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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 25, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-22684
UNIVERSAL FOREST PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1465835
--------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2801 East Beltline NE, Grand Rapids, Michigan 49525
- --------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code(616) 364-6161
NONE
------------------------------------------------------------
(Former name or former address, if changed since last report.)
Indicate by 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 for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
by Rule 12b-2 of the Exchange Act). 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 September 25, 2004
------------------------------------ -------------------------------------
Common stock, no par value 17,905,246
Page 1 of 40
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets at September 25, 2004,
December 27, 2003, and September 27, 2003. 3-4
Consolidated Condensed Statements of Earnings for the Three and
Nine Months Ended September 25, 2004 and September 27, 2003. 5
Consolidated Condensed Statements of Cash Flows for the Nine
Months Ended September 25, 2004 and September 27, 2003. 6-7
Notes to Consolidated Condensed Financial Statements. 8-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 18-34
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 35
Item 4. Controls and Procedures. 36
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings - NONE.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 37
Item 3. Defaults Upon Senior Securities - NONE.
Item 4. Submission of Matters to a Vote of Security Holders - NONE.
Item 5. Other Information. 38
Item 6. Exhibits. 39
2
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
September 25, December 27, September 27,
2004 2003 2003
------------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 19,285 $ 17,430 $ 15,340
Accounts receivable (net of allowances of $4,094, $1,891
and $3,291)...................................................... 251,045 137,660 157,768
Inventories:
Raw materials.................................................... 107,772 83,064 81,831
Finished goods................................................... 98,872 86,497 79,124
------------- ------------- -------------
206,644 169,561 160,955
Insurance receivable................................................... 1,445
Other current assets................................................... 8,591 9,836 7,795
------------- ------------- -------------
TOTAL CURRENT ASSETS....................................... 487,010 334,487 341,858
OTHER ASSETS.................................................................. 6,906 6,421 5,679
GOODWILL...................................................................... 123,678 125,028 124,377
NON-COMPETE AND LICENSING AGREEMENTS (net of
accumulated amortization of $5,434, $4,003 and $3,627)................. 8,607 6,791 7,168
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment.......................................... 370,491 361,368 355,552
Accumulated depreciation and amortization.............................. (161,251) (147,164) (141,215)
------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET......................... 209,240 214,204 214,337
------------- ------------- -------------
TOTAL ASSETS................................................................. $ 835,441 $ 686,931 $ 693,419
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt........................................................ $ 1,726 $ 645
Accounts payable....................................................... $ 119,254 81,687 96,481
Accrued liabilities:
Compensation and benefits........................................ 59,859 47,150 46,293
Other ........................................................... 26,108 6,723 17,570
Current portion of long-term debt and capital lease obligations........ 527 6,411 6,263
------------- ------------- -------------
TOTAL CURRENT LIABILITIES.................................. 205,748 143,697 167,252
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
less current portion................................................... 247,978 205,049 195,833
DEFERRED INCOME TAXES......................................................... 16,226 15,984 12,671
MINORITY INTEREST............................................................. 8,903 7,780 8,211
OTHER LIABILITIES............................................................. 9,174 9,317 10,241
------------- ------------- -------------
TOTAL LIABILITIES.......................................... 488,029 381,827 394,208
3
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - CONTINUED
September 25, December 27, September 27,
2004 2003 2003
------------ ------------- -------------
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, 17,905,246, 17,777,631 and 17,752,355................. $ 17,905 $ 17,778 $ 17,752
Additional paid-in capital............................................... 87,162 84,610 84,170
Deferred stock compensation.............................................. 3,299 2,447 2,375
Retained earnings........................................................ 239,672 200,745 195,384
Accumulated other comprehensive earnings................................. 949 1,396 1,514
------------ ------------- -------------
348,987 306,976 301,195
Employee stock notes receivable.......................................... (1,575) (1,872) (1,984)
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY......................................... 347,412 305,104 299,211
------------ ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...................................... $ 835,441 $ 686,931 $ 693,419
============ ============= =============
See notes to consolidated condensed financial statements.
4
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
----------------------------- --------------------------------
Sept. 25, Sept. 27, Sept. 25, Sept. 27,
2004 2003 2004 2003
---------- ------------ --------------- --------------
NET SALES.................................................... $ 709,294 $ 536,278 $ 1,917,527 $ 1,444,360
COST OF GOODS SOLD .......................................... 625,502 463,715 1,684,553 1,241,251
---------- ----------- --------------- --------------
GROSS PROFIT................................................. 83,792 72,563 232,974 203,109
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ............................................. 54,604 48,424 154,615 135,309
---------- ----------- --------------- --------------
EARNINGS FROM OPERATIONS..................................... 29,188 24,139 78,359 67,800
OTHER EXPENSE (INCOME):
Interest expense...................................... 3,641 3,526 11,052 11,271
Interest income....................................... (39) (2) (224) (133)
Net gain on sale of real estate and interest in
subsidiary.......................................... (944)
---------- ----------- --------------- --------------
3,602 3,524 9,884 11,138
---------- ----------- --------------- --------------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST..................................... 25,586 20,615 68,475 56,662
INCOME TAXES................................................. 9,261 7,715 25,550 20,964
---------- ----------- --------------- --------------
EARNINGS BEFORE MINORITY INTEREST............................ 16,325 12,900 42,925 35,698
MINORITY INTEREST............................................ (1,699) (695) (2,976) (1,831)
---------- ----------- --------------- --------------
NET EARNINGS................................................. $ 14,626 $ 12,205 $ 39,949 $ 33,867
========== =========== =============== ==============
EARNINGS PER SHARE - BASIC................................... $ 0.81 $ 0.69 $ 2.22 $ 1.91
EARNINGS PER SHARE - DILUTED................................. $ 0.78 $ 0.66 $ 2.13 $ 1.85
WEIGHTED AVERAGE SHARES OUTSTANDING.......................... 18,083 17,765 18,015 17,745
WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS.............................. 18,784 18,425 18,716 18,290
See notes to consolidated condensed financial statements.
5
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
---------------------------------
Sept. 25, Sept. 27,
2004 2003
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................................................. $ 39,949 $ 33,867
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation.......................................................................... 20,418 18,702
Amortization of intangibles........................................................... 1,760 1,519
Deferred income taxes................................................................. (90) (1,301)
Minority interest..................................................................... 2,976 1,831
Loss on sale of interest in subsidiary................................................ 193
Net (gain) loss on sale or impairment of property, plant, and equipment............... (432) 918
Changes in:
Accounts receivable................................................................. (111,925) (53,545)
Inventories......................................................................... (36,152) 5,051
Accounts payable.................................................................... 39,225 37,717
Accrued liabilities and other....................................................... 30,877 23,145
------------- --------------
NET CASH FROM OPERATING ACTIVITIES.................................................... (13,201) 67,904
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.................................................... (25,062) (33,349)
Acquisitions, net of cash received........................................................... (10,075) (787)
Proceeds from sale of interest in subsidiary................................................. 4,679
Proceeds from sale of property, plant and equipment.......................................... 3,469 6,104
Insurance proceeds........................................................................... 2,000
Other assets, net............................................................................ 1,567 2,909
------------- --------------
NET CASH FROM INVESTING ACTIVITIES.................................................... (23,422) (25,123)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of short-term debt and long-term revolving
credit facilities.......................................................................... 43,152 (36,884)
Repayment of long-term debt.................................................................. (6,352) (6,150)
Proceeds from issuance of common stock....................................................... 2,194 1,719
Distributions to minority shareholder........................................................ (125) (833)
Dividends paid to shareholders............................................................... (897) (798)
Repurchase of common stock................................................................... (129) (2,029)
Other........................................................................................ 635
------------- --------------
NET CASH FROM FINANCING ACTIVITIES.................................................... 38,478 (44,975)
------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................................................... 1,855 (2,194)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................................. 17,430 17,534
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................................... $ 19,285 $ 15,340
------------- --------------
------------- --------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................................................. $ 8,505 $ 8,585
Income taxes.......................................................................... 15,209 12,268
6
UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS - CONTINUED
Nine Months Ended
--------------------------------
Sept. 25, Sept. 27,
2004 2003
----------- -----------
NON-CASH INVESTING ACTIVITIES:
Note receivable exchanged for management fees to former subsidiary....................... $ 520
Insurance receivable in exchange for property, plant and equipment destroyed
in fire............................................................................... 1,445
Stock exchanged for employee stock notes receivable...................................... 6 $ 887
Non-compete agreements with Chairman of the Board in exchange for
future payments................................................................... 856
NON-CASH FINANCING ACTIVITIES:
Common stock issued to trust under deferred compensation plan............................ $ 716 $ 647
Common stock issued under stock gift plan................................................ 46 40
Common stock issued under directors' stock grant plan.................................... 75 132
See notes to consolidated condensed financial statements.
7
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.
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 annual consolidated financial
statements, and footnotes thereto, included in our Annual Report to
Shareholders on Form 10-K, as amended, for the fiscal year ended December 27,
2003.
Certain reclassifications have been made to the Financial Statements for 2003
to conform to the classifications used in 2004.
B. COMPREHENSIVE INCOME
Comprehensive income consists of net income and foreign currency translation
adjustments. Comprehensive income was approximately $15.2 million and $12.1
million for the quarter ended September 25, 2004 and September 27, 2003,
respectively. During the nine months ended September 25, 2004 and September
27, 2003, comprehensive income was approximately $39.5 million and $35.1
million, respectively.
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):
8
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Three Months Ended 09/25/04 Three Months Ended 09/27/03
------------------------------------ ------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
NET EARNINGS................... $ 14,626 $ 12,205
EPS - BASIC
Income available to
common stockholders.......... 14,626 18,083 $ 0.81 12,205 17,765 $ 0.69
====== ======
EFFECT OF DILUTIVE SECURITIES
Options........................ 701 660
------------- -------------
EPS - DILUTED
Income available to
common stockholders and
assumed options
exercised.................... $ 14,626 18,784 $ 0.78 $ 12,205 18,425 $ 0.66
=========== ============= ====== =========== ============= ======
Nine Months Ended 09/25/04 Nine Months Ended 09/27/03
------------------------------------ ------------------------------------
Per Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
NET EARNINGS................... $ 39,949 $ 33,867
EPS - BASIC
Income available to
common stockholders.......... 39,949 18,015 $ 2.22 33,867 17,745 $ 1.91
====== ======
EFFECT OF DILUTIVE SECURITIES
Options........................ 701 545
------------- -------------
EPS - DILUTED
Income available to
common stockholders and
assumed options
exercised.................... $ 39,949 18,716 $ 2.13 $ 33,867 18,290 $ 1.85
=========== ============= ====== =========== ============= ======
9
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Options to purchase 15,000 shares of common stock at an exercise price of
$36.01 were outstanding at September 25, 2004, but were not included in
the computation of diluted EPS for the quarter ended September 25, 2004.
The options' exercise prices were greater than the average market price of
the common stock during the period and, therefore, would be antidilutive.
Options to purchase 40,000 shares of common stock at exercise prices
ranging from $31.11 to $36.01 were outstanding at September 25, 2004, but
were not included in the computation of diluted EPS for the nine months
ended September 25, 2004. The options' exercise prices were greater than
the average market price of the common stock during the period and,
therefore, would be antidilutive.
Options to purchase 260,000 shares of common stock at exercise prices
ranging from $24.46 to $36.01 were outstanding at September 27, 2003, but
were not included in the computation of diluted EPS for the quarter ended
September 27, 2003. The options' exercise prices were greater than the
average market price of the common stock during the period and, therefore,
would be antidilutive.
Options to purchase 720,943 shares of common stock at exercise prices
ranging from $21.13 to $36.01 were outstanding at September 27, 2003, but
were not included in the computation of diluted EPS for the nine months
ended September 27, 2003. The options' exercise prices were greater than
the average market price of the common stock during the period and,
therefore, would be antidilutive.
D. SALE OF ACCOUNTS RECEIVABLE
On September 25, 2003, we entered into an accounts receivable sale
agreement with a bank. Under the terms of the agreement:
- 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 .50% per annum.
- We receive an incentive servicing fee, which we account 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 which may be sold and outstanding
at any point in time under this arrangement is $33 million.
10
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
We are in the process of renewing this agreement with the bank and expect
to complete it by October 31, 2004. On September 25, 2004, there were no
receivables that were sold and outstanding and there was no retained
interest. On September 27, 2003, $27.2 million of receivables were sold
and outstanding, and we recorded $2.0 million of retained interest (see
Other current assets). A summary of the transactions we completed for the
first nine months of 2004 and 2003 are presented below (in thousands).
Nine Months Ended Nine Months Ended
September 25, 2004 September 27, 2003
------------------ ------------------
Accounts receivable sold...................... $255,882 $27,181
Retained interest in receivables.............. (2,432) (2,039)
Expense from sale............................. (490) (168)
Servicing fee received........................ 106 37
Discounts and sales allowances................ (2,687)
-------- -------
Net cash received from sale................... $250,379 $25,011
======== =======
E. GOODWILL AND OTHER INTANGIBLE ASSETS
On September 25, 2004, non-compete assets totaled $9.8 million with
accumulated amortization totaling $3.8 million, and licensing agreements
totaled $4.2 million with accumulated amortization totaling $1.6 million.
On September 27, 2003, non-compete assets totaled $7.9 million with
accumulated amortization totaling $2.8 million, and licensing agreements
totaled $2.9 million with accumulated amortization totaling $0.8 million.
Estimated amortization expense for intangible assets as of September 25,
2004 for each of the five succeeding fiscal years is as follows (in
thousands):
2004............................... $ 641
2005............................... 1,994
2006............................... 1,750
2007............................... 1,237
2008............................... 934
Thereafter......................... 2,051
The changes in the net carrying amount of goodwill for the nine months
ended September 25, 2004 and September 27, 2003 are as follows (in
thousands):
Balance as of December 27, 2003............................. $125,028
Acquisition................................................. 4,381
Final purchase price allocation............................. (3,397)
Sale of interest in subsidiary.............................. (2,169)
Other, net.................................................. (165)
--------
Balance as of September 25, 2004............................ $123,678
========
11
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
Balance as of December 28, 2002.................................................. $126,299
Final purchase price allocation.................................................. (2,810)
Other, net....................................................................... 888
--------
Balance as of September 27, 2003................................................. $124,377
========
F. BUSINESS COMBINATIONS AND ASSET PURCHASES
On April 2, 2004, one of our subsidiaries acquired a 50% interest in
Shawnlee Construction, LLC ("Shawnlee"), which provides framing services
for multi-family construction, and is located in Plainville, MA. 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 million. We have consolidated
this entity, including a respective minority interest, because we exercise
control.
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 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 million.
On August 28, 2003, one of our subsidiaries acquired 50% of the assets of
D&L Framing, LLC ("D&L"), a framing operation for multi-family
construction located in Las Vegas, NV. The purchase price was
approximately $0.6 million, which was primarily allocated to the fair
value of tangible net assets. D&L had net sales in fiscal 2002 totaling
approximately $8 million. We have consolidated this entity, including a
respective minority interest, because we exercise control.
On August 26, 2003, one of our subsidiaries entered into an agreement with
Quality Wood Treating Co., Inc. ("Quality") to cancel the treating
services agreement completed on November 4, 2002 and purchase plants
located in Lansing, MI and Janesville, WI and the equipment of a plant
located in White Bear Lake, MN. The total purchase price for these assets
was $5.1 million, which was allocated to the fair value of tangible net
assets. In addition, another subsidiary entered into a capital lease for
the real estate of the White Bear Lake, MN plant totaling $2.1 million.
12
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
On June 4, 2003, one of our subsidiaries acquired 75% of the assets of
Norpac Construction LLC ("Norpac"), a concrete framer for multi-family
construction located in Las Vegas, NV. The purchase price was
approximately $0.2 million, which was primarily allocated to the fair
value of tangible net assets. Norpac had net sales in fiscal 2002 totaling
approximately $1.5 million. We have consolidated this entity, including a
respective minority interest, because we exercise control.
Acquisitions completed in 2003 and 2004 were not significant to our
operating results individually or in aggregate, and thus pro forma results
are not presented.
G. EMPLOYEE STOCK NOTES RECEIVABLE
Employee stock notes receivable represents notes issued to us by certain
employees and officers to finance the purchase of our common stock.
Section 16 directors and executive officers do not, and are not allowed
to, participate in this program.
H. STOCK-BASED COMPENSATION
As permitted under SFAS No.123, Accounting for Stock-Based Compensation,
("SFAS 123"), we continue to apply the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, which recognizes compensation
expense under the intrinsic value method. Had compensation cost for the
stock options granted and stock purchased under the Employee Stock
Purchase Plan in the third quarter and first nine months of 2004 and 2003
been determined under the fair value based method defined in SFAS 123, our
net earnings and earnings per share would have been reduced to the
following pro forma amounts (in thousands, except per share data):
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 25, Sept. 27, Sept. 25, Sept. 27,
2004 2003 2004 2003
-------- -------- -------- --------
Net Earnings:
As reported $ 14,626 $ 12,205 $ 39,949 $ 33,867
Deduct: compensation expense
- fair value method (495) (462) (1,392) (1,366)
-------- -------- -------- --------
Pro Forma $ 14,131 $ 11,743 $ 38,557 $ 32,501
======== ======== ======== ========
EPS - Basic:
As reported $ 0.81 $ 0.69 $ 2.22 $ 1.91
Pro forma $ 0.78 $ 0.66 $ 2.14 $ 1.83
EPS - Diluted:
As reported $ 0.78 $ 0.66 $ 2.13 $ 1.85
Pro forma $ 0.76 $ 0.65 $ 2.08 $ 1.82
13
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
I. COMMITMENTS, CONTINGENCIES, AND GUARANTEES
We are insured for environmental impairment liability for certain real
properties 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 Union City, GA;
Stockertown, PA; Elizabeth City, NC; Auburndale, FL; Schertz, TX; and
Janesville, WI wood preservation facilities. In addition, a small 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 the captive insurance company, we have reserved
amounts totaling approximately $1.8 million on September 25, 2004 and $2.8
million on September 27, 2003, representing the estimated costs to
complete remediation efforts.
The manufacturers of CCA preservative voluntarily discontinued the
registration of CCA for certain residential applications as of December
31, 2003. As a result, all of our wood preservation facilities have been
converted to alternate preservatives, either Amine Copper Quaternary (ACQ)
or borates.
In November 2003, the EPA published its report on the risks associated
with the use of CCA in children's 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 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 reviewing the report
and is expected to issue further clarifications.
The results of the EPA study are consistent with a prior Consumer Products
Safety Commission (CPSC) study which reached a similar conclusion.
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.
14
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
We have been requested by a customer to defend it from purported class
action lawsuits filed against it in Florida, Louisiana, Texas, Illinois
and New Jersey. The Florida claim was denied class action status, and all
appeals have been denied. We had previously been dismissed as a defendant
from the Louisiana litigation, and this case was denied class action
status in March 2004. The Illinois case and the Texas case were recently
dismissed without prejudice, although the plaintiff may choose to appeal
or refile. The remaining complaints do not allege personal injury or
property damage. 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 of these costs.
We believe that based on current facts, the remaining claims are
unsubstantiated. 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.
In addition, on September 25, 2004, 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.
On September 25, 2004, we had outstanding purchase commitments on capital
projects of approximately $9.7 million.
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 September
25, 2004, we had approximately $22.8 million in outstanding payment and
performance bonds which expire during the next eight to twenty-five
months. In addition, approximately $9.4 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
15
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
shortfall. These operating leases will expire periodically over the next
five years. The estimated maximum aggregate exposure of these guarantees
is approximately $1 million.
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 D, "Sale of
Accounts Receivable.")
On September 25, 2004, we had outstanding letters of credit totaling $34.6
million, 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 $16.3 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. These letters of credit guarantee principal and interest
payments to the bondholders. We currently have irrevocable letters of
credit outstanding totaling approximately $18.3 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.
Our 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.
We did not enter into any new guarantee arrangements during the third
quarter of 2004 which would require us to recognize a liability on our
balance sheet.
J. SALE OF REAL ESTATE AND INTEREST IN SUBSIDIARY
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.
16
UNIVERSAL FOREST PRODUCTS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
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.
We incurred income taxes associated with these transactions totaling
approximately $722,000.
K. INSURANCE RECEIVABLE
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 have written off inventory and
the net book value of the destroyed property totaling $3.4 million to an
insurance receivable and have collected $2 million of proceeds through
September 25, 2004. We currently estimate that the insured value of this
property will exceed its net book value, resulting in a gain. We will
record this gain once final insurance amounts are determined.
17
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.
OVERVIEW
We are pleased to report strong results for the third quarter of 2004, which was
highlighted by:
- - Our sales growth in the site-built construction, industrial, and
manufactured housing markets as we increased our share in each. Our unit
sales to the do-it-yourself/retail (DIY/retail) market declined due to a
decline in consumer demand for our products due to hurricanes and poor
weather in Florida and the Southeastern United States and higher consumer
sale prices. Higher lumber and chemical costs, combined with an increase
in some of our customers' gross margin requirements, contributed to the
higher sale prices being observed by consumers.
- - Our increase in shipments to the manufactured housing market. While HUD
code industry production reports year-over-year declines, we continue to
increase our shipments to modular producers.
- - Higher lumber prices which elevated our sales dollars and required a
greater investment in working capital. Our sales increased 32% for the
quarter, and we estimate that 21% of this increase was due to higher
lumber and chemical costs.
- - A fire that destroyed our site-built truss plant in Thorndale, Ontario in
the second quarter. Although we maintained our service to customers by
moving the work to other plants in the United States, transportation costs
and operating inefficiencies resulted in greater costs in the third
quarter.
- - Enhanced profitability in spite of our decline in unit sales to the
DIY/retail market, and the loss of operations at our Thorndale, Ontario
plant. The 20% increase in net earnings we achieved for the quarter
surpassed our 11% increase in unit sales.
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.
18
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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 still suffers from difficult market
conditions, including repossessions and tight credit conditions. Significant
lenders who previously provided financing to consumers of these products and
industry participants have either restricted credit or exited the market. While
new lenders have announced intentions to enter this 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 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 26% of our total sales in the first nine months of
2004, down from 32% for the first nine months of 2003.
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
19
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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 CCA treated lumber. (See Note I, "Commitments, Contingencies and
Guarantees.")
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, 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.
WE CONVERTED TO A NEW PRESERVATIVE TO TREAT OUR PRODUCTS. The manufacturers of
CCA preservative voluntarily discontinued the registration of CCA for certain
residential applications as of December 31, 2003. As a result, all of our wood
preservation facilities have been converted to an alternate preservative, ACQ,
or borates. The cost of ACQ is more than four times higher than the cost of CCA.
We estimate the new preservative will increase the cost and sales price of our
treated products by approximately 10% to 15%. While we believe treated products
will be reasonably priced relative to alternative products such as composites or
vinyl, consumer acceptance may be impacted which would in turn affect our future
operating results. (See Note I, "Commitments, Contingencies and Guarantees.")
20
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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 these conditions present by:
- - Our pricing practices (see "Impact of the Lumber Market on Our Operating
Results");
- - Leveraging our size with mill and transportation suppliers to ensure they
achieve supply and service requirements;
- - Increasing our utilization of consigned inventory programs with mills; and
- - Expanding our supply base of dedicated carriers.
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 25, 2004 and September 27, 2003:
Random Lengths Composite
Average $/MBF
-------------
2004 2003
---- ----
January............................ $341 $278
February........................... 376 295
March.............................. 382 277
April.............................. 431 283
May................................ 456 278
June............................... 423 303
July............................... 426 302
August............................. 473 336
September.......................... 441 375
Third quarter average.............. $447 $338
Year-to-date average............... $417 $303
21
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Third quarter percentage
increase from 2003................. 32.2%
Year-to-date percentage
increase from 2003................. 37.6%
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.
Random Lengths SYP
Average $/MBF
-------------
2004 2003
---- ----
January............................ $410 $387
February........................... 436 394
March.............................. 487 392
April.............................. 532 410
May................................ 535 385
June............................... 498 384
July............................... 479 374
August............................. 503 398
September.......................... 473 437
Third quarter average.............. $485 $403
Year-to-date average............... $484 $396
Third quarter percentage
increase from 2003................. 20.3%
Year-to-date percentage
increase from 2003................. 22.2%
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,
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.
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).
22
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
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 reprice 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 industry. 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 that have significant inventory levels with low turnover rates
and whose selling prices are indexed to the Lumber Market, such as treated
lumber, which comprises almost twenty-five percent of our total sales. 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 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. (See "Risk Factors - Seasonality and weather conditions could
adversely affect us.")
- - 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.
23
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
In addition to the impact of the 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.
BUSINESS COMBINATIONS AND ASSET PURCHASES
We completed the following business combinations and asset acquisitions in
fiscal 2004 and fiscal 2003, which were accounted for using the purchase method.
(See Note F, "Business Combinations and Asset Purchases.")
Company Name Acquisition Date Business Description
- ------------ ---------------- --------------------
Shawnlee Construction, LLC April 2, 2004 Provides framing services for multi-family
construction in the Northeast.
Slaughter Industries March 15, 2004 Distributes lumber products and manufactures
engineered wood components for site-built
construction. Located in Dallas, TX.
Midwest Building Systems, Inc. January 30, 2004 Manufacturer of engineered wood components for
site-built construction. Located in
Indianapolis, IN.
24
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
D&L Framing, LLC August 28, 2003 Framing operation for multi-family construction
located in Las Vegas, NV.
Quality Wood Treating Co., Inc. August 26, 2003 Two treating facilities in Lansing, MI and
Janesville, WI and real estate lease of a third
treating facility in White Bear Lake, MN.
Norpac Construction LLC June 4, 2003 Concrete framer for multi-family construction
located in Las Vegas, NV.
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.
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
Sept. 25, Sept. 27, Sept. 25, Sept. 27,
2004 2003 2004 2003
--------- --------- --------- ---------
Net sales.................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................... 88.2 86.5 87.8 85.9
----- ----- ----- -----
Gross profit................................. 11.8 13.5 12.2 14.1
Selling, general, and
administrative expenses.................... 7.7 9.0 8.1 9.4
----- ----- ----- -----
Earnings from operations..................... 4.1 4.5 4.1 4.7
Interest, net................................ 0.5 0.7 0.6 0.8
Net gain on sale of real estate and
interest in subsidiary..................... (0.0) (0.0) (0.1) (0.0)
----- ----- ----- -----
0.5 0.7 0.5 0.8
----- ----- ----- -----
Earnings before income taxes
and minority interest....................... 3.6 3.8 3.6 3.9
Income taxes................................. 1.3 1.4 1.3 1.4
----- ----- ----- -----
Earnings before minority interest............ 2.3 2.4 2.3 2.5
Minority interest............................ (0.2) (0.1) (0.2) (0.2)
----- ----- ----- -----
Net earnings................................. 2.1% 2.3% 2.1% 2.3%
===== ===== ===== =====
25
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
NET SALES
We engineer, manufacture, treat, distribute and install lumber, composite,
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 and engineered wood components and
framing services to the site-built construction market. Engineered wood
components 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, engineered wood
components, 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.
- - Maximizing unit sales growth while achieving return on investment goals.
The following table presents, for the periods indicated, our net sales (in
thousands) and change in net sales by market classification.
For the Three Months Ended For the Nine Months Ended
------------------------------------ --------------------------------------
Sept. 25, % Sept. 27, Sept. 25, % Sept. 27,
Market Classification 2004 Change 2003 2004 Change 2003
- --------------------- ----------- ------ ----------- ------------ ------ ------------
DIY/Retail................... $ 280,700 7.2 $ 261,812 $ 804,188 11.6 $ 720,311
Site-Built Construction...... 194,643 73.8 111,980 479,808 65.3 290,225
Manufactured Housing......... 106,555 35.9 78,394 286,925 40.1 204,863
Industrial and Other......... 127,396 51.5 84,092 346,606 51.4 228,961
----------- ----------- ------------ ------------
Total........................ $ 709,294 32.3 $ 536,278 $ 1,917,527 32.8 $ 1,444,360
=========== =========== ============ ============
Note: In the first quarter of 2004, we reviewed the classification of our
customers and made certain reclassifications. Prior year information has
been restated to reflect these reclassifications.
Net sales in the third quarter of 2004 increased 32% compared to the third
quarter of 2003 resulting from an estimated increase in units shipped of
approximately 11%, while overall selling prices increased by 21%. Overall
selling prices increased as a result of the Lumber Market (see "Historical
26
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Lumber Prices") and higher preservative prices (ACQ). We estimate that our unit
sales increased by 8% as a result of business acquisitions and new plants, while
our unit sales out of existing facilities increased by 5%. Plant closures and
the sale of Nascor Incorporated caused our unit sales to decrease by 2% in the
third quarter of 2004.
Net sales in the first nine months of 2004 increased 33% compared to the first
nine months of 2003 resulting from an estimated increase in units shipped of
approximately 11%, while overall selling prices increased by 22%. Overall
selling prices increased as a result of the Lumber Market (see "Historical
Lumber Prices") and higher preservative prices (ACQ). We estimate that our unit
sales increased by 7% as a result of business acquisitions and new plants while
our unit sales out of existing facilities increased by 6%. Plant closures and
the sale of Nascor Incorporated decreased our unit sales by 2% in the first nine
months of 2004.
DIY/Retail:
Net sales to the DIY/retail market increased 7% in the third quarter of 2004
compared to 2003, due to the higher Lumber Market and preservative prices. Our
unit sales declined 10% comparing the two periods, which we believe was due to a
decline in demand as a result of higher product costs for consumers. An increase
in consumer costs can be traced primarily to higher lumber prices and chemical
costs, combined with higher gross margin requirements of some of our customers.
Demand in the Southeastern United States and Florida was also impacted by
hurricanes and poor weather.
Net sales to the DIY/retail market increased 12% in the first nine months of
2004 compared to 2003, due to the higher Lumber Market and preservative prices.
Our unit sales declined 7% comparing the two periods due to poor weather and
higher product costs for consumers as discussed above.
Site-Built Construction:
Net sales to the site-built construction market increased 74% in the third
quarter of 2004 compared to 2003, despite the sale of our interest in Nascor
Incorporated. This increase primarily resulted from acquisitions (see "Business
Combinations and Asset Purchases") and new plants opened since September 27,
2003. Also, unit sales growth out of existing plants totaled approximately 19%
for the quarter, which was driven primarily by our Southern California and
Colorado regions. In addition, we estimate the Lumber Market caused our selling
prices to increase 29% this quarter.
Net sales to the site-built construction market increased 65% in the first nine
months of 2004 compared to 2003, despite the sale of our interest in Nascor
Incorporated. This increase primarily resulted from acquisitions and new plants
opened since September 27, 2003, and unit sales growth
27
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
out of existing plants totaling approximately 21% for the period. In addition,
we estimate the Lumber Market caused our selling prices to increase 21% in the
first nine months of 2004.
Manufactured Housing:
Net sales to the manufactured housing market increased 36% in the third quarter
of 2004 compared to the same period of 2003. This increase resulted primarily
from an estimated 27% increase in selling prices due to the higher Lumber Market
combined with a 9% increase in units shipped. Although industry production for
HUD code homes was down approximately 6% for the quarter, we have increased our
shipments to producers of modular homes.
Net sales to the manufactured housing market increased 40% in the first nine
months of 2004 compared to the same period of 2003. This increase resulted
primarily from an estimated 29% increase in selling prices due to the higher
Lumber Market combined with an 11% increase in units shipped. Although industry
production for HUD code homes was down approximately 4% for the first nine
months, we have increased our shipments to producers of modular homes.
Industrial and Other:
Net sales to the industrial and other market increased 51% in the third quarter
of 2004 compared to the same period of 2003. This increase resulted from a
combination of unit sales increases out of several existing facilities totaling
approximately 29%, combined with higher selling prices due to the Lumber Market.
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 and purchasing.
Net sales to the industrial and other market increased 51% in the first nine
months of 2004 compared to the same period of 2003. This increase resulted from
a combination of unit sales increases out of several existing facilities
totaling approximately 25%, combined with higher selling prices due to the
Lumber Market.
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
---------------------- ---------------------
Sept.25, Sept. 27, Sept.25, Sept. 27,
2004 2003 2004 2003
-------- --------- -------- ---------
Value-Added........................... 49.9% 49.6% 49.6% 50.7%
Commodity-Based....................... 50.1% 50.4% 50.4% 49.3%
28
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
Value-added sales increased 33% in the third quarter of 2004 compared to 2003,
primarily due to increased sales of EverX (composite decking), engineered wood
components, industrial packaging products and other specialty products supplied
to the DIY/retail market. Commodity-based sales increased 31% during the third
quarter of 2004 primarily due to the higher Lumber Market, higher preservative
prices and a 7% increase in unit sales.
Value-added sales increased 29% in the first nine months of 2004 compared to
2003, primarily due to increased sales of EverX (composite decking), engineered
wood components, industrial packaging products and other specialty products
supplied to the DIY/retail market. Commodity-based sales increased 36% during
the first nine months of 2004 primarily due to the higher Lumber Market, higher
preservative prices and a 6% increase in unit sales. Therefore, our decline in
value-added sales as a percentage of total sales was due to the significant
impact of the Lumber Market on selling prices of commodity-based products.
COST OF GOODS SOLD AND GROSS PROFIT
Gross profit as a percentage of net sales decreased in the third quarter and
first nine months of 2004 compared to the same periods of 2003 due to the Lumber
Market, which was substantially higher than the prior year. Generally, a higher
Lumber Market results in a decrease in our gross margin (see "Impact of the
Lumber Market on our Operating Results") because we attempt to price certain
products to earn a fixed profit per unit. Therefore, in a period of higher
lumber prices, as we have experienced in 2004, our gross margin will decline. As
a result of this factor, we believe a more meaningful analysis of our
profitability is a comparison of the change in gross profit dollars compared to
our change in units shipped. Our gross profit dollars increased by over 15% in
the third quarter of 2004, while units shipped increased by 11%. Our gross
profit dollars increased by almost 15% in the first nine months of 2004, while
units shipped increased by 11%. Our improved profitability for each of these
periods was primarily due to the effect of the rising Lumber Market in the
second and third quarters on products we inventory and whose selling prices are
tied to the Lumber Market and improved profitability on sales to the industrial
market. In addition, many of our treating plants began converting to a new
preservative in the third quarter of 2003 and experienced inefficiencies. The
positive effects mentioned above more than offset the operating inefficiencies
we experienced from the fire at our plant in Thorndale, Ontario and poor first
and second quarter results from one of our multi-family framing subsidiaries in
the West. We believe we have taken appropriate actions to improve performance at
this framing operation, including personnel changes. We do not presently believe
this venture will have a material adverse effect on our future operating
results.
In the third quarter of 2004, one of our multi-family framing subsidiaries in
the West commenced certain new construction projects which are expected to be
completed in six to twelve months. Based on the nature of these projects,
calculating precise estimates is difficult except to determine we will not
recognize a loss. Accordingly, total estimated gross profit on these projects
range from
29
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
breakeven to a gross profit of approximately $2.2 million. We have used the low
end of the range while utilizing the percentage of completion method of
accounting. If we had used the high end of the range, our gross profits for the
third quarter and first nine months of 2004 would have been approximately
$800,000 higher.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses as a percentage of sales
decreased to 7.7% in the third quarter of 2004 compared to 9.0% in the same
period of 2003 primarily due to the impact of the Lumber Market on our selling
prices. SG&A expenses increased by 13% in the third quarter of 2004 compared
to the same period of 2003, which compares unfavorably with our 11% increase in
unit sales, primarily due to higher incentive compensation costs tied to profits
and return on investment. In addition, our gross profit increase of 15% exceeded
our SG&A increase of 13%.
Selling, general and administrative ("SG&A") expenses as a percentage of sales
decreased to 8.1% in the first nine months of 2004 compared to 9.4% in the same
period of 2003 primarily due to the impact of the Lumber Market on our selling
prices. SG&A expenses increased by 14% in the first nine months of 2004
compared to the same period of 2003, which compares unfavorably with our 11%
increase in unit sales, primarily due to higher incentive compensation costs and
bad debt expense incurred in the second quarter. In addition, our gross profit
increase of 15% exceeded our SG&A increase of 14%.
INTEREST, NET
Net interest costs increased in the third quarter of 2004 compared to the same
period of 2003 due to a slightly higher average debt balance in 2004.
Net interest costs decreased in the first nine months of 2004 compared to the
same period of 2003. This decrease was due to the maturity and payment of debt
with higher interest rates.
NET GAIN ON SALE OF REAL ESTATE AND INTEREST IN SUBSIDIARY
We entered into the following transactions during the first nine months of 2004:
- - During the first quarter of 2004, we sold our interest in Nascor
Incorporated ("Nascor") and recognized a pre-tax loss of approximately
$193,000 on the sale.
- - During the first quarter of 2004, we sold a plant in Bend, OR, and
recognized a pre-tax gain of approximately $562,000 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.
30
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
- - During the second quarter, we sold a plant in Modesto, CA, and recognized
a pre-tax gain of approximately $368,000 on the sale.
We recorded income taxes on these transactions totaling approximately $722,000.
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 36.2% in the third quarter of
2004 from 37.4% in the same period of 2003 due to a change in estimated
permanent tax differences for the year.
Our effective tax rate was 37.3% in the first nine months of 2004 compared to
37.0% in the same period of 2003, primarily due to $290,000 of estimated income
tax we recorded on the sale of Nascor in January 2004.
OFF-BALANCE SHEET TRANSACTIONS
We have no significant off-balance sheet transactions other than operating
leases.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents, for the periods indicated, a summary of our cash flow
statement (in thousands):
Sept. 25, Sept.27,
2004 2003
--------- --------
Cash from operating activities .............................. ($13,201) $ 67,904
Cash from investing activities .............................. (23,422) (25,123)
Cash from financing activities .............................. 38,478 (44,975)
-------- --------
Net change in cash and cash equivalents ..................... 1,855 (2,194)
Cash and cash equivalents, beginning of period .............. 17,430 17,534
-------- --------
Cash and cash equivalents, end of period .................... $ 19,285 $ 15,340
======== ========
In general, we financed our growth in the past through a combination of
operating cash flows, our revolving credit facility ("revolver"), industrial
development bonds (when circumstances permit), and issuance of long-term notes
payable at times when interest rates are favorable. Historically, 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 operating
31
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
cash flow. We believe this is one of the 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 generally results in negative or modest cash flows from operations in our
first and second quarters. 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. For comparative purposes, we have
included the September 25, 2003 balances in the accompanying unaudited
consolidated condensed balance sheets.
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 decreased to 45 days in the first nine months of 2004
from 46 days in the first nine months of 2003, primarily due to a decrease in
our days supply of inventory and an extension on our payables cycle, offset by
an increase in our receivables cycle (excluding the effects of our sale of
receivables program). The increase in our receivables cycle was primarily due to
a greater percentage of our sales going to the site-built and industrial markets
which have longer payment terms.
Cash flows used for operating activities increased in the first nine months of
2004 compared to the same period of 2003 by approximately $81 million. This
increased use of cash was primarily due to three factors:
- - We carried higher than normal inventory levels at the end of 2002 due to a
combination of poor weather and opportunistic buying by our purchasing
offices due to the low Lumber Market at that time. Since a portion of our
seasonal investment in inventory occurred earlier than normal (at the end
of 2002 instead of the first quarter of 2003), this had the effect of
minimizing our seasonal use of cash in 2003.
- - We did not have an accounts receivable sale in September 2004 as we had in
September 2003 resulting in higher cash flows in 2003.
- - An increase in our units shipped and a higher Lumber Market required a
greater investment in working capital in 2004.
Cash used for investing activities declined by $1.7 million in the first nine
months of 2004 compared to the same period of 2003. Capital expenditures
decreased to $25.1 million in the first nine months of 2004 compared to $33.3
million in the same period of 2003. In 2003, we spent a greater amount on
expansionary projects in the first nine months of the year. We expect to spend
approximately $47 million on capital expenditures in 2004, which includes
outstanding purchase commitments on capital projects totaling approximately $9.7
million on September 25, 2004. Estimated capital
32
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
expenditures for 2004 are higher than originally expected due to $8 million in
costs to rebuild our truss plant in Thorndale, Ontario, before considering
insurance proceeds. We intend to fund capital expenditures and purchase
commitments through a combination of operating cash flows and availability under
our revolver.
In addition, we spent approximately $10.1 million on business acquisitions (see
Note F, "Business Combinations and Asset Purchases") during the first nine
months of 2004 and collected $4.7 million from the sale of our interest in
Nascor Incorporated.
Cash provided by financing activities increased $83 million in the first nine
months of 2004 compared to the same period of 2003, primarily due to increased
borrowings under our revolver to support the capital requirements discussed
above.
Additionally, we spent approximately $0.1 million to repurchase 4,050 shares of
our common stock in the first nine months of 2004. We have authorization from
the Board of Directors to purchase an additional 1.5 million shares.
On September 25, 2004, we had $70.5 million outstanding on our $200 million
revolver. The revolver also supports letters of credit totaling approximately
$29.7 million on September 25, 2004. Financial covenants on our revolver and
senior unsecured notes include a minimum net worth requirement, a minimum
interest coverage test, a minimum fixed charge coverage test, 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 our requirements at September 25, 2004.
ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS
See Notes to Consolidated Condensed Financial Statements, Note I, "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. There have been no material changes in our
policies or estimates since December 27, 2003.
33
UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," as revised in December 2003 (FIN 46(R)). The new
rule requires that companies consolidate a variable interest entity if the
company is subject to a majority of the risk of loss from the variable interest
entity's activities, or is entitled to receive a majority of the entity's
residual returns or both. We do not have any special purpose entities, as
defined, nor have we acquired a variable interest in an entity where we were the
primary beneficiary since January 31, 2003. The implementation of Interpretation
46(R) did not have a material effect on the consolidated financial statements.
34
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 revolver 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.
35
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 - 15 and 15d - 15) as of
September 25, 2004, 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 by others within those entities in connection
with our filing of this third quarter report on Form 10-Q for the
quarterly period ended September 25, 2004.
(b) Changes in Internal Controls. There were no significant changes in our
internal controls over financial reporting (as such term is defined in
Rules 13a - 15 and 15d - 15 under the Exchange Act) during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
36
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) 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 506 Eligible persons None
(b) None.
(c) Issuer purchases of equity securities.
Fiscal Month (a) (b) (c) (d)
------------ ------- --------- -------- --------------
June 27 - July 31, 2004(1)........................... 1,550,587
August 1 - 28, 2004.................................. 1,550,587
August 29 - September 25, 2004....................... 1,550,587
(a) Total number of shares purchased.
(b) Average price paid per share.
(c) Total number of shares purchased as part of publicly announced plans
or programs.
(d) Maximum number of shares that may yet be purchased under the plans
or programs.
(1) On October 21, 1998, the Board of Directors approved a share
repurchase program (which succeeded a previous program) allowing us
to repurchase up to 1.8 million shares of our common stock. On
October 18, 2000 and November 14, 2001, the Board of Directors
authorized an additional 1 million shares and 2.5 million shares,
respectively, to be repurchased under the program. As of September
25, 2004, cumulative total authorized shares available for
repurchase is 1.5 million shares.
37
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 5. Other Information.
In the third quarter of 2004, the Audit Committee approved non-audit services to
be provided by our independent auditors, Ernst & Young LLP, totaling $22,000 for
2004.
38
UNIVERSAL FOREST PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits.
The following exhibits (listed by number corresponding to the Exhibit Table as
Item 601 in Regulation S-K) are filed with this report:
10(a) Form of Conditional Share Grant Agreement Utilized Under the Company's
Long-Term Incentive Plan.
31(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).
31(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(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).
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).
39
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: October 25, 2004 By: /s/ William G. Currie
------------------------------------------------
William G. Currie
Its: Vice Chairman of the Board and Chief Executive
Officer
Date: October 25, 2004 By: /s/ Michael R. Cole
------------------------------------------------
Michael R. Cole
Its: Chief Financial Officer
40
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
10(a) Form of Conditional Share Grant Agreement Utilized Under the
Company's Long-Term Incentive Plan.
31(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).
31(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(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).
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).