UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No.: 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 No.)
2801 East Beltline, N.E., Grand Rapids, Michigan		49525
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (616) 364-6161

Securities registered pursuant to Section 12(b) of the Act:

Title Of Each Class		Name of Each Exchange on Which Registered
None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13, or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements in the past 90 days. Yes þ No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by checkmark if disclosure of delinquent filers pursuant to Items 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-2 of the Act.) Yes o No þ

The aggregate market value of the common stock held by non-affiliates of the registrant (i.e. excluding shares held by executive officers, directors, and control persons as defined in Rule 405, 17 CFR 230.405) on June 27, 2009 was $600,703,561 computed at the closing price of $34.91 on that date.

As of January 30, 2010, 19,293,910 shares of the registrant’s common stock, no par value, were outstanding.

Documents incorporated by reference:

Exhibit Index located on page E-1.

 

 

ANNUAL REPORT ON FORM 10-K
DECEMBER 26, 2009
TABLE OF CONTENTS

PART I
Item 1. Business			3
Item 1A. Risk Factors			7
Item 1B. Unresolved Staff Comments			9
Item 2. Properties			9
Item 3. Legal Proceedings			10
Item 4. Submission of Matters to a Vote of Security Holders			10
Additional item: Executive Officers of the Registrant			10
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities			11
Item 6. Selected Financial Data			12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			12
Item 8. Financial Statements and Supplementary Data			13
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure			13
Item 9A. Controls and Procedures			13
Item 9B. Other Information			14
PART III
Item 10. Directors, Executive Officers and Corporate Governance			14
Item 11. Executive Compensation			14
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters			15
Item 13. Certain Relationships and Related Transactions, and Director Independence			15
Item 14. Principal Accounting Fees and Services			15
PART IV
Item 15. Exhibits, Financial Statement Schedules			15
Exhibit 13
Exhibit 21
Exhibit 23
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)

PART I

Item 1. Business.

General Development of the Business.

Universal Forest Products, Inc. (“The Company”) was organized as a Michigan corporation in 1955 and is a holding company that provides capital, management and administrative resources to subsidiaries that design, manufacture and market wood and wood-alternative products for DIY/retail home centers and other retailers, structural lumber products for the manufactured housing industry, engineered wood components for the site-built construction market, and specialty wood packaging and components for various industries. The Company’s consumer products subsidiary offers a large portfolio of outdoor living products, including wood composite decking, decorative balusters, post caps and plastic lattice, and its garden group offers an array of products, such as trellises and arches, to retailers nationwide. Our subsidiaries also provide framing services for the site-built market and forming products for concrete construction. The Company is headquartered in Grand Rapids, Michigan, with facilities throughout North America. For more about Universal Forest Products, Inc. go to www.ufpi.com.

Information relating to current developments in our business is incorporated by reference from our Annual Report to Shareholders for the fiscal year ended December 26, 2009 (“2009 Annual Report”) under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Selected portions of the 2009 Annual Report are filed as Exhibit 13 with this Form 10-K Report.

Financial Information About Segments.

Accounting Standards Codification (“ASC”) 280, Segment Reporting (“ASC 280”) defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Under the definition of a segment, our Eastern, Western and Consumer Products Divisions may be considered an operating segment of our business. Under ASC 280, segments may be aggregated if the segments have similar economic characteristics and if the nature of the products, distribution methods, customers and regulatory environments are similar. We have aggregated our Eastern and Western divisions into one reporting segment, consistent with ASC 280. Our Consumer Products Division, which was formed in 2006, is included in “All Other.” Separate Financial information about industry segments is incorporated by reference from Note Q of the Consolidated Financial Statements presented under Item 8 herein.

Narrative Description of Business.

We presently engineer, manufacture, treat, distribute and install lumber, composite wood, plastic and other building products for the DIY/retail, site-built construction, manufactured housing, and industrial markets. Each of these markets is discussed in the paragraphs which follow.

DIY/Retail Market. The customers comprising this market are primarily national home center retailers, retail-oriented regional lumberyards and contractor-oriented lumberyards. Generally, terms of sale are established for annual periods, and orders are placed with our regional facilities in accordance with established terms. One customer, The Home Depot, accounted for approximately 32% of our total net sales in fiscal 2009, 27% in 2008, and 26% in 2007.

From time to time we enter into certain sales contracts with The Home Depot. The contracts are limited to the establishment of general sales terms and conditions, such as delivery, invoicing, warranties and other standard, commercial matters. Sales are made by the release of purchase orders to us for particular quantities of certain products. We also enter into marketing agreements and rebate agreements with The Home Depot. The marketing agreements provide a certain percentage of our sales revenue or a minimum dollar amount will be committed to generate sales for us and The Home Depot.

We currently supply customers in this market from many of our locations. These regional facilities are able to supply mixed truckloads of products which can be delivered to customers with rapid turnaround from receipt of an order. Freight costs are a factor in the ability to competitively service this market, especially with treated wood products because of their heavier weight. The close proximity of our regional facilities to the various outlets of these customers is a significant advantage when negotiating annual sales programs.

The products offered to customers in this market include dimensional lumber (both preserved and unpreserved) and various “value-added products,” some of which are sold under our trademarks. In addition to our conventional lumber products, we offer composite wood and plastic products. We also sell engineered wood products to this market, which include roof trusses, wall panels and engineered floor systems (see “Site-Built Construction Market” below).

We are not aware of any competitor that currently manufactures, treats and distributes a full line of both value-added and commodity products on a national basis. We face competition on individual products from several different producers, but the majority of these competitors tend to be regional in their efforts and/or do not offer a full line of outdoor lumber products. We believe the breadth of our product offering, geographic dispersion, customer relationships, close proximity of our plants to core customers, purchasing and manufacturing expertise and service capabilities provide significant competitive advantages in this market.

Site-Built Construction Market. We entered the site-built construction market through strategic business acquisitions. The residential housing customers comprising this market are primarily large-volume, multi-tract builders and smaller volume custom builders. We also supply builders engaged in multi-family and commercial construction. Generally, terms of sale and pricing are determined based on quotes for each order.

We currently supply customers in this market from manufacturing facilities located in many different states and Ontario, Canada. These facilities manufacture various engineered wood components used to frame residential or commercial projects, including roof and floor trusses, wall panels, Open Joist 2000^®, I-joists and lumber packages. Freight costs are a factor in the ability to competitively service this market due to the space requirements of these products on each truckload.

We also provide framing services for customers in certain regional markets, in which we erect the wood structure. We believe that providing a comprehensive framing package, including installation, provides a competitive advantage. Terms of sale are based on a construction contract.

Competition in this market is primarily fragmented, but we do compete with a small number of national and regional retail contractor yards who also manufacture components and provide framing services, as well as regional manufacturers of components. Our long-term objective is to continue to increase our manufacturing capacity and framing capabilities for this market in certain regions we do not currently serve in order to expand our national presence. We believe our primary competitive advantages relate to the engineering and design capabilities of our regional staff, customer relationships, purchasing and manufacturing expertise, product quality and timeliness of delivery.

Manufactured Housing Market. The customers comprising the manufactured housing market are producers of mobile, modular and prefabricated homes and recreational vehicles. Products sold to customers in this market consist primarily of roof trusses, lumber cut and shaped to the customer’s specification, plywood, particle board and dimensional lumber, all intended for use in the construction of manufactured housing. Sales are made by personnel located at each regional facility based on customer orders.

Our principal competitive advantages include our customer relationships, product knowledge, the strength of our engineering support services, the close proximity of our regional facilities to our customers, our purchasing and manufacturing expertise and our ability to provide national sales programs to certain customers. These factors have enabled us to accumulate significant market share in the products we supply.

Industrial Market. We define our industrial market as industrial manufacturers and agricultural customers who use pallets, specialty crates and wooden boxes for packaging, shipping and material handling purposes. Many of the products sold to this market may be produced from the by-product of other manufactured products, thereby allowing us to increase our raw material yields while expanding our business. Competition is fragmented and includes virtually every supplier of lumber convenient to the customer. We service this market with our dedicated local sales teams and national sales support efforts, combined with our competitive advantages in manufacturing, purchasing, and material utilization.

Suppliers. We are one of the largest domestic buyers of solid sawn softwood lumber from primary producers (lumber mills). We use primarily Southern Yellow Pine in our pressure-treating operations and site-built component plants in the Southeastern United States, which we obtain from mills located throughout the states comprising the Sunbelt. Other species we use include “spruce-pine-fir” from various provinces in Canada; hemlock, Douglas fir and cedar from the Pacific Northwest; inland species of pine, plantation grown radiata and southern yellow pines from South America; and European spruce. There are numerous primary producers for all varieties we use, and we are not dependent on any particular source of supply. Our financial resources and size, in combination with our strong sales network and ability to remanufacture lumber, enable us to purchase a large percentage of a primary producer’s output, (as opposed to only those dimensions or grades in immediate need), thereby lowering our average cost of raw materials and allowing us to obtain programs such as consigned inventory. We believe this represents a competitive advantage.

Intellectual Property. We own several patents and have several patents pending on technologies related to our business. In addition, we own numerous registered trademarks and claim common law trademark rights to several others. As we develop proprietary brands, we may pursue registration or other formal protection. While we believe our patent and trademark rights are valuable, the loss of a patent or any trademark would not be likely to have a material adverse impact on our competitive position.

Backlog. Due to the nature of our DIY/retail, manufactured housing and industrial businesses, backlog information is not meaningful. The maximum time between receipt of a firm order and shipment does not usually exceed a few days. Therefore, we would not normally have a backlog of unfilled orders in a material amount. The relationships with our major customers are such that we are either the exclusive supplier of certain products and/or certain geographic areas, or the designated source for a specified portion of the customer’s requirements. In such cases, either we are able to forecast the customer’s requirements or the customer may provide an estimate of its future needs. In neither case, however, will we receive firm orders until just prior to the anticipated delivery dates for the products in question.

On December 26, 2009 and December 27, 2008, we estimate that backlog orders associated with the site-built construction business approximated $66.4 million and $57.7 million, respectively. With respect to the former, we expect that these orders will be primarily filled within the current fiscal year, however, it is possible that some orders could be canceled.

Environmental. Information required for environmental disclosures is incorporated by reference from Note O of the Consolidated Financial Statements presented under Item 8 herein.

Seasonality. Information required for seasonality disclosures is incorporated by reference from Item 1A. Risk Factors under the caption “Seasonality and weather conditions could adversely affect us.”

Employees. On December 26, 2009, we had approximately 4,900 employees.

Financial Information About Geographic Areas.

The dominant portion of our operations and sales occur in the United States. Separate financial information about foreign and domestic operations and export sales is incorporated by reference from Note Q of the Consolidated Financial Statements presented under Item 8 herein.

Available Information.

Our Internet address is www.ufpi.com. Through our Internet website under “Financial Information” in the Investor Relations section, we make available free of charge, as soon as reasonably practical after such information has been filed with the SEC, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act. Also available through our Internet website under “Corporate Governance” in the Investor Relations section is our Code of Ethics for Senior Financial Officers.

Reports to Security Holders.

Not applicable.

Enforceability of Civil Liabilities Against Foreign Persons.

Not applicable.

Item 1A. Risk Factors.

We are subject to regional, national and global economic conditions. The unprecedented decline in economic conditions throughout the United States could depress demand for our products further.

We are subject to fluctuations in the price of lumber. We experience significant fluctuations in the cost of commodity lumber products from primary producers (the “Lumber Market”). A variety of factors over which we have no control, including government regulations, environmental regulations, weather conditions, economic conditions, and natural disasters, impact the cost of lumber products and our selling prices. While we attempt to minimize our risk from severe price fluctuations, substantial, prolonged trends in lumber prices can negatively affect our sales volume, our gross margins, and our profitability. We anticipate that these fluctuations will continue in the future.

Our growth may be limited by the markets we serve. Our sales growth is dependent, in part, upon the growth of the markets we serve. If our markets do not achieve anticipated growth, or if we fail to maintain our market share, financial results could be impaired.

Our ability to achieve sales and margin goals, particularly on sales to the site-built construction market, is impacted by housing starts. If housing starts decline significantly, our financial results could be negatively impacted. National housing starts fell approximately 39% in 2009 compared to 2008 as a result of an excess supply of homes, tight credit conditions, and an increase in foreclosures. The manufactured housing market is constricted due to the excess supply of site-built homes and a lack of available long-term financing and credit-worthy buyers.

A significant portion of our sales are concentrated with one customer. Our sales to The Home Depot comprised 32% of our total sales in 2009, 27% in 2008, and 26% in 2007.

Current economic and credit market conditions have increased the risk that we may not collect a greater percentage of our receivables. Economic and credit conditions may significantly impact our bad debt expense. We continue to monitor our customers’ credit profiles carefully and make changes in our terms when necessary in response to this heightened risk.

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, 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. Current legislation requiring the use of alternate fuel and energy sources is expected to increase our energy costs by 10 to 25%. If additional laws and regulations regarding carbon emission, mandating the use of more expensive energy choices, cap and trade, or taxes and fees on resource use are enacted, it will significantly increase our costs of operation, raise costs to our customers, and create a further barrier to demand for United States manufactured products.

Seasonality and weather conditions could adversely affect us. Some aspects of our business are seasonal in nature and results of operations vary from quarter to quarter. Our treated lumber and outdoor specialty products, such as fencing, decking, and lattice, experience the greatest seasonal effects. Sales of treated lumber, primarily consisting of Southern Yellow Pine, also experience the greatest Lumber Market risk (see “Historical Lumber Prices” in Management’s Discussion and Analysis of Financial Condition and Results of Operations which is presented under Item 7 of this Form 10-K and is incorporated herein by reference). Treated lumber sales are generally at their highest levels between April and August. This sales peak, combined with capacity

constraints in the wood treatment process, requires us to build our inventory of treated lumber throughout the winter and spring. (This also has an impact on our receivables balances, which tend to be significantly higher at the end of the second and third quarters.) Because sales prices of treated lumber products may be indexed to the Lumber Market at the time they are shipped, our profits can be negatively affected by prolonged declines in the Lumber Market during our primary selling season. To mitigate this risk, consignment inventory programs are negotiated with certain vendors that are intended to decrease our exposure to the Lumber Market by correlating the purchase price of the material with the related sell price to the customer. These programs include those materials which are most susceptible to adverse changes in the Lumber Market.

The majority of our products are used or installed in outdoor construction activities; therefore, short-term sales volume, our gross margins, and our profits can be negatively affected by adverse weather conditions, particularly in our first and fourth quarters. In addition, adverse weather conditions can negatively impact our productivity and costs per unit.

Inbound and outbound transportation costs represent a significant part of our cost structure. A rapid and prolonged increase in fuel prices will significantly increase our costs. While we attempt to pass these costs along to our customers, there can be no assurance that they would agree to these price increases.

New preservatives will be developed to treat our products. The manufacturers of preservatives continue to develop new preservatives. All of our wood preservation facilities utilize either Amine Copper Quaternary (“ACQ”), ProWood^® Micro or borates. While we believe treated products are 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. In addition, new preservatives could increase our cost of treating products in the future.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Our corporate headquarters building is located in suburban Grand Rapids, Michigan. We currently have approximately 60 facilities located throughout the United States, Canada, and Mexico. Depending upon function and location, these facilities typically utilize office space, manufacturing space, treating space and covered storage.

We own all of our properties, free from any significant mortgage or other encumbrance, except for approximately 19 regional facilities which are leased. We believe all of these operating facilities are adequate in capacity and condition to service existing customer locations.

Item 3. Legal Proceedings.

Information regarding our legal proceedings is set forth in Note O of our Consolidated Financial Statements which are presented under Item 8 of this Form 10-K and are incorporated herein by reference.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

Additional Item: Executive Officers of the Registrant.

The following table lists the names, ages, and positions of our executive officers as of February 1, 2010. Executive officers are elected annually by the Board of Directors at the first meeting of the Board following the annual meeting of shareholders.

Name		Age		Position
Michael B. Glenn		58		Chief Executive Officer, Universal Forest Products, Inc.
Patrick M. Webster		50		President and Chief Operating Officer, Universal Forest Products, Inc.
C. Scott Greene		53		President, UFP Southern Division
Richard C. Frazier		67		President, UFP Western Division
Robert W. Lees		56		President, UFP Northern Division
Robert D. Coleman		55		Executive Vice President of Manufacturing, Universal Forest Products, Inc.
Matthew J. Missad		49		Executive Vice President and Secretary, Universal Forest Products, Inc.
Michael R. Cole		43		Chief Financial Officer and Treasurer, Universal Forest Products, Inc.
Ronald G. Klyn		52		Chief Information Officer, Universal Forest Products, Inc.
Joseph F. Granger		44		Executive Vice President of Sales and Marketing, Universal Forest Products, Inc.
Michael F. Mordell		52		Executive Vice President of Purchasing, Universal Forest Products, Inc.

Michael B. Glenn joined us in 1974. Effective January 1, 2000, Mr. Glenn was promoted to President and Chief Operating Officer. On July 1, 2006, Mr. Glenn became Chief Executive Officer.

Patrick M. Webster joined us in 1985. Mr. Webster became Vice President of the Far West Region in 1999, on July 1, 2007, became President of Universal Forest Products Western Division, Inc., and on January 1, 2009 became our President and Chief Operating Officer.

C. Scott Greene joined us in 1991. During early 2000, Mr. Greene became President of Universal Forest Products Eastern Division, Inc. On January 1, 2010, Mr. Greene became President of UFP Southern Division.

Richard C. Frazier joined us in 1985 as Vice President of our Southwest Region. He held this position until January 1, 2008, when he took on a new position to work on special projects throughout Company. On January 1, 2009, Mr. Frazier became President of the UFP Western Division.

Robert W. Lees joined us in 1977. In 1986 he became Regional Vice President of our Northeast Region. On January 1, 2010, Mr. Lees became President of UFP Northern Division.

Robert D. Coleman, joined us in 1979. On January 1, 1999, Mr. Coleman was named the Executive Vice President of Manufacturing.

Matthew J. Missad joined us in 1985. In February 1996, Mr. Missad was promoted to Executive Vice President.

Michael R. Cole, CPA, CMA, joined us in 1993. On July 19, 2000, Mr. Cole became Chief Financial Officer.

Ronald G. Klyn joined us in 1993. In October of 1999, Mr. Klyn was promoted to Chief Information Officer.

Joseph F. Granger joined us in 1988. In 2002 he became Regional Vice President of the Southeast Region, and on January 1, 2007, he became Executive Vice President of Sales and Marketing.

Michael F. Mordell joined us in 1993. In 1999 he became Executive Vice President of Purchasing of Universal Forest Products Western Division, Inc. In November 2007, he became General Manager of Operations for our facility in Lafayette, CO, and on January 1, 2010, Mr. Mordell became Executive Vice President of Purchasing.

PART II

The following information items in this Part II, which are contained in the 2009 Annual Report, are specifically incorporated by reference into this Form 10-K Report. These portions of the 2009 Annual Report that are specifically incorporated by reference are filed as Exhibit 13 with this Form 10-K Report.

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

(a)		The information relating to market, holders and dividends is incorporated by reference from the 2009 Annual Report under the caption “Price Range of Common Stock and Dividends” and “Stock Performance Graph.”
		There were no recent sales of unregistered securities.
(b)		Not applicable.

(c)

Issuer purchases of equity securities during the fourth quarter.

Fiscal Month		(a)				(b)				(c)				(d)
September 27 – October 31, 2009(1)			16,200			$	38.86				16,200				1,200,838
November 1 – 28, 2009			41,000			$	37.54				41,000				1,159,838
November 29 – December 26, 2009			26,709			$	36.29				26,709				1,133,129

Item 6. Selected Financial Data.

The information required by this Item is incorporated by reference from the 2009 Annual Report under the caption “Selected Financial Data.”

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information required by this item is incorporated by reference from the 2009 Annual Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risks related to fluctuations in interest rates on our variable rate debt, which consists of a revolving credit facility and industrial development revenue bonds. We do not currently use interest rate swaps, futures contracts or options on futures, or other types of derivative financial instruments to mitigate this risk.

For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect future earnings and cash flows. We do not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on such debt until we would be required to refinance it.

On December 26, 2009, the estimated fair value of our long-term debt, including the current portion, was $54.7 million, which was $0.8 million greater than the carrying value. The estimated fair value is based on rates anticipated to be available to us for debt with similar terms and maturities. The estimated fair value of notes payable included in current liabilities and the revolving credit facility approximated the carrying values.

Expected cash flows over the next five years related to debt instruments are as follows:

($US equivalents, in thousands)		2010				2011				2012				2013				2014				Thereafter				Total
Long-term Debt:
Fixed Rate ($US)		$	673			$	711			$	40,270															$	41,654
Average interest rate			5.6	%			5.6	%			6.0	%
Variable Rate ($US)																						$	12,200				12,200
Average interest rate(1)																							0.55	%

Item 8. Financial Statements and Supplementary Data.

The information required by this Item is incorporated by reference from the 2009 Annual Report under the following captions:

“Management’s Annual Report on Internal Control Over Financial Reporting”

“Report of Independent Registered Public Accounting Firm On Internal Control over Financial Reporting”

“Report of Independent Registered Public Accounting Firm On Financial Statements”

“Consolidated Balance Sheets”

“Consolidated Statements of Earnings”

“Consolidated Statements of Shareholders’ Equity”

“Consolidated Statements of Cash Flows”

“Notes to Consolidated Financial Statements”

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

(1)

Evaluation of Disclosure Controls and Procedures. With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15e and 15d - 15e) as of the year ended December 26, 2009 (the “Evaluation Date”), have concluded that, as of such date, our disclosure controls and procedures were effective.

(2)

Management’s Annual Report on Internal Control Over Financial Reporting. Management’s Annual Report on Internal Control Over Financial Reporting is included in the 2009 Annual Report under the caption “Management’s Annual Report on Internal Control Over Financial Reporting” and is incorporated herein by reference. Our accounting firm’s attestation Report on our internal control over financial reporting is also included in the 2009 Annual Report in the caption “Report of Independent Registered Public Accounting Firm On Internal Control over Financial Reporting” and is incorporated herein by reference.

(3)

Changes in Internal Controls. During the fourth quarter ended December 26, 2009, there were no changes in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Information relating to our directors, compliance with Section 16(a) of the Securities and Exchange Act of 1934 and various corporate governance matters is incorporated by reference from our definitive Proxy Statement for the year ended December 26, 2009 for the 2010 Annual Meeting of Shareholders, as filed with the Commission (“2010 Proxy Statement”), under the captions “Election of Directors,” “Corporate Governance and Board Matters,” and “Section 16(a) Beneficial Ownership Reporting Compliance.” Information relating to executive officers is included in this report in the last Section of Part I under the caption “Additional Item: Executive Officers of the Registrant.” Information relating to our code of ethics is included in this report in Part I, Item 1 under the caption “Available Information”.

Item 11. Executive Compensation.

Information relating to director and executive compensation is incorporated by reference from the 2010 Proxy Statement under the caption “Executive Compensation.” The “Personnel and Compensation Committee Report” included in the 2010 Proxy Statement is incorporated hereby by reference for the purpose of being furnished herein and is not and shall not be deemed to be filed under the Securities Exchange Act of 1934, as amended.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

Information relating to security ownership of certain beneficial owners and management is incorporated by reference from our 2010 Proxy Statement under the captions “Ownership of Common Stock” and “Securities Ownership of Management.”

Information relating to securities authorized for issuance under equity compensation plans as of December 26, 2009, is as follows:

Number of shares

remaining

available for future

Number of

Weighted

issuance under

shares to be

average

equity

issued upon

exercise

compensation

exercise of

price of

plans [excluding

outstanding

outstanding

shares reflected in

options

options

column (a)]

(a)

(b)

(c)

Equity compensation plans approved by security holders

473,878

$

23.34

2,443,497

Equity compensation plans not approved by security holders

none

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information relating to certain relationships and related transactions, and director independence is incorporated by reference from the 2010 Proxy Statement under the captions “Election of Directors”, “Affirmative Determination Regarding Director Independence and Other Matters” and “Related Party Transactions.”

Item 14. Principal Accounting Fees and Services.

Information relating to the types of services rendered by our Independent Registered Public Accounting Firm and the fees paid for these services is incorporated by reference from our 2010 Proxy Statement under the caption “Independent Registered Public Accounting Firm – Disclosure of Fees.”

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)

1. Financial Statements. The following are incorporated by reference, under Item 8 of this report, from the 2009 Annual Report:

Management’s Annual Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm On Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm On Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Earnings

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

2. Financial Statement Schedules. All schedules required by this Form 10-K Report have been omitted because they were inapplicable, included in the Consolidated Financial Statements or Notes to Consolidated Financial Statements, or otherwise not required under instructions contained in Regulation S-X.

3. Exhibits. Reference is made to the Exhibit Index which is included in this Form 10-K Report.

(b)		Reference is made to the Exhibit Index which is included in this Form 10-K Report.
(c)		Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 23rd day of February, 2010, by the following persons on behalf of us and in the capacities indicated.

Each Director whose signature appears below hereby appoints Matthew J. Missad and Michael R. Cole, and each of them individually, as his attorney-in-fact to sign in his name and on his behalf as a Director, and to file with the Commission any and all amendments to this report on Form 10-K to the same extent and with the same effect as if done personally.

/s/ William G. Currie				/s/ Dan M. Dutton
William G. Currie, Director				Dan M. Dutton, Director
/s/ John M. Engler				/s/ John W. Garside
John M. Engler, Director				John W. Garside, Director
/s/ Michael B. Glenn				/s/ Gary F. Goode
Michael B. Glenn, Director				Gary F. Goode, Director
/s/ Bruce A. Merino				/s/ Mark A. Murray
Bruce A. Merino, Director				Mark A. Murray, Director
/s/ William R. Payne				/s/ Louis A. Smith
William R. Payne, Director				Louis A. Smith, Director

EXHIBIT INDEX

Exhibit #		Description
3		Articles of Incorporation and Bylaws.
		(a)		Registrant’s Articles of Incorporation were filed as Exhibit 3(a) to a Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated herein by reference.
		(b)		Registrant’s Bylaws were filed as Exhibit 3(b) to a Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated herein by reference.
4		Instruments Defining the Rights of Security Holders.
		(a)		Specimen form of Stock Certificate for Common Stock was filed as Exhibit 4(a) to a Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated herein by reference.
10		Material Contracts.
		*(a)(4)		Nondisclosure and Non-Compete Agreement with Peter F. Secchia, dated December 31, 2002 was filed as Exhibit 10(a)(4) to a Form 10-K, Annual Report for the year ended December 28, 2002 and the same is incorporated herein by reference.
		*(a)(5)		Conditional Share Grant Agreement with William G. Currie dated April 17, 2002 was filed as Exhibit 10(a)(5) to a Form 10-K, Annual Report for the year ended December 28, 2002 and the same is incorporated herein by reference.
		*(a)(6)		Form of Conditional Share Grant Agreement utilized under the Company’s Long Term Stock Incentive Plan, was filed as Exhibit 10(a) to a Form 10-Q Quarterly Report for the quarter ended September 25, 2004 and the same is incorporated herein by reference.
		*(a)(7)		Consulting and Non-Compete Agreement with William G. Currie, dated December 17, 2007 was filed as Exhibit 10(a)(7) to a Form 10-K, Annual Report for the year ended December 29, 2007 and the same is incorporated herein by reference.
		*(a)(8)		Employment, Consulting (and Non-Competition) Agreement with Robert K. Hill, dated June 15, 2007 was filed as Exhibit 10(a)(8) to a Form 10-K, Annual Report for the year ended December 29, 2007 and the same is incorporated herein by reference.

Exhibit #		Description
		(b)		Form of Indemnity Agreement entered into between the Registrant and each of its directors was filed as Exhibit 10(b) to a Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated herein by reference.
		*(e)(1)		Form of Executive Stock Option Agreement was filed as Exhibit 10(e)(1) to a Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated herein by reference.
		*(e)(2)		Form of Officers’ Stock Option Agreement was filed as Exhibit 10(e)(2) to a Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated herein by reference.
		*(f)		Salaried Employee Bonus Plan was filed as Exhibit 10(f) to a Registration Statement on Form S-1 (No. 33-69474) and the same is incorporated herein by reference.
		(i)(4)		Series 2004-A, Credit Agreement dated December 20, 2004 was filed as Exhibit 10(i) to a Form 8-K Current Report dated December 21, 2004 and the same is incorporated herein by reference.
		(i)(5)		First Amendment dated February 12, 2007 relating to Series 2004-A, Credit Agreement dated December 20, 2004 was filed as Exhibit 10(i) to a Form 8-K Current Report dated February 15, 2007 and the same is incorporated herein by reference.
		(j)(1)		Series 1998-A, Senior Note Agreement dated December 21, 1998 was filed as Exhibit 10(j)(1) to a Form 10-K Annual Report for the year ended December 26, 1998, and the same is incorporated herein by reference.
		(j)(2)		Series 2002-A, Senior Note Agreement dated December 18, 2002 was filed as Exhibit 10(j)(2) to a Form 10-K Annual Report for the year ended December 28, 2002 and the same is incorporated herein by reference.
13		Selected portions of the Company’s Annual Report to Shareholders for the fiscal year ended December 26, 2009.

Exhibit #		Description
14		Code of Ethics for Senior Financial Officers
		(a)		Code of Ethics for Chief Financial Officer was filed as Exhibit 14(a) to a Form 10-K, Annual Report for the year ended December 25, 2004 and the same is incorporated herein by reference.
		(c)		Code of Ethics for Vice President of Accounting was filed as Exhibit 14(c) to a Form 10-K, Annual Report for the year ended December 31, 2005 and the same is incorporated herein by reference.
21		Subsidiaries of the Registrant.
23		Consent of Ernst & Young LLP.
31		Certifications.
		(a)		Certificate of the Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
		(b)		Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32		Certifications.
		(a)		Certificate of the Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
		(b)		Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

Exhibit 13

UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION

Table of Contents

Selected Financial Data			2
Management’s Discussion and Analysis of Financial Condition and Results of Operations			3
Management’s Annual Report on Internal Control Over Financial Reporting			21
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting			22
Report of Independent Registered Public Accounting Firm on Financial Statements			23
Consolidated Balance Sheets as of December 26, 2009 and December 27, 2008			24
Consolidated Statements of Earnings for the Years Ended December 26, 2009, December 27, 2008, and December 29, 2007			25
Consolidated Statements of Shareholders’ Equity for the Years Ended December 26, 2009, December 27, 2008, and December 29, 2007			26
Consolidated Statements of Cash Flows for the Years Ended December 26, 2009, December 27, 2008, and December 29, 2007			28
Notes to Consolidated Financial Statements			30
Price Range of Common Stock and Dividends			59
Stock Performance Graph			60
Directors and Executive Officers			61
Shareholder Information			62

SELECTED FINANCIAL DATA
(In thousands, except per share and statistics data)

		2009				2008				2007				2006				2005
Consolidated Statement of Earnings Data
Net sales		$	1,673,000			$	2,232,394			$	2,513,178			$	2,664,572			$	2,691,522
Gross profit			242,751				254,201				309,029				381,682				359,256
Earnings before income taxes			38,597				7,146				38,609				112,135				110,772
Net earnings attributable to controlling interest			24,272				4,343				21,045				70,125				67,373
Diluted earnings per share		$	1.25			$	0.23			$	1.09			$	3.62			$	3.53
Dividends per share		$	0.260			$	0.120			$	0.115			$	0.110			$	0.105
Weighted average shares outstanding with common stock equivalents			19,468				19,225				19,362				19,370				19,106
Consolidated Balance Sheet Data
Working capital(1)		$	248,165			$	230,308			$	337,800			$	282,913			$	298,027
Total assets			791,677				816,019				957,000				913,441				876,920
Total debt and capital lease obligations			53,854				101,174				206,071				170,097				209,497
Shareholders’ equity			568,946				548,226				547,044				525,561				440,429
Statistics
Gross profit as a percentage of net sales			14.5	%			11.4	%			12.3	%			14.3	%			13.3	%
Net earnings attributable to controlling interest as a percentage of net sales			1.5	%			0.2	%			0.8	%			2.6	%			2.5	%
Return on beginning equity(2)			4.4	%			0.8	%			4.0	%			15.9	%			18.5	%
Current ratio			2.84				2.53				3.08				2.47				2.46
Debt to equity ratio			0.09				0.18				0.38				0.32				0.48
Book value per common share(3)		$	29.50			$	28.72			$	28.93			$	27.87			$	23.93

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Universal Forest Products, Inc. (“the Company”) is a holding company that provides capital, management and administrative resources to subsidiaries that design, manufacture and market wood and wood-alternative products for DIY/retail home centers and other retailers, structural lumber products for the manufactured housing industry, engineered wood components for the site-built construction market, and specialty wood packaging and components for various industries. The Company’s consumer products subsidiary offers a large portfolio of outdoor living products, including wood composite decking, decorative balusters, post caps and plastic lattice, and its garden group offers an array of products, such as trellises and arches, to retailers nationwide. Our subsidiaries also provide framing services for the site-built market and forming products for concrete construction. The Company is headquartered in Grand Rapids, Michigan, with facilities throughout North America. For more about Universal Forest Products, Inc., go to www.ufpi.com.

We advise you to read the issues discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in this Annual Report for the year ended December 26, 2009. We also encourage you to read our Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission. That report includes “Risk Factors” that you should consider in connection with any decision to buy or sell our securities. We are pleased to present this overview of 2009.

OVERVIEW

Our results for 2009 were impacted by the following:

•

Our overall unit sales decreased 19% due to weak demand in each of our markets. However, during 2009, we believe we gained additional share of the D-I-Y/retail and industrial markets and maintained our share of the manufactured housing and site-built markets.

•

National housing starts decreased approximately 39% in 2009 compared to 2008 as a result of an excess supply of homes, tight credit conditions, and an increase in foreclosures.

•

Consumer spending for large repair/remodel projects decreased due to general economic conditions, among other factors, including weak home prices and decreased cost recovery for most types of upper-end home improvement projects. Consequently, the same store sales of “big box” home improvement retailers declined by approximately 9%.

•

Shipments of HUD code manufactured homes were down 39% in 2009. Industry sales of modular homes are estimated to have declined by 44% in 2009. Weak market conditions are due to issues mentioned above affecting the site-built market and tight credit conditions.

•

The industrial market declined due to the general weakening of the U.S. economy. We gained additional share of this market due, in part, to adding new concrete forming business.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS — CONTINUED

•

Our gross margin increased to 14.5% in 2009 from 11.4% in 2008 due to the implementation of various cost reduction initiatives and the lower level of the Lumber Market.

•

Our selling, general and administrative (“SG&A”) expenses were down approximately $28.5 million, or 12.5%, from 2008, due to our right-sizing efforts and plant consolidation actions we took last year, offset somewhat by an increase in bad debt and incentive compensation expenses.

•

Our interest costs decreased by $7.5 million, or 61.9%, due to a reduction in our interest-bearing debt since the beginning of 2008.

•

Operating and investing cash flows were $125 million in 2009 due to improved profitability, effective working capital management, and reduced working capital requirements due to weak demand. The strength of our cash flows allowed us to reduce our debt to $54 million and increase our cash to $82 million at the end of 2009.

HISTORICAL LUMBER PRICES

The following table presents the Random Lengths framing lumber composite price for the years ended December 26, 2009, December 27, 2008, and December 29, 2007.

		Random Lengths Composite
		Average $/MBF
		2009				2008				2007
January		$	198			$	249			$	292
February			199				244				289
March			195				240				280
April			208				255				286
May			198				281				288
June			222				268				306
July			238				267				299
August			239				282				290
September			236				272				276
October			235				234				261
November			245				224				264
December			252				213				267
Annual average		$	222			$	252			$	283
Annual percentage change			(11.9	%)			(11.0	%)

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

In addition, a Southern Yellow Pine (“SYP”) composite price, which we prepare and use, is presented below. Sales of products produced using this species may comprise up to 50% of our sales volume.

		Random Lengths SYP
		Average $/MBF
		2009				2008				2007
January		$	241			$	269				297
February			233				264				284
March			232				264				282
April			241				272				277
May			231				324				283
June			236				318				294
July			253				303				307
August			241				304				282
September			244				309				270
October			242				269				307
November			247				257				282
December			250				248				270
Annual average		$	241			$	283			$	286
Annual percentage change			(14.8	%)			(1.0	%)

IMPACT OF THE LUMBER MARKET ON OUR OPERATING PROFITS

We experience significant fluctuations in the cost of commodity lumber products from primary producers (“Lumber Market”). We generally price our products to pass lumber costs through to our customers so 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. Lumber costs are a significant percentage of our cost of goods sold.

Our gross margins are impacted by both (1) the relative level of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) the trend in the market price of lumber (i.e. whether the price of lumber is increasing or decreasing within a period or from period to period). Moreover, as explained below, our products are priced differently. Some of our products have fixed selling prices, while the selling prices of other products are indexed to the reported Lumber Market with a fixed dollar adder to cover conversion costs and profits. Consequently, the level and trend of the Lumber Market impact our products differently.

Below is a general description of the primary ways in which our products are priced.

•

Products with fixed selling prices. These products include value-added products such as decking and fencing sold to DIY/retail customers, as well as trusses, wall panels and other components sold to the site-built construction market, and most industrial packaging products. Prices for these products are generally fixed at the time of the sales quotation for a specified period of time or are based upon a specific quantity. In order to maintain margins and reduce any exposure to adverse trends in the price of component lumber products, we attempt to lock in costs for these sales commitments with our suppliers. Also, the time period and quantity limitations generally allow us to re-price our products for changes in lumber costs from our suppliers.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

•

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 with significant inventory levels with low turnover rates, whose selling prices are indexed to the Lumber Market. In other words, the longer the period of time these products remain in inventory, the greater the exposure to changes in the price of lumber. This would include treated lumber, which comprises approximately 17% of our total sales. This exposure is less significant with remanufactured lumber, trusses sold to the manufactured housing market, and other similar products, due to the higher rate of inventory turnover. We attempt to mitigate the risk associated with treated lumber through vendor consignment inventory programs. (Please refer to the “Risk Factors” section of our annual report on form 10-K, filed with the United States Securities and Exchange Commission.)
•		Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices by locking in costs.

In addition to the impact of 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.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

BUSINESS COMBINATIONS AND ASSET PURCHASES

See Notes to Consolidated Financial Statements, Note C, “Business Combinations.”

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the components of our Consolidated Statements of Earnings as a percentage of net sales.

		Years Ended
		December 26,				December 27,				December 29,
		2009				2008				2007
Net sales			100.0	%			100.0	%			100.0	%
Cost of goods sold			85.5				88.6				87.7
Gross profit			14.5				11.4				12.3
Selling, general, and administrative expenses			11.9				10.2				9.8
Net (gain) loss on disposition of assets and other impairment and exit charges			(0.0	)			0.3				0.4
Earnings from operations			2.6				0.9				2.1
Interest, net			(0.3	)			(0.5	)			(0.6	)
Earnings before income taxes			2.3				0.4				1.5
Income taxes			0.8				0.1				0.6
Net earnings			1.5				0.3				0.9
Less net earnings attributable to noncontrolling interest			(0.0	)			(0.1	)			(0.1	)
Net earnings attributable to controlling interest			1.5	%			0.2	%			0.8	%

GROSS SALES

We market, manufacture and engineer wood and wood-alternative products for the DIY/retail market, structural lumber products for the manufactured housing market, engineered wood components for the site-built construction market, and specialty wood packaging for various markets. We also provide framing services for the site-built construction market and various forms for concrete construction. Our strategic long-term sales objectives include:

•		Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our penetration of the concrete forms market, increasing our sales of engineered wood components for custom home, multi-family and light commercial construction, and expanding our product lines in each of the markets we serve.
•		Expanding geographically in our core businesses.
•		Increasing sales of “value-added” products and framing services. Value-added product sales primarily consist of fencing, decking, lattice, and other specialty products sold to the DIY/retail market, specialty wood packaging, engineered wood components, and “wood alternative” products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist primarily of composite wood and plastics. Although we consider the treatment of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals.
•		Maximizing unit sales growth while achieving return on investment goals.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

The following table presents, for the periods indicated, our gross sales (in thousands) and percentage change in gross sales by market classification.

		Years Ended
		December 26,				%				December 27,				%				December 29,
Market Classification		2009				Change				2008				Change				2007
DIY/Retail		$	805,052				(12.4	)		$	919,200				(7.0	)		$	988,175
Site-Built Construction			244,117				(46.1	)			452,689				(23.1	)			588,778
Industrial			479,284				(20.0	)			598,915				1.1				592,369
Manufactured Housing			183,912				(39.4	)			303,387				(22.6	)			392,163
Total Gross Sales			1,712,365				(24.7	)			2,274,191				(11.2	)			2,561,485
Sales Allowances			(39,365	)							(41,797	)							(48,307	)
Total Net Sales		$	1,673,000				(25.1	)		$	2,232,394				(11.2	)		$	2,513,178

The following table presents estimates, for the periods indicated, of our percentage change in gross sales which were attributable to changes in overall selling prices versus changes in units shipped.

		% Change
		in Sales				in Selling Prices				in Units
2009 versus 2008			-25	%			-6	%			-19	%
2008 versus 2007			-11	%			-2	%			-9	%
2007 versus 2006			-5	%			-5	%			0	%

Gross sales in 2009 decreased 25% compared to 2008 resulting from an estimated decrease in units shipped of approximately 19%, while overall selling prices decreased by 6%. We estimate that our unit sales increased 1% as a result of business acquisitions and new plants, while our unit sales from existing and closed facilities decreased by 20% due to a decline in market demand. Our overall selling prices fluctuate as a result of the Lumber Market (see “Historical Lumber Prices”) and were negatively impacted by pricing pressure primarily in the site-built construction market.

Gross sales in 2008 decreased 11% compared to 2007. We estimate that our unit sales decreased by 9% and overall selling prices decreased by 2% comparing the two periods. We estimate our unit sales increased 3% as a result of acquisitions and new facilities, while unit sales from existing and closed facilities decreased 12%.

Changes in our sales by market are discussed below.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

DIY/Retail:

Gross sales to the DIY/retail market decreased 12% in 2009 compared to 2008 primarily due to an estimated 6% decrease in overall unit sales and an estimated 6% decrease in overall selling prices due to the Lumber Market. We estimate that our unit sales increased 1% as a result of acquisitions, while unit sales from existing and closed facilities decreased 7%. Unit sales declined due to the impact of the housing market on our retail customers whose business is closely correlated with single-family housing starts and a decline in consumer spending as evidenced by declines in same store sales reported by our “big box” customers. We believe that we achieved market share gains in 2009, which offset some of the impact of these adverse market conditions.

Gross sales to the DIY/retail market decreased 7% in 2008 compared to 2007, as a result of an estimated 6% decrease in overall unit sales combined with an estimated 1% decrease in overall selling prices. We estimate that our unit sales increased 2% as a result of acquisitions, while unit sales from existing and closed facilities decreased 8%. Unit sales declined due to the impact of the housing market on our retail customers whose business is closely correlated with single-family housing starts and a decline in consumer spending as evidenced by a decline in same store sales of our “big box” customers.

Site-Built Construction:

Gross sales to the site-built construction market decreased 46% in 2009 compared to 2008, due to an estimated 38% decrease in unit sales and an estimated 8% decrease in selling prices. National housing starts were off a reported 39% for 2009 compared to the same period of 2008.

Gross sales to the site-built construction market decreased 23% in 2008 compared to 2007, due to an estimated 14% decrease in unit sales out of existing facilities and an estimated 9% decrease in average selling prices primarily due to intense pricing pressure and a soft Lumber Market. National single-family housing starts were off a reported 41% for 2008 compared to 2007. In the first half of 2008, we were able to mitigate some of the decrease in the single-family market by pursuing multi-family and light commercial business and increasing our turn-key framing activities. However, these markets have been impacted by tight credit conditions as well as other economic factors.

Industrial:

Gross sales to the industrial market decreased 20% in 2009 compared to the same period of 2008, due to an estimated 14% decrease in unit sales and an estimated 6% decrease in selling prices. We experienced a decline in sales to our customers that supply the housing market or have been impacted by the weakening U.S. economy. We have been able to offset some of the impact of a decline in demand with market share gains and our continued penetration of the concrete forming market.

Gross sales to the industrial market increased 1% in 2008 compared to 2007, due to an estimated 2% increase in unit sales and an estimated 1% decrease in selling prices. Acquisitions and our continued focus on adding new customers, including concrete forming, helped us mitigate the effect of a decline in sales to certain customers that supply the housing market or have been impacted by the weakening U.S. economy.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

Manufactured Housing:

Gross sales to the manufactured housing market decreased 39% in 2009 compared to the same period of 2008 primarily due to a decline in unit sales as a result of weak demand. Industry production of HUD code homes was off a reported 39% for 2009 compared to the same period of 2008. Modular home production was down an estimated 44% in 2009.

Gross sales to the manufactured housing market decreased 23% in 2008 compared to 2007, due to an estimated 21% decrease in unit sales and an estimated 2% decrease in selling prices due to the Lumber Market. Our decline in unit sales from existing facilities was the result of an overall decline in industry production. The industry reported a 14% decrease in HUD code production in 2008, while modular production was off a reported 28%.

Value-Added and Commodity-Based Sales:

The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales.

		Value-Added				Commodity-Based
2009			59.4	%			40.6	%
2008			60.4	%			39.6	%
2007			60.5	%			39.5	%

Value-added sales decreased 26% in 2009 compared to 2008, primarily due to decreased sales of trusses, turn-key framing and installed sales, fencing, engineered wood products and manufactured component lumber. Commodity-based sales decreased 25% comparing 2009 with 2008, primarily due to decreased sales of non-manufactured lumber and panels and treated lumber. See Notes to Consolidated Financial Statements, Note Q, “Segment Reporting.”

Value-added sales decreased 11% in 2008 compared to 2007, primarily due to decreased sales of trusses, engineered wood products, wall panels, and manufactured brite and other lumber, offset partially by increases in sales of industrial packaging and related components. Commodity-based sales decreased 11% in 2008 compared to 2007, primarily due to decreased sales of non-manufactured brite and other lumber and non-manufactured treated lumber.

COST OF GOODS SOLD AND GROSS PROFIT

Our gross profit percentage increased to 14.5% in 2009 from 11.4% in 2008. Our gross profit dollars decreased by only 5%, which compares favorably with our 19% decrease in unit sales. Our improved gross margin is primarily due to cost reductions consisting of:

•		An improvement in material costs as a percentage of net sales as a result of better buying and inventory management to protect margins.
•		An improvement in labor and plant overhead as a percentage of net sales due to plant consolidation and right-sizing efforts previously taken.
•		Lower freight costs due to fuel prices.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

In addition, the lower level of the Lumber Market caused our gross margin to increase. See “Impact of the Lumber Market on Our Operating Results”.

Our gross profit percentage decreased to 11.4% in 2008 from 12.3% in 2007 and gross profit dollars decreased 17.7% in 2008 compared to 2007. The decline in profitability was primarily due to a combination of:

•

Price pressure in all of our markets but particularly in our site-built construction market.

•

A significant increase in fuel and other transportation costs in the second and third quarter of 2008.

•

Missed buying opportunities as a result of stocking lower levels of lumber inventory.

•

Cost inefficiencies as a result of lower volumes combined with fixed manufacturing costs.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (“SG&A”) expenses decreased by approximately $28.5 million, or 12.5%, in 2009 compared to 2008, while we reported a 19% decrease in unit sales. New operations added $0.6 million of expenses, operations we closed decreased expenses by $15.5 million, and existing operations reduced expenses by $13.6 million. The decrease in SG&A expenses at our existing operations was primarily due to a decline in wages and related costs due to a reduction in headcount and a decline in many other account categories as a result of efforts to control costs. These decreases were partially offset by an increase in accrued bonus and bad debt expense. Our SG&A expenses increased as a percentage of sales primarily due to the lower level of the Lumber Market, accrued bonus, and bad debt expense.

Selling, general and administrative (“SG&A”) expenses decreased by approximately $18.8 million, or 7.6%, in 2008, while we reported a 9% decrease in unit sales. Existing facilities decreased SG&A expenses by approximately $2.6 million, operations we closed decreased expenses approximately $20.9 million, and business acquisitions added $4.7 million in expenses. The decrease in SG&A expenses in our existing facilities was primarily due to a decline in wages and related benefits due to a reduction in headcount and a reduction in bonus and other performance related compensation. These decreases were partially offset by an increase in bad debt expense. We believe our cost reduction efforts will continue to drive down our costs and will have a more significant impact in future reporting periods.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

NET (GAIN) LOSS ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES

We incurred $4.1 million of charges in 2009 and $7.7 million in 2008 relating to asset impairments and other costs associated with idled facilities and down-sizing efforts. These costs were offset by gains on the sale of certain real estate totaling $4.2 million in 2009 and $0.5 million in 2008. See Notes to Consolidated Financial Statements, Note D “Assets Held for Sale and Net (Gain) Loss on Disposition of Assets and Other Impairment and Exit Charges.”

We regularly review the performance of each of our operations and make decisions to permanently or temporarily close operations based on a variety of factors including:

•

Current and projected earnings, cash flow and return on investment

•

Current and projected market demand

•

Market share

•

Competitive factors

•

Future growth opportunities

•

Personnel and management

We currently have 9 operations which experienced operating losses and negative cash flow in 2009. The net book value of the long-lived assets of these operations, which could be subject to an impairment charge in the future in the event a closure action is taken, was $15.3 million at the end of 2009. In addition, these operations had future fixed operating lease payments totaling $1.8 million at the end of 2009.

We incurred $8.2 million of asset impairments and other costs associated with idled facilities in 2007.

INSURANCE PROCEEDS

In May, 2008 our plant in Windsor, CO was hit by a tornado. In accordance with Accounting Standards Codification (“ASC”) 605, Accounting for Involuntary Conversions of Non-Monetary Assets to Monetary Assets, we have written off the net book value of the destroyed inventory and property totaling $0.7 million. The insured value of the property exceeded its net book value, which was recorded as a gain in 2008. In 2008, we collected $0.8 million of the insurance receivable and in 2009 we collected $1.0 million. As of December 26, 2009, there is no remaining insurance receivable.

INTEREST, NET

Net interest costs were lower in 2009 compared to 2008 due to lower debt balances combined with a decrease in short-term interest rates upon which our variable rate debt is based.

Net interest costs were lower in 2008 compared to 2007 due to lower debt balances combined with a decrease in short-term interest rates.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

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 increased to 35.9% in 2009 compared to 23.6% in 2008. Our effective tax rate differs from the federal statutory rate primarily due to estimated state and local income taxes and certain permanent tax differences. See Notes to Consolidated Financial Statements, Note M, “Income Taxes”.

Our effective tax rate decreased to 23.6% in 2008 compared to 39.9% in 2007. The 2008 rate was favorably impacted by certain state income tax credits we received and the impact of other permanent tax differences on substantially lower pretax income.

OFF-BALANCE SHEET TRANSACTIONS AND CONTRACTUAL OBLIGATIONS

We have no significant off-balance sheet transactions other than operating leases. The following table summarizes our contractual obligations as of December 26, 2009 (in thousands).

		Payments Due by Period
		Less than				1 - 3				3 - 5				After
Contractual Obligation		1 Year				Years				Years				5 Years				Total
Long-term debt and capital lease obligations		$	673			$	40,981			$	0			$	12,200			$	53,854
Estimated interest on long-term debt			2,531				5,062				135				619				8,347
Operating leases			12,313				11,571				3,277				1,125				28,286
Capital project purchase obligations			919																919
Total		$	16,436			$	57,614			$	3,412			$	13,944			$	91,406

As of December 26, 2009, we also had $32.3 million in outstanding letters of credit issued during the normal course of business, as required by some vendor contracts.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

LIQUIDITY AND CAPITAL RESOURCES

The table below presents, for the periods indicated, a summary of our cash flow statement (in thousands):

		December 26,				December 27,				December 29,
		2009				2008				2007
Cash from operating activities		$	128,346			$	88,551			$	87,078
Cash from investing activities			(3,329	)			(11,367	)			(91,971	)
Cash from financing activities			(56,135	)			(107,452	)			(2,610	)
Net change in cash and cash equivalents			68,882				(30,268	)			(7,503	)
Cash and cash equivalents, beginning of year			13,337				43,605				51,108
Cash and cash equivalents, end of year		$	82,219			$	13,337			$	43,605

In general, we financed our growth in the past through a combination of operating cash flows, our revolving credit facility, industrial development bonds (when circumstances permit), and issuances of long-term notes payable at times when interest rates are favorable. We have not issued equity to finance our growth except in the case of a large acquisition. We manage our capital structure by attempting to maintain a targeted ratio of debt to equity and debt to earnings before interest, taxes, depreciation and amortization. We believe this is one of many important factors to maintaining a strong credit profile, which in turn helps ensure timely access to capital when needed. We are currently below our internal targets and plan to manage our capital structure conservatively in light of current economic conditions.

Seasonality has a significant impact on our working capital from March to August which historically resulted in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which results in significant cash flow from operations in our third and fourth quarters.

Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management. Our cash cycle (excluding the impact of our sale of receivables program) decreased to 45 days in 2009 from 46 days in 2008 due to a one day decrease in our days of sales outstanding. The decrease was due to more focused efforts to make sure we are paid on time by our customers.

Cash provided by operating activities was approximately $128 million in 2009 including net earnings of $24 million, $47 million of non-cash expenses and a $57 million decrease in working capital since the end of 2008. Working capital decreased primarily due to lower sales volumes associated with weak demand throughout 2009. In addition, there was approximately $27 million of negative cash flow included in operating activities in 2008 related to our sale of receivables program. Specifically, at the end of December 2007 we had approximately $27 million of receivables sold and outstanding under this program, while no amounts were sold outstanding at the end of September of 2008 because the program was terminated in that month.

We made the decision to limit our investing activities in 2008 and 2009 and make debt repayment and building cash reserves our first priority for use of our operating cash flows. As a result, we curtailed our capital expenditures for these years. In addition, we sold certain equipment and real estate, for which we had no planned future use, for approximately $12 million. (See Notes to Consolidated Financial Statements, Note D, “Assets Held for Sale and Net (Gain) Loss on Disposition of Assets and Other Impairment and Exit Charges”.)

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

On December 26, 2009, we had no outstanding balance on our $300 million revolving credit facility, which matures in February of 2012, and increased our cash reserves to over $82 million. The revolving credit facility supports letters of credit totaling approximately $32.3 million on December 26, 2009. Financial covenants on the unsecured revolving credit facility and unsecured notes include a minimum net worth requirement, minimum interest and fixed charge coverage tests, and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were within all of our lending requirements on December 26, 2009.

As a result of our strong financial position, in October 2009 our Board of Directors approved an increase in our dividend to a semi-annual rate of $0.20 per share. It has been our practice to pay dividends on June 15 and December 15 of each year to shareholders of record as of June 1 and December 1, respectively.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Consolidated Financial Statements, Note O, “Commitments, Contingencies, and Guarantees”.

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. Following is a summary of our more significant accounting policies that require the use of estimates and judgments in preparing the financial statements.

ACCOUNTS RECEIVABLE ALLOWANCES

We record provisions against gross revenues for estimated returns and cash discounts in the period when the related revenue is recorded. These estimates are based on factors that include, but are not limited to, historical discounts taken, analysis of credit memorandum activity, and customer demand. We also evaluate the allowance for uncollectible accounts receivable and discounts based on historical collection experience and specific identification of other potential problems, including the economic climate. Actual collections can differ, requiring adjustments to the allowances.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

SELF-INSURANCE RESERVES

We are primarily self-insured for certain employee health benefits, and have self-funded retentions for general liability, automobile liability, property and workers’ compensation. We are fully self-insured for environmental liabilities. The general liability, automobile liability, property, workers’ compensation, and certain environmental liabilities are managed through a wholly-owned insurance captive; the related assets and liabilities of which are included in the consolidated financial statements as of December 26, 2009. Our accounting policies with respect to the reserves are as follows:

•		General liability, automobile, workers’ compensation reserves are accrued based on third party actuarial valuations of the expected future liabilities.
•		Health benefits are self-insured by us up to our pre-determined stop loss limits. These reserves, including incurred but not reported claims, are based on internal computations. These computations consider our historical claims experience, independent statistics, and trends.
•		The environmental reserve is based on known remediation activities at certain wood preservation facilities and the potential for undetected environmental matters at other sites. The reserve for known activities is based on expected future costs and is computed by in-house experts responsible for managing our monitoring and remediation activities. (See “Environmental Considerations and Regulations.”)

REVENUE RECOGNITION

Earnings on construction contracts are reflected in operations using either percentage-of-completion accounting, which includes the cost to cost and units of delivery methods, or completed contract accounting, depending on the nature of the business at individual operations. Under percentage-of-completion using the cost to cost method, revenues and related earnings on construction contracts are measured by the relationships of actual costs incurred related to the total estimated costs. Under percentage-of-completion using the units of delivery method, revenues and related earnings on construction contracts are measured by the relationships of actual units produced related to the total number of units. Revisions in earnings estimates on the construction contracts are recorded in the accounting period in which the basis for such revisions becomes known. Projected losses on individual contracts are charged to operations in their entirety when such losses become apparent. Under the completed contract method, revenues and related earnings are recorded when the contracted work is complete and losses are charged to operations in their entirety when such losses become apparent.

LONG-LIVED ASSETS AND GOODWILL

We evaluate long-lived assets for indicators of impairment when events or circumstances indicate that this risk may be present. Our judgments regarding the existence of impairment are based on market conditions, operational performance and estimated future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded to adjust the asset to its fair value. Changes in forecasted operations and changes in discounted rates can materially affect these estimates. In addition, we test goodwill for impairment by utilizing the discounted cash flow method.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Notes to Consolidated Financial Statements, Note A, “Summary of Significant Accounting Policies”.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

FORWARD OUTLOOK

The following section contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are based on the beliefs and assumptions of management, together with information available to us when the statements were made. Future results could differ materially from those included in such forward-looking statements as a result of, among other things, the factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission and certain economic and business factors which may be beyond our control. Investors are cautioned that all forward-looking statements involve risks and uncertainties.

“Route 2012”

Since we discussed our Growth & Opportunity 2010 (“GO 2010”) goals in our annual report on form 10-K for the period ended December 30, 2006, industry and general economic conditions have significantly deteriorated. In addition, the Lumber Market has declined from an average of $388/MBF in 2005 to an average of $222/MBF in 2009; a 43% decline from when we first set our goals.

In place of our GO 2010 goals, we have a new four-year growth plan entitled “Route 2012,” which includes goals to be achieved by the end of our fiscal year 2012 including:

•

Increase sales to $3 billion as our markets recover from the current downturn and by increasing our market share and expanding our product lines.

•

Improve productivity by 15% through our Continuous Improvement initiative.

•

Improve profitability by three hundred basis points through productivity improvements, cost reductions, and growth.

•

Improve receivables cycles in our industrial, site-built and manufactured housing markets by 10% by reducing the amount of our receivables that are paid past the agreed upon due date.

•

Improve inventory turnover by 10% through our Continuous Improvement initiative.

DIY/RETAIL MARKET

Harvard’s Joint Center for Housing Studies projects home improvement spending to continue to decline through the second quarter of 2010, reflecting continuing challenges in housing, credit, and the general economy. However, the Consumer Confidence Index increased to 52.9 in December 2009, up from 38.6 at the beginning of the year.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

In 2010, we believe we will maintain our overall market share with “big box” home improvement and other retailers, but will continue to be impacted by the soft market conditions discussed above. On a long-term basis, it is our goal to achieve sales growth by:

•

Increasing our market share of value-added wood products and preservative-treated products as a result of our national presence, service capabilities that meet stringent customer requirements, diversified product offering, and purchasing leverage.

•

Increasing our sales of wood alternative products such as composite wood decking, which continues to take market share from preservative-treated products. Although we expect this trend to continue to some extent, we believe wood products will continue to maintain a dominant market share for the foreseeable future as a result of its cost advantages over wood alternative products.

•

Increasing our market penetration of products distributed by our Consumer Products Division, including decorative balusters, accessories, and post caps, plastic lattice, and other proprietary plastic products which have greatly enhanced our deck and fencing product lines.

•

Developing new value-added products and services for this market.

•

Adding new products or new markets through strategic business acquisitions.

SITE-BUILT CONSTRUCTION MARKET

The Mortgage Bankers Association of America forecasts a 34% increase in national housing starts to an estimated 743,000 starts in 2010. The National Association of Home Builders forecasts starts of 697,000, a 25% increase from 2009. In 2010, we believe we are well-positioned to capture our share of an increase that may occur in housing starts. The excess supply of site-built homes, foreclosures, and tight credit conditions still present significant challenges for the industry.

On a long-term basis, we anticipate growth in our sales to the site-built construction market as market conditions improve and as a result of market share gains as weaker competitors exit the market. In addition, it is our goal to improve our diversification of sales to this market by increasing our sales to the multi-family, light commercial, military and customer home building markets.

MANUFACTURED HOUSING MARKET

The National Association of Home Builders forecasts a 14% increase in manufactured home shipments in 2010, with year over year increases primarily occurring in the second half of the year. It is our goal to maintain our current market share of trusses produced for the HUD code market, which increased as a result of our acquisition of Banks in November 2006. On a long-term basis, we believe the HUD code market will regain a greater share of the single-family market as credit conditions normalize and as consumers seek more affordable housing alternatives.

Sales of modular homes are expected to continue to be impacted by the current oversupply of single-family housing and tight credit conditions. It is our goal to maintain our market share of trusses produced for the modular market as a result of our strong relationships with modular builders, design services and proprietary products. On a long-term basis, we anticipate modular housing will gain additional share of the single-family market as a result of more developers adopting the controlled building environment of modular construction as a method of cost control.

In addition, on a long-term basis, it is our goal to expand our product offering to manufactured housing customers.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

INDUSTRIAL MARKET

One of our key strategic objectives is to increase our sales of wood packaging products to industrial users. We believe the vast amount of hardwood and softwood lumber consumed for industrial applications, combined with the highly fragmented nature of this market provides us with significant market share growth opportunities as a result of our competitive cost advantages in manufacturing, purchasing, and material utilization. To take advantage of these opportunities, we plan to continue to obtain market share through an internal growth strategy utilizing our current manufacturing capabilities and dedicated industrial sales force. However, we recognize that any market share gains we may realize in 2010 may continue to be offset to some extent by a decline in demand. On a long-term basis, we plan to evaluate strategic acquisition opportunities and continue to gain market share with concrete forming customers, and expand our product offering to customers.

GROSS PROFIT

We believe the following factors may impact our gross profits and margins in 2010:

•

Our ability to maintain sales and gross margins on products sold to our largest customers. We believe our level of service, geographic diversity, and quality of products provides an added value to our customers. However, if our customers are unwilling to pay for these advantages, our sales and gross margins may be reduced.

•

Through at least the first half of 2010 we expect to continue to experience soft demand in each of our markets, which, in turn, may impact our sales prices, capacity utilization, and profitability.

•

Fluctuations in the relative level of the Lumber Market and the trend in the market price of lumber. (See “Impact of the Lumber Market on our Operating Results.”)

•

Fuel and transportation cost trends.

•

Our ability to continue to achieve productivity improvements and planned cost reductions through our Continuous Improvement and other initiatives.

•

Our ability to maintain productivity and material cost improvements achieved in 2009.

UNIVERSAL FOREST PRODUCTS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Since the third quarter of 2008, as a result of weak market conditions, we have continuously taken actions to close plants to better align our manufacturing capacity with the current business environment and reduce our headcount and certain overhead costs to better align our cost structure with current demand and sales. We expect that these actions will continue to favorably impact our SG&A expenses in 2010. In addition, economic and credit conditions significantly impacted our bad debt expense in 2008 and 2009. As a result of actions taken in 2009 to reduce our credit exposure and improve the management of our receivables, we believe we are well-positioned to reduce our bad debt expense in 2010. We continue to monitor our customers’ credit profiles carefully and make changes in our terms where necessary in response to this heightened risk.

On a long-term basis, we expect that our SG&A expenses will primarily be impacted by:

•		Our growth in sales to the industrial market and, when industry conditions improve, the site-built construction market. Our sales to these markets require a higher ratio of SG&A costs due, in part, to product design requirements.
•		Our incentive compensation program which is tied to pre-bonus operating profits and return on investment.
•		Our growth and success in achieving Continuous Improvement objectives.

LIQUIDITY AND CAPITAL RESOURCES

Our cash cycle will continue to be impacted in the future based on our mix of sales by market. Sales to the site-built construction and industrial markets require a greater investment in working capital (inventory and accounts receivable) than our sales to the DIY/retail and manufactured housing markets.

Management expects to spend up to $32 million on capital expenditures in 2010 and incur depreciation of approximately $33 million and amortization of intangible assets of approximately $8 million. On December 26, 2009, we had outstanding purchase commitments on capital projects of approximately $0.9 million. We intend to fund capital expenditures and purchase commitments through our operating cash flows and cash.

We have no present intention to change our dividend policy, which was recently increased to $0.20 per share paid semi-annually.

Our Board of Directors has approved a share repurchase program, and as of December 26, 2009, we have authorization to buy back approximately 1.1 million shares. In the past, we have repurchased shares in order to offset the effect of issuances resulting from our employee benefit plans and at times when our stock price falls to a pre-determined level.

We are also obligated to pay amounts due on long-term debt totaling approximately $0.7 million in 2010.

Management’s Annual Report on Internal Control Over Financial Reporting

The management of Universal Forest Products, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to us and the Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

We assessed the effectiveness of our internal control over financial reporting as of December 26, 2009. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment, management has concluded that as of December 26, 2009, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The effectiveness of the Company’s internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which follows our report.

Universal Forest Products, Inc.

February 23, 2010

Report of Independent Registered Public Accounting Firm
On Internal Control over Financial Reporting

The Board of Directors and Shareholders of Universal Forest Products, Inc.

We have audited Universal Forest Products, Inc. and subsidiaries internal control over financial reporting as of December 26, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Universal Forest Products, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Universal Forest Products, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 26, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Universal Forest Products, Inc. and subsidiaries as of December 26, 2009 and the related consolidated statements of income, shareholder’s equity, and cash flows for each of the three years then ended December 26, 2009 and our report dated February 23, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 23, 2010

Report of Independent Registered Public Accounting Firm
On Financial Statements

The Board of Directors and Shareholders of Universal Forest Products, Inc.

We have audited the accompanying consolidated balance sheets of Universal Forest Products, Inc. and subsidiaries as of December 26, 2009 and December 27, 2008, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three years in the period ended December 26, 2009. These financial statements are the responsibility of Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Universal Forest Products, Inc. and subsidiaries at December 26, 2009 and December 27, 2008, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 26, 2009, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Universal Forest Products, Inc. and subsidiaries’ internal control over financial reporting as of December 26, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Grand Rapids, Michigan
February 23, 2010

UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

		December 26,				December 27,
		2009				2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	82,219			$	13,337
Accounts receivable, net			107,383				138,043
Inventories:
Raw materials			89,956				109,942
Finished goods			72,192				83,554
			162,148				193,496
Assets held for sale							8,296
Other current assets			13,528				13,037
Refundable income taxes			10,391				6,283
Deferred income taxes			7,680				8,416
TOTAL CURRENT ASSETS			383,349				380,908
OTHER ASSETS			4,478				5,927
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS			157,058				159,263
OTHER INTANGIBLE ASSETS, NET			16,693				22,751
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements			96,559				88,958
Building and improvements			140,505				143,845
Machinery, equipment and office furniture			272,816				271,104
Construction in progress			894				1,270
			510,774				505,177
Less accumulated depreciation and amortization			(280,675	)			(258,007	)
PROPERTY, PLANT AND EQUIPMENT, NET			230,099				247,170
TOTAL ASSETS		$	791,677			$	816,019
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	64,473			$	63,184
Accrued liabilities:
Compensation and benefits			48,340				49,306
Other			21,698				22,620
Current portion of long-term debt and capital lease obligations			673				15,490
TOTAL CURRENT LIABILITIES			135,184				150,600
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			53,181				85,684
DEFERRED INCOME TAXES			21,707				17,056
OTHER LIABILITIES			12,659				14,453
TOTAL LIABILITIES			222,731				267,793
SHAREHOLDERS’ EQUITY:
Controlling interest 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, 19,284,587 and 19,088,880		$	19,285			$	19,089
Additional paid-in capital			132,765				128,830
Retained earnings			409,278				393,312
Accumulated other comprehensive earnings			3,633				2,353
			564,961				543,584
Employee stock notes receivable			(1,743	)			(1,701	)
			563,218				541,883
Noncontrolling interest			5,728				6,343
TOTAL SHAREHOLDERS’ EQUITY			568,946				548,226
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	791,677			$	816,019

See notes to consolidated financial statements.

UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share data)

		Year Ended
		December 26,				December 27,				December 29,
		2009				2008				2007
NET SALES		$	1,673,000			$	2,232,394			$	2,513,178
COST OF GOODS SOLD			1,430,249				1,978,193				2,204,149
GROSS PROFIT			242,751				254,201				309,029
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			200,026				228,557				247,373
NET (GAIN) LOSS ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES			(92	)			7,239				8,164
EARNINGS FROM OPERATIONS			42,817				18,405				53,492
INTEREST EXPENSE			4,611				12,088				17,033
INTEREST INCOME			(391	)			(829	)			(2,150	)
			4,220				11,259				14,883
EARNINGS BEFORE INCOME TAXES			38,597				7,146				38,609
INCOME TAXES			13,852				1,686				15,396
NET EARNINGS			24,745				5,460				23,213
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST			(473	)			(1,117	)			(2,168	)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST		$	24,272			$	4,343			$	21,045
EARNINGS PER SHARE — BASIC		$	1.26			$	0.23			$	1.10
EARNINGS PER SHARE — DILUTED		$	1.25			$	0.23			$	1.09
WEIGHTED AVERAGE SHARES OUTSTANDING			19,256				19,074				19,056
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON STOCK EQUIVALENTS			19,468				19,225				19,362

See notes to consolidated financial statements.

UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share and per share data)

		Controlling Interest Shareholders’ Equity
														Accumulated
						Additional								Other				Employees
		Common				Paid-In				Retained				Comprehensive				Stock Notes				Noncontrolling
		Stock				Capital				Earnings				Earnings				Receivable				Interest				Total
Balance at December 30, 2006		$	18,859			$	113,754			$	380,931			$	2,451			$	(1,253	)		$	10,819			$	525,561
Comprehensive earnings:
Net earnings											21,045												2,168
Foreign currency translation adjustment															2,253								45
Total comprehensive earnings																											25,511
Purchase of additional noncontrolling interest																							(859	)			(859	)
Distributions to noncontrolling interest																							(1,797	)			(1,797	)
Cash dividends — $0.115 per share											(2,185	)															(2,185	)
Issuance of 220,345 shares under employee stock plans			220				3,683																				3,903
Issuance of 3,961 shares under stock grant programs			4				170																				174
Issuance of 69,777 shares under deferred compensation plans			70				(70	)																			—
Repurchase of 239,400 shares			(239	)							(8,538	)															(8,777	)
Received 15,866 shares for the exercise of stock options			(16	)			(766	)																			(782	)
Tax benefits from non-qualified stock options exercised							1,867																				1,867
Expense associated with share-based compensation arrangements							505																				505
Accrued expense under deferred compensation plans							3,733																				3,733
Issuance of 10,132 shares in exchange for employee stock notes receivable			10				492												(502	)							—
Payments received on employee stock notes receivable																			190								190
Balance at December 29, 2007		$	18,908			$	123,368			$	391,253			$	4,704			$	(1,565	)		$	10,376			$	547,044
Comprehensive earnings:
Net earnings											4,343												1,117
Foreign currency translation adjustment															(2,351	)							(1,071	)
Total comprehensive earnings																											2,038
Capital contribution from noncontrolling interest																							419				419
Purchase of additional noncontrolling interest																							(844	)			(844	)
Distributions to noncontrolling interest																							(3,654	)			(3,654	)
Cash dividends — $0.120 per share											(2,284	)															(2,284	)
Issuance of 174,528 shares under employee stock plans			175				3,030																				3,205
Issuance of 3,706 shares under stock grant programs			4				100																				104
Issuance of 15,288 shares under deferred compensation plans			15				(15	)																			—
Received 19,857 shares for the exercise of stock options			(20	)			(622	)																			(642	)
Tax benefits from non-qualified stock options exercised							878																				878
Expense associated with share-based compensation arrangements							1,136																				1,136
Accrued expense under deferred compensation plans							725																				725
Issuance of 7,374 shares in exchange for employee stock notes receivable			7				230												(237	)							—
Payments received on employee stock notes receivable																			101								101
Balance at December 27, 2008		$	19,089			$	128,830			$	393,312			$	2,353			$	(1,701	)		$	6,343			$	548,226