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.
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EXHIBIT 13

UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION

TABLE OF CONTENTS

Selected Financial Data.............................. 6

Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 7-19

Report of Independent Auditors -- Ernst & Young LLP.. 20

Report of Independent Public Accountants -- Arthur
Andersen LLP......................................... 21

Independent Auditors' Report -- Deloitte & Touche
LLP.................................................. 22

Consolidated Balance Sheets as of December 28, 2002
and December 29, 2001................................ 23

Consolidated Statements of Earnings for the Years
Ended December 28, 2002, December 29, 2001 and
December 30, 2000.................................... 24

Consolidated Statements of Shareholders' Equity for
the Years Ended December 28, 2002, December 29, 2001
and December 30, 2000................................ 25

Consolidated Statements of Cash Flows for the Years
Ended December 28, 2002, December 29, 2001 and
December 30, 2000.................................... 26

Notes to Consolidated Financial Statements........... 27-42

Price Range of Common Stock and Dividends............ 43
</Table>

UNIVERSAL FOREST PRODUCTS(R) 5

SELECTED FINANCIAL DATA

(In thousands, except per share and statistics data)

<Table>
<Caption>
2002 2001 2000 1999 1998
--------------------------------------------------------------

CONSOLIDATED STATEMENT OF EARNINGS DATA
Net sales(1)........................... $1,639,899 $1,530,353 $1,387,130 $1,432,601 $1,236,711
Gross profit........................... 230,410 211,479 187,013 178,387 145,973
Earnings before income taxes, minority
interest and equity in earnings of
investee............................. 62,115 54,300 50,375 51,537 43,034
Net earnings(3)........................ 36,637 33,142 30,438 31,448 26,419
Diluted earnings per share(3).......... $ 1.97 $ 1.63 $ 1.49 $ 1.48 $ 1.28
Dividends per share.................... $ 0.090 $ 0.085 $ 0.080 $ 0.075 $ 0.070
Weighted average shares outstanding
with common stock equivalents........ 18,619 20,377 20,477 21,186 20,613
CONSOLIDATED BALANCE SHEET DATA
Working capital........................ $ 185,256 $ 124,071 $ 120,321 $ 124,324 $ 99,559
Total assets........................... 634,794 551,209 485,320 468,638 419,795
Total debt and capital lease
obligations(2)....................... 243,572 212,187 160,860 155,818 143,877
Shareholders' equity................... 263,000 230,862 235,769 214,562 191,583
STATISTICS
Gross profit as a percentage of net
sales(1)............................. 14.0% 13.8% 13.5% 12.4% 11.8%
Net earnings as a percentage of net
sales(3)............................. 2.2% 2.2% 2.2% 2.2% 2.1%
Return on beginning equity............. 16.0% 14.1% 14.4% 16.6% 22.8%
Current ratio.......................... 2.70 2.10 2.50 2.36 2.21
Debt to equity ratio(2)................ 0.93 0.92 0.68 0.73 0.75
Book value per common share............ $ 14.90 $ 13.04 $ 12.02 $ 10.65 $ 9.29
</Table>

- -------------------------

(1) In 2001, we reclassified customer rebate expense from cost of goods sold to
include it in net sales. Prior year amounts have been reclassified.

(2) Includes $36 million classified as temporary shareholders' equity in 2001
associated with a share redemption we completed in January 2002.

(3) In 2002, we adopted SFAS 142 and as a result we no longer recognize
amortization expense associated with goodwill.

6 UNIVERSAL FOREST PRODUCTS(R)

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

RISK FACTORS

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

OUR GROWTH MAY BE LIMITED BY THE MARKETS WE SERVE. Our sales growth is
dependent, in part, upon the growth of the markets we serve. If our markets do
not achieve anticipated growth, or if we fail to maintain our market share,
financial results could be impaired.

The manufactured housing industry is currently hampered by market conditions,
including a high rate of repossessions and tightened credit policies.
Significant lenders who previously provided financing to consumers of these
products and industry participants have either restricted credit or exited the
market. A continued shortage of financing to this industry could adversely
affect our operating results.

Our ability to achieve growth in sales and margins to the site-built
construction market is somewhat dependent on housing starts. If housing starts
decline significantly, our financial results could be negatively impacted.

We are witnessing consolidation by our customers. These consolidations will
result in a larger portion of our sales being made to some customers and may
limit the customer base we are able to serve.

A SIGNIFICANT PORTION OF OUR SALES ARE CONCENTRATED WITH ONE CUSTOMER. Our
sales to The Home Depot comprised 30% and 33% of our total sales in 2002 and
2001, respectively.

OUR GROWTH MAY BE LIMITED BY OUR ABILITY TO MAKE SUCCESSFUL ACQUISITIONS. A key
component of our growth strategy is to complete business combinations. Business
combinations involve inherent risks, including assimilation and successfully
managing growth. While we conduct extensive due diligence and have taken steps
to ensure successful assimilation, factors beyond our control could influence
the results of these acquisitions.

WE MAY BE ADVERSELY AFFECTED BY THE IMPACT OF ENVIRONMENTAL AND SAFETY
REGULATIONS. We are subject to the requirements of federal, state and local
environmental and occupational health and safety laws and regulations. There can
be no assurance that we are at all times in complete compliance with all of
these requirements. We have made and will continue to make capital and other
expenditures to comply with environmental regulations. If additional laws and
regulations are enacted in the future which restrict our ability to manufacture
and market our products, including our treated lumber products, it could
adversely affect our sales and profits. If existing laws are interpreted
differently, it could also increase the financial costs to us. Several states
have proposed legislation to limit the uses of CCA treated lumber. (See
Environmental Considerations and Regulations.)

SEASONALITY AND WEATHER CONDITIONS COULD ADVERSELY AFFECT US. Some aspects of
our business are seasonal in nature and results of operations vary from quarter
to quarter. Our treated lumber and outdoor specialty products, such as fencing,
decking and lattice, experience the greatest seasonal effects. Sales of treated
lumber, primarily consisting of Southern Yellow Pine ("SYP"), also experience
the greatest Lumber Market risk (see Historical Lumber Prices). Treated lumber
sales are generally at their highest levels between April and August. This sales
peak, combined with capacity constraints in the wood treatment process, requires
us to build our inventory of treated lumber throughout the winter and spring.
This also has an impact on our receivables balances, which tend to be
significantly higher at the end of the second and third quarters. Because sales
prices of treated lumber products may be indexed to the Lumber Market at the
time they are shipped, our profits can be negatively affected by prolonged
declines in the Lumber Market during our primary selling season. To mitigate
this risk, programs are maintained with certain vendors and customers that are
intended to decrease our exposure. These

UNIVERSAL FOREST PRODUCTS(R) 7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

programs include those materials which are most susceptible to adverse changes
in the Lumber Market. Some vendor programs also allow us to carry a lower
investment in inventories.

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

WE MAY BE ADVERSELY AFFECTED IF OUR CUSTOMERS AND VENDORS ARE NOT WILLING TO
MODIFY OUR EXISTING DISTRIBUTION STRATEGIES. While we have invested heavily in
technology and established electronic business-to-business efficiencies with
certain customers and vendors, the willingness of customers and vendors to
modify existing distribution strategies poses a potential risk. We believe the
nature of our products, together with our value-added services, ensures that we
have a secure position in the supply chain.

When analyzing this report to assess our future performance, please recognize
the potential impact of the various factors set forth above.

HISTORICAL LUMBER PRICES

The following table presents the Random Lengths framing lumber composite price
for the years ended December 28, 2002, December 29, 2001 and December 30, 2000.

<Table>
<Caption>
RANDOM LENGTHS COMPOSITE
AVERAGE $/MBF
-------------------------
2002 2001 2000
-------------------------

January..................................................... $297 $269 $386
February.................................................... 317 285 385
March....................................................... 339 306 382
April....................................................... 323 331 359
May......................................................... 312 411 326
June........................................................ 302 365 331
July........................................................ 306 325 308
August...................................................... 291 336 289
September................................................... 279 309 287
October..................................................... 274 278 280
November.................................................... 265 283 281
December.................................................... 271 277 275
Annual average.............................................. $298 $315 $324
Annual percentage change.................................... (5.4%) (2.8%) (19.4%)
</Table>

8 UNIVERSAL FOREST PRODUCTS(R)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

In addition, a SYP composite price, which we prepare and use, is presented
below. Sales of products produced using this species comprise up to fifty
percent of our sales volume.

<Table>
<Caption>
SYP COMPOSITE
AVERAGE $/MBF
-----------------------
2002 2001 2000
-----------------------

January..................................................... $410 $369 $ 488
February.................................................... 434 393 490
March....................................................... 464 408 494
April....................................................... 457 427 483
May......................................................... 408 509 439
June........................................................ 383 496 456
July........................................................ 409 426 432
August...................................................... 375 419 403
September................................................... 361 406 395
October..................................................... 357 365 384
November.................................................... 354 371 374
December.................................................... 375 371 378
Annual average.............................................. $399 $413 $435
Annual percentage change.................................... (3.4%) (5.1%) (13.2%)
</Table>

IMPACT OF THE LUMBER MARKET ON OUR OPERATING RESULTS

We generally price our products to pass lumber costs through to our customers so
that our profitability is based on the value-added manufacturing, distribution
and services we provide. As a result, our sales levels (and working capital
requirements) are impacted by the lumber costs of our products.

Our gross margins are impacted by both (1) the relative level of the Lumber
Market (i.e. whether prices are higher or lower from comparative periods), and
(2) the trend in the market price of lumber (i.e. whether the price of lumber is
increasing or decreasing within a period or from period to period). 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 do-it-yourself/retail
("DIY/retail") customers, as well as trusses, wall panels and other components
sold to the site-built construction market. 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
eliminate or 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 periods and quantity limitations generally allow
us to reprice our products for changes in lumber costs from our suppliers.

- - Products with selling prices indexed to the reported Lumber Market with a
fixed dollar "adder" to cover conversion costs and profits. These products
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 those
products that have significant inventory levels with low turnover rates. This
particularly impacts treated lumber, which comprises almost twenty-five percent
of our total

UNIVERSAL FOREST PRODUCTS(R) 9

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

sales. In other words, the longer the period of time that products remain in
inventory, the greater the exposure to changes in the price of lumber. This
exposure is less significant with remanufactured lumber, trusses sold to the
manufactured housing market and other similar products, due to the higher rate
of inventory turnover.

In addition to the impact of 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.

<Table>
<Caption>
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%
</Table>

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

BUSINESS COMBINATIONS

We completed the following business combinations in fiscal 2002 and 2001 (see
Note B to the consolidated financial statements for further details). These
business combinations were accounted for using the purchase method.

<Table>
<Caption>
COMPANY NAME ACQUISITION DATE BUSINESS DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------------

Quality Wood Treating Co., Inc. ("Quality").......... November 4, 2002 One facility in Prairie du Chien, WI
which produces Everx(R) composite
decking. We also entered into an
exclusive treating services agreement
with Quality.

J.S. Building Products, Inc.......................... September 9, 2002 One facility in Modesto, CA, which
manufactures engineered roof trusses
for the site-built construction
market.

Inno-Tech Plastics, Inc. ("Inno-Tech")............... April 10, 2002 One facility in Springfield, IL which
-- Entered into exclusive licensing agreement and manufactures "wood alternative"
acquired certain assets. products.

Pinelli-Universal S. de R.L. de C.V. ("Pinelli")..... January 15, 2002 One facility in Durango, Durango,
-- Purchased additional 5% interest. Mexico which manufactures molding and
millwork products.

P&R Truss Company, Inc. and P&R Truss-Sidney, Inc.... October 15, 2001 Facilities in Auburn, Chaffee, Hudson
(collectively "P&R"). and Sidney, NY, which manufacture
engineered roof trusses used in
site-built construction.

Superior Truss Division of Banks Corporation
("Superior")....................................... June 1, 2001 Facilities in Syracuse, IN and
Minneota, MN which manufacture
engineered wood products used in
site-built construction.
</Table>

10 UNIVERSAL FOREST PRODUCTS(R)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

<Table>
<Caption>
COMPANY NAME ACQUISITION DATE BUSINESS DESCRIPTION
- ---------------------------------------------------------------------------------------------------------------------

Sunbelt Wood Components ("Sunbelt").................. April 3, 2001 Facilities in New London, NC;
Haleyville, AL; Ashburn, GA; and
Glendale, AZ which manufacture roof
trusses used in manufactured housing.
D&R Framing Contractors ("D&R")...................... February 28, 2001 One facility in Englewood, CO. Framer
-- Purchased 50% of the assets. serving the site-built construction
market.
</Table>

RESULTS OF OPERATIONS

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

<Table>
<Caption>
YEARS ENDED
------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
------------------------------------------

Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 86.0 86.2 86.5
----- ----- -----
Gross profit................................................ 14.0 13.8 13.5
Selling, general, and administrative expenses............... 9.7 9.5 9.0
----- ----- -----
Earnings from operations.................................... 4.3 4.3 4.5
Interest, net............................................... (0.7) (0.8) (0.9)
Gain on sale of assets...................................... 0.1 0.0 0.0
----- ----- -----
Earnings before income taxes, minority interest and equity
in earnings of investee................................... 3.7 3.5 3.6
Income taxes................................................ 1.4 1.3 1.4
----- ----- -----
Earnings before minority interest and equity in earnings of
investee.................................................. 2.3 2.2 2.2
Minority interest........................................... (0.1) 0.0 0.0
Equity in earnings of investee.............................. 0.0 0.0 0.0
----- ----- -----
Reported net earnings....................................... 2.2% 2.2% 2.2%
Add: Goodwill amortization, net of tax.................... 0.0 0.2 0.2
----- ----- -----
Adjusted net earnings..................................... 2.2% 2.4% 2.4%
===== ===== =====
</Table>

NET SALES

We engineer, manufacture, treat, distribute and install lumber, composite,
plastic and other building products for the DIY/retail, site-built construction,
manufactured housing, industrial and other lumber markets. Our strategic sales
objectives include:

- - Diversifying our end market sales mix by increasing sales of specialty wood
packaging to industrial users and engineered wood products to the site-built
construction market. Engineered wood products include roof trusses, wall
panels and floor systems.

- - Increasing sales of "value-added" products. Value-added product sales consist
of fencing, decking, lattice and other specialty products sold to the
DIY/retail market, specialty wood packaging, engineered wood products and
"wood alternative" products. One of our goals is to achieve a ratio of
value-added sales to total sales of at least 50%. 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 profitable top-line sales growth while increasing DIY/retail market
share.

UNIVERSAL FOREST PRODUCTS(R) 11

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

- - Maintaining manufactured housing market share.

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

<Table>
<Caption>
YEARS ENDED
------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
MARKET CLASSIFICATION 2002 % 2001 % 2000 %
- ------------------------------------------------------------------------------------------------------------

DIY/retail.............................. $ 761,688 46.5 $ 738,218 48.3 $ 659,663 47.6
Site-Built Construction................. 326,651 19.9 308,826 20.2 243,948 17.6
Manufactured Housing.................... 292,394 17.8 280,208 18.3 291,191 21.0
Industrial and Other.................... 259,166 15.8 203,101 13.2 192,328 13.8
---------- ----- ---------- ----- ---------- -----
Total................................... $1,639,899 100.0 $1,530,353 100.0 $1,387,130 100.0
========== ===== ========== ===== ========== =====
</Table>

- -------------------------

Note: During 2002, we reviewed our customer lists and made certain
reclassifications. Historical information has been restated to reflect
these reclassifications.

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

<Table>
<Caption>
% CHANGE
---------------------------------------
IN SALES IN SELLING PRICES IN UNITS
---------------------------------------

2002 versus 2001............................................ +7% -2% +9%
2001 versus 2000............................................ +10% -3% +13%
2000 versus 1999............................................ -3% -6% +3%
</Table>

The increase in unit sales in 2002 was due to the consolidation of Pinelli,
business combinations we completed, and organic growth achieved by our existing
plants totaling approximately 3%. The decrease in overall selling prices was
attributable to the Lumber Market. Changes in sales by market are discussed
below.

The increase in unit sales in 2001 was due to business combinations we completed
and organic growth achieved by our existing plants totaling approximately 7%.
The decrease in overall selling prices was attributable to the Lumber Market.
Changes in sales by market are discussed below.

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

<Table>
<Caption>
VALUE-ADDED COMMODITY-BASED
-----------------------------

2002........................................................ 50.8% 49.2%
2001........................................................ 48.4% 51.6%
2000........................................................ 44.2% 55.8%
</Table>

The increase in our ratio of value-added sales to total sales in 2002 compared
to 2001 was primarily due to a 12% increase in value-added sales while
commodity-based sales remained relatively flat. Value-added sales increased
primarily due to increased unit sales of engineered wood products, the
consolidation of Pinelli which manufactures molding, millwork, and industrial
products and other specialty products supplied to the DIY/retail market.

The increase in our ratio of value-added sales to total sales in 2001 compared
to 2000 was primarily due to a 21% increase in value-added sales while
commodity-based sales remained relatively flat. Value-added sales increased
primarily due to increased unit sales of engineered wood products to the
site-built construction market, truss sales to the manufactured housing market
and fencing and decking to the DIY/retail market.

12 UNIVERSAL FOREST PRODUCTS(R)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

DIY/RETAIL:

We have developed strong relationships with national retail customers due to our
ability to provide quality products and a high level of service at competitive
prices. The most significant is our long standing relationship with The Home
Depot, which comprised 30% of our total sales and 65% of our DIY/retail sales in
2002.

Net sales to the DIY/retail market increased 3% in 2002 compared to 2001,
primarily due to the acquisitions of P&R, Quality and Inno-Tech (see Business
Combinations). Organic growth out of our existing operations was offset by lower
overall selling prices due to the Lumber Market.

Net sales to the DIY/retail market increased 12% in 2001 compared to 2000,
primarily due to growth in sales to The Home Depot. Our sales to The Home Depot
increased 14% due to unit sales increases across several regions in all product
lines.

SITE-BUILT CONSTRUCTION:

Net sales to the site-built construction market increased 6% in 2002 compared to
2001 primarily due to the acquisition of Superior (see Business Combinations).
Organic growth achieved out of existing operations was substantially offset by
lower selling prices due to the Lumber Market.

Net sales to the site-built construction market increased 27% in 2001 compared
to 2000 primarily due to several acquisitions we completed during 2001 (see
Business Combinations) combined with 11% growth out of our existing operations.

MANUFACTURED HOUSING:

Net sales to the manufactured housing market increased 4% in 2002 compared to
2001 despite a 13% decline in industry shipments. We improved our market share
by utilizing certain assets acquired from Sunbelt (see Business Combinations)
for the full year and increasing our sales to modular home producers.

Net sales to the manufactured housing market decreased 4% in 2001 compared to
2000 due to a decline in selling prices resulting from the Lumber Market. Our
unit sales remained relatively flat, despite a 23% decline in industry
shipments, primarily due to our acquisition of Sunbelt in April 2001 (see
Business Combinations).

INDUSTRIAL AND OTHER:

Net sales to industrial and other increased 28% in 2002 compared to 2001 due to
the consolidation of Pinelli, combined with 15% unit sales growth out of our
existing plants. In January 2002, we acquired an additional 5% ownership
interest in Pinelli. As a result of this transaction, we obtained additional
rights of control and began consolidating Pinelli in the 2002 consolidated
financial statements.

Net sales to industrial and other increased 6% in 2001 compared to 2000. This
resulted from re-directing sales efforts and manufacturing capacity at certain
plants due to the downturn in the manufactured housing market and our continued
efforts to increase market share. We anticipated stronger growth in 2001, but
the slowing economy had a significant impact on many of our customers,
particularly those in the technology sector.

COST OF GOODS SOLD AND GROSS PROFIT

Gross profit as a percentage of net sales increased in 2002 compared to 2001.
This increase was primarily due to an increase in sales of value-added products,
offset in part by a dramatic decline in lumber prices during our peak selling
season which adversely impacted our gross margins on products not covered under
managed inventory programs. As previously discussed, a declining trend in lumber
prices adversely impacts margins on products whose selling prices are indexed to
the Lumber Market.

Gross profit as a percentage of net sales increased in 2001 compared to 2000.
This increase was primarily due to an increase in our ratio of sales of
value-added products, particularly sales of engineered wood products to the
site-built construction market, trusses to the manufactured housing market and
fencing and decking to the DIY/retail market. These positive effects were offset
by margin pressure in the site-built construction market as activity in several
regions softened.

UNIVERSAL FOREST PRODUCTS(R) 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") as a percentage of net
sales increased to 9.7% in 2002 compared to 9.5% in 2001. On a pro forma basis,
excluding amortization of goodwill in 2001, the percentage was 9.3%. This
increase was primarily due to new acquisitions that have comparatively higher
selling and design costs, combined with increases in insurance costs and
incentive compensation.

Effective December 30, 2001 (the first day of our fiscal year ending December
28, 2002), we adopted SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS
142"). This statement changed the accounting and reporting for goodwill and
other intangible assets. Goodwill is no longer amortized, however tests for
impairment are performed annually and if a triggering event occurs.

SG&A as a percentage of net sales increased to 9.5% in 2001 compared to 9.0% in
2000. This increase was primarily due to an increase in compensation and related
benefit costs from a higher headcount, an increase in consulting costs
associated with certain projects, and losses from the sale or impairment of idle
assets.

INTEREST, NET

Net interest costs were lower in 2002 compared to 2001. Although we had a higher
average debt balance as a result of increased working capital, acquisitions and
the repurchase of shares from our largest shareholder, this was offset by a
decrease in short-term borrowing rates on variable rate debt. The average
interest rate on our primary revolving credit facility was 2.3% and 4.7% for
2002 and 2001, respectively.

Net interest costs were lower in 2001 compared to 2000. Although we had a higher
average debt balance due to acquisitions in 2001, this was offset by a decrease
in short-term borrowing rates on variable rate debt. The average interest rate
on our primary revolving credit facility was 4.7% and 7.1% for 2001 and 2000,
respectively.

GAIN ON SALE OF ASSETS

During the second quarter of 2002, we sold our corporate airplane and recognized
a gain of $1.1 million on the sale, and entered into an operating lease for a
replacement airplane.

INCOME TAXES

Effective tax rates differ from statutory federal income tax rates, primarily
due to provisions for state and local income taxes and permanent tax
differences.

Our effective tax rate increased to 37.0% in 2002 from 36.1% in 2001. This
increase primarily resulted from an increase in our state income tax rate in
2002 and certain tax credits recognized in the third and fourth quarters of
2001. These increases were offset somewhat by the effect of no longer amortizing
goodwill, which resulted in a permanent tax difference in 2001.

Our effective tax rate declined to 36.1% in 2001 from 38.1% in 2000. This
decline primarily resulted from a permanent tax difference associated with our
50% investment in D&R and recognizing the benefits of certain tax credits in the
third and fourth quarters of 2001.

OFF-BALANCE SHEET TRANSACTIONS

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

LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities decreased by over $61 million in 2002
compared to 2001. This decrease was primarily due to:

- - An increase in our inventory levels relative to sales. In November and
December 2002, our purchasing managers took advantage of the historically low
level of the Lumber Market and increased inventory levels. The product
purchased during this period is expected to be sold in the first quarter of
2003. In addition, inventory levels increased in 2002 as a result of

14 UNIVERSAL FOREST PRODUCTS(R)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

both inclement weather reducing sales in November and December and additional
inventory purchased to utilize capacity created with our treating services
agreement with Quality (see Business Combinations).

- - An increase in our accounts receivable as a result of extending our payment
terms with The Home Depot by an additional 15 days.

Due to the seasonality of our business and the effects of the Lumber Market, we
believe our cash cycle (days sales outstanding plus days supply of inventory
less days payables outstanding) is a good indicator of our working capital
management. Our cash cycle increased to 47 days in 2002 from 44 days in 2001.
This increase was primarily due to a longer receivables cycle resulting from
extended payment terms with The Home Depot. This was offset slightly by an
extension in our payables cycle.

Capital expenditures totaled $31 million in 2002. These expenditures included $7
million of real estate purchases, along with several projects to improve
efficiencies and expand manufacturing capacity at existing plants. On December
28, 2002, outstanding purchase commitments on capital projects totaled $1
million. We intend to satisfy these commitments utilizing our revolving credit
facility.

We spent approximately $18 million in 2002 related to acquisitions which are
discussed earlier under the caption Business Combinations. We funded the
purchase price of these acquisitions using our revolving credit facility.

We issued almost $59 million of long-term debt in the fourth quarter of 2002
consisting of $40 million of unsecured notes due in December 2012 at an interest
rate of 6.16%; $15 million of unsecured notes due in December 2009 at an
interest rate of 5.63%; and $3.7 million of industrial development revenue bonds
due in December 2022 bearing interest at a variable rate. The proceeds from
these debt issuances were used to reduce the amounts outstanding on our
revolving credit facility.

We spent approximately $40 million to repurchase our common stock, including the
purchase of 2 million shares from our largest shareholder for $36 million in
January 2002.

During the fourth quarter of 2002, we refinanced our revolving credit facility
and extended its maturity from November 2003 to November 2005. On December 28,
2002, we had $53 million outstanding on this facility, which has a total
availability of $200 million less amounts reserved for outstanding letters of
credit totaling $17.9 million. Financial covenants on the facility and unsecured
notes include a minimum net worth requirement, minimum interest coverage tests
and a maximum leverage ratio. The agreements also restrict the amount of
additional indebtedness we may incur and the amount of assets which may be sold.
We were within all of our lending requirements on December 28, 2002.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

We are self-insured for environmental impairment liability through a wholly
owned subsidiary, UFP Insurance Ltd., a licensed captive insurance company. We
own and operate a number of facilities throughout the United States that
chemically treat lumber products. In connection with the ownership and operation
of these and other real properties, and the disposal or treatment of hazardous
or toxic substances, we may, under various federal, state and local
environmental laws, ordinances and regulations, be potentially liable for
removal and remediation costs, as well as other potential costs, damages and
expenses. Insurance reserves have been established to cover remediation
activities at our Union City, GA; Stockertown, PA; Elizabeth City, NC;
Auburndale, FL; and Schertz, TX wood preservation facilities. In August of 2002,
we purchased property in Thornton, CA on which several old buildings existed.
The environmental assessment indicated that these buildings contained small
amounts of asbestos. A reserve has been established to cover the removal of the
asbestos. Since we determined we will no longer operate the North East, MD
facility as a wood preservation location, during the third quarter of 2002 we
completed the process of closing the conditioning pad, in accordance with
applicable regulations, and the reserve was reduced accordingly.

Including amounts from the captive insurance company, we have reserved amounts
totaling approximately $1.9 million and $2.4 million on December 28, 2002 and
December 29, 2001, respectively, representing the estimated costs to complete
remediation efforts.

UNIVERSAL FOREST PRODUCTS(R) 15

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

of CCA for certain industrial and commercial uses. The manufacturers agreed to
voluntarily discontinue the registration of CCA for certain residential
applications by December 31, 2003. All of our facilities are presently capable
of using a new preservative to treat wood products.

In addition to the EPA review, an environmental group petitioned the Consumer
Products Safety Commission ("CPSC") to ban the use of CCA treated wood in
playsets. On February 7, 2003, the CPSC issued a staff report on its study of
the risks of children playing on treated playsets. The study does not recommend
removal of product, and proposes the CPSC take no further action until the EPA
concludes its assessment. We have been assured by our vendors and by scientific
studies that CCA treated lumber poses no unreasonable risks and its continued
use should be permitted. The EPA, in its February 2002 press release concluded
that there isn't any reason to remove or replace any CCA treated structures,
including decks or playground equipment.

We have been requested by a customer to defend it from purported class action
lawsuits filed against it in Florida and Louisiana. The complaints allege that
CCA treated lumber is defective. As previously stated, our vendors believe and
scientific studies support the fact that CCA treated lumber poses no
unreasonable risks, and we intend to vigorously defend this position. While our
customer has charged us for certain expenses incurred in the defense of these
claims, we have not formally accepted liability of these costs. We, along with
others in the industry, were previously named as a defendant in the purported
class action lawsuit in Louisiana. We have been dismissed from this litigation.

In addition, various special interest environmental groups have petitioned
certain states requesting restrictions on the use or disposal of CCA treated
products. The wood preservation industry trade groups are working with the
individual states and their regulatory agencies to provide an accurate, factual
background which demonstrates that the present method of uses and disposal is
scientifically supported.

On December 28, 2002, 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 legal proceedings.

BASIS OF PRESENTATION

When considering year-over-year growth statistics, it is important to note that
our fiscal years 2002 and 2001 were comprised of 52 weeks, compared to 53 weeks
in 2000.

CRITICAL ACCOUNTING POLICIES

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

ACCOUNTS RECEIVABLE ALLOWANCES

SELF-INSURANCE RESERVES

We are significantly self-insured for general liability, automobile, workers'
compensation and certain employee health benefits. We are fully self-insured for
environmental liabilities. The general liability, automobile, workers'
compensation and environmental liabilities are managed through a wholly-owned
insurance captive; the related assets and liabilities are included in the
consolidated financial statements at December 28, 2002. Our accounting policies
with respect to the reserves are as follows:

- - General liability, automobile and workers' compensation reserves are accrued
based on actuarial valuations of the expected future liabilities.

16 UNIVERSAL FOREST PRODUCTS(R)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

- - Health benefits are self-insured by us up to our pre-determined stop loss
limits. These reserves, including incurred but not reported claims, are based
on internal computations. These computations consider our historical claims
experience, independent statistics and trends.

- - The environmental reserve is based on known remediation activities at certain
wood preservation facilities and the potential for undetected environmental
matters at other sites. The reserve for known activities is based on expected
future costs and is computed by in-house experts responsible for managing our
monitoring and remediation activities. The reserve for potential undetected
environmental matters is actuarially determined. (See Environmental
Considerations and Regulations.)

LONG-LIVED ASSETS AND GOODWILL

We evaluate long-lived assets for indicators of impairment when events or
circumstances indicate that this risk may be present. Our judgments regarding
the existence of impairment are based on market conditions, operational
performance and estimated future cash flows. If the carrying value of a
long-lived asset is considered impaired, an impairment charge is recorded to
adjust the asset to its fair value. In addition, we test goodwill for impairment
by utilizing the discounted cash flow method, as well as comparing the results
to other widely acceptable valuation methods.

FORWARD OUTLOOK

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

DIY/RETAIL MARKET

The Building Material Research Institute forecasts an increase in retail sales
from home centers and building supply outlets totaling over 7% in 2003. In
addition, the consolidation within the DIY/retail industry is expected to
continue as top performers continue to obtain additional market share. We feel
we are in a position to continue to capitalize on these industry conditions as a
result of our national presence, service capabilities that meet stringent
customer requirements, and diversified product offering. We believe the
following factors will help us achieve our growth objectives in 2003:

- - We purchased a facility from Quality in November 2002 which produces Everx(R)
composite decking.

- - We entered into an exclusive treating services agreement with Quality,
allowing us to increase our sales of treated wood products in the Midwest.

- - We were awarded deck and fence installation business in several new regional
markets.

Notwithstanding the information above, our long-term growth objectives may be
impacted by the conversion to a new chemical used to preserve wood products. On
February 12, 2002, the EPA announced that the registered manufacturers of CCA
had agreed to voluntarily limit the future residential uses of CCA treated wood
products by December 31, 2003. CCA treated products will still be permitted for
a variety of industrial and non-residential applications. We will work closely
with our customers in 2003 to achieve an orderly transition, however, if
consumer demand for the new preservative is not as strong as the demand for the
CCA treated products, it could have a significant adverse impact on our results
of operations. (See Environmental Considerations and Regulations.)

SITE-BUILT CONSTRUCTION MARKET

As a result of higher unemployment levels and other economic factors, we expect
the site-built construction market to be slightly "softer" than it was in 2002.
However, we believe we will obtain additional market share in 2003 as a result
of planned expansion into new geographic markets, a new truss manufacturing
operation in Modesto, CA and a new venture to provide framing services for the
multi-family construction market.

UNIVERSAL FOREST PRODUCTS(R) 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

On a long-term basis, we believe the sale of engineered wood products will
continue to grow because of the benefits these products provide builders over
traditional carpentry methods employed on the job site, including cost
advantages through more efficient labor, and consolidation toward large
production-oriented builders, which tend to prefer the use of engineered
products and who desire suppliers with a national presence.

We expect that business acquisitions will play a major role in our future growth
in this market.

MANUFACTURED HOUSING MARKET

Manufactured Home Merchandiser, in its January 2003 edition, forecasted an
increase in industry shipments to retailers of approximately 2% in 2003
reflecting a continuation of tight credit conditions, repossessions and weak
economic factors. We believe we will maintain our current market share of
trusses produced for HUD code homes and plan to continue efforts to gain share
in the modular market.

INDUSTRIAL AND OTHER

One of our key strategic objectives is to increase our sales of wood packaging
products to industrial users. We believe the vast amount of hardwood and
softwood lumber consumed for industrial applications, combined with the highly
fragmented nature of this market provides us with significant growth
opportunities. To take advantage of these opportunities, we plan to continue to
obtain market share through an internal growth strategy utilizing our current
manufacturing capabilities and dedicated industrial sales force. On a long-term
basis, we plan to evaluate strategic acquisition opportunities.

GROSS PROFIT

We believe the following factors may impact our gross profits in the future:

- - We have a long-term goal of continuing to increase our ratio of value-added
sales to total sales, which in turn should increase gross margins. Our
acquisition and internal sales growth strategies will help us continue to make
progress toward this objective. However, achievement of this goal is
dependent, in part, upon certain factors that are beyond our control. (See
Impact of the Lumber Market on Our Operating Results.)

- - Our ability to increase sales and gross margins on products sold to our
largest customers. We believe our level of service, geographic diversity and
quality of products provide an added value to our customers. If our customers
are unwilling to pay for the additional services, our sales and gross margins
may be reduced.

- - The conversion to a new chemical to preserve wood products may impact our
margins in the event consumer demand for the new preservatives is not as
strong as the demand for CCA treated products. The new chemical is expected to
increase the cost of our products by approximately 10-20%. (See Environmental
Considerations and Regulations.)

- - We expect activity in the site-built construction market to be "softer" in
2003. This may cause pressure on pricing and gross margins in certain regions.

- - Fluctuations in the relative level of the Lumber Market and the trend in the
market price of lumber impact our gross margins. (See Impact of the Lumber
Market on Our Operating Results.)

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A costs have increased as a percentage of sales in recent years, in part, due
to acquisitions of engineered wood product manufacturers which have extensive
engineering and design costs. SG&A costs as a percentage of sales may continue
to increase in the future as sales of engineered wood products and specialty
wood packaging become a greater percentage of our total business. However, we
strive to achieve economies of scale in other administrative departments as
sales growth objectives are met.

LIQUIDITY AND CAPITAL RESOURCES

Management expects to spend approximately $42 million on capital expenditures in
2003 and incur depreciation and amortization of approximately $27 million.
Besides "maintenance" capital expenditures totaling approximately $22 million,
we plan to spend an additional $20 million to expand the business and create
operating efficiencies.

18 UNIVERSAL FOREST PRODUCTS(R)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

We have no present intention to change our dividend policy, which is currently
$0.045 per share paid semi-annually.

Our Board of Directors has approved a share repurchase program under which we
have authorization to buy back approximately 1.7 million shares as of December
28, 2002.

We are obligated to pay amounts due on long-term debt totaling approximately
$6.5 million in 2003.

We have a $200 million unsecured revolving credit facility used to support
certain outstanding letters of credit and fund seasonal working capital
requirements and growth. We believe our peak seasonal working capital
requirements will consume an additional $80 million of this availability through
June of 2003 and then decrease for the balance of the year in line with
historical trends. We plan to finance our capital requirements by using this
revolving credit facility.

UNIVERSAL FOREST PRODUCTS(R) 19

REPORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheet of Universal Forest
Products, Inc. and subsidiaries as of December 28, 2002, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
financial statements of Universal Forest Products, Inc. for the year ended
December 29, 2001 were audited by other auditors who have ceased operations and
whose report dated January 25, 2002 expressed an unqualified opinion on those
statements.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Universal Forest
Products, Inc. and subsidiaries at December 28, 2002, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States.

As discussed above, the financial statements of Universal Forest Products, Inc.
as of December 29, 2001, and for the year then ended, were audited by other
auditors who have ceased operations. As described in Note C, these financial
statements have been revised to include the transitional disclosures required by
Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and
Other Intangible Assets, which was adopted by the Company as of December 30,
2001. Our audit procedures with respect to the adjusted net earnings and
adjusted earnings-per-share as shown on the consolidated statement of earnings
and as described in Note C with respect to 2001 included (a) agreeing the
previously reported net income to the previously issued financial statements and
the adjustments to reported net income representing amortization expense
(including any related tax effects) recognized in 2001 related to goodwill as a
result of initially applying Statement No. 142 to the Company's underlying
records obtained from management, and (b) testing the mathematical accuracy of
the reconciliation of adjusted net income to reported net income, and the
related earnings-per-share amounts. In our opinion, the disclosures for 2001 as
shown on the consolidated statement of earnings and described in Note C are
appropriate. However, we were not engaged to audit, review or apply any
procedures to the 2001 financial statements of the Company other than with
respect to such disclosures and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 financial statements taken as a whole.

As discussed in Note C to the consolidated financial statements, in 2002 the
Company changed its method of accounting for goodwill and other intangible
assets.

/s/ ERNST & YOUNG LLP
Grand Rapids, Michigan
January 24, 2003

20 UNIVERSAL FOREST PRODUCTS(R)

The following report is a copy of a report previously issued by Arthur Andersen
LLP in connection with the Company's Annual Report on Form 10-K for the year
ended December 29, 2001. This opinion has not been reissued by Arthur Andersen
LLP.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Universal Forest Products, Inc.:

We have audited the accompanying consolidated balance sheet of Universal Forest
Products, Inc. (a Michigan Corporation) and subsidiaries as of December 29,
2001, and the related consolidated statements of earnings, shareholders' equity,
and cash flows for the year ended December 29, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Universal Forest Products, Inc.
and subsidiaries as of December 29, 2001 and the results of their operations and
their cash flows for the year ended December 29, 2001, in conformity with
accounting principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP
Grand Rapids, Michigan
January 25, 2002

UNIVERSAL FOREST PRODUCTS(R) 21

INDEPENDENT AUDITORS' REPORT

Board of Directors
Universal Forest Products, Inc.
Grand Rapids, Michigan

We have audited the consolidated balance sheet of Universal Forest Products,
Inc. and subsidiaries as of December 30, 2000 and the related consolidated
statements of earnings, shareholders' equity, and cash flows for the fiscal year
ended December 30, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Universal Forest Products, Inc. and
subsidiaries as of December 30, 2000 and the results of their operations and
their cash flows for the fiscal year ended December 30, 2000, in conformity with
accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
January 29, 2001

22 UNIVERSAL FOREST PRODUCTS(R)

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

<Table>
<Caption>
DECEMBER 28, DECEMBER 29,
NOTE 2002 2001
----------------------------------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 13,454 $ 22,887
Restricted cash equivalents............................... 1,383
Accounts receivable (net of allowances of $2,427 and
$1,803)................................................. 105,217 86,256
Inventories:
Raw materials........................................... 83,557 41,061
Finished goods.......................................... 82,449 79,708
--------- ---------
166,006 120,769
Other current assets...................................... 2,041 2,546
Prepaid income taxes...................................... M 5,075 1,629
Deferred income taxes..................................... M 921 879
--------- ---------
TOTAL CURRENT ASSETS.................................... 294,097 234,966
OTHER ASSETS................................................ F, K 6,738 11,585
GOODWILL.................................................... B, C 126,299 119,550
NON-COMPETE AND LICENSING AGREEMENTS
(net of accumulated amortization of $2,463 and $3,644).... B, C 4,516 3,446
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements..................................... E 47,102 41,188
Buildings and improvements................................ E 113,316 103,233
Machinery, equipment and office furniture................. E 157,004 139,704
Construction in progress.................................. 11,077 2,758
--------- ---------
328,499 286,883
Less accumulated depreciation and amortization............ E (125,355) (105,221)
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET...................... 203,144 181,662
--------- ---------
TOTAL ASSETS................................................ $ 634,794 $ 551,209
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt........................................... D $ 1,758 $ 1,402
Accounts payable.......................................... 57,515 46,862
Accrued liabilities:
Compensation and benefits............................... L 36,610 34,029
Other................................................... 6,463 8,187
Current portion of long-term debt and capital lease
obligations............................................. D, E 6,495 20,415
--------- ---------
TOTAL CURRENT LIABILITIES............................... 108,841 110,895
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
portion................................................... D, E 235,319 154,370
DEFERRED INCOME TAXES....................................... M 13,328 9,580
OTHER LIABILITIES........................................... F, N 14,306 9,502
--------- ---------
TOTAL LIABILITIES....................................... 371,794 284,347
TEMPORARY SHAREHOLDERS' EQUITY:
Value of shares subject to redemption agreement; 2,000,000
shares issued and outstanding........................... G 36,000
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; shares authorized
1,000,000; issued and outstanding, none
Common stock, no par value; shares authorized 40,000,000;
issued and outstanding, 17,741,982 and 17,787,860....... G, H, I, J 17,742 17,788
Additional paid-in capital................................ G, H, J 82,139 80,994
Retained earnings......................................... 164,221 132,677
Accumulated other comprehensive earnings.................. 299 558
--------- ---------
264,401 232,017
Officers' stock notes receivable.......................... J (1,401) (1,155)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 263,000 230,862
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 634,794 $ 551,209
========= =========
</Table>

See notes to consolidated financial statements.

UNIVERSAL FOREST PRODUCTS(R) 23

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

<Table>
<Caption>
YEAR ENDED
------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
NOTE 2002 2001 2000
------------------------------------------------------

NET SALES.............................................. $1,639,899 $1,530,353 $1,387,130
COST OF GOODS SOLD..................................... E,L 1,409,489 1,318,874 1,200,117
---------- ---------- ----------
GROSS PROFIT........................................... 230,410 211,479 187,013
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... C,E,H,K,L 158,299 145,722 124,391
---------- ---------- ----------
EARNINGS FROM OPERATIONS............................... 72,111 65,757 62,622
INTEREST, NET:
Interest expense..................................... D 11,375 12,043 12,804
Interest income...................................... J (297) (586) (557)
Gain on sale of assets............................... (1,082)
---------- ---------- ----------
9,996 11,457 12,247
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES, MINORITY INTEREST AND
EQUITY IN EARNINGS OF INVESTEE....................... 62,115 54,300 50,375
INCOME TAXES........................................... M 22,983 19,612 19,218
---------- ---------- ----------
EARNINGS BEFORE MINORITY INTEREST AND EQUITY IN
EARNINGS OF INVESTEE................................. 39,132 34,688 31,157
MINORITY INTEREST...................................... (2,495) (1,792) (750)
EQUITY IN EARNINGS OF INVESTEE......................... 246 31
---------- ---------- ----------
REPORTED NET EARNINGS.................................. 36,637 33,142 30,438
ADD: Goodwill amortization, net of tax............... 2,997 2,452
---------- ---------- ----------
ADJUSTED NET EARNINGS................................ $ 36,637 $ 36,139 $ 32,890
========== ========== ==========
REPORTED EARNINGS PER SHARE -- BASIC................... $ 2.04 $ 1.68 $ 1.52
ADD: Goodwill amortization, net of tax............... 0.15 0.12
---------- ---------- ----------
ADJUSTED EARNINGS PER SHARE -- BASIC................. $ 2.04 $ 1.83 $ 1.64
========== ========== ==========
REPORTED EARNINGS PER SHARE -- DILUTED................. $ 1.97 $ 1.63 $ 1.49
ADD: Goodwill amortization, net of tax............... 0.15 0.12
---------- ---------- ----------
ADJUSTED EARNINGS PER SHARE -- DILUTED............... $ 1.97 $ 1.77 $ 1.61
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING.................... 17,922 19,774 20,086
WEIGHTED AVERAGE SHARES OUTSTANDING WITH COMMON STOCK
EQUIVALENTS.......................................... 18,619 20,377 20,477
</Table>

See notes to consolidated financial statements.

24 UNIVERSAL FOREST PRODUCTS(R)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands, except share and per share data)

<Table>
<Caption>
ACCUMULATED
ADDITIONAL OTHER OFFICERS'
COMMON PAID-IN RETAINED COMPREHENSIVE STOCK NOTES
STOCK CAPITAL EARNINGS EARNINGS RECEIVABLE TOTAL
------------------------------------------------------------------------

BALANCE AT DECEMBER 25, 1999.......... $20,212 $78,625 $115,327 $1,033 $ (635) $214,562
Comprehensive earnings:
Net earnings........................ 30,438
Foreign currency translation
adjustment........................ (173)
Total comprehensive earnings........ 30,265
Cash dividends -- $.080 per share..... (1,605) (1,605)
Issuance of 79,664 shares under
employee stock plans................ 80 400 480
Issuance of 2,100 shares under stock
grant programs...................... 2 30 32
Repurchase of 635,411 shares.......... (635) (7,515) (8,150)
Tax benefits from non-qualified stock
options exercised................... 5 5
Issuance of officers' stock notes
receivable.......................... 60 740 (800) 0
Payments received on officers' stock
notes receivable.................... 180 180
------- ------- -------- ------ ------- --------
BALANCE AT DECEMBER 30, 2000.......... $19,719 $79,800 $136,645 $ 860 $(1,255) $235,769
Comprehensive earnings:
Net earnings........................ 33,142
Foreign currency translation
adjustment........................ (302)
Total comprehensive earnings........ 32,840
Cash dividends -- $.085 per share..... (1,683) (1,683)
Issuance of 164,764 shares under
employee stock plans................ 165 705 870
Issuance of 13,464 shares under stock
grant programs...................... 13 173 186
Repurchase of 109,482 shares.......... (109) (1,427) (1,536)
Tax benefits from non-qualified stock
options exercised................... 316 316
Transfer to temporary equity.......... (2,000) (34,000) (36,000)
Payments received on officers' stock
notes receivable.................... 100 100
------- ------- -------- ------ ------- --------
BALANCE AT DECEMBER 29, 2001.......... $17,788 $80,994 $132,677 $ 558 $(1,155) $230,862
Comprehensive earnings:
Net earnings........................ 36,637
Foreign currency translation
adjustment........................ (259)
Total comprehensive earnings........ 36,378
Cash dividends -- $.090 per share..... (1,605) (1,605)
Issuance of 133,125 shares under
employee stock plans................ 133 710 843
Issuance of 7,877 shares under stock
grant programs...................... 8 125 133
Repurchase of 199,435 shares.......... (199) (3,488) (3,687)
Tax benefits from non-qualified stock
options exercised................... 22 22
Issuance of officers' stock notes
receivable.......................... 12 288 (300) 0
Payments received on officers' stock
notes receivable.................... 54 54
------- ------- -------- ------ ------- --------
BALANCE AT DECEMBER 28, 2002.......... $17,742 $82,139 $164,221 $ 299 $(1,401) $263,000
======= ======= ======== ====== ======= ========
</Table>

See notes to consolidated financial statements.

UNIVERSAL FOREST PRODUCTS(R) 25

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<Table>
<Caption>
YEAR ENDED
-------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
NOTE 2002 2001 2000
-------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 36,637 $ 33,142 $ 30,438
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation............................................ E 23,474 20,101 17,659
Amortization of intangibles............................. B, C 1,165 4,375 3,803
Deferred income taxes................................... M 3,102 4,587 237
Net loss on sale or impairment of property, plant and
equipment............................................. 702 1,445 422
Changes in:
Accounts receivable................................... (16,489) (11,753) 14,134
Inventories........................................... (40,780) 10,051 13,001
Accounts payable...................................... 9,638 9,891 (12,099)
Accrued liabilities and other......................... (820) 6,217 (590)
-------- -------- --------
NET CASH FROM OPERATING ACTIVITIES.................. 16,629 78,056 67,005
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................. (31,351) (22,748) (29,436)
Purchase of licensing agreements.......................... (2,000)
Acquisitions, net of cash received........................ B (17,540) (49,534) (32,557)
Proceeds from sale of property, plant and equipment....... 2,862 2,497 1,040
Advances on notes receivable.............................. (886) (500)
Collection of notes receivable............................ 961 945 432
Restricted cash equivalents............................... (1,383) 1,364 (1,364)
Purchases of other assets................................. (321) (132) (306)
-------- -------- --------
NET CASH FROM INVESTING ACTIVITIES.................. (48,772) (68,494) (62,691)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of short-term debt and revolving credit
facilities.............................................. D 14,286 23,129 4,090
Proceeds from issuance of long-term debt.................. D 58,700 2,500 7,045
Repayment of long-term debt............................... D (8,482) (10,697) (7,888)
Proceeds from issuance of common stock.................... H, I 843 870 480
Distributions to minority shareholder..................... (1,345) (1,650)
Dividends paid to shareholders............................ (1,605) (1,683) (1,605)
Repurchase of common stock................................ H (39,687) (1,536) (8,150)
-------- -------- --------
NET CASH FROM FINANCING ACTIVITIES.................. 22,710 10,933 (6,028)
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (9,433) 20,495 (1,714)
CASH AND CASH EQUIVALENTS,BEGINNING OF YEAR................. 22,887 2,392 4,106
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 13,454 $ 22,887 $ 2,392
======== ======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ D $ 11,388 $ 12,303 $ 12,721
Income taxes............................................ M 22,827 14,911 17,369
NON-CASH INVESTING ACTIVITIES:
Property, plant and equipment acquired through capital
leases.................................................. E 247 220
Officers' stock notes receivable.......................... J 300 800
NON-CASH FINANCING ACTIVITIES:
Note payable exchanged for non-compete.................... B 2,069
Accounts receivable exchanged for a note receivable....... 441
</Table>

See notes to consolidated financial statements.

26 UNIVERSAL FOREST PRODUCTS(R)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OPERATIONS

We engineer, manufacture, treat, distribute and install lumber, composite,
plastic and other building products for the do-it-yourself/retail
("DIY/retail"), site-built construction, manufactured housing, industrial and
other markets. Our principal products include preservative-treated wood,
remanufactured lumber, lattice, fence panels, deck components, specialty
packaging, engineered trusses, wall panels, I-joists and other building
products.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include our accounts and those of our
wholly-owned and majority-owned subsidiaries and partnerships. All significant
intercompany transactions and balances have been eliminated. The equity method
of accounting is used for less than 50% owned affiliates.

INVESTMENT IN AFFILIATE

On December 18, 1998, one of our subsidiaries acquired a 45% interest in Pino
Exporta, renamed to Pinelli Universal S. de R.L. de C.V. ("Pinelli"), a
manufacturer of moldings and millwork products. Pinelli operates out of one
facility in Durango, Durango, Mexico. We exchanged $3.0 million for our initial
ownership interest of Pinelli, and accounted for our investment utilizing the
equity method of accounting. In addition, we retained an option to acquire an
additional 5% interest in Pinelli for $1 million. This option was extended and
exercised on January 15, 2002. As a result of this transaction, we obtained
additional rights of control and thus began consolidating the results of Pinelli
in the 2002 consolidated financial statements. (See Note B.)

MINORITY INTEREST IN SUBSIDIARIES

Minority interest in results of operations of consolidated subsidiaries
represents the minority shareholders' share of the income or loss of various
consolidated subsidiaries. The minority interest included in "Other Liabilities"
reflects the original investment by these minority shareholders combined with
their proportional share of the earnings or losses of these subsidiaries, net of
dividends paid.

FISCAL YEAR

Our fiscal year is a 52 or 53 week period, ending on the last Saturday of
December. Unless otherwise stated, references to 2002, 2001 and 2000 relate to
the fiscal years ended December 28, 2002, December 29, 2001 and December 30,
2000, respectively. Fiscal years 2002 and 2001 were comprised of 52 weeks, and
fiscal year 2000 was comprised of 53 weeks.

FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

The estimated fair values of financial instruments have been determined in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 107,
Disclosures about Fair Value of Financial Instruments. Significant differences
in fair market values and recorded values are disclosed in Note D. The estimated
fair value amounts have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that we could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

The fair value estimates presented herein are based on pertinent information
available to management as of December 28, 2002. Although we are not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date, and current estimates of fair value may
differ significantly from the amounts presented herein.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly-liquid investments
purchased with an original maturity of three months or less.

UNIVERSAL FOREST PRODUCTS(R) 27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As a result of our cash management system, checks issued but not presented to
our bank for payment creates negative cash balances. These negative balances are
included in trade accounts payable and totaled $23.9 million and $18.8 million
as of December 28, 2002 and December 29, 2001, respectively.

RESTRICTED CASH EQUIVALENTS

Unexpended proceeds from certain borrowings, that are restricted as to use, have
been excluded from cash and cash equivalents. This cash is restricted for future
capital projects financed with industrial development revenue bonds.

ACCOUNTS RECEIVABLE

We perform periodic credit evaluations of our customers and generally do not
require collateral. Accounts receivable are generally due within 30 days.

INVENTORIES

Inventories are stated at the lower of average cost or market. The cost of
inventories includes raw materials, direct labor and manufacturing overhead.
Cost is determined on a first-in, first-out (FIFO) basis. Raw materials consist
primarily of unfinished wood products expected to be manufactured or treated
prior to sale, while finished goods represent various manufactured and treated
wood products ready for sale.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Expenditures for renewals and
betterments are capitalized, and maintenance and repairs are expensed as
incurred. Amortization of assets held under capital leases is included in
depreciation and amortized over the shorter of the estimated useful life of the
asset or the lease term. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the assets as follows:

<Table>

Buildings and improvements.................................. 15 to 31.5 years
Land improvements........................................... 5 to 15 years
Machinery, equipment and office furniture................... 3 to 8 years
</Table>

FOREIGN CURRENCY TRANSLATION

Our foreign operations use the local currency as their functional currency.
Accordingly, assets and liabilities are translated at exchange rates as of the
balance sheet date and revenues and expenses are translated using weighted
average rates, with translation adjustments included as a separate component of
shareholders' equity.

SELF-INSURANCE RESERVES

We are significantly self-insured for general liability, automobile, workers'
compensation, and certain employee health benefits. We are fully self-insured
for environmental liabilities. The general liability, automobile, workers'
compensation and environmental liabilities are managed through a wholly-owned
insurance captive; the related assets and liabilities are included in the
consolidated financial statements at December 28, 2002. Our policy is to accrue
amounts equal to actuarially determined or internally computed liabilities. The
actuarial and internal valuations are based on historical information along with
certain assumptions about future events. Changes in assumptions for such matters
as legal actions, medical costs and changes in claims experience could cause
these estimates to change in the future.

INCOME TAXES

Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax basis of assets and liabilities that will result
in taxable or deductible amounts in the future. Such deferred income tax asset
and liability computations are based on enacted tax laws and rates applicable to
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.

28 UNIVERSAL FOREST PRODUCTS(R)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE ALLOWANCES

Revenue is recognized at the time the product is shipped to the customer.
Generally, title passes at the time of shipment. In certain circumstances, the
customer takes title when the shipment arrives at the destination. However, our
shipping process is typically completed the same day.

We base our allowances related to receivables on historical credit and
collections experience, and the specific identification of other potential
problems, including the economic climate. Actual collections can differ,
requiring adjustments to the allowances. Individual accounts receivable balances
are evaluated on a monthly basis, and those balances considered to be
uncollectible are charged to the allowance. Collections of amounts previously
written off are recorded as an increase to the allowance. Bad debt expense
amounted to approximately $2.4 million, $1.4 million and $1.5 million, for 2002,
2001 and 2000, respectively.

CUSTOMER REBATES

In 2001, the Emerging Issues Task Force ("EITF") released its consensus on Issue
No. 00-22, Accounting for Points and Certain Other Time-Based or Volume-Based
Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered
in the Future ("EITF 00-22"). This consensus provides guidance on the
classification of expenses related to customer rebate and refund obligations. We
adopted EITF 00-22 effective with the first quarter 2001 and have reclassified
prior periods to include customer rebates as a component of net sales.

SHIPPING AND HANDLING OF PRODUCT

Shipping and handling costs that are charged to and reimbursed by the customer
are recognized as revenue. Costs incurred related to the shipment and handling
of products are classified in cost of goods sold.

EARNINGS PER SHARE

Basic earnings per share ("EPS") is calculated based on the weighted average
number of common shares outstanding during the periods presented. Diluted EPS is
calculated based on the weighted average number of common and common equivalent
shares outstanding during the periods presented, giving effect to stock options
granted (see Note I) utilizing the "treasury stock" method.

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):

<Table>
<Caption>
2002 2001 2000
-------------------------- -------------------------- --------------------------
INCOME SHARES PER INCOME SHARES PER INCOME SHARES PER
(NUM- (DENOM- SHARE (NUM- (DENOM- SHARE (NUM- (DENOM- SHARE
ERATOR) INATOR) AMOUNT ERATOR) INATOR) AMOUNT ERATOR) INATOR) AMOUNT
------------------------------------------------------------------------------------

NET EARNINGS................ $36,637 $33,142 $30,438
EPS -- BASIC
Income available to common
stockholders.............. 36,637 17,922 $2.04 33,142 19,774 $1.68 30,438 20,086 $1.52
===== ===== =====
EFFECT OF DILUTIVE
SECURITIES
Options..................... 697 603 391
------ ------ ------
EPS -- DILUTED
Income available to common
stockholders and assumed
options exercised......... $36,637 18,619 $1.97 $33,142 20,377 $1.63 $30,438 20,477 $1.49
======= ====== ===== ======= ====== ===== ======= ====== =====
</Table>

Options to purchase 749,771 shares of common stock at exercise prices ranging
from $21.84 to $36.01 were outstanding at December 28, 2002, but were not
included in the computation of diluted EPS because the options' exercise prices
were greater than the average market price of the common stock during the period
and, therefore, would be antidilutive.

UNIVERSAL FOREST PRODUCTS(R) 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Options to purchase 399,548 shares of common stock at exercise prices ranging
from $19.75 to $36.01 were outstanding at December 29, 2001, but were not
included in the computation of diluted EPS because the options' exercise prices
were greater than the average market price of the common stock during the period
and, therefore, would be antidilutive.

Options to purchase 633,160 shares of common stock at exercise prices ranging
from $13.18 to $36.01 were outstanding at December 30, 2000, but were not
included in the computation of diluted EPS because the options' exercise prices
were greater than the average market price of the common stock during the period
and, therefore, would be antidilutive.

LONG-LIVED ASSETS

Prior to December 30, 2001, we evaluated the recoverability of our long-lived
assets by determining whether unamortized balances could be recovered through
undiscounted future operating cash flows over the remaining lives of the assets
in accordance with the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121").
If the sum of the expected future cash flows was less than the carrying value of
the assets, an impairment loss was recognized for the excess of the carrying
value over the fair value. The estimated fair value was determined by
discounting the expected future cash flows at a rate that would have been
required for a similar investment with like risks.

Effective December 30, 2001 (the first day of our fiscal year ending December
28, 2002), we adopted SFAS No. 144, Accounting for the Impairment and Disposal
of Long-Lived Assets ("SFAS 144"). SFAS 144 supercedes SFAS 121, and the
accounting and reporting provisions of the Accounting Principles Board ("APB")
Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS 144 retains the provisions of SFAS 121
for recognition and measurement of impairment of long-lived assets to be held
and used, and measurement of long-lived assets to be disposed of by sale.
Discontinued operations are no longer measured on a net realizable value basis,
and future operating losses are no longer recognized before they occur. The
impact of adopting this standard has not been significant to our consolidated
financial statements.

STOCK-BASED COMPENSATION

As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, ("SFAS
123"), we continue to apply the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees, which recognizes compensation expense under the
intrinsic value method. Had compensation cost for the stock options granted and
stock purchased in 2002, 2001 and 2000 been determined under the fair value
based method defined in SFAS 123, our net earnings and earnings per share would
have been reduced to the following pro forma amounts (in thousands, except per
share data):

<Table>
<Caption>
2002 2001 2000
---------------------------

Net Earnings:
As Reported............................................... $36,637 $33,142 $30,438
Deduct: Compensation expense -- fair value method......... (1,367) (1,371) (648)
------- ------- -------
Pro Forma................................................. $35,270 $31,771 $29,790
======= ======= =======
EPS -- Basic:
As Reported............................................... $ 2.04 $ 1.68 $ 1.52
Pro Forma................................................. $ 1.97 $ 1.61 $ 1.48
EPS -- Diluted:
As Reported............................................... $ 1.97 $ 1.63 $ 1.49
Pro Forma................................................. $ 1.92 $ 1.56 $ 1.45
</Table>

The fair value of each option granted in 2002, 2001 and 2000 is estimated on the
date of the grant using the Black-Scholes option pricing model with the
following weighted average assumptions.

<Table>
<Caption>
2002 2001 2000
---------------------------------

Risk Free Interest Rate..................................... 4.6% 4.6% 6.2%
Expected Life............................................... 5.0 years 4.5 years 6.1 years
Expected Volatility......................................... 27.52% 26.62% 27.09%
Expected Dividend Yield..................................... 0.40% 0.40% 0.40%
</Table>

30 UNIVERSAL FOREST PRODUCTS(R)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

USE OF ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. We believe our estimates to be reasonable; however, actual
results could differ from these estimates.

RECLASSIFICATIONS

Certain reclassifications have been made in the 2001 and 2000 consolidated
financial statements to conform to the classifications used in 2002.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS
146"). SFAS 146 addresses the timing of recognition and the related measurement
of the costs associated with an exit or disposal activity that does not involve
a discontinued operation. SFAS 146 requires that such costs that do not involve
a discontinued operation should be included in income from continuing operations
before income taxes in the income statement. Costs associated with an exit or
disposal activity that involves a discontinued operation shall be included in
the results of discontinued operations. SFAS 146 is effective for exit
activities initiated after December 31, 2002.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others ("FIN 45"). FIN 45 changes current practice in accounting
for, and disclosure of, guarantees. FIN 45 will require certain guarantees to be
recorded at fair value on our balance sheet, which is a change from current
practice, which is generally to record a liability only when a loss is probable
and reasonably estimable, as those terms are defined in SFAS No. 5, Accounting
for Contingencies. FIN 45 also requires a guarantor to make significant new
disclosures, even when the likelihood of making any payments under the guarantee
is remote, which is another change from current practice. The disclosure
requirements of FIN 45 are effective immediately and are included in Note N to
the consolidated financial statements. The initial recognition and initial
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002.

B. BUSINESS COMBINATIONS

Each of the following business combinations have been accounted for as a
purchase. Accordingly, in each instance, the purchase price was allocated to the
assets acquired, liabilities assumed and identifiable intangible assets as
applicable based on their fair market values at the date of acquisition. Any
excess of the purchase price over the fair value of the acquired assets,
including identifiable intangible assets, and assumed liabilities was recorded
as goodwill in each transaction. For business combinations prior to June 30,
2001, we amortized goodwill on a straight-line basis over periods ranging from
20 to 40 years. Non-compete and licensing agreements are amortized on a
straight-line basis over the term of the agreements. In July 2001, the FASB
issued SFAS No. 141, Business Combinations ("SFAS 141"). SFAS 141 supercedes APB
No. 16, Business Combinations, and requires that all business combinations be
accounted for using the purchase method and further clarifies the criteria to
recognize intangible assets separately from goodwill. The results of operations
of each acquisition is included in our consolidated financial statements since
the date it was acquired.

On November 4, 2002, one of our subsidiaries acquired a facility from Quality
Wood Treating Co., Inc. ("Quality") in Prairie du Chien, WI, which produces
Everx(R) composite decking. The total purchase price for the real estate,
equipment, inventory, and intangible assets was approximately $14.7 million.
Quality had composite decking net sales in fiscal 2001 totaling approximately $2
million. The purchase price allocation for this acquisition is preliminary and
will be revised as final estimates of intangible asset values are made in
accordance with SFAS 141.

In addition, we entered into a treating services agreement with Quality. Under
the terms of this agreement, we purchased substantially all of the inventory of
Quality for approximately $7.5 million, Quality agreed to provide exclusive
treating services to us for a five year term, and we have agreed to monthly and
annual minimum volumes.

On September 9, 2002, one of our subsidiaries acquired certain assets of J.S.
Building Products, Inc., a site-built component manufacturer in Modesto, CA. The
total purchase price for the assets was approximately $2.2 million. On

UNIVERSAL FOREST PRODUCTS(R) 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

October 22, 2002, we purchased the real property from J.S. Building Products,
Inc. where the operation is located. The total purchase price was $1.9 million.
J.S. Building Products, Inc. had net sales of approximately $5 million in 2001.
The purchase price allocation for this acquisition is preliminary and will be
revised as final estimates of intangible asset values are made in accordance
with SFAS 141.

On April 10, 2002, one of our subsidiaries acquired certain assets and entered
into an exclusive licensing agreement with Inno-Tech Plastics, Inc.
("Inno-Tech"), which operates one facility in Springfield, IL. The total
purchase price for these assets was approximately $4.1 million, allocating $2.1
million to net assets acquired and $2.0 million to a licensing agreement.
Inno-Tech had net sales in fiscal 2001 totaling approximately $1.3 million.

On January 15, 2002, one of our subsidiaries acquired an additional 5% interest
in Pinelli, increasing our ownership to 50%. The purchase price for the
additional 5% was approximately $0.9 million, allocating $0.3 million to net
assets acquired and $0.6 million to goodwill. As a result of this transaction,
we obtained additional rights of control and thus began consolidating the
results of Pinelli in the 2002 consolidated financial statements. In 2001,
Pinelli had net sales of $31 million and net earnings of $0.6 million. In 2001
and 2000, we accounted for Pinelli under the equity method.

On October 15, 2001, one of our subsidiaries acquired the assets of P&R Truss
Company, Inc. and the stock of P&R Truss-Sidney, Inc. (collectively "P&R"). P&R
has plants in Auburn, Chaffee, Hudson and Sidney, NY. The total purchase price
was approximately $21.0 million, allocating $10.4 million to net assets
acquired, $0.7 million to non-compete agreements, and the remaining $9.9 million
to goodwill. P&R had net sales in fiscal 2000 totaling approximately $23
million.

On June 1, 2001, three of our subsidiaries acquired certain assets of the
Superior Truss Division of Banks Corporation ("Superior"). The assets include
operations in Syracuse, IN and Minneota, MN. The total purchase price for the
assets was approximately $11.0 million. Superior had net sales in fiscal 2000
totaling approximately $20 million.

On April 3, 2001, several of our subsidiaries acquired certain assets of the
Sunbelt Wood Component Division ("Sunbelt") of Kevco, Inc. The assets included
operations in New London, NC; Haleyville, AL; Ashburn, GA; and Glendale, AZ. The
total purchase price for the assets was approximately $7.8 million. Sunbelt had
net sales in fiscal 2000 totaling approximately $63 million.

On March 2, 2001, one of our subsidiaries acquired the remaining 50% of the
stock of ECJW Holdings. The purchase price for this remaining 50% was
approximately $3.5 million, allocating $1.1 million to net assets acquired and
$2.4 million to goodwill.

On February 28, 2001, one of our subsidiaries acquired 50% of the assets of D&R
Framing Contractors ("D&R") of Englewood, CO for approximately $7.6 million. D&R
had net sales in fiscal 2000 totaling approximately $44 million.

The acquisitions in 2002 were not significant to the operating results
individually nor in the aggregate, and thus pro forma results are not presented.
The following unaudited pro forma consolidated results of operations for the
year ended December 29, 2001 assumes the acquisitions of P&R, Superior and D&R
occurred as of the beginning of the periods presented (in thousands, except per
share data).

<Table>
<Caption>
YEAR ENDED
DECEMBER 29, 2001
-----------------

Net sales................................................... $1,559,756
Net earnings................................................ $ 34,739
Earnings per share:
Basic..................................................... $ 1.76
Diluted................................................... $ 1.70
Weighted average shares outstanding:
Basic..................................................... 19,774
Diluted................................................... 20,377
</Table>

The pro forma results above include certain adjustments to give effect to
amortization of goodwill, interest expense, compensation of management, certain
other adjustments and related income tax effects. The pro forma results are not
necessarily indicative of the operating results that would have occurred had the
acquisitions been completed as of the beginning of the period presented, nor are
they necessarily indicative of future operating results. Pro forma results are
not

32 UNIVERSAL FOREST PRODUCTS(R)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

presented for Sunbelt. We purchased certain assets of this operation out of
Chapter 11 bankruptcy. As a result of substantial changes in the operations and
customer base, pro forma results are not meaningful.

C. GOODWILL AND OTHER INTANGIBLE ASSETS

Effective December 30, 2001, we adopted SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). This statement changed the accounting and
reporting for goodwill and other intangible assets. Goodwill is no longer
amortized; however, tests for impairment are performed annually and if a
triggering event occurs. The effect of applying the non-amortization provisions
of SFAS 142 in 2001 and 2000 are shown separately on the accompanying
consolidated statement of earnings. We tested for transition as well as annual
impairment by utilizing the discounted cash flow method, as well as comparing
the results to other widely acceptable valuation methods, none of which resulted
in impairment of goodwill.

On December 28, 2002, non-compete assets totaled $4.7 million with accumulated
amortization totaling $2.1 million, and licensing agreements totaled $2.3
million with accumulated amortization of $0.4 million.

Amortization expense for intangibles totaled $1.2 million for the year ended
December 28, 2002. The estimated amortization expense for intangibles for each
of the five succeeding fiscal years is as follows (in thousands):

<Table>

2003........................................................ $997
2004........................................................ 997
2005........................................................ 997
2006........................................................ 928
2007........................................................ 415
Thereafter.................................................. 182
</Table>

The changes in the net carrying amount of goodwill for the year ended December
28, 2002 are as follows (in thousands):

<Table>

Balance as of December 29, 2001............................. $119,550
Goodwill acquired........................................... 6,386
Foreign currency translation effects and other, net......... 363
--------
Balances as of December 28, 2002............................ $126,299
========
</Table>

D. DEBT

On December 18, 2002, we completed a $55 million private placement of senior
unsecured notes payable. The notes have an average life of over nine years and
an average interest rate of 6.0%.

On November 25, 2002, we completed a three-year, $200 million unsecured
revolving credit facility, which includes amounts reserved for letters of
credit. This facility replaced our $175 million and $20 million Canadian
facilities. Borrowings under the revolver are charged interest at a rate of 125
basis points over the applicable Eurodollar rate. The average borrowing rate on
these facilities in 2002 was 2.3%. The amount outstanding on the revolving
credit facility is included in the long-term debt summary below.

On November 30, 2000, we completed an unsecured revolving credit facility
totaling $20 million Canadian. Borrowings under the revolver were charged
interest at a rate of 75 basis points over the bankers acceptance rate in 2001.
The amount outstanding under the facility is included in the long-term debt
summary below.

On November 13, 1998, we completed a five-year, $175 million unsecured revolving
credit facility which includes amounts reserved for letters of credit.
Borrowings under the revolver were charged interest at a rate of 50 basis points
over the applicable Eurodollar rate. The average borrowing rates on this
facility in 2001 and 2000 were 4.7% and 7.1%, respectively. The amount
outstanding under the revolving credit facility is included in the long-term
debt summary below.

Outstanding letters of credit extended on our behalf aggregated $31.1 million on
December 28, 2002, which includes approximately $18.3 million related to
industrial development revenue bonds.

UNIVERSAL FOREST PRODUCTS(R) 33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Long-term debt and capital lease obligations are summarized as follows on
December 28, 2002 and December 29, 2001 (amounts in thousands):

<Table>
<Caption>
2002 2001
-------------------

1994 Senior unsecured notes, $5,714,000 due annually
commencing May 1998 through May 2004, interest due
semi-annually at 7.15%.................................... $ 11,429 $ 17,143
Series 1998-A Senior Notes Tranche A, due on December 21,
2005, interest payable semi-annually at 6.69%............. 21,500 21,500
Series 1998-A Senior Notes Tranche B, due on December 21,
2008, interest payable semi-annually at 6.98%............. 59,500 59,500
Series 1998-A Senior Notes Tranche C, due on December 21,
2008, interest payable semi-annually at 6.98%............. 19,000 19,000
Series 2002-A Senior Notes Tranche A, due on December 18,
2009, interest payable semi-annually at 5.63%............. 15,000
Series 2002-A Senior Notes Tranche B, due on December 18,
2012, interest payable semi-annually at 6.16%............. 40,000
Revolving credit facility totaling $200 million due on
November 25, 2005, interest due monthly at a floating rate
(2.01% on December 28, 2002).............................. 53,383
Revolving credit facility totaling $175 million............. 26,883
Revolving credit facility totaling $20 million Canadian..... 11,974
Series 1998 Industrial Development Revenue Bonds, due on
December 1, 2018, interest payable monthly at a floating
rate (1.88% on December 28, 2002)......................... 1,300 1,300
Series 1999 Industrial Development Revenue Bonds, due on
July 1, 2029, interest payable monthly at a floating rate
(1.79% on December 28, 2002).............................. 2,400 2,400
Series 1999 Industrial Development Revenue Bonds, due on
August 1, 2029, interest payable monthly at a floating
rate (1.65% on December 28, 2002)......................... 3,300 3,300
Series 2000 Industrial Development Revenue Bonds, due on
October 1, 2020, interest payable monthly at a floating
rate (1.78% on December 28, 2002)......................... 2,700 2,700
Series 2000 Industrial Development Revenue Bonds, due on
November 1, 2020, interest payable monthly at a floating
rate (1.79% on December 28, 2002)......................... 2,400 2,400
Series 2001 Industrial Development Revenue Bonds, due on
November 1, 2021, interest payable monthly at a floating
rate (1.75% on December 28, 2002)......................... 2,500 2,500
Series 2002 Industrial Development Revenue Bonds, due on
December 1, 2022, interest payable monthly at a floating
rate (1.72% on December 28, 2002)......................... 3,700
Capital lease obligations, interest imputed at rates ranging
from 7.25% to 8.00%....................................... 226 2,581
Other....................................................... 3,476 1,604
-------- --------
241,814 174,785
Less current portion........................................ 6,495 20,415
-------- --------
Long-term portion........................................... $235,319 $154,370
======== ========
</Table>

Financial covenants on the unsecured revolving credit facility and unsecured
notes include a minimum net worth requirement, minimum interest coverage tests
and a maximum leverage ratio. The agreements also restrict the amount of
additional indebtedness we may incur and the amount of assets which may be sold.
We were within all of our lending requirements on December 28, 2002.

34 UNIVERSAL FOREST PRODUCTS(R)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On December 28, 2002, the principal maturities of long-term debt and capital
lease obligations are as follows (in thousands):

<Table>

2003........................................................ $ 6,495
2004........................................................ 6,225
2005........................................................ 75,362
2006........................................................ 477
2007........................................................ 430
Thereafter.................................................. 152,825
--------
$241,814
========
</Table>

On December 28, 2002, the estimated fair value of our long-term debt, including
the current portion, was $248.5 million, which was $6.7 million greater than the
carrying value. The estimated fair value is based on rates anticipated to be
available to us for debt with similar terms and maturities. The estimated fair
value of short-term debt included in current liabilities approximated the
carrying value. This short-term debt is an operating line of credit held by one
of our subsidiaries, which bears interest at the bank's prime lending rate plus
150 basis points (6.00% at December 28, 2002), and is collateralized by our
subsidiaries' inventory and accounts receivable.

E. LEASES

Leased property included in the balance sheet on December 28, 2002 and December
29, 2001 is as follows (in thousands):

<Table>
<Caption>
2002 2001
--------------

Land and improvements....................................... $ 19 $ 19
Buildings and improvements.................................. 161 161
Machinery and equipment..................................... 392 3,335
----- ------
572 3,515
Less accumulated amortization............................... (168) (559)
----- ------
$ 404 $2,956
===== ======
</Table>

We lease certain real estate under operating lease agreements with original
terms ranging from one to ten years. We are required to pay real estate taxes
and other occupancy costs under these leases. Certain leases carry renewal
options of five to fifteen years. We also lease motor vehicles and equipment
under operating lease agreements for periods of one to ten years. Future minimum
payments under non-cancellable leases on December 28, 2002 are as follows (in
thousands):

<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES TOTAL
-----------------------------

2003........................................................ $ 85 $ 8,982 $ 9,067
2004........................................................ 56 6,747 6,803
2005........................................................ 59 4,677 4,736
2006........................................................ 58 2,499 2,557
2007........................................................ 757 757
Subsequent.................................................. 94 94
---- ------- -------
Total minimum lease payments................................ 258 $23,756 $24,014
======= =======
Less imputed interest....................................... (32)
----
Present value of minimum lease payments..................... $226
====
</Table>

Rent expense was approximately $12.7 million, $11.2 million and $9.2 million in
2002, 2001 and 2000, respectively.

UNIVERSAL FOREST PRODUCTS(R) 35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

F. DEFERRED COMPENSATION

We have a program whereby certain executives irrevocably elected to defer
receipt of certain compensation in 1985 through 1988. Deferred compensation
payments to these executives will commence upon their retirement. We purchased
life insurance on such executives, payable to us in amounts which, if
assumptions made as to mortality experience, policy dividends and other factors
are realized, will accumulate cash values adequate to reimburse us for all
payments for insurance and deferred compensation obligations. In the event cash
values are not sufficient to fund such obligations, the program allows us to
reduce benefit payments to such amounts as may be funded by accumulated cash
values. The deferred compensation liabilities and related cash surrender value
of life insurance policies are included in "Other Liabilities" and "Other
Assets," respectively.

We also maintain a non-qualified deferred compensation plan (the "Plan") for the
benefit of senior management employees who may elect to defer a portion of their
annual bonus payments. The Plan provides investment options similar to our
401(k) plan, including our stock. Investments in shares of our stock are made on
a "phantom stock" basis, and may only be distributed in kind. Assets held by the
Plan totaled approximately $1.9 million on December 28, 2002 and December 29,
2001, and are included in "Other Assets." Related liabilities totaled $3.4
million and $3.1 million on December 28, 2002 and December 29, 2001,
respectively, and are included in "Other Liabilities." The assets are recorded
at fair market value. The related liabilities are recorded at fair market value,
with the exception of the phantom stock which is recorded at the market value on
the date of deferral.

G. STOCK REDEMPTION AGREEMENT

During 2001, we entered into an agreement with our largest shareholder for the
future redemption of 2 million shares of our outstanding stock at a price of $18
per share. The cost of the redemption was funded by our revolving credit
facilities.

The shares subject to the agreement were classified on the balance sheet under
temporary equity. On December 29, 2001, the shares subject to redemption were
considered outstanding for the purpose of determining weighted average shares
outstanding.

The redemption was completed on January 15, 2002.

H. COMMON STOCK

On June 1, 1993, shareholders approved the Incentive Stock Option Plan (the
"Plan") for our officers. Options for the purchase of all 1,200,000 shares of
our common stock authorized under the Plan have been granted. The Plan provides
that the options are exercisable only if the officer is employed by us at the
time of exercise and holds at least seventy-five percent of the individuals'
shares held on April 1, 1993. The Plan also requires the option shares to be
held for periods of six months to three years. The remaining options are
exercisable within thirty days of the anniversary of the Plan in 2005 through
2008.

In January 1994, the Employee Stock Gift Program was approved by the Board of
Directors which allows us to gift shares of stock to eligible employees based on
length of service. We gifted 798 shares, 1,552 shares and 400 shares of stock
under this Plan in 2002, 2001 and 2000, respectively, and recognized the market
value of the shares at the date of issuance as an expense.

In April 1994, shareholders approved the Employee Stock Purchase Plan ("Stock
Purchase Plan") and Director Retainer Stock Plan ("Stock Retainer Plan"). In
April 2002, shareholders approved the 2002 Employee Stock Purchase Plan ("2002
Stock Purchase Plan") to succeed the Stock Purchase Plan. The plans allow
eligible employees to purchase shares of our stock at a share price equal to 85%
of fair market value on the purchase date. In 2002, 2001 and 2000, 13,125
shares, 12,264 shares and 19,664 shares, respectively, were issued under this
Plan for amounts totaling approximately $243,000, $183,000 and $227,000,
respectively.

The Stock Retainer Plan allows eligible members of the Board of Directors to
defer their retainer fees and receive shares of our stock at the time of their
retirement, disability or death. The number of shares to be received is equal to
the amount of the retainer fee deferred multiplied by 110% divided by the fair
market value of a share of our stock at the time of deferral, and is increased
for dividends declared. We have accrued, in "Accrued Liabilities -- Other,"
approximately $370,000 and $300,000 on December 28, 2002 and December 29, 2001,
respectively, for amounts incurred under this Plan.

36 UNIVERSAL FOREST PRODUCTS(R)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In January 1997, we instituted a Directors' Stock Grant Program. In lieu of a
cash increase in the amount of Director fees, each outside Director receives 100
shares of stock for each board meeting attended up to a maximum of 400 shares
per year. In 2002, 2001 and 2000, we issued 1,400 shares, 1,500 shares and 1,700
shares, respectively, and recognized the market value of the shares on the date
of issuance as an expense.

On April 28, 1999, the shareholders approved the Long Term Stock Incentive Plan
(the "1999 Plan") to succeed the 1997 Long Term Stock Incentive Plan (the "1997
Plan"). The 1999 Plan reserves a maximum of 1,000,000 shares, plus 406,029
shares remaining under the 1997 Plan, plus an annual increase of no more than
200,000 shares which may be added on the date of the annual meeting of
shareholders each year. The 1999 Plan provides for the granting of stock
options, reload options, stock appreciation rights, restricted stock,
performance shares and other stock-based awards. The term of the 1999 Plan is
ten years. In 2002, 2001 and 2000, we granted stock options for 576,769 shares,
390,597 shares and 505,934 shares, respectively.

As of December 28, 2002, a total of 3,113,864 shares are reserved for issuance
under the plans mentioned above and under Note I below.

On October 21, 1998, the Board of Directors approved a share repurchase program
(which succeeded a previous program) allowing us to repurchase up to 1,800,000
shares of our common stock. On October 18, 2000 and November 14, 2001, the Board
of Directors authorized an additional 1,000,000 shares and 2,500,000 shares,
respectively, to be repurchased under the program. In 2002, 2001 and 2000, we
repurchased 2,199,435 shares, 109,482 shares and 635,411 shares, respectively,
under these programs.

I. STOCK OPTIONS AND STOCK-BASED COMPENSATION

Stock options issued under the Long Term Stock Incentive Plan are granted to
employees and officers at exercise prices which equaled or exceeded the market
value of the stock on the date of grant. The options are exercisable from three
to fifteen years from the date of grant and the recipients must be employed by
us at the date of exercise.

Options were granted in 2000 at exercise prices which equaled or exceeded the
market prices on the date of grant. Options to purchase 40,000 shares were
granted in 2000 with a weighted average exercise price of $21.56 per share and a
weighted average fair market price of $14.75 on the date of the grant. Options
were granted in 2002 and 2001 with exercise prices which were equal to the
market prices on the date of grant.

Stock option activity since the end of 1999 is summarized as follows:

<Table>
<Caption>
SHARES OF WEIGHTED WEIGHTED
COMMON STOCK AVERAGE AVERAGE FAIR
ATTRIBUTABLE TO EXERCISE PRICE VALUE OF OPTIONS
OPTIONS OF OPTIONS GRANTED
-----------------------------------------------------

Outstanding on December 25, 1999..................... 1,317,515 $12.66
Granted.............................................. 505,934 $13.22 $4.67
Exercised............................................ (60,000) $ 4.25
Forfeited............................................ (101,911) $15.96
---------
Outstanding on December 30, 2000..................... 1,661,538 $12.95
Granted.............................................. 390,597 $14.13 $4.15
Exercised............................................ (152,500) $ 4.50
Forfeited............................................ (187,901) $11.20
---------
Outstanding on December 29, 2001..................... 1,711,734 $14.15
Granted.............................................. 576,769 $22.48 $7.09
Exercised............................................ (120,000) $ 5.00
Forfeited............................................ (62,629) $17.02
---------
Outstanding on December 28, 2002..................... 2,105,874 $16.86
=========
</Table>

UNIVERSAL FOREST PRODUCTS(R) 37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Options to purchase 20,000 shares were exercisable at December 28, 2002 with a
weighted average price of $20.03. No options were exercisable on either December
29, 2001 or December 30, 2000. The following table summarizes information
concerning options on December 28, 2002:

<Table>
<Caption>
WEIGHTED-AVERAGE
NUMBER REMAINING
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE
- -----------------------------------------------------------------------------------------------

$4.25 -- $10.00............................................. 250,000 4.02
$10.01 -- $14.00............................................ 484,279 3.36
$14.01 -- $18.00............................................ 393,713 3.33
$18.01 -- $21.00............................................ 198,111 2.50
$21.01 -- $23.00............................................ 454,771 4.89
$23.01 -- $25.00............................................ 215,000 6.65
$25.01 -- $36.01............................................ 110,000 9.27
---------
2,105,874
=========
</Table>

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FASB Statement No.
123 ("SFAS 148"). SFAS 148 amends SFAS 123 to provide alternative methods of
transition for a voluntary change to the fair-value based method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. We do not intend to adopt a fair-value based method of
accounting for stock-based employee compensation until a final standard is
issued by the FASB that addresses industry concerns related to applicability of
current option pricing models to non-exchange traded employee option plans.

J. OFFICERS' STOCK NOTES RECEIVABLE

Officers' stock notes receivable represent notes obtained by us from certain
officers for the purchase of our common stock. On April 30, 2002, we sold 12,555
shares of common stock to three officers in exchange for additional notes
receivable totaling approximately $300,000. On April 21, 2000, we sold 60,376
shares of common stock to eight officers in exchange for additional notes
receivable totaling almost $800,000. Interest on all of the outstanding notes
range from fixed rates of five to eleven percent per annum and a variable rate
of the prime rate less 10% (minimum 6%, maximum 12%). Each loan is evidenced by
a promissory note from the participating officer and is secured by all of the
shares purchased with the loan proceeds. All loans are recourse loans. On
December 28, 2002, payments on the notes are due as follows (in thousands):

<Table>

2003........................................................ $ 99
2004........................................................ 57
2005........................................................ 61
2006........................................................ 173
2007........................................................ 189
Thereafter.................................................. 822
------
$1,401
======
</Table>

As of August 1, 2002, we no longer issue notes to executive officers under this
program.

K. LIFE INSURANCE

In September 1995, we acquired a second-to-die life insurance policy on our
Chairman of the Board and his spouse, our largest shareholders. The death
benefit on the policy totals $8.7 million and we are the beneficiary. We also
maintain an officer's life insurance policy on the Chairman with a death benefit
of $1.3 million. The cash surrender value on these policies on December 28, 2002
and December 29, 2001 is included in "Other Assets."

38 UNIVERSAL FOREST PRODUCTS(R)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L. RETIREMENT PLANS

We have a profit sharing and 401(k) plan for the benefit of substantially all of
our employees excluding the employees of certain subsidiaries. Amounts
contributed to the plan are made at the discretion of the Board of Directors. We
contributed approximately $384,000, $682,000 and $546,000 in 2002, 2001 and
2000, respectively. In addition, we matched 50% of employee contributions in
2002, 2001 and 2000, on a discretionary basis, totaling $2.1 million, $1.8
million and $1.7 million in 2002, 2001 and 2000, respectively. The basis for
matching contributions may not exceed the lesser of 6% of the employee's annual
compensation or $11,000.

In addition, a wholly-owned subsidiary acquired in 1998 has a 401(k) plan for
the benefit of substantially all of its employees. This subsidiary matched 50%
of employee contributions, on a discretionary basis, totaling $583,000, $586,000
and $509,000 in 2002, 2001 and 2000, respectively.

M. INCOME TAXES

Income tax provisions for the years ended December 28, 2002, December 29, 2001,
and December 30, 2000 are summarized as follows (in thousands):

<Table>
<Caption>
2002 2001 2000
-----------------------------

Currently payable:
Federal................................................... $17,196 $12,801 $16,688
State and local........................................... 2,590 1,385 1,781
Foreign................................................... (509) 421 505
------- ------- -------
19,277 14,607 18,974
Net Deferred:
Federal................................................... 1,753 4,430 (263)
State and local........................................... 462 447 (189)
Foreign................................................... 1,491 128 696
------- ------- -------
3,706 5,005 244
------- ------- -------
$22,983 $19,612 $19,218
======= ======= =======
</Table>

The effective income tax rates are different from the statutory federal income
tax rates for the following reasons:

<Table>
<Caption>
2002 2001 2000
--------------------------

Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
State and local taxes (net of federal benefits)............. 3.2 2.2 2.1
Goodwill.................................................... 1.1 1.2
Effect of minority owned interest in earnings of D&R........ (1.0) (0.9)
Other, net.................................................. (0.2) (1.3) (0.2)
---- ---- ----
Effective income tax rate................................... 37.0% 36.1% 38.1%
==== ==== ====
</Table>

We have no present intention of remitting undistributed earnings of certain
foreign subsidiaries aggregating $8.2 million on December 28, 2002 and,
accordingly, no deferred tax liability has been established relative to these
earnings. If these amounts were not considered permanently reinvested, a
deferred tax liability of approximately $948,000 would have been required.

UNIVERSAL FOREST PRODUCTS(R) 39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Temporary differences which give rise to deferred tax assets and (liabilities)
on December 28, 2002 and December 29, 2001 are as follows (in thousands):

<Table>
<Caption>
2002 2001
--------------------

Employee benefits......................................... $ 4,369 $ 4,483
Foreign subsidiary net operating loss..................... 64 253
Depreciation.............................................. (13,002) (11,104)
Inventory................................................. (480) 257
Accrued expenses.......................................... 548 661
All other, net............................................ (3,234) (2,592)
-------- --------
(11,735) (8,042)
Valuation allowance....................................... (672) (659)
-------- --------
$(12,407) $ (8,701)
======== ========
</Table>

The valuation allowance consists of a capital loss carryforward we have related
to a prior investment in a wholly-owned subsidiary, UFP de Mexico. We do not
anticipate realizing a future benefit from this loss carryforward, therefore, we
have established an allowance for the entire amount of the future benefit. This
carryforward will expire at the end of 2005. The foreign subsidiary net
operating loss carryforward also expires in 2005.

N. COMMITMENTS, CONTINGENCIES AND GUARANTEES

As part of its re-registration process and in response to allegations by certain
environmental groups that CCA poses health risks, the EPA has been conducting a
scientific review of CCA, a wood preservative we use to extend the useful life
of wood fiber. On February 12, 2002, the EPA announced that the manufacturers of
CCA preservative agreed to the re-registration of CCA for certain industrial and
commercial uses. The manufacturers agreed to voluntarily discontinue the
registration of CCA for certain residential applications by December 31, 2003.
All of our facilities are presently capable of using a new preservative to treat
wood products.

40 UNIVERSAL FOREST PRODUCTS(R)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On December 28, 2002, we had outstanding purchase commitments on capital
projects of approximately $1.2 million.

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

In certain cases we jointly bid on contracts with framing companies to supply
building materials to site-built construction projects. In some of these
instances we are required to post payment and performance bonds to insure the
owner that the products and installation services are completed in accordance
with our contractual obligations. We have agreed to indemnify the surety for
claims made against the bonds. Historically, we have not had any claims for
indemnity from our sureties. As of December 28, 2002, we had approximately $9.8
million in outstanding performance bonds which expire during the next three to
eighteen months.

We have entered into operating leases for certain assets that include a
guarantee of a portion of the residual value of the leased assets. If at the
expiration of the initial lease term we do not exercise our option to purchase
the leased assets and these assets are sold by the lessor for a price below a
predetermined amount, we will reimburse the lessor for a certain portion of the
shortfall. These operating leases will expire periodically over the next five
years. The estimated maximum aggregate exposure of these guarantees is less than
$350,000.

On December 28, 2002, we had outstanding letters of credit totaling $31.1
million, primarily related to certain insurance contracts and industrial
development revenue bonds.

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
$11 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
(see Note D). These letters of credit guarantee principal and interest payments
to the bondholders. We currently have irrevocable letters of credit outstanding
totaling approximately $18.3 million related to our outstanding industrial
development revenue bonds. These letters of credit have varying terms but may be
renewed at the option of the issuing banks.

Our wholly owned domestic subsidiaries have guaranteed the indebtedness of
Universal Forest Products, Inc. in certain debt agreements, including the 1994
Senior Notes, Series 1998-A Senior Notes, Series 2002-A Senior Notes and our
revolving credit facility. The maximum exposure of these guarantees is limited
to the indebtedness outstanding under these debt arrangements and this exposure
will expire concurrent with the expiration of the debt agreements (see Note D).

O. 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. Under the definition of a
segment, our Eastern and Western 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

UNIVERSAL FOREST PRODUCTS(R) 41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the products, distribution methods, customers and regulatory environments are
similar. We have chosen to aggregate our divisions into one reporting segment.
Our divisions operate manufacturing and treating facilities throughout North
America.

In 2002, 2001 and 2000, 30%, 33% and 32% of net sales, respectively, were to a
single customer.

Information regarding principal geographic areas was as follows (in thousands):

<Table>
<Caption>
2002 2001 2000
------------------------ ------------------------ ------------------------
LONG-LIVED LONG-LIVED LONG-LIVED
TANGIBLE TANGIBLE TANGIBLE
NET SALES ASSETS NET SALES ASSETS NET SALES ASSETS
--------------------------------------------------------------------------------

United States................. $1,559,530 $181,761 $1,483,110 $172,407 $1,339,851 $161,773
Foreign....................... 80,369 28,121 47,243 20,840 47,279 17,609
---------- -------- ---------- -------- ---------- --------
Total......................... $1,639,899 $209,882 $1,530,353 $193,247 $1,387,130 $179,382
========== ======== ========== ======== ========== ========
</Table>

Sales generated in Canada and Mexico are primarily to customers in the United
States of America.

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

<Table>
<Caption>
VALUE-ADDED COMMODITY-BASED
-----------------------------

Value added product sales consist of fencing, decking, lattice and other
specialty products sold to the DIY/retail market, specialty wood packaging,
engineered wood products and "wood alternative" products. 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. Commodity-based product sales consist primarily of remanufactured
lumber and preservative treated lumber.

P. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following table sets forth selected financial information for all of the
quarters during the years ended December 28, 2002 and December 29, 2001 (in
thousands, except per share data):

<Table>
<Caption>
FIRST SECOND THIRD FOURTH
------------------- ------------------- ------------------- -------------------
2002 2001 2002 2001 2002 2001 2002 2001
-------------------------------------------------------------------------------------

Net sales............ $341,656 $284,069 $504,944 $485,153 $452,959 $431,861 $340,340 $329,270
Gross profit......... 51,277 43,119 68,623 66,397 61,665 56,182 48,845 45,781
Net earnings(1)...... 6,082 4,977 15,354 14,238 10,644 9,808 4,557 4,119
Basic earnings per
share(1)........... 0.33 0.25 0.86 0.72 0.60 0.50 0.26 0.21
Diluted earnings per
share(1)........... 0.32 0.25 0.82 0.70 0.58 0.48 0.25 0.20
</Table>

- -------------------------
(1) In 2002, we adopted SFAS 142, therefore goodwill is no longer amortized.

42 UNIVERSAL FOREST PRODUCTS(R)

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

Our common stock trades on the Nasdaq National Market tier of the Nasdaq Stock
Market under the symbol UFPI. The following table sets forth the range of high
and low sales prices as reported by Nasdaq.

<Table>
<Caption>
FISCAL 2002 HIGH LOW FISCAL 2001 HIGH LOW
- ---------------------------------------------------- ----------------------------------------------------

Fourth Quarter....................... 22.00 16.04 Fourth Quarter....................... 21.50 16.16
Third Quarter........................ 24.14 17.47 Third Quarter........................ 22.95 14.12
Second Quarter....................... 26.75 21.67 Second Quarter....................... 22.45 13.49
First Quarter........................ 26.18 20.28 First Quarter........................ 15.43 12.94
</Table>

There were approximately 5,450 shareholders of record as of March 1, 2003.

In 2002, we paid dividends on our common stock of $.045 per share in June and
$.045 per share in December. In 2001, we paid dividends on our common stock of
$.040 per share in June and $.045 per share in December. We intend to continue
with our current dividend policy for the foreseeable future.

UNIVERSAL FOREST PRODUCTS(R) 43

DIRECTORS AND EXECUTIVE OFFICERS

BOARD OF DIRECTORS

Peter F. Secchia
Chairman of the Board
Universal Forest Products, Inc.
William G. Currie
Vice Chairman of the Board and
Chief Executive Officer
Universal Forest Products, Inc.
Dan M. Dutton
Chairman & CEO
Stimson Lumber Co.
John M. Engler
President of State and Local Government
EDS
John W. Garside
Chairman
Woodruff Coal Company
Philip M. Novell
Consultant
Compass Group
Louis A. Smith
President
Smith and Johnson, Attorneys, P.C.

OPERATIONS OFFICERS
Robert K. Hill
President
Universal Forest Products
Western Division, Inc.
C. Scott Greene
President
Universal Forest Products
Eastern Division, Inc.
Jeff A. Higgs
Executive Vice President
Site-Built
Universal Forest Products
Western Division, Inc.
Donald A. James
Executive Vice President
Site-Built
Universal Forest Products
Eastern Division, Inc.
Robert D. Coleman
Executive Vice President
Manufacturing
Universal Forest Products, Inc.

EXECUTIVE COMMITTEE
Peter F. Secchia
Chairman of the Board
William G. Currie
Vice Chairman of the Board and Chief Executive Officer
Michael B. Glenn
President and Chief Operating Officer
Michael R. Cole
Chief Financial Officer and Treasurer
Matthew J. Missad
Executive Vice President and Secretary

44 UNIVERSAL FOREST PRODUCTS(R)