UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY 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

UNIVERSAL FOREST PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

Michigan		38-1465835
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
2801 East Beltline NE, Grand Rapids, Michigan		49525
(Address of principal executive offices)		(Zip Code)

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

NONE

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ		Accelerated Filer o		Non-Accelerated Filer o		Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class		Outstanding as of September 26, 2009
Common stock, no par value		19,355,748

 

 

UNIVERSAL FOREST PRODUCTS, INC.

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at September 26, 2009, December 27, 2008 and September 27, 2008			3
Consolidated Condensed Statements of Earnings for the Three and Nine Months Ended September 26, 2009 and September 27, 2008			4
Consolidated Condensed Statements of Equity for the Nine Months Ended September 26, 2009 and September 27, 2008			5
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 26, 2009 and September 27, 2008			6-7
Notes to Consolidated Condensed Financial Statements			8-17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18-30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings — NONE
Item 1A. Risk Factors — NONE
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 3. Defaults Upon Senior Securities — NONE
Item 4. Submission of Matters to a Vote of Security Holders — NONE
Item 5. Other Information			32
Item 6. Exhibits			33
Exhibit 10(i)(4)
Exhibit 10(i)(5)
Exhibit 10(j)(2)
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)

UNIVERSAL FOREST PRODUCTS, INC.

(Unaudited)

		September 26,				December 27,				September 27,
(in thousands, except share data)		2009				2008				2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	79,976			$	13,337			$	31,459
Accounts receivable, net			162,875				138,043				230,106
Inventories:
Raw materials			80,326				109,942				112,150
Finished goods			61,774				83,554				85,693
			142,100				193,496				197,843
Assets held for sale			3,057				8,296				11,950
Refundable income taxes							6,283				11,884
Other current assets			23,242				21,453				34,363
TOTAL CURRENT ASSETS			411,250				380,908				517,605
OTHER ASSETS			3,439				5,927				7,587
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS			156,936				159,263				158,287
OTHER INTANGIBLE ASSETS, net			18,873				22,751				25,225
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment			508,691				505,177				505,296
Accumulated depreciation and amortization			(278,134	)			(258,007	)			(255,218	)
PROPERTY, PLANT AND EQUIPMENT, NET			230,557				247,170				250,078
TOTAL ASSETS		$	821,055			$	816,019			$	958,782
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	70,817			$	63,184			$	101,430
Accrued liabilities:
Compensation and benefits			54,585				49,306				53,631
Other			32,048				22,620				38,827
Current portion of long-term debt and capital lease obligations			3,064				15,490				445
TOTAL CURRENT LIABILITIES			160,514				150,600				194,333
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			53,168				85,684				166,713
DEFERRED INCOME TAXES			17,703				17,056				24,519
OTHER LIABILITIES			13,956				14,453				17,952
TOTAL LIABILITIES			245,341				267,793				403,517
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 19,355,748, 19,088,880 and 19,075,475		$	19,356			$	19,089			$	19,075
Additional paid-in capital			132,156				128,830				128,271
Retained earnings			416,853				393,312				395,250
Accumulated other comprehensive earnings			3,375				2,353				4,557
			571,740				543,584				547,153
Employee stock notes receivable			(1,780	)			(1,701	)			(1,763	)
			569,960				541,883				545,390
Noncontrolling interest			5,754				6,343				9,875
TOTAL EQUITY			575,714				548,226				555,265
TOTAL LIABILITIES AND EQUITY		$	821,055			$	816,019			$	958,782

See notes to unaudited consolidated condensed financial statements.

UNIVERSAL FOREST PRODUCTS, INC.

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 26,				September 27,				September 26,				September 27,
(in thousands, except per share data)		2009				2008				2009				2008
NET SALES		$	457,768			$	610,744			$	1,334,435			$	1,808,741
COST OF GOODS SOLD			388,505				546,094				1,135,866				1,604,393
GROSS PROFIT			69,263				64,650				198,569				204,348
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			51,198				58,046				156,310				178,302
NET (GAIN) LOSS ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES			606				5,339				(1,246	)			6,554
EARNINGS FROM OPERATIONS			17,459				1,265				43,505				19,492
INTEREST EXPENSE			900				2,705				3,403				9,589
INTEREST INCOME			(79	)			(211	)			(258	)			(763	)
			821				2,494				3,145				8,826
EARNINGS (LOSS) BEFORE INCOME TAXES			16,638				(1,229	)			40,360				10,666
INCOME TAXES			6,378				535				14,808				4,655
NET EARNINGS (LOSS)			10,260				(1,764	)			25,552				6,011
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST			(206	)			(187	)			(617	)			(875	)
NET EARNINGS (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST		$	10,054			$	(1,951	)		$	24,935			$	5,136
EARNINGS (LOSS) PER SHARE — BASIC		$	0.52			$	(0.10	)		$	1.30			$	0.27
EARNINGS (LOSS) PER SHARE — DILUTED		$	0.51			$	(0.10	)		$	1.28			$	0.27
WEIGHTED AVERAGE SHARES OUTSTANDING FOR BASIC EARNINGS (LOSS)			19,307				19,092				19,244				19,045
WEIGHTED AVERAGE SHARES OUTSTANDING FOR DILUTED EARNINGS (LOSS)			19,585				19,092				19,442				19,233

See notes to unaudited consolidated condensed financial statements.

UNIVERSAL FOREST PRODUCTS, INC.

(Unaudited)

		Controlling Interest Shareholders’ Equity
														Accumulated
														Other				Employees
						Additional Paid-In				Retained				Comprehensive				Stock Notes				Noncontrolling
(in thousands, except share and per share data)		Common Stock				Capital				Earnings				Earnings				Receivable				Interest				Total
Balance at December 29, 2007		$	18,908			$	123,368			$	391,253			$	4,704			$	(1,565	)		$	10,376			$	547,044
Comprehensive income:
Net earnings											5,136												875
Foreign currency translation adjustment															(147	)							10
Total comprehensive income																											5,874
Capital contribution from noncontrolling interest																							419				419
Purchase of additional noncontrolling interest																							(844	)			(844	)
Distributions to noncontrolling interest																							(961	)			(961	)
Cash dividends — $0.060 per share											(1,139	)															(1,139	)
Issuance of 161,104 shares under employee stock plans			161				2,830																				2,991
Issuance of 3,310 shares under stock grant programs			3				92																				95
Issuance of 13,242 shares under deferred compensation plans			13				(13	)																			—
Received 17,396 shares for the exercise of stock options			(17	)			(563	)																			(580	)
Tax benefits from non-qualified stock options exercised							841																				841
Expense associated with share-based compensation arrangements							875																				875
Accrued expense under deferred compensation plans							611																				611
Issuance of 7,374 shares in exchange for employee stock notes receivable			7				230												(237	)							—
Payments received on employee stock notes receivable																			39								39
Balance at September 27, 2008		$	19,075			$	128,271			$	395,250			$	4,557			$	(1,763	)		$	9,875			$	555,265
Balance at December 27, 2008		$	19,089			$	128,830			$	393,312			$	2,353			$	(1,701	)		$	6,343			$	548,226
Comprehensive income:
Net earnings											24,935												617
Foreign currency translation adjustment															1,022								(33	)
Total comprehensive income																											26,541
Capital contribution from noncontrolling interest																							14				14
Purchase of additional noncontrolling interest							(853	)															(917	)			(1,770	)
Distributions to noncontrolling interest																							(270	)			(270	)
Cash dividends — $0.060 per share											(1,158	)															(1,158	)
Issuance of 118,267 shares under employee stock plans			118				1,991																				2,109
Issuance of 79,084 shares under stock grant programs			79				24																				103
Issuance of 73,611 shares under deferred compensation plans			74				(74	)																			—
Repurchase of 6,213 shares			(6	)							(236	)															(242	)
Received 1,602 shares for the exercise of stock options			(2	)			(33	)																			(35	)
Tax benefits from non-qualified stock options exercised							705																				705
Deferred tax asset reversal for deferred compensation plans							(518	)																			(518	)
Expense associated with share-based compensation arrangements							1,417																				1,417
Accrued expense under deferred compensation plans							546																				546
Issuance of 3,721 shares in exchange for employees’ stock notes receivable			4				121												(125	)							—
Payments received on employee stock notes receivable																			46								46
Balance at September 26, 2009		$	19,356			$	132,156			$	416,853			$	3,375			$	(1,780	)		$	5,754			$	575,714

See notes to unaudited consolidated condensed financial statements.

UNIVERSAL FOREST PRODUCTS, INC.

(Unaudited)

		Nine Months Ended
		September 26,				September 27,
(in thousands)		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings attributable to controlling interest		$	24,935			$	5,136
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation			24,604				28,929
Amortization of intangibles			6,414				7,322
Expense associated with share-based compensation arrangements			1,417				875
Excess tax benefits from share-based compensation arrangements			(302	)			(162	)
Expense associated with stock grant plans			103				95
Deferred income taxes (credit)			151				(137	)
Net earnings attributable to noncontrolling interest			617				875
Net (gain) loss on sale or impairment of assets			(1,892	)			5,293
Changes in:
Accounts receivable			(24,342	)			(85,884	)
Inventories			51,488				40,985
Accounts payable			7,578				16,395
Accrued liabilities and other			21,160				13,592
NET CASH FROM OPERATING ACTIVITIES			111,931				33,314
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment			(9,497	)			(13,959	)
Acquisitions, net of cash received			—				(23,338	)
Proceeds from sale of property, plant and equipment			10,408				30,152
Advances on notes receivable			(14	)			(997	)
Collections of notes receivable			134				500
Insurance proceeds			1,023				—
Other, net			16				(52	)
NET CASH FROM INVESTING ACTIVITIES			2,070				(7,694	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under revolving credit facilities			(30,257	)			(36,657	)
Repayment of long-term debt			(16,830	)			(2,332	)
Borrowings of long-term debt			800				—
Proceeds from issuance of common stock			2,109				2,762
Purchase of additional noncontrolling interest			(1,770	)			—
Distributions to noncontrolling interest			(270	)			(961	)
Investment received from minority shareholder			14				419
Dividends paid to shareholders			(1,158	)			(1,139	)
Repurchase of common stock			(242	)			—
Excess tax benefits from share-based compensation arrangements			302				162
Other, net			(60	)			(20	)
NET CASH FROM FINANCING ACTIVITIES			(47,362	)			(37,766	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			66,639				(12,146	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			13,337				43,605
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	79,976			$	31,459
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest		$	3,074			$	7,572
Income taxes			5,964				805

UNIVERSAL FOREST PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS -
(CONTINUED)

		Nine Months Ended
		September 26,				September 27,
		2009				2008
NON-CASH FINANCING ACTIVITIES:
Stock acquired through employees’ stock notes receivable		$	125			$	237
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans		$	2,461			$	262
Stock received for the exercise of stock options, net			35				352

See notes to unaudited consolidated condensed financial statements.

UNIVERSAL FOREST PRODUCTS, INC.

NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

A.

BASIS OF PRESENTATION

The accompanying unaudited, interim, consolidated, condensed financial statements (the “Financial Statements”) include our accounts and those of our wholly-owned and majority-owned subsidiaries and partnerships, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the Financial Statements do not include all of the information and footnotes normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. All intercompany transactions and balances have been eliminated.

In our opinion, the Financial Statements contain all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. These Financial Statements should be read in conjunction with the annual consolidated financial statements, and footnotes thereto, included in our Annual Report to Shareholders on Form 10-K for the fiscal year ended December 27, 2008.

Effective at the beginning of the fiscal year ending December 26, 2009, we adopted Accounting Standards Codification (“ASC”) 810, Noncontrolling Interests in Consolidated Financial Statements (“ASC 810”). ASC 810 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. ASC 810 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. ASC 810 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The adoption of ASC 810 did not have a material impact on our consolidated financial statements.

Effective at the beginning of the fiscal year ending December 26, 2009, we adopted ASC 260, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (“ASC 260”). ASC 260 clarifies that unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities and also provides guidance on how to allocate earnings to participating securities and compute basic earnings per share using the two-class method. The adoption of ASC 260 impacts our Executive Stock Grant Plan and it had no impact on our earnings per share calculation.

Subsequent events have been evaluated through our filing date October 21, 2009.

UNIVERSAL FOREST PRODUCTS, INC.

B.

FAIR VALUE

Effective at the beginning of the fiscal year ended December 27, 2008, we adopted ASC 820, Fair Value Measurements (“ASC 820”). This new standard establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. ASC 820 also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings. The adoption has not had a material impact on our consolidated financial statements.

Effective at the beginning of the fiscal year ended December 26, 2009, we adopted the nonfinancial asset and liability provisions of ASC 820 that were previously deferred by the standard.

Assets and liabilities measured at fair value are as follows:

		September 26, 2009												September 27, 2008
						Quoted				Prices								Quoted				Prices
						Prices in				with Other								Prices in				with Other
						Active				Observable								Active				Observable
						Markets				Inputs								Markets				Inputs
(in thousands)		Total				(Level 1)				(Level 2)				Total				(Level 1)				(Level 2)
Assets:
Trading marketable securities		$	813			$	813							$	4,544			$	4,544
Assets held for sale															410							$	410
Property, plant and equipment			1,350							$	1,350				1,205								1,205
		$	2,163			$	813			$	1,350			$	6,159			$	4,544			$	1,615

Effective at the beginning of the fiscal year ended December 27, 2008, we adopted ASC 825, The Fair Value Option for Financial Assets and Financial Liabilities (“ASC 825”). ASC 825 allows companies to choose to measure certain financial instruments and certain other items at fair value. The statement requires that unrealized gains and losses are reported in earnings for items measured using the fair value option and establishes presentation and disclosure requirements. We have elected not to apply the fair value option to any of our financial instruments except for those expressly required by U.S. GAAP.

UNIVERSAL FOREST PRODUCTS, INC.

C.

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.

The following table presents the balances of percentage-of-completion accounts which are included in “Other current assets” and “Accrued liabilities: Other”, respectively (in thousands):

		September 26,				December 27,				September 27,
		2009				2008				2008
Cost and Earnings in Excess of Billings		$	11,117			$	7,934			$	20,755
Billings in Excess of Cost and Earnings			7,027				5,882				13,752

D.

EARNINGS PER SHARE

A reconciliation of the changes in the numerator and the denominator from the calculation of basic EPS to the calculation of diluted EPS follows (in thousands, except per share data):

		Three Months Ended September 26, 2009												Three Months Ended September 27, 2008
		Income				Shares				Per Share				Loss				Shares				Per Share
		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Net Earnings (Loss) Attributable to Controlling Interest		$	10,054											$	(1,951	)
EPS — Basic
Income available to common stockholders			10,054				19,307			$	0.52				(1,951	)			19,092			$	(0.10	)
Effect of dilutive securities
Options							278												—
EPS — Diluted
Income available to common stockholders and assumed options exercised		$	10,054				19,585			$	0.51			$	(1,951	)			19,092			$	(0.10	)

UNIVERSAL FOREST PRODUCTS, INC.

		Nine Months Ended September 26, 2009												Nine Months Ended September 27, 2008
		Income				Shares				Per Share				Income				Shares				Per Share
		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Net Earnings Attributable to Controlling Interest		$	24,935											$	5,136
EPS — Basic
Income available to common stockholders			24,935				19,244			$	1.30				5,136				19,045			$	0.27
Effect of dilutive securities
Options							198												188
EPS — Diluted
Income available to common stockholders and assumed options exercised		$	24,935				19,442			$	1.28			$	5,136				19,233			$	0.27

No outstanding options were excluded from the computation of diluted EPS for the quarter ended September 26, 2009.

Options to purchase 10,000 shares of common stock were not included in the computation of diluted EPS for the nine months ended September 26, 2009 because the options’ exercise price was greater than the average market price of the common stock during the period and, therefore would be antidilutive.

Options to purchase shares and certain other shares of common stock were not included in the computation of diluted EPS because they were antidilutive given the net loss for the quarter ended September 27, 2008.

Options to purchase 30,000 shares of common stock were not included in the computation of diluted EPS for the nine months ended September 27, 2008 because the options’ exercise price was greater than the average market price of the common stock during the period and, therefore would be antidilutive.

UNIVERSAL FOREST PRODUCTS, INC.

E.

SALE OF ACCOUNTS RECEIVABLE

On March 8, 2006 we entered into an accounts receivable sale arrangement with a bank that was terminated on September 26, 2008. Under the terms of this arrangement:

•

We sold specific receivables to the bank at an agreed-upon price at terms ranging from one month to one year.

•

We serviced the receivables sold and outstanding on behalf of the bank at a rate of 0.50% per annum.

•

We received an incentive servicing fee, which we account for as a retained interest in the receivables sold. Our retained interest is determined based on the fair market value of anticipated collections in excess of the Agreed Base Value of the receivables sold. Appropriate valuation allowances are recorded against the retained interest.

•

The maximum amount of receivables, net of retained interest, which may be sold and outstanding at any point in time under this arrangement was $50 million.

No receivables were outstanding as of September 26, 2009 and September 27, 2008. A summary of the transactions we completed for the first nine months of 2008 are presented below (in thousands).

		Nine Months Ended
		September 27, 2008
Accounts receivable sold		$	369,242
Retained interest in receivables			(2,432	)
Expense from sale			(882	)
Servicing fee received			118
Net cash received from sale		$	366,046

F.

ASSETS HELD FOR SALE AND NET (GAIN) LOSS ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENTS AND EXIT CHARGES

Included in “Assets held for sale” on our Consolidated Condensed Balance Sheets are certain property, plant and equipment totaling $3.1 million on September 26, 2009 and $11.9 million on September 27, 2008. The assets held for sale consist of certain vacant land and several facilities we closed to better align manufacturing capacity with the current business environment. The fair values were determined based on appraisals or recent offers to acquire the assets. These and other idle assets were evaluated based on the requirements of ASC 360, which resulted in certain impairment and other exit charges. “Net (gain) loss on disposition of assets and other impairment and exit charges” consists of the following amounts, separated by reporting segment, for the periods presented below (in millions):

		Three Months Ended September 26, 2009								Three Months Ended September 27, 2008
		Eastern and								Eastern and
		Western				All				Western				All
		Divisions				Other				Divisions				Other
Severances										$	0.5
Property, plant and equipment		$	0.6								1.9			$	0.6
Gain on sale of real estate											(0.4	)
Notes receivable											1.6
Lease termination											0.5
Other intangibles											0.6

UNIVERSAL FOREST PRODUCTS, INC.

		Nine Months Ended September 26, 2009								Nine Months Ended September 27, 2008
		Eastern and								Eastern and
		Western				All				Western				All
		Divisions				Other				Divisions				Other
Severances		$	0.6							$	1.2
Property, plant and equipment			1.7								2.4			$	0.7
Gain on sale of real estate			(3.5	)							(0.4	)
Notes receivable											1.6
Lease termination											0.5
Other intangibles											0.6

The changes in assets held for sale in 2009 are as follows (in thousands):

Net Book

Net Sale

Description

Value

Date of Sale

Price

Assets held for sale as of December 27, 2008

$

8,296

Additions

1,030

Sale of certain real estate in Woodburn, Oregon

(2,806

)

February 6, 2009

$5.2 million

Sale of certain real estate in Dallas, Texas

(2,433

)

May 13, 2009

$3.4 million

Sale of certain real estate in Murrieta, California

(1,030

)

June 10, 2009

$0.9 million

Assets held for sale as of September 26, 2009

$

3,057

G.

COMMITMENTS, CONTINGENCIES, AND GUARANTEES

We are self-insured for environmental impairment liability, including certain liabilities which are insured through a wholly owned subsidiary, UFP Insurance Ltd., a licensed captive insurance company.

We own and operate a number of facilities throughout the United States that chemically treat lumber products. In connection with the ownership and operation of these and other real properties, and the disposal or treatment of hazardous or toxic substances, we may, under various federal, state, and local environmental laws, ordinances, and regulations, be potentially liable for removal and remediation costs, as well as other potential costs, damages, and expenses. Environmental reserves, calculated with no discount rate, have been established to cover remediation activities at our affiliates’ wood preservation facilities in Stockertown, PA; Elizabeth City, NC; Auburndale, FL; Gordon, PA; Janesville, WI; Medley, FL; and Ponce, PR. In addition, a reserve was established for our affiliate’s facility in Thornton, CA to remove certain lead containing materials which existed on the property at the time of purchase. During the second quarter, a subsidiary entered into a consent order with the State of Florida to conduct additional testing at the Auburndale, FL facility. We admitted no liability and the costs are not expected to be material.

UNIVERSAL FOREST PRODUCTS, INC.

On a consolidated basis, we have reserved approximately $4.4 million on September 26, 2009 and $4.4 million on September 27, 2008, representing the estimated costs to complete future remediation efforts. These amounts have not been reduced by an insurance receivable.

From time to time, various special interest environmental groups have petitioned certain states requesting restrictions on the use or disposal of CCA treated products. The wood preservation industry trade groups are working with the individual states and their regulatory agencies to provide an accurate, factual background which demonstrates that the present method of uses and disposal is scientifically supported. We market a modest amount of CCA treated products for permitted, non-residential applications.

We have not accrued for any potential loss related to the contingencies above. However, potential liabilities of this nature are not conducive to precise estimates and are subject to change.

In addition, on September 26, 2009, we were parties either as plaintiff or a defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims.

On September 26, 2009, we had outstanding purchase commitments on capital projects of approximately $1.6 million.

We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material.

In certain cases we supply building materials and labor to site-built construction projects or we jointly bid on contracts with framing companies for such projects. In some instances we are required to post payment and performance bonds to insure the owner that the products and installation services are completed in accordance with our contractual obligations. We have agreed to indemnify the surety for claims made against the bonds. As of September 26, 2009, we had approximately $20.7 million in outstanding payment and performance bonds for projects in progress, which expire during the next two years. In addition, approximately $28.5 million in payment and performance bonds are outstanding for completed projects which are still under warranty.

We have entered into operating leases for certain personal property assets that include a guarantee of a portion of the residual value of the leased assets. If at the expiration of the initial lease term we do not exercise our option to purchase the leased assets and these assets are sold by the lessor for a price below a predetermined amount, we will reimburse the lessor for a certain portion of the shortfall. These operating leases will expire periodically over the next five years. The estimated maximum aggregate exposure of these guarantees is approximately $1.6 million.

UNIVERSAL FOREST PRODUCTS, INC.

On September 26, 2009, we had outstanding letters of credit totaling $34.7 million, primarily related to certain insurance contracts and industrial development revenue bonds as further described below.

In lieu of cash deposits, we provide irrevocable letters of credit in favor of our insurers to guarantee our performance under certain insurance contracts. We currently have irrevocable letters of credit outstanding totaling approximately $19.9 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements.

We are required to provide irrevocable letters of credit in favor of the bond trustees for all of the industrial development revenue bonds that we have issued. These letters of credit guarantee principal and interest payments to the bondholders. We currently have irrevocable letters of credit outstanding totaling approximately $14.8 million related to our outstanding industrial development revenue bonds. These letters of credit have varying terms but may be renewed at the option of the issuing banks.

Certain wholly owned domestic subsidiaries have guaranteed the indebtedness of Universal Forest Products, Inc. in certain debt agreements, including the Series 2002-A Senior Notes and our revolving credit facility. The maximum exposure of these guarantees is limited to the indebtedness outstanding under these debt arrangements and this exposure will expire concurrent with the expiration of the debt agreements.

Many of our wood treating operations utilize “Subpart W” drip pads, defined as hazardous waste management units by the EPA. The rules regulating drip pads require that the pad be “closed” at the point that it is no longer intended to be used for wood treating operations or to manage hazardous waste. Closure involves identification and disposal of contaminants which are required to be removed from the facility. The cost of closure is dependent upon a number of factors including, but not limited to, identification and removal of contaminants, cleanup standards that vary from state to state, and the time period over which the cleanup would be completed. Based on our present knowledge of existing circumstances, it is considered probable that these costs will approximate $0.3 million. As a result, this amount is recorded in other long-term liabilities on September 26, 2009.

We did not enter into any new guarantee arrangements during the third quarter of 2009 which would require us to recognize a liability on our balance sheet.

UNIVERSAL FOREST PRODUCTS, INC.

H.

BUSINESS COMBINATIONS

No business combinations were completed in fiscal 2009. We completed the following business combinations in fiscal 2008 which were accounted for using the purchase method (in millions).

Net

Company

Acquisition

Purchase

Intangible

Tangible

Reportable

Name

Date

Price

Assets

Assets

Segment

Business Description

D-Stake Mill and Manufacturing Country (“D-Stake”)

June 9, 2008

$7.1 (asset purchase)

$

5.1

$

2.0

Western Division

Manufactures kiln stickers, lath, stakes, decking, and pallets and pallet components for a variety of industries including manufacturing, retail and agriculture. Plants are located in McMinnville, OR and Independence, OR. Combined 2007 sales were $18.5 million. Purchased 100% of the inventory, property, plant and equipment, and intangibles.

Shawnlee Construction, LLC (“Shawnlee”)

April 1, 2008

$1.8 (asset purchase)

$

1.0

$

0.8

Eastern Division

Provides framing services for multi-family construction in the northeast. Located in Plainville, MA. As of April 1, 2008 we owned a 90% membership interest and have purchased and additional 5% interest each year.

Romano Construction Company, Ltd. (“Romano”)

March 15, 2008

$0.4 (asset purchase)

$

0.2

$

0.2

Eastern Division

Provides framing services and is located in Middletown, NY. Purchased 100% of the property, plant and equipment and intangibles.

International Wood Industries, Inc. (“IWI”)

February 4, 2008

$14.0 (stock purchase)

$

10.6

$

3.4

Western Division

Manufactures and distributes industrial products, including specialty boxes, crates, pallets and skids. Headquartered in Turlock, CA with distribution sites in Hawaii and Alaska. 2007 sales were $40.0 million. Purchased 100% voting interest.

The amounts assigned to major intangible classes for business combinations mentioned above are as follows (in millions):

														Goodwill -
		Non-compete				Customer				Goodwill -				Tax
		agreements				Relationships				Total				Deductible
D-Stake		$	2.6							$	2.5			$	2.5
Shawnlee			0.3			$	0.4				0.3				0.3

UNIVERSAL FOREST PRODUCTS, INC.

The purchase price allocation for IWI was finalized during the first quarter of fiscal 2009 as follows (in millions).

														Goodwill -
		Non-compete				Customer				Goodwill -				Tax
		agreements				Relationships				Total				Deductible
IWI — preliminary			5.4								5.2
Final purchase price allocations			(3.0	)			5.6				(2.6	)
IWI — final			2.4				5.6				2.6				0.0

The business combinations mentioned above were not significant to our operating results individually or in aggregate, and thus pro forma results are not presented.

I.

SEGMENT REPORTING

ASC 280, Disclosures about Segments of an Enterprise and Related Information (“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. Based on this criteria, we have aggregated our Eastern and Western Divisions into one reporting segment. Our Consumer Products Division is included in the “All Other” column in the table below. Our divisions operate manufacturing and treating facilities throughout North America. A summary of results for the first nine months of 2009 and 2008 are presented below (in thousands).

		Nine Months Ended September 26, 2009												Nine Months Ended September 27, 2008
		Eastern and												Eastern and
		Western				All								Western				All
		Divisions				Other				Total				Divisions				Other				Total
Net sales to outside customers		$	1,242,119			$	92,316			$	1,334,435			$	1,740,037			$	68,704			$	1,808,741
Intersegment net sales			0				29,239				29,239				0				24,510				24,510
Segment operating profit			36,845				6,660				43,505				17,980				1,512				19,492

J.

SUBSEQUENT EVENT

On October 19, we announced a semi-annual dividend of $0.20 per share, payable December 15, 2009 to the shareholders of record on December 1, 2009. The dividend was approved by our Board of Directors at their October 15, 2009 meeting.

UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Included in this report are certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are based on the beliefs and assumptions of management, together with information available to us when the statements were made. Future results could differ materially from those included in such forward-looking statements as a result of, among other things, the factors set forth below and certain economic and business factors which may be beyond our control. Investors are cautioned that all forward-looking statements involve risks and uncertainty. 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 the third quarter of 2009 were impacted by the following:

•

Our overall unit sales decreased 18% due to weak demand in each of our markets. We believe we have gained additional share of the DIY/retail and industrial markets and maintained our share of the manufactured housing and site-built markets.

•

National housing starts decreased approximately 36% in June through August of 2009, compared to the same periods of 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 has 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 have declined by approximately 10%.

•

Shipments of HUD code manufactured homes were down 37% in July of 2009, compared to the same period of 2008. Industry sales of modular homes have also continued to decline. Weak market conditions are due, in part, to an excess supply of site-built homes and foreclosures and tight credit conditions.

•

The industrial market has 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.

•

Our gross margin increased to 15.1% from 10.6% in 2008 due to the implementation of various cost reduction initiatives and the lower level of the Lumber Market.

UNIVERSAL FOREST PRODUCTS, INC.

•

Our SG&A expenses are down approximately $6.8 million, or 12%, from the third quarter of 2008, due to our right-sizing efforts and plant consolidation actions we took last year, offset somewhat by an increase in incentive compensation expense.

•

Our net interest costs decreased by $1.7 million, or 67%, as our interest-bearing debt declined from $167 million at the end of September of 2008 to $56 million at the end of September of 2009.

•

We are pleased to report operating and investing cash flows totaling almost $114 million for the first nine months of 2009 due to improved profitability, effective working capital management, and reduced working capital requirements due to weak demand.

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 $215/MBF in 2009; a 45% decline from when we first set our goals, which has adversely impacted our sales.

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.

•

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%.

HISTORICAL LUMBER PRICES

The following table presents the Random Lengths framing lumber composite price is presented below:

		Random Lengths Composite
		Average $/MBF
		2009				2008
January		$	198			$	249
February			199				244
March			195				240
April			208				255
May			198				281
June			222				268
July			238				267
August			239				282
September			236				272
Third quarter average		$	238			$	274
Year-to-date average		$	215			$	262
Third quarter percentage change from 2008			(13.1	%)
Year-to-date percentage change from 2008			(17.9	%)

UNIVERSAL FOREST PRODUCTS, INC.

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

		Random Lengths SYP
		Average $/MBF
		2009				2008
January		$	241			$	269
February			233				264
March			232				264
April			241				272
May			231				324
June			236				318
July			253				303
August			241				304
September			244				309
Third quarter average		$	246			$	305
Year-to-date average		$	239			$	292
Third quarter percentage change from 2008			(19.3	%)
Year-to-date percentage change from 2008			(18.2	%)

UNIVERSAL FOREST PRODUCTS, INC.

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

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.
•		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 12% 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.