e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR FISCAL
YEAR ENDED DECEMBER 30, 2006. |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the
transition period of ____ to _____. |
Commission File No.: 0-22684
UNIVERSAL FOREST PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
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Michigan
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38-1465835 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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2801 East Beltline, N.E., Grand Rapids, Michigan
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49525 |
(Address of principal executive offices)
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(Zip Code) |
(616) 364-6161
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title Of Each Class
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Name of Each Exchange on Which Registered |
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by checkmark 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 in the past 90 days. Yes þ No o
Indicate by checkmark if disclosure of delinquent filers pursuant to Items 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by
check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer þ
Accelerated filer
o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-2 of the
Act.) Yes o No þ
As of July 1, 2006, 18,836,038 shares of the registrants common stock, no par value, were
outstanding. The aggregate market value of the common stock held by non-affiliates of the
registrant (i.e. excluding shares held by executive officers, directors, and control persons as
defined in Rule 405, 17 CFR 230.405) on that date was $964,703,279 computed at the closing price of
$62.73 on that date.
As of February 3, 2007, 18,886,333 shares of the registrants common stock, no par value, were
outstanding.
Documents incorporated by reference:
(1) |
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Certain portions of the registrants Annual Report to Shareholders for the fiscal year ended
December 30, 2006 are incorporated by reference into Part I and II of this Report. |
(2) |
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Certain portions of the registrants Proxy Statement for its 2007 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Report. |
Exhibit Index located on page E-1.
Page 1 of 17
ANNUAL REPORT ON FORM 10-K
December 30, 2006
TABLE OF CONTENTS
2
PART I
Item 1. Business.
General Development of the Business.
Universal Forest Products, Inc. was organized as a Michigan corporation in 1955. We engineer,
manufacture, treat, distribute and install lumber, composite wood, plastic and other building
products to the do-it-yourself/retail (DIY/retail), site-built construction, manufactured
housing, and industrial markets. We currently operate facilities throughout the United States,
Canada, and Mexico.
Information relating to current developments in our business is incorporated by reference from our
Annual Report to Shareholders for the fiscal year ended December 30, 2006 (2006 Annual Report)
under the caption Managements Discussion and Analysis of Financial Condition and Results of
Operations. Selected portions of the 2006 Annual Report are filed as Exhibit 13 with this Form
10-K Report.
Financial Information About Industry Segments.
Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131) defines operating segments as components of an
enterprise about which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in assessing
performance. Under the definition of a segment, our Eastern, Western and Consumer Products
Divisions may be considered an operating segment of our business. Under SFAS 131, segments may be
aggregated if the segments have similar economic characteristics and if the nature of the products,
distribution methods, customers and regulatory environments are similar. We have aggregated our
Eastern and Western divisions into one reporting segment, consistent
with SFAS 131. Our Consumer Products Division, which was formed in
2006, is included in All Other.
Separate financial information about industry segments is
incorporated by reference from Note P of the Consolidated
Financial Statements presented under Item 8 herein.
Narrative Description of Business.
We presently engineer, manufacture, treat, distribute and install lumber, composite wood, plastic
and other building products for the DIY/retail, site-built construction, manufactured housing, and
industrial markets. Each of these markets is discussed in the paragraphs which follow.
DIY/Retail Market. The customers comprising this market are primarily national home center
retailers, retail-oriented regional lumberyards and contractor-oriented lumberyards. Generally,
terms of sale are established for annual periods, and orders are placed with our regional
facilities in accordance with established terms. One customer, The Home Depot, accounted for
approximately 22% of our total net sales for fiscal 2006, 22% for 2005, and 25% for 2004.
3
From time to time we enter into certain sales contracts with The Home Depot. The contracts are
limited to the establishment of general sales terms and conditions, such as delivery, invoicing,
warranties and other standard, commercial matters. Sales are made by the release of purchase
orders to us for particular quantities of certain products. We also enter into marketing
agreements and rebate agreements with The Home Depot. The marketing agreements provide a certain
percentage of our sales revenue or a minimum dollar amount will be committed to generate sales for
us and The Home Depot.
We currently supply customers in this market from many of our locations. These regional facilities
are able to supply mixed truckloads of products which can be delivered to customers with rapid
turnaround from receipt of an order. Freight costs are a factor in the ability to competitively
service this market, especially with treated wood products because of their heavier weight. The
close proximity of our regional facilities to the various outlets of these customers is a
significant advantage when negotiating annual sales programs.
The products offered to customers in this market include dimensional lumber (both preserved and
unpreserved) and various value-added products, some of which are sold under our trademarks. In
addition to our conventional lumber products, we offer composite wood and plastic products. We
also sell engineered wood products to this market, which include roof trusses, wall panels and
engineered floor systems (see Site-Built Construction Market below).
We are not aware of any competitor that currently manufactures, treats and distributes a full line
of both value-added and commodity products on a national basis. We face competition on individual
products from several different producers, but the majority of these competitors tend to be
regional in their efforts and/or do not offer a full line of outdoor lumber products. We believe
the breadth of our product offering, geographic dispersion, customer relationships, close proximity
of our plants to core customers, purchasing and manufacturing expertise and service capabilities
provide significant competitive advantages in this market.
Site-Built Construction Market. We entered the site-built construction market through
strategic business acquisitions beginning in 1997. The residential housing customers comprising
this market are primarily large-volume, multi-tract builders and smaller volume custom builders.
We also supply builders engaged in multi-family and commercial construction. Generally, terms of
sale and pricing are determined based on quotes for each order.
We currently supply customers in this market from manufacturing facilities located in many
different states and Canada. These facilities manufacture various engineered wood components used
to frame residential or commercial projects, including roof and floor trusses, wall panels, Open
Joist 2000®, I-joists and lumber packages. Freight costs are a factor in the ability to
competitively service this market due to the space requirements of these products on each
truckload.
We also provide framing services for customers in certain regional markets, in which we erect the
wood structure. We believe that providing a comprehensive framing package, including
4
installation, provides a competitive advantage. Terms of sale are based on a construction
contract.
Competitors in this market include national and regional retail contractor yards who also
manufacture components and provide framing services, as well as regional manufacturers of
components. Our objective is to continue to increase our manufacturing capacity and framing
capabilities for this market while developing a national presence. We believe our primary
competitive advantages relate to the engineering and design capabilities of our regional staff,
customer relationships, purchasing and manufacturing expertise, product quality and timeliness of
delivery.
Manufactured Housing Market. The customers comprising the manufactured housing market are
producers of mobile, modular and prefabricated homes and recreational vehicles. Products sold to
customers in this market consist primarily of roof trusses, lumber cut and shaped to the customers
specification, plywood, particle board and dimensional lumber, all intended for use in the
construction of manufactured housing. Sales are made by personnel located at each regional
facility based on customer orders.
While no competitor operates in as widely-dispersed geographic areas as we do, we face competition
from suppliers in many geographic regions. Our principal competitive advantages include our
customer relationships, product knowledge, the strength of our engineering support services, the
close proximity of our regional facilities to our customers, our purchasing and manufacturing
expertise and our ability to provide national sales programs to certain customers.
Industrial Market. We define our industrial market as industrial manufacturers and
agricultural customers who use pallets, specialty crates and wooden boxes for packaging, shipping
and material handling purposes. Many of the products sold to this market may be produced from the
by-product of other manufactured products, thereby allowing us to increase our raw material yields
while expanding our business. Competition is fragmented and includes virtually every supplier of
lumber convenient to the customer. We service this market with our dedicated local sales teams and
national sales support efforts, combined with our competitive advantages in manufacturing,
purchasing, and material utilization.
Suppliers. We are one of the largest domestic buyers of solid sawn lumber from primary
producers (lumber mills). We use primarily Southern Yellow Pine in our pressure-treating
operations and site-built component plants in the Southeastern United States, which we obtain from
mills located throughout the states comprising the Sunbelt. Other species we use include
spruce-pine-fir from various provinces in Canada; hemlock, Douglas fir and cedar from the Pacific
Northwest; inland species of pine, plantation grown radiata and southern yellow pines from South
America; and European spruce. There are numerous primary producers for all varieties we use, and
we are not dependent on any particular source of supply. Our financial resources and size, in
combination with our strong sales network and ability to remanufacture lumber, enable us to
purchase a large percentage of a primary producers output, (as opposed to only those dimensions or
grades in immediate need), thereby lowering our average cost of raw
5
materials and allowing us to obtain programs such as consigned inventory. We believe this
represents a competitive advantage.
Intellectual Property. We own several patents and have several patents pending on
technologies related to our business. In addition, we own numerous registered trademarks and claim
common law trademark rights to several others. As we develop proprietary brands, we may pursue
registration or other formal protection. While we believe our patent and trademark rights are
valuable, the loss of a patent or any trademark would not be likely to have a material adverse
impact on our competitive position.
Backlog. Due to the nature of our DIY/retail, manufactured housing and industrial
businesses, backlog information is not meaningful. The maximum time between receipt of a firm
order and shipment does not usually exceed a few days. Therefore, we would not normally have a
backlog of unfilled orders in a material amount. The relationships with our major customers are
such that we are either the exclusive supplier of certain products and/or certain geographic areas,
or the designated source for a specified portion of the customers requirements. In such cases,
either we are able to forecast the customers requirements or the customer may provide an estimate
of its future needs. In neither case, however, will we receive firm orders until just prior to the
anticipated delivery dates for the products in question.
On December 30, 2006 and December 31, 2005, we estimate that backlog orders associated with the
site-built construction business approximated $119.8 million and $92.4 million, respectively. With
respect to the former, we expect that these orders will be primarily filled within the current
fiscal year.
Environmental. Information required for environmental disclosures is incorporated by
reference from Note M of the Consolidated Financial Statements presented under Item 8 herein.
Seasonality. Information required for seasonality disclosures is incorporated by reference
from Item 1A. Risk Factors under the caption Seasonality and weather conditions could adversely
affect us.
Employees. At December 30, 2006, we had approximately 9,200 employees.
Financial Information About Geographic Areas.
The dominant portion of our operations and sales occur in the United States. Separate financial
information about foreign and domestic operations and export sales is incorporated by reference
from Note P of the Consolidated Financial Statements presented under Item 8 herein.
Available Information.
Our Internet address is www.ufpi.com. Through our Internet web site under Financial in the
Investor Relations section, we make available free of charge, as soon as reasonably practical
6
after such information has been filed with the SEC, our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act. Also available through our Internet web
site under Corporate Governance in the Investor Relations section is our Code of Ethics for
Senior Financial Officers.
Reports to Security Holders.
Not applicable.
Enforceability of Civil Liabilities Against Foreign Persons.
Not applicable.
Item 1A. 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.
Our ability to achieve growth in sales and margins, particulary to the site-built construction
market, is impacted by housing starts. If housing starts decline significantly, our financial
results could be negatively impacted.
We are witnessing consolidation by our customers in each of the markets we serve. 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.
A significant portion of our sales are concentrated with one customer. Our sales to The Home Depot
comprised 22% of our total sales in 2006, 22% in 2005, and 25% in 2004.
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
7
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 our financial costs. Several states have proposed
legislation to limit the uses and disposal of Chromated Copper Arsenate (CCA) treated lumber.
(See Note M to the Consolidated Financial Statements.)
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, also experience
the greatest Lumber Market risk (see Historical Lumber Prices in Managements
Discussion and Analysis of Financial Condition and Results of Operations which is presented under
Item 7 of this Form 10-K and is incorporated herein by reference). 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, consignment inventory programs are negotiated with
certain vendors that are intended to decrease our exposure to the Lumber Market by correlating the
purchase price of the material with the related sell price to the customer. These programs include
those materials which are most susceptible to adverse changes in the Lumber Market.
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, particularly in our first and fourth quarters. In addition, adverse weather
conditions can negatively impact our productivity and costs per unit.
New preservatives will be developed to treat our products. The manufacturers of preservatives
continue to develop new preservatives. All of our wood preservation facilities, except the one
described below, utilize either Amine Copper Quaternary (ACQ), ProWood Micro or borates. In
March 2005, one facility began using CCA to treat certain marine products and panel goods for which
ACQ is not a suitable preservative. While we believe treated products are reasonably priced
relative to alternative products such as composites or vinyl, consumer acceptance may be
8
impacted which would in turn affect our future operating results. In addition, new preservatives
could increase our cost of treating products in the future.
Market conditions for the supply of certain lumber products and inbound transportation may be
limited. These conditions, which occur on occasion, have resulted in difficulties procuring
desired quantities and receiving orders on a timely basis for all industry participants. We are not
certain how these conditions may impact our short-term sales volumes and profitability. However,
we attempt to mitigate the risks of these conditions by:
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Our pricing practices (see Impact of the Lumber Market on Our Operating Results in Managements Discussion and
Analysis of Financial Condition and Results of Operations which is presented under Item 7 of this Form 10-K and is
incorporated herein by reference); |
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Leveraging our size with mill and transportation suppliers to ensure they achieve supply and service requirements; |
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Increasing our utilization of consigned inventory programs with mills; and |
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Expanding our supply base of dedicated carriers. |
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Our corporate headquarters building is located in suburban Grand Rapids, Michigan. We
currently have approximately 90 facilities located throughout the United States, Canada, and
Mexico. Depending upon function and location, these facilities typically utilize office space,
manufacturing space, treating space and covered storage.
We own all of our properties, free from any significant mortgage or other encumbrance, except for
approximately 20 regional facilities which are leased. We believe all of these operating
facilities are adequate in capacity and condition to service existing customer locations.
Item 3. Legal Proceedings.
Information regarding our legal proceedings is set forth in Note M of our Consolidated
Financial Statements which are presented under Item 8 of this Form 10-K and are incorporated herein
by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
9
Additional Item: Executive Officers of the Registrant.
The following table lists the names, ages, and positions of our executive officers as of
February 1, 2007. Executive officers are elected annually by the Board of Directors at the first
meeting of the Board following the annual meeting of shareholders.
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Name |
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Age |
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Position |
William G. Currie |
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59 |
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Executive Chairman, Universal Forest Products, Inc. |
Michael B. Glenn |
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55 |
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Chief Executive Officer, Universal Forest Products, Inc. |
C. Scott Greene |
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51 |
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President, Universal Forest Products Eastern Division, Inc. |
Robert K. Hill |
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59 |
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President, Universal Forest Products Western Division, Inc. |
Robert D. Coleman |
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52 |
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Executive Vice President Manufacturing, Universal Forest Products, Inc. |
Matthew J. Missad |
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46 |
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Executive Vice President and Secretary, Universal Forest Products, Inc. |
Michael R. Cole |
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40 |
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Chief Financial Officer and Treasurer, Universal Forest Products, Inc. |
Ronald G. Klyn |
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49 |
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Chief Information Officer, Universal Forest Products, Inc. |
Joseph F. Granger |
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41 |
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Executive Vice President of Sales and Marketing, Universal Forest Products, Inc. |
William G. Currie joined us in 1971. From 1983 to 1990, Mr. Currie was President of
Universal Forest Products, Inc., and he was the President and Chief Executive Officer of The
Universal Companies, Inc. from 1989 until the merger to form Universal Forest Products, Inc. in
1993. On January 1, 2000, Mr. Currie also became Vice Chairman of the Board. On April 19, 2006,
Mr. Currie became Executive Chairman.
Michael B. Glenn has been employed by us since 1974. In June of 1989, Mr. Glenn was elected
Senior Vice President of our Southwest Operations, and on December 1, 1997, became President of
Universal Forest Products Western Division, Inc. Effective January 1, 2000, Mr. Glenn was
promoted to President and Chief Operating Officer. On July 1, 2006, Mr. Glenn became Chief
Executive Officer.
C. Scott Greene joined us in February of 1991. In November of 1996 he became General Manager of
Operations for our Florida Region, and in January of 1999 became Vice President of Marketing for
Universal Forest Products, Inc. During early 2000, Mr. Greene became President of Universal
Forest Products Eastern Division, Inc.
Robert K. Hill has been with us since 1986. In March of 1993, Mr. Hill was elected Senior Vice
President of our Far West Operations. On December 1, 1997, Mr. Hill became the Executive Vice
President of Operations of Universal Forest Products Western Division, Inc., and on January 1,
2000, became President of that Division.
Robert D. Coleman, has been an employee since 1979. Mr. Coleman was promoted to Senior Vice
President of our Midwest Operations in September 1993. On December 1, 1997, Mr. Coleman became
the Executive Vice President of Manufacturing of the Universal Forest
10
Products Eastern Division, Inc. On January 1, 1999, Mr. Coleman was named the Executive Vice
President of Manufacturing.
Matthew J. Missad has been employed since 1985. Mr. Missad has served as General Counsel and
Secretary since December 1, 1987, and Vice President Corporate Compliance since August 1989. In
February 1996, Mr. Missad was promoted to Executive Vice President.
Michael R. Cole, CPA, CMA, joined us in November of 1993. In January of 1997, Mr. Cole was
promoted to Director of Finance, and on January 1, 2000 was made Vice President of Finance and
Treasurer. On July 19, 2000, Mr. Cole became Chief Financial Officer.
Ronald G. Klyn joined us in May of 1993 as Information Services Manager. In October of 1999, Mr.
Klyn was promoted to Chief Information Officer.
Joseph F. Granger has been with us since 1988. In 1997 he became Vice President of the Atlantic
Region, in 2002 he became Regional Vice President of the Southeast Region, and on January 1, 2007,
he became Executive Vice President of Sales and Marketing.
PART II
The following information items in this Part II, which are contained in the 2006 Annual
Report, are specifically incorporated by reference into this Form 10-K Report. These portions of
the 2006 Annual Report that are specifically incorporated by reference are filed as Exhibit 13 with
this Form 10-K Report.
Item 5. Market for Registrants Common Equity, Related Shareholder Matters, and Issuer
Purchases of Equity Securities.
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The information relating to market, holders and dividends is incorporated by reference
from the 2006 Annual Report under the caption Price Range of Common Stock and Dividends. |
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There were no recent sales of unregistered securities. |
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(b) |
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Not applicable. |
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(c) |
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There were no issuer purchases of equity securities during the fourth quarter. |
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Fiscal Month |
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(a) |
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(b) |
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(c) |
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(d) |
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October 1 - November 4, 2006(1) |
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1,499,976 |
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November 5 - December 2, 2006 |
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1,499,976 |
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December 3 30, 2006 |
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1,499,976 |
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11
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(a) |
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Total number of shares purchased. |
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(b) |
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Average price paid per share. |
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(c) |
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Total number of shares purchased as part of publicly announced plans or
programs. |
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(d) |
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Maximum number of shares that may yet be purchased under the plans or programs. |
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(1) |
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On November 14, 2001 the Board of Directors approved a share
repurchase program (which succeeded a previous program) allowing us to repurchase up to
2.5 million shares of our common stock. As of December 30, 2006, the cumulative total
of authorized shares available for repurchase is 1.5 million shares. |
Item 6. Selected Financial Data.
The information required by this Item is incorporated by reference from the 2006 Annual Report
under the caption Selected Financial Data.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
The information required by this item is incorporated by reference from the 2006 Annual Report
under the caption Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Item 7A. 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.
On December 30, 2006, the estimated fair value of our long-term debt, including the current
portion, was $172.6 million, which was $2.5 million greater than the carrying value. The estimated
fair value is based on rates anticipated to be available to us for debt with similar terms and
maturities. The estimated fair value of notes payable included in current liabilities and the
revolving credit facility approximated the carrying values.
12
Expected cash flows over the next five years related to debt instruments are as follows:
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($US equivalents, in thousands) |
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2007 |
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2008 |
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2009 |
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2010 |
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2011 |
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Thereafter |
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Total |
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Long-term Debt: |
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Fixed Rate ($US) |
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$ |
78,500 |
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$ |
15,000 |
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$ |
40,000 |
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$ |
133,500 |
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Average interest rate |
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6.98 |
% |
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5.63 |
% |
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6.16 |
% |
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Variable Rate ($US) |
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$ |
680 |
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$ |
712 |
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$ |
16,130 |
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$ |
249 |
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$ |
256 |
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$ |
18,570 |
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$ |
36,597 |
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Average interest rate(1) |
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5.68 |
% |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average of rates at December 30, 2006. |
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is incorporated by reference from the 2006 Annual Report
under the following captions:
Managements Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Shareholders Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(1) |
|
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
15e and 15d 15e) as of the year ended December 30, 2006 (the Evaluation Date), have
concluded that, as of such date, our disclosure controls and procedures were effective. |
|
(2) |
|
Managements Annual Report on Internal Control Over Financial Reporting.
Managements Annual Report on Internal Control Over Financial Reporting is included in the
2006 Annual Report under the caption Managements Annual Report on Internal Control Over
Financial Reporting and is incorporated herein by reference. Our accounting firms
attestation on that Report is also included in the 2006 Annual Report in |
13
|
|
the caption Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting and is incorporated herein by reference. |
|
(3) |
|
Changes in Internal Controls. During the fourth quarter ended December 30, 2006,
there were no changes in our internal control over financial reporting that materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting. |
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information relating to executive officers is included in this report in the last Section of
Part I under the caption Additional Item: Executive Officers of the Registrant. Information
relating to our directors, compliance with Section 16(a) of the Securities and Exchange Act of 1934
and various corporate governance matters is incorporated by reference from our definitive Proxy
Statement for the year ended December 30, 2006 for the 2007 Annual Meeting of Shareholders, as
filed with the Commission (2007 Proxy Statement), under the captions Election of Directors,
Corporate Governance and Board Matters, and Section 16(a) Beneficial Ownership Reporting
Compliance. Information relating to our code of ethics is included in this report in Part I, Item
1 under the caption Available Information.
Item 11. Executive Compensation.
Information relating to director and executive compensation is incorporated by reference from
the 2007 Proxy Statement under the caption Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters.
Information relating to security ownership of certain beneficial owners and management is
incorporated by reference from our 2007 Proxy Statement under the captions Ownership of Common
Stock and Securities Ownership of Management.
14
Information relating to securities authorized for issuance under equity compensation plans as of
December 30, 2006, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
|
|
|
|
|
|
|
|
|
remaining |
|
|
|
|
|
|
|
|
|
|
|
available for future |
|
|
|
Number of |
|
|
Weighted |
|
|
issuance under |
|
|
|
shares to be |
|
|
average |
|
|
equity |
|
|
|
issued upon |
|
|
exercise |
|
|
compensation |
|
|
|
exercise of |
|
|
price of |
|
|
plans [excluding |
|
|
|
outstanding |
|
|
outstanding |
|
|
shares reflected in |
|
|
|
options |
|
|
options |
|
|
column (a)] |
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation plans approved by security holders |
|
|
1,036,284 |
|
|
$ |
20.18 |
|
|
|
948,062 |
|
Equity compensation plans not approved by security holders |
|
none |
|
|
|
|
|
|
|
|
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information relating to certain relationships and related transactions, and director
independence is incorporated by reference from the 2007 Proxy Statement under the captions
Election of Directors, Affirmative Determination Regarding Director Independence and Other
Matters and Related Party Transactions.
Item 14. Principal Accountant Fees and Services.
Information relating to the types of services rendered by our Independent Auditors and the
fees paid for these services is incorporated by reference from our 2007 Proxy Statement under the
caption Independent Public Accountants Fees and Services.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) |
|
1. Financial Statements. The following Managements Annual Report, Reports of Independent Registered Public
Accounting Firm and Consolidated Financial Statements are incorporated by reference, under Item 8 of this report, from
the 2006 Annual Report: |
|
|
|
Managements Annual Report on Internal Control Over Financial Reporting |
|
|
|
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting |
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
|
Consolidated Balance Sheets as of December 30, 2006 and December 31, 2005 |
15
|
|
Consolidated Statements of Earnings for the Years Ended
December 30, 2006, December 31, 2005 and December 25, 2004 |
|
|
|
Consolidated Statements of Shareholders Equity for the
Years Ended December 30, 2006, December 31, 2005 and December 25, 2004 |
|
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 30, 2006, December 31, 2005 and December 25, 2004 |
|
|
|
Notes to Consolidated Financial Statements |
|
|
|
2. Financial Statement Schedules. All schedules required by this Form 10-K
Report have been omitted because they were inapplicable, included in the Consolidated
Financial Statements or Notes to Consolidated Financial Statements, or otherwise not required
under instructions contained in Regulation S-X. |
|
|
|
3. Exhibits. Reference is made to the Exhibit Index which is included in this
Form 10-K Report. |
|
(b) |
|
Reference is made to the Exhibit Index which is included in this Form 10-K Report. |
|
(c) |
|
Not applicable. |
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
|
|
Dated: February 27, 2007 |
|
UNIVERSAL FOREST PRODUCTS, INC. |
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Michael B. Glenn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael B. Glenn, Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Michael R. Cole |
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael R. Cole, Chief Financial Officer |
|
|
|
|
|
|
and Treasurer |
|
|
17
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on this 27th day of February, 2007, by the following persons on behalf of us and in
the capacities indicated.
Each Director whose signature appears below hereby appoints Matthew J. Missad and Michael R.
Cole, and each of them individually, as his attorney-in-fact to sign in his name and on his behalf
as a Director, and to file with the Commission any and all amendments to this report on Form 10-K
to the same extent and with the same effect as if done personally.
|
|
|
/s/ Peter F. Secchia
|
|
/s/ William G. Currie |
|
|
|
Peter F. Secchia, Director
|
|
William G. Currie, Director |
|
|
|
/s/ Dan M. Dutton
|
|
/s/ John M. Engler |
|
|
|
Dan M. Dutton, Director
|
|
John M. Engler, Director |
|
|
|
/s/ John W. Garside
|
|
/s/ Michael B. Glenn |
|
|
|
John W. Garside, Director
|
|
Michael B. Glenn, Director |
|
|
|
/s/ Gary F. Goode
|
|
/s/ Mark A. Murray |
|
|
|
Gary F. Goode, Director
|
|
Mark A. Murray, Director |
|
|
|
/s/ Louis A. Smith |
|
|
|
|
|
Louis A. Smith, Director |
|
|
18
EXHIBIT INDEX
|
|
|
|
|
Exhibit # |
|
Description |
3 |
|
Articles of Incorporation and Bylaws. |
|
|
|
|
|
|
|
(a)
|
|
Registrants Articles of Incorporation were filed as Exhibit 3(a) to a
Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference. |
|
|
|
|
|
|
|
(b)
|
|
Registrants Bylaws were filed as Exhibit 3(b) to a Registration
Statement on Form S-1 (No. 33-69474) and the same is incorporated herein by
reference. |
|
|
|
|
|
4 |
|
Instruments Defining the Rights of Security Holders. |
|
|
|
|
|
|
|
(a)
|
|
Specimen form of Stock Certificate for Common Stock was filed as
Exhibit 4(a) to a Registration Statement on Form S-1 (No. 33-69474) and the same is
incorporated herein by reference. |
|
|
|
|
|
10 |
|
Material Contracts. |
|
|
|
|
|
|
|
*(a)(3)
|
|
Consulting Agreement with Peter F. Secchia, dated December 31, 2002, and
Assignment dated January 1, 2003 was filed as Exhibit 10(a)(3) to a Form 10-K,
Annual Report for the year ended December 28, 2002 and the same is incorporated
herein by reference. |
|
|
|
|
|
|
|
*(a)(4)
|
|
Nondisclosure and Non-Compete Agreement with Peter F. Secchia, dated December
31, 2002 was filed as Exhibit 10(a)(4) to a Form 10-K, Annual Report for the year
ended December 28, 2002 and the same is incorporated herein by reference. |
|
|
|
|
|
|
|
*(a)(5)
|
|
Conditional Share Grant Agreement with William G. Currie dated April 17, 2002
was filed as Exhibit 10(a)(5) to a Form 10-K, Annual Report for the year ended
December 28, 2002 and the same is incorporated herein by reference. |
|
|
|
|
|
|
|
*(a)(6)
|
|
Form of Conditional Share Grant Agreement utilized under the Companys Long Term
Stock Incentive Plan, was filed as Exhibit 10(a) to a Form 10-Q Quarterly Report
for the quarter ended September 25, 2004 and the same is incorporated herein by
reference. |
|
|
|
|
|
|
|
(b)
|
|
Form of Indemnity Agreement entered into between the Registrant and
each of its directors was filed as Exhibit 10(b) to a Registration Statement on
Form S-1 (No. 33-69474) and the same is incorporated herein by reference. |
E-1
|
|
|
|
|
Exhibit # |
|
Description |
|
|
*(e)(1)
|
|
Form of Executive Stock Option Agreement was filed as Exhibit 10(e)(1) to a
Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference. |
|
|
|
|
|
|
|
*(e)(2)
|
|
Form of Officers Stock Option Agreement was filed as Exhibit 10(e)(2) to a
Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference. |
|
|
|
|
|
|
|
*(f)
|
|
Salaried Employee Bonus Plan was filed as Exhibit 10(f) to a
Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated
herein by reference. |
|
|
|
|
|
|
|
(i)(4)
|
|
Series 2004-A, Credit Agreement dated December 20, 2004 was filed as Exhibit
10(i) to a Form 8-K Current Report dated December 21, 2004 and the same is
incorporated herein by reference. |
|
|
|
|
|
|
|
(i)(5)
|
|
First Amendment dated February 12, 2007 relating to Series 2004-A, Credit
Agreement dated December 20, 2004 was filed as Exhibit 10(i) to a Form 8-K Current
Report dated February 15, 2007 and the same is incorporated herein by reference. |
|
|
|
|
|
|
|
(j)(1)
|
|
Series 1998-A, Senior Note
Agreement dated December 21, 1998 was filed as Exhibit
10(j)(1) to a Form 10-K Annual Report for the year ended December 26, 1998, and the
same is incorporated herein by reference. |
|
|
|
|
|
|
|
(j)(2)
|
|
Series 2002-A, Senior Note Agreement dated December 18, 2002 was filed as Exhibit
10(j)(2) to a Form 10-K Annual Report for the year ended December 28, 2002 and the
same is incorporated herein by reference. |
|
|
|
|
|
|
|
(k)(1)
|
|
Program for Accounts Receivable Transfer (PARTS) Agreement dated September 22,
2003 was filed as Exhibit 10(k)(1) to a Form 10-Q Quarterly Report for the quarter
ended September 27, 2003 and the same is incorporated herein by reference. |
|
|
|
|
|
|
|
(k)(2)
|
|
Deposit Account Control Agreement dated September 22, 2003, completed pursuant to
the PARTS Agreement, was filed as Exhibit 10(k)(2) to a Form 10-Q, Quarterly Report
for the quarter ended September 27, 2003 and the same is incorporated herein by
reference. |
|
|
|
|
|
|
|
(k)(3)
|
|
Program for Accounts Receivable Transfer (PARTS) Agreement dated November 12,
2004 was filed as Exhibit 10(k) to a Form 8-K Current Report dated November 15,
2004 and the same is incorporated herein by reference. |
E-2
|
|
|
|
|
Exhibit # |
|
Description |
|
|
|
|
|
|
|
(k)(4)
|
|
Program for Accounts Receivable Transfer (PARTS) Agreement dated March 7, 2006
was filed as Exhibit 10(k)(4) to a Form 10-K Annual Report for the year ended
December 31, 2005 and the same is incorporated herein by reference. |
|
13 |
|
Selected portions of the Companys Annual Report to Shareholders for the fiscal year ended
December 30, 2006. |
|
|
|
|
|
14 |
|
Code of Ethics for Senior Financial Officers |
|
|
|
|
|
|
|
(a)
|
|
Code of Ethics for Chief Financial Officer was filed as Exhibit 14(a)
to a Form 10-K, Annual Report for the year ended December 25, 2004 and the same is
incorporated herein by reference. |
|
|
|
|
|
|
|
(b)
|
|
Code of Ethics for Vice President of Accounting and Administration was
filed as Exhibit 14(a) to a Form 10-K, Annual Report for the year ended December
25, 2004 and the same is incorporated herein by reference. |
|
|
|
|
|
|
|
(c)
|
|
Code of Ethics for Vice President of Accounting was filed as Exhibit
14(c) to a Form 10-K, Annual Report for the year ended December 31, 2005 and the
same is incorporated herein by reference. |
|
21 |
|
Subsidiaries of the Registrant. |
|
|
|
|
|
23 |
|
Consent of Ernst & Young LLP. |
|
|
|
|
|
31 |
|
Certifications. |
|
|
|
|
|
|
|
(a)
|
|
Certificate of the Chief Executive Officer of Universal Forest
Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350). |
|
|
|
|
|
|
|
(b)
|
|
Certificate of the Chief Financial Officer of Universal Forest
Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350). |
|
|
|
|
|
32 |
|
Certifications. |
|
|
|
|
|
|
|
(a)
|
|
Certificate of the Chief Executive Officer of Universal Forest
Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350). |
|
|
|
|
|
|
|
(b)
|
|
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). |
|
|
|
* |
|
Indicates a compensatory arrangement. |
E-3
exv13
Universal Forest
Products, Inc.
Financial
Information
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
|
15
|
|
|
|
|
|
|
Managements
Annual Report on Internal Control Over Financial
Reporting
|
|
|
30
|
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting
|
|
|
31
|
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm
|
|
|
32
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 30, 2006 and
December 31, 2005
|
|
|
33
|
|
|
|
|
|
|
Consolidated
Statements of Earnings for the Years Ended December 30,
2006, December 31, 2005, and December 25,
2004
|
|
|
34
|
|
|
|
|
|
|
Consolidated
Statements of Shareholders Equity for the Years Ended
December 30, 2006, December 31, 2005, and
December 25, 2004
|
|
|
35
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 30,
2006, December 31, 2005, and December 25,
2004
|
|
|
36
|
|
|
|
|
|
|
Notes to
Consolidated Financial Statements
|
|
|
38
|
|
|
|
|
|
|
Price Range of
Common Stock and Dividends
|
|
|
57
|
|
|
|
|
|
|
Stock Performance
Graph
|
|
|
58
|
|
|
|
|
|
|
Directors and
Executive Officers
|
|
|
59
|
|
|
|
|
|
|
Shareholder
Information
|
|
|
60
|
|
13
Selected
Financial Data
(In thousands, except per share and statistics data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
Consolidated Statement of
Earnings Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,664,572
|
|
|
$
|
2,691,522
|
|
|
$
|
2,453,281
|
|
|
$
|
1,898,830
|
|
|
$
|
1,639,899
|
|
Gross profit
|
|
|
381,682
|
|
|
|
359,256
|
|
|
|
296,253
|
|
|
|
257,986
|
|
|
|
230,410
|
|
Earnings before income taxes and
minority interest
|
|
|
112,135
|
|
|
|
110,772
|
|
|
|
83,059
|
|
|
|
65,792
|
|
|
|
62,115
|
|
Net earnings
|
|
|
70,125
|
|
|
|
67,373
|
|
|
|
48,603
|
|
|
|
40,119
|
|
|
|
36,637
|
|
Diluted earnings per share
|
|
$
|
3.62
|
|
|
$
|
3.53
|
|
|
$
|
2.59
|
|
|
$
|
2.18
|
|
|
$
|
1.97
|
|
Dividends per share
|
|
$
|
0.110
|
|
|
$
|
0.105
|
|
|
$
|
0.100
|
|
|
$
|
0.095
|
|
|
$
|
0.090
|
|
Weighted average shares outstanding
with common stock equivalents
|
|
|
19,370
|
|
|
|
19,106
|
|
|
|
18,771
|
|
|
|
18,379
|
|
|
|
18,619
|
|
Consolidated Balance Sheet
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital(1)
|
|
$
|
282,913
|
|
|
$
|
298,027
|
|
|
$
|
222,618
|
|
|
$
|
190,400
|
|
|
$
|
185,256
|
|
Total assets
|
|
|
913,441
|
|
|
|
876,920
|
|
|
|
762,360
|
|
|
|
686,931
|
|
|
|
638,874
|
|
Total debt and capital lease
obligations
|
|
|
170,097
|
|
|
|
209,497
|
|
|
|
207,142
|
|
|
|
213,186
|
|
|
|
243,572
|
|
Shareholders equity
|
|
|
514,742
|
|
|
|
431,852
|
|
|
|
356,769
|
|
|
|
305,104
|
|
|
|
264,804
|
|
Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percentage of net
sales
|
|
|
14.3
|
%
|
|
|
13.3
|
%
|
|
|
12.1
|
%
|
|
|
13.6
|
%
|
|
|
14.1
|
%
|
Net earnings as a percentage of net
sales
|
|
|
2.6
|
%
|
|
|
2.5
|
%
|
|
|
2.0
|
%
|
|
|
2.1
|
%
|
|
|
2.2
|
%
|
Return on beginning
equity(2)
|
|
|
16.2
|
%
|
|
|
18.9
|
%
|
|
|
15.9
|
%
|
|
|
15.2
|
%
|
|
|
13.6
|
%
|
Current ratio
|
|
|
2.47
|
|
|
|
2.46
|
|
|
|
2.21
|
|
|
|
2.33
|
|
|
|
2.64
|
|
Debt to equity ratio
|
|
|
0.33
|
|
|
|
0.49
|
|
|
|
0.58
|
|
|
|
0.70
|
|
|
|
0.92
|
|
Book value per common
share(3)
|
|
$
|
27.29
|
|
|
$
|
23.47
|
|
|
$
|
19.82
|
|
|
$
|
17.13
|
|
|
$
|
14.93
|
|
|
|
|
(1) |
|
Current assets less current liabilities. |
|
(2) |
|
Net earnings divided by beginning shareholders equity
(including temporary shareholders equity). |
|
(3) |
|
Shareholders equity divided by common stock outstanding. |
14
We advise you to read the issues discussed in Managements
Discussion and Analysis of Financial Condition and Results of
Operations in conjunction with our Consolidated Financial
Statements and the Notes to the Consolidated Financial
Statements included in this Annual Report for the year ended
December 30, 2006. We also encourage you to read our Annual
Report on
Form 10-K,
filed with the United States Securities and Exchange Commission.
That report includes Risk Factors that you should
consider in connection with any decision to buy or sell our
securities. We are pleased to present this overview of 2006.
Overview
Our results for 2006 were highlighted by:
|
|
|
Our organic sales growth in the site-built construction and
industrial markets as we increased our market share in each. In
the third quarter of 2006 our results were impacted by a decline
in housing starts that worsened in our fourth quarter. The
decline in housing starts is a result of an excess supply of
single-family homes in many regions of the country. We currently
anticipate a decline in housing starts in 2007 compared to 2006
as the industry works through this excess supply.
|
|
|
Our unit sales to the do-it-yourself/retail
(DIY/retail) market declined primarily due to a
decrease in consumer spending combined with a decline in housing
starts and existing home sales. The effect of these market
conditions was partially offset by market share gains with
big box customers.
|
|
|
Our unit sales to the manufactured housing market decreased due
to adverse industry conditions as HUD code production decreased
approximately 20%, partially due to FEMA orders in the fourth
quarter of 2005 related to Hurricanes Katrina and Rita. We were
able to gain market share this year which helped mitigate part
of the impact of these difficult industry conditions.
|
|
|
Lumber prices were approximately 16% lower on average compared
to the same period of 2005. This resulted in lowering our
overall selling prices (see Impact of the Lumber Market on
Our Operating Results below) and working capital
requirements.
|
|
|
The 6% increase in gross profit dollars we achieved surpassed
our 3% increase in units shipped. Our improved profitability was
primarily due to a combination of:
|
|
|
|
|
|
Increased sales of higher margin, value-added products to 56.8%
of total sales from 52.7% of total sales last year.
|
|
|
|
Improved profitability on sales to our industrial market.
|
|
|
|
Cost efficiencies we achieved through our company-wide
innovation program.
|
|
|
|
A decrease in interest-bearing debt to $170.1 million from
$209.5 million, in spite of nearly $71.8 million
invested in acquisitions to drive future growth, due to strong
cash flows.
|
|
|
We completed several strategic business combinations which are
highlighted under the caption Business Combinations and
Asset Purchases.
|
|
|
We recently announced our new five year growth plan entitled
GO (Growth and Opportunity) 2010 which is discussed
under the caption Forward Outlook.
|
In summary, we remain optimistic about the future of our
business, markets, and strategies, and our employees remain
focused on adding value for our customers, executing our
strategies, and meeting our goals.
15
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Historical
Lumber Prices
The following table presents the Random Lengths framing lumber
composite price for the years ended December 30, 2006,
December 31, 2005, and December 25, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Random Lengths
Composite
|
|
|
|
Average
$/MBF
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
January
|
|
$
|
382
|
|
|
$
|
381
|
|
|
$
|
341
|
|
February
|
|
|
377
|
|
|
|
420
|
|
|
|
376
|
|
March
|
|
|
368
|
|
|
|
422
|
|
|
|
382
|
|
April
|
|
|
369
|
|
|
|
407
|
|
|
|
431
|
|
May
|
|
|
341
|
|
|
|
386
|
|
|
|
456
|
|
June
|
|
|
326
|
|
|
|
405
|
|
|
|
423
|
|
July
|
|
|
309
|
|
|
|
381
|
|
|
|
426
|
|
August
|
|
|
296
|
|
|
|
360
|
|
|
|
473
|
|
September
|
|
|
292
|
|
|
|
395
|
|
|
|
441
|
|
October
|
|
|
274
|
|
|
|
373
|
|
|
|
378
|
|
November
|
|
|
276
|
|
|
|
359
|
|
|
|
355
|
|
December
|
|
|
288
|
|
|
|
365
|
|
|
|
376
|
|
Annual average
|
|
$
|
325
|
|
|
$
|
388
|
|
|
$
|
405
|
|
Annual percentage change
|
|
|
(16.2
|
%)
|
|
|
(4.2
|
%)
|
|
|
30.6
|
%
|
In addition, a Southern Yellow Pine (SYP) composite
price, which we prepare and use, is presented below. Sales of
products produced using this species may comprise up to 50% of
our sales volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Random Lengths
SYP
|
|
|
|
Average
$/MBF
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
January
|
|
$
|
496
|
|
|
$
|
446
|
|
|
$
|
410
|
|
February
|
|
|
503
|
|
|
|
489
|
|
|
|
436
|
|
March
|
|
|
514
|
|
|
|
501
|
|
|
|
487
|
|
April
|
|
|
510
|
|
|
|
511
|
|
|
|
532
|
|
May
|
|
|
488
|
|
|
|
500
|
|
|
|
535
|
|
June
|
|
|
444
|
|
|
|
538
|
|
|
|
498
|
|
July
|
|
|
409
|
|
|
|
536
|
|
|
|
479
|
|
August
|
|
|
394
|
|
|
|
503
|
|
|
|
503
|
|
September
|
|
|
387
|
|
|
|
501
|
|
|
|
473
|
|
October
|
|
|
363
|
|
|
|
463
|
|
|
|
429
|
|
November
|
|
|
365
|
|
|
|
436
|
|
|
|
394
|
|
December
|
|
|
396
|
|
|
|
462
|
|
|
|
408
|
|
Annual average
|
|
$
|
439
|
|
|
$
|
491
|
|
|
$
|
465
|
|
Annual percentage change
|
|
|
(10.6
|
%)
|
|
|
5.6
|
%
|
|
|
17.1
|
%
|
Impact of the
Lumber Market on Our Operating Profits
We experience significant fluctuations in the cost of commodity
lumber products from primary producers (Lumber
Market). We generally price our products to pass lumber
costs through to our customers so our profitability is based on
the value-added manufacturing, distribution, engineering, and
other services we provide. As a result, our sales levels (and
working capital requirements) are impacted by the lumber costs
of our products. Lumber costs are a significant percentage of
our cost of goods sold.
16
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
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 trend 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 DIY/retail
customers, as well as trusses, wall panels, and other components
sold to the site-built construction market, and most industrial
packaging products. 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 reduce any exposure to adverse
trends in the price of component lumber products, we
attempt to lock in costs for these sales commitments with our
suppliers. Also, the time period and quantity limitations
generally allow us to re-price our products for changes in
lumber costs 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
primarily include treated lumber, remanufactured lumber, and
trusses sold to the manufactured housing market. For these
products, we estimate the customers needs and carry
anticipated levels of inventory. Because lumber costs are
incurred 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 the following products:
|
|
|
Products with significant inventory levels and low
turnover rates, whose selling prices are indexed to the Lumber
Market. In other words, the longer the period
of time these products remain in inventory, the greater the
exposure to changes in the price of lumber. This would include
treated lumber, which comprises almost 16% of our total sales.
This exposure is less significant with remanufactured lumber,
trusses sold to the manufactured housing market, and other
similar products, due to the higher rate of inventory turnover.
We attempt to mitigate the risk associated with treated lumber
through vendor consignment inventory programs.
|
|
|
Products with fixed selling prices sold under long-term
supply arrangements, particularly those involving multi-family
construction projects. We attempt to mitigate
this risk through our purchasing practices by locking in costs.
|
In addition to the impact of Lumber Market trends on
gross margins, changes in the level of the market cause
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.
17
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Business
Combinations and Asset Purchases
All of the transactions mentioned below are considered business
combinations. See Note B to the Consolidated Financial
Statements for further details. Each business combination has
been accounted for using the purchase method.
|
|
|
|
|
Company
Name
|
|
Acquisition
Date
|
|
Business
Description
|
|
|
Banks Lumber (Banks)
|
|
November 17, 2006
|
|
Manufactures roof trusses and
cut-to-size
structural lumber for manufactured housing and recreational
vehicle (RV) manufacturers nationwide. The company currently has
continuing operations in Elkhart, IN, Edwardsburg, MI,
Morristown, TN, Auburndale, FL and Hillsboro, TX.
|
GeoMatrix, Inc.
(GeoMatrix)
|
|
August 18, 2006
|
|
Develops and distributes plastic
lattice products and other proprietary plastic products.
|
United Lumber and Reman, LLC
(United)
|
|
July 10, 2006
|
|
Manufactures industrial wood
products and is located in Muscle Schoals, AL. Acquired a 50%
membership interest.
|
Dura-Bilt Mfg. Co.
(Dura-Bilt)
|
|
June 5, 2006
|
|
Designs and manufactures roof and
floor trusses for site-built construction. The company is
located in Riverbank, CA.
|
Shawnlee Construction, LLC
(Shawnlee)
|
|
April 3, 2006, June 27,
2005 and
April 2, 2004
|
|
Provides framing services for
multi-family construction in the Northeast. Located in
Plainville, MA. Purchased initial 50% membership interest on
April 2, 2004, an additional 25% membership interest on
June 27, 2005, and an additional 5% membership interest on
April 3, 2006.
|
Classic Truss Company, Inc.
(Classic)
|
|
January 9, 2006
|
|
Manufactures and distributes
engineered wood components for site-built construction. The
company is located in Fort Pierce, FL.
|
DecKorators, Inc.
(DecKorators)
|
|
November 14, 2005
|
|
Provides decorative balusters and
accessories for residential decks and porches to independent
dealers and certain big box home improvement
retailers. The company has locations in Crestwood and St. Louis,
MO.
|
Shepardville Construction, Inc. and
AW Construction, LLC (Shepardville and AW)
|
|
June 27, 2005
|
|
Installs interior products such as
base boards, crown moldings, window sills and casings, doors,
and cabinets for commercial and multi-family construction
projects. Located in Warwick, RI and Wolcott, CT. These entities
were merged on January 1, 2006.
|
18
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
|
|
|
|
|
Company
Name
|
|
Acquisition
Date
|
|
Business
Description
|
|
|
Maine Ornamental Woodworkers, Inc.
(Maine Ornamental)
|
|
June 2, 2005
|
|
Provides decorative post caps for
fencing and decking applications to two-step distributors and
certain big box home improvement retailers. The
company has locations in Winthrop and Eliot, ME and Bainbridge
Island, WA.
|
Slaughter Industries
(Slaughter)
|
|
March 15, 2004
|
|
Distributes lumber products and
manufactures engineered wood components for site-built
construction. Located in Dallas, TX.
|
Midwest Building Systems, Inc.
(Midwest)
|
|
January 30, 2004
|
|
Manufactures engineered wood
components for site-built construction. Located in
Indianapolis, IN.
|
Results of
Operations
The following table presents, for the periods indicated, the
components of our Consolidated Statements of Earnings as a
percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 25,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
85.7
|
|
|
|
86.7
|
|
|
|
87.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14.3
|
|
|
|
13.3
|
|
|
|
12.1
|
|
Selling, general and administrative
expenses
|
|
|
9.7
|
|
|
|
8.8
|
|
|
|
8.2
|
|
Gain on insurance settlement
|
|
|
|
|
|
|
|
|
|
|
(0.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
4.6
|
|
|
|
4.5
|
|
|
|
3.9
|
|
Interest, net
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
|
(0.6
|
)
|
Net gain on sale of real estate and
interest in subsidiary
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and
minority interest
|
|
|
4.2
|
|
|
|
4.1
|
|
|
|
3.4
|
|
Income taxes
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before minority interest
|
|
|
2.7
|
|
|
|
2.6
|
|
|
|
2.1
|
|
Minority interest
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
2.6
|
%
|
|
|
2.5
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Sales
We engineer, manufacture, treat, distribute and install lumber,
composite wood, plastic, and other building products for the
DIY/retail, site-built construction, manufactured housing, and
industrial markets. Our strategic sales objectives include:
|
|
|
Diversifying our end market sales mix by increasing sales of
specialty wood packaging to industrial users.
|
|
|
Expanding geographically in our core businesses.
|
|
|
Increasing sales of value-added products and framing
services. Value-added product sales primarily consist of
fencing, decking, lattice, and other specialty products sold to
the DIY/retail market, specialty wood packaging, engineered wood
components, and wood alternative products.
Engineered wood components include roof trusses, wall panels,
and floor systems. Wood alternative products consist primarily
of composite wood and plastics. 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.
|
19
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
|
|
|
Maximizing unit sales growth while achieving return on
investment goals.
|
The following table presents, for the periods indicated, our
gross sales (in thousands) and change in gross sales by market
classification.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended
|
|
|
|
|
|
|
|
December 30,
|
|
|
%
|
|
|
December 31,
|
|
|
%
|
|
|
December 25,
|
|
Market
Classification
|
|
2006
|
|
|
Change
|
|
|
2005
|
|
|
Change
|
|
|
2004
|
|
|
|
|
DIY/retail
|
|
$
|
962,240
|
|
|
|
(5.0
|
)
|
|
$
|
1,012,531
|
|
|
|
1.0
|
|
|
$
|
1,002,427
|
|
Site-Built Construction
|
|
|
811,923
|
|
|
|
7.7
|
|
|
|
753,791
|
|
|
|
17.8
|
|
|
|
640,053
|
|
Manufactured Housing
|
|
|
382,203
|
|
|
|
(13.1
|
)
|
|
|
440,036
|
|
|
|
14.3
|
|
|
|
384,935
|
|
Industrial
|
|
|
550,669
|
|
|
|
4.3
|
|
|
|
527,946
|
|
|
|
14.6
|
|
|
|
460,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Sales
|
|
|
2,707,035
|
|
|
|
(1.0
|
)
|
|
|
2,734,304
|
|
|
|
9.9
|
|
|
|
2,487,941
|
|
Sales allowances
|
|
|
(42,463
|
)
|
|
|
|
|
|
|
(42,782
|
)
|
|
|
|
|
|
|
(34,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
2,664,572
|
|
|
|
(1.0
|
)
|
|
$
|
2,691,522
|
|
|
|
9.7
|
|
|
$
|
2,453,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
During 2006, we reviewed our customer lists and made certain
reclassifications. Historical information has been restated to
reflect these reclassifications. |
The following table presents estimates, for the periods
indicated, of our percentage change in gross sales which were
attributable to changes in overall selling prices versus changes
in units shipped.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
in
Sales
|
|
|
in Selling
Prices
|
|
|
in
Units
|
|
|
|
|
|
|
2006 versus 2005
|
|
|
−1
|
%
|
|
|
−4
|
%
|
|
|
+3
|
%
|
2005 versus 2004
|
|
|
+10
|
%
|
|
|
+2
|
%
|
|
|
+8
|
%
|
2004 versus 2003
|
|
|
+29
|
%
|
|
|
+18
|
%
|
|
|
+11
|
%
|
In 2006, we estimate that our unit sales increased by 2% as a
result of business acquisitions and new plants, our unit sales
decreased by 1% as a result of closed facilities, and our unit
sales out of existing facilities increased by 2%. Our overall
selling prices fluctuate as a result of the Lumber Market (see
Historical Lumber Prices), since our pricing
practices are designed to pass these costs along to our
customers. (See Impact of the Lumber Market on our
Operating Results.)
In 2005, we estimate that our unit sales increased by 1% as a
result of business combinations and new plants, while our unit
sales out of existing facilities increased by 7%.
Changes in our sales by market are discussed below.
DIY/Retail:
Gross sales to the DIY/retail market decreased 5% in 2006
compared to 2005, as a result of a 3% decrease in units shipped
and a 2% decrease in overall selling prices due to the Lumber
Market. Our decline in unit sales was a result of a 5% decline
in unit sales out of existing and closed facilities, offset by a
2% increase in unit sales attributable to our business
acquisitions of DecKorators and GeoMatrix. Our unit sales out of
existing facilities declined due in part to decreases in
consumer spending and housing starts. These decreases were
partially offset by market share gains we realized with our
big box customers.
Gross sales to the DIY/retail market increased 1% in 2005
compared to 2004, due to the higher Lumber Market for SYP. Our
unit sales declined 3% comparing the two periods, due, in part,
to our strategy to walk away from certain business that did not
meet profitability expectations and to better balance our
business by growing our other markets faster than the DIY/retail
market. This unit sales decline was offset slightly by our
acquisition of Maine Ornamental.
Site-Built
Construction:
Gross sales to the site-built construction market increased 8%
in 2006 compared to 2005, due to an increase in unit sales as
selling prices remained relatively flat. Unit sales increased 1%
as a result of acquisitions and new facilities combined with 7%
organic growth out of several existing facilities. Our growth
was a result of strong housing and multi-family construction
activities in certain regions during the first six months of
2006 and greater market penetration by offering turn-key framing
and lumber packages in addition to wall panels in some regions.
In addition, our multi-family framing operation in the Northeast
achieved significant increases in sales and
20
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
gained market share. A dramatic decline in housing starts
beginning in the third quarter and continuing through the fourth
quarter of 2006 negatively impacted our unit sales of engineered
trusses and offset part of the positive results mentioned above.
Gross sales to the site-built construction market increased 18%
in 2005 compared to 2004, primarily due to an estimated 17%
increase in unit sales. Unit sales increased as a result of
acquisitions and new facilities combined with 13% organic growth
out of several existing facilities, particularly those in our
Carolina, Southern California and Texas regions.
Manufactured
Housing:
Gross sales to the manufactured housing market decreased 13% in
2006 compared to 2005. The decrease resulted from a 5% decrease
in units shipped and an 8% decrease in selling prices due to the
Lumber Market. Our decline in unit sales resulted from a
significant decline in industry production. Industry production
of HUD code homes decreased 20% in 2006, including a 50% decline
in the fourth quarter due to hurricane-related sales last year.
Modular home production declined 20% in 2006. We were able to
mitigate part of the impact of these difficult market conditions
by increasing our market share through organic growth and the
acquisition of Banks in November 2006.
Gross sales to the manufactured housing market increased 14% in
2005 compared to 2004, due to organic sales growth. An increase
in units shipped primarily resulted from achieving increased
market share with modular home producers and an increase in
manufactured housing production in the fourth quarter due to
Hurricanes Katrina and Rita. Industry production for HUD code
homes increased 12% in 2005, including a 43% increase in the
fourth quarter of 2005.
Industrial:
Gross sales to industrial customers increased 4% in 2006
compared to 2005, due to an estimated 12% increase in units
shipped, partially offset by an 8% decrease in selling prices
due to the Lumber Market. Our unit sales increase was the result
of organic growth out of several existing facilities. Since
December 2005 we have added nearly 1,200 new accounts and have
been successful at increasing our sales with existing customers.
We believe our unit sales and market share continue to grow
significantly due to our dedicated local sales teams and
national sales support efforts, combined with our competitive
advantages in manufacturing, purchasing, and material
utilization.
Gross sales to industrial customers increased 15% in 2005
compared to 2004, due to an estimated 14% increase in units
shipped. Units shipped increased as a result of organic growth
out of several existing plants, particularly those in our
Southeast, West Central, and Southwest regions. Weve added
almost 1,000 new accounts since December 2004 and we have been
successful at significantly increasing our sales with existing
accounts.
Value-Added
and Commodity-Based Sales:
The following table presents, for the periods indicated, our
percentage of value-added and commodity-based sales to total
sales.
|
|
|
|
|
|
|
|
|
|
|
Value-Added
|
|
|
Commodity-Based
|
|
|
|
|
|
|
2006
|
|
|
56.8
|
%
|
|
|
43.2
|
%
|
2005
|
|
|
52.7
|
%
|
|
|
47.3
|
%
|
2004
|
|
|
50.7
|
%
|
|
|
49.3
|
%
|
Value-added sales increased 7% in 2006 compared to 2005,
primarily due to increased sales of framing services to the
site-built
market and increased sales of fence fundamentals and deck
necessities to the DIY/retail market. Commodity-based sales
decreased 10% primarily due to a decrease in unit sales of
treated lumber to the DIY/retail market, lumber packages to the
site-built construction market and the decline in the level of
the Lumber Market.
Value-added sales increased 14% in 2005 compared to 2004,
primarily due to increased sales of engineered wood components
and industrial packaging products. Commodity-based sales
increased 5% primarily due to increased sales of lumber packages
to site-built construction customers.
21
Universal Forest
Products, Inc.
Managements 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 to 14.3% in
2006 compared to 13.3% in 2005 due, in part, to the lower
level of the Lumber Market in 2006. Our gross profit
dollars increased by 6% in 2006, while our units shipped
increased by 3%. Our improved profitability was primarily due to
a combination of:
|
|
|
Increased sales of higher margin, value-added products.
|
|
|
Improved profitability on sales to our industrial market.
|
|
|
Cost efficiencies we achieved through our company-wide
innovation program.
|
Gross profit as a percentage of net sales increased to 13.3% in
2005 compared to 12.1% in 2004 and our gross profit dollars
increased by almost 21% in 2005, while our units shipped
increased by 8%. Our improved profitability was primarily due to
a combination of:
|
|
|
Improved results from certain under-performing operations,
including the down-sizing of one of our western framing
operations.
|
|
|
Improved profitability on sales of engineered wood components.
|
|
|
Increased sales of higher margin products, such as engineered
wood components used in site-built and modular housing and
industrial packaging.
|
|
|
Walking away from certain business with our largest customer
that did not meet profitability expectations.
|
|
|
Cost efficiencies we achieved through our company-wide
innovation program and organic sales growth.
|
Selling,
General, and Administrative Expenses
SG&A expenses increased 10% in 2006, which compares
unfavorably with our 3% increase in unit sales. Business
acquisitions and new plants added $12.9 million in SG&A
expenses, which represents approximately 50% of the overall
increase. The remaining increase was primarily due to increases
in compensation and benefit expenses, travel-related expenses,
professional services and stock based compensation expense.
These amounts were partially offset by a decline in bad debt
expense and liability insurance expense.
SG&A expenses increased 17% in 2005, which compares
unfavorably with our 8% increase in unit sales. This increase
was primarily due to increased headcount to support our
site-built construction and industrial businesses, greater
health care costs, certain taxes, amortization of intangible
assets associated with recent acquisitions, and incentive
compensation tied to operating profits and return on investment.
Stock-Based
Compensation
See Notes to Consolidated Financial Statements, Note I,
Stock-Based Compensation.
Gain on
Insurance Settlement
In April 2004, our plant in Thorndale, Ontario was destroyed by
a fire. In accordance with Financial Interpretation No.
(FIN) 30, Accounting for Involuntary
Conversions of Non-Monetary Assets to Monetary Assets, we
have written off the net book value of the destroyed inventory
and property totaling $3.6 million. The insured value of
the property exceeded its net book value by approximately
$1.4 million, which was recorded as a gain on insurance
settlement. As of December 25, 2004, we collected
$2.0 million of insurance proceeds and the remaining
insurance receivable totaled approximately $3.0 million and
was recorded in other current assets. This receivable was
collected in 2005.
Interest,
Net
Net interest costs were lower in 2006 compared to 2005 due to a
combination of increased income on investments held by our
wholly-owned insurance captive and a decline in interest
expense, in spite of higher borrowing rates on our variable rate
debt. The overall decline in interest expense is also
attributable to our decreased borrowings under our revolving
credit facility.
Net interest costs were slightly lower in 2005 compared to 2004
due to increased investment income on investments held by our
wholly-owned insurance captive. Interest expense increased
slightly as a decline in our average debt level was offset by
higher borrowing rates on our variable rate debt.
22
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Sale of Real
Estate and Interest in Subsidiary
On November 9, 2006 we sold real estate located in
Riverside, CA for $0.6 million and recorded a pre-tax gain
totaling approximately $0.6 million.
On January 3, 2005, we sold real estate located in
Stockton, CA for $2.3 million and recorded a pre-tax gain
totaling approximately $1.2 million.
We entered into the following transactions in 2004:
|
|
|
In January 2004, we sold our 60% ownership in Nascor
Incorporated, a Calgary, Alberta-based manufacturer of
engineered wood components and licensor of I-joist manufacturing
technology. The total sales price we collected was
$4.7 million and we recorded a pre-tax accounting loss of
approximately $193,000.
|
|
|
In March 2004, we sold a plant in Bend, OR and recognized a
pre-tax gain of approximately $562,000 on the sale in the first
quarter and an additional $207,000 in the second quarter as we
collected the note receivable issued to us on the sale.
|
|
|
In June 2004, we sold a plant in Modesto, CA and recognized a
pre-tax gain of approximately $368,000.
|
|
|
In December 2004, we sold real estate in Elkhart, IN and
Thornton, CA and recognized a net pre-tax gain of $426,000.
|
Income
Taxes
Effective tax rates differ from statutory federal income tax
rates, primarily due to provisions for state and local income
taxes and permanent tax differences. Our effective tax rate
decreased to 34.6% in 2006 compared to 37.1% in 2005 primarily
due to a $4.5 million estimated benefit from federal
research & development tax credits for 2001
2006 combined with a decline in our effective state income tax
rate due to tax credits received in 2006, partially offset by a
$1.1 million expense to establish a valuation allowance
against a net operating loss carry forward for our Canadian
subsidiary.
Our effective tax rate decreased to 37.1% in 2005 compared to
37.9% in 2004 as a result of the new manufacturing deduction
allowed in 2005 under the Jobs Creation Act and income taxes
accrued on the sale of Nascor Incorporated in 2004.
Off-Balance
Sheet Transactions and Contractual Obligations
We have no significant off-balance sheet transactions other than
operating leases. The following table summarizes our contractual
obligations as of December 30, 2006 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by
Period
|
|
|
|
Less
than
|
|
|
1 -
3
|
|
|
3 -
5
|
|
|
After
|
|
|
|
|
Contractual
Obligation
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
|
Long-term debt
|
|
$
|
680
|
|
|
$
|
110,342
|
|
|
$
|
505
|
|
|
$
|
58,570
|
|
|
$
|
170,097
|
|
Estimated interest on long-term debt
|
|
|
10,381
|
|
|
|
15,184
|
|
|
|
6,345
|
|
|
|
10,733
|
|
|
|
42,643
|
|
Operating leases
|
|
|
13,788
|
|
|
|
19,718
|
|
|
|
8,971
|
|
|
|
543
|
|
|
|
43,020
|
|
Capital project purchase obligations
|
|
|
6,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,918
|
|
|
$
|
145,244
|
|
|
$
|
15,821
|
|
|
$
|
69,846
|
|
|
$
|
261,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2006, we also had $39.2 million in
outstanding letters of credit issued during the normal course of
business, as required by some vendor contracts.
23
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Liquidity and
Capital Resources
The table below presents, for the periods indicated, a summary
of our cash flow statement (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Cash from operating activities
|
|
$
|
152,322
|
|
|
$
|
74,132
|
|
|
$
|
50,234
|
|
Cash from investing activities
|
|
|
(111,705
|
)
|
|
|
(55,409
|
)
|
|
|
(37,256
|
)
|
Cash from financing activities
|
|
|
(35,724
|
)
|
|
|
2,218
|
|
|
|
(5,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash
equivalents
|
|
|
4,893
|
|
|
|
20,941
|
|
|
|
7,844
|
|
Cash and cash equivalents,
beginning of year
|
|
|
46,215
|
|
|
|
25,274
|
|
|
|
17,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
year
|
|
$
|
51,108
|
|
|
$
|
46,215
|
|
|
$
|
25,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In general, we financed our growth in the past through a
combination of operating cash flows, our revolving credit
facility, industrial development bonds (when circumstances
permit), and issuances of long-term notes payable at times when
interest rates are favorable. We have not issued equity to
finance growth except in the case of a large acquisition. We
manage our capital structure by attempting to maintain a
targeted ratio of debt to equity and debt to earnings before
interest, taxes, depreciation and amortization. We believe this
is one of many important factors to maintaining a strong credit
profile, which in turn helps ensure timely access to capital
when needed.
Seasonality has a significant impact on our working capital from
March to August which historically resulted in negative or
modest cash flows from operations in our first and second
quarters. Conversely, we experience a substantial decrease in
working capital from September to February which results in
significant cash flow from operations in our third and fourth
quarters.
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 (excluding the impact of our sale of receivable program)
decreased to 40 days in 2006 from 41 days in 2005 as
we were able to extend our payables cycle.
Cash flows from operating activities improved by approximately
$78 million in 2006 compared to 2005, primarily due to the
following:
|
|
|
A reduction in working capital requirements due to the decline
in the Lumber Market;
|
|
|
At the end of 2006 we had $29 million of receivables sold
and outstanding under our accounts receivable sale arrangement,
compared to the end of 2005 when we did not have this
arrangement in place;
|
|
|
Lower working capital requirements at the end of 2006 compared
to the end of 2005 due to a decline in business as a result of
difficult market conditions.
|
Cash used for investing activities increased by approximately
$56 million in 2006 compared to 2005 which was comprised of
the following noteworthy changes:
|
|
|
A $51.1 million increase in amounts spent for business
acquisitions, which totaled $71.8 million in 2006. Business
acquisitions consisted of approximately $2.1 to acquire the
assets of Classic, $8.4 million used to acquire the assets
of Dura-Bilt, approximately $0.8 million used to acquire
another 5% interest in Shawnlee, $4.5 million used to
acquire a 50% membership interest in United, $11.3 million
used to acquire the assets of GeoMatrix, and $44.7 million
used to acquire the assets of Banks;
|
|
|
A $3.2 million increase in capital expenditures;
|
|
|
And a $3 million decrease in the collection of insurance
proceeds.
|
Cash flows from financing activities primarily consisted of cash
paid to reduce the amount outstanding under our revolving credit
facility. On December 30, 2006, we had $15.8 million
outstanding on our $250 million revolving credit facility.
The revolving credit facility supports letters of credit
totaling approximately $36.7 million on December 30,
2006. Financial covenants on the unsecured revolving credit
facility and unsecured notes include a minimum net worth
requirement, minimum interest coverage tests, and a maximum
leverage ratio. The agreements also restrict the amount of
additional indebtedness we may incur and the amount of assets
which may be sold. We were within all of our lending
requirements on December 30, 2006.
24
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Environmental
Considerations and Regulations
See Notes to Consolidated Financial Statements, Note M,
Commitments, Contingencies, and Guarantees.
Critical
Accounting Policies
In preparing our consolidated financial statements, we follow
accounting principles generally accepted in the United States.
These principles require us to make certain estimates and apply
judgments that affect our financial position and results of
operations. We continually review our accounting policies and
financial information disclosures. Following is a summary of our
more significant accounting policies that require the use of
estimates and judgments in preparing the financial statements.
Accounts
Receivable Allowances
We record provisions against gross revenues for estimated
returns and cash discounts in the period when the related
revenue is recorded. These estimates are based on factors that
include, but are not limited to, historical discounts taken,
analysis of credit memorandum activity, and customer demand. We
also evaluate the allowance for uncollectible accounts
receivable and discounts based on historical collection
experience and specific identification of other potential
problems, including the economic climate. Actual collections can
differ, requiring adjustments to the allowances.
Self-Insurance
Reserves
We are primarily self-insured for certain employee health
benefits, and have self-funded retentions for general liability,
automobile liability, property and workers compensation.
We are fully self-insured for environmental liabilities. The
general liability, automobile liability, property, workers
compensation, and environmental liabilities are managed through
a wholly-owned insurance captive; the related assets and
liabilities of which are included in the consolidated financial
statements as of December 30, 2006. Our accounting policies
with respect to the reserves are as follows:
|
|
|
General liability, automobile, workers compensation
reserves are accrued based on third party actuarial valuations
of the expected future liabilities.
|
|
|
Health benefits are self-insured by us up to our pre-determined
stop loss limits. These reserves, including incurred but not
reported claims, are based on internal computations. These
computations consider our historical claims experience,
independent statistics, and trends.
|
|
|
The environmental reserve is based on known remediation
activities at certain wood preservation facilities and the
potential for undetected environmental matters at other sites.
The reserve for known activities is based on expected future
costs and is computed by in-house experts responsible for
managing our monitoring and remediation activities. (See
Environmental Considerations and Regulations.)
|
Revenue
Recognition
Earnings on construction contracts are reflected in operations
using either
percentage-of-completion
accounting, which includes the cost to cost and units of
delivery methods, or completed contract accounting, depending on
the nature of the business at individual operations. Under
percentage-of-completion
using the cost to cost method, revenues and related earnings on
construction contracts are measured by the relationships of
actual costs incurred related to the total estimated costs.
Under
percentage-of-completion
using the units of delivery method, revenues and related
earnings on construction contracts are measured by the
relationships of actual units produced related to the total
number of units. Revisions in earnings estimates on the
construction contracts are recorded in the accounting period in
which the basis for such revisions becomes known. Projected
losses on individual contracts are charged to operations in
their entirety when such losses become apparent. Under the
completed contract method, revenues and related earnings are
recorded when the contracted work is complete and losses are
charged to operations in their entirety when such losses become
apparent.
Long-Lived
Assets and Goodwill
We evaluate long-lived assets for indicators of impairment when
events or circumstances indicate that this risk may be present.
Our judgments regarding the existence of impairment are based on
market conditions, operational performance and estimated future
cash flows. If the carrying value of a long-lived asset is
considered impaired, an impairment charge is recorded to adjust
the asset to its fair value. In addition, we test goodwill for
impairment by utilizing the discounted cash flow method.
25
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
Recently
Issued Accounting Standards
See Notes to Consolidated Financial Statements, Note A,
Summary of Significant Accounting Policies.
Forward
Outlook
The following section contains 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 in the Risk Factors
section of our Annual Report on
Form 10-K,
filed with the United States Securities and Exchange Commission
and certain economic and business factors which may be beyond
our control. Investors are cautioned that all forward-looking
statements involve risks and uncertainties.
GO
2010
We recently announced our new five year growth plan entitled
GO (Growth and Opportunity) 2010, which includes
goals to be achieved by the end of our fiscal year 2010:
|
|
|
Increasing sales to $4 billion.
|
|
|
Improving productivity by 10%, which will be measured through a
variety of statistics such as sales per employee and operating
profit per employee.
|
|
|
Improving inventory turnover and our cash cycle by 10%.
|
|
|
Achieving 100% customer satisfaction.
|
|
|
Increasing opportunities for all employees.
|
The plan focuses on growing the business through organic and
acquisition growth, driving waste out of our processes through a
new program called Continuous Improvement The
Universal Way (Continuous Improvement), and changes
to the organizational structure intended to cultivate growth and
opportunity for the organization and its employees.
We anticipate growth in our business in 2007. Key assumptions
with respect to our 2007 outlook include:
|
|
|
A difficult housing market for the first half of 2007, which
improves later in the year as the excess supply of new
single-family homes subsides.
|
|
|
Stable or modest gains in home improvement expenditures driven
by the continued growth of aging housing stock, continued
increases in all-time home ownership rates, and strong home
sales in recent years.
|
|
|
A continued oversupply of lumber relative to demand, resulting
in low prices.
|
|
|
Opportunities for market share gains in site-built construction,
industrial business, and DIY/retail, including consumer products.
|
|
|
The complete integration of strategic business acquisitions that
occurred in 2006, such as Banks Lumber, and the acquisition of
Aljoma Lumber, Inc. (Aljoma) completed in February
2007. See Notes to Consolidated Financial Statements,
Note R, Subsequent Events.
|
Although we anticipate challenges in some of our markets in the
first six months of 2007, we are targeting unit sales growth of
10% to 15%, including the impact of acquisitions we completed in
2006 and the Aljoma acquisition we completed in 2007. We are
also targeting net earnings growth of 5% to 10% over 2006,
excluding the estimated $4.5 million federal
research & development tax credit and the
$1.1 million deferred tax valuation allowance mentioned
under the caption Income Taxes.
DIY/Retail
Market
The Home Improvement Research Institute forecasts an increase in
home improvement product sales of 1.3% to $315 billion in
2007. A slower pace of growth is forecasted due to a slow down
in consumer spending and a continued decline in housing market
activity in 2007.
26
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
In 2007, we believe our unit sales will increase primarily due
to additional market share gained with certain big
box home improvement retailers and additional unit sales
from recent acquisitions, offset somewhat by a decline in
housing activity. On a long-term basis, it is our goal to
achieve sales growth by:
|
|
|
Increasing our market share of value-added wood products and
preservative-treated products as a result of our national
presence, service capabilities that meet stringent customer
requirements, diversified product offering, and purchasing
leverage.
|
|
|
Increasing our sales of wood alternative products such as
composite wood decking, which continues to take market share
from preservative-treated products. Although we expect this
trend to continue to some extent, we believe wood products will
continue to maintain a dominant market share for the foreseeable
future as a result of its cost advantages over wood alternative
products.
|
|
|
Increasing our market penetration of products distributed by our
newly formed Consumer Products Division, including decorative
balusters, accessories, and post caps, plastic lattice and other
proprietary plastic products which have greatly enhanced our
deck and fencing product lines.
|
|
|
Developing new value-added products and services for this market
through our Consumer Products Division.
|
|
|
Adding capacity through strategic business acquisitions.
|
Site-Built
Construction Market
The National Association of Home Builders forecasts a
13.8% decline in housing starts to an estimated
1.56 million starts in 2007 as the industry continues to
recover from excess inventory levels of single-family homes.
In 2007, we believe the decline in single family housing starts
will adversely impact our sales. Our strategy during this
downturn is to continue to gain market share as a result of:
|
|
|
Our cost advantages over smaller competitors.
|
|
|
Sales of wall panels and our Open
Joisttm
product lines, which help our customers reduce costs compared to
products and methods of construction currently used.
|
|
|
Continuing to offer framing services.
|
|
|
Completing business acquisitions in regions where we do not have
a presence.
|
On a long-term basis, we anticipate growth in our sales to the
site-built construction market primarily as a result of market
share gains achieved through:
|
|
|
Acquisitions of component manufacturers and framing services
providers. We believe the trend whereby customers prefer to
purchase a combination of components and framing services will
continue. Therefore, our acquisition strategy includes targeted
markets for framing operations.
|
|
|
Greater customer acceptance of engineered wood components,
because of the benefits these products provide builders over
traditional carpentry methods employed on the job site.
|
|
|
Industry consolidation toward large production-oriented
builders, which tend to prefer the use of engineered products
and who desire suppliers with a national presence.
|
We expect that business acquisitions will play a major role in
our future growth in this market.
Manufactured
Housing Market
The Manufactured Housing Institute has made a preliminary
forecast of a slight decrease in shipments of HUD code homes in
2007. It is our goal to maintain our current market share of
trusses produced for this market, which increased as a result of
our acquisition of Banks Lumber in November 2006.
Sales of modular homes are expected to gain share in 2007 as a
result of more developers adopting the controlled building
environment of modular construction as a method of cost control.
In addition, these consumers are expected to continue to
experience more favorable lending rates compared to HUD code
homes. It is our goal to maintain our market share of trusses
produced for the modular market as a
27
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
result of our strong relationships with modular builders, design
services and proprietary products, and successful integration of
Banks Lumber.
Industrial
Market
One of our key strategic objectives is to increase our sales of
wood packaging products to industrial users. We believe the vast
amount of hardwood and softwood lumber consumed for industrial
applications, combined with the highly fragmented nature of this
market provides us with significant growth opportunities as a
result of our competitive cost advantages in manufacturing,
purchasing, and material utilization. To take advantage of these
opportunities, we plan to continue to obtain market share
through an internal growth strategy utilizing our current
manufacturing capabilities and dedicated industrial sales force.
On a long-term basis, we also plan to evaluate strategic
acquisition opportunities.
Gross
Profit
We believe the following factors may impact our gross profits
and margins in the future:
|
|
|
We have a long-term goal of continuing to increase our ratio of
value-added sales to total sales, which in turn should increase
gross margins. Our acquisition and internal sales growth
strategies will help us continue to make progress toward this
objective. However, achievement of this goal is dependent, in
part, upon certain factors that are beyond our control.
|
|
|
Our ability to increase sales and maintain gross margins on
products sold to our largest customers. We believe our level of
service, geographic diversity, and quality of products provides
an added value to our customers. If our customers are unwilling
to pay for these advantages, our sales and gross margins may be
reduced.
|
|
|
In the first half of 2007 we will experience challenging market
conditions. These conditions will continue to result in more
intense price competition
and/or a
reduction in sales of some products, particularly those for
site-built construction.
|
|
|
Fluctuations in the relative level of the Lumber Market and the
trend in the market price of lumber impact our gross margins.
(See Impact of the Lumber Market on our Operating
Results.)
|
|
|
Our ability to gain market share and the relative strength of
our end markets will impact our sales prices, capacity
utilization, and profitability.
|
|
|
Our ability to continue to achieve cost reductions through our
Continuous Improvement initiative.
|
Selling,
General, and Administrative Expenses
SG&A costs have increased at a rate greater than our unit
sales in recent years due, in part, to acquisitions of
engineered wood component manufacturers, which have extensive
engineering and design costs, our growth in sales to the
industrial market, and certain investments in technology.
However, we strive to achieve economies of scale in other
administrative departments as sales growth objectives are met.
We believe our Continuous Improvement initiative will help us
achieve this goal.
Liquidity and
Capital Resources
Our cash cycle will continue to be impacted in the future based
on our mix of sales by market. Sales to the site-built
construction and industrial markets require a greater investment
in working capital (inventory and accounts receivable) than our
sales to the DIY/retail and manufactured housing markets.
Management expects to spend $40 million on capital
expenditures in 2007 and incur depreciation and amortization of
intangible assets of approximately $46 million. Besides
maintenance capital expenditures totaling
approximately $35 million, we currently plan to spend an
additional $5 million to expand the business. On
December 30, 2006, we had outstanding purchase commitments
on capital projects of approximately $6.1 million.
We have no present intention to change our dividend policy,
which is currently $0.055 per share paid semi-annually.
Our Board of Directors has approved a share repurchase program
under which we have authorization to buy back approximately
1.5 million shares as of December 30, 2006. In the
past, we have repurchased shares in order to offset the effect
of issuances resulting from our employee benefit plans and at
times when our stock price falls to a pre-determined level.
28
Universal Forest
Products, Inc.
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(continued)
We are obligated to pay amounts due on long-term debt totaling
approximately $0.7 million in 2007.
On February 12, 2007, we amended and increased the size of
our unsecured revolving credit facility to $300 million,
which includes amounts reserved for letters of credit. The
facility is also used to fund seasonal working capital
requirements and growth, including acquisitions. We believe our
peak seasonal working capital requirements may consume up to
$100 million of this availability through June of 2007 and
then decrease for the balance of the year in line with
historical trends. We plan to finance our capital requirements
for the year through operating cash flows, the use of our sale
of receivables program, and use of our revolving credit facility.
On February 12, 2007, one of our subsidiaries acquired all
of the common shares of Aljoma Lumber, Inc. located in Medley,
FL, a leading manufacturer of pressure-treated wood and
industrial products that serves Southern Florida and the
Caribbean islands.
The purchase price of the common shares of Aljoma was
approximately $53.5 million.
29
Managements
Annual Report on Internal Control Over Financial
Reporting
The management of Universal Forest Products, Inc. is responsible
for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to
provide reasonable assurance to us and the Board of Directors
regarding the preparation and fair presentation of published
financial statements.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
We assessed the effectiveness of our internal control over
financial reporting as of December 30, 2006. In making this
assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control Integrated Framework. Based
on our assessment, management has concluded that as of
December 30, 2006, our internal control over financial
reporting was effective to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Our independent registered public accounting firm,
Ernst & Young LLP, has issued an audit report on
managements assessment of our internal control over
financial reporting. Their report immediately follows our report.
Universal Forest Products, Inc.
February 27, 2007
30
Report of
Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
The Board of Directors and Shareholders of Universal Forest
Products, Inc.
We have audited managements assessment, included in the
accompanying Managements Annual Report on Internal Control
over Financial Reporting, that Universal Forest Products, Inc.
and subsidiaries maintained effective internal control over
financial reporting as of December 30, 2006, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Universal Forest
Products, Inc. and subsidiaries management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an
opinion on the effectiveness of the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Universal
Forest Products, Inc. and subsidiaries maintained effective
internal control over financial reporting as of
December 30, 2006, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion,
Universal Forest Products, Inc. and subsidiaries maintained, in
all material respects, effective internal control over financial
reporting as of December 30, 2006, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Universal Forest Products, Inc.
and subsidiaries as of December 30, 2006 and
December 31,
2005, and the related consolidated statements of earnings,
shareholders equity, and cash flows for each of the three
years in the period ended December 30, 2006 of Universal
Forest Products, Inc. and subsidiaries and our report dated
February 12, 2007 expressed an unqualified opinion thereon.
Grand Rapids, Michigan
February 12, 2007
31
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Universal Forest
Products, Inc.
We have audited the accompanying consolidated balance sheets of
Universal Forest Products, Inc. and subsidiaries as of
December 30, 2006 and December 31, 2005, and the
related consolidated statements of earnings, shareholders
equity, and cash flows for each of the three years in the period
ended December 30, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Universal Forest Products, Inc. and
subsidiaries at December 30, 2006 and December 31,
2005, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
December 30, 2006, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Universal Forest Products, Inc. and
subsidiaries internal control over financial reporting as
of
December 30,
2006, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our
report dated February 12, 2007 expressed an unqualified
opinion thereon.
Grand Rapids, Michigan
February 12, 2007
32
Consolidated
Balance Sheets
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Assets
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51,108
|
|
|
$
|
46,215
|
|
Accounts receivable, net
|
|
|
148,242
|
|
|
|
185,080
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
128,621
|
|
|
|
144,361
|
|
Finished goods
|
|
|
116,497
|
|
|
|
109,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,118
|
|
|
|
253,769
|
|
Other current assets
|
|
|
9,363
|
|
|
|
11,956
|
|
Prepaid income taxes
|
|
|
15,239
|
|
|
|
|
|
Deferred income taxes
|
|
|
6,065
|
|
|
|
5,158
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
475,135
|
|
|
|
502,178
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
7,404
|
|
|
|
7,887
|
|
GOODWILL AND INDEFINITE-LIVED
INTANGIBLE ASSETS
|
|
|
155,177
|
|
|
|
131,556
|
|
OTHER INTANGIBLE ASSETS, NET
|
|
|
25,390
|
|
|
|
10,966
|
|
PROPERTY, PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
71,366
|
|
|
|
64,534
|
|
Building and improvements
|
|
|
153,369
|
|
|
|
139,200
|
|
Machinery, equipment and office
furniture
|
|
|
234,741
|
|
|
|
204,924
|
|
Construction in progress
|
|
|
6,545
|
|
|
|
3,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466,021
|
|
|
|
412,475
|
|
Less accumulated depreciation and
amortization
|
|
|
(215,686
|
)
|
|
|
(188,142
|
)
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
250,335
|
|
|
|
224,333
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
913,441
|
|
|
$
|
876,920
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders Equity
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
94,441
|
|
|
$
|
106,716
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
71,990
|
|
|
|
69,528
|
|
Income taxes
|
|
|
|
|
|
|
1,604
|
|
Other
|
|
|
25,111
|
|
|
|
25,845
|
|
Current portion of long-term debt
and capital lease obligations
|
|
|
680
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
192,222
|
|
|
|
204,151
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion
|
|
|
169,417
|
|
|
|
209,039
|
|
DEFERRED INCOME TAXES
|
|
|
12,697
|
|
|
|
12,914
|
|
MINORITY INTEREST
|
|
|
10,819
|
|
|
|
8,577
|
|
OTHER LIABILITIES
|
|
|
13,544
|
|
|
|
10,387
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
398,699
|
|
|
|
445,068
|
|
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 18,858,892 and
18,402,648
|
|
|
18,859
|
|
|
|
18,403
|
|
Additional paid-in capital
|
|
|
113,754
|
|
|
|
97,372
|
|
Deferred stock compensation
|
|
|
|
|
|
|
4,212
|
|
Deferred stock compensation rabbi
trust
|
|
|
|
|
|
|
(2,117
|
)
|
Retained earnings
|
|
|
380,931
|
|
|
|
312,878
|
|
Accumulated other comprehensive
earnings
|
|
|
2,451
|
|
|
|
2,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
515,995
|
|
|
|
433,156
|
|
Employee stock notes receivable
|
|
|
(1,253
|
)
|
|
|
(1,304
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
514,742
|
|
|
|
431,852
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
|
|
$
|
913,441
|
|
|
$
|
876,920
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
33
Consolidated
Statements of Earnings
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 25,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
NET SALES
|
|
$
|
2,664,572
|
|
|
$
|
2,691,522
|
|
|
$
|
2,453,281
|
|
COST OF GOODS SOLD
|
|
|
2,282,890
|
|
|
|
2,332,266
|
|
|
|
2,157,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
381,682
|
|
|
|
359,256
|
|
|
|
296,253
|
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
|
|
|
258,591
|
|
|
|
235,651
|
|
|
|
201,335
|
|
GAIN ON INSURANCE SETTLEMENT
|
|
|
|
|
|
|
|
|
|
|
(1,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS FROM OPERATIONS
|
|
|
123,091
|
|
|
|
123,605
|
|
|
|
96,309
|
|
OTHER EXPENSE (INCOME):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
14,053
|
|
|
|
15,171
|
|
|
|
14,904
|
|
Interest income
|
|
|
(2,443
|
)
|
|
|
(1,098
|
)
|
|
|
(284
|
)
|
Net gain on sale of real estate and
interest in subsidiary
|
|
|
(654
|
)
|
|
|
(1,240
|
)
|
|
|
(1,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,956
|
|
|
|
12,833
|
|
|
|
13,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST
|
|
|
112,135
|
|
|
|
110,772
|
|
|
|
83,059
|
|
INCOME TAXES
|
|
|
38,760
|
|
|
|
41,050
|
|
|
|
31,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS BEFORE MINORITY INTEREST
|
|
|
73,375
|
|
|
|
69,722
|
|
|
|
51,597
|
|
MINORITY INTEREST
|
|
|
(3,250
|
)
|
|
|
(2,349
|
)
|
|
|
(2,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
$
|
70,125
|
|
|
$
|
67,373
|
|
|
$
|
48,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE BASIC
|
|
$
|
3.73
|
|
|
$
|
3.67
|
|
|
$
|
2.70
|
|
EARNINGS PER SHARE
DILUTED
|
|
$
|
3.62
|
|
|
$
|
3.53
|
|
|
$
|
2.59
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING
|
|
|
18,820
|
|
|
|
18,374
|
|
|
|
18,032
|
|
WEIGHTED AVERAGE
SHARES OUTSTANDING WITH COMMON STOCK EQUIVALENTS
|
|
|
19,370
|
|
|
|
19,106
|
|
|
|
18,771
|
|
See notes to consolidated financial statements.
34
Consolidated
Statements of Shareholders Equity
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Compensation
|
|
|
|
|
|
Other
|
|
|
Employees
|
|
|
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Stock
|
|
|
Rabbi
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stock Notes
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Compensation
|
|
|
Trust
|
|
|
Earnings
|
|
|
Earnings
|
|
|
Receivable
|
|
|
Total
|
|
|
|
|
|
|
Balance at December 27,
2003
|
|
$
|
17,814
|
|
|
$
|
85,189
|
|
|
$
|
2,447
|
|
|
$
|
(615
|
)
|
|
$
|
200,745
|
|
|
$
|
1,396
|
|
|
$
|
(1,872
|
)
|
|
$
|
305,104
|
|
Comprehensive earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
Total comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,732
|
|
Cash dividends
$.100 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,796
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,796
|
)
|
Issuance of 170,677 shares
under employee stock plans
|
|
|
170
|
|
|
|
2,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,015
|
|
Issuance of 4,036 shares under
stock grant programs
|
|
|
4
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
Issuance of 22,528 shares
under deferred compensation plans
|
|
|
23
|
|
|
|
693
|
|
|
|
|
|
|
|
(716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Received 4,695 shares for the
exercise of stock options
|
|
|
(5
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155
|
)
|
Received 4,050 shares to
payoff notes receivable
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
(129
|
)
|
Tax benefits from non-qualified
stock options exercised
|
|
|
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559
|
|
Accrued expense under deferred
compensation plans
|
|
|
|
|
|
|
|
|
|
|
976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
976
|
|
Issuance of 195 shares in
exchange for employee stock notes receivable
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
0
|
|
Payments received on employee stock
notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 25,
2004
|
|
$
|
18,002
|
|
|
$
|
89,269
|
|
|
$
|
3,423
|
|
|
$
|
(1,331
|
)
|
|
$
|
247,427
|
|
|
$
|
1,525
|
|
|
$
|
(1,546
|
)
|
|
$
|
356,769
|
|
Comprehensive earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
883
|
|
|
|
|
|
|
|
|
|
Total comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,256
|
|
Cash dividends
$.105 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,922
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,922
|
)
|
Issuance of 411,245 shares
under employee stock plans
|
|
|
411
|
|
|
|
4,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,192
|
|
Issuance of 3,713 shares under
stock grant programs
|
|
|
4
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
Issuance of 33,074 shares
under deferred compensation plans
|
|
|
33
|
|
|
|
939
|
|
|
|
(216
|
)
|
|
|
(756
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Received 49,244 shares for the
exercise of stock options
|
|
|
(49
|
)
|
|
|
(1,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,905
|
)
|
Tax benefits from non-qualified
stock options exercised
|
|
|
|
|
|
|
4,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,021
|
|
Accrued expense under deferred
compensation plans
|
|
|
|
|
|
|
|
|
|
|
1,005
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
975
|
|
Issuance of 1,605 shares in
exchange for employee stock notes receivable
|
|
|
2
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
0
|
|
Payments received on employee stock
notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2005
|
|
$
|
18,403
|
|
|
$
|
97,372
|
|
|
$
|
4,212
|
|
|
$
|
(2,117
|
)
|
|
$
|
312,878
|
|
|
$
|
2,408
|
|
|
$
|
(1,304
|
)
|
|
$
|
431,852
|
|
Comprehensive earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
Total comprehensive earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,168
|
|
Cash dividends
$.110 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,072
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,072
|
)
|
Reversal of deferred compensation
upon adoption of SFAS 123(R)
|
|
|
|
|
|
|
2,095
|
|
|
|
(4,212
|
)
|
|
|
2,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Issuance of 349,644 shares
under employee stock plans
|
|
|
350
|
|
|
|
5,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,028
|
|
Issuance of 3,467 shares under
stock grant programs
|
|
|
3
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197
|
|
Issuance of 101,278 shares
under deferred compensation plans
|
|
|
101
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Received 1,367 shares for the
exercise of stock options
|
|
|
(1
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
Tax benefits from non-qualified
stock options exercised
|
|
|
|
|
|
|
4,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,376
|
|
Expense associated with share-based
compensation arrangements
|
|
|
|
|
|
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
972
|
|
Accrued expense under deferred
compensation plans
|
|
|
|
|
|
|
3,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,056
|
|
Issuance of 3,222 shares in
exchange for employee stock notes receivable
|
|
|
3
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(204
|
)
|
|
|
0
|
|
Payments received on employee stock
notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255
|
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30,
2006
|
|
$
|
18,859
|
|
|
$
|
113,754
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
380,931
|
|
|
$
|
2,451
|
|
|
$
|
(1,253
|
)
|
|
$
|
514,742
|
|
See notes to consolidated financial statements.
35
Consolidated
Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 25,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
70,125
|
|
|
$
|
67,373
|
|
|
$
|
48,603
|
|
Adjustments to reconcile net
earnings to net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
33,771
|
|
|
|
31,311
|
|
|
|
28,453
|
|
Amortization of intangibles
|
|
|
5,751
|
|
|
|
3,485
|
|
|
|
2,383
|
|
Notes receivable written off to
expense
|
|
|
|
|
|
|
816
|
|
|
|
|
|
Expense associated with
share-based compensation arrangements
|
|
|
972
|
|
|
|
|
|
|
|
|
|
Expense associated with stock
grant plans
|
|
|
197
|
|
|
|
162
|
|
|
|
131
|
|
Deferred income taxes
|
|
|
(1,100
|
)
|
|
|
(7,377
|
)
|
|
|
790
|
|
Tax benefits from non-qualified
stock options exercised
|
|
|
|
|
|
|
4,021
|
|
|
|
559
|
|
Minority interest
|
|
|
3,250
|
|
|
|
2,349
|
|
|
|
2,994
|
|
Loss on sale of interest in
subsidiary
|
|
|
|
|
|
|
|
|
|
|
193
|
|
Gain on insurance settlement
|
|
|
|
|
|
|
|
|
|
|
(1,391
|
)
|
Net (gain) loss on sale or
impairment of property, plant and equipment
|
|
|
141
|
|
|
|
(553
|
)
|
|
|
(710
|
)
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
41,912
|
|
|
|
(28,742
|
)
|
|
|
(16,107
|
)
|
Inventories
|
|
|
22,262
|
|
|
|
(36,501
|
)
|
|
|
(42,817
|
)
|
Accounts payable
|
|
|
(14,576
|
)
|
|
|
16,998
|
|
|
|
7,371
|
|
Accrued liabilities and other
|
|
|
(6,385
|
)
|
|
|
20,790
|
|
|
|
19,782
|
|
Excess tax benefits from
share-based compensation arrangements
|
|
|
(3,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FROM OPERATING ACTIVITIES
|
|
|
152,322
|
|
|
|
74,132
|
|
|
|
50,234
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and
equipment
|
|
|
(43,504
|
)
|
|
|
(40,233
|
)
|
|
|
(40,722
|
)
|
Acquisitions, net of cash received
|
|
|
(71,814
|
)
|
|
|
(20,747
|
)
|
|
|
(10,075
|
)
|
Proceeds from sale of interest in
subsidiary
|
|
|
|
|
|
|
|
|
|
|
4,679
|
|
Proceeds from sale of property,
plant, and equipment
|
|
|
1,245
|
|
|
|
2,712
|
|
|
|
5,226
|
|
Advances on notes receivable
|
|
|
|
|
|
|
(887
|
)
|
|
|
(308
|
)
|
Collection of notes receivable
|
|
|
1,614
|
|
|
|
820
|
|
|
|
2,560
|
|
Insurance proceeds
|
|
|
|
|
|
|
3,057
|
|
|
|
2,000
|
|
Other, net
|
|
|
754
|
|
|
|
(131
|
)
|
|
|
(616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FROM INVESTING ACTIVITIES
|
|
|
(111,705
|
)
|
|
|
(55,409
|
)
|
|
|
(37,256
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) of
revolving credit facilities
|
|
|
(37,700
|
)
|
|
|
23,827
|
|
|
|
1,223
|
|
Repayment of long-term debt
|
|
|
(3,228
|
)
|
|
|
(23,407
|
)
|
|
|
(6,392
|
)
|
Proceeds from issuance of common
stock
|
|
|
5,938
|
|
|
|
4,487
|
|
|
|
2,860
|
|
Distributions to minority
shareholder
|
|
|
(2,586
|
)
|
|
|
(1,217
|
)
|
|
|
(1,123
|
)
|
Investment received from minority
shareholder
|
|
|
|
|
|
|
500
|
|
|
|
|
|
Dividends paid to shareholders
|
|
|
(2,072
|
)
|
|
|
(1,922
|
)
|
|
|
(1,796
|
)
|
Excess tax benefits from
share-based compensation arrangements
|
|
|
3,998
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(129
|
)
|
Other, net
|
|
|
(74
|
)
|
|
|
(50
|
)
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FROM FINANCING ACTIVITIES
|
|
|
(35,724
|
)
|
|
|
2,218
|
|
|
|
(5,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
|
4,893
|
|
|
|
20,941
|
|
|
|
7,844
|
|
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
|
|
|
46,215
|
|
|
|
25,274
|
|
|
|
17,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF
YEAR
|
|
$
|
51,108
|
|
|
$
|
46,215
|
|
|
$
|
25,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Consolidated
Statements of Cash Flows (continued)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 25,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF CASH
FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
14,637
|
|
|
$
|
14,179
|
|
|
$
|
15,087
|
|
Income taxes
|
|
|
52,335
|
|
|
|
43,303
|
|
|
|
29,181
|
|
NON-CASH OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable exchanged for
note receivable
|
|
|
431
|
|
|
|
765
|
|
|
|
|
|
Deferred purchase price of
acquisition exchanged for current payable
|
|
|
53
|
|
|
|
|
|
|
|
|
|
Deferred purchase price of
acquisition exchanged for long-term liability
|
|
|
721
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
exchanged for long-term debt
|
|
|
1,379
|
|
|
|
63
|
|
|
|
|
|
Insurance receivable in exchange
for property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
1,455
|
|
Note receivable exchanged for
property, plant and equipment
|
|
|
550
|
|
|
|
|
|
|
|
|
|
Note receivable exchanged for
management fees to former subsidiary
|
|
|
|
|
|
|
|
|
|
|
520
|
|
Stock acquired through
employees stock notes receivable
|
|
|
204
|
|
|
|
62
|
|
|
|
6
|
|
NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued under deferred
compensation plans
|
|
|
2,225
|
|
|
|
972
|
|
|
|
716
|
|
Stock received for the exercise of
stock options, net
|
|
|
|
|
|
|
1,200
|
|
|
|
4
|
|
See notes to consolidated financial statements.
37
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements
A. Summary
of Significant Accounting Policies
Operations
We engineer, manufacture, treat, distribute and install lumber,
composite wood, plastic, and other building products for the
do-it-yourself/retail (DIY/retail), site-built
construction, manufactured housing, and industrial markets. Our
principal products include preservative-treated wood,
remanufactured lumber, lattice, fence panels, deck components,
specialty packaging, engineered trusses, wall panels, and other
building products.
Principles of
Consolidation
The consolidated financial statements include our accounts and
those of our wholly-owned and majority-owned subsidiaries and
partnerships. In addition, we consolidate 50% owned entities
over which we exercise control. Intercompany transactions and
balances have been eliminated.
Minority
Interest in Subsidiaries
Minority interest in results of operations of consolidated
subsidiaries represents the minority shareholders share of
the income or loss of various consolidated subsidiaries. The
minority interest reflects the original investment by these
minority shareholders combined with their proportional share of
the earnings or losses of these subsidiaries, net of
distributions paid.
Fiscal
Year
Our fiscal year is a 52 or 53 week period, ending on the
last Saturday of December. Unless otherwise stated, references
to 2006, 2005, and 2004 relate to the fiscal years ended
December 30, 2006, December 31, 2005, and
December 25, 2004, respectively. Fiscal years 2006 and 2004
were comprised of 52 weeks, 2005 was comprised of
53 weeks.
Fair Value
Disclosures of Financial Instruments
The estimated fair values of financial instruments have been
determined in accordance with Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures about
Fair Value of Financial Instruments. Significant differences
in fair market values and recorded values are disclosed in
Note D. The estimated fair value amounts have been
determined using available market information and appropriate
valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that we could realize in a
current market exchange. The use of different market assumptions
and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
The fair value estimates presented herein are based on pertinent
information available to management as of December 30,
2006. Although we are not aware of any factors that would
significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current
estimates of fair value may differ significantly from the
amounts presented herein.
Cash and Cash
Equivalents
Cash and cash equivalents consist of cash and highly-liquid
investments purchased with an original maturity of three months
or less. Cash equivalents totaled approximately
$28.1 million and $32.7 million as of
December 30, 2006 and December 31, 2005, respectively.
As a result of our cash management system, checks issued but not
presented to our bank for payment create negative cash balances.
These negative balances are included in accounts payable and
accrued liabilities and totaled $20.8 million and
$25.1 million as of December 30, 2006 and
December 31, 2005, respectively.
Accounts
Receivable
We perform periodic credit evaluations of our customers and
generally do not require collateral. Accounts receivable are due
under a range of terms we offer to our customers. Discounts are
offered, in most instances, as an incentive for early payment.
38
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
Accounts
Receivable Allowances
We base our allowances related to receivables on historical
credit and collections experience, and the specific
identification of other potential problems, including the
economic climate. Actual collections can differ, requiring
adjustments to the allowances. Individual accounts receivable
balances are evaluated on a monthly basis, and those balances
considered uncollectible are charged to the allowance.
Collections of amounts previously written off are recorded as an
increase to the allowance.
The following table presents the activity in our accounts
receivable allowances (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
Recovery of
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Uncollectible
|
|
|
Amounts
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Accounts
|
|
|
Previously
|
|
|
at End of
|
|
|
|
of
Period
|
|
|
Expenses
|
|
|
Written
Off
|
|
|
Written
Off
|
|
|
Period
|
|
|
|
|
|
|
Year Ended December 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for possible losses on
accounts receivable
|
|
$
|
3,396
|
|
|
$
|
23,787
|
|
|
($
|
23,975
|
)
|
|
$
|
368
|
|
|
$
|
3,576
|
|
Year Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for possible losses on
accounts receivable
|
|
$
|
2,943
|
|
|
$
|
29,173
|
|
|
($
|
29,531
|
)
|
|
$
|
811
|
|
|
$
|
3,396
|
|
Year Ended December 25, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for possible losses on
accounts receivable
|
|
$
|
1,891
|
|
|
$
|
24,126
|
|
|
($
|
23,796
|
)
|
|
$
|
722
|
|
|
$
|
2,943
|
|
We record estimated sales returns, discounts, and other
applicable adjustments as a reduction of net sales in the same
period revenue is recognized.
Inventories
Inventories are stated at the lower of cost or market. The cost
of inventories includes raw materials, direct labor, and
manufacturing overhead. Cost is determined on a
first-in,
first-out (FIFO) basis. Raw materials consist primarily of
unfinished wood products expected to be manufactured or treated
prior to sale, while finished goods represent various
manufactured and treated wood products ready for sale.
Property,
Plant, and Equipment
Property, plant, and equipment are stated at cost. Expenditures
for renewals and betterments are capitalized, and maintenance
and repairs are expensed as incurred. Amortization of assets
held under capital leases is included in depreciation and
amortized over the shorter of the estimated useful life of the
asset or the lease term. Depreciation is computed principally by
the straight-line method over the estimated useful lives of the
assets as follows:
|
|
|
|
|
Land improvements
|
|
|
5 to 15 years
|
|
Buildings and improvements
|
|
|
15 to 31.5 years
|
|
Machinery, equipment and office
furniture
|
|
|
3 to 10 years
|
|
Foreign
Currency Translation
Our foreign operations use the local currency as their
functional currency. Accordingly, assets and liabilities are
translated at exchange rates as of the balance sheet date and
revenues and expenses are translated using weighted average
rates, with translation adjustments included as a separate
component of shareholders equity. The net realized gain or
loss on foreign currency transactions were not material in any
year presented.
Self-Insurance
Reserves
We are primarily self-insured for certain employee health
benefits, and have self-funded retentions for general liability,
automobile liability, property and workers compensation.
We are fully self-insured for environmental liabilities. The
general liability, automobile liability, property, workers
compensation, and environmental liabilities are managed through
a wholly-owned insurance captive; the related assets and
liabilities of which are included in the consolidated financial
statements as of December 30, 2006 and December 31,
2005. Our policy is to accrue amounts equal to actuarially
determined or internally computed liabilities. The actuarial and
internal valuations are based on historical information along
with certain assumptions about future events. Changes in
assumptions for such matters as legal actions, medical cost
trends, and changes in claims experience could cause these
estimates to change in the future.
39
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
Income
Taxes
Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible
amounts in the future. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities.
Revenue
Recognition
Revenue is recognized at the time the product is shipped to the
customer. Generally, title passes at the time of shipment. In
certain circumstances, the customer takes title when the
shipment arrives at the destination. However, our shipping
process is typically completed the same day.
Earnings on construction contracts are reflected in operations
using either
percentage-of-completion
accounting, which includes the cost to cost and units of
delivery methods, or completed contract accounting, depending on
the nature of the business at individual operations. Under
percentage-of-completion
using the cost to cost method, revenues and related earnings on
construction contracts are measured by the relationships of
actual costs incurred related to the total estimated costs.
Under
percentage-of-completion
using the units of delivery method, revenues and related
earnings on construction contracts are measured by the
relationships of actual units produced related to the total
number of units. Revisions in earnings estimates on the
construction contracts are recorded in the accounting period in
which the basis for such revisions becomes known. Projected
losses on individual contracts are charged to operations in
their entirety when such losses become apparent. Under the
completed contract method, revenues and related earnings are
recorded when the contracted work is complete and losses are
charged to operations in their entirety when such losses become
apparent.
The following table presents the balances of
percentage-of-completion
accounts on December 30, 2006 and December 31, 2005
which are included in other current assets and accrued
liabilities: other, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Cost and Earnings in Excess of
Billings
|
|
$
|
4,829
|
|
|
$
|
9,052
|
|
Billings in Excess of Cost and
Earnings
|
|
|
6,236
|
|
|
|
7,495
|
|
Shipping and
Handling of Product
Shipping and handling costs that are charged to and reimbursed
by the customer are recognized as revenue. Costs incurred
related to the shipment and handling of products are classified
in cost of goods sold.
Earnings Per
Share
Basic earnings per share (EPS) is calculated based
on the weighted average number of common shares outstanding
during the periods presented. Diluted EPS is calculated based on
the weighted average number of common and common equivalent
shares outstanding during the periods presented, giving effect
to stock options granted (see Note I) utilizing the
treasury stock method.
A reconciliation of the changes in the numerator and the
denominator from the calculation of basic EPS to the calculation
of diluted EPS follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
Income
|
|
|
Shares
|
|
|
Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
|
|
|
Net Earnings
|
|
$
|
70,125
|
|
|
|
|
|
|
|
|
|
|
$
|
67,373
|
|
|
|
|
|
|
|
|
|
|
$
|
48,603
|
|
|
|
|
|
|
|
|
|
EPS Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders
|
|
|
70,125
|
|
|
|
18,820
|
|
|
$
|
3.73
|
|
|
|
67,373
|
|
|
|
18,374
|
|
|
$
|
3.67
|
|
|
|
48,603
|
|
|
|
18,032
|
|
|
$
|
2.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
stockholders and assumed options exercised
|
|
|
70,125
|
|
|
|
19,370
|
|
|
$
|
3.62
|
|
|
$
|
67,373
|
|
|
|
19,106
|
|
|
$
|
3.53
|
|
|
$
|
48,603
|
|
|
|
18,771
|
|
|
$
|
2.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
No outstanding options were excluded from the computation of
diluted EPS as of December 30, 2006 or December 31,
2005.
Options to purchase 15,000 shares of common stock at an
exercise price of $36.01 were outstanding as of
December 25, 2004, but were not included in the computation
of diluted EPS because the options exercise prices were
greater than the average market price of the common stock during
the period and, therefore, would be antidilutive.
Long-Lived
Assets
In accordance with SFAS No. 144, Accounting for the
Impairment and Disposal of Long-Lived Assets, we evaluate
the recoverability of our long-lived assets by determining
whether unamortized balances could be recovered through
undiscounted future operating cash flows over the remaining
lives of the assets. If the sum of the expected future cash
flows was less than the carrying value of the assets, an
impairment loss would be recognized for the excess of the
carrying value over the fair value. The estimated fair value is
determined by discounting the expected future cash flows at a
rate that is required for a similar investment with like risks.
Use of
Accounting Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and
expenses during the reporting period. We believe our estimates
to be reasonable; however, actual results could differ from
these estimates.
Reclassifications
Certain prior year information has been reclassified to conform
to the current year presentation.
Recently
Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109 (FIN 48),
which clarifies the accounting for uncertainty in tax positions.
This Interpretation requires that we recognize in our financial
statements the impact of a tax position, if that position is
more likely than not of being sustained on audit, based on the
technical merits of the position. This Interpretation is
effective for fiscal years beginning after December 15,
2006, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained
earnings. We are in process of calculating the effects and
expect the adoption of FIN 48 will not have a material
impact on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS No. 157). This
new standard establishes a framework for measuring the fair
value of assets and liabilities. This framework is intended to
provide increased consistency in how fair value determinations
are made under various existing accounting standards which
permit, or in some cases require, estimates of fair market
value. SFAS No. 157 also expands financial statement
disclosure requirements about a companys use of fair value
measurements, including the effect of such measures on earnings.
We are required to adopt this new accounting guidance at the
beginning of the fiscal year ending December 31, 2008.
While we are currently evaluating the provisions of
SFAS No. 157, the adoption is not expected to have a
material impact on our consolidated financial statements.
B. Business
Combinations and Asset Purchases
All of the transactions mentioned below are considered business
combinations under the provision of SFAS No. 141,
Business Combinations and Emerging Issues Task Force
Issue 98-3,
Determining Whether a Nonmonetary Transaction Involves
Receipt of Productive Assets or of a Business
(EITF 98-3).
Each business combination has been accounted for as a purchase.
Accordingly, in each instance, the purchase price was allocated
to the assets acquired, liabilities assumed, and identifiable
intangible assets as applicable based on their fair market
values at the date of acquisition. Any excess of the purchase
price over the fair value of the acquired assets, including
identifiable intangible assets, and assumed liabilities was
recorded as goodwill in each transaction. The results of
operations of each business combination are included in our
consolidated financial statements since the date it was acquired.
On November 17, 2006, one of our subsidiaries acquired the
assets and assumed certain liabilities of Banks Lumber
(Banks) including plants located in Elkhart, IN;
Morristown, TN; Auburndale, FL; Hillsboro, TX; Edwardsburg, MI
and Stanfield, NC. Banks is a leading manufacturer of roof
trusses and
cut-to-size
structural lumber for manufactured housing and recreational
vehicle (RV) manufacturers nationwide. The purchase price was
approximately $46.7 million, allocating $20.9 million
to tangible net assets, $1.4 million in specifically
identified intangibles and $24.4 million to goodwill. The
purchase price allocation for this acquisition is
41
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
preliminary and will be revised as final estimates of real
estate and intangible asset values are made in accordance with
SFAS No. 141, Business Combinations. Banks had
net sales in fiscal 2005 totaling approximately
$147.0 million.
On August 18, 2006, one of our subsidiaries acquired the
assets and assumed certain liabilities of GeoMatrix, Inc.
(GeoMatrix) located in Troy, MI, a leading developer
and supplier of plastic lattice and other proprietary plastic
products. The purchase price was approximately
$11.5 million, allocating $2.4 million to tangible net
assets and $9.1 million to non-compete agreements. The
purchase price allocation for this acquisition is preliminary
and will be revised as final estimates of intangible asset
values are made in accordance with SFAS No. 141,
Business Combinations. GeoMatrix had net sales in fiscal
2005 totaling approximately $19.0 million.
On July 10, 2006, one of our subsidiaries acquired a 50%
interest in United Lumber & Reman LLC
(United), an industrial wood manufacturing plant
located in Muscle Shoals, Alabama. The purchase price was
approximately $4.9 million, allocating $2.2 million to
tangible net assets and $2.7 million to non-compete
agreements. The purchase price allocation for this acquisition
is preliminary and will be revised as final estimates of
intangible asset values are made in accordance with
SFAS No. 141, Business Combinations. United had
net sales totaling approximately $26.0 million in 2005. We
have consolidated this entity, including a respective minority
interest, because we exercise control.
On June 5, 2006, one of our subsidiaries acquired the
assets of Dura-Bilt Mfg. Co. (Dura-Bilt) located in
Riverbank, CA, a roof and floor truss manufacturer for the
site-built construction market in Northern California. The
purchase price was approximately $9.2 million, allocating
$2.6 million to tangible net assets, $0.9 million to
non-compete agreements, $3.1 million to customer
relationship related intangibles and $2.6 million to
goodwill. Dura-Bilt had net sales in fiscal 2005 totaling
approximately $16.0 million.
On April 3, 2006, one of our subsidiaries, which at the
time owned a 75% interest in Shawnlee Construction, LLC
(Shawnlee), which provides framing services for
multi-family construction, and is located in Plainville, MA,
acquired an additional 5% interest for approximately
$0.8 million, allocating $0.4 million to tangible
assets, $0.2 million to customer relationship related
intangibles, $0.1 million to a non-compete agreement and
$0.1 million to goodwill. In addition, as previously
agreed, we will purchase the remaining 20% in 5% increments over
the next four years. We have consolidated this entity, including
a respective minority interest, because we exercise control.
On January 9, 2006, one of our subsidiaries acquired the
assets of Classic Truss Company, Inc. (Classic), a
facility which supplies the site-built construction market in
Fort Pierce, FL. The purchase price was approximately
$2.1 million, allocating $1.7 million to tangible net
assets and $0.4 million to a non-compete agreement. Classic
had net sales in fiscal 2005 totaling approximately
$6.0 million.
On November 14, 2005, one of our subsidiaries acquired the
assets of DecKorators, Inc. (DecKorators) which
designs, imports, markets and distributes decorative balusters
and accessories for residential decks and porches, and is
located in Crestwood and St. Louis, MO. The purchase price
was approximately $7.7 million, allocating
$0.8 million to tangible net assets, $2.9 million to
non-compete agreements, $0.9 million to customer
relationship related intangibles, $2.3 million to trade
name and related intangibles and $0.8 million to goodwill.
DecKorators had net sales in fiscal 2004 totaling approximately
$9.1 million.
On June 27, 2005, one of our subsidiaries which at the time
owned a 50% interest in Shawnlee, acquired an additional 25%
interest for approximately $3.5 million, allocating
$1.2 million to tangible assets, $0.8 million to
customer relationship related intangibles, $0.7 million to
a non-compete agreement, $0.2 million to a backlog and
$0.6 million to goodwill. In addition, we agreed to
purchase the remaining 25% over the next five years. In
addition, Shawnlee acquired the assets of Shepardville
Construction, Inc. (Shepardville) and AW
Construction, LLC (AW), which install interior
products for commercial and multi-family construction. The
purchase price was approximately $2.0 million, allocating
$0.9 million to tangible assets, $0.8 million to
customer relationship related intangibles, and $0.3 million
to a backlog. Shepardville had net sales in fiscal 2004 totaling
approximately $4.8 million. AW had net sales in 2004
totaling approximately $7.9 million.
On June 2, 2005, one of our subsidiaries acquired the
assets of Maine Ornamental Woodworkers, Inc. (Maine
Ornamental), which manufactures, imports and distributes
decorative caps used on decking and fence posts, and is based in
Winthrop, ME and Bainbridge Island, WA. The purchase price was
approximately $8.4 million, allocating $4.4 million to
tangible net assets, $1.7 million to non-compete
agreements, $2.1 million to customer relationship related
intangibles and $0.2 million to goodwill. Maine Ornamental
had net sales in fiscal 2004 totaling approximately
$12.4 million.
On April 2, 2004, one of our subsidiaries acquired a 50%
interest in Shawnlee. The purchase price was approximately
$4.8 million, allocating $1.2 million to tangible
assets and purchased intangibles, $1.1 million to a
non-compete agreement, $1.3 million to customer
relationship related intangibles, $0.2 million to a
backlog, and $1.0 million to goodwill. Shawnlee had net
sales in fiscal 2003 totaling approximately $20.0 million.
42
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
On March 15, 2004, one of our subsidiaries acquired the
assets of Slaughter Industries, owned by International Paper
Company (Slaughter), a facility which supplies the
site-built construction market in Dallas, TX. The purchase price
was approximately $3.9 million, which was allocated to the
fair value of tangible net assets. Slaughter had net sales in
fiscal 2003 totaling approximately $48.0 million.
On January 30, 2004, one of our subsidiaries acquired the
assets of Midwest Building Systems, Inc. (Midwest),
a facility which serves the site-built construction market in
Indianapolis, IN. The purchase price was approximately
$1.5 million, which was allocated to the fair value of
tangible net assets. Midwest had net sales in fiscal 2003
totaling approximately $7.0 million.
The acquisitions in 2006, 2005 and 2004 were not significant to
our operating results individually nor in the aggregate, and
thus pro forma results are not presented.
C. Goodwill
and Other Intangible Assets
We account for goodwill and other intangible assets in
accordance with the provisions of SFAS No. 142
Goodwill and Other Intangible Assets. Goodwill and
intangible assets acquired in a purchase business combination
and determined to have an indefinite useful life are not
amortized, but instead tested for impairment at least annually
or when a triggering event occurs. We tested for impairment in
the fourth quarter by utilizing the discounted cash flow method,
which resulted in no impairment.
On December 31, 2002, the Chairman of the Board retired as
an employee of Universal Forest Products, Inc., and we entered
into a non-compete agreement with him which provides for monthly
payments of $12,500 for a term of seven years. The present value
of these payments has been recorded in Other liabilities.
The following amounts were included in other intangible assets,
net as of December 30, 2006 and December 31, 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
Assets
|
|
|
Amortization
|
|
|
Assets
|
|
|
Amortization
|
|
|
Non-compete agreements
|
|
$
|
28,318
|
|
|
$
|
(9,649
|
)
|
|
$
|
12,399
|
|
|
$
|
(6,190
|
)
|
Licensing agreements
|
|
|
2,510
|
|
|
|
(2,395
|
)
|
|
|
2,510
|
|
|
|
(1,995
|
)
|
Customer relationships
|
|
|
9,088
|
|
|
|
(2,507
|
)
|
|
|
4,882
|
|
|
|
(867
|
)
|
Backlog
|
|
|
693
|
|
|
|
(668
|
)
|
|
|
644
|
|
|
|
(417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,609
|
|
|
$
|
(15,219
|
)
|
|
$
|
20,435
|
|
|
$
|
(9,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization is computed principally by the straight-line method
over the estimated useful lives of the intangible assets as
follows:
|
|
|
|
|
Non-compete agreements
|
|
|
5 to 11 years
|
|
Licensing agreements
|
|
|
3 to 5 years
|
|
Customer relationship
|
|
|
5 years
|
|
Backlog
|
|
|
1 year
|
|
Amortization expense for intangibles totaled $5.8 million,
$3.5 million and $2.4 million in 2006, 2005, and 2004,
respectively. The estimated amortization expense for intangibles
for each of the five succeeding fiscal years is as follows (in
thousands):
|
|
|
|
|
2007
|
|
$
|
6,797
|
|
2008
|
|
|
6,087
|
|
2009
|
|
|
4,991
|
|
2010
|
|
|
4,019
|
|
2011
|
|
|
2,320
|
|
Thereafter
|
|
|
1,176
|
|
|
|
|
|
|
Total
|
|
$
|
25,390
|
|
|
|
|
|
|
43
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
The changes in the net carrying amount of goodwill and
indefinite-lived intangible assets for the years ended
December 30, 2006 and December 31, 2005, are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-
|
|
|
|
|
|
|
Lived
|
|
|
|
|
|
|
Intangible
|
|
|
|
Goodwill
|
|
|
Assets
|
|
|
Balance as of December 25,
2004
|
|
$
|
123,845
|
|
|
$
|
0
|
|
Acquisitions
|
|
|
7,461
|
|
|
|
|
|
Other, net
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
2005
|
|
$
|
131,556
|
|
|
$
|
0
|
|
Acquisitions
|
|
|
31,097
|
|
|
|
2,340
|
|
Final purchase price allocations
|
|
|
(9,915
|
)
|
|
|
|
|
Other, net
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 30,
2006
|
|
$
|
152,837
|
|
|
$
|
2,340
|
|
|
|
|
|
|
|
|
|
|
D. Debt
On December 20, 2004, we completed a five-year,
$250 million unsecured revolving credit facility, which
includes amounts reserved for letters of credit. Cash borrowings
are charged interest based upon an index equal to the Eurodollar
rate (in the case of borrowings in US Dollars) or the
bankers acceptance rate quoted (in the case of borrowings
in Canadian Dollars), plus a margin (ranging from 42.5 to
107.5 basis points, based upon our financial performance).
We are also charged an annual facility fee on the entire amount
of the lending commitment (ranging from 12.5 to 30 basis
points, based upon our performance), and a usage premium
(ranging from 7.5 to 12.5 basis points, based upon our
performance) at times when borrowings exceed $125 million.
The average borrowing rate on this facility was 4.9% and 3.4% in
2006 and 2005, respectively. The amount outstanding on the
revolving credit facility is included in the long-term debt
summary below.
Outstanding letters of credit extended on our behalf aggregated
$39.2 million on December 30, 2006, which includes
approximately $18.5 million related to industrial
development revenue bonds. Outstanding letters of credit
extended on our behalf aggregated $38.1 million on
December 31, 2005, which includes approximately
$18.3 million related to industrial development revenue
bonds. Letters of credit have terms ranging from one to three
years, and include an automatic renewal clause. The letters of
credit are charged an annual interest rate ranging from 42.5 to
107.5 basis points, based upon our financial performance.
Long-term debt and capital lease obligations are summarized as
follows on December 30, 2006 and December 31, 2005
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Series 1998-A
Senior Notes Tranche B, due on December 21, 2008,
interest payable semi-annually at 6.98%
|
|
$
|
59,500
|
|
|
$
|
59,500
|
|
Series 1998-A
Senior Notes Tranche C, due on December 21, 2008,
interest payable semi-annually at 6.98%
|
|
|
19,000
|
|
|
|
19,000
|
|
Series 2002-A
Senior Notes Tranche A, due on December 18, 2009,
interest payable semi-annually at 5.63%
|
|
|
15,000
|
|
|
|
15,000
|
|
Series 2002-A
Senior Notes Tranche B, due on December 18, 2012,
interest payable semi-annually at 6.16%
|
|
|
40,000
|
|
|
|
40,000
|
|
Revolving credit facility totaling
$250 million due on December 18, 2009, interest due
monthly at a floating rate (5.00% on December 30, 2006)
|
|
|
15,883
|
|
|
|
53,434
|
|
Series 1998 Industrial
Development Revenue Bonds, due on December 1, 2018,
interest payable monthly at a floating rate (3.79% on
December 30, 2006)
|
|
|
1,300
|
|
|
|
1,300
|
|
Series 1999 Industrial
Development Revenue Bonds, due on July 1, 2029, interest
payable monthly at a floating rate (3.75% on December 30,
2006)
|
|
|
2,400
|
|
|
|
2,400
|
|
Series 1999 Industrial
Development Revenue Bonds, due on August 1, 2029, interest
payable monthly at a floating rate (3.58% on December 30,
2006)
|
|
|
3,300
|
|
|
|
3,300
|
|
Series 2000 Industrial
Development Revenue Bonds, due on October 1, 2020, interest
payable monthly at a floating rate (3.74% on December 30,
2006)
|
|
|
2,700
|
|
|
|
2,700
|
|
Series 2000 Industrial
Development Revenue Bonds, due on November 1, 2020,
interest payable monthly at a floating rate (3.75% on
December 30, 2006)
|
|
|
2,400
|
|
|
|
2,400
|
|
Series 2001 Industrial
Development Revenue Bonds, due on November 1, 2021,
interest payable monthly at a floating rate (3.74% on
December 30, 2006)
|
|
|
2,500
|
|
|
|
2,500
|
|
44
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Series 2002 Industrial
Development Revenue Bonds, due on December 1, 2022,
interest payable monthly at a floating rate (3.73% on
December 30, 2006)
|
|
|
3,700
|
|
|
|
3,700
|
|
Capital lease obligations,
interest imputed at 5.4%
|
|
|
902
|
|
|
|
2,106
|
|
Other
|
|
|
1,512
|
|
|
|
2,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,097
|
|
|
|
209,497
|
|
Less current portion
|
|
|
680
|
|
|
|
458
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
169,417
|
|
|
$
|
209,039
|
|
|
|
|
|
|
|
|
|
|
Financial covenants on the unsecured revolving credit facility
and unsecured notes include a minimum net worth requirement,
minimum interest coverage tests, and a maximum leverage ratio.
The agreements also restrict the amount of additional
indebtedness we may incur and the amount of assets which may be
sold. We were within all of our lending requirements on
December 30, 2006.
On December 30, 2006, the principal maturities of long-term
debt and capital lease obligations are as follows (in thousands):
|
|
|
|
|
2007
|
|
$
|
680
|
|
2008
|
|
|
79,212
|
|
2009
|
|
|
31,130
|
|
2010
|
|
|
249
|
|
2011
|
|
|
256
|
|
Thereafter
|
|
|
58,570
|
|
|
|
|
|
|
|
|
$
|
170,097
|
|
|
|
|
|
|
On December 30, 2006, the estimated fair value of our
long-term debt, including the current portion, was
$172.6 million, which was $2.5 million greater than
the carrying value. The estimated fair value is based on rates
anticipated to be available to us for debt with similar terms
and maturities.
E. Leases
Leased property included in the balance sheet on
December 30, 2006 and December 31, 2005 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
0
|
|
|
$
|
211
|
|
Buildings and improvements
|
|
|
0
|
|
|
|
1,909
|
|
Machinery and equipment
|
|
|
1,363
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,363
|
|
|
|
2,171
|
|
Less accumulated amortization
|
|
|
(207
|
)
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,156
|
|
|
$
|
1,957
|
|
|
|
|
|
|
|
|
|
|
We lease certain real estate under operating and capital lease
agreements with original terms ranging from one to ten years. We
are required to pay real estate taxes and other occupancy costs
under these leases. Certain leases carry renewal options of five
to fifteen
45
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
years. We also lease motor vehicles, equipment, and aircraft
under operating lease agreements for periods of one to ten
years. Future minimum payments under non-cancelable leases on
December 30, 2006 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
469
|
|
|
$
|
13,788
|
|
|
$
|
14,257
|
|
|
|
|
|
2008
|
|
|
481
|
|
|
|
11,170
|
|
|
|
11,651
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
8,548
|
|
|
|
8,548
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
6,179
|
|
|
|
6,179
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
2,792
|
|
|
|
2,792
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
543
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
950
|
|
|
$
|
43,020
|
|
|
$
|
43,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease
payments
|
|
$
|
902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense was approximately $25.8 million,
$21.9 million, and $19.3 million in 2006, 2005, and
2004, respectively.
F. Deferred
Compensation
We have a program whereby certain executives irrevocably elected
to defer receipt of certain compensation in 1985 through 1988.
Deferred compensation payments to these executives will commence
upon their retirement. We purchased life insurance on such
executives, payable to us in amounts which, if assumptions made
as to mortality experience, policy dividends, and other factors
are realized, will accumulate cash values adequate to reimburse
us for all payments for insurance and deferred compensation
obligations. In the event cash values are not sufficient to fund
such obligations, the program allows us to reduce benefit
payments to such amounts as may be funded by accumulated cash
values. The deferred compensation liabilities and related cash
surrender value of life insurance policies are included in
Other Liabilities and Other Assets,
respectively.
We also maintain a non-qualified deferred compensation plan (the
Plan) for the benefit of senior management employees
who may elect to defer a portion of their annual bonus payments.
The Plan provides investment options similar to our 401(k) plan,
including our stock. The investment in our stock is funded by
the issuance of shares to a Rabbi trust, and may only be
distributed in kind. Assets held by the Plan totaled
approximately $4.0 million and $3.2 million on
December 30, 2006 and December 31, 2005, respectively,
and are included in Other Assets. Related
liabilities totaled $8.3 million and $6.6 million on
December 30, 2006 and December 31, 2005, respectively,
and are included in Other Liabilities and
Shareholders Equity. Assets of the Plan are
recorded at fair market value. The related liabilities are
recorded at fair market value, with the exception of obligations
associated with investments in our stock which are recorded at
the market value on the date of deferral.
G. Sale
of Accounts Receivable
On March 8, 2006, we entered into an accounts receivable
sale arrangement with a bank. The terms of this new agreement
are substantially the same as the agreement that was in place in
the first six months of 2005 and subsequently canceled on
October 25, 2005. Under the terms of these agreements:
|
|
|
We sell specific receivables to the bank at an
agreed-upon
price at terms ranging from one month to one year.
|
|
|
We service the receivables sold and outstanding on behalf of the
bank at a rate of 0.50% per annum.
|
|
|
We receive an incentive servicing fee, which we accounted for as
a retained interest in the receivables sold. Our retained
interest is determined based on the fair market value of
anticipated collections in excess of the Agreed Base Value of
the receivables sold. Appropriate valuation allowances are
recorded against the retained interest.
|
|
|
The maximum amount of receivables, net of retained interest,
which may be sold and outstanding at any point in time under
this arrangement is $50 million.
|
46
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
On December 30, 2006, $29.1 million of receivables
were sold and outstanding, and we recorded $2.2 million of
retained interest in other current assets. On December 31,
2005 no receivables were sold and outstanding. A summary of the
transactions we completed in 2006, 2005, and 2004 is presented
below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Accounts receivable sold
|
|
$
|
460,859
|
|
|
$
|
401,431
|
|
|
$
|
309,743
|
|
Retained interest in receivables
|
|
|
(6,649
|
)
|
|
|
(2,594
|
)
|
|
|
(1,613
|
)
|
Expense from sale
|
|
|
(1,847
|
)
|
|
|
(1,214
|
)
|
|
|
(631
|
)
|
Servicing fee received
|
|
|
150
|
|
|
|
137
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash received from sale
|
|
$
|
452,513
|
|
|
$
|
397,760
|
|
|
$
|
307,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H. Common
Stock
On June 1, 1993, our shareholders approved the Incentive
Stock Option Plan (the Plan) for our officers.
Options for the purchase of all 1,200,000 shares of our
common stock authorized under the Plan have been granted. The
Plan provides that the options are exercisable only if the
officer is employed by us at the time of exercise and holds at
least seventy-five percent of the individuals shares held
on April 1, 1993. The Plan also requires the option shares
to be held for periods of six months to three years. The
remaining options are exercisable within thirty days of the
anniversary of the Plan in 2007 and 2008, respectively.
In January 1994, the Employee Stock Gift Program was approved by
the Board of Directors which allows us to gift shares of stock
to eligible employees based on length of service. We gifted
shares of stock under this Plan in 2006, 2005, and 2004, and
recognized the market value of the shares at the date of
issuance as an expense totaling approximately $55,000, $55,000,
and $56,000, respectively.
In April 1994, our shareholders approved the Employee Stock
Purchase Plan (Stock Purchase Plan). In April 2002,
our shareholders approved the 2002 Employee Stock Purchase Plan
(2002 Stock Purchase Plan) to succeed the Stock
Purchase Plan. The plans allow eligible employees to purchase
shares of our stock at a share price equal to 85% of fair market
value on the purchase date. In 2006, 2005, and 2004, shares were
issued under this Plan for amounts totaling approximately
$811,000, $511,000, and $411,000, respectively. The weighted
average discounted fair value of these shares was $48.36,
$36.92, and $26.34, respectively. Upon adoption of FASB
Statement No. 123(R), Share-Based Payment,
(SFAS 123(R)), we have expensed the fair value
associated with these awards, which approximates the discount.
In April 1994, our shareholders approved the Directors
Retainer Stock Plan (Stock Retainer Plan). The Stock
Retainer Plan allows eligible members of the Board of Directors
to defer their retainer fees and receive shares of our stock at
the time of their retirement, disability or death. The number of
shares to be received is equal to the amount of the retainer fee
deferred multiplied by 110% divided by the fair market value of
a share of our stock at the time of deferral, is increased for
dividends declared and may only be distributed in kind. We have
accrued, in shareholders equity approximately $818,000 and
$559,000 on December 30, 2006 and December 31, 2005,
respectively, for obligations incurred under this Plan. There
were no distributions in 2006 or 2004. In 2005, shares were
issued as part of a distribution from the Plan for amounts
totaling approximately $184,000.
In January 1997, we instituted a Directors Stock Grant
Program. In lieu of a cash increase in the amount of Director
fees, each outside Director receives 100 shares of stock
for each board meeting attended up to a maximum of
400 shares per year. In 2006, 2005, and 2004, we issued
shares and recognized the market value of the shares on the date
of issuance as an expense totaling approximately $142,000,
$107,000, and $75,000, respectively.
On April 28, 1999, our shareholders approved the Long Term
Stock Incentive Plan (the 1999 Plan). The 1999 Plan
reserves a maximum of 1,000,000 shares, plus an annual
increase of no more than 200,000 shares which may be added
on the date of the annual meeting of shareholders each year. The
1999 Plan provides for the granting of stock options, reload
options, stock appreciation rights, restricted stock,
performance shares and other stock-based awards. The term of the
1999 Plan is ten years. No options were granted in 2006 and
2005. In 2004, we granted stock options for 100,000 shares.
On April 17, 2002, under the 1999 Plan, a Conditional Share
Grant Agreement was executed which will grant our former Chief
Executive Officer 10,000 shares of common stock immediately
upon the satisfaction of the terms and conditions set forth in
the Agreement. We have accrued in shareholders equity
approximately $112,000 and $221,000 on December 30, 2006
and December 31, 2005 respectively, for this grant.
47
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
As of December 30, 2006, a total of 2,058,146 shares
are reserved for issuance under the plans mentioned above.
On November 14, 2001, the Board of Directors approved a
share repurchase program (which succeeded a previous program)
allowing us to repurchase up to 2,500,000 shares of our
common stock. In 2004, we repurchased 4,050 shares under
these programs. As of December 30, 2006, cumulative total
authorized shares available for repurchase is approximately
1.5 million shares.
Common stock activity for 2006, 2005 and 2004 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Shares issued under plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase
|
|
|
H
|
|
|
|
16,763
|
|
|
|
13,839
|
|
|
|
15,594
|
|
Stock option
|
|
|
I
|
|
|
|
332,881
|
|
|
|
397,406
|
|
|
|
155,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans
|
|
|
|
|
|
|
349,644
|
|
|
|
411,245
|
|
|
|
170,677
|
|
Stock gift
|
|
|
H
|
|
|
|
967
|
|
|
|
1,213
|
|
|
|
1,736
|
|
Directors Stock Grant
|
|
|
H
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock grant plans
|
|
|
|
|
|
|
3,467
|
|
|
|
3,713
|
|
|
|
4,036
|
|
Deferred compensation
|
|
|
F
|
|
|
|
101,278
|
|
|
|
21,144
|
|
|
|
22,528
|
|
Directors Stock Retainer
|
|
|
H
|
|
|
|
|
|
|
|
11,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plans
|
|
|
|
|
|
|
101,278
|
|
|
|
33,074
|
|
|
|
22,528
|
|
Stock notes receivable
|
|
|
J
|
|
|
|
3,222
|
|
|
|
1,605
|
|
|
|
195
|
|
Shares received for exercise of
stock options
|
|
|
|
|
|
|
(1,367
|
)
|
|
|
(49,244
|
)
|
|
|
(4,695
|
)
|
Stock repurchase
|
|
|
H
|
|
|
|
|
|
|
|
|
|
|
|
(4,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456,244
|
|
|
|
400,393
|
|
|
|
188,691
|
|
Beginning common stock outstanding
|
|
|
|
|
|
|
18,402,648
|
|
|
|
18,002,255
|
|
|
|
17,813,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending common stock outstanding
|
|
|
|
|
|
|
18,858,892
|
|
|
|
18,402,648
|
|
|
|
18,002,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I. Stock-Based
Compensation
Prior to January 1, 2006, we accounted for our stock option
plans and our Employee Stock Purchase Plan using the intrinsic
value method of accounting provided under the recognition and
measurement provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, (APB 25) and related
Interpretations, as permitted by Financial Accounting Standards
Board (FASB) Statement No. 123, Accounting
for Stock-Based Compensation, (SFAS 123)
under which no compensation expense was recognized for stock
option grants and issuance of stock pursuant to the Employee
Stock Purchase Plan. Accordingly, share-based compensation was
included as a pro forma disclosure in the financial statement
footnotes and continues to be provided for periods prior to
fiscal 2006.
Effective January 1, 2006, we adopted the fair value
recognition provisions of SFAS 123(R) using the
modified-prospective-transition method. Under that transition
method, compensation cost recognized in 2006 includes:
a) compensation cost for all share-based payments granted
through December 31, 2005, but for which the requisite
service period had not been completed as of December 31,
2005, based on the grant date fair market value estimated in
accordance with the original provisions of SFAS 123, and
b) compensation cost for all share-based payments granted
subsequent to December 31, 2005, based on the grant date
fair value estimated in accordance with the provisions of
SFAS 123(R). Results for prior periods have not been
restated.
As a result of adopting SFAS 123(R) on January 1,
2006, our earnings before income taxes and net earnings for
2006, are $998,000 and $670,000 lower, respectively, than if we
had continued to account for share-based compensation under
APB 25. Basic and diluted earnings per share for 2006 are
$0.04 and $0.03 lower, respectively, than if we had continued to
account for share-based compensation under APB 25.
Prior to the adoption of SFAS 123(R), we presented all tax
benefits of deductions resulting from the exercise of stock
options as operating cash flows in the Consolidated Statements
of Cash Flows. SFAS 123(R) requires the cash flows
resulting from the tax benefits resulting from the tax
deductions in excess of the compensation cost recognized for
those options (excess tax benefits from share-based
compensation arrangements) to be classified as financing
cash flows. The $3,998,000 excess tax benefit from share-based
48
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
compensation arrangements classified as a financing cash inflow
for 2006 would have been classified as an operating cash inflow
if we had not adopted SFAS 123(R).
We provide compensation benefits to employees and non-employee
directors under several share-based payment arrangements
including various employee stock plans, the 2002 Employee Stock
Purchase Plan, the Directors Retainer Stock Plan, the
Directors Stock Grant Program and the Employee Stock Gift
Program.
Stock Option
Plans
To date, other than the Conditional Share Grant Agreement, we
have only issued options under this plan. Vesting requirements
for awards under this plan will vary by individual grant and are
time-based vesting. The contractual life of all of the options
granted under this plan is no greater than 15 years.
The fair value of each option award is estimated as of the date
of grant using the Black-Scholes option pricing model. Expected
volatility assumptions used were based on historical volatility
of our stock. We utilize historical data to estimate option
exercise and employee termination behavior within the valuation
model; separate groups of employees that have similar historical
exercise behavior are considered separately for valuation
purposes. The risk-free rate for the expected term of the option
award was based on the U.S. Treasury yield curve in effect
at the time of the grant. No new option awards were granted in
2006 and therefore no specific valuation assumptions are
presented.
The following summary presents information regarding outstanding
options as of December 30, 2006 and changes during the
period then ended with regard to options under all stock option
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Stock
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Under
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Option
|
|
|
per
Share
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
Outstanding at December 27,
2003
|
|
|
1,995,516
|
|
|
$
|
16.83
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
100,000
|
|
|
$
|
30.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(155,083
|
)
|
|
$
|
16.86
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(63,174
|
)
|
|
$
|
21.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 25,
2004
|
|
|
1,877,259
|
|
|
$
|
17.42
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(397,406
|
)
|
|
$
|
11.78
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(94,974
|
)
|
|
$
|
16.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31,
2005
|
|
|
1,384,879
|
|
|
$
|
19.08
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(332,881
|
)
|
|
$
|
15.56
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(15,714
|
)
|
|
$
|
20.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30,
2006
|
|
|
1,036,284
|
|
|
$
|
20.18
|
|
|
|
4.74
|
|
|
$
|
27,429,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
December 30, 2006
|
|
|
808,007
|
|
|
$
|
20.96
|
|
|
|
4.97
|
|
|
$
|
20,671,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 30,
2006
|
|
|
228,277
|
|
|
$
|
17.02
|
|
|
|
3.81
|
|
|
$
|
6,757,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during 2006 was
$16,888,000.
Employee Stock
Purchase Plan
For 2006, 16,763 shares were issued under this plan. The
weighted average fair value of employee stock purchase rights
pursuant to this plan was $8.26 per share. The fair value
of the stock purchase rights approximated the difference between
the stock price and the employee purchase price.
Directors
Retainer Stock Plan
We recognized the fair market value of the shares issued under
this plan, calculated using the number of shares issued and the
stock price on the issuance date, as expense and recorded the
related obligation in shareholders equity. We recognized
approximately $259,000 in expense for shares issued under this
program in 2006.
49
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
Directors
Stock Grant Program
In 2006, we recognized the fair market value of the shares
issued under this plan, calculated using the number of shares
issued and the stock price on the issuance date, as an expense
totaling approximately $142,000.
Conditional
Share Grant Agreement
We recognize the fair value of the award estimated as of the
date of grant using the Black-Scholes option pricing model. We
recognized approximately $112,000 in expense for shares issuable
under this program in 2006.
All
Share-Based Payment Arrangements
The total share-based compensation cost and the related total
income tax benefit that has been recognized in results of
operations was approximately $1.4 million and $481,000,
respectively in 2006.
As of December 30, 2006, there was $1.6 million of
total unrecognized compensation cost related to share-based
compensation arrangements. That cost is expected to be
recognized over a weighted average period of 3.06 years.
Cash received from option exercises and share issuances under
the Stock Purchase Plan was $5.9 million during 2006. The
actual tax benefit realized for the tax deductions from option
exercises totaled $4.4 million during that period.
Pro Forma Net
Earnings
The following table provides pro forma net earnings and earnings
per share had we applied the fair value method of SFAS 123
for 2005 and 2004 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Net Earnings:
|
|
|
|
|
|
|
|
|
As Reported
|
|
$
|
67,373
|
|
|
$
|
48,603
|
|
Deduct: Compensation
expense fair value method
|
|
|
(734
|
)
|
|
|
(1,866
|
)
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$
|
66,639
|
|
|
$
|
46,737
|
|
|
|
|
|
|
|
|
|
|
EPS Basic:
|
|
|
|
|
|
|
|
|
As Reported
|
|
$
|
3.67
|
|
|
$
|
2.70
|
|
Pro Forma
|
|
$
|
3.63
|
|
|
$
|
2.59
|
|
EPS Diluted:
|
|
|
|
|
|
|
|
|
As Reported
|
|
$
|
3.53
|
|
|
$
|
2.59
|
|
Pro Forma
|
|
$
|
3.50
|
|
|
$
|
2.51
|
|
No options were granted in 2005. The fair value of each option
granted in 2004 is estimated on the date of the grant using the
Black-Scholes option pricing model with the following weighted
average assumptions.
|
|
|
|
|
|
|
2004
|
|
|
Risk Free Interest Rate
|
|
|
4.6
|
%
|
Expected Life
|
|
|
6.0 years
|
|
Expected Volatility
|
|
|
27.42
|
%
|
Expected Dividend Yield
|
|
|
0.40
|
%
|
J. Employees
Stock Notes Receivable
Notes were obtained by us from certain officers for the purchase
of our common stock. Interest on all of the outstanding notes
range from fixed rates of five to eleven percent per annum and a
variable rate of the prime rate less 10% (minimum 6%, maximum
12%). Each loan is evidenced by a promissory note from the
participating officer, and is secured by all of the shares
purchased with the loan proceeds. As of August 1, 2002, we
no longer issue notes to executive officers under this program.
On March 31, 2006, we sold 3,222 shares of common
stock to various employees in exchange for notes receivable
totaling approximately $205,000. Interest on the note is fixed
at 4.7% per annum. The loan is evidenced by a promissory
note from the participating employee, and is secured by all of
the shares purchased with the loan proceeds.
50
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
On March 31, 2005, we sold 1,605 shares of common
stock to various employees in exchange for notes receivable
totaling approximately $62,000. Interest on the note is fixed at
4.5% per annum. The loan is evidenced by a promissory note
from the participating employee, and is secured by all of the
shares purchased with the loan proceeds.
On March 31, 2004, we sold 195 shares of common stock
to an employee in exchange for a note receivable totaling
approximately $6,000. Interest on the note is fixed at
4.8% per annum. The loan is evidenced by a promissory note
from the participating employee, and is secured by all of the
shares purchased with the loan proceeds.
All loans are recourse loans. On December 30, 2006,
payments on the notes are due as follows (in thousands):
|
|
|
|
|
2007
|
|
$
|
79
|
|
2008
|
|
|
97
|
|
2009
|
|
|
183
|
|
2010
|
|
|
204
|
|
2011
|
|
|
180
|
|
Thereafter
|
|
|
510
|
|
|
|
|
|
|
|
|
$
|
1,253
|
|
|
|
|
|
|
K. Retirement
Plans
We have a profit sharing and 401(k) plan for the benefit of
substantially all of our employees, excluding the employees of
certain non-wholly owned subsidiaries. Amounts contributed to
the plan are made at the discretion of the Board of Directors.
We matched 50% of employee contributions in 2006, 2005, and
2004, on a discretionary basis, totaling $3.9 million,
$3.7 million, and $3.3 million, respectively. The
basis for matching contributions may not exceed the lesser of 6%
of the employees annual compensation or the IRS limitation.
L. Income
Taxes
Income tax provisions for the years ended December 30,
2006, December 31, 2005, and December 25, 2004 are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Currently Payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
32,288
|
|
|
$
|
38,250
|
|
|
$
|
26,385
|
|
State and local
|
|
|
4,947
|
|
|
|
5,717
|
|
|
|
3,728
|
|
Foreign
|
|
|
2,649
|
|
|
|
4,342
|
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,884
|
|
|
|
48,309
|
|
|
|
30,599
|
|
Net Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,454
|
)
|
|
|
(3,947
|
)
|
|
|
(712
|
)
|
State and local
|
|
|
(220
|
)
|
|
|
(344
|
)
|
|
|
8
|
|
Foreign
|
|
|
1,550
|
|
|
|
(2,968
|
)
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,124
|
)
|
|
|
(7,259
|
)
|
|
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
38,760
|
|
|
$
|
41,050
|
|
|
$
|
31,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of earnings before income taxes consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
U.S.
|
|
$
|
105,662
|
|
|
$
|
105,733
|
|
|
$
|
76,035
|
|
Foreign
|
|
|
6,473
|
|
|
|
5,039
|
|
|
|
7,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
112,135
|
|
|
$
|
110,772
|
|
|
$
|
83,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
The effective income tax rates are different from the statutory
federal income tax rates for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local taxes (net of
federal benefits)
|
|
|
2.5
|
|
|
|
3.2
|
|
|
|
2.9
|
|
Effect of minority owned interest
in earnings of partnerships
|
|
|
(0.6
|
)
|
|
|
(0.3
|
)
|
|
|
(0.9
|
)
|
Manufacturing deduction
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
Research & development tax
credits
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
1.6
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
34.6
|
%
|
|
|
37.1
|
%
|
|
|
37.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 30, 2006, the effective tax
rate was favorably impacted by the federal research &
development (R&D) tax credits for
2001 2006, all of which were recognized in 2006.
During 2006, we completed a project to identify eligible
expenditures for purposes of claiming R&D tax credits, for
which amended tax returns for 2001 2005 will be
filed.
In accordance with the provisions of the American Jobs Creation
Act of 2004, we recognized income tax charges of
$0.1 million in 2005 related to the repatriation of
$2.3 million of undistributed foreign earnings.
Temporary differences which give rise to deferred tax assets and
(liabilities) on December 30, 2006 and December 31,
2005 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Employee benefits
|
|
$
|
7,064
|
|
|
$
|
6,337
|
|
Foreign subsidiary net operating
loss
|
|
|
1,991
|
|
|
|
702
|
|
Accrued expenses
|
|
|
1,188
|
|
|
|
487
|
|
Other, net
|
|
|
3,782
|
|
|
|
3,427
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
14,025
|
|
|
|
10,953
|
|
Valuation allowance
|
|
|
(1,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
12,937
|
|
|
|
10,953
|
|
Depreciation
|
|
|
(11,983
|
)
|
|
|
(11,555
|
)
|
Intangibles
|
|
|
(6,176
|
)
|
|
|
(5,626
|
)
|
Inventory
|
|
|
(634
|
)
|
|
|
(18
|
)
|
Other, net
|
|
|
(776
|
)
|
|
|
(1,510
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
$
|
(19,569
|
)
|
|
$
|
(18,709
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(6,632
|
)
|
|
$
|
(7,756
|
)
|
|
|
|
|
|
|
|
|
|
The 2006 valuation allowance consists of a net operating loss
carryforward we have related to a wholly-owned subsidiary,
Universal Forest Products of Canada, Inc. We do not anticipate
realizing a future benefit from this loss carryforward,
therefore, we established an allowance for the entire amount of
the future benefit. This carryforward will expire at the end of
2026.
M. Commitments,
Contingencies, and Guarantees
We are self-insured for environmental impairment liability
through a wholly owned subsidiary, UFP Insurance Ltd., a
licensed captive insurance company. We own and operate a number
of 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, we 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. Insurance reserves, calculated with no
discount rate, have been established to cover remediation
activities at our Stockertown, PA; Elizabeth City, NC;
Auburndale, FL; and
52
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
Janesville, WI wood preservation
facilities. In addition, a reserve was established for our
Thornton, CA property to remove asbestos and certain lead
containing materials which existed on the property at the time
of purchase.
Including amounts from our wholly owned captive insurance
company, we have reserved approximately $1.6 million and
$1.7 million on December 30, 2006 and
December 31, 2005, respectively, representing the estimated
costs to complete future remediation efforts. These amounts have
not been reduced by an insurance receivable.
The manufacturers of CCA preservative voluntarily discontinued
the registration of CCA for certain residential applications as
of December 31, 2003. Our wood preservation facilities have
been converted to alternate preservatives, either ACQ or
borates. In March 2005, one facility began using CCA to treat
certain marine products and panel goods for which ACQ is not a
suitable preservative.
In November 2003, the EPA published its report on the risks
associated with the use of CCA in childrens playsets.
While the study observed that the range of potential exposure to
CCA increased by the continuous use of playsets, the EPA
concluded that the risks were not sufficient to require removal
or replacement of any CCA treated structures. The results of the
EPA study are consistent with a prior Consumer Products Safety
Commission (CPSC) study which reached a similar conclusion. The
EPA did refer a question on the use of sealants to a scientific
advisory panel. The panel issued a report which provides
guidance to the EPA on the use of various sealants but does not
mandate their use. The EPA is expected to issue a final report
at the end of 2007.
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.
We have been requested by a customer to defend it from purported
class action lawsuits. One such lawsuit is currently pending in
Illinois. The purported class action lawsuit seeks unspecified
damages from this customer, based on generalized claims under a
purported theory of violation of individual state Consumer
Protection Act statutes. To date, none of these cases have been
certified as a class action. The Illinois case was previously
dismissed without prejudice. Based on an alleged violation of
the Consumer Protection Act, the claim has been restated and
filed. The case does not allege personal injury or property
damage. The judge in this case denied class certification for
this case in December 2005. 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 costs incurred in the defense of these claims and we
have expensed them accordingly, we have not formally accepted
liability of these costs.
We believe that based on current facts, laws, and existing
scientific evidence, as well as the favorable disposition of the
above referenced lawsuits, that the likelihood of a material
adverse financial impact from the remaining claims is remote.
Therefore, we have not accrued for any potential loss related to
the contingencies above. However, potential liabilities of this
nature are not conducive to precise estimates and are subject to
change. To the extent we are required to defend these actions,
we intend to do so vigorously and will monitor these facts on an
ongoing basis.
In addition, on December 30, 2006, we were parties either
as plaintiff or a defendant to a number of lawsuits and claims
arising through the normal course of our business. In the
opinion of management, our consolidated financial statements
will not be materially affected by the outcome of these
contingencies and claims.
We had outstanding purchase commitments on capital projects of
approximately $6.1 million and $2.9 million on
December 30, 2006 and December 31, 2005, respectively.
We provide a variety of warranties for products we manufacture.
Historically, warranty claims have not been material.
In certain cases we jointly bid on contracts with framing
companies to supply building materials to site-built
construction projects. In some of these instances we are
required to post payment and performance bonds to insure the
owner that the products and installation services are completed
in accordance with our contractual obligations. We have agreed
to indemnify the surety for claims made against the bonds.
Historically, we have not had any claims for indemnity from our
sureties. As of December 30, 2006, we had approximately
$26.5 million in outstanding performance bonds which expire
during the next two years. In addition, approximately
$15.3 million in payment and performance bonds are
outstanding for completed projects which are still under
warranty.
We have entered into operating leases for certain assets that
include a guarantee of a portion of the residual value of the
leased assets. If at the expiration of the initial lease term we
do not exercise our option to purchase the leased assets and
these assets are sold by the lessor for a price below a
predetermined amount, we will reimburse the lessor for a certain
portion of the shortfall. These operating leases will expire
periodically over the next five years. The estimated maximum
aggregate exposure of these guarantees is approximately
$2.3 million.
53
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
Under our sale of accounts receivable agreement, we guarantee
that Universal Forest Products RMS, LLC, as accounts servicer,
will remit collections on receivables sold to the bank. (See
Note G.)
We had outstanding letters of credit totaling $39.2 million
and $38.1 million on December 30, 2006 and
December 31, 2005, respectively, primarily related to
certain insurance contracts and industrial development revenue
bonds, as further described below.
In lieu of cash deposits, we provide irrevocable letters of
credit in favor of our insurers to guarantee our performance
under certain insurance contracts. We currently have irrevocable
letters of credit outstanding totaling approximately
$20.4 million for these types of insurance arrangements. We
have reserves recorded on our balance sheet, in accrued
liabilities, that reflect our expected future liabilities under
these insurance arrangements.
We are required to provide irrevocable letters of credit in
favor of the bond trustees for all of the industrial development
revenue bonds that we have issued (see Note D). These
letters of credit guarantee principal and interest payments to
the bondholders. We currently have irrevocable letters of credit
outstanding totaling approximately $18.5 million related to
our outstanding industrial development revenue bonds. These
letters of credit have varying terms but may be renewed at the
option of the issuing banks.
Certain wholly owned domestic subsidiaries have guaranteed the
indebtedness of Universal Forest Products, Inc. in certain debt
agreements, including the
Series 1998-A
Senior Notes,
Series 2002-A
Senior Notes, and our revolving credit facility. The maximum
exposure of these guarantees is limited to the indebtedness
outstanding under these debt arrangements and this exposure will
expire concurrent with the expiration of the debt agreements
(see Note D).
Our treating operations currently include 30 Subpart
W drip pads, defined as hazardous waste management units
by the EPA. The rules regulating drip pads require that the pad
be closed at the point that it is no longer used to
manage hazardous waste. Closure involves identification and
disposal of all contamination from the wood treating operations.
The ultimate cost of closure is dependent upon a number of
factors including, but not limited to, identification and
removal of contamination, cleanup standards that vary from state
to state, and the time period over which the cleanup would be
completed. Based on our knowledge of existing circumstances, it
is considered probable that these costs will approximate
$465,000. As a result, this amount has been recorded as a
liability and recorded in other long-term liabilities on
December 30, 2006 in accordance with FIN 47.
N. Sale
of Real Estate and Interest in Subsidiary
In October 2006, we sold real estate in Riverside, CA for
$620,000 and recorded a pre-tax gain of approximately $591,000.
In January 2005, we sold real estate in Stockton, CA for
$2.3 million and recorded a pre-tax gain of approximately
$1.2 million.
In December 2004, we sold real estate in Elkhart, IN and
Thornton, CA and recognized a net pre-tax gain of $426,000.
In June 2004, we sold a plant in Modesto, CA and recognized a
pre-tax gain of approximately $368,000.
In March 2004, we sold a plant in Bend, OR and recognized a
pre-tax gain of approximately $562,000 on the sale in the first
quarter and an additional $207,000 in the second quarter as we
collected the note receivable issued to us on the sale.
In January 2004, we sold our 60% ownership in Nascor
Incorporated, a Calgary, Alberta-based manufacturer of
engineered wood components and licensor of I-joist manufacturing
technology. The total sales price we collected was
$4.7 million and we recorded a pre-tax accounting loss of
approximately $193,000.
O. Gain
on Insurance Settlement
In April 2004, our plant in Thorndale, Ontario was destroyed by
a fire. In accordance with FIN 30, Accounting for
Involuntary Conversions of Non-Monetary Assets to Monetary
Assets, we wrote off the net book value of the destroyed
inventory and property totaling $3.6 million. The insured
value of the property exceeded its net book value by
approximately $1.4 million, which was recorded as a gain on
insurance settlement. As of December 25, 2004, we had
collected $2.0 million of insurance proceeds. In 2005, we
collected the remaining insurance proceeds of $3.0 million.
P. Segment
Reporting
SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information
(SFAS 131) defines operating segments as
components of an enterprise about which separate financial
information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance. Under the definition of
a segment, our Eastern, Western and Consumer Products Divisions
may be considered an operating segment of our business. Under
SFAS 131, segments may
54
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
be aggregated if the segments have
similar economic characteristics and if the nature of the
products, distribution methods, customers and regulatory
environments are similar. Based on this criteria, we have
aggregated our Eastern and Western divisions into one reporting
segment. Our Consumer Products Division, which was formed in
2006, is included in the All Other column in the
table below. Our divisions operate manufacturing and treating
facilities throughout North America.
|
|
|
|
|
|
|
|
|
|
|
|
Eastern and
|
|
|
|
|
|
|
Western
|
|
All
|
|
|
|
|
Divisions
|
|
Other
|
|
Total
|
|
Net sales to outside customers
|
|
$
|
2,605,087
|
|
$
|
59,485
|
|
$
|
2,664,572
|
Intersegment net sales
|
|
|
0
|
|
|
17,974
|
|
|
17,974
|
Interest expense
|
|
|
14,040
|
|
|
13
|
|
|
14,053
|
Amortization expense
|
|
|
3,071
|
|
|
2,680
|
|
|
5,751
|
Depreciation expense
|
|
|
31,081
|
|
|
2,690
|
|
|
33,771
|
Segment operating profit
|
|
|
118,288
|
|
|
4,803
|
|
|
123,091
|
Segment assets
|
|
|
831,160
|
|
|
82,281
|
|
|
913,441
|
Capital expenditures
|
|
|
40,908
|
|
|
2,596
|
|
|
43,504
|
In 2006, 2005, and 2004, 22%, 22%, and 25% of net sales,
respectively, were to a single customer.
Information regarding principal geographic areas was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
|
|
Tangible
|
|
|
|
|
|
Tangible
|
|
|
|
|
|
Tangible
|
|
|
|
Net
Sales
|
|
|
Assets
|
|
|
Net
Sales
|
|
|
Assets
|
|
|
Net
Sales
|
|
|
Assets
|
|
|
|
|
|
|
United States
|
|
$
|
2,590,951
|
|
|
$
|
234,362
|
|
|
$
|
2,621,443
|
|
|
$
|
207,334
|
|
|
$
|
2,373,289
|
|
|
$
|
194,480
|
|
Foreign
|
|
|
73,621
|
|
|
|
23,377
|
|
|
|
70,079
|
|
|
|
24,886
|
|
|
|
79,992
|
|
|
|
29,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,664,572
|
|
|
$
|
257,739
|
|
|
$
|
2,691,522
|
|
|
$
|
232,220
|
|
|
$
|
2,453,281
|
|
|
$
|
224,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales generated in Canada and Mexico are primarily to customers
in the United States of America.
The following table presents, for the periods indicated, our
percentage of value-added and commodity-based sales to total
sales.
|
|
|
|
|
|
|
|
|
|
|
Value-Added
|
|
|
Commodity-Based
|
|
|
|
|
|
|
2006
|
|
|
56.8
|
%
|
|
|
43.2
|
%
|
2005
|
|
|
52.7
|
%
|
|
|
47.3
|
%
|
2004
|
|
|
50.7
|
%
|
|
|
49.3
|
%
|
Value-added product sales consist of fencing, decking, lattice,
and other specialty products sold to the DIY/retail market,
industrial packaging, engineered wood components used in
site-built construction, and wood alternative
products. Wood alternative products consist primarily of
composite wood and plastics. 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. Commodity-based product sales
consist primarily of remanufactured lumber and preservative
treated lumber.
The following table presents, for the periods indicated, our
gross sales (in thousands) by major product classification.
55
Universal Forest
Products, Inc.
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 25,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Value-Added Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Fencing
|
|
$
|
176,761
|
|
|
$
|
155,297
|
|
|
$
|
141,443
|
|
Decking
|
|
|
66,656
|
|
|
|
46,593
|
|
|
|
38,444
|
|
Lattice
|
|
|
27,614
|
|
|
|
17,763
|
|
|
|
21,048
|
|
Outdoor preservative treated
products
|
|
|
27,825
|
|
|
|
18,964
|
|
|
|
14,673
|
|
Wood alternative products
|
|
|
44,731
|
|
|
|
43,192
|
|
|
|
33,819
|
|
Engineered wood components and
other building materials
|
|
|
740,879
|
|
|
|
769,000
|
|
|
|
665,611
|
|
Turn-key framing and installed sales
|
|
|
199,384
|
|
|
|
128,250
|
|
|
|
122,447
|
|
Packaging
|
|
|
103,344
|
|
|
|
84,306
|
|
|
|
58,394
|
|
Specialty lumber products
|
|
|
93,845
|
|
|
|
94,928
|
|
|
|
86,119
|
|
Other
|
|
|
56,261
|
|
|
|
81,309
|
|
|
|
79,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Value-Added Sales
|
|
|
1,537,300
|
|
|
|
1,439,602
|
|
|
|
1,261,257
|
|
Commodity-Based Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensional lumber
|
|
|
475,079
|
|
|
|
519,076
|
|
|
|
457,413
|
|
Preservative treated lumber
|
|
|
432,084
|
|
|
|
487,928
|
|
|
|
496,600
|
|
Plywood and OSB
|
|
|
250,952
|
|
|
|
275,802
|
|
|
|
258,095
|
|
Other
|
|
|
11,620
|
|
|
|
11,896
|
|
|
|
14,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commodity-Based Sales
|
|
|
1,169,735
|
|
|
|
1,294,702
|
|
|
|
1,226,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Sales
|
|
|
2,707,035
|
|
|
|
2,734,304
|
|
|
|
2,487,941
|
|
Sales allowances
|
|
|
(42,463
|
)
|
|
|
(42,782
|
)
|
|
|
(34,660
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
2,664,572
|
|
|
$
|
2,691,522
|
|
|
$
|
2,453,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q. Quarterly
Financial Information (Unaudited)
The following table sets forth selected financial information
for all of the quarters, each consisting of 13 weeks
(except fourth quarter of 2005 which consisted of 14 weeks)
during the years ended December 30, 2006 and
December 31, 2005 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Net sales
|
|
$
|
665,609
|
|
|
$
|
537,160
|
|
|
$
|
826,847
|
|
|
$
|
779,552
|
|
|
$
|
672,873
|
|
|
$
|
721,497
|
|
|
$
|
499,243
|
|
|
$
|
653,313
|
|
Gross profit
|
|
|
94,311
|
|
|
|
67,229
|
|
|
|
120,418
|
|
|
|
101,242
|
|
|
|
98,825
|
|
|
|
99,062
|
|
|
|
68,128
|
|
|
|
91,723
|
|
Net earnings
|
|
|
15,866
|
|
|
|
9,229
|
|
|
|
27,314
|
|
|
|
22,790
|
|
|
|
17,705
|
|
|
|
19,171
|
|
|
|
9,240
|
|
|
|
16,183
|
|
Basic earnings per share
|
|
|
0.85
|
|
|
|
0.51
|
|
|
|
1.45
|
|
|
|
1.24
|
|
|
|
0.94
|
|
|
|
1.04
|
|
|
|
0.49
|
|
|
|
0.87
|
|
Diluted earnings per share
|
|
|
0.82
|
|
|
|
0.49
|
|
|
|
1.41
|
|
|
|
1.20
|
|
|
|
0.91
|
|
|
|
1.00
|
|
|
|
0.48
|
|
|
|
0.84
|
|
R. Subsequent
Events
On February 12, 2007, one of our subsidiaries acquired all
of the common shares of Aljoma Lumber, Inc. (Aljoma)
located in Medley, FL, a leading manufacturer of
pressure-treated wood and industrial products that serves
Southern Florida and the Caribbean islands. The purchase price
of the common shares of Aljoma was approximately
$53.5 million.
On February 12, 2007, we amended and increased the size of
our unsecured revolving credit facility to $300 million,
which includes amounts reserved for letters of credit.
56
Price Range of
Common Stock and Dividends
Our common stock trades on The Nasdaq Stock Market
(NASDAQ) under the symbol UFPI. The following table
sets forth the range of high and low sales prices as reported by
NASDAQ.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2006
|
|
High
|
|
|
Low
|
|
|
Fiscal
2005
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
52.39
|
|
|
|
43.61
|
|
|
Fourth Quarter
|
|
|
61.69
|
|
|
|
50.34
|
|
Third Quarter
|
|
|
64.16
|
|
|
|
46.89
|
|
|
Third Quarter
|
|
|
58.97
|
|
|
|
39.78
|
|
Second Quarter
|
|
|
80.28
|
|
|
|
58.02
|
|
|
Second Quarter
|
|
|
42.86
|
|
|
|
37.10
|
|
First Quarter
|
|
|
64.94
|
|
|
|
53.39
|
|
|
First Quarter
|
|
|
44.55
|
|
|
|
37.03
|
|
There were approximately 1,100 shareholders of record as of
January 31, 2007.
In 2006, we paid dividends on our common stock of $.055 per
share in June and December. In 2005, we paid dividends on our
common stock of $.050 per share in June and $.055 per
share in December. We intend to continue with our current
semi-annual dividend policy for the foreseeable future.
57
Stock Performance
Graph
The following graph depicts the cumulative total return on our
common stock compared to the cumulative total return on the
indices for The Nasdaq Stock Market (all U.S. companies)
and an industry peer group we selected. The graph assumes an
investment of $100 on December 28, 2001, and reinvestment
of dividends in all cases.
The companies included in our self-determined industry peer
group are as follows:
|
|
|
BlueLinx Holdings, Inc.
|
|
Champion Enterprises, Inc.
|
Builders First Source
|
|
Louisiana Pacific Corp.
|
Building Materials Holding Co.
|
|
|
The returns of each company included in the self-determined peer
group are weighted according to each respective companys
stock market capitalization at the beginning of each period
presented in the graph above. In determining the members of our
peer group, we considered companies who selected UFPI as a
member of their peer group, and looked for similarly sized
companies or companies that are a good fit with the markets we
serve.
Georgia Pacific Corp, which was formerly considered a peer group
company, was purchased by Koch Industries in 2006 and is no
longer a public company. Patrick Industries, which was also
formerly considered a peer group company, was deemed to be too
small.
58
Directors and
Executive Officers
BOARD OF DIRECTORS
Peter F. Secchia
Chairman Emeritus
Universal Forest Products, Inc.
William G. Currie
Executive Chairman
Universal Forest Products, Inc.
Michael B. Glenn
Chief Executive Officer
Universal Forest Products, Inc.
Dan M. Dutton
Chairman of the Board
Stimson Lumber Co.
John M. Engler
President and Chief Executive
Officer
National Association of
Manufacturers
John W. Garside
President and Treasurer
Woodruff Coal Company
Gary F. Goode, CPA
Chairman
Titan Sales & Consulting,
LLC
Mark A. Murray
President
Meijer, Inc.
Louis A. Smith
President
Smith and Johnson,
Attorneys, P.C.
EXECUTIVE OFFICERS
William G. Currie
Executive Chairman
Michael B. Glenn
Chief Executive Officer
Michael R. Cole
Chief Financial Officer and
Treasurer
Robert D. Coleman
Executive Vice President
Manufacturing
C. Scott Greene
President
Universal Forest Products Eastern
Division, Inc.
Robert K. Hill
President
Universal Forest Products Western
Division, Inc.
Ronald G. Klyn
Chief Information Officer
Matthew J. Missad
Executive Vice President and
Secretary
Joseph F. Granger
Executive Vice President of Sales
and Marketing
59
Shareholder
Information
ANNUAL MEETING
The annual meeting of Universal
Forest Products, Inc., will be held at 8:30 a.m. on
April 18, 2007, at 2880 East Beltline Lane NE, Grand
Rapids, MI 49525.
SHAREHOLDER
INFORMATION
Shares of the Companys stock
are traded under the symbol UFPI on the NASDAQ Stock Market. The
Companys
10-K report,
filed with the Securities and Exchange Commission, will be
provided free of charge to any shareholder upon written request.
For more information contact:
Investor Relations Department
Universal Forest Products, Inc.
2801 East Beltline NE
Grand Rapids, MI 49525
Telephone:
(616) 364-6161
Web: www.ufpi.com
SECURITIES COUNSEL
Varnum, Riddering,
Schmidt & Howlett Grand Rapids, MI
INDEPENDENT
ACCOUNTANTS
Ernst & Young LLP
Grand Rapids, MI
TRANSFER AGENT/
SHAREHOLDER INQUIRIES
American Stock Transfer &
Trust Company serves as the transfer agent for the Corporation.
Inquiries relating to stock transfers, changes of ownership,
lost or stolen stock certificates, changes of address, and
dividend payments should be addressed to:
American Stock Transfer &
Trust Co.
59 Maiden Lane
New York, NY 10005
Telephone:
(718) 921-8210
UNIVERSAL FOREST
PRODUCTS®,
INC.,
CORPORATE HEADQUARTERS
2801 East Beltline NE
Grand Rapids, MI 49525
Telephone:
(616) 364-6161
Facsimile:
(616) 364-5558
UNIVERSAL FOREST
PRODUCTS®,
INC.,
AND ITS AFFILIATES
Locations:
Arlington, TX
Ashburn, GA
Auburn, NY
Auburndale, FL (2)
Belchertown, MA
Berlin, NJ
Blanchester, OH
Bunn, NC
Burlington, NC
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Clinton, NY
Conway, SC
Crestwood, MO
Dallas, NC
Dallas, TX
Denver, CO
Durango, Durango, Mexico
Earlysville, VA
Eatonton, GA
Eduardsburg, MI
Eliot, ME
Elizabeth City, NC
Elkhart, IN (2)
Emlenton, PA
Englewood, CO
Fishersville, VA
Folkston, GA
Fontana, CA
Ft. Pierce, FL
Georgetown, DE
Gordon, PA
Grandview, TX
Grand Rapids, MI
Granger, IN
Gulfport, MS
Haleyville, AL
Hamilton, OH
Harrisonville, MO
Hillsboro, TX
Houston, TX
Hudson, NY
Indianapolis, IN
Jacksonville, FL
Janesville, WI
Jefferson, GA
Kyle, TX
Lacolle, Quebec, Canada
Lafayette, CO
Lancaster, PA
Lansing, MI
Las Vegas, NV (2)
Liberty, NC
Lodi, OH
London, Ontario, Canada
Minneota, MN
Morristown, TN
Moultrie, GA
Muscle Shoals, AL
Naugatuck, CT
New London, NC
New Waverly, TX
New Windsor, MD
Ocala, FL
Ooltewah, TN
Parker, PA
Pearisburg, VA
Plainville, MA
Prairie du Chien, WI
Ranson, WV
Riverbank, CA
Riverside, CA
Saginaw, TX
Salisbury, NC
San Antonio, TX
San Diego, CA
Sanford, NC
Santee, SC
Schertz, TX
Sidney, NY
Silsbee, TX
Springfield, IL
Stanfield, NC
Stockertown, PA
Tampa, FL
Tecate, Baja California, Mexico
Thornton, CA
Union City, GA
Warrens, WI
Westville, IN
White Bear Lake, MN
White Pigeon, MI
Windsor, CO
Woodburn, OR
60
exv21
EXHIBIT 21
LIST OF REGISTRANTS SUBSIDIARIES AND AFFILIATES
1. Advanced Component Systems LLC, a Michigan Limited Liability Company.
2. Aljoma Holding Company, LLC, a Michigan Limited Liability Company.
3. Aljoma Lumber, Inc., a Florida Corporation.
4. Atlantic Building Professionals, LLC, a Michigan Limited Liability Company.
5. D&L Framing, LLC, a Nevada Limited Liability Company (50% owned).
6. D&R Framing Contractors, L.L.C., a Michigan Limited Liability Company (50% owned).
7. Euro-Pacific Building Materials, Inc., an Oregon Corporation.
8. Euro-Pacific International Corp., an Oregon Corporation.
9. Gulf Coast Components, LLC, a Michigan Limited Liability Company.
10. Indianapolis Real Estate LLC, a Michigan Limited Liability Company.
11. Maine Ornamental, LLC, a Michigan Limited Liability Company.
12. Midwest Framing, LLC, a Michigan Limited Liability Company.
13. Norpac Construction, L.L.C., a Nevada Limited Liability Company (75% owned).
14. Pinelli Universal, S. de R.L. de C.V., a Mexican Corporation (50% owned).
15. Pinelli Universal TKT, S. de R.L. de C.V., a Mexican Corporation (75% owned).
16. Shawnlee Construction LLC, a Michigan Limited Liability Company (80% owned).
17. Shepardville Construction, LLC, a Michigan Limited Liability Company (80% owned).
18. TKT Real Estate, S. de R.L. de C.V., a Mexican Corporation (50% owned).
19. Treating Services of Minnesota, LLC, a Michigan Limited Liability Company.
20. Tresstar, LLC, a Michigan Limited Liability Company.
21. U.F.P. Mexico Holdings, S. de R.L. de C.V., a Mexican Corporation.
22. UFP Framing LLC, a Michigan Limited Liability Company.
23. UFP Framing of Florida, LLC, a Michigan Limited Liability Company.
24. UFP Insurance Ltd., an exempted company organized under the laws of Bermuda.
25. UFP Real Estate, Inc., a Michigan Corporation.
26. UFP Transportation, Inc., a Michigan Corporation.
27. UFP Ventures, Inc., a Michigan Corporation.
28. UFP Ventures II, Inc., a Michigan Corporation.
29. United Lumber & Reman, LLC, a Michigan Limited Liability Corporation (50% owned).
30. Universal Consumer Products, Inc., a Michigan Corporation.
31. Universal Forest Products Eastern Division, Inc., a Michigan Corporation.
32. Universal Forest Products Eastern Purchasing, Inc., a Michigan Corporation.
33. Universal Forest Products Holding Company, Inc., a Michigan Corporation.
34. Universal Forest Products of Canada, Inc., a Canadian Corporation.
35. Universal Forest Products of Modesto L.L.C., a Michigan Limited Liability Company.
36. Universal Forest Products Reclamation Center, Inc., a Michigan Corporation.
37. Universal Forest Products RMS, LLC, a Michigan Limited Liability Company.
38. Universal Forest Products Texas Limited Partnership, a Michigan Limited Partnership.
39. Universal Forest Products Western Division, Inc., a Michigan Corporation.
40. Universal Forest Products Western Purchasing, LLC, a Michigan Limited Liability Company.
41. Universal Truss, Inc., a Michigan Corporation.
42. Western Building Professionals, LLC, a Michigan Limited Liability Company.
43. Western Building Professionals of California, Inc., a Michigan Corporation.
44. Western Building Professionals of California II Limited Partnership, a Michigan Limited Partnership.
exv23
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this
Form 10-K of Universal Forest Products,
Inc. and subsidiaries of our reports dated February 12, 2007, with respect to the consolidated
financial statements of Universal Forest Products, Inc. and subsidiaries, Universal Forest
Products, Inc. and subsidiaries managements assessment of the effectiveness of internal control
over financial reporting, and the effectiveness of internal control over financial reporting of
Universal Forest Products, Inc. and subsidiaries, included in the 2006 Annual Report to
Shareholders of Universal Forest Products, Inc. and subsidiaries.
We also consent to the incorporation by reference in the
Registration Statement File Numbers
33-81128, 33-81116, 33-81450, 333-60630 and 333-88056 on Form S-8 and Registration File Number
333-75278 on Form S-3 of our reports dated February 12, 2007, with respect to the consolidated
financial statements of Universal Forest Products, Inc. and subsidiaries, Universal Forest
Products, Inc. and subsidiaries managements assessment of the effectiveness of internal control
over financial reporting, and the effectiveness of internal control over financial reporting of
Universal Forest Products, Inc. and subsidiaries, incorporated by reference in the Form 10-K of
Universal Forest Products, Inc. and subsidiaries for the year ended December 30, 2006.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Grand Rapids, Michigan
February 12, 2007
exv31wxay
EXHIBIT 31(a)
Universal Forest Products, Inc.
Certification
I, Michael B. Glenn, certify that:
1. |
|
I have reviewed this report on Form 10-K of Universal Forest Products, Inc.; |
2. |
|
Based on my knowledge, this 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 report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this 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
report; |
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared; |
|
|
b. |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to de designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c. |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
d. |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
Audit Committee of registrants Board of Directors (or persons performing the equivalent
functions): |
|
a. |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
b. |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
|
|
|
Date: February 27, 2007
|
|
/s/ Michael B. Glenn |
|
|
|
|
|
Michael B. Glenn
Chief Executive Officer |
exv31wxby
EXHIBIT 31(b)
Universal Forest Products, Inc.
Certification
I, Michael R. Cole, certify that:
1. |
|
I have reviewed this report on Form 10-K of Universal Forest Products, Inc.; |
2. |
|
Based on my knowledge, this 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 report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this 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
report; |
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared; |
|
|
b. |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to de designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c. |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
d. |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
Audit Committee of registrants Board of Directors (or persons performing the equivalent
functions): |
|
a. |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
b. |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
|
|
|
Date: February 27, 2007
|
|
/s/ Michael R. Cole |
|
|
|
|
|
Michael R. Cole
Chief Financial Officer |
exv32wxay
EXHIBIT 32(a)
CERTIFICATE OF THE
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, Michael B. Glenn, 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 report on Form 10-K for the year ended December 30, 2006, 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 report on Form 10-K for the period ended December 30,
2006 fairly presents, in all material respects, the financial condition and results of operations
of Universal Forest Products, Inc.
|
|
|
|
|
|
|
UNIVERSAL FOREST PRODUCTS, INC. |
|
|
|
|
|
Date: February 27, 2007
|
|
By:
|
|
/s/ Michael B. Glenn |
|
|
|
|
|
|
|
|
|
Michael B. Glenn |
|
|
Its:
|
|
Chief Executive Officer |
The signed original of this written statement required by Section 906, or any other document
authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 906, has been provided
to Universal Forest Products, Inc. and will be retained by Universal Forest Products, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
exv32wxby
EXHIBIT 32(b)
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 report on Form 10-K for the period ended December 30, 2006, 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 report on Form 10-Q for the period ended December 30,
2006 fairly presents, in all material respects, the financial condition and results of operations
of Universal Forest Products, Inc.
|
|
|
|
|
|
|
UNIVERSAL FOREST PRODUCTS, INC. |
|
|
|
|
|
Date: February 27, 2007
|
|
By:
|
|
/s/ Michael R. Cole |
|
|
|
|
|
|
|
|
|
Michael R. Cole |
|
|
Its:
|
|
Chief Financial Officer |
The signed original of this written statement required by Section 906, or any other document
authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 906, has been provided
to Universal Forest Products, Inc. and will be retained by Universal Forest Products, Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.