and design costs, combined with increases in insurance costs and incentive compensation. Bad debt expenses for the third quarter also increased over the same period last year. INTEREST, NET Net interest costs were lower in the third quarter and first nine months of 2002 compared to the same period of 2001. Although we had a higher average debt balance as a result of increased working capital and the repurchase of shares from our largest shareholder, this was offset by a decrease in short-term borrowing rates on variable rate debt. GAIN ON SALE OF ASSETS During the second quarter, we sold our corporate airplane and recognized a gain of $1.1 million on the sale, and entered into an operating lease for a new airplane. INCOME TAXES Our effective tax rate was 37.1% in the third quarter of 2002 compared to 34.8% in the same period of 2001, and 37.1% in the first nine months of 2002 compared to 36.7% in the same period of 2001. Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and permanent tax differences. The increases in our effective tax rate are a result of a tax credit recognized in the third quarter of 2001, offset by the effect of no longer amortizing goodwill which resulted in a permanent tax difference in 2001. 19
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED LIQUIDITY AND CAPITAL RESOURCES Cash flows provided by operating activities decreased in the first nine months of 2002 compared to the same period of 2001. This was due to an increase in receivables resulting from longer payment terms with our largest customer. Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management. Our cash cycle increased to 45 days in the first nine months of 2002 from 43 days in the first nine months of 2001, primarily due to a longer receivables cycle resulting from extended payment terms with our largest customer (mentioned above). This was partially offset by a reduction in our days supply of inventory and extension in our payables cycle. Capital expenditures totaled $21.1 million in the first nine months of 2002 compared to $22.2 million in the same period of 2001. Our capital expenditures during the third quarter of 2002 primarily consisted of several projects to improve efficiencies and expand manufacturing capacity at existing plants. We expect to spend approximately $9 million on capital expenditures for the balance of 2002, which includes outstanding purchase commitments on capital projects totaling approximately $6.0 million on September 28, 2002. We intend to satisfy these commitments utilizing our revolving credit facilities. See also "Subsequent Events." In January 2002, we spent approximately $36 million to purchase 2 million shares from our largest shareholder. We funded the purchase price using our revolving credit facilities. On September 28, 2002, we had $63.5 million outstanding on our $175 million revolving credit facility and $19.6 million Canadian ($12.4 million U.S.) outstanding on our $25 million Canadian revolving credit facility. The revolving credit facility supports letters of credit totaling approximately $4.5 million on September 28, 2002. Financial covenants on our revolving credit facilities and senior unsecured notes include a minimum net worth requirement, a minimum interest coverage test and a maximum leverage ratio. We were within our requirements at September 28, 2002. ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS We are self-insured for environmental impairment liability and accrue for the estimated cost of monitoring or remediation activities. We currently own or operate 21 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, we may be potentially liable for costs and expenses related to the environmental condition of our real property. 20
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED We have established reserves for remediation activities at our North East, MD; Union City, GA; Stockertown, PA; Elizabeth City, NC; Auburndale, FL; and Schertz, TX facilities. Since we determined we will no longer operate the North East, MD facility as a wood preservation location, during the third quarter of 2002 we completed the process of closing the conditioning pad, in accordance with applicable regulations. We have accrued in other long-term liabilities amounts totaling $2.2 million on September 28, 2002 and $2.4 million on December 29, 2001 for the activities described above. We believe the potential future costs of known remediation efforts will not have a material adverse effect on our future financial position, results of operations or liquidity. For the past several years, the EPA has been conducting a scientific review of CCA, a wood preservative we use to extend the useful life of wood fiber. The review is part of the EPA's re-registration process and is designed, in part, in response to allegations by certain environmental groups that CCA poses health risks. In February 2002, the EPA announced that the manufacturers of CCA preservative agreed to voluntarily discontinue the registration of CCA for certain residential applications by December 31, 2003. The manufacturers will continue to produce CCA for use in various industrial, marine, and non-residential uses. This agreement will require us to change the preservative we use to one of several new alternatives prior to December 31, 2003. We estimate that we will incur capital costs totaling approximately $1.5 million to convert our plants to the new alternative preservatives. Most of our facilities will be capable of producing product with the alternative preservatives by January 1, 2003. In addition, an environmental group petitioned the Consumer Products Safety Commission ("CPSC") to ban the use of CCA treated wood in playsets. We have been assured by our vendors and by scientific studies that CCA treated lumber poses no unreasonable risks and its continued use should be permitted. The EPA, in its February 2002 press release concluded that there isn't any reason to remove or replace any CCA treated structures, including decks or playground equipment. We have been requested by a major customer to defend it from purported class action lawsuits filed against it in Florida and Louisiana. The complaints allege that CCA treated lumber is defective. As previously stated, our vendors believe and scientific studies support the fact that CCA treated lumber poses no unreasonable risks, and we intend to vigorously defend this position. While our customer has charged us for certain expenses incurred in the defense of these claims, we have not formally accepted liability for these costs. We, along with many others in the industry, have also been named as a defendant in a separate purported class action lawsuit in Louisiana, which contains similar allegations as the complaints against our customer. We do not believe the plaintiffs in this case are entitled to relief, and we intend to vigorously defend this complaint. 21
UNIVERSAL FOREST PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED In addition, various special interest environmental groups have petitioned certain states requesting restrictions on the use or disposal of CCA treated products. The wood preservation industry trade groups are working with the individual states and their regulatory agencies to provide an accurate, factual background which demonstrates that the present method of uses and disposal is scientifically supported. As with all of the above cases, we have placed our vendors and our insurers on notice that we will seek indemnity and defense costs from them. 22
UNIVERSAL FOREST PRODUCTS, INC. Item 3. Quantitative and Qualitative Disclosures about Market Risk. We are exposed to market risks related to fluctuations in interest rates on our variable rate debt, which consists of a revolving credit facility and industrial development revenue bonds. We do 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. We do 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 we would be required to refinance it. 23
UNIVERSAL FOREST PRODUCTS, INC. Item 4. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures. With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) on September 28, 2002 (the "Evaluation Date"), have concluded that, as of such date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us and our consolidated subsidiaries would be made known to them in connection with our filing of this third quarter report on Form 10-Q. (b) Changes in Internal Controls. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date through the date of this filing of Form 10-Q, nor were there any significant deficiencies or material weaknesses in our internal controls that would require corrective actions. 24
UNIVERSAL FOREST PRODUCTS, INC. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds. (a) None. (b) None. (c) Sales of equity securities in the third quarter not registered under the Securities Act. Date of Class of Number Consideration Sale Stock of Shares Purchasers Exchanged ------- --------- --------- ---------- ------------- Stock Gift Program Various Common 359 Eligible persons None 25
UNIVERSAL FOREST PRODUCTS, INC. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report: 99.1 Certificate of the Vice Chairman of the Board and Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). 99.2 Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). (b) Reports on Form 8-K. During the third quarter, we filed a report on Form 8-K dated August 9, 2002, to report the filing of sworn statements by our Principal Executive Officer and Principal Financial Officer under Item 9. 26
UNIVERSAL FOREST PRODUCTS, INC. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNIVERSAL FOREST PRODUCTS, INC. Date: November 8, 2002 By: /s/ William G. Currie --------------------- ------------------------------------- William G. Currie Its: Vice Chairman of the Board and Chief Executive Officer Date: November 8, 2002 By: /s/ Michael R. Cole --------------------- ------------------------------------- Michael R. Cole Its: Chief Financial Officer 27
UNIVERSAL FOREST PRODUCTS, INC. CERTIFICATION I, William G. Currie, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Universal Forest Products, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have; (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or persons performing the equivalent function): (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 8, 2002 /s/ William G. Currie --------------------- ----------------------------------- William G. Currie Vice Chairman of the Board and Chief Executive Officer 28
UNIVERSAL FOREST PRODUCTS, INC. CERTIFICATION I, Michael R. Cole, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Universal Forest Products, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have; (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or persons performing the equivalent function): (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 8, 2002 /s/ Michael R. Cole ---------------------- ---------------------------- Michael R. Cole Chief Financial Officer 29
EXHIBIT INDEX 99.1 Certificate of the Vice Chairman of the Board and Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). 99.2 Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
EXHIBIT 99.1 CERTIFICATE OF THE VICE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF UNIVERSAL FOREST PRODUCTS, INC. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350): I, William G. Currie, Vice Chairman of the Board and Chief Executive Officer of Universal Forest Products, Inc., certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that: (1) The quarterly report on Form 10-Q for the quarterly period ended September 28, 2002, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in this quarterly report on Form 10-Q for the quarterly period ended September 28, 2002 fairly presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc. UNIVERSAL FOREST PRODUCTS, INC. Date: November 8, 2002 By: /s/ William G. Currie ----------------------- ---------------------------------- William G. Currie Its: Vice Chairman of the Board and Chief Executive Officer
EXHIBIT 99.2 CERTIFICATE OF THE CHIEF FINANCIAL OFFICER OF UNIVERSAL FOREST PRODUCTS, INC. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350): I, Michael R. Cole, Chief Financial Officer of Universal Forest Products, Inc., certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that: (1) The quarterly report on Form 10-Q for the quarterly period ended September 28, 2002, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in this quarterly report on Form 10-Q for the quarterly period ended September 28, 2002 fairly presents, in all material respects, the financial condition and results of operations of Universal Forest Products, Inc. UNIVERSAL FOREST PRODUCTS, INC. Date: November 8, 2002 By: /s/ Michael R. Cole -------------------- ----------------------------- Michael R. Cole Its: Chief Financial Officer