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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2002
------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
Commission File Number 0-22684
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UNIVERSAL FOREST PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1465835
----------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2801 East Beltline NE, Grand Rapids, Michigan 49525
--------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 364-6161
--------------
NONE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of October 15, 2002
-------------------------- ----------------------------------
Common stock, no par value 17,736,708
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Page 1 of 30
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets at September 28, 2002
and December 29, 2001. 3
Consolidated Condensed Statements of Earnings for the Three and Nine
Months Ended September 28, 2002 and September 29, 2001. 4
Consolidated Condensed Statements of Cash Flows for the Nine Months
Ended September 28, 2002 and September 29, 2001. 5
Notes to Consolidated Condensed Financial Statements. 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Controls and Procedures. 24
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Changes in Securities and Use of Proceeds. 25
Item 3. Defaults Upon Senior Securities - NONE.
Item 4. Submission of Matters to a Vote of Security Holders - NONE.
Item 5. Other Information - NONE
Item 6. Exhibits and Reports on Form 8-K. 26
CERTIFICATION OF VICE CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER. 28
CERTIFICATION OF CHIEF FINANCIAL OFFICER. 29
2
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
September 28, December 29,
2002 2001
----------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 12,800 $ 22,887
Accounts receivable (net of allowance for doubtful accounts of
$2,702 and $1,803)....................................................... 149,962 86,256
Inventories:
Raw materials......................................................... 43,806 41,061
Finished goods........................................................ 85,035 79,708
------------ -----------
128,841 120,769
Other current assets....................................................... 3,279 5,054
------------ -----------
TOTAL CURRENT ASSETS.............................................. 294,882 234,966
OTHER ASSETS.................................................................... 6,311 11,585
GOODWILL........................................................................ 120,333 119,550
NON-COMPETE AND LICENSING AGREEMENTS (net of accumulated
amortization of $2,214 and $3,644)......................................... 4,764 3,446
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment.............................................. 311,652 286,883
Accumulated depreciation and amortization.................................. (120,303) (105,221)
------------ -----------
PROPERTY, PLANT AND EQUIPMENT, NET................................ 191,349 181,662
------------ -----------
TOTAL ASSETS.................................................................... $ 617,639 $ 551,209
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt............................................................ $ 1,494 $ 1,402
Accounts payable........................................................... 76,303 46,862
Accrued liabilities:
Compensation and benefits............................................. 38,092 34,029
Other ................................................................ 12,507 8,187
Current portion of long-term debt and capital lease obligations............ 18,645 20,415
------------ -----------
TOTAL CURRENT LIABILITIES......................................... 147,041 110,895
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less
current portion............................................................ 185,091 154,370
DEFERRED INCOME TAXES........................................................... 10,320 9,580
MINORITY INTEREST............................................................... 7,558 2,405
OTHER LIABILITIES............................................................... 7,715 7,097
------------ -----------
TOTAL LIABILITIES................................................. 357,725 284,347
TEMPORARY SHAREHOLDERS' EQUITY:
Value of shares subject to redemption agreement; 2,000,000 shares
issued and outstanding................................................... 36,000
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; shares authorized 1,000,000; issued
and outstanding, none
Common stock, no par value; shares authorized 40,000,000; issued
and outstanding, 17,816,613 and 17,787,860............................... 17,817 17,788
Additional paid-in capital................................................. 81,970 80,994
Retained earnings.......................................................... 161,850 132,677
Accumulated other comprehensive earnings................................... (322) 558
----------- -----------
261,315 232,017
Officers' stock notes receivable........................................... (1,401) (1,155)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY........................................ 259,914 230,862
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................... $ 617,639 $ 551,209
============ ===========
See notes to consolidated condensed financial statements.
3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
--------------------------- ------------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
------------ -------------- ------------ --------------
NET SALES................................................... $ 452,959 $ 431,861 $1,299,559 $1,201,083
COST OF GOODS SOLD.......................................... 391,294 375,679 1,117,994 1,035,385
---------- ---------- ---------- ----------
GROSS PROFIT................................................ 61,665 56,182 181,565 165,698
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................................. 41,148 37,525 120,291 108,667
---------- ---------- ---------- ----------
EARNINGS FROM OPERATIONS.................................... 20,517 18,657 61,274 57,031
OTHER EXPENSE (INCOME):
Interest expense....................................... 2,542 2,948 8,497 9,686
Interest income........................................ (31) (151) (196) (468)
Gain on sale of assets................................. (1,082)
---------- ---------- ---------- ----------
2,511 2,797 7,219 9,218
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES, MINORITY
INTEREST AND EQUITY IN EARNINGS
OF INVESTEE.............................................. 18,006 15,860 54,055 47,813
INCOME TAXES................................................ 6,678 5,519 20,051 17,554
---------- ---------- ---------- ----------
EARNINGS BEFORE MINORITY INTEREST AND
EQUITY IN EARNINGS OF INVESTEE............................ 11,328 10,341 34,004 30,259
MINORITY INTEREST........................................... (684) (618) (1,924) (1,479)
EQUITY IN EARNINGS OF INVESTEE.............................. 85 243
---------- ---------- ---------- ----------
REPORTED NET EARNINGS....................................... $ 10,644 $ 9,808 $ 32,080 $ 29,023
ADD: Goodwill amortization, net of tax................. 774 2,231
---------- ---------- ---------- ----------
ADJUSTED NET EARNINGS.................................. $ 10,644 $ 10,582 $ 32,080 $ 31,254
========== ========== ========== ==========
REPORTED EARNINGS PER SHARE - BASIC......................... $ 0.60 $ 0.50 $ 1.78 $ 1.47
ADD: Goodwill amortization, net of tax................. 0.04 0.11
---------- ---------- ---------- ----------
ADJUSTED EARNINGS PER SHARE - BASIC.................... $ 0.60 $ 0.53 $ 1.78 $ 1.58
========== ========== ========== ==========
REPORTED EARNINGS PER SHARE - DILUTED....................... $ 0.58 $ 0.48 $ 1.71 $ 1.43
ADD: Goodwill amortization, net of tax................. 0.04 0.11
---------- ---------- ---------- ----------
ADJUSTED EARNINGS PER SHARE - DILUTED.................. $ 0.58 $ 0.52 $ 1.71 $ 1.54
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING......................... 17,845 19,803 17,980 19,769
WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS............................. 18,427 20,450 18,719 20,360
See notes to consolidated condensed financial statements.
4
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
----------------------------
September 28, September 29,
2002 2001
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .................................................................... $ 32,080 $ 29,023
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation................................................................. 17,235 14,586
Amortization of intangible assets............................................ 851 3,348
Deferred income taxes........................................................ (246) 13
(Gain) loss on sale or impairment of property, plant, and equipment.......... (152) 588
Changes in:
Accounts receivable........................................................ (61,235) (52,660)
Inventories................................................................ (6,020) 3,891
Accounts payable........................................................... 28,076 20,786
Accrued liabilities and other.............................................. 11,353 15,083
------------ ------------
NET CASH FROM OPERATING ACTIVITIES........................................... 21,942 34,658
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment......................................... (21,136) (22,166)
Purchase of licensing agreement................................................... (2,000)
Acquisitions, net of cash received................................................ (2,519) (21,559)
Proceeds from sale of property, plant and equipment............................... 3,310 886
Other............................................................................. 430 1,608
------------ ------------
NET CASH FROM INVESTING ACTIVITIES........................................... (21,915) (41,231)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of notes payable and revolving credit facilities................... 37,004 23,106
Repayment of long-term debt....................................................... (8,205) (9,838)
Proceeds from issuance of common stock............................................ 769 827
Distributions to minority shareholder............................................. (660) (1,275)
Dividends paid to shareholders.................................................... (806) (792)
Repurchase of common stock........................................................ (38,216) (1,537)
------------ ------------
NET CASH FROM FINANCING ACTIVITIES........................................... (10,114) 10,491
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS........................................... (10,087) 3,918
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................................... 22,887 2,392
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................................... $ 12,800 $ 6,310
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................................... $ 6,659 $ 7,590
Income taxes................................................................. 16,406 9,169
NON-CASH FINANCING ACTIVITIES:
Property, plant and equipment acquired through capital leases..................... $ 248
NON-CASH INVESTING ACTIVITIES:
Note payable issued in exchange for non-compete agreements........................ $ 216
Stock exchanged for officers' notes receivable.................................... 300
See notes to consolidated condensed financial statements.
5
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited, interim, consolidated, condensed financial
statements (the "Financial Statements") include our accounts and those
of our wholly-owned and majority-owned subsidiaries and partnerships,
and have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, the Financial
Statements do not include all of the information and footnotes normally
included in the annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United
States. All significant intercompany transactions and balances have
been eliminated. The equity method of accounting is used for our less
than 50% owned affiliates.
In our opinion, the Financial Statements contain all material
adjustments necessary to present fairly our consolidated financial
position, results of operations and cash flows for the interim periods
presented. All such adjustments are of a normal recurring nature. These
Financial Statements should be read in conjunction with the
consolidated financial statements, and footnotes thereto, included in
our Annual Report to Shareholders on Form 10-K for the fiscal year
ended December 29, 2001.
Certain reclassifications have been made to the Financial Statements
for 2001 to conform to the classifications used in 2002.
B. COMPREHENSIVE INCOME
Comprehensive income consists of net income and foreign currency
translation adjustments. Comprehensive income was approximately $10.0
million and $9.7 million for the quarters ended September 28, 2002 and
September 29, 2001, respectively. During the nine months ended
September 28, 2002 and September 29, 2001, comprehensive income was
approximately $31.2 million and $28.9 million, respectively.
6
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
C. EARNINGS PER COMMON SHARE
A reconciliation of the changes in the numerator and the denominator
from the calculation of basic EPS to the calculation of diluted EPS
follows (in thousands, except per share data):
Three Months Ended 09/28/02 Three Months Ended 09/29/01
----------------------------------- ----------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------- ------------- --------- ------------ ----------- -------
NET EARNINGS................... $10,644 $9,808
EPS - BASIC
Income available to
common stockholders.......... 10,644 17,845 $0.60 9,808 19,803 $0.50
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 582 647
-------- --------
EPS - DILUTED
Income available to
common stockholders and
assumed options
exercised.................... $10,644 18,427 $0.58 $9,808 20,450 $0.48
======= ====== ===== ====== ====== =====
Nine Months Ended 09/28/02 Nine Months Ended 09/29/01
------------------------------------ -------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------- ------------- --------- ------------ ----------- -------
NET EARNINGS................... $32,080 $29,023
EPS - BASIC
Income available to
common stockholders.......... 32,080 17,980 $1.78 29,023 19,769 $1.47
===== =====
EFFECT OF DILUTIVE SECURITIES
Options........................ 739 591
------- --------
EPS - DILUTED
Income available to
common stockholders and
assumed options
exercised.................... $32,080 18,719 $1.71 $29,023 20,360 $1.43
======= ====== ===== ======= ====== =====
Options to purchase 950,481 shares of common stock at exercise prices
ranging from $19.75 to $36.01 were outstanding at September 28, 2002,
but were not included in the computation of diluted EPS for the quarter
ended September 28, 2002 because the options' exercise prices were
greater than the average market price of the common stock during the
period and, therefore, would be antidilutive.
7
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Options to purchase 335,000 shares of common stock at exercise prices
ranging from $22.88 to $36.01 were outstanding at September 28, 2002,
but were not included in the computation of diluted EPS for the nine
months ended September 28, 2002 because the options' exercise prices
were greater than the average market price of the common stock during
the period and, therefore, would be antidilutive.
D. GOODWILL AND OTHER INTANGIBLE ASSETS
Effective December 30, 2001 (the first day of our fiscal year ending
December 28, 2002), we adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
This statement changed the accounting and reporting for goodwill and
other intangible assets. Goodwill is no longer amortized, however tests
for impairment are performed annually or when a triggering event
occurs. SFAS 142 required that we test all goodwill for impairment
within six months of implementation. We tested for impairment by
utilizing the discounted cash flow method, as well as comparing the
results to other widely acceptable valuation methods, none of which
resulted in impairment of goodwill.
On September 28, 2002, non-compete assets totaled $4.7 million with
accumulated amortization totaling $2.0 million, and licensing
agreements totaled $2.3 million with accumulated amortization of $0.3
million.
Estimated amortization expense for intangible assets as of September
28, 2002 for each of the succeeding fiscal years is as follows:
Remaining 2002..................... $250
2003............................... 997
2004............................... 997
2005............................... 997
2006............................... 928
Thereafter......................... 595
E. LONG-LIVED ASSETS
Effective December 30, 2001, we adopted SFAS No. 144, Accounting for
the Impairment and Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144
superceded SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and
the accounting and reporting provisions of the Accounting Principles
Board Opinion No. 30, Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. SFAS 144
also amends Accounting Research Bulletin No. 51, Consolidated Financial
Statements. SFAS 144 retains the provisions of SFAS 121 for recognition
and measurement of impairment of long-
8
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
lived assets to be held and used, and measurement of long- lived assets
to be disposed of by sale. Discontinued operations are no longer
measured on a net realizable value basis, and future operating losses
are no longer recognized before they occur. The impact of adopting this
statement has not been significant to our financial statements.
F. BUSINESS COMBINATIONS
On January 15, 2002, one of our subsidiaries acquired an additional 5%
interest in Pinelli-Universal S. de R.L. de C.V. ("Pinelli"),
increasing our ownership to 50%. The purchase price for the additional
5% was approximately $0.9 million, allocating $0.3 million to net
assets acquired and $0.6 million to goodwill. As a result of this
transaction, we obtained additional rights of control and thus began
consolidating the results of Pinelli in the 2002 financial statements.
In 2001, we accounted for Pinelli under the equity method.
On April 10, 2002, one of our subsidiaries acquired certain assets and
entered into an exclusive licensing agreement with Inno-Tech Plastics,
Inc. ("Inno-Tech"), which operates one facility in Springfield, IL. The
total purchase price for these assets was approximately $4.1 million,
allocating $2.1 million to net assets acquired and $2.0 million to
identifiable intangibles (licensing agreement). Inno-Tech had net sales
in fiscal 2001 totaling approximately $1.3 million.
On September 9, 2002, one of our subsidiaries acquired certain assets
of J.S. Building Products, a site-built component manufacturer in
Modesto, CA. The total purchase price for the assets was approximately
$2.2 million. On October 22, 2002, we purchased the real property from
J.S. Building Products where the operation is located. The total
purchase price was $1.9 million. Production capacity at this facility
is approximately $20 million annually. The purchase price allocation
will be completed when appraisals are finalized.
G. SUBSEQUENT EVENTS
On November 4, 2002, one of our subsidiaries acquired a facility from
Quality Wood Treating Co., Inc. ("Quality") in Prairie du Chien, WI,
which produces Everx(R) composite decking. The total purchase price for
the real estate, equipment, inventory, and intangible assets was
approximately $14.7 million. The purchase price allocation will be
completed when appraisals are finalized.
In addition, we entered into a treating services agreement with
Quality. Under the terms of this agreement, we purchased substantially
all of the inventory of Quality for approximately $7.5 million, Quality
agreed to provide exclusive treating services to us for a five year
term, and we have agreed to monthly and annual minimum volumes. Quality
had composite and treating sales of $6 million and $92 million,
respectively, through the third quarter of 2002.
9
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Included in this report are certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The forward-looking
statements are based on the beliefs and assumptions of management, together with
information available to us when the statements were made. Future results could
differ materially from those included in such forward-looking statements as a
result of, among other things, the factors set forth below and certain economic
and business factors which may be beyond our control. Investors are cautioned
that all forward-looking statements involve risks and uncertainty.
RISK FACTORS
WE ARE SUBJECT TO FLUCTUATIONS IN THE PRICE OF LUMBER. We experience significant
fluctuations in the cost of commodity lumber products from primary producers
(the "Lumber Market"). A variety of factors over which we have no control,
including government regulations, environmental regulations, weather conditions,
economic conditions and natural disasters, impact the cost of lumber products
and our selling prices. While we attempt to minimize our risk from severe price
fluctuations, substantial, prolonged trends in lumber prices can negatively
affect our sales volume, our gross margins and our profitability. We anticipate
that these fluctuations will continue in the future.
OUR GROWTH MAY BE LIMITED BY THE MARKETS WE SERVE. Our sales growth is
dependent, in part, upon the growth of the markets we serve. If our markets do
not achieve anticipated growth, or if we fail to maintain our market share,
financial results could be impaired.
The manufactured housing industry is currently hampered by market conditions,
including tightened credit policies. Significant lenders who previously provided
financing to consumers of these products and industry participants have either
restricted credit or exited the market. A continued shortage of financing to
this industry could adversely affect our operating results. Our ability to
achieve growth in sales and margins to the site-built construction market is
somewhat dependent on housing starts. If housing starts decline significantly,
our financial results could be negatively impacted.
We are witnessing consolidation by our customers. These consolidations will
result in a larger portion of our sales being made to some customers and may
limit the customer base we are able to serve.
10
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
OUR GROWTH MAY BE LIMITED BY OUR ABILITY TO MAKE SUCCESSFUL ACQUISITIONS. A key
component of our growth strategy is to complete business combinations. Business
combinations involve inherent risks, including assimilation and successfully
managing growth. While we conduct extensive due diligence and have taken steps
to ensure successful assimilation, factors beyond our control could influence
the results of these acquisitions.
WE MAY BE ADVERSELY AFFECTED BY THE IMPACT OF ENVIRONMENTAL AND SAFETY
REGULATIONS. We are subject to the requirements of federal, state and local
environmental and occupational health and safety laws and regulations. There can
be no assurance that we are at all times in complete compliance with all of
these requirements. We have made and will continue to make capital and other
expenditures to comply with environmental regulations. If additional laws and
regulations are enacted in the future, which restrict our ability to manufacture
and market our products, including our treated lumber products, it could
adversely affect our sales and profits. If existing laws are interpreted
differently, it could also increase the financial cost to us. See additional
discussion below under the caption "Environmental Considerations and
Regulations."
SEASONALITY AND WEATHER CONDITIONS COULD ADVERSELY AFFECT US. Some aspects of
our business are seasonal in nature and results of operations vary from quarter
to quarter. Our treated lumber and outdoor specialty products, such as fencing,
decking and lattice, experience the greatest seasonal effects. Sales of treated
lumber, primarily consisting of Southern Yellow Pine ("SYP"), also experience
the greatest Lumber Market risk (see Historical Lumber Prices). Treated lumber
sales are generally at their highest levels between April and August. This sales
peak, combined with capacity constraints in the wood treatment process, requires
us to build our inventory of treated lumber throughout the winter and spring.
This also has an impact on our receivables balances, which tend to be
significantly higher at the end of the second and third quarters. Because sales
prices of treated lumber products may be indexed to the Lumber Market at the
time they are shipped, our profits can be negatively affected by prolonged
declines in the Lumber Market during our primary selling season. To mitigate
this risk, programs are maintained with certain vendors and customers that are
intended to decrease our exposure. These programs include those materials which
are most susceptible to adverse changes in the Lumber Market. Vendor programs
also allow us to carry a lower investment in inventories.
The majority of our products are used or installed in outdoor construction
activities; therefore, short- term sales volume, our gross margins and our
profits can be negatively affected by adverse weather conditions. In addition,
adverse weather conditions can negatively impact our productivity and costs per
unit.
WE MAY BE ADVERSELY AFFECTED IF OUR CUSTOMERS AND VENDORS ARE NOT WILLING TO
MODIFY OUR EXISTING DISTRIBUTION STRATEGIES. While we have invested heavily in
technology and established electronic business-to-business efficiencies with
certain customers and vendors, the willingness of customers
11
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
and vendors to modify existing distribution strategies poses a potential risk.
We believe the nature of our products, together with our value-added services,
ensures that we have a secure position in the supply chain.
When analyzing this report to assess our future performance, please recognize
the potential impact of the various factors set forth above.
HISTORICAL LUMBER PRICES
The following table presents the Random Lengths framing lumber composite price
for the nine months ended September 28, 2002 and September 29, 2001:
Random Lengths Composite
Average $/MBF
-----------------------
2002 2001
---- ----
January............................ $297 $269
February........................... 317 285
March.............................. 339 306
April.............................. 323 331
May................................ 312 411
June............................... 302 365
July............................... 306 325
August............................. 291 336
September.......................... 279 309
Third quarter average.............. $292 $323
Year-to-date average............... $307 $326
Third quarter percentage
decrease from 2001................ (9.6%)
Year-to-date percentage
decrease from 2001................ (5.8%)
In addition, a SYP composite price, which we prepare and use, is presented
below. Sales of products produced using this species comprise up to 50% of our
sales volume.
12
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Random Lengths SYP
Average $/MBF
---------------------
2002 2001
---- ----
January............................ $410 $369
February........................... 434 393
March.............................. 464 408
April.............................. 457 427
May................................ 408 509
June............................... 383 496
July............................... 409 426
August............................. 375 419
September ......................... 361 406
Third quarter average.............. $382 $417
Year-to-date average............... $411 $428
Third quarter percentage
decrease from 2001............... (8.4%)
Year-to-date percentage
decrease from 2001................ (4.0%)
IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS
We generally price our products to pass lumber costs through to our customers so
that our profitability is based on the value-added manufacturing, distribution
and services we provide. As a result, our sales levels (and working capital
requirements) are impacted by the lumber costs of our products.
Our gross margins are impacted by both (1) the relative level of the Lumber
Market (i.e. whether prices are higher or lower from comparative periods), and
(2) the trend in the market price of lumber (i.e. whether the price of lumber is
increasing or decreasing within a period or from period to period). Moreover, as
explained below, our products are priced differently. Some of our products have
fixed selling prices, while the selling prices of other products are indexed to
the reported Lumber Market with a fixed dollar adder to cover conversion costs
and profits. Consequently, the level and trends of the Lumber Market impact our
products differently.
Below is a general description of the primary ways in which our products are
priced.
- - Products with fixed selling prices. These products include value-added
products such as decking and fencing sold to do-it-yourself/retail
("DIY/retail") customers, as well as trusses, wall panels and other
components sold to the site-built construction market. Prices for these
products are generally fixed at the time of the sales quotation for a
specified period of time or are based upon a specific quantity. In order to
maintain margins and eliminate or reduce any exposure to changes in the price
of component lumber products, we attempt to lock in prices for these sales
13
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
commitments with our suppliers. Also, the time periods and quantity
limitations generally allow us to reprice our products for changes in lumber
prices from our suppliers.
- - Products with selling prices indexed to the reported Lumber Market with a
fixed dollar "adder" to cover conversion costs and profits. These products
include treated lumber, remanufactured lumber and trusses sold to the
manufactured housing industry. For these products, we estimate the customers'
needs and carry anticipated levels of inventory. Because lumber costs are set
in advance of final sale prices, subsequent increases or decreases in the
market price of lumber impact our gross margins. For these products, our
margins are exposed to changes in the trend of lumber prices.
Changes in the trend of lumber prices have their greatest impact on those
products that have significant inventory levels with low turnover rates. This
particularly impacts treated lumber, which comprises over twenty five percent of
our total annual sales. In other words, the longer the period of time that
products remain in inventory, the greater the exposure to changes in the price
of lumber. This exposure is less significant with remanufactured lumber, trusses
sold to the manufactured housing market and other similar products, due to the
higher level of inventory turnover.
In addition to the impact of Lumber Market trends on gross margins, changes in
the level of the market causes fluctuations in gross margins when comparing
operating results from period to period. This is explained in the following
example, which assumes the price of lumber has increased from period one to
period two, with no changes in the trend within each period.
Period 1 Period 2
-------- --------
Lumber cost.................................... $300 $400
Conversion cost................................ 50 50
= Product cost................................. 350 450
Adder.......................................... 50 50
= Sell price................................... 400 500
Gross margin................................... 12.5% 10.0%
As is apparent from the preceding example, the level of lumber prices does not
impact our overall profits, but does impact our margins. Gross margins are
negatively impacted during periods of high lumber prices; conversely, we
experience margin improvement when lumber prices are relatively low.
14
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
BUSINESS COMBINATIONS
On January 15, 2002, one of our subsidiaries acquired an additional 5% interest
in Pinelli-Universal S. de R.L. de C.V. ("Pinelli"), increasing our ownership to
50%. The purchase price for the additional 5% was approximately $0.9 million,
allocating $0.3 million to net assets acquired and $0.6 million to goodwill. As
a result of this transaction, we obtained additional rights of control and thus
began consolidating the results of Pinelli in the 2002 financial statements. In
2001, we accounted for Pinelli under the equity method.
On April 10, 2002, one of our subsidiaries acquired certain assets and entered
into an exclusive licensing agreement with Inno-Tech Plastics, Inc.
("Inno-Tech"), which operates one facility in Springfield, IL. The total
purchase price for these assets was approximately $4.1 million, allocating $2.1
million to net assets acquired and $2.0 million to identifiable intangibles
(licensing agreement). Inno-Tech had net sales in fiscal 2001 totaling
approximately $1.3 million.
On September 9, 2002, one of our subsidiaries acquired certain assets of J.S.
Building Products, a site-built component manufacturer in Modesto, CA. The total
purchase price for the assets was approximately $2.2 million. On October 22,
2002, we purchased the real property from J.S. Building Products where the
operation is located. The total purchase price was $1.9 million. Production
capacity at this facility is approximately $20 million annually. The purchase
price allocation will be completed when appraisals are finalized.
On November 4, 2002, one of our subsidiaries acquired a facility from Quality
Wood Treating Co., Inc. ("Quality") in Prairie du Chien, WI, which produces
Everx(R) composite decking. The total purchase price for the real estate,
equipment, inventory, and intangible assets was approximately $14.7 million. The
purchase price allocation will be completed when appraisals are finalized.
Additional capital expenditures to expand capacity are expected to total $2
million through the end of 2002, plus $7 million by June 2003.
In addition, we have entered into a treating services agreement with Quality.
Under the terms of this agreement, we purchased substantially all of the
inventory of Quality for approximately $7.5 million, Quality agreed to provide
exclusive treating services to us for a five year term, and we have agreed to
monthly and annual minimum volumes. Quality had composite and treating sales of
$6 million and $92 million, respectively, through the third quarter of 2002.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of our
Consolidated Condensed Statements of Earnings as a percentage of net sales.
15
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
For the Three Months Ended For the Nine Months Ended
-------------------------------- ------------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales....................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............................. 86.4 87.0 86.0 86.2
---------- ---------- --------- --------
Gross profit.................................... 13.6 13.0 14.0 13.8
Selling, general, and
administrative expenses....................... 9.1 8.7 9.3 9.0
---------- ---------- --------- --------
Earnings from operations........................ 4.5 4.3 4.7 4.8
Interest, net................................... 0.5 0.6 0.6 0.8
Gain on sale of assets.......................... (0.0) 0.0 (0.1) 0.0
---------- ---------- --------- --------
Earnings before income taxes,
minority interest and equity in
earnings of investee.......................... 4.0 3.7 4.2 4.0
Income taxes.................................... 1.5 1.3 1.5 1.5
---------- ---------- --------- --------
Earnings before minority interest and
equity in earnings of investee................ 2.5 2.4 2.7 2.5
Minority interest............................. (0.1) (0.1) (0.2) (0.1)
Equity in earnings of investee................ 0.0 0.0 0.0 0.0
---------- ---------- --------- --------
Reported net earnings........................... 2.4 2.3 2.5 2.4
Add: Goodwill amortization, net of tax 0.0 0.2 0.0 0.2
---------- ---------- --------- --------
Adjusted net earnings......................... 2.4% 2.5% 2.5% 2.6%
========== ========== ========= ========
NET SALES
We engineer, manufacture, treat and distribute lumber and other building
products to the DIY/retail, site-built construction, manufactured housing,
industrial and wholesale lumber markets. Our strategic sales objectives include:
- - Diversifying our end market sales mix by increasing sales of specialty wood
packaging to industrial users and engineered wood products to the site-built
construction market. Engineered wood products include roof trusses, wall
panels and floor systems.
- - Increasing sales of "value-added" products. Value-added product sales
consist of fencing, decking, lattice and other specialty products sold to
the DIY/retail market, specialty wood packaging, and engineered wood
products. One of our goals is to achieve a ratio of value-added sales to
total sales of at least 50%. Although we consider the treatment of
dimensional lumber with certain chemical preservatives a value-added
process, treated lumber is not presently included in the value-added sales
totals.
16
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- - Maximizing profitable top-line sales growth while increasing DIY/retail
market share.
- - Maintaining manufactured housing market share.
The following table presents, for the periods indicated, our net sales (in
thousands) and percentage of total net sales by market classification.
For the Three Months Ended For the Nine Months Ended
--------------------------------------- ------------------------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
Market Classification 2002 % 2001 % 2002 % 2001 %
- --------------------- --------- ------ -------- ------ ---------- ------ ---------- ------
DIY/Retail................... $215,689 47.6% $201,786 46.7% $ 628,279 48.3% $ 600,777 50.0%
Site-Built Construction...... 88,635 19.6 90,316 20.9 245,408 18.9 233,819 19.5
Manufactured Housing......... 79,449 17.5 84,410 19.5 227,496 17.5 208,519 17.4
Industrial................... 41,736 9.2 34,456 8.0 116,606 9.0 97,134 8.1
Wholesale Lumber............. 27,450 6.1 20,893 4.9 81,770 6.3 60,834 5.0
-------- ------ -------- ------ ---------- ------ ---------- ------
Total........................ $452,959 100.0% $431,861 100.0% $1,299,559 100.0% $1,201,083 100.0%
======== ====== ======== ====== ========== ====== ========== ======
Net sales in the third quarter of 2002 increased 4.9% compared to the third
quarter of 2001 resulting from an increase in units shipped of approximately
11%. Overall selling prices decreased as a result of the Lumber Market (see
Historical Lumber Prices). Net sales in the first nine months of 2002 increased
8.2% compared to last year due to an 11% increase in units shipped. Overall
selling prices decreased in 2002 comparing the year-to-date periods.
The following table presents, for the periods indicated, our percentage of
value-added and commodity-based sales to total sales.
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Value-Added........................... 49.5% 47.1% 49.6% 47.2%
Commodity-Based....................... 50.5% 52.9% 50.4% 52.8%
Value-added sales increased 10.2% and 13.6% in the third quarter and first nine
months of 2002, respectively, primarily due to increased sales of engineered
wood products and industrial packaging. Commodity-based sales remained flat
during the third quarter, and increased 3.4% during the first nine months.
17
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
DIY/Retail:
Net sales to the DIY/retail market increased $14 million, or 6.9%, in the third
quarter of 2002 compared to 2001. This increase was primarily due to a $7
million increase in sales to our largest customer and an $8 million increase in
sales from acquiring the assets of P&R Truss Company, Inc. ("P&R") on October
15, 2001. P&R is a manufacturer of engineered wood products used in site- built
construction and sells through retail channels.
Net sales to the DIY/retail market increased 4.6% in the first nine months of
2002 compared to 2001 primarily due to the acquisition of P&R. In addition,
sales to one customer increased approximately $8 million.
Site-Built Construction:
Net sales to the site-built construction market decreased 1.9% in the third
quarter of 2002 compared to the same period of 2001 due to the lower Lumber
Market.
Net sales to the site-built construction market increased 5.0% in the first nine
months of 2002 compared to the same period of 2001. This increase was due to
increased unit sales as a result of operations acquired in 2001, combined with
increased sales in several existing regions.
Manufactured Housing:
Net sales to the manufactured housing market decreased 5.9% in the third quarter
of 2002 compared to the same period of 2001 primarily due to a decrease in unit
sales. The industry recently reported a decline in shipments of 17.3% for the
third quarter to date.
Net sales to the manufactured housing market increased 9.1% in the first nine
months of 2002 compared to the same period of 2001. Industry shipments were down
7.9% for the first eight months. We increased our market share by acquiring
certain assets of the Sunbelt Wood Components Division of Kevco, Inc. on April
3, 2001. Sales growth at existing plants also contributed to the increase.
Industrial:
Net sales to the industrial market increased 21.1% and 20.0% in the third
quarter and first nine months of 2002, respectively, compared to the same
periods of 2001. Sales from our existing facilities increased approximately 11%
in both periods. The remaining increase in sales was due to the consolidation of
Pinelli in our operating results in 2002. See "Business Combinations."
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales increased in the third quarter and
first nine months of 2002 compared to the same period of 2001. This increase was
primarily due to an increase in sales of value-added products, offset by a
decline in lumber prices which adversely impacted our gross margins on
commodity-based products not covered under managed inventory programs. As
previously discussed, a decline in the trend of lumber prices adversely impacts
margins on products with selling prices indexed to the Lumber Market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of sales increased
to 9.1% and 9.3% in the third quarter and first nine months of 2002,
respectively, compared to 8.7% and 9.0% in the same periods of 2001,
respectively. On a pro forma basis, excluding amortization of goodwill in 2001,
the third quarter and first nine months percentages were 8.5% and 8.8%,
respectively. These increases were primarily due to new acquisitions that have
comparatively higher selling and design costs, combined with increases in
insurance costs and incentive compensation. Bad debt expenses for the third
quarter also increased over the same period last year.
INTEREST, NET
Net interest costs were lower in the third quarter and first nine months of 2002
compared to the same period of 2001. Although we had a higher average debt
balance as a result of increased working capital and the repurchase of shares
from our largest shareholder, this was offset by a decrease in short-term
borrowing rates on variable rate debt.
GAIN ON SALE OF ASSETS
During the second quarter, we sold our corporate airplane and recognized a gain
of $1.1 million on the sale, and entered into an operating lease for a new
airplane.
INCOME TAXES
Our effective tax rate was 37.1% in the third quarter of 2002 compared to 34.8%
in the same period of 2001, and 37.1% in the first nine months of 2002 compared
to 36.7% in the same period of 2001. Effective tax rates differ from statutory
federal income tax rates, primarily due to provisions for state and local income
taxes and permanent tax differences. The increases in our effective tax rate are
a result of a tax credit recognized in the third quarter of 2001, offset by the
effect of no longer amortizing goodwill which resulted in a permanent tax
difference in 2001.
19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities decreased in the first nine months
of 2002 compared to the same period of 2001. This was due to an increase in
receivables resulting from longer payment terms with our largest customer.
Due to the seasonality of our business and the effects of the Lumber Market, we
believe our cash cycle (days sales outstanding plus days supply of inventory
less days payables outstanding) is a good indicator of our working capital
management. Our cash cycle increased to 45 days in the first nine months of 2002
from 43 days in the first nine months of 2001, primarily due to a longer
receivables cycle resulting from extended payment terms with our largest
customer (mentioned above). This was partially offset by a reduction in our days
supply of inventory and extension in our payables cycle.
Capital expenditures totaled $21.1 million in the first nine months of 2002
compared to $22.2 million in the same period of 2001. Our capital expenditures
during the third quarter of 2002 primarily consisted of several projects to
improve efficiencies and expand manufacturing capacity at existing plants. We
expect to spend approximately $9 million on capital expenditures for the balance
of 2002, which includes outstanding purchase commitments on capital projects
totaling approximately $6.0 million on September 28, 2002. We intend to satisfy
these commitments utilizing our revolving credit facilities. See also
"Subsequent Events."
In January 2002, we spent approximately $36 million to purchase 2 million shares
from our largest shareholder. We funded the purchase price using our revolving
credit facilities.
On September 28, 2002, we had $63.5 million outstanding on our $175 million
revolving credit facility and $19.6 million Canadian ($12.4 million U.S.)
outstanding on our $25 million Canadian revolving credit facility. The revolving
credit facility supports letters of credit totaling approximately $4.5 million
on September 28, 2002. Financial covenants on our revolving credit facilities
and senior unsecured notes include a minimum net worth requirement, a minimum
interest coverage test and a maximum leverage ratio. We were within our
requirements at September 28, 2002.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
We are self-insured for environmental impairment liability and accrue for the
estimated cost of monitoring or remediation activities. We currently own or
operate 21 wood preserving facilities throughout the United States that treat
lumber products with a chemical preservative. In accordance with applicable
federal, state and local environmental laws, ordinances and regulations, we may
be potentially liable for costs and expenses related to the environmental
condition of our real property.
20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
We have established reserves for remediation activities at our North East, MD;
Union City, GA; Stockertown, PA; Elizabeth City, NC; Auburndale, FL; and
Schertz, TX facilities. Since we determined we will no longer operate the North
East, MD facility as a wood preservation location, during the third quarter of
2002 we completed the process of closing the conditioning pad, in accordance
with applicable regulations.
We have accrued in other long-term liabilities amounts totaling $2.2 million on
September 28, 2002 and $2.4 million on December 29, 2001 for the activities
described above. We believe the potential future costs of known remediation
efforts will not have a material adverse effect on our future financial
position, results of operations or liquidity.
For the past several years, the EPA has been conducting a scientific review of
CCA, a wood preservative we use to extend the useful life of wood fiber. The
review is part of the EPA's re-registration process and is designed, in part,
in response to allegations by certain environmental groups that CCA poses health
risks. In February 2002, the EPA announced that the manufacturers of CCA
preservative agreed to voluntarily discontinue the registration of CCA for
certain residential applications by December 31, 2003. The manufacturers will
continue to produce CCA for use in various industrial, marine, and
non-residential uses. This agreement will require us to change the preservative
we use to one of several new alternatives prior to December 31, 2003. We
estimate that we will incur capital costs totaling approximately $1.5 million to
convert our plants to the new alternative preservatives. Most of our facilities
will be capable of producing product with the alternative preservatives by
January 1, 2003.
In addition, an environmental group petitioned the Consumer Products Safety
Commission ("CPSC") to ban the use of CCA treated wood in playsets. We have been
assured by our vendors and by scientific studies that CCA treated lumber poses
no unreasonable risks and its continued use should be permitted. The EPA, in its
February 2002 press release concluded that there isn't any reason to remove or
replace any CCA treated structures, including decks or playground equipment.
We have been requested by a major customer to defend it from purported class
action lawsuits filed against it in Florida and Louisiana. The complaints allege
that CCA treated lumber is defective. As previously stated, our vendors believe
and scientific studies support the fact that CCA treated lumber poses no
unreasonable risks, and we intend to vigorously defend this position. While our
customer has charged us for certain expenses incurred in the defense of these
claims, we have not formally accepted liability for these costs. We, along with
many others in the industry, have also been named as a defendant in a separate
purported class action lawsuit in Louisiana, which contains similar allegations
as the complaints against our customer. We do not believe the plaintiffs in this
case are entitled to relief, and we intend to vigorously defend this complaint.
21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
In addition, various special interest environmental groups have petitioned
certain states requesting restrictions on the use or disposal of CCA treated
products. The wood preservation industry trade groups are working with the
individual states and their regulatory agencies to provide an accurate, factual
background which demonstrates that the present method of uses and disposal is
scientifically supported. As with all of the above cases, we have placed our
vendors and our insurers on notice that we will seek indemnity and defense costs
from them.
22
UNIVERSAL FOREST PRODUCTS, INC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risks related to fluctuations in interest rates on our
variable rate debt, which consists of a revolving credit facility and industrial
development revenue bonds. We do not currently use interest rate swaps, futures
contracts or options on futures, or other types of derivative financial
instruments to mitigate this risk.
For fixed rate debt, changes in interest rates generally affect the fair market
value, but not earnings or cash flows. Conversely, for variable rate debt,
changes in interest rates generally do not influence fair market value, but do
affect future earnings and cash flows. We do not have an obligation to prepay
fixed rate debt prior to maturity, and as a result, interest rate risk and
changes in fair market value should not have a significant impact on such debt
until we would be required to refinance it.
23
UNIVERSAL FOREST PRODUCTS, INC.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. With the participation
of management, our chief executive officer and chief financial officer,
after evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) on
September 28, 2002 (the "Evaluation Date"), have concluded that, as of
such date, our disclosure controls and procedures were adequate and
effective to ensure that material information relating to us and our
consolidated subsidiaries would be made known to them in connection with
our filing of this third quarter report on Form 10-Q.
(b) Changes in Internal Controls. There were no significant changes in our
internal controls or in other factors that could significantly affect
these controls subsequent to the Evaluation Date through the date of this
filing of Form 10-Q, nor were there any significant deficiencies or
material weaknesses in our internal controls that would require
corrective actions.
24
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
(a) None.
(b) None.
(c) Sales of equity securities in the third quarter not registered under the
Securities Act.
Date of Class of Number Consideration
Sale Stock of Shares Purchasers Exchanged
------- --------- --------- ---------- -------------
Stock Gift Program Various Common 359 Eligible persons None
25
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits (listed by number corresponding to the Exhibit
Table as Item 601 in Regulation S-K) are filed with this report:
99.1 Certificate of the Vice Chairman of the Board and Chief
Executive Officer of Universal Forest Products, Inc., pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350).
99.2 Certificate of the Chief Financial Officer of Universal Forest
Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350).
(b) Reports on Form 8-K.
During the third quarter, we filed a report on Form 8-K dated August 9,
2002, to report the filing of sworn statements by our Principal
Executive Officer and Principal Financial Officer under Item 9.
26
UNIVERSAL FOREST PRODUCTS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL FOREST PRODUCTS, INC.
Date: November 8, 2002 By: /s/ William G. Currie
--------------------- -------------------------------------
William G. Currie
Its: Vice Chairman of the Board and Chief
Executive Officer
Date: November 8, 2002 By: /s/ Michael R. Cole
--------------------- -------------------------------------
Michael R. Cole
Its: Chief Financial Officer
27
UNIVERSAL FOREST PRODUCTS, INC.
CERTIFICATION
I, William G. Currie, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Universal Forest
Products, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have;
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 8, 2002 /s/ William G. Currie
--------------------- -----------------------------------
William G. Currie
Vice Chairman of the Board and
Chief Executive Officer
28
UNIVERSAL FOREST PRODUCTS, INC.
CERTIFICATION
I, Michael R. Cole, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Universal Forest
Products, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have;
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit
Committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 8, 2002 /s/ Michael R. Cole
---------------------- ----------------------------
Michael R. Cole
Chief Financial Officer
29
EXHIBIT INDEX
99.1 Certificate of the Vice Chairman of the Board and Chief Executive
Officer of Universal Forest Products, Inc., pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
99.2 Certificate of the Chief Financial Officer of Universal Forest
Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350).