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

For the quarterly period ended June 27, 2009

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 June 27, 2009
Common stock, no par value		19,308,699

 

 

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at June 27, 2009, December 27, 2008 and June 28, 2008			3
Consolidated Condensed Statements of Earnings for the Three and Six Months Ended June 27, 2009 and June 28, 2008			4
Consolidated Statements of Equity for the Six Months Ended June 27, 2009 and June 28, 2008			5
Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 27, 2009 and June 28, 2008			6-7
Notes to Consolidated Condensed Financial Statements			8-18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19-31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			32
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			33
Item 3. Defaults Upon Senior Securities — NONE
Item 4. Submission of Matters to a Vote of Security Holders			34
Item 5. Other Information			34
Item 6. Exhibits			35
Exhibit 10(a)(9)
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)

UNIVERSAL FOREST PRODUCTS, INC.

(Unaudited)

		June 27,				December 27,				June 28,
(in thousands, except share data)		2009				2008				2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	32,633			$	13,337			$	32,483
Accounts receivable, net			197,901				138,043				227,963
Inventories:
Raw materials			95,288				109,942				122,262
Finished goods			70,202				83,554				100,675
			165,490				193,496				222,937
Assets held for sale			3,057				8,296				10,334
Refundable income taxes							6,283				489
Other current assets			19,728				21,453				34,339
TOTAL CURRENT ASSETS			418,809				380,908				528,545
OTHER ASSETS			3,456				5,927				7,657
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS			156,936				159,263				158,287
OTHER INTANGIBLE ASSETS, net			20,767				22,751				28,377
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment			506,519				505,177				514,347
Accumulated depreciation and amortization			(271,010	)			(258,007	)			(250,712	)
PROPERTY, PLANT AND EQUIPMENT, NET			235,509				247,170				263,635
TOTAL ASSETS		$	835,477			$	816,019			$	986,501
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	98,805			$	63,184			$	122,345
Accrued liabilities:
Compensation and benefits			50,580				49,306				53,327
Other			34,879				22,620				35,766
Current portion of long-term debt and capital lease obligations			396				15,490				945
TOTAL CURRENT LIABILITIES			184,660				150,600				212,383
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion			55,108				85,684				177,063
DEFERRED INCOME TAXES			17,746				17,056				24,491
OTHER LIABILITIES			14,766				14,453				17,746
TOTAL LIABILITIES			272,280				267,793				431,683
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, 19,308,699, 19,088,880 and 18,989,644		$	19,309			$	19,089			$	18,990
Additional paid-in capital			130,405				128,830				125,225
Retained earnings			407,035				393,312				397,201
Accumulated other comprehensive earnings			2,615				2,353				4,653
			559,364				543,584				546,069
Employee stock notes receivable			(1,797	)			(1,701	)			(1,775	)
			557,567				541,883				544,294
Noncontrolling interest			5,630				6,343				10,524
TOTAL EQUITY			563,197				548,226				554,818
TOTAL LIABILITIES AND EQUITY		$	835,477			$	816,019			$	986,501

See notes to unaudited consolidated condensed financial statements.

UNIVERSAL FOREST PRODUCTS, INC.

(Unaudited)

		Three Months Ended								Six Months Ended
		June 27,				June 28,				June 27,				June 28,
(in thousands, except per share data)		2009				2008				2009				2008
NET SALES		$	514,945			$	708,485			$	876,667			$	1,197,997
COST OF GOODS SOLD			432,460				623,607				747,361				1,058,299
GROSS PROFIT			82,485				84,878				129,306				139,698
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			56,020				61,712				105,112				120,256
NET (GAIN) LOSS ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES			(716	)			408				(1,852	)			1,215
EARNINGS FROM OPERATIONS			27,181				22,758				26,046				18,227
INTEREST EXPENSE			1,429				3,290				2,503				6,884
INTEREST INCOME			(96	)			(179	)			(179	)			(552	)
			1,333				3,111				2,324				6,332
EARNINGS BEFORE INCOME TAXES			25,848				19,647				23,722				11,895
INCOME TAXES			9,393				7,470				8,430				4,120
NET EARNINGS			16,455				12,177				15,292				7,775
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST			(367	)			(514	)			(411	)			(688	)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST		$	16,088			$	11,663			$	14,881			$	7,087
EARNINGS PER SHARE — BASIC		$	0.84			$	0.61			$	0.77			$	0.37
EARNINGS PER SHARE — DILUTED		$	0.83			$	0.61			$	0.77			$	0.37
WEIGHTED AVERAGE SHARES OUTSTANDING			19,241				19,048				19,213				19,022
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON STOCK EQUIVALENTS			19,459				19,267				19,370				19,224

See notes to unaudited consolidated condensed financial statements.

UNIVERSAL FOREST PRODUCTS, INC.

(Unaudited)

		Controlling Interest Shareholders’ Equity
														Accumulated
														Other				Employees
						Additional Paid-				Retained				Comprehensive				Stock Notes				Noncontrolling
(in thousands, except share and per share data)		Common Stock				In 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											7,087												688
Foreign currency translation adjustment															(51	)							263
Total comprehensive income																											7,987
Capital contribution from noncontrolling interest																							419				419
Purchase of additional noncontrolling interest																							(844	)			(844	)
Distributions to noncontrolling interest																							(378	)			(378	)
Cash dividends — $0.060 per share											(1,139	)															(1,139	)
Issuance of 77,325 shares under employee stock plans			77				956																				1,033
Issuance of 2,965 shares under stock grant programs			3				82																				85
Issuance of 11,525 shares under deferred compensation plans			12				(12	)																			—
Received 17,396 shares for the exercise of stock options			(17	)			(563	)																			(580	)
Tax benefits from non-qualified stock options exercised							106																				106
Expense associated with share-based compensation arrangements							564																				564
Accrued expense under deferred compensation plans							494																				494
Issuance of 7,374 shares in exchange for employee stock notes receivable			7				230												(237	)							—
Payments received on employee stock notes receivable																			27								27
Balance at June 28, 2008		$	18,990			$	125,225			$	397,201			$	4,653			$	(1,775	)		$	10,524			$	554,818
Balance at December 27, 2008		$	19,089			$	128,830			$	393,312			$	2,353			$	(1,701	)		$	6,343			$	548,226
Comprehensive income:
Net earnings											14,881												411
Foreign currency translation adjustment															262								(37	)
Total comprehensive income																											15,517
Purchase of additional noncontrolling interest							(853	)															(917	)			(1,770	)
Distributions to noncontrolling interest																							(170	)			(170	)
Cash dividends — $0.060 per share											(1,158	)															(1,158	)
Issuance of 65,933 shares under employee stock plans			66				1,111																				1,177
Issuance of 78,706 shares under stock grant programs			79				10																				89
Issuance of 72,989 shares under deferred compensation plans			73				(73	)																			—
Received 1,530 shares for the exercise of stock options			(2	)			(30	)																			(32	)
Tax benefits from non-qualified stock options exercised							276																				276
Change in deferred tax asset							(518	)																			(518	)
Expense associated with share-based compensation arrangements							1,089																				1,089
Accrued expense under deferred compensation plans							442																				442
Issuance of 3,721 shares in exchange for employees’ stock notes receivable			4				121												(125	)							—
Payments received on employee stock notes receivable																			29								29
Balance at June 27, 2009		$	19,309			$	130,405			$	407,035			$	2,615			$	(1,797	)		$	5,630			$	563,197

See notes to unaudited consolidated condensed financial statements.

UNIVERSAL FOREST PRODUCTS, INC.

(Unaudited)

		Six Months Ended
		June 27,				June 28,
(in thousands)		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings attributable to controlling interest		$	14,881			$	7,087
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation			16,510				19,331
Amortization of intangibles			4,520				4,778
Expense associated with share-based compensation arrangements			1,089				564
Excess tax benefits from share-based compensation arrangements			(211	)			(42	)
Expense associated with stock grant plans			89				85
Deferred income taxes			195				(212	)
Net earnings attributable to noncontrolling interest			411				688
Net (gain) loss on sale or impairment of property, plant and equipment			(2,457	)			573
Changes in:
Accounts receivable			(59,701	)			(83,169	)
Inventories			27,980				16,043
Accounts payable			35,576				37,659
Accrued liabilities and other			23,798				22,170
NET CASH FROM OPERATING ACTIVITIES			62,680				25,555
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment			(7,279	)			(10,469	)
Acquisitions, net of cash received			—				(23,338	)
Proceeds from sale of property, plant and equipment			10,241				26,827
Advances on notes receivable			(14	)			(997	)
Collections of notes receivable			68				448
Insurance proceeds			1,023				—
Other, net			11				(97	)
NET CASH FROM INVESTING ACTIVITIES			4,050				(7,626	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under revolving credit facilities			(30,257	)			(28,295	)
Repayment of long-term debt			(16,213	)			(492	)
Borrowings of long-term debt			800				—
Proceeds from issuance of common stock			1,177				805
Additional 5% purchase of Shawnlee			(1,770	)			—
Distributions to noncontrolling interest			(170	)			(378	)
Investment received from minority shareholder			—				419
Dividends paid to shareholders			(1,158	)			(1,139	)
Excess tax benefits from share-based compensation arrangements			211				42
Other, net			(54	)			(13	)
NET CASH FROM FINANCING ACTIVITIES			(47,434	)			(29,051	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			19,296				(11,122	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			13,337				43,605
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	32,633			$	32,483

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

		Six Months Ended
		June 27,				June 28,
(in thousands)			2009				2008
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest		$	2,790			$	6,977
Income taxes			(6,050	)			(10,330	)
NON-CASH FINANCING ACTIVITIES:
Stock acquired through employees’ stock notes receivable		$	125			$	237
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans		$	2,392			$	331
Stock received for the exercise of stock options, net			32				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 SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”). SFAS 160 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. SFAS 160 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. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The adoption of SFAS 160 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 FASB Staff Postion No. EITF 03-06-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (“FSP EITF 03-06-01”). FSP EITF 03-06-01 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.

UNIVERSAL FOREST PRODUCTS, INC.

The adoption of FSP EITF 03-06-01 impacts our Executive Stock Grant Plan and its related effect on our earnings per share calculation was not significant.

Subsequent events have been evaluated through our filing date.

B.

FAIR VALUE

Effective at the beginning of the fiscal year ended December 27, 2008, we adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”). This new standard establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS 157 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. SFAS 157 requires fair value measurements be classified and disclosed in one of three categories.

Effective at the beginning of the fiscal year ended December 26, 2009, we adopted the nonfinancial asset and liability provisions of SFAS 157 as previously deferred by FSP No. 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”).

Assets and liabilities measured at fair value are as follows:

		June 27, 2009												June 28, 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		$	749			$	749							$	4,562			$	4,562
Assets held for sale															410							$	410
Property, plant and equipment			1,204							$	1,204				1,140								1,140
		$	1,953			$	749			$	1,204			$	6,112			$	4,562			$	1,550

Effective at the beginning of the fiscal year ended December 27, 2008, we adopted SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 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):

		June 27, 2009				December 27, 2008				June 28, 2008
Cost and Earnings in Excess of Billings		$	7,086			$	7,934			$	15,155
Billings in Excess of Cost and Earnings			7,728				5,882				13,124

UNIVERSAL FOREST PRODUCTS, INC.

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 June 27, 2009												Three Months Ended June 28, 2008
										Per												Per
		Income				Shares				Share				Income				Shares				Share
		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Net Earnings Attributable to Controlling Interest		$	16,088											$	11,663
EPS — Basic
Income available to common stockholders			16,088				19,241			$	0.84				11,663				19,048			$	0.61
Effect of dilutive securities
Options							218												219
EPS — Diluted
Income available to common stockholders and assumed options exercised		$	16,088				19,459			$	0.83			$	11,663				19,267			$	0.61

		Six Months Ended June 27, 2009												Six Months Ended June 28, 2008
										Per												Per
		Income				Shares				Share				Income				Shares				Share
		(Numerator)				(Denominator)				Amount				(Numerator)				(Denominator)				Amount
Net Earnings Attributable to Controlling Interest		$	14,881											$	7,087
EPS — Basic
Income available to common stockholders			14,881				19,213			$	0.77				7,087				19,022			$	0.37
Effect of dilutive securities
Options							157												202
EPS — Diluted
Income available to common stockholders and assumed options exercised		$	14,881				19,370			$	0.77			$	7,087				19,224			$	0.37

UNIVERSAL FOREST PRODUCTS, INC.

Options to purchase 10,000 shares of common stock were not included in the computation of diluted EPS for the quarter ended June 27, 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 120,000 shares of common stock were not included in the computation of diluted EPS for the six months ended June 27, 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 10,000 shares of common stock were not included in the computation of diluted EPS for the quarter and six months ended June 28, 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.

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 June 27, 2009. On June 28, 2008, $54.1 million of receivables were sold and outstanding, and we recorded $4.1 million of retained interest in “Other current assets”. A summary of the transactions we completed for the first six months of 2008 are presented below (in thousands).

		Six Months Ended
		June 28, 2008
Accounts receivable sold		$	295,800
Retained interest in receivables			(2,432	)
Expense from sale			(818	)
Servicing fee received			111
Net cash received from sale		$	292,661

UNIVERSAL FOREST PRODUCTS, INC.

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 June 27, 2009 and $10.3 million on June 28, 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 SFAS 144, 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 thousands):

Three Months Ended June 27, 2009

Three Months Ended June 28, 2008

Eastern and

Eastern and

Western

All

Western

All

Divisions

Other

Divisions

Other

Severances

$

142

$

97

Property, plant and equipment

273

311

Gain on sale of real estate

(1,131

)

		Six Months Ended June 27, 2009								Six Months Ended June 28, 2008
		Eastern and								Eastern and
		Western				All				Western				All
		Divisions				Other				Divisions				Other
Severances		$	605							$	685
Property, plant and equipment			1,063								573
Gain on sale of real estate			(3,520	)							(43	)

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 June 27, 2009

$

3,057

UNIVERSAL FOREST PRODUCTS, INC.

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.

On a consolidated basis, we have reserved approximately $4.3 million on June 27, 2009 and $4.4 million on June 28, 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 June 27, 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 June 27, 2009, we had outstanding purchase commitments on capital projects of approximately $1.2 million.

UNIVERSAL FOREST PRODUCTS, INC.

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 June 27, 2009, we had approximately $16.7 million in outstanding payment and performance bonds, which expire during the next two years. In addition, approximately $24.4 million in payment and performance bonds are outstanding for completed projects which are still under warranty.

We have entered into operating leases for certain 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 $2.0 million.

On June 27, 2009, we had outstanding letters of credit totaling $32.2 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 $17.4 million for these types of insurance arrangements. We have reserves recorded on our balance sheet, in accrued liabilities, that reflect our expected future liabilities under these insurance arrangements.

We are required to provide irrevocable letters of credit in favor of the bond trustees for all of the industrial development revenue bonds that we have issued. 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.

UNIVERSAL FOREST PRODUCTS, INC.

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 $0.4 million. As a result, this amount is recorded in other long-term liabilities on June 27, 2009.

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

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

UNIVERSAL FOREST PRODUCTS, INC.

The purchase price allocation for D-Stake is final and any adjustments will be recognized in the income statement. 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

The purchase price allocation for IWI was finalized during the first quarter 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

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”) defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

UNIVERSAL FOREST PRODUCTS, INC.

Under the definition of a segment, our Eastern, Western and Consumer Products Divisions may be considered an operating segment of our business. Under SFAS 131, segments may be aggregated if the segments have similar economic characteristics and if the nature of the products, distribution methods, customers and regulatory environments are similar. 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 six months of 2009 and 2008 are presented below (in thousands).

		Six Months Ended June 27, 2009												Six Months Ended June 28, 2008
		Eastern												Eastern
		and												and
		Western												Western
		Divisions				All Other				Total				Divisions				All Other				Total
Net sales to outside customers		$	812,108			$	64,559			$	876,667			$	1,152,132			$	45,865			$	1,197,997
Intersegment net sales			0				20,950				20,950				0				16,015				16,015
Segment operating profit			21,432				4,614				26,046				16,238				1,989				18,227

UNIVERSAL FOREST PRODUCTS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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 second quarter of 2009 were impacted by the following:

•

We experienced sales decreases in all of our markets; nonetheless, we believe we have gained additional share in each of the markets we serve, except manufactured housing. We have been able to maintain our significant share of the manufactured housing market.

•

Our overall unit sales decreased 19%, as sales out of existing facilities and operations we closed decreased by 20% this quarter and we experienced a 1% increase in unit sales as a result of acquisitions.

•

Single-family housing starts decreased approximately 43% in April and May 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. In addition multi-family and commercial construction has decreased approximately 65% and 34%, respectively, in April and May 2009 compared to the same periods of 2008.

•

Consumer spending for large repair/remodel projects has decreased due to general economic conditions, among other factors. The Consumer Confidence Index has fallen from 51 in June of 2008 to 49 in June of 2009, and the same store sales of “big box” home improvement retailers have declined by low double-digit rates.

•

Shipments of HUD code manufactured homes were down 46% in April and 45% in May of 2009, compared to the same periods 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 tight credit conditions.

UNIVERSAL FOREST PRODUCTS, INC.

•

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 acquisitions and adding new concrete forming business.

•

Our gross margin increased to 16.0% from 12.0% in 2008 primarily due to:

	•		An improvement in material costs as a percentage of net sales.
	•		An improvement in labor and plant overhead as a percentage of net sales.
	•		Lower freight costs.
	•		The lower level of the Lumber Market.

•

Our SG&A expenses are down approximately $5.7 million, or 9%, from the second quarter of 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 expense.

•

Our net interest costs decreased by $1.8 million, or 57%, as our interest-bearing debt and amounts outstanding under our sale of receivables program declined from $178 million at the end of June of 2008 to $56 million at the end of June of 2009. This decrease was slightly offset by approximately $360,000 of expense related to a make-whole provision we incurred by electing to pay off a $15 million senior unsecured note six months early. We will save approximately $420,000 in the last six months of 2009 because of this pre-payment.

•

We are pleased to report operating and investing cash flows totaling almost $67 million for the first six months of 2009 due to improved profitability, effective working capital management, and reduced working capital requirements due to weak demand.

Outlook

We expect the current challenging conditions to prevail throughout 2009; however, our strong financial position, solid business model, diverse business opportunities and ability to adjust appropriately to our opportunities position us well to endure challenging times. We believe that current economic conditions and uncertainties limit our ability to provide meaningful guidance for ranges of likely financial performance; therefore, we will not provide annual sales or net earnings targets for the foreseeable future.

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 $203/mbf in 2009; a 48% decline from when we first set our goals, which has adversely impacted our sales.

UNIVERSAL FOREST PRODUCTS, INC.

In place of our GO 2010 goals, we have a new four-year growth plan titled “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 for the six months ended June 27, 2009 and June 28, 2008:

		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
Second quarter average		$	209			$	268
Year-to-date average		$	203			$	256
Second quarter percentage change from 2008			(22.0	%)
Year-to-date percentage change from 2008			(20.7	%)

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.

UNIVERSAL FOREST PRODUCTS, INC.

		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
Second quarter average		$	236			$	285
Year-to-date average		$	236			$	305
Second quarter percentage change from 2008			(17.2	%)
Year-to-date percentage change from 2008			(22.6	%)

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.

UNIVERSAL FOREST PRODUCTS, INC.

•

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.

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	%