UFP Industries (UFPI) 10-Q 2010 Q3 Quarterly report

UNIVERSAL FOREST PRODUCTS, INC.

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 endedSeptember 25, 2010

OR

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

Commission File Number0-22684

UNIVERSAL FOREST PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

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

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

NONE

(Former name or former address, if changed since last report.)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

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). Yeso Noo

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 Filerþ Accelerated Filero Non-Accelerated Filero Smaller reporting companyo

Indicate by checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yeso Noþ

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 25, 2010
Common stock, no par value	19,291,486

UNIVERSAL FOREST PRODUCTS, INC.

TABLE OF CONTENTS

	Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at September 25, 2010, December 26, 2009 and September 26, 2009		3
Consolidated Condensed Statements of Earnings for the Three and Nine Months Ended September 25, 2010 and September 26, 2009		4
Consolidated Condensed Statements of Equity for the Nine Months Ended September 25, 2010 and September 26, 2009		5
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 25, 2010 and September 26, 2009		6 - 7
Notes to Consolidated Condensed Financial Statements		8 - 16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17 - 29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		30
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		31
Item 3. Defaults Upon Senior Securities — NONE
Item 4. (Removed and Reserved)
Item 5. Other Information		31
Item 6. Exhibits		32
Exhibit 31(a)
Exhibit 31(b)
Exhibit 32(a)
Exhibit 32(b)

UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

	September 25,			December 26,			September 26,
	2010			2009			2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	58,072		$	82,219		$	79,976
Accounts receivable, net		166,369			107,383			162,875
Inventories:
Raw materials		104,736			89,956			80,326
Finished goods		67,721			72,192			61,774
		172,457			162,148			142,100
Assets held for sale		—			—			3,057
Refundable income taxes		—			10,391			—
Other current assets		18,759			21,208			23,242
TOTAL CURRENT ASSETS		415,657			383,349			411,250
OTHER ASSETS		6,069			4,478			3,439
GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS		159,332			157,058			156,936
OTHER INTANGIBLE ASSETS, net		15,719			16,693			18,873
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment		516,337			510,774			508,691
Accumulated depreciation and amortization		(294,498	)		(280,675	)		(278,134	)
PROPERTY, PLANT AND EQUIPMENT, NET		221,839			230,099			230,557
TOTAL ASSETS	$	818,616		$	791,677		$	821,055
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	78,683		$	64,473		$	70,817
Accrued liabilities:
Compensation and benefits		47,023			48,340			54,585
Income taxes		1,793			—			1,673
Other		21,485			21,698			30,375
Current portion of long-term debt and capital lease obligations		702			673			3,064
TOTAL CURRENT LIABILITIES		149,686			135,184			160,514
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current portion		52,465			53,181			53,168
DEFERRED INCOME TAXES		21,492			21,707			17,703
OTHER LIABILITIES		12,884			12,659			13,956
TOTAL LIABILITIES		236,527			222,731			245,341
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 19,291,486, 19,284,587 and 19,355,748	$	19,291		$	19,285		$	19,356
Additional paid-in capital		136,400			132,765			132,156
Retained earnings		417,842			409,278			416,853
Accumulated other comprehensive earnings		3,998			3,633			3,375
		577,531			564,961			571,740
Employee stock notes receivable		(1,721	)		(1,743	)		(1,780	)
		575,810			563,218			569,960
Noncontrolling interest		6,279			5,728			5,754
TOTAL EQUITY		582,089			568,946			575,714
TOTAL LIABILITIES AND EQUITY	$	818,616		$	791,677		$	821,055

See notes to unaudited consolidated condensed financial statements.

3

UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(Unaudited)

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 25,			September 26,			September 25,			September 26,
	2010			2009			2010			2009
NET SALES	$	480,574		$	457,768		$	1,512,166		$	1,334,435
COST OF GOODS SOLD		426,159			388,505			1,328,232			1,135,866
GROSS PROFIT		54,415			69,263			183,934			198,569
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		47,286			51,198			149,815			156,310
NET LOSS (GAIN) ON DISPOSITION OF ASSETS AND OTHER IMPAIRMENT AND EXIT CHARGES		1,137			606			1,521			(1,246	)
EARNINGS FROM OPERATIONS		5,992			17,459			32,598			43,505
INTEREST EXPENSE		888			900			2,677			3,403
INTEREST INCOME		(111	)		(79	)		(301	)		(258	)
		777			821			2,376			3,145
EARNINGS BEFORE INCOME TAXES		5,215			16,638			30,222			40,360
INCOME TAXES		2,017			6,378			10,836			14,808
NET EARNINGS		3,198			10,260			19,386			25,552
LESS NET EARNINGS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(614	)		(206	)		(2,099	)		(617	)
NET EARNINGS ATTRIBUTABLE TO CONTROLLING INTEREST	$	2,584		$	10,054		$	17,287		$	24,935
EARNINGS PER SHARE — BASIC	$	0.13		$	0.52		$	0.90		$	1.30
EARNINGS PER SHARE — DILUTED	$	0.13		$	0.51		$	0.89		$	1.28
WEIGHTED AVERAGE SHARES OUTSTANDING		19,201			19,307			19,239			19,244
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON STOCK EQUIVALENTS		19,416			19,585			19,488			19,442

See notes to unaudited consolidated condensed financial statements.

4

UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

(Unaudited)

(in thousands, except share and per share data)

	Controlling Interest Shareholders’ Equity
										Accumulated
										Other		Employees
				Additional Paid-			Retained			Comprehensive		Stock Notes			Noncontrolling
	Common Stock			In Capital			Earnings			Earnings		Receivable			Interest			Total
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 earnings																			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 income 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 employee 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
Balance at December 26, 2009	$	19,285		$	132,765		$	409,278		$	3,633	$	(1,743	)	$	5,728		$	568,946
Comprehensive income:
Net earnings								17,287								2,099
Foreign currency translation adjustment											365					78
Total comprehensive earnings																			19,829
Capital contribution from noncontrolling interest																250			250
Purchase of additional noncontrolling interest					(295	)										(932	)		(1,227	)
Distributions to noncontrolling interest																(944	)		(944	)
Cash dividends — $0.200 per share								(3,869	)										(3,869	)
Issuance of 66,384 shares under employee stock plans		66			1,373														1,439
Issuance of 76,710 shares under stock grant programs		77			57														134
Issuance of 7,911 shares under deferred compensation plans		8			(8	)													—
Repurchase of 144,900 shares		(145	)					(4,854	)										(4,999	)
Tax benefits from non-qualified stock options exercised					379														379
Expense associated with share-based compensation arrangements					1,495														1,495
Accrued expense under deferred compensation plans					627														627
Issuance of 1,298 shares in exchange for employees’ stock notes receivable		1			49								(50	)					—
Notes receivable adjustment		(1	)		(42	)							(9	)					(52	)
Payments received on employee stock notes receivable													81						81
Balance at September 25, 2010	$	19,291		$	136,400		$	417,842		$	3,998	$	(1,721	)	$	6,279		$	582,089

See notes to unaudited consolidated condensed financial statements.

5

UNIVERSAL FOREST PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Nine Months Ended
	September 25,			September 26,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings attributable to controlling interest	$	17,287		$	24,935
Adjustments to reconcile net earnings attributable to controlling interest to net cash from operating activities:
Depreciation		22,305			24,604
Amortization of intangibles		5,243			6,414
Expense associated with share-based compensation arrangements		1,495			1,417
Excess tax benefits from share-based compensation arrangements		(265	)		(302	)
Expense associated with stock grant plans		134			103
Deferred income taxes (credit)		(228	)		151
Net earnings attributable to noncontrolling interest		2,099			617
Net loss (gain) on sale or impairment of property, plant and equipment		1,053			(1,892	)
Changes in:
Accounts receivable		(58,151	)		(24,342	)
Inventories		(7,103	)		51,488
Accounts payable		14,127			7,578
Accrued liabilities and other		14,740			21,160
NET CASH FROM OPERATING ACTIVITIES		12,736			111,931
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(15,679	)		(9,497	)
Acquisitions, net of cash received		(6,529	)		—
Proceeds from sale of property, plant and equipment		540			10,408
Purchase of product technology and non-compete agreement		(4,589	)
Advances on notes receivable		(1,000	)		(14	)
Collections of notes receivable		143			134
Insurance proceeds		—			1,023
Other, net		17			16
NET CASH FROM INVESTING ACTIVITIES		(27,097	)		2,070
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit facilities		—			(30,257	)
Repayment of long-term debt		(719	)		(16,830	)
Borrowings of long-term debt		—			800
Proceeds from issuance of common stock		1,439			2,109
Purchase of additional noncontrolling interest		(1,227	)		(1,770	)
Distributions to noncontrolling interest		(944	)		(270	)
Capital contribution from noncontrolling interest		250			14
Dividends paid to shareholders		(3,869	)		(1,158	)
Repurchase of common stock		(4,999	)		(242	)
Excess tax benefits from share-based compensation arrangements		265			302
Other, net		18			(60	)
NET CASH FROM FINANCING ACTIVITIES		(9,786	)		(47,362	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(24,147	)		66,639
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		82,219			13,337
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	58,072		$	79,976
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest	$	2,058		$	3,074
Income taxes		(1,488	)		5,964

6

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

	Nine Months Ended
	September 25,		September 26,
	2010		2009
NON-CASH INVESTING ACTIVITIES:
Stock acquired through employees’ stock notes receivable	$	50	$	125
NON-CASH FINANCING ACTIVITIES:
Common stock issued under deferred compensation plans	$	337	$	2,461
Stock received for the exercise of stock options, net				35

See notes to unaudited consolidated condensed financial statements

7

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 26, 2009.

B. FAIR VALUE

We apply the provisions of ASC 820,Fair Value Measurements and Disclosures, to assets and liabilities measured at fair value. Assets measured at fair value are as follows:

	September 25, 2010						September 26, 2009
	Quoted		Prices with				Quoted		Prices with
	Prices in		Other				Prices in		Other
	Active		Observable				Active		Observable
	Markets		Inputs				Markets		Inputs
(in thousands)	(Level 1)		(Level 2)		Total		(Level 1)		(Level 2)		Total
Recurring:
Money market funds	$	66			$	66
Mutual funds:							$	813			$	813
Domestic stock funds		397				397
International stock funds		353				353
Target funds		105				105
Bond funds		51				51
Total mutual funds		972				972		813				813
Non-Recurring:
Property, plant and equipment			$	165		165			$	1,350		1,350
	$	972	$	165	$	1,137	$	813	$	1,350	$	2,163

8

UNIVERSAL FOREST PRODUCTS, INC.

Mutual funds are valued at prices quoted in an active exchange market.

Property, plant and equipment are valued based on active market prices and other relevant information for sales of similar assets.

We have elected not to apply the fair value option under ASC 825,Financial Instruments,to any of our financial instruments except for those expressly required by U.S. GAAP.

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 25,		December 26,		September 26,
	2010		2009		2009
Cost and Earnings in Excess of Billings	$	4,602	$	9,998	$	11,117
Billings in Excess of Cost and Earnings		3,275		8,954		11,185

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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 September 25, 2010						Three Months Ended September 26, 2009
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Net Earnings Attributable to Controlling Interest	$	2,584					$	10,054
EPS — Basic
Income available to common stockholders		2,584		19,201	$	0.13		10,054		19,307	$	0.52
Effect of dilutive securities
Options				215						278
EPS — Diluted
Income available to common stockholders and assumed options exercised	$	2,584		19,416	$	0.13	$	10,054		19,585	$	0.51

	Nine Months Ended September 25, 2010						Nine Months Ended September 26, 2009
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
Net Earnings Attributable to Controlling Interest	$	17,287					$	24,935
EPS — Basic
Income available to common stockholders		17,287		19,239	$	0.90		24,935		19,244	$	1.30
Effect of dilutive securities
Options				249						198
EPS — Diluted
Income available to common stockholders and assumed options exercised	$	17,287		19,488	$	0.89	$	24,935		19,442	$	1.28

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UNIVERSAL FOREST PRODUCTS, INC.

Options to purchase 130,000 and 10,000 shares of common stock were not included in the computation of diluted EPS for the quarter and nine months ended September 25, 2010, respectively, because the options’ exercise price was greater than the average market price of the common stock during the period and, therefore would be antidilutive.

No 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.

E. ASSETS HELD FOR SALE AND NET LOSS (GAIN) 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. 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,Property, Plant and Equipment, which resulted in certain impairment and other exit charges. “Net loss (gain) 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 25,			Three Months Ended September 26,
	2010			2009
	Northern,			Northern,
	Southern and			Southern and
	Western		All	Western		All
	Divisions		Other	Divisions		Other
Severances	$	0.2
Property, plant and equipment		0.2		$	0.6
Other intangibles		0.6
Lease termination		0.1

	Nine Months Ended September 25,			Nine Months Ended September 26,
	2010			2009
	Northern,			Northern,
	Southern and			Southern and
	Western		All	Western			All
	Divisions		Other	Divisions			Other
Severances	$	0.5		$	0.6
Property, plant and equipment		0.3			1.7
Other intangibles		0.6
Lease termination		0.1
Gain on sale of real estate					(3.5	)

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UNIVERSAL FOREST PRODUCTS, INC.

F. 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.

On a consolidated basis, we have reserved approximately $4.2 million on September 25, 2010 and $4.4 million on September 26, 2009, 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 25, 2010, we were parties either as plaintiff or defendant to a number of lawsuits and claims arising through the normal course of our business. In the opinion of management, our consolidated financial statements will not be materially affected by the outcome of these contingencies and claims.

On September 25, 2010, we had outstanding purchase commitments on capital projects of approximately $2.6 million.

We provide a variety of warranties for products we manufacture. Historically, warranty claims have not been material. We distribute products manufactured by other companies, some of which are no longer in business. While we do not warrant these products, we have received claims as a distributor of these products when the manufacturer no longer exists or has the ability to pay. Historically these costs have not had a material affect on our consolidated financial statements.

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UNIVERSAL FOREST PRODUCTS, INC.

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 25, 2010, we had approximately $21.5 million in outstanding payment and performance bonds for projects in progress, which expire during the next two years. In addition, approximately $21.4 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 $1.3 million.

On September 25, 2010, we had outstanding letters of credit totaling $31.9 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 $19.0 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 $12.4 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.

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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 25, 2010.

We did not enter into any new guarantee arrangements during the second quarter of 2010 which would require us to recognize a liability on our balance sheet.

G. BUSINESS COMBINATIONS

No business combinations were completed in fiscal 2009. We completed the following business combinations in fiscal 2010 which were accounted for using the purchase method (in millions):

					Net
Company	Acquisition	Purchase	Intangible		Tangible		Operating
Name	Date	Price	Assets		Assets		Segment	Business Description
Shepherd Distribution Co.(“Shepherd”)	April 29, 2010	$5.9 (asset purchase)	$	2.6	$	3.3	Northern Division	Distributes shingle underlayment, bottom board, house wrap, siding, poly film and other products to manufactured housing and RV customers. Headquartered in Elkhart, Indiana, it has distribution capabilities throughout the United States.
Service Supply Distribution, Inc. (“Service Supply”)	March 8, 2010	$0.6 (asset purchase)	$	0.0	$	0.6	Southern Division	Distributes certain plumbing, electrical, adhesives, flooring, paint and other products to manufactured housing and RV customers. Headquartered in Cordele, Georgia, it has distribution capabilities throughout the United States.

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

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The purchase price allocation for D-Stake Mill and Manufacturing Company (“D-Stake”) was adjusted as follows (in millions) during the first quarter of fiscal 2010 as a result of a change in the valuation of the intangible assets acquired. The impact of the adjustment on earnings was negligible.

	Non-compete			Customer		Goodwill -			Goodwill - Tax
	agreements			Relationships		Total			Deductible
D-Stake initial purchase price allocation	$	2.6				$	2.5		$	2.5
Adjustments		(1.6	)		1.9		(0.3	)		(0.3	)
D-Stake final purchase price allocation		1.0			1.9		2.2			2.2

H. SEGMENT REPORTING

ASC 280,Segment Reporting(“ASC 280”), defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Beginning January 1, 2010, our Eastern Division was divided into two divisions: a Northern Division and a Southern Division. This change was primarily made in order to drive faster growth by allowing field leadership to concentrate on a smaller entity, thereby having a bigger impact on growth. The presentation of the reportable segment amounts was not impacted.

Under the definition of a segment, our Northern, Southern, Western and Consumer Products Divisions may be considered operating segments 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 these criteria, we have aggregated our Northern, Southern and Western Divisions into one reporting segment, which have the same totals as our former Eastern and Western Divisions. 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 are presented below (in thousands).

	Nine Months Ended September 25, 2010						Nine Months Ended September 26, 2009
	Northern,						Northern,
	Southern and						Southern and
	Western		All				Western		All
	Divisions		Other		Total		Divisions		Other		Total
Net sales to outside customers	$	1,401,600	$	110,566	$	1,512,166	$	1,242,119	$	92,316	$	1,334,435
Intersegment net sales		0		41,716		41,716		0		29,239		29,239
Segment operating profit		31,284		1,314		32,598		36,845		6,660		43,505

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I. ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

During the quarter, the Internal Revenue Service completed its examinations of our federal returns through 2008. As a result of the completed examinations, our gross unrecognized tax benefits decreased to $1.3 million at September 25, 2010 compared to $10.3 million at December 26, 2009. This decrease did not result in an adjustment to our income tax provision, therefore, our effective tax rate was not impacted by the examinations.

J. SUBSEQUENT EVENTS

On October 14, 2010, our Board approved a semi-annual dividend of $0.20 per share, payable on December 15, 2010 to shareholders of record on December 1, 2010.

On October 14, 2010, our board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of shares that may be repurchased under the program is almost 3 million shares.

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

This report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the markets we serve, the economy, and the company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” “likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. The Company does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. Actual results could differ materially from those included in such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Among the factors that could cause actual results to differ materially from forward-looking statements are the following: Fluctuations in the price of lumber; adverse or unusual weather conditions; adverse conditions in the markets we serve; government regulations, particularly involving environmental and safety regulations; and our ability to make successful business acquisitions. 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 2010.

OVERVIEW

Our results for the third quarter of 2010 were impacted by the following:

• Our overall unit sales were flat compared to the third quarter of 2009 as increased unit sales to our industrial and manufactured housing customers was substantially offset by a decline in unit sales to our DIY/retail customers. We believe we have gained additional share of the industrial and manufactured housing markets we serve. Share gains in our industrial market have been achieved by adding many new customers while share gains in manufactured housing have been achieved by acquiring distribution operations. We believe we have maintained our share of the DIY/retail market. Finally, we recently closed several plants that supply the site-built housing market in order to achieve profitability and cash flow goals; consequently, we believe that these actions may temporarily cause us to lose some market share.

• After unusual volatility in the second quarter, the Lumber Market stabilized and was approximately 5% higher, on average, in the third quarter of 2010 compared to the same period of 2009. Consequently, the Lumber Market had the effect of slightly increasing our overall selling prices for the quarter.

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• The Leading Indicator for Remodeling Activity, released by Harvard’s Joint Center for Housing Studies, estimated in its’ most recent report that spending in the third quarter of 2010 on homeowner remodeling improvements declined 4.1% for the period, which impacts our DIY/retail market. Consumer spending for large repair/remodel projects has decreased due to general economic conditions, among other factors, including weak home prices and high unemployment levels. Consequently, the same store sales of our “big box” home improvement retailers have declined. The Consumer Confidence Index recently decreased in September causing concern about the level of consumer spending in future months.

• National housing starts decreased approximately 6% in the period from June through August of 2010 (our sales trail housing starts by about a month), compared to the same period of 2009, likely due to the expiration of certain government tax credits which shifted customer demand to earlier in the year.

• Shipments of HUD code manufactured homes were up 3% in July and August of 2010, compared to the same period of 2009. Shipments of manufactured homes were also positively impacted by certain tax credits that have now expired.

• The industrial market has improved as the U.S. economy slowly recovers. More significantly, we gained additional share of this market due, in part, to adding many new customers and continuing to penetrate the concrete forming business.

• Our gross margin decreased by 3.8% this quarter compared to the third quarter of 2009. While lumber prices stabilized during the third quarter of 2010, inventories were built earlier in the year—when lumber prices were up as much as 52% over the previous year—in preparation for a solid selling season, which didn’t materialize. At the end of June, our inventory consisted primarily of higher-cost lumber, which adversely affected profits in the third quarter. We have since sold through this higher cost product and, by the end of the third quarter, our inventories comprised lumber purchased at a much lower cost. At the end of September of 2010, our average cost of lumber inventory was approximately 7% higher than our average cost at the end of September of 2009, which approximates the year over year increase in the Lumber Market.

• Our cash flow from operating activities was only $13 million, reflecting higher inventory levels due to softening demand. We anticipate strong cash flows for the balance of the year as we reduce inventories to a level needed to support current demand.

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HISTORICAL LUMBER PRICES

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

	Random Lengths Composite
	Average $/MBF
	2010			2009
January	$	264		$	198
February		312			199
March		310			195
April		351			208
May		333			198
June		267			222
July		251			238
August		245			239
September		250			236
Third quarter average	$	249		$	238
Year-to-date average	$	287		$	215
Third quarter percentage change from 2009		4.6	%
Year-to-date percentage change from 2009		33.5	%

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
	2010			2009
January	$	269		$	241
February		331			233
March		337			232
April		382			241
May		374			231
June		293			236
July		264			253
August		249			241
September		252			244
Third quarter average	$	255		$	246
Year-to-date average	$	306		$	239
Third quarter percentage change from 2009		3.7	%
Year-to-date percentage change from 2009		28.0	%

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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 relativelevel of the Lumber Market (i.e. whether prices are higher or lower from comparative periods), and (2) thetrend 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, thelevel andtrend 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.

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Changes in the trend of lumber prices have their greatest impact on the following products:

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

• Products with fixed selling prices sold under long-term supply arrangements, particularly those involving multi-family construction projects. We attempt to mitigate this risk through our purchasing practices by locking in costs.

In addition to the impact of the Lumber Markettrends on gross margins, changes in thelevel 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 thetrend within each period.

	Period 1			Period 2
Lumber cost	$	300		$	400
Conversion cost		50			50
= Product cost		350			450
Adder		50			50
= Sell price	$	400		$	500
Gross margin		12.5	%		10.0	%

As is apparent from the preceding example, thelevel of lumber prices does not impact our overall profits, but does impact our margins. Gross margins are negatively impacted during periods of high lumber prices; conversely, we experience margin improvement when lumber prices are relatively low.

BUSINESS COMBINATIONS

See Notes to Unaudited Consolidated Condensed Financial Statements, Note G, “Business Combinations.”

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RESULTS OF OPERATIONS

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

	For the Three Months Ended						For the Nine Months Ended
	September 25,			September 26,			September 25,			September 26,
	2010			2009			2010			2009
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		88.7			84.9			87.8			85.1
Gross profit		11.3			15.1			12.2			14.9
Selling, general, and administrative expenses		9.8			11.2			9.9			11.7
Net loss (gain) on disposition of assets and other impairment and exit charges		0.2			0.1			0.1			(0.1	)
Earnings from operations		1.2			3.8			2.2			3.3
Interest, net		0.2			0.2			0.2			0.2
Earnings before income taxes		1.1			3.6			2.0			3.0
Income taxes		0.4			1.4			0.7			1.1
Net earnings		0.7			2.2			1.3			1.9
Less net earnings attributable to non-controlling interest		(0.1	)		(0.0	)		(0.1	)		(0.0	)
Net earnings attributable to controlling interest		0.5	%		2.2	%		1.1	%		1.9	%

Note: Actual percentages are calculated and may not sum to total due to rounding.

GROSS SALES

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

• Diversifying our end market sales mix by increasing sales of specialty wood packaging to industrial users, increasing our penetration of the concrete forms market, increasing our sales of engineered wood components for custom home, multi-family and light commercial construction, and expanding our product lines in each of the markets we serve.

• Expanding geographically in our core businesses.

• Increasing sales of “value-added” products and framing services. Value-added product sales primarily consist of fencing, decking, lattice, and other specialty products sold to the DIY/retail market, specialty wood packaging, engineered wood components, and “wood alternative” products. Engineered wood components include roof trusses, wall panels, and floor systems. Wood alternative products consist primarily of composite wood and plastics. Although we consider the treatment of dimensional lumber with certain chemical preservatives a value-added process, treated lumber is not presently included in the value-added sales totals.

• Maximizing unit sales growth while achieving return on investment goals.

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

	For the Three Months Ended									For the Nine Months Ended
	September 25,			September 26,			%			September 25,			September 26,			%
Market Classification	2010			2009			Change			2010			2009			Change
DIY/Retail	$	197,855		$	214,299			(7.7	)	$	678,096		$	673,063			0.8
Site-Built Construction		70,115			68,984			1.6			203,227			189,947			7.0
Industrial		158,091			132,532			19.3			463,318			368,951			25.6
Manufactured Housing		63,429			53,676			18.2			193,407			134,957			43.3
Total Gross Sales		489,490			469,491			4.3			1,538,048			1,366,918			12.5
Sales Allowances		(8,916	)		(11,723	)					(25,882	)		(32,483	)
Total Net Sales	$	480,574		$	457,768			5.0		$	1,512,166		$	1,334,435			13.3

Note: In the first quarter of 2010, we reviewed the classification of our customers and made certain reclassifications. Prior year information has been restated to reflect these reclassifications.

Gross sales in the third quarter of 2010 increased 4% compared to the same period of 2009. We estimate that our unit sales remained flat and overall selling prices increased by 4% comparing the two periods. Our overall selling prices increased as a result of the Lumber Market (see “Historical Lumber Prices”).

Gross sales in the first nine months of 2010 increased 13% compared to the same period of 2009. We estimate that our unit sales increased by 4% and overall selling prices increased by 9% comparing the two periods. We estimate that our unit sales increased 2% as a result of business acquisitions and new plants, increased 4% as a result of existing operations, and declined 2% due to operations we recently closed. Our overall selling prices increased as a result of the Lumber Market (see “Historical Lumber Prices”).

Changes in our sales by market are discussed below.

DIY/Retail:

Gross sales to the DIY/retail market decreased 8% in the third quarter of 2010 compared to the same period of 2009 primarily due to an estimated 10% decrease in our overall unit sales, offset by an estimated 2% increase in our overall selling prices due to the Lumber Market. Unit sales declined due to a decrease in consumer spending which is evidenced by a drop in same store sales reported by our “big box” customers.

Gross sales to the DIY/retail market increased 1% in the first nine months of 2010 compared to the same period of 2009 primarily due to an estimated 7% increase in overall selling prices due to the Lumber Market, offset by an estimated 6% decrease in overall unit sales. Unit sales declined due to the factors mentioned in the paragraph above.

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Site-Built Construction:

Gross sales to the site-built construction market increased 2% in the third quarter of 2010 compared to the same period of 2009 due to an estimated 7% increase in unit sales out of existing plants and an estimated 6% increase in selling prices primarily due to the Lumber Market, offset by an 11% decrease in unit sales as a result of operations we have recently closed. National housing starts decreased approximately 6% in the period from June through August of 2010 (our sales trail housing starts by about a month), compared to the same period of 2009. We have taken several recent plant closure actions in order to achieve profitability and cash flow objectives, which may temporarily result in a loss of market share.

Gross sales to the site-built construction market increased 7% in the first nine months of 2010 compared to 2009 due to an estimated 10% increase in unit sales out of existing plants and an estimated 6% increase in selling prices primarily due to the Lumber Market, offset by a 9% decrease in unit sales as a result of operations we have recently closed. National single family and multi-family housing starts decreased approximately 14% and 9%, respectively, for the year-to-date through August of 2010.

Industrial:

Gross sales to the industrial market increased 19% in the third quarter of 2010 compared to the same period of 2009, due to an estimated 12% increase in unit sales and an estimated 7% increase in selling prices. The industrial market has improved as the U.S. economy continues to recover, but more significantly, we have been able to continue to gain market share due, in part, to adding many new customers and our continued penetration of the concrete forming market.

Gross sales to the industrial market increased 26% in the first nine months of 2010 compared to the same period of 2009, due to an estimated 17% increase in unit sales and an estimated 9% increase in selling prices. Unit sales increased due to the factors mentioned in the paragraph above.

Manufactured Housing:

Gross sales to the manufactured housing market increased 18% in the third quarter of 2010 compared to 2009, primarily due to an estimated 12% increase in unit sales resulting from new operations we acquired and an estimated 6% increase in selling prices due to the Lumber Market. Shipments of HUD code manufactured homes were up 3% in July and August of 2010, compared to the same period of 2009.

Gross sales to the manufactured housing market increased 43% in the first nine months of 2010 compared to 2009, primarily due to an estimated 12% increase in unit sales out of existing plants, a 10% increase in unit sales due to acquisitions, and an estimated 21% increase in selling prices due to the Lumber Market. Shipments of HUD code manufactured homes were up 7% for the year-to-date through August of 2010, compared to the same period of 2009.

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Value-Added and Commodity-Based Sales:

The following table presents, for the periods indicated, our percentage of value-added and commodity-based sales to total sales. Value-added products generally carry higher gross margins than our commodity-based products.

	Three Months Ended						Nine Months Ended
	September 25,			September 26,			September 25,			September 26,
	2010			2009			2010			2009
Value-Added		59.0	%		58.4	%		58.6	%		60.1	%
Commodity-Based		41.0	%		41.6	%		41.4	%		39.9	%

COST OF GOODS SOLD AND GROSS PROFIT

Our gross profit percentage decreased to 11.3% from 15.1% comparing the third quarter of 2010 with the same period of 2009. In addition, our gross profit dollars decreased by 21% comparing the third quarter of 2010 with the same period of 2009, which compares unfavorably to our trend in unit sales, which were flat. After unusual volatility in the second quarter, the Lumber Market stabilized in the third quarter of 2010 and was approximately 5% higher, on average, than the same period of 2009. While lumber prices stabilized, inventories were built earlier in the year—when lumber prices were up as much as 52% over the previous year—in preparation for a solid selling season, which didn’t materialize. At the end of June, our inventory consisted primarily of higher-cost lumber, which adversely affected profits in the third quarter when this product was shipped. Conversely, Lumber Market conditions in the third quarter of 2009 were more favorable and we were able to take advantage of opportunities in the market to buy at lower costs. As a result of these factors, our material costs as a percentage of sales increased by approximately 4.6 percentage points comparing the third quarter of 2010 with the same period of 2009. We have since sold through this higher cost product and, by the end of the third quarter, our inventories comprised lumber purchased at a much lower cost. At the end of September of 2010, our average cost of lumber inventory was approximately 7% higher than our average cost at the end of September of 2009, which approximates the year over year increase in the Lumber Market. (See “Impact of the Lumber Market on Our Operating Results”.) Additionally, we achieved lower labor and overhead costs as a percentage of sales this quarter due to efficiency gains, which offset some the decline in gross margin discussed above.

Our gross profit percentage decreased to 12.2% from 14.9% comparing the first nine months of 2010 with the same period of 2009. In addition, our gross profit dollars decreased by 4% comparing the first nine months of 2010 with the same period of 2009, which compares unfavorably with our 4% increase in unit sales. Our decline in gross margin was primarily due to the factors mentioned in the paragraph above.

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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (“SG&A”) expenses decreased by approximately $3.9 million, or 7.6%, in the third quarter of 2010 compared to the same period of 2009, while we reported flat unit sales. New operations added $1.5 million of expenses, operations we closed decreased expenses by $3.4 million, and existing operations decreased expenses by $2.0 million. The decrease in SG&A expenses at our existing operations was primarily due to decreases in bad debt expense and accrued bonus, offset somewhat by an increase in wages and an accrued expense associated with an officer retirement plan approved by our Board of Directors. Our SG&A expenses decreased as a percentage of sales primarily due to the factors above.

Selling, general and administrative (“SG&A”) expenses decreased by approximately $6.5 million, or 4.2%, in the first nine months of 2010 compared to the same period of 2009, while we reported a 4% increase in unit sales. New operations added $2.7 million of expenses, operations we closed decreased expenses by $11.1 million, and existing operations increased expenses by $1.9 million. The increase in SG&A expenses at our existing operations was primarily due to increases in wages, in-store merchandising costs, and accrued expense associated with an officer retirement plan, partially offset by decreases in bad debt expense and accrued bonus. Our SG&A expenses decreased as a percentage of sales primarily due to the factors above plus efficiency gains from our continuing efforts to control costs. The higher level of the Lumber Market also contributed to the improvement in this ratio.

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

We incurred $1.1 million of charges in the third quarter of 2010 and $0.6 million in the third quarter of 2009 relating to asset impairments and other costs associated with idled facilities and down-sizing efforts.

We incurred $1.5 million of charges in the first nine months of 2010 and $2.3 million in the first nine months of 2009 relating to asset impairments and other costs associated with idled facilities and down-sizing efforts. In 2009, these costs were offset by a $3.5 million gain on the sale of certain real estate.

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

• Current and projected earnings, cash flow and return on investment

• Current and projected market demand

• Market share

• Competitive factors

• Future growth opportunities

• Personnel and management

We currently have 8 operations which are experiencing operating losses and negative cash flow for the first nine months of 2010. The net book value of the long-lived assets of these operations, which could be subject to an impairment charge in the future, was $3.9 million at the end of September of 2010. In addition, these operations had future fixed operating lease payments totaling $0.7 million at the end of September of 2010.

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INTEREST, NET

Net interest costs were generally flat in the third quarter and first nine months of 2010 compared to the same periods of 2009 primarily due to comparable debt balances throughout 2010.

INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily due to provisions for state and local income taxes and permanent tax differences. Our effective tax rate was 38.7% for the third quarter of 2010 and 38.3% in the same period of 2009. Our effective tax rate was 35.9% in the first nine months of 2010 and 36.7% in the same period of 2009.

OFF-BALANCE SHEET TRANSACTIONS

We have no significant off-balance sheet transactions other than operating leases.

LIQUIDITY AND CAPITAL RESOURCES

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

	Nine Months Ended
	September 25, 2010			September 26, 2009
Cash from operating activities	$	12,736		$	111,931
Cash from investing activities		(27,097	)		2,070
Cash from financing activities		(9,786	)		(47,362	)
Net change in cash and cash equivalents		(24,147	)		66,639
Cash and cash equivalents, beginning of period		82,219			13,337
Cash and cash equivalents, end of period	$	58,072		$	79,976

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

Seasonality has a significant impact on our working capital from March to August which historically resulted in negative or modest cash flows from operations in our first and second quarters. Conversely, we experience a substantial decrease in working capital from September to February which typically results in significant cash flow from operations in our third and fourth quarters. For comparative purposes, we have included the September 26, 2009 balances in the accompanying unaudited consolidated condensed balance sheets.

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UNIVERSAL FOREST PRODUCTS, INC.

Due to the seasonality of our business and the effects of the Lumber Market, we believe our cash cycle (days of sales outstanding plus days supply of inventory less days payables outstanding) is a good indicator of our working capital management. Our cash cycle decreased to 43 days in the first nine months of 2010 from 45 days in the first nine months of 2009, due to a 1 day decrease in our receivables cycle combined with a 1 day decrease in our days supply of inventory, due to several initiatives to improve our management of receivables and inventory. However, customer demand softened during the third quarter which resulted in an increase in our inventory levels at the end of September of 2010 compared to the end of September 2009.

Cash provided by operating activities was $12.7 million in the first nine months of 2010, which was comprised of net earnings of $17.3 million and $31.8 million of non-cash expenses, offset by a $36.4 million increase in working capital since the end of 2009. Working capital increased primarily due to higher inventory levels at the end of September resulting from a softening of customer demand in the third quarter. We anticipate strong cash flows for the balance of the year due to our typical seasonal trend and as we reduce inventories to a level needed to support current demand.

Capital expenditures were $15.7 million in the first nine months of 2010. We currently plan to spend up to $28 million in 2010, which includes outstanding purchase commitments on existing capital projects totaling approximately $2.6 million on September 25, 2010. We intend to fund capital expenditures and purchase commitments through our operating cash flows for the balance of the year.

Cash flows used in investing activities included $6.5 million spent to acquire assets of certain operations that distribute a wide range of products to the manufactured housing industry. See Notes to Unaudited Consolidated Condensed Financial Statements, Note G “Business Combinations”. In addition, we purchased certain technology and certain intangibles to produce a new product for approximately $4.6 million.

Cash flows used in financing activities included $3.9 million for dividends. Our Board of Directors approved a dividend of $0.20 per share, which was paid in June of 2010. In addition, we spent approximately $5.0 million for repurchases of our common stock. On October 14, 2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of shares that may be repurchased under the program is almost 3 million shares. Our practice has been to repurchase an appropriate number of shares each year to offset share issuances occurring under certain of our employee benefit plans.

On September 25, 2010, we had no outstanding balance on our $300 million revolving credit facility, which matures in February of 2012. The revolving credit facility also supports letters of credit totaling approximately $31.9 million on September 25, 2010. Financial covenants on the unsecured revolving credit facility and unsecured notes include a minimum net worth requirement, minimum interest and fixed charge coverage tests, and a maximum leverage ratio. The agreements also restrict the amount of additional indebtedness we may incur and the amount of assets which may be sold. We were within all of our lending requirements on September 25, 2010.

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UNIVERSAL FOREST PRODUCTS, INC.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Unaudited Consolidated Condensed Financial Statements, Note F, “Commitments, Contingencies, and Guarantees.”

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. There have been no material changes in our policies or estimates since December 26, 2009.

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UNIVERSAL FOREST PRODUCTS, INC.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

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

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a — 15e and 15d — 15e) as of the quarter ended September 25, 2010 (the “Evaluation Date”), have concluded that, as of such date, our disclosure controls and procedures were effective.

(b) Changes in Internal Controls. During the quarter ended September 25, 2010, there were no changes in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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UNIVERSAL FOREST PRODUCTS, INC.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) None.

(c) Issuer purchases of equity securities.

Fiscal Month	(a)		(b)		(c)		(d)
June 27, 2010 – July 31, 2010(1)		32,000	$	30.40		32,000		1,000,829
August 1 – 28, 2010		12,600	$	29.94		12,600		988,229
August 29 – September 25, 2010								988,229

(a)	Total number of shares purchased.
(b)	Average price paid per share.
(c)	Total number of shares purchased as part of publicly announced plans or programs.
(d)	Maximum number of shares that may yet be purchased under the plans or programs.
(1)	On November 14, 2001, the Board of Directors approved a share repurchase program (which succeeded a previous program) allowing us to repurchase up to 2.5 million shares of our common stock. On October 14, 2010, our Board authorized an additional 2 million shares to be repurchased under our share repurchase program. The total number of shares that may be repurchased under the program is almost 3 million shares.

Item 5. Other Information.

In the third quarter of 2010, the Audit Committee approved $120,000 for non-audit services to be provided by our independent auditors, Ernst & Young LLP, for 2010.

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UNIVERSAL FOREST PRODUCTS, INC.

PART II. OTHER INFORMATION

Item 6. Exhibits.

The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:

31	Certifications.
	(a)	Certificate of the Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
	(b)	Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32	Certifications.
	(a)	Certificate of the Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
	(b)	Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

* Indicates a compensatory arrangement.

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UNIVERSAL FOREST PRODUCTS, INC.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNIVERSAL FOREST PRODUCTS, INC.
Date: October 20, 2010	By:	/s/ Michael B. Glenn
		Michael B. Glenn,
		Chief Executive Officer and Principal Executive Officer
Date: October 20, 2010	By:	/s/ Michael R. Cole
		Michael R. Cole,
		Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer

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EXHIBIT INDEX

Exhibit No.	Description
31	Certifications.
	(a)	Certificate of the Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
	(b)	Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32	Certifications.
	(a)	Certificate of the Chief Executive Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
	(b)	Certificate of the Chief Financial Officer of Universal Forest Products, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

* Indicates a compensatory arrangement.