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UNIVERSAL FOREST PRODUCTS, INC.
FINANCIAL INFORMATION

TABLE OF CONTENTS

Page
----

Selected Financial Data..................................................................... 1

Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 2-25

Report of Independent Auditors - Ernst & Young LLP.......................................... 26-27

Report of Independent Public Accountants - Arthur Andersen LLP.............................. 28

Consolidated Balance Sheets as of December 27, 2003
and December 28, 2002.................................................................. 29-30

Consolidated Statements of Earnings for the Years Ended
December 27, 2003, December 28, 2002 and December 29, 2001............................. 31

Consolidated Statements of Shareholders' Equity for the Years Ended
December 27, 2003, December 28, 2002 and December 29, 2001............................. 32-33

Consolidated Statements of Cash Flows for the Years Ended
December 27, 2003, December 28, 2002 and December 29, 2001............................. 34-35

Notes to Consolidated Financial Statements.................................................. 36-61

Price Range of Common Stock and Dividends................................................... 62

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

2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------

CONSOLIDATED STATEMENT OF EARNINGS
DATA
Net sales(1) .......................... $ 1,898,830 $ 1,639,899 $ 1,530,353 $ 1,387,130 $ 1,432,601
Gross profit(1) ....................... 257,986 230,410 211,479 187,013 178,387
Earnings before income taxes,
minority interest and equity in
earnings of investee ................ 65,792 62,115 54,300 50,375 51,537
Net earnings(3) ....................... 40,119 36,637 33,142 30,438 31,448
Diluted earnings per share(3) ......... $ 2.18 $ 1.97 $ 1.63 $ 1.49 $ 1.48
Dividends per share ................... $ 0.095 $ 0.090 $ 0.085 $ 0.080 $ 0.075
Weighted average shares
outstanding with common
stock equivalents ................... 18,379 18,619 20,377 20,477 21,186

CONSOLIDATED BALANCE SHEET DATA
Working capital(4) .................... $ 190,435 $ 185,256 $ 124,071 $ 120,321 $ 124,324
Total assets .......................... 684,757 638,874 551,209 485,320 468,638
Total debt and capital lease
obligations(2) ...................... 213,186 243,572 212,187 160,860 155,818
Shareholders' equity .................. 304,749 264,434 230,862 235,769 214,562

STATISTICS
Gross profit as a percentage of
net sales(1) ........................ 13.6% 14.1% 13.8% 13.5% 12.5%
Net earnings as a percentage of
net sales(3) ......................... 2.1% 2.2% 2.2% 2.2% 2.2%
Return on beginning equity(5) ......... 15.2% 13.7% 14.1% 14.2% 16.4%
Current ratio ......................... 2.34 2.64 2.10 2.50 2.36
Debt to equity ratio(2) ............... 0.70 0.92 0.92 0.68 0.73
Book value per common share ........... $ 17.11 $ 14.90 $ 13.04 $ 12.02 $ 10.65

(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.

(4) Current assets less current liabilities.

(5) Net earnings divided by beginning shareholders' equity (including temporary
shareholder's equity).

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

We advise you to read the issues discussed in Management's Discussion and
Analysis in conjunction with our Consolidated Financial Statements and the Notes
to the Consolidated Financial Statements included in this Annual Report for the
year ended December 27, 2003. We are pleased to present this overview of 2003,
which is discussed in three sections: the challenges we faced, the
accomplishments we made, and our view of the future.

OVERVIEW

In 2003, we faced several challenges:

- - The manufactured housing industry experienced a 23% decline in production as
a result of the tight credit conditions and repossessions which hampered the
industry since the end of 1999.

- - Inclement weather across the United States in the first quarter adversely
impacted our operating efficiencies during that period.

- - Difficult economic conditions, such as rising unemployment and declining
consumer sentiment and manufacturing activity, impacted all of our markets
for the first half of the year. The one bright spot, low interest rates,
specifically attractive mortgage rates, helped housing starts and
multi-family construction remain at historically high levels.

- - Our wood preservation plants, along with the rest of the industry, converted
from CCA to a new preservative in the third and fourth quarters of 2003,
which brought several unique challenges. For example, each of our plants
experienced production downtime in order to clean its cylinders and remove
CCA; we had to work closely with our chemical suppliers to ensure we were
able to achieve desired quality and efficiency standards; and we had to
coordinate with our customers to ensure supply requirements were achieved.
Each of these challenges required extensive management time, focus and cost.

We are pleased to say that our people managed through these challenges and
achieved another year of strong results. We remained focused on our goals and
delivered the following accomplishments:

- - Our sales to the industrial market increased 20% for the year as we continue
to obtain new accounts and develop packaging products that meet our
customers' needs.

- - We continue to increase our shipments to modular home producers, and
developed several new products for manufacturing housing producers which will
help them reduce costs.

- - We acquired interests in two framing operations and began a joint venture
with another. Some of our site-built construction customers prefer supply
arrangements which allow them to purchase a complete package of components
and framing services. Therefore, we expect to continue to investigate
opportunities which enable us to supply complete packages of components and
services to them.

- - We expanded the production capacity of the EverX(R) (composite decking)
manufacturing plant we acquired in November 2002. While we believe wood
decking will continue to hold a dominant share of the market in the future,
we also believe that composites will continue to be an important component of
this market. The EverX(R) plant provides us with the opportunity to realize
a portion of that growth.

- - Following a year in which we completed several strategic acquisitions and
large repurchases of our stock, we focused on our balance sheet, assimilating
new operations and reducing debt levels.

- - We sold several idle plants and non-operating subsidiaries in 2003, and in
January 2004 we sold the shares we had invested in Nascor Inc., one of our
subsidiaries, as we continue to stay focused on investing our resources in
areas that help us best achieve our strategic goals.

As we look ahead, we see a variety of opportunities and trends that could
benefit our position in each of our markets. We also see some familiar
challenges that, historically, we have used as springboards for growth.

- - The supply network of the industrial and site-built construction markets we
serve are very fragmented, and customers continue to consolidate,
particularly in the site-built construction market. Our history includes
successfully serving consolidating markets such as the manufactured housing
and do-it-yourself/retail ("DIY/retail") industries. As we grow our sales to
the site-built construction and industrial markets this will help us achieve
more balance and diversification which is the foundation upon which our
strategy is built.

- - In the short term, our wood preservation facilities will stay focused on
achieving the high quality and efficiency standards we must hit to maintain
our profitability and customer satisfaction. Historically, we have held a
leadership position in these areas.

- - In the long-term, there is some uncertainty whether demand for wood treated
with the new preservative, ACQ, which is expected to increase consumer costs
by 10% to 15%, will be less than it was for wood treated with CCA. We
continue to believe that demand will not be materially changed.

- - Providing framing services is a new business for us and as a result we expect
to experience a learning curve. However, this area also presents exciting
opportunities to create a competitive advantage and add value to our customer
relationships.

- - Recent signs suggest that the manufactured housing industry may have reached
a bottom and that a slight recovery is possible. For example, in early 2003,
Berkshire Hathaway acquired one of the industry's largest producers - Clayton
Homes, Inc. - which in turn recently agreed to purchase Oakwood Homes, Inc.
Oakwood is presently operating under Chapter 11 of the U.S. Bankruptcy Code.
In addition, several lenders recently announced that they will begin
providing financing to the industry.

In summary, we remain optimistic about the future of our business, markets and
strategies, and our employee-owners remain focused on adding value for our
customers, executing our strategies and meeting our goals.

RISK FACTORS

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 still suffers from difficult market
conditions, including repossessions and tight credit conditions. Significant
lenders who previously provided financing to consumers of these products and
industry participants have either restricted credit or exited the market. While
new lenders have announced intentions to enter this 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 in each of the markets we
serve. 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% of our total sales in 2003 and 2002.

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

UNIVERSAL FOREST PRODUCTS, INC.

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

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 cost to us. Several states
have proposed legislation to limit the uses of CCA treated lumber. (See Notes to
Consolidated Financial Statements, Footnote N "Commitments, Contingencies and
Guarantees.")

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, consignment inventory programs are negotiated with certain vendors
that are intended to decrease our exposure to the Lumber Market by correlating
the purchase price of the material with the related sell price to the customer.
These programs include those materials which are most susceptible to adverse
changes in the Lumber Market. 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 CONVERTED TO A NEW PRESERVATIVE TO TREAT OUR PRODUCTS IN THE THIRD AND FOURTH
QUARTERS OF 2003. The manufacturers of CCA preservative voluntarily discontinued
the registration of CCA for certain residential applications as of December 31,
2003. As a result, 21 of our 24 wood preservation facilities were converted to
an alternate preservative, ACQ, in the third and fourth quarters of 2003. The
remaining facilities were converted to either ACQ or borates during January
2004. On December 27, 2003, we had approximately $5.6 million of CCA-treated
product in inventory, which we expect to sell at reasonable margins during the
first quarter of 2004. The cost of ACQ is more than four times higher than the
cost of CCA. We coordinated with our chemical suppliers and conducted extensive
training with our plants to achieve the quality and chemical efficiency
standards necessary to maintain profitability and customer satisfaction. In
addition, we estimate the new preservative will increase the cost and sales
price of our treated products by approximately 10% to

UNIVERSAL FOREST PRODUCTS, INC.

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

15%. While we believe treated products will be reasonably priced relative to
alternative products such as composites or vinyl, consumer acceptance may be
impacted which would in turn affect our future operating results. (See Note N,
"Commitments, Contingencies and Guarantees.")

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 27, 2003, December 28, 2002 and December 29, 2001.

Random Lengths Composite
Average $/MBF
------------------------
2003 2002 2001
------ ------ ------

January.............................. $ 278 $ 297 $ 269
February............................. 295 317 285
March................................ 277 339 306
April................................ 283 323 331
May.................................. 278 312 411
June................................. 303 302 365
July................................. 302 306 325
August............................... 336 291 336
September............................ 375 279 309
October.............................. 325 274 278
November............................. 338 265 283
December............................. 327 271 277
Annual average....................... $ 310 $ 298 $ 314
Annual percentage change............. 4.0% (5.1%) (2.8%)

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.

UNIVERSAL FOREST PRODUCTS, INC.

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

SYP Composite
Average $/MBF
--------------------------------
2003 2002 2001
------ ------- ------

January.......................... $ 387 $ 410 $ 369
February......................... 394 434 393
March............................ 392 464 408
April............................ 410 457 427
May.............................. 385 408 509
June............................. 384 383 496
July............................. 374 409 426
August........................... 398 375 419
September........................ 437 361 406
October.......................... 390 357 365
November......................... 410 354 371
December......................... 401 375 371
Annual average................... $ 397 $ 399 $ 413
Annual percentage change......... (0.5%) (3.4%) (5.1%)

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,
engineering and other services we provide. As a result, our sales levels (and
working capital requirements) are impacted by the lumber costs of our products.

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

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

- - Products with fixed selling prices. These products include value-added
products such as decking and fencing sold to DIY/retail customers, as well
as trusses, wall panels and other components

UNIVERSAL FOREST PRODUCTS, INC.

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

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
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 the
following products:

- - Products that have significant inventory levels with low turnover
rates, such as treated lumber, which comprises almost twenty-five percent of
our total 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. We attempt to mitigate this
risk through certain vendor supply programs. (See "Risk Factors -
Seasonality and weather conditions could adversely affect us" section.)

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

In addition to the impact of the Lumber Market trends on gross margins, changes
in the level of the market cause fluctuations in gross margins when comparing
operating results from period to period. This is explained in the following
example, which assumes the price of lumber has increased from period one to
period two, with no changes in the trend within each period.

UNIVERSAL FOREST PRODUCTS, INC.

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

Period 1 Period 2
-------- --------

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

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

BUSINESS COMBINATIONS AND ASSET PURCHASES

We completed the following business combinations in fiscal 2003, 2002 and 2001
(see Note B to the consolidated financial statements for further details). These
business combinations were accounted for using the purchase method.

Company Name Acquisition Date Business Description
- ------------ ---------------- --------------------

D&L Framing LLC August 28, 2003 Framing operation for multi-family construction
located in Las Vegas, NV.

Norpac Construction LLC June 3, 2003 Concrete framer for residential construction
located in Las Vegas, NV.

Quality Wood Treating Co., Inc. November 4, 2002 One facility in Prairie du Chien, WI which produces
("Quality") August 26, 2003 EverX(R)composite decking. We also entered into an
exclusive treating services agreement with
Quality. On August 26, 2003, we canceled the
treating services agreement and purchased
two treating facilities in Lansing, MI and
Janesville, WI and our subsidiary agreed to
lease the real estate of a third treating
facility in White Bear Lake, MN.

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

UNIVERSAL FOREST PRODUCTS, INC.

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

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

P&R Truss Company, Inc. and P&R October 15, 2001 Facilities in Auburn, Chaffee, Hudson and Sidney, New
Truss-Sidney, Inc. (collectively York, which serve the site-built construction market.
"P&R").

Superior Truss Division of Banks June 1, 2001 One facility in Syracuse, Indiana and one in Minneota,
Corporation ("Superior"). Minnesota which serve the site-built construction market.

Sunbelt Wood Components April 3, 2001 Facilities in New London, North Carolina; Haleyville,
("Sunbelt"). Alabama; Ashburn, Georgia; and Glendale, Arizona which
serve the manufactured housing industry.

D&R Framing Contractors ("D&R") February 28, 2001 One facility in Englewood, Colorado. Framer serving the
- - Purchased 50% of the assets. site-built construction market.

RESULTS OF OPERATIONS

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

Years Ended
----------------------------------------------------
December 27, December 28, December 29,
2003 2002 2001
------------ ------------ ------------

Net sales............................................ 100.0% 100.0% 100.0%
Cost of goods sold................................... 86.4 86.0 86.2
----- ----- -----

Gross profit......................................... 13.6 14.1 13.8
Selling, general and administrative expenses......... 9.4 9.7 9.5
----- ----- -----

Earnings from operations............................. 4.2 4.4 4.3
Interest, net........................................ (0.7) (0.7) (0.8)
Gain on sale of assets............................... 0.0 0.1 0.0
----- ----- -----

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

Earnings before income taxes, minority
interest and equity in earnings of investee........ 3.5 3.8 3.5
Income taxes......................................... 1.3 1.4 1.3
----- ----- -----

Earnings before minority interest and
equity in earnings of investee..................... 2.2. 2.4 2.3
Minority interest.................................... (0.1) (0.2) (0.1)
Equity in earnings of investee....................... 0.0 0.0 0.0
----- ----- -----

Reported net earnings................................ 2.1% 2.2% 2.2%
Add: Goodwill amortization, net of tax............ 0.0 0.0 0.2
----- ----- -----
Adjusted net earnings............................. 2.1% 2.2% 2.4%
===== ===== =====

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 and industrial 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 and framing
services 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. Wood alternative products consist primarily of
composite wood and plastics. 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.

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

UNIVERSAL FOREST PRODUCTS, INC.

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

Years Ended
---------------------------------------------------------------
December 27, % December 28, % December 29,
Market Classification 2003 Change 2002 Change 2001
- --------------------- ------------ ------ ------------ ------ ------------

DIY/retail.......................... $ 900,188 18.5 $ 759,439 2.9 $ 738,218
Site-Built Construction............. 400,055 22.4 326,962 5.9 308,826
Manufactured Housing................ 285,040 (2.7) 293,070 4.6 280,208
Industrial and Other................ 313,547 20.4 260,428 28.2 203,101
----------- ------------ ------------
Total............................... $ 1,898,830 $ 1,639,899 $ 1,530,353
=========== ============ ============

Note: During 2003, 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.

% Change
-----------------------------------------------
in Sales in Selling Prices in Units
-------- ----------------- --------

2003 versus 2002....................... +16% +3% +13%
2002 versus 2001....................... +7% -2% +9%
2001 versus 2000....................... +10% -3% +13%

We estimate that our 2003 unit sales increased by 7% as a result of business
combinations, a new joint venture framing operation, and an exclusive treating
services agreement completed in the third quarter of 2002. We estimate that our
unit sales out of existing facilities increased by 6% in 2003. The increase in
selling prices was attributable to a slight increase in the Lumber Market.

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.

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 longstanding relationship with The Home
Depot, which comprised 30% of our total sales and 63% of our DIY/retail sales in
2003.

UNIVERSAL FOREST PRODUCTS, INC.

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

Net sales to the DIY/retail market increased 19% in 2003 compared to 2002,
primarily due to acquiring a plant that manufactures composite decking
(EverX(R)) and entering into an exclusive treating services agreement with
Quality. Our organic sales growth out of existing facilities was approximately
11% due to new opportunities with an existing customer and an increase in the
number of our customers' stores. In addition, we began providing installation
service for some of our products.

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.

Site-Built Construction:

Net sales to the site-built construction market increased 22% in 2003 compared
to 2002 primarily due to acquisitions completed after the third quarter of 2002,
a new joint venture framing operation, and organic sales growth spread over
several existing plants totaling approximately 14%. The ability of some of our
plants to offer framing services in addition to engineered component sales
allowed these plants to capture additional market share from existing customers,
which contributed to our organic sales growth.

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.

Manufactured Housing:

Net sales to the manufactured housing market decreased 3% in 2003 compared to
2002 primarily due to a 23% decline in industry shipments. We improved our
market share this year as a result of new product initiatives and continuing to
increase our sales to modular home producers.

Net sales to the manufactured housing market increased 5% 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.

UNIVERSAL FOREST PRODUCTS, INC.

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

Industrial and Other:

Net sales to industrial and other increased 20% in 2003 compared to 2002 due to
unit increases out of several existing facilities as a result of executing our
internal growth strategy. Additional sales personnel, training and equipment has
been dedicated to this market.

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.

Value-Added and Commodity-Based Sales:

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

Value-Added Commodity-Based
----------- ---------------

2003 .................................... 51.1% 48.9%
2002 .................................... 50.8% 49.2%
2001 .................................... 48.4% 51.6%

The increase in our ratio of value-added sales to total sales in 2003 compared
to 2002 was primarily due to a 17% increase in value-added sales while
commodity-based sales increased by 15%. Value-added sales increased primarily
due to increased unit sales of trusses sold to the site-built market, new
framing operations, EverX (R) composite decking and specialty products supplied
to the DIY/retail market. Commodity-based sales increased due to increased unit
sales of plywood and the exclusive treating services agreement completed in the
third quarter of 2002.

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, industrial
products and other specialty products supplied to the DIY/retail market.

UNIVERSAL FOREST PRODUCTS, INC.

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

COST OF GOODS SOLD AND GROSS PROFIT

Gross profit as a percentage of net sales decreased in 2003 compared to 2002.
Generally, a higher Lumber Market results in a decrease in our gross margin.
(See "Impact of the Lumber Market on our Operating Results.") We attempt to
price certain products to earn a fixed profit per unit, so, in a period of
higher lumber prices, our gross margin will decline. Therefore, a more
meaningful analysis of profitability is a comparison of the change in gross
profit dollars compared to our change in units shipped. Our gross profit dollars
increased by almost 12%, while units shipped increased by 13%. We believe this
slight shortfall in gross profit dollars was due in part to operating
inefficiencies resulting from inclement first quarter weather and the conversion
to ACQ.

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, inventory programs maintained with certain vendors.
As previously discussed, a declining trend in lumber prices adversely impacts
margins on products whose selling prices are indexed to the Lumber Market.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ("SG&A") as a percentage of net
sales decreased to 9.4% in 2003 compared to 9.7% in 2002, primarily due to the
impact of the Lumber Market on our selling prices. Our 12.4% increase in SG&A
for the year was slightly lower than our 13% increase in units shipped. The
dollar increase in SG&A was primarily due to acquisitions and new operations,
combined with higher compensation costs resulting from greater head count to
support growth in our business, an increase in health care and legal costs, and
higher incentive compensation tied to growth in profits and return on
investment. These increases were offset somewhat by a decline in bad debt
expense as our trend of accounts receivable write-offs improved.

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

UNIVERSAL FOREST PRODUCTS, INC.

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

longer amortized, however tests for impairment are performed annually and if a
triggering event occurs.

INTEREST, NET

Net interest costs were higher in 2003 compared to 2002. The increase was due to
an average debt balance that was $13.6 million higher in 2003, combined with an
increase in our average borrowing rates as a result of issuing $55 million of
long-term unsecured notes payable in December 2002. The proceeds from the note
issuance were used to reduce amounts outstanding under our revolving credit
facility which bears interest at a lower rate.

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.

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.

While our effective tax rate was 37.0% in 2003 and 2002 we experienced the
following fluctuations between the periods:

- - Our state and local effective tax rate decreased in 2003 as a result of state
income tax credits received.

- - A reduction in the earnings of certain minority owned entities we
consolidate.

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

UNIVERSAL FOREST PRODUCTS, INC.

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

the effect of no longer amortizing goodwill, which resulted in a permanent tax
difference in 2001.

OFF-BALANCE SHEET TRANSACTIONS AND CONTRACTUAL OBLIGATIONS

We have no significant off-balance sheet transactions other than operating
leases. The following table summarizes our contractual obligations as of
December 27, 2003 (in thousands).

Payments Due by Period
----------------------------------------------------
Less than 1 - 3 3 - 5 After
Contractual Obligation............................. 1 Year Years Years 5 Years Total
--------- ------- ------- ------- --------

Long-term debt..................................... $ 6,411 $49,642 $81,478 $73,929 $211,460
Operating leases................................... 9,931 .11,885 3,097 267 25,180
Capital project purchase obligations............... 2,755 2,755
--------- ------- ------- ------- --------
Total.............................................. $ 19,097 $61,527 $84,575 $74,196 $239,395
========= ======= ======= ======= ========

As of December 27, 2003, we also had $31.4 million in outstanding letters of
credit issued during the normal course of business, as required by some vendor
contracts.

LIQUIDITY AND CAPITAL RESOURCES

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

2003 2002 2001
-------- --------- ---------

Cash from operating activities......................... 70,375 $ 20,796 $ 78,056
Cash from investing activities......................... (31,412) (48,435) (68,494)
Cash from financing activities......................... (39,067) 22,286 10,933
-------- --------- ---------
Net change in cash and cash equivalents................ (104) (5,353) 20,495
Cash and cash equivalents, beginning of year........... 17,534 22,887 2,392
-------- -------- ---------
Cash and cash equivalents, end of year................. $ 17,430 $ 17,534 $ 22,887
======== ========= =========

In general, we financed our growth in the past through a combination of
operating cash flows, our revolving credit facility, industrial development
bonds (when circumstances permit), and issuance of long-term notes payable at
times when interest rates are favorable. In the past we have not issued equity
to finance growth except in the case of a large acquisition. We manage our
capital structure by attempting to maintain a targeted ratio of debt to equity
and debt to operating cash flow. We

UNIVERSAL FOREST PRODUCTS, INC.

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

believe this is one of the many important factors to maintaining a strong credit
profile, which in turn helps ensure timely access to capital when needed.

Our business is highly seasonal in nature and our investment in working capital
is at its highest levels from March until August of each year in preparation for
and during our primary selling season. As a result, we generally report negative
or modest cash flows from operations in our first and second quarters. During
these periods, we use our revolving credit facility to finance working capital
requirements. In fact, at our seasonal peak we may consume up to $100 million of
our availability under the credit facility. Conversely, from September through
February, our slower sales periods, our working capital levels decline resulting
in substantial operating cash flows, a portion of which is used to prepay
outstanding amounts under the credit facility. Our business is highly working
capital-intensive, therefore, one of the keys to reporting strong returns and
operating cash flows lies in careful management of receivables, inventory and
accounts payable. As a result of the seasonality of our business and the
temporary effects changes in the Lumber Market can have on our operating cash
flows, we believe our cash cycle (days sales outstanding plus days supply of
inventory less days payables outstanding) is a good indicator of how well we are
managing our working capital.

Our cash cycle was 47 days (without the sale of receivables program) in 2003 and
47 days in 2002. Our days supply of inventory and accounts receivable cycle
increased slightly in 2003, but was offset by an extension in our payables
cycle.

Cash flows from operating activities increased by almost $50 million in 2003
compared to 2002 for the following reasons:

- - We sold the extra inventory we carried at the end of 2002 and throughout the
first quarter of 2003 resulting from opportunistic buying and poor weather.

- - We extended our payables cycle by negotiating better terms with our vendors.

- - Our accrued liabilities increased due to accrued compensation costs tied to
headcount and incentives.

- - During the third quarter of 2003, we implemented a new program whereby we
sold certain accounts receivable for cash. The proceeds from this sale were
used to reduce borrowings on our revolving credit facility. Benefits of this
program include a lower net cost than our revolving credit facility, an
increase in our available debt capacity, and further diversification of our
funding sources. (See Notes to Consolidated Financial Statements, Footnote G,
"Sale of Accounts Receivable.")

UNIVERSAL FOREST PRODUCTS, INC.

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

The positive factors listed above were offset somewhat by an increase in our
accounts receivable as a result of strong December sales in 2003.

Cash used for investing activities declined by $17 million in 2003 compared to
2002, as we curtailed acquisition activities in order to focus on assimilating
businesses acquired in 2002 and to reduce our debt levels. Our capital
expenditures totaled almost $41 million in 2003, compared to $31 million in
2002. In 2003, we increased our spending on expansionary projects and purchased
two treating facilities and the equipment of a third facility from Quality. In
addition, we were able to sell several idle facilities and an airplane in 2003
for proceeds totaling approximately $6.2 million.

Our cash flows used in financing activities was over $39 million in 2003
primarily as a result of repaying obligations on our revolving credit facility
and notes payable. In addition, our financing activities included approximately
$2 million spent to repurchase our common stock. We have authorization from the
Board of Directors to purchase an additional 1.5 million shares.

On December 27, 2003, we had $27 million outstanding on our $200 million
revolving credit facility. The revolving credit facility supports letters of
credit totaling approximately $29 million on December 27, 2003. Financial
covenants on our revolving credit facilities and senior unsecured notes include
a minimum net worth requirement, a minimum interest coverage test, a minimum
fixed charge coverage test 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 our requirements at December 27,
2003.

ENVIRONMENTAL CONSIDERATIONS AND REGULATIONS

See Notes to Consolidated Financial Statements Footnote N, "Commitments,
Contingencies and Guarantees."

CRITICAL ACCOUNTING POLICIES

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

UNIVERSAL FOREST PRODUCTS, INC.

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

ACCOUNTS RECEIVABLE ALLOWANCES

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

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 as of December 27, 2003. Our accounting
policies with respect to the reserves are as follows:

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

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

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

PERCENTAGE OF COMPLETION

Earnings on construction contracts are reflected in operations by the
percentage-of-completion method, measured by the relationships of actual costs
incurred related to the total estimated costs. Revisions in earnings estimates
on construction contracts are recorded in the accounting period in which the
basis for such revisions becomes known. Projected losses on individual contracts
are charged to operations in their entirety when such losses become apparent.

UNIVERSAL FOREST PRODUCTS, INC.

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

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.

"BUILDING IT FORWARD 2007"

In 2002, we announced our goals for growth and diversification entitled
"Building it Forward 2007." The goals call for us to:

- - Grow our sales by $1 billion while continuing to diversify our markets,
particularly by growing our industrial and site-built markets.

- - Improve our cash cycle by 10%.

- - Earn a return on capital exceeding our cost of capital.

We believe that we must complete several business acquisitions in order to
achieve these goals and expect that acquisitions may comprise up to 50% of our
targeted growth.

In line with the goals for growth stated above, we have targeted sales and net
earnings growth of 10% to 14% for 2004.

UNIVERSAL FOREST PRODUCTS, INC.

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

DIY/RETAIL MARKET

The Home Improvement Research Institute forecasts an increase in retail sales
from home centers and building supply outlets totaling 4% in 2004. 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.

Notwithstanding the information above, our long-term growth objectives may be
impacted by the industry's recent conversion to a new chemical used to preserve
wood products. The registered manufacturers of CCA agreed to voluntarily limit
the future residential uses of CCA treated wood products as of December 31,
2003. CCA treated products are still permitted for a variety of industrial and
non-residential applications.

The cost of ACQ is more than four times higher than CCA. We coordinated with our
chemical suppliers and conducted extensive training with our plants to achieve
the quality and chemical efficiency standards necessary to maintain
profitability and customer satisfaction. In addition, we estimate the new
preservative will increase the cost and sales price of our treated products by
approximately 10% to 15%. While we believe treated products will be reasonably
priced relative to alternative products such as composites or vinyl, consumer
acceptance may be impacted which would in turn affect our future operating
results. (See Note N, "Commitments, Contingencies and Guarantees.")

SITE-BUILT CONSTRUCTION MARKET

As a result of improving economic factors, and the current low interest rate
environment, we expect the site-built construction market to be stable in 2004.
However, we believe we will obtain additional market share in 2004 as a result
of planned expansion into new geographic markets, including new plants in
Tecate, Mexico; Berlin, NJ; Houston and Dallas, TX; and Indianapolis, IN.

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. In addition, we believe the trend whereby customers prefer to
purchase a combination of components

UNIVERSAL FOREST PRODUCTS, INC.

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

and framing services will continue. Therefore, our acquisition strategy includes
targeted markets for framing operations.

MANUFACTURED HOUSING MARKET

As a result of a continuation of tight credit conditions and repossessions, but
improving economic factors, we expect a small increase in industry shipments to
retailers. We believe we will maintain our current market share of trusses
produced for Housing and Urban Development ("HUD") code homes and plan to
continue efforts to gain share from new products and sales to 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 is intended to improve margins. 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% to 15%. (See Note
N, "Commitments, Contingencies and Guarantees.") On a short-term

UNIVERSAL FOREST PRODUCTS, INC.

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

basis, margins may be impacted by our ability to achieve desired chemical
efficiencies. The cost of the new chemical is more than four times higher
than CCA.

- - 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 $38 million on capital expenditures in
2004 and incur depreciation and amortization of approximately $29 million.
Besides "maintenance" capital expenditures totaling approximately $27 million,
we plan to spend an additional $11 million to expand the business and create
operating efficiencies. On December 27, 2003, we had outstanding purchase
commitments on capital projects of approximately $2.8 million.

We have no present intention to change our dividend policy, which is currently
$0.050 per share paid semi-annually.

Our Board of Directors has approved a share repurchase program under which we
have authorization to buy back approximately 1.5 million shares as of December
27, 2003. In the past, we have repurchased shares in order to offset the effect
of issuances resulting from our employee benefit plans and at times when our
stock price falls to a pre-determined level.

We are obligated to pay amounts due on long-term debt totaling approximately
$6.4 million in 2004. In addition, we expect to refinance our revolving credit
facility by the end of 2004.

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 $100 million of this availability
through June of 2004 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, INC.

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

SALE OF NASCOR

In January 2004, we sold our 60% ownership in Nascor, a Calgary, Alberta-based
manufacturer of engineered building products and licensor of I-joist
manufacturing technology. The total sales price was $6 million (Canadian) and we
expect to record an after-tax accounting loss from the sale of our Nascor shares
of approximately $443,000 in the first quarter of 2004.

Report of Independent Auditors

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

We have audited the accompanying consolidated balance sheets of Universal Forest
Products, Inc. and subsidiaries as of December 27, 2003 and December 28, 2002,
and the related consolidated statements of earnings, shareholders' equity and
cash flows for each of the two years in the period ended December 27, 2003.
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 audits. the consolidated 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 audits 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 audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Universal Forest
Products, Inc. and subsidiaries at December 27, 2003 and December 28, 2002, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 27, 2003, 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 consolidated
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 consolidated 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 consolidated 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.

Grand Rapids, Michigan
January 27, 2004

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.

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 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.

Grand Rapids, Michigan
January 25, 2002

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

December 27, December 28,
Note 2003 2002
---- ------------ ------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 17,430 $ 17,534
Restricted cash equivalents ........................................ 1,383
Accounts receivable (net of allowances
of $1,891 and $2,427)............................................. G 137,660 105,217
Inventories:
Raw materials..................................................... 83,064 83,557
Finished goods.................................................... 86,497 82,449
------------ ------------
169,561 166,006
Other current assets................................................ G 2,540 2,041
Prepaid income taxes................................................ M 3,290 5,075
Deferred income taxes............................................... M 1,832 921
------------ ------------
TOTAL CURRENT ASSETS................................................ 332,313 298,177

OTHER ASSETS........................................................... F, K 6,421 6,738
GOODWILL............................................................... B, C 125,028 126,299
NON-COMPETE AND LICENSING AGREEMENTS
(net of accumulated amortization of $4,003 and $2,463).............. B, C 6,791 4,516

PROPERTY, PLANT AND EQUIPMENT:
Land and improvements............................................... E 51,942 47,102
Buildings and improvements.......................................... E 120,001 113,316
Machinery, equipment and office furniture........................... E 177,525 157,004
Construction in progress............................................ 11,900 11,077
------------ ------------
361,368 328,499
Less accumulated depreciation and amortization...................... E (147,164) (125,355)
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET................................ 214,204 203,144
------------ ------------
TOTAL ASSETS........................................................... $ 684,757 $ 638,874
============ ============

CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except share data)

December 27, December 28,
Note 2003 2002
---- ------------ ------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Short-term debt..................................................... D $ 1,726 $ 1,758
Accounts payable.................................................... 81,687 57,515
Accrued liabilities:
Compensation and benefits......................................... L 47,150 40,690
Other............................................................. H 4,904 6,463
Current portion of long-term debt and
capital lease obligations......................................... D, E 6,411 6,495
------------ ------------
TOTAL CURRENT LIABILITIES......................................... 141,878 112,921

LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion................................... D, E 205,049 235,319
DEFERRED INCOME TAXES.................................................. M 15,984 13,328
MINORITY INTEREST...................................................... 7,780 7,040
OTHER LIABILITIES...................................................... C,F,N 9,317 5,832
------------ ------------
TOTAL LIABILITIES ................................................ 380,008 374,440

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, 17,813,564
and 17,741,982.................................................... H, I,J 17,814 17,742
Additional paid-in capital.......................................... H, J 85,189 82,139
Deferred stock compensation......................................... F,H 1,477 1,434
Retained earnings................................................... 200,745 164,221
Accumulated other comprehensive earnings............................ 1,396 299
------------ ------------
306,621 265,835
Employee stock notes receivable..................................... J (1,872) (1,401)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ....................................... 304,749 264,434
------------ ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 684,757 $ 638,874
============ ============

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)

Year Ended
--------------------------------------------
December 27, December 28, December 29,
Note 2003 2002 2001
--------- ------------ ------------ ------------

NET SALES................................................. $ 1,898,830 $ 1,639,899 $ 1,530,353

COST OF GOODS SOLD........................................ E, L. 1,640,844 1,409,489 1,318,874
------------ ------------ ------------

GROSS PROFIT.............................................. 257,986 230,410 211,479
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES................................ C,E,H,K,L 177,970 158,299 145,722
------------ ------------ ------------

EARNINGS FROM OPERATIONS.................................. 80,016 72,111 65,757

OTHER EXPENSE (INCOME):
Interest expense....................................... D 14,443 11,375 12,043
Interest income........................................ J (219) (297) (586)
Gain on sale of assets................................. (1,082)
------------ ------------ ------------
14,224 9,996 11,457
------------ ------------ ------------

EARNINGS BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY IN
EARNINGS OF INVESTEE................................... 65,792 62,115 54,300

INCOME TAXES.............................................. M 24,325 22,983 19,612
------------ ------------ ------------

EARNINGS BEFORE MINORITY INTEREST
AND EQUITY IN EARNINGS OF INVESTEE..................... 41,467 39,132 34,688

MINORITY INTEREST......................................... (1,348) (2,495) (1,792)

EQUITY IN EARNINGS OF INVESTEE............................ 246
------------ ------------ ------------

REPORTED NET EARNINGS..................................... 40,119 36,637 33,142
ADD: Goodwill amortization, net of tax................ 2,997
------------ ------------ ------------
ADJUSTED NET EARNINGS..................................... $ 40,119 $ 36,637 $ 36,139
============ ============ ============

REPORTED EARNINGS PER SHARE - BASIC....................... $ 2.26 $ 2.04 $ 1.68
ADD: Goodwill amortization, net of tax................. 0.15
------------ ------------ ------------
ADJUSTED EARNINGS PER SHARE - BASIC.................... $ 2.26 $ 2.04 $ 1.83
============ ============ ============

REPORTED EARNINGS PER SHARE - DILUTED..................... $ 2.18 $ 1.97 $ 1.63
ADD: Goodwill amortization, net of tax................. 0.15
------------ ------------ ------------
ADJUSTED EARNINGS PER SHARE - DILUTED.................. $ 2.18 $ 1.97 $ 1.77
============ ============ ============

WEIGHTED AVERAGE SHARES
OUTSTANDING............................................ 17,761 17,922 19,774

WEIGHTED AVERAGE SHARES OUTSTANDING
WITH COMMON STOCK EQUIVALENTS.......................... 18,379 18,619 20,377

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)

Additional Deferred
Common Paid-In Stock Retained
Stock Capital Compensation Earnings
------- ---------- ------------ --------

BALANCE AT DECEMBER 30, 2000.................. $19,719 $ 79,800 $ 1,134 $136,645

Comprehensive earnings:
Net earnings............................... 33,142
Foreign currency translation adjustment
Total comprehensive earnings...............
Cash dividends - $.085 per share.............. (1,683)
Issuance of 164,764 shares under
employee stock plans........................ 165 705
Issuance of 13,464 shares under stock
grant programs.............................. 13 173
Repurchase of 109,482 shares.................. (109) (1,427)
Tax benefits from non-qualified stock
options exercised........................... 316
Deferred stock compensation................... 120
Transfer to temporary equity.................. (2,000) (34,000)
Payments received on officers' stock
notes receivable............................
------- ---------- ------------ --------
BALANCE AT DECEMBER 29, 2001.................. $17,788 $ 80,994 $ 1,254 $132,677

Comprehensive earnings:
Net earnings............................... 36,637
Foreign currency translation adjustment
Total comprehensive earnings...............
Cash dividends - $.090 per share.............. (1,605)
Issuance of 133,125 shares under
employee stock plans........................ 133 710
Issuance of 7,877 shares under stock
grant programs.............................. 8 125
Repurchase of 199,435 shares.................. (199) (3,488)
Tax benefits from non-qualified stock
options exercised........................... 22
Deferred stock compensation................... 180
Issuance of officers' stock notes receivable.. 12 288
Payments received on officers' stock
notes receivable............................
------- ---------- ------------ --------
BALANCE AT DECEMBER 28, 2002.................. $17,742 $ 82,139 $ 1,434 $164,221

Accumulated
Other Employees'
Comprehensive Stock Notes
Earnings Receivable Total
------------- ----------- --------

BALANCE AT DECEMBER 30, 2000.................. $ 860 ($ 1,255) $236,903

Comprehensive earnings:
Net earnings...............................
Foreign currency translation adjustment (302)
Total comprehensive earnings............... 32,840
Cash dividends - $.085 per share.............. (1,683)
Issuance of 164,764 shares under
employee stock plans........................ 870
Issuance of 13,464 shares under stock
grant programs.............................. 186
Repurchase of 109,482 shares.................. (1,536)
Tax benefits from non-qualified stock
options exercised........................... 316
Deferred stock compensation................... 120
Transfer to temporary equity.................. (36,000)
Payments received on officers' stock
notes receivable............................ 100 100
------------- ----------- --------
BALANCE AT DECEMBER 29, 2001.................. $ 558 ($ 1,155) $232,116

Comprehensive earnings:
Net earnings...............................
Foreign currency translation adjustment (259)
Total comprehensive earnings............... 36,378
Cash dividends - $.090 per share.............. (1,605)
Issuance of 133,125 shares under
employee stock plans........................ 843
Issuance of 7,877 shares under stock
grant programs.............................. 133
Repurchase of 199,435 shares.................. (3,687)
Tax benefits from non-qualified stock
options exercised........................... 22
Deferred stock compensation................... 180
Issuance of officers' stock notes receivable.. (300) 0
Payments received on officers' stock
notes receivable............................ 54 54
------------- ----------- --------
BALANCE AT DECEMBER 28, 2002.................. $ 299 ($ 1,401) $264,434

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(In thousands, except share and per share data)

Additional Deferred
Common Paid-In Stock Retained
Stock Capital Compensation Earnings
------- ---------- ------------ --------

BALANCE AT DECEMBER 28, 2002.................. $17,742 $ 82,139 $ 1,434 $164,221

Comprehensive earnings:
Net earnings............................... 40,119
Foreign currency translation adjustment....
Total comprehensive earnings...............
Cash dividends - $.095 per share.............. (1,689)
Issuance of 89,753 shares under
employee stock plans........................ 90 1,191
Issuance of 10,153 shares under stock
grant programs.............................. 10 174
Issuance of 37,678 shares under
Deferred Compensation plan.................. 38 609
Repurchase of 123,234 shares.................. (123) (1,906)
Tax benefits from non-qualified stock
options exercised........................... 246
Deferred stock compensation................... 43
Issuance of employees' stock notes
receivable.................................. 57 830
Payments received on stock notes
receivable..................................
------- ---------- ------------ --------
BALANCE AT DECEMBER 27, 2003.................. $17,814 $ 85,189 $ 1,477 $200,745
======= ========= ============ ========

Accumulated
Other Employees'
Comprehensive Stock Notes
Earnings Receivable Total
------------- ----------- --------

BALANCE AT DECEMBER 28, 2002.................. $ 299 ($ 1,401) $264,434

Comprehensive earnings:
Net earnings...............................
Foreign currency translation adjustment.... 1,097
Total comprehensive earnings............... 41,216
Cash dividends - $.095 per share.............. (1,689)
Issuance of 89,753 shares under
employee stock plans........................ 1,281
Issuance of 10,153 shares under stock
grant programs.............................. 184
Issuance of 37,678 shares under
Deferred Compensation plan.................. 647
Repurchase of 123,234 shares.................. (2,029)
Tax benefits from non-qualified stock
options exercised........................... 246
Deferred stock compensation................... 43
Issuance of employees' stock notes
receivable.................................. (887) 0
Payments received on stock notes
receivable.................................. 416 416
------------- ----------- --------
BALANCE AT DECEMBER 27, 2003.................. $ 1,396 ($ 1,872) $304,749
============= =========== ========

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Year Ended
----------------------------------------------------
December 27, December 28, December 29,
Note 2003 2002 2001
---- -------- -------- ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ....................................... $ 40,119 $ 36,637 $ 33,142
Adjustments to reconcile net earnings to net
cash from operating activities:
Depreciation ..................................... E 25,638 23,371 20,101
Amortization of intangibles ...................... B, C 1,909 1,152 4,375
Deferred income taxes ............................ M 1,746 3,102 4,587
Minority interest ................................ 1,348 2,495 1,792
Net loss on sale or impairment of property,
plant and equipment ........................... 1,050 702 1,445
Changes in:
Accounts receivable ............................ (41,233) (16,489) (11,753)
Accounts receivable under sale and
servicing agreement .......................... G 9,159
Inventories .................................... (3,555) (40,780) 10,051
Accounts payable ............................... 23,476 9,638 9,891
Accrued liabilities and other .................. 10,718 968 4,425
-------- -------- --------
NET CASH FROM OPERATING ACTIVITIES ........... 70,375 20,796 78,056

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment .......... (40,578) (31,295) (22,748)
Purchase of licensing agreements ................... (150) (2,000)
Acquisitions, net of cash received ................. B (787) (17,540) (49,534)
Proceeds from sale of property, plant and
equipment ....................................... 6,221 2,862 2,497
Advances on notes receivable ....................... (886)
Collection of notes receivable ..................... 461 965 945
Restricted cash equivalents ........................ 1,383 (1,383) 1,364
Other assets, net .................................. 2,038 (44) (132)
-------- -------- --------
NET CASH FROM INVESTING ACTIVITIES ............. (31,412) (48,435) (68,494)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments)/borrowings of short-term debt
and revolving credit facilities .................. D (29,657) 13,862 23,129
Proceeds from issuance of long-term debt ........... D 58,700 2,500
Repayment of long-term debt ........................ D (6,140) (8,482) (10,697)
Proceeds from issuance of common stock ............. H, I 1,281 843 870
Distributions to minority shareholder .............. (833) (1,345) (1,650)
Dividends paid to shareholders ..................... (1,689) (1,605) (1,683)
Repurchase of common stock ......................... H (2,029) (39,687) (1,536)
-------- -------- --------
NET CASH FROM FINANCING ACTIVITIES ............. (39,067) 22,286 10,933
-------- -------- --------

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)

Years Ended
-------------------------------------------------
December 27, December 28, December 29,
2003 2002 2001
------------ ------------ ------------

NET CHANGE IN CASH AND CASH
EQUIVALENTS................................... (104) (5,353) 20,495
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR ............................ 17,534 22,887 2,392
----------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR................................... $ 17,430 $ 17,534 $ 22,887
=========== ========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest ................................... D $ 14,505 $ 11,388 $ 12,303
Income taxes ............................... M 19,829 22,827 14,911

NON-CASH OPERATING ACTIVITIES:
Non-compete agreements with Chairman of the
Board in exchange for future payments ...... C 856

NON-CASH INVESTING ACTIVITIES:
Property, plant and equipment acquired
through capital leases...................... E 2,110 247
Stock acquired through employees' stock
notes receivable ........................... J 887 300

NON-CASH FINANCING ACTIVITIES:
Note payable exchanged for non-compete ....... B 2,069
Common stock issued under deferred
compensation plan .......................... F 647

See notes to consolidated financial statements.

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 and industrial and other markets. Our principal
products include preservative-treated wood, remanufactured lumber,
lattice, fence panels, deck components, specialty packaging, engineered
trusses, wall panels 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.
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 in 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 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 2003, 2002 and 2001
relate to the fiscal years ended December 27, 2003, December 28, 2002
and December 29, 2001, respectively. Fiscal years 2003, 2002 and 2001
were comprised of 52 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 27, 2003. 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. Cash
equivalents totaled approximately $9.6 million and $3.9 million as of
December 27, 2003 and December 28, 2002, respectively.

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
$30.5 million and $23.9 million as of December 27, 2003 and December
28, 2002, 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 was
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. Discounts are offered as an incentive for early payment.

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:

Buildings and improvements.............................. 15 to 31.5 years
Land improvements....................................... 5 to 15 years
Machinery, equipment and office furniture............... 3 to 10 years

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.
The net gain in translation adjustments was $1.1 million for the year
ended December 27, 2003. The net loss in translation adjustments was
$0.3 million for the years ended December 28, 2002 and December 29,
2001.

SELF-INSURANCE RESERVES

We are significantly self-insured for certain employee health benefits,
and have self-funded retentions for general liability, automobile
liability and workers' compensation. We are fully self-insured for
environmental liabilities. The general liability, automobile liability,
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 as of December
27, 2003. Through the captive we are responsible for general liability
up to $2 million per occurrence and $4 million in aggregate; for
automobile liability up to $1 million per occurrence; and for workers'
compensation up to $1 million per accident or disease. We have
purchased excess liability over our general liability, automobile
liability and workers' compensation employer's liability up to $100
million per occurrence and in aggregate. 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 cost trends 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. 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.

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.

Earnings on construction contracts are reflected in operations by the
percentage-of-completion method, measured by the relationships of
actual costs incurred related to the total estimated costs. Revisions
in earnings estimates on construction contracts are recorded in the
accounting period in which the basis for such revisions becomes known.
Projected losses on individual contracts are charged to operations in
their entirety when such losses become apparent.

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.

The following table presents the activity in our accounts receivable
allowances (in thousands):

Balance Additions Uncollectible Recovery Balance
at Charged to Accounts of Amounts at End
Beginning Costs and Written Previously of
of Period Expenses Off (Net)(1) Written Off Period.
--------- ---------- ------------- ----------- -------

Year ended December 27, 2003:
Allowance for possible losses
on accounts receivable $ 2,427 $ 17,817 ($18,694) $ 341 $ 1,891

Year ended December 28, 2002:
Allowance for possible losses
on accounts receivable 1,803 17,500 (16,981) 105 2,427

Year ended December 29, 2001:
Allowance for possible losses
on accounts receivable 1,340 15,298 (15,286) 451 1,803

(1) Includes effects of foreign currency translation.

We record estimated sales returns, discounts and other applicable
adjustments as a reduction of net sales in the same period revenue is
recognized.

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):

2003 2002
----------------------------- ----------------------------
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............. $40,119 $36,637 $ 33,142

EPS - BASIC
Income available
to common
stockholders........... 40,119 17,761 $2.26 36,637 17,922 $2.04 33,142 19,774 $1.68
===== ===== =====

EFFECT OF DILUTIVE
SECURITIES
Options.................. 618 697 603
------ ------ ------
EPS - DILUTED
Income available
to common
stockholders
and assumed
options exercised...... $40,119 18,379 $2.18 $36,637 18,619 $1.97 $ 33,142 20,377 $1.63
======= ====== ===== ======= ====== ===== ======== ====== =====

Options to purchase 295,000 shares of common stock at exercise prices
ranging from $22.88 to $36.01 were outstanding as of December 27, 2003,
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 749,771 shares of common stock at exercise prices
ranging from $21.84 to $36.01 were outstanding as of 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.

Options to purchase 399,548 shares of common stock at exercise prices
ranging from $19.75 to $36.01 were outstanding as of 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.

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 2003, 2002 and 2001 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):

2003 2002 2001
---- ---- ----

Net Earnings:
As Reported .................. $ 40,119 $ 36,637 $ 33,142
Deduct: Compensation expense -
fair value method .......... (1,743) (1,571) (1,371)
---------- ---------- ----------
Pro Forma .................... $ 38,376 $ 35,066 $ 31,771
========== ========== ==========

EPS - Basic:
As Reported .................. $ 2.26 $ 2.04 $ 1.68
Pro Forma .................... $ 2.16 $ 1.96 $ 1.61

EPS - Diluted:
As Reported .................. $ 2.18 $ 1.97 $ 1.63
Pro Forma .................... $ 2.13 $ 1.93 $ 1.56

The fair value of each option granted in 2003, 2002 and 2001 is estimated
on the date of the grant using the Black-Scholes option pricing model
with the following weighted average assumptions.

2003 2002 2001
---- ---- ----

Risk Free Interest Rate................. 4.6% 4.6% 4.6%
Expected Life........................... 6.5 years 5.0 years 4.5 years
Expected Volatility..................... 28.25% 27.52% 26.62%
Expected Dividend Yield................. 0.40% 0.40% 0.40%

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 2002 and 2001
consolidated financial statements to conform to the classifications used
in 2003.

RECENTLY ISSUED ACCOUNTING STANDARDS

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 modifies the definition of "liabilities" in SFAS No.
6, "Elements of Financial Statements," to encompass certain obligations
that a reporting entity can or must settle by issuing its own common
shares. The Statement affects accounting for three types of freestanding
financial instruments, (i) mandatorily redeemable shares which an issuing
company is obligated to buy back in exchange for cash or other assets,
(ii) put options or forward purchase contracts that do or may require the
issuer to buy back some of its shares in exchange for cash or other
assets, and (iii) obligations that can be settled with shares, the
monetary value of which is fixed, tied solely or predominantly to a
variable such as a market index, or varies inversely with the value of
the issuee's shares. The Statement considers each of these types of
instruments as a liability, as opposed to recent practice that may have
classified the instrument as mezzanine financing or equity, and increases
disclosures for alternate settlement methods. This Statement was
effective beginning in our fiscal third quarter, and adoption of this
statement had no effect on our consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, as revised December 2003 (FIN 46(R)). This
new rule requires that companies consolidate a variable interest entity
if the company is entitled to receive a majority of the risk of loss from
the variable interest entity's activities, or is entitled to receive a
majority of the entity's residual returns, or both. We do not have any
special purpose entities, as defined, nor have we acquired a variable
interest in an entity where we are the primary beneficiary since January
31, 2003. The provisions of FIN 46(R) currently are required to be
applied as of the end of the first reporting period that ends after March
15, 2004 for the variable interest entities in which we hold a variable
interest that we acquired on or before January 31, 2003. We do not expect
that the implementation of Interpretation 46(R) will have a material
effect on our consolidated balance statements.

B. BUSINESS COMBINATIONS AND ASSET PURCHASES

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 August 28, 2003, one of our subsidiaries acquired 50% of the assets
of D&L Framing LLC, a framing operation for multi-family construction
located in Las Vegas, NV. The purchase price was approximately $0.6
million which was primarily allocated to goodwill.

On August 26, 2003, one of our subsidiaries entered into an agreement
with Quality to cancel the treating services agreement completed on
November 4, 2002 and purchase plants located in Lansing, MI and
Janesville, WI and the equipment of a plant located in White Bear Lake,
MN. The total purchase price for these assets was $5.1 million and is
included in purchases of PP&E in the consolidated statement of cash
flows. In addition, another subsidiary entered into a capital lease for
the real estate of the White Bear Lake, MN plant totaling $2.1 million.

On June 4, 2003, one of our subsidiaries acquired 75% of the assets of
Norpac Construction LLC, a concrete framer for multi-family
construction located in Las Vegas, NV. The purchase price was
approximately $0.2 million.

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, allocating $10.1 million to net assets,
$2.3 million to non-compete agreements, $0.5 million to a licensing
agreement and $1.8 million to goodwill. Quality had composite decking
net sales in fiscal 2001 totaling approximately $2 million. 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 agreed to monthly and annual minimum volumes.

On September 9, 2002, one of our subsidiaries acquired certain assets
of J.S. Building Products, Inc., ("JS") a site-built component
manufacturer in Modesto, CA. The total purchase price for the assets
was approximately $2.2 million. On October 22, 2002, we purchased the

real property from JS where the operation is located. The total
purchase price was $1.9 million. The purchase price allocates $2.9
million to net assets and $1.2 million to goodwill. JS had net sales of
approximately $5 million in 2001.

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, New York. The total purchase price was approximately $21.0
million, allocating $10.4 million to net assets acquired, $0.7 million
to identifiable intangibles (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, Indiana and Minneota, Minnesota
which serve the site-built construction market. The total purchase
price for the assets was approximately $11.0 million, allocating $8.9
million to net assets and $2.1 million to goodwill. 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 include operations in New London, North Carolina; Haleyville,
Alabama; Ashburn, Georgia; and Glendale, Arizona which serve the
manufactured housing market. The total purchase price for the assets
was approximately $7.8 million. Sunbelt had net sales in fiscal 2000
totaling approximately $63 million.

On February 28, 2001, one of our subsidiaries acquired 50% of the
assets of D&R Framing Contractors ("D&R") of Englewood, Colorado for
approximately $7.6 million, allocating $0.7 million to net assets and
$6.9 million to goodwill. D&R had net sales in fiscal 2000 totaling
approximately $44 million.

The acquisitions in 2003 and 2002 were not significant to our 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).

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

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
presented for Sunbelt. In 2001, 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 are shown
separately in 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 31, 2002, the Chairman of the Board retired as an employee
of Universal Forest Products, Inc., and we entered into a non-compete
agreement with him which provides for monthly payments of $12,500 for a
term of seven years. The present value of these payments has been
recorded in Other Liabilities.

On December 27, 2003, non-compete assets totaled $7.9 million with
accumulated amortization totaling $3.1 million, and licensing
agreements totaled $2.9 million with accumulated amortization of $0.9
million.

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 is computed principally by the straight-line method over
the estimated useful lives of the intangible assets as follows:

Non-compete agreements........... 5 to 11 years
Licensing agreements............. 5 to 20 years

Amortization expense for intangibles totaled $2.0 million for the year
ended December 27, 2003. The estimated amortization expense for
intangibles for each of the five succeeding fiscal years is as follows
(in thousands):

2004............................ $1,634
2005............................ 1,478
2006............................ 1,302
2007............................ 788
2008............................ 486
Thereafter...................... 1,103

The changes in the net carrying amount of goodwill for the year ended
December 27, 2003 are as follows (in thousands):

Balance as of December 28, 2002............................. $126,299
Final purchase price allocation of Quality and JS........... (2,810)
Goodwill acquired........................................... 550
Foreign currency translation effects and other net.......... 989
--------
Balances as of December 27, 2003............................ $125,028
========

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 was 3.7% and 2.3% in 2003 and 2002,
respectively. The amount outstanding on the revolving credit facility
is included in the long-term debt summary below.

Outstanding letters of credit extended on our behalf aggregated $31.4
million on December 27, 2003, which includes approximately $18.3
million related to industrial development revenue bonds. Letters of
credit have terms ranging from one to five years, and include an
automatic renewal clause. The letters of credit are charged an annual
interest rate of 1.25%.

Long-term debt and capital lease obligations are summarized as follows
on December 27, 2003 and December 28, 2002 (amounts in thousands):

2003 2002
-------- --------

1994 Senior unsecured notes, $5,714,000 due annually commencing May 1998 through
May 2004, interest due semi-annually at 7.15% ................................. $ 5,714 $ 11,429
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 15,000
Series 2002-A Senior Notes Tranche B, due on December 18, 2012, interest payable
semi-annually at 6.16% ........................................................ 40,000 40,000
Revolving credit facility totaling $200 million due on November 25, 2005, interest
due monthly at a floating rate (1.86% on December 27, 2003) ................... 27,058 53,383
Series 1998 Industrial Development Revenue Bonds, due on December 1, 2018, interest
payable monthly at a floating rate (1.33% on December 27, 2003) ............... 1,300 1,300
Series 1999 Industrial Development Revenue Bonds, due on July 1, 2029, interest
payable monthly at a floating rate (1.24% on December 27, 2003) ............... 2,400 2,400
Series 1999 Industrial Development Revenue Bonds, due on August 1, 2029, interest
payable monthly at a floating rate (1.12% on December 27, 2003) ............... 3,300 3,300
Series 2000 Industrial Development Revenue Bonds, due on October 1, 2020, interest
payable monthly at a floating rate (1.23% on December 27, 2003) ............... 2,700 2,700
Series 2000 Industrial Development Revenue Bonds, due on November 1, 2020, interest
payable monthly at a floating rate

(1.24% on December 27, 2003) .................................................. 2,400 2,400
Series 2001 Industrial Development Revenue Bonds, due on November 1, 2021, interest
payable monthly at a floating rate (1.24% on December 27, 2003) ............... 2,500 2,500
Series 2002 Industrial Development Revenue Bonds, due on December 1, 2022, interest
payable monthly at a floating rate (1.22% on December 27, 2003) ............... 3,700 3,700
Capital lease obligations, interest imputed at rates ranging from 7.25% to 8.00% .. 2,320 226
Other ............................................................................. 3,068 3,476
-------- --------
211,460 241,814
Less current portion .............................................................. 6,411 6,495
-------- --------
Long-term portion ................................................................. $205,049 $235,319
======== ========

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 27, 2003.

On December 27, 2003, the principal maturities of long-term debt and
capital lease obligations are as follows (in thousands):

2004 ..... $ 6,411
2005 ..... 49,100
2006 ..... 542
2007 ..... 499
2008 ..... 80,979
Thereafter 73,929
--------
$211,460
========

On December 27, 2003, the estimated fair value of our long-term debt,
including the current portion, was $215.2 million, which was $3.7
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. The
weighted-average rate on this short-term debt was 6.99% at December 27,
2003.

E. LEASES

Leased property included in the balance sheet on December 27, 2003 and
December 28, 2002 is as follows (in thousands):

2003 2002
-------- --------

Land and improvements ..................................... $ 230 $ 19
Buildings and improvements ................................ 2,061 161
Machinery and equipment ................................... 431 392
-------- --------
2,722 572
Less accumulated amortization.............................. (278) (168)
-------- --------
$ 2,444 $ 404
======== ========

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 27, 2003 are as follows (in
thousands):

Capital Operating
Leases Leases Total
------- --------- -------

2004 .................................. $ 84 $ 9,931 $10,015
2005 .................................. 97 7,138 7,235
2006 .................................. 103 4,747 4,850
2007 .................................. 55 2,304 2,359
2008 .................................. 2,709 793 3,502
Subsequent ............................ 267 267
------- --------- -------
Total minimum lease payments .......... $ 3,048 $ 25,180 $28,228
========= =======
Less imputed interest ................. (728)
-------
Present value of minimum lease payments $ 2,320
=======

Rent expense was approximately $15.4 million, $12.7 million and $11.2
million in 2003, 2002 and 2001 respectively.

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 $2.1 million and $1.9 million on December 27, 2003 and
December 28, 2002, respectively, and are included in "Other Assets."
Related liabilities totaled $4.1 million and $3.4 million on December
27, 2003 and December 28, 2002, respectively, and are included in
"Other Liabilities" and "Shareholders' Equity." 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. In 2003, 37,678 shares
were issued under this Plan, which included a distribution to a
participant and shares held in the Rabbi trust.

G. SALE OF ACCOUNTS RECEIVABLE

On September 25, 2003, we entered into an arrangement with a bank to
sell specific accounts receivable totaling $27.2 million with an Agreed
Base Value of approximately $25 million, which was received in cash.
Approximately $2.0 million was recorded as a retained interest and
approximately $168,000 was recognized as an expense. The maximum amount
of receivables which may be sold and outstanding at any point in time
under this arrangement is $33 million. The agreement with the bank has
a one year term. Each new sale may have a term ranging from one month
to a year. The September 25, 2003 transaction terminated on December
31, 2003. We will service the sold receivables as part of the
arrangement with the bank and will receive servicing fees in the amount
of .50% per annum. Our retained interest is determined based on the
fair market value of anticipated collections in excess of the Agreed
Base Value of the receivables sold. The fair market value of
anticipated collections is determined using management's best estimate
based on historical collections experience. Appropriate valuation
allowances are recorded against the retained interest. The retained
interest is reduced for subsequent collections. On December 27, 2003,
Factored Receivables and Retained Interest totaled $9.7 million and
$0.5 million, respectively.

On January 2, 2004, we sold specific accounts receivable totaling $19.4
million with an Agreed Base Value of approximately $18 million, which
was received in cash. Approximately $1.5 million was recorded as a
retained interest and approximately $110,000 was recognized as an
expense. The January 2, 2004 transaction terminates on March 31, 2004.

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 2,397 shares, 798
shares and 1,552 shares of stock under this Plan in 2003, 2002 and
2001, respectively, and recognized the market value of the shares at
the date of issuance as an expense totaling approximately $51,000,
$23,000 and $26,000 respectively.

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 2003, 2002 and 2001, 24,469 shares, 13,125 shares and
12,264 shares, respectively, were issued under this Plan for amounts
totaling approximately $417,000, $243,000 and $183,000, respectively.
The weighted-average fair value of these shares was $17.04, $18.54 and
$14.95, 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, is increased for dividends
declared and may only be distributed in kind. We have accrued, in
"Accrued Liabilities - Other," approximately $355,000 and $370,000 on
December 27, 2003 and December 28, 2002, respectively, for amounts
incurred under this Plan. In 2003, 6,156 shares were issued as part of
a distribution from the Plan for an amount totaling approximately
$98,000.

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 2003, 2002 and 2001, we
issued 1,600 shares, 1,400 shares and 1,500 shares, respectively, and
recognized the market value of the shares on the date of issuance as an
expense totaling approximately $35,000, $31,000 and $32,000,
respectively.

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 2003, 2002 and 2001, we granted stock
options for 140,000 shares, 576,769 shares and 390,597 shares,
respectively.

On April 17, 2002, under the 1999 Plan, a Conditional Share Grant
Agreement was executed which will grant the Chief Executive Officer
10,000 shares of common stock immediately upon the satisfaction of the
terms and conditions set forth in the Agreement. We have accrued in
shareholders equity approximately $41,000 and $21,000 on December 27,
2003 and December 28, 2002, respectively, for this grant.

As of December 27, 2003, a total of 3,000,558 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 2003, 2002 and 2001, we repurchased 123,234
shares, 2,199,435 shares and 109,482 shares, respectively, under these
programs. As of December 27, 2003, cumulative total authorized shares
available for repurchase is 1.5 million shares.

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 2003, 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 2000 is summarized as follows:

Shares of Weighted Weighted
Common Stock Average Average
Attributable to Exercise Price Fair Value of
Options of Options Options Granted
--------------- -------------- --------------

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
Granted 140,000 $ 17.10 $ 6.18
Exercised ( 65,284) $ 13.24
Forfeited (185,074) $ 18.73
- --------------------------------- --------------
Outstanding on December 27, 2003 1,995,516 $ 16.83
==============

Options to purchase 55,003 shares were exercisable at December 27, 2003 with a
weighted average price of $13.01. 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 December 29, 2001. The following table summarizes
information concerning options on December 27, 2003:

Weighted-Average
Number Remaining
Range of Exercise Prices Outstanding Contractual Life
- ------------------------ ------------ ----------------

$4.25 - $10.00 235,000 3.02
$10.01 - $14.00 413,530 2.70
$14.01- $18.00 490,245 3.58
$18.01 - $21.00 157,827 1.79
$21.01 - $23.00 413,914 3.88
$23.01 - $25.00 195,000 5.67
$25.01 - $36.01 90,000 8.56
------------
1,995,516
============

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. EMPLOYEES' STOCK NOTES RECEIVABLE

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

On April 30, 2003, we sold 57,232 shares of common stock to employees
in exchange for notes receivable totaling almost $900,000. Interest on
these notes is fixed at 4.8% per annum. Each loan is evidenced by a
promissory note from the participating employee and is secured by all
of the shares purchased with the loan proceeds.

All loans are recourse loans. On December 27, 2003, payments on the
notes are due as follows (in thousands):

2004........................................... $ 193
2005........................................... 62
2006........................................... 124
2007........................................... 113
2008........................................... 82
Thereafter..................................... 1,298
------
$1,872
======

K. LIFE INSURANCE

We maintain an officer's life insurance policy on the Chairman with a
death benefit of $1.3 million. The cash surrender value on this policy
on December 28, 2002 and December 29, 2001 is included in "Other
Assets." During 2003, this policy was purchased by the Chairman of the
Board for approximately $190,000, which was equal to its cash value.

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. On July 1, 2003, the plan of a
wholly-owned subsidiary merged with our plan. We made a profit sharing
contribution of approximately $384,000 and $682,000 in 2002 and 2001,
respectively. In addition, we matched 50% of employee contributions in
2003, 2002 and 2001, on a discretionary basis, totaling $2.9 million,
$2.1 million and $1.8 million in 2003, 2002 and 2001, respectively. We
made an additional discretionary match of approximately $311,000 in
2003. The basis for matching contributions may not exceed the lesser of
6% of the employee's annual compensation or $11,500.

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 and $586,000 in 2002 and 2001, respectively.

M. INCOME TAXES

Income tax provisions for the years ended December 27, 2003, December
28, 2002, and December 29, 2001 are summarized as follows (in
thousands):

2003 2002 2001
---------- --------- ----------

Currently payable:
Federal.......................... $ 19,331 $ 17,196 $ 12,801
State and local.................. 2,296 2,590 1,385
Foreign.......................... 952 (509) 421
---------- --------- ----------
22,579 19,277 14,607
Net Deferred:
Federal.......................... 2,422 1,753 4,430
State and local.................. (443) 462 447
Foreign.......................... (233) 1,491 128
---------- --------- ----------
1,746 3,706 5,005
---------- --------- ----------
$ 24,325 $ 22,983 $ 19,612
========== ========= ==========

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

2003 2002 2001
----- ----- -----

Statutory federal income tax rate... 35.0% 35.0% 35.0%
State and local taxes (net of
federal benefits)................ 1.8 3.2 2.2

Goodwill............................ 1.1
Effect of minority owned interest
in earnings of partnerships.... (0.1) (1.0) (0.9)
Other, net.......................... 0.3 (0.2) (1.3)
---- ---- ----
Effective income tax rate........... 37.0% 37.0% 36.1%
==== ==== ====

We have no present intention of remitting undistributed earnings of
certain foreign subsidiaries aggregating $6.4 million on December 27,
2003 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
$898,000 would have been required.

Temporary differences which give rise to deferred tax assets and
(liabilities) on December 27, 2003 and December 28, 2002 are as follows
(in thousands):

2003 2002
-------- --------

Employee benefits..................... $ 4,322 $ 4,369
Foreign subsidiary net operating loss. 9 64
Depreciation.......................... (14,919) (13,002)
Inventory............................. (382) (480)
Accrued expenses...................... 279 548
All other, net........................ (2,811) (3,234)
-------- --------
$(13,502) $(11,735)
Valuation allowance................... (651) (672)
-------- --------
$(14,153) $(12,407)
======== ========

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

We are 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, calculated primarily with no discount rate, have been
established to cover remediation activities at our Union City, GA;
Stockertown, PA; Elizabeth City, NC; Auburndale, FL; Schertz, TX; and
Janesville, WI 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 on December 27, 2003 and
December 28, 2002, representing the estimated costs to complete
remediation efforts.

The manufacturers of CCA preservative agreed to voluntarily discontinue
the registration of CCA for certain residential applications as of
December 31, 2003. As a result, 21 of our 24 wood preservation
facilities were converted to an alternate preservative, ACQ, in the
third and fourth quarters of 2003. The remaining facilities were
converted to either ACQ or borates during January 2004.

In November 2003, the EPA published its report on the risks associated
with the use of CCA in children's playsets. While the study observed
that the range of potential exposure to CCA increased by the continuous
use of playsets, the EPA concluded that the risks were not sufficient
to require removal or replacement of any CCA treated structures. The
EPA did refer a question on the use of sealants to a scientific
advisory panel, which has not yet issued its report.

The results of the EPA study are consistent with a prior Consumer
Products Safety Commission (CPSC) study which reached a similar
conclusion.

We have been requested by a customer to defend it from purported class
action lawsuits filed against it in Florida, Louisiana, Texas and
Illinois. The complaints do not allege personal injury or property
damage. 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.

The Florida claim was denied class action status, and is presently
under appeal. 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.

We believe the remaining claims are without merit and therefore have
not accrued for any potential loss related to the contingencies above.
However, potential liabilities of this nature are not conducive to
precise estimates. To the extent we are required to defend these
actions, we intend to do so vigorously.

In addition, on December 27, 2003, we were parties either as plaintiff
or a defendant to a number of lawsuits and claims arising through the
normal course of our business. In the opinion of management, our
consolidated financial statements will not be materially affected by
the outcome of these contingencies and claims.

On December 27, 2003, we had outstanding purchase commitments on
capital projects of approximately $2.8 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 27, 2003, we had approximately $26.6 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 $800,000.

Under our sale of accounts receivable agreement, we guarantee that
Universal Forest Products RMS, LLC, as servicer, will remit collections
on receivables sold to the bank. (See Note G.)

On December 27, 2003, we had outstanding letters of credit totaling
$31.4 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 $13.1 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 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 2003, 2002 and 2001, 30%, 30% and 33% of net sales, respectively,
were to a single customer.

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

2003 2002 2001
------------------------ ------------------------ -----------------------
Long-Lived Long-Lived Long-Lived
Tangible Tangible Tangible
Net Sales Assets Net Sales Assets Net Sales Assets
---------- ---------- ---------- ------------ ---------- -----------

United States..... $1,813,257 $ 182,514 $1,559,530 $ 181,761 $1,483,110 $ 172,407
Foreign........... 85,573 38,111 80,369 28,121 47,243 20,840
---------- ---------- ---------- ------------ ---------- -----------
Total............. $1,898,830 $220,625 $1,639,899 $ 209,882 $1,530,353 $ 193,247
========== ========== ========== ============ ========== ===========

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.

Value-Added Commodity-Based
----------- ---------------

2003....................... 51.1% 48.9%
2002....................... 50.8% 49.2%
2001....................... 48.4% 51.6%

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. Wood
alternative products consist primarily of composite wood and plastic.
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, each consisting of 13 weeks, during the years ended
December 27, 2003 and December 28, 2002 (in thousands, except per share
data):

First Second Third Fourth
-----------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002 2003 2002
-------- -------- -------- -------- -------- -------- -------- --------

Net sales.......... $355,619 $341,656 $552,463 $504,944 $536,278 $452,959 $454,470
Gross profit....... 51,804 51,277 78,742 68,623 72,563 61,665 54,877 48,845
Net earnings....... 4,500 6,082 17,162 15,354 12,204 10,644 6,252 4,557
Basic earnings
per share........ 0.25 0.33 0.97 0.86 0.69 0.60 0.35 0.26
Diluted earnings
per share........ 0.25 0.32 0.94 0.82 0.66 0.58 0.34 0.25

Q. SUBSEQUENT EVENTS

In January 2004, we sold our 60% ownership in Nascor, a Calgary,
Alberta-based manufacturer of engineered building products and licensor
of I-joist manufacturing technology. The total sales price was $6 million
(Canadian) and we expect to record an after-tax accounting loss from the
sale of our Nascor shares of approximately $443,000 in the first quarter
of 2004.

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.

Fiscal 2003 High Low Fiscal 2002 High Low
- ----------- ---- --- ----------- ---- ---

Fourth Quarter....... 31.74 24.25 Fourth Quarter 22.00 16.04
Third Quarter........ 26.10 19.98 Third Quarter 24.14 17.47
Second Quarter....... 21.50 15.41 Second Quarter 26.75 21.67
First Quarter........ 21.99 15.01 First Quarter 26.18 20.28

There were approximately 5,500 shareholders of record as of March 1, 2004.

In 2003, we paid dividends on our common stock of $.045 per share in June and
$.050 per share in December. In 2002, we paid dividends on our common stock of
$.045 per share in June and $.045 per share in December. We intend to continue
with our current dividend policy for the foreseeable future.

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
Stimson Lumber Co.

John M. Engler
President of State and Local
Government Business
EDS

John W. Garside
Chairman
Woodruff Coal Company

Gary F. Goode, CPA
Independent Consultant

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, Inc.
Western Division, Inc.

C. Scott Greene
President
Universal Forest Products, Inc.
Eastern Division, Inc.

Donald A. James
Executive Vice President
Site-Built
Universal Forest Products, Inc.
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

Shareholder Information

Annual Meeting
The annual meeting of Universal Forest Products(R), Inc. will be held at 8:30
a.m. on April 21, 2004, at the Company's corporate headquarters, 2801 East
Beltline, NE. Grand Rapids, Michigan.

Shareholder Information
Shares of the Company's stock are traded under the symbol UFPI on the NASDAQ
Stock Market. The Company's 10-K report filed with the Securities and Exchange
Commission will be provided free of charge to any shareholder upon written
request.
For more information, contact:

Investor Relations Department
Universal Forest Products(R), Inc.
2801 East Beltline, NE
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Web: www.ufpi.com

Securities Counsel
Varnum, Riddering, Schmidt & Howlett Grand Rapids, MI

Independent Accountants
Ernst & Young LLP
Grand Rapids, MI

Transfer Agent/
Shareholder's Inquiries
American Stock Transfer & Trust Company serves as the transfer agent for the
Corporation. Inquiries relating to stock transfers, changes of ownership, lost
or stolen stock certificates, changes of address and dividend payments should be
addressed to:
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, NY 10005
Telephone: (718) 921-8210
Universal Forest Products(R), Inc. Corporate Headquarters
2801 East Beltline, NE
Grand Rapids, MI 49525
Telephone: (616) 364-6161
Facsimile: (616) 361-7534

Universal Forest Products(R), Inc. and its Affiliates
Locations:
Arlington,TX
Ashburn, GA
Auburn, NY
Auburndale, FL
Belchertown, MA
Bend, OR
Berlin, NJ
Blanchester, OH
Bunn, NC

Burlington, NC
Chaffee, NY
Chandler, AZ
Chesapeake, VA
Clinton, NY
Conway, SC
Dallas, NC
Denver, CO
Durango, Durango, Mexico
Eatonton, GA
Elizabeth City, NC
Emlenton, PA
Englewood, CO
Fishersville, VA
Folkston, GA
Fontana, CA
Georgetown, DE
Gordon, PA
Grandview, TX
Granger, IN
Haleyville, AL
Hamilton, OH
Harrisonville, MO
Hope, AR
Houston, TX
Hudson, NY
Hutchinson, MN
Indianapolis, IN
Janesville, WI
Jefferson, GA
Kyle, TX
LaColle, Quebec, Canada
Lafayette, CO
Lansing, MI
Las Vegas, NV
Liberty, NC
Lodi, OH
Minneota, MN
Moultrie, GA
New London, NC
New Waverly, TX
New Windsor, MD
Ocala, FL
Ooltewah,TN
Parker, PA
Pearisburg, VA

Phoenix, AZ
Praire du Chien, WI
Ranson, WV
Riverside, CA
Saginaw, TX
Salisbury, NC
San Antonio, TX
Sanford, NC
Santee, SC
Schertz, TX
Sidney, NY
Silsbee, TX
Springfield, IL
Stockertown, PA
Stockton, CA
Tecate, MX
Thorndale, Ontario, Canada
Thornton, CA
Union City, GA
Warrens, WI
White Bear Lake, MN
Windsor, CO
Westville, IN
White Pigeon, MI
Woodburn, OR